On Tuesday, May 19th, voters told the Governor and legislators that they were not interested in the snake oil being sold to them

Following fifteen weeks of unproductive negotiations to reach a consensus on how to close the state’s $42 billion budget shortfall, the Governor and legislative leaders chose a package of cuts and tax increases that left them with a $21 million gap.  So, they put a package of so-called “budget reform” measure on the ballot and attempted to convince voters that the measures would fix the budget mess.

On Tuesday, May 19^th, voters told the Governor and legislators that they were not interested in the snake oil being sold to them.  After the ballot measures went down to ignominious defeat, the Governor proclaimed that voters had chosen to reduce services.  What California voters actually did was express their collective frustration with the boom and bust cycle of state budgets over the past 25 years.

It is said that it is foolish to undertake the same act multiple times and expect at some point it will result in a different outcome.  California politicians have been proving themselves fools for 26 years.

Since Proposition 13 was approved by Golden State voters in 1973, legislators, governors and others have failed to accommodate for the substantial reduction in revenues from property taxes the so-called “voter revolt” assured.  Proposition 13's passage resulted in a cap on property tax rates in the state, reducing them by an average of 57%.

In addition to lowering property taxes, the initiative also mandated a two-thirds majority in both legislative houses for future increases in tax rates or amounts of revenue collected, including income tax rates. It also imposed a practically unachievable two-thirds majority vote requirement in local elections for local governments wishing to raise special taxes.

One would hope that the outcome of May 19^th would lead to the realization that it is neither revenue nor expenditures that have resulted in 26 years of wildly fluctuating budget cycles, but the failure to adjust a structural flaw in the state’s budget process created by Prop 13.  Unfortunately, such hope might be misplaced because Prop 13 has become almost sacrosanct. 

In fact, during the 2003 California recall election in which Arnold Schwarzenegger was elected Governor, advisor Warren Buffett suggested that Proposition 13 be repealed or changed as a method of balancing the state's budget.  Schwarzenegger basically told Buffett to keep his mouth shut.  Maybe it’s time to listen to one of the world's most successful investors and one of its richest individuals.  Heck, he must know a little bit about finance.

In addition to deleterious effects on such diverse matters as the housing market, local government’s ability to maintain or increase revenues for basic services, and an arguably regressive statewide tax structure, Prop 13 is responsible for the paucity of state tax revenues that has contributed to an ongoing budget crisis that has pushed the state to near bankruptcy and deadlocked the political system.

Maybe the reason no California elected official in 26 years has been successful in adjusting the state’s structural budget process in response to the provisions of Prop 13 is that voters will not accept such a change. 

However, as of Tuesday, May 19th, the “voter revolt” of 1979 and its aftermath seem to have revolted this year’s wary voters.  Nothing short of a full scale overhaul of the state’s entire financial and budgeting structure, including Prop 13’s inequitable property tax suppression, will return any semblance of normalcy to the state’s budget process.

California's budget process does not establish explicit goals, drive performance by public agencies, or provide accountability for progress to elected officials or the public.  For example, the state's economy has grown by 6 percent annually for the past 10 years.  Consequently, state spending has increased by roughly 6 percent each year.  However, despite the economic growth, nobody in elected office has put forward a fiscal reform that would put California on more solid financial footing.  

Nobody appears to realize that the state needs a revenue system that generates sufficient funding to meet public needs, and does so in a manner that is stable and equitable.  Office holders either do not have the information or the inclination to assess the impact of increased or decreased spending, much less revenue enhancements or tax cuts.

Further, in this age of term limits, office holders have no incentive to make budget decisions that take into account the long-term benefits or consequences that will result from their fiscal choices.  There do not even appear to exist simple guidelines by which elected officials can learn the effectiveness of their revenue and spending decisions.

Following the failure of Propositions 1A through 1D last week, the Governor announced that the state had no recourse left but to increase the amount of revenue it withholds from California’s cities and counties.  There are numerous courses of action for the state to undertake before it raids local governments’ already threadbare budgets.  State leaders could start with something that almost every consumer intuitively understands – do not spend more money than there is in your bank account.