State Spending Cap Initiative: Is It for Real?

Related to the prior post is a second initiative – also one that was submitted in connection with GOP legislative negotiations with the governor – that would cap state expenditures based on a formula linked to inflation and population growth. As with the pension initiative, it is unclear whether there is funding to obtain the needed signatures.

This initiative in effect proposes to return to the Gann limit that was approved by voters in 1979 as the “son of Prop 13” that had been approved the year before. The Gann limit on state spending was largely gutted by Prop 98 of 1988, which provides funding to K-14 education, and a related later initiative. Under the new proposed initiative, the Gann limit would be lowered so that it would likely pinch as the economy recovered. From the UC perspective, therefore, the likelihood that economic recovery would provide aid to the UC budget would be reduced.

The text of the initiative is at http://ag.ca.gov/cms_attachments/initiatives/pdfs/i937_initiative_11-0006.pdf

The Legislative Analyst’s analysis of the new initiative is at http://www.lao.ca.gov/ballot/2011/110297.pdf

Below is an excerpt from that analysis:

Summary of Fiscal Effects

This measure would result in the following major fiscal effects:

* Revised spending limit likely would constrain state spending below levels that otherwise would have occurred. Also, over time the percentage of the state budget devoted to education expenses likely would increase, and the percentage devoted to most other areas likely would decrease. The measure would also likely increase the level of state resources going to the state reserves, payment of certain debts, infrastructure spending, and tax rebates.

* Possible reduction in the amount of new bond debt that could be sold to fund infrastructure projects, particularly in the short-term.