REPETITIVE CRISES, PROP 13, AND GOVERNMENT SPENDING
of the economy, an analysis of this side of the equation is more a study in political science than economics. The revenue side also has a political element: defining the structure through which revenues will be raised. But once defined, the amount of revenues is not in the direct control of the political structure. There is, of course, no clear answer as to whether or
The crisis of the late 2000s had a familiar ring to
not there is sufficient energy in California for reform.
it. Steven Hayward of the National Review called it
Only time will tell if the body politic is ready to force
California’s “once-a-decade crisis” (although there
fundamental change. But we can better understand
3
were in fact two crises in the 2000s). Citing the
what the issues are, and how they affect the prospects
budget problems of Governors Reagan, Wilson and
for future crises in Sacramento.
especially Davis, he points to the current crisis as a particular home-grown California malady. Much has been made of the spending side of the equation
REVENUES
and, indeed, California’s 2/3 majority requirement for approval of budgets, legislation by referendum,
The most important issue is on the revenue side.
and locked-in expenditures. These components of
If revenue streams grew at a known constant rate each
state budgeting create friction in the system which
year, it is unlikely that there would be the kind of
makes spending and taxation changes all the more
chaos seen during the crises of the 2000s. Such a Polly-
challenging.
anna world would not eliminate all of the problems as the executive and legislature branches of government
Robert Wassmer ’s 2006 study of the recurrent crises
would still have conflicts over their own priorities and
concluded that Proposition 13 of 1978 has made
with voter initiative priorities. And there would still
the problem one of expenditure management by
be an inconsistency between the time horizons of state
Sacramento. By sharply cutting local property taxes,
business and those of political careers. But without the
Prop 13 forced a reliance on a pro-cyclical state
wide swings in revenue engendered by the existing tax
4
revenue stream. Dan Walters of the Sacramento Bee
system, California would not have the fiscal disasters
stated “whether the state’s fiscal problem is too much
it regularly develops.
spending or too little revenue, of course, is much like beauty or art, largely dependent on the eye of the beholder.” 5 But there is more to it than just that.
EXPENDITURES
PROPOSITION 13
As noted, it is common blame fiscal swings on Prop 13. Indeed there are a number of studies of California’s fiscal problem which assume that a discrete break in
The expenditure side is a political decision. Califor-
the pattern of fiscal affairs occurred in 1978 with the
nians through their legislators, governor, and ballot
passage of Prop 13. 6 “If only property taxes could
propositions make explicit decisions on what to spend
have risen, we would have had more revenue than we
state revenues. While dictated somewhat by the health
have today,” is a common refrain. Of course, states
165