 California’s
Budget Shell Game
Prop 76 limits tax and spenders...
[by Anthony P. Archie] 8/4/05
Buried
within Proposition 76, the “Live Within Our Means” budget
reform initiative, is a provision that would prohibit the
borrowing of special fund dollars to cover General Fund shortfalls.
With this common-sense proposal, state lawmakers would no
longer be able to balance budgets by raiding funds earmarked
for infrastructure investment, a common practice here. Take,
for example, the raids on transportation funds over the past
three years.
Contributor
Anthony
P. Archie
Anthony
P. Archie is a public policy fellow in Business and
Economic Studies. Prior to joining Pacific
Research Institute, Anthony earned his masters
degree in public policy from Pepperdine University,
specializing in economics and regional/local policy.
As part of his graduate work, he co-authored Crisis
in California: Reforming Workers’ Compensation,
a proposal that drew praise from an esteemed panel
of scholars and policy advisors. Mr. Archie has held
internships on Capitol Hill and in the State Assembly.
He received his B.A. in economics and political science
from Pepperdine University. [Archie index] |
In 2002, voters approved Proposition 42, a measure requiring
the allocation of gasoline sales-tax revenue to the Transportation
Investment Fund (TIF) for highway-improvement projects. It also
contained a provision that if General Fund revenues greatly declined
in a given fiscal year, then the TIF could be partially or fully
suspended, with the moneys loaned to the General Fund for current
expenditures rather than transportation investments.
Although this provision allowed the legislature flexibility
in budget planning, it turned the TIF into a piggy bank lawmakers
could crack into for a quick score. And being one of the biggest
special funds, they have raided it often.
In 2003, the first year the gas taxes were earmarked for the
TIF, the General Fund faced an operating shortfall of more than
$11 billion. Seizing the opportunity, Gov. Gray Davis and the
legislature took $811 million of the $1.1 billion collected in
2003, leaving only $289 million for the transportation account.
While the short-term fix gave the legislature easy cash, it added
another debt obligation to future budgets since the loan had
to be paid back by 2009.
When a budget deficit again threatened in 2004,
the fund was raided again, this time under the approving eye
of Gov. Schwarzenegger.
The General Fund absorbed all of the TIF’s $1.2 billion,
a sum required to be repaid by 2008. As the string of shortfalls
continued in the 2005 budget, the governor yet again wanted to
dip into the Prop 42 money.
His January budget plan called on the state to
suspend the $1.3 billion in the TIF, but as the year progressed
and revenue forecasts
brightened, he dropped the plan. The budget bill signed last
month secured all the TIF funding for the first time and included
a repayment schedule for prior years’ loans. While this
move should be applauded, it is only a temporary reprieve.
The fiscal picture for 2006 is deficit-ridden,
with an estimated gap of $6 billion. And with the $15 billion
credit card obtained
under Proposition 57 near its limit, California can’t sell
more bonds to fill the gap. That leaves the potential for more
special-fund raids in the state’s future. But Proposition
76 can stop this fiscal maneuver.
It would forbid legislators from using special
funds as a General Fund reserve, ensuring that the TIF will
be used for transportation
projects only. Prop 76 will strengthen the Budget Stabilization
Account (BSA), the state’s “rainy day” fund.
It requires 25 percent of any excess revenues above the proposed
spending cap to be allocated to the BSA, with BSA funds used
during deficit years to smooth spending over business cycles.
Earmarked transportation funds should be used
to fix roads, not to pay for current expenditures. It’s time to stop
the raids and shut down California’s budget shell game.CRO
copyright
2005 Pacific Research Institute
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