Contributor

John Campbell

John Campbell (R-Irvine) is an Assemblyman representing the 70th District in Orange County. Mr. Campbell is the Vice-Chairman of the Assembly Budget Committee. He is the only CPA in the California State legislature and recently received a national award as Freshman Republican Legislator of the Year. He represents the cities of Newport Beach, Laguna Beach, Irvine, Costa Mesa, Tustin, Aliso Viejo, Laguna Woods and Lake Forest. He can be reached through his Assembly website and through the website for his California Senate campaign. [go to Campbell index]

Deficit Prevention Act
A real spending limit for California.
[John Campbell] 3/5/04

In 1979, voters in California overwhelmingly passed Proposition 4, which was known as the Gann Spending Limit. Paul Gann, co-author of Proposition 13 with Howard Jarvis, wrote this initiative to limit the out-of-control spending that then Gov. Brown and his Democrat-controlled Legislature wanted to do. The Gann spending limit worked pretty well through much of the 1980s.

But, as the years went on, the spending lobby in Sacramento either found loopholes in the limit or passed initiatives that changed the limit. As a result, the Gann limit has had no meaningful affect since 1990.

In the intervening years, other states have enacted spending or revenue limits to control their state's budgets. The best known of these is the Taxpayer Bill of Rights (TABOR) passed by the voters in Colorado in 1992. Because of this act, while California and other states experienced tax increases and deficits in the late 1990s, Colorado had balanced budgets and tax rebates.

It is now well known by most voters that the Davis' Democrats increased state spending between 1998 and 2002 by a factor of 37percent. During that same period, population and inflation grew by only 27percent and revenue by 22 percent. It is obvious to all now that this was an unsustainable spending splurge. This fact was either not noticed by the state's leaders at the time or they ignored it.

We have now had a historic recall of a governor largely due to his mismanagement of the state budget and other fiscal matters. We have a new governor who will not repeat the mistakes of the past and who has pledged to "not spend what we don't have." But Arnold will not be governor forever, and people's memories can fade over time. We need a new spending limit. We need a change to the state constitution so that no governor or legislature in the future can do to us what Davis and his friends did to us in the last five years.

That's why I have authored a new initiative called the "California Budget Deficit Prevention Act." This proposal is co-authored by the Howard Jarvis Taxpayer's Association and the California Taxpayer's Association. The purpose of this initiative is simple. We want to enact a "state of the art" spending limit, drawing on the successes and curing the failures of previous spending limits in this and other states, so that we can say we will never again have the deficits and the resulting economic fallout of the past five years.

So what does it do? It is really rather straightforward:

Limits Spending Growth: It limits the growth in all state spending (general fund and all so-called "special" funds) to the annual growth in state population plus the inflation rate. There are no exceptions or "loopholes" through which to run around the limit. The base year will be the year in which the initiative is enacted. This allows government spending to grow with the economy, but no more.

Rainy Day Fund: If the state has a surge in revenue, like we did during the stock market boom of 1999, any "excess" revenue above the spending limit must go into a "rainy day fund" until that reserve reaches 10 percent of total state spending. This provision requires that the state save some money in the good years, so that it is available when an economic downturn comes. During recessions, demands on state services are highest but, typically, we do not have enough revenue in those years to fund those services. This reserve could only be tapped in such an economic downturn or in the case of a major natural disaster like an earthquake. This "rainy day fund" is not much different from your automatic payroll deduction for your retirement plan. It is an external discipline that will force the Legislature and governor to do the right thing.

Debt Reduction and Limit: Half of the rainy day fund must be used to pay down any deficit bonds that are approved by the voters in March. The Deficit Prevention Act also limits total state bonded debt service to the 6 percent amount that is widely recognized as the maximum amount of debt that is fiscally prudent.

Balanced Budget Requirement: It requires the state to enact a balanced budget just like Proposition 58 does.

Tax Rebates and School Construction: If the deficit bond is paid off and the rainy day fund is filled up and there is still extra revenue, the initiative requires that half of the excess be returned to the taxpayers through a sales tax reduction and half used for pay-as-you-go school and university building construction.

Why should you be for this? The simplest reason is this: Had this initiative been in effect in 1998 or earlier, the state would be spending almost the identical amount that Gov. Schwarzenegger has proposed for next year, but without any of the intervening deficits. That means our credit rating would still be high. The disruptions to the economy would never have happened. We would not have created programs and then dismantled them.

This initiative is complementary to voter approved Propositions 57 and 58, which are the first elements of the Governor's "California Recovery Plan." Those initiatives start the process of government budget accountability and responsibility. The Deficit Prevention Act will complete that process.

So where is this initiative now? It is being reviewed by the state attorney general's office and should begin circulating for petition signatures around March 1 at a supermarket or Home Depot near you. We are working to get it on the ballot in November 2004.

It will prevent deficits in the future, keep government from growing faster than the economy, sustain needed services in recessions, and keep our budget balanced and out of excessive debt. CRO

§