Beware of Props. 51, 55, and 56 Wreaking Havoc on CA Budget

budget-constantin-cagle-Nov.-26-2013-300x203As a professor of public budgeting and someone who has worked their entire career analyzing public budgets, I can say that ballot box budgeting wreaks havoc on the California budget process and taxpayer interests.

Yet it is something that voters are so accustomed to doing that most average voters don’t even know what “ballot box budgeting” is.

In short, ballot box budgeting is the practice of making major budget decisions at the ballot box. And unlike the normal budget process, these decisions are commonly written into the California Constitution, and not subject to change in any way short of another ballot measure.  

The result is that funds are locked in to being spent for a particular purpose regardless of other budget needs and priorities, and commonly lack the same accountability and oversight that the rest of the California budget is subject to through the legislative process.

There are three measures on the November 2016 ballot that represent ballot box budgeting at its worst, and should be rejected — Proposition 51 School Bonds, Proposition 55 School Funding and Proposition 56 Tobacco Tax Increase. There is one other measure, Proposition 64 Marijuana Legalization and Tax, which represents ballot box budgeting, but is less egregious and is worthy of consideration on its policy merits given that marijuana is not currently legal and therefore not taxed at all but should be considered on policy grounds.

The reality is that nearly all initiatives have some type of budget impact, but initiatives that allocate a significant dollar amount of public funds should generally be looked at with great skepticism, particularly those that raise taxes or reallocate existing public funds in some way.

Another common element in ballot box budgeting is a “pay to play” element, characterized by a situation where special interests sponsor a ballot measure that allocates public funds that benefit their private financial interest.   All four initiatives mentioned above have a significant “pay to play” element, that should be considered as well, and viewed with great skepticism.

In generally all such cases, initiatives are sold as being crafted in the “common good” or for the “public interest” but the real motivation is to benefit the private interests that raised the money to quality the measure and run a support campaign.

For example, Prop. 51 authorizes $9 billion in general obligation bonds for construction of K-12 public schools.  The construction of school facilities is done through a process at the local level, with state bond funds providing a state match, but this local process has come under great fire in the media recently, largely due to California Treasurer John Chiang’s efforts.

Treasurer Chiang has stopped short of criticizing Prop. 51 specifically but he has came down hard on the local municipal bond process as being a “pay to play” process that “rips-off taxpayers,” according to Treasurer Chiang’s press release.

Chiang says this “pay to play” process rewards special interests including developers, bondholders, and construction companies who offer to fund local bond campaigns in exchange for lucrative contracts, which are “no bid” contracts in many cases.

“Not only are these “pay-to-play” arrangements unlawful, they rip off taxpayers and endanger the integrity of school bonds,” Treasurer John Chiang declared, noting that between 2012-15 K-12 school districts issued $43.8 billion in long-term debt.

Without cleaning up this “corrupt” process, Prop. 51 essentially puts $9 billion in public funds at risk for misallocation by school districts and public agencies.  And will subject taxpayers to huge future costs, for spending with questionable public benefits given the process through which these bonds are issued under the current system.

Of course, the same special interests who benefit from this “pay to play” process are the primary proponents of Prop. 51, and are putting up millions of dollars to lock in these lucrative contracts for public bond spending.  A number of local districts are also proposing local bonds on the November 2016 ballot to provide a local match for these highly questionable public projects.

Prop. 55 is the example of another measure which might appear legitimate on its face because it raises money for “schools” and “health programs.”   But should also be rejected on ground of being a terrible case of “ballot box budgeting” and “pay to play” corruption of the state’s initiative process.

Prop. 55 extends the Prop. 30 (2012) income tax increases taxes on individuals and small businesses, which expire at the end of 2017, for another 12 years until 2030.  The effort is being sold as being a legitimate effort to fund schools and health care because Prop. 30 is something that the Governor, Legislature and business community agreed on back in 2012.

But Prop. 55 is not the same as the deal cut back in 2012, and should be rejected.  First, Prop. 55 is much more expensive, nearly twice as expensive as Prop. 30—and represents an $8-11 billion tax increase, as opposed to a $6.5 billion annual hit from Prop. 30.  Secondly, the measure is not “temporary,” and results in a broken promise Governor and Legislature made to voters in 2012—that’s why Governor Brown says he will not endorse Prop. 55.

Lastly, Prop. 55 adds a significant “pay to play” element as well by giving private hospital interests a piece of the action.  Specifically, Prop. 55 locks in another $2 billion in funding for “health programs,” which did not even exist in Prop. 30, and is a pure handout to the hospital interests which have already contributed more than $21 million to the Yes on Prop. 55 Campaign.

Public employee union interests get the bulk of the funds, estimated at $75 billion over 12 years, in salary and benefit spending primarily but the public generally does not view them as being the same type of “special interest” as purely private interests.  Yet, these public employee union interests have put up another $18 million thus far to support Prop. 55, and stand to reap huge rewards for their members and dues increases if Prop. 55 passes.

From a ballot box budgeting perspective, both Prop. 55 and the Prop. 56 $2 per pack tobacco tax increase are terrible budget policy because they lock in significant expenditure of public funds that will be allocated outside of the state’s annual budget process without regard to actual need or other pressing spending priorities.

Prop. 55 locks in $8-11 billion in spending with the bulk going for education, but another $2 billion going to “health care” programs—again not allocated according to need or the accountability standards under the state’s annual budget process which subjects all public spending to annual review.  Prop. 56 locks in another $1-1.4 billion in health care spending that will be allocated outside the state’s budget process.

Voters are encouraged to reject Propositions 51, 55, and 56 on grounds that they are terrible examples of “ballot box budgeting,” in which special interests put up millions of dollars, even tens of millions of dollars, to try to pass “public interest” measures with the expectation of a big payday at taxpayer expense for the years to come.

David Kersten is executive director of the Kersten Institute for Governance and Public Policy (www.kersteninsitute.org). He is an expert on fiscal issues and teaches a masters’ course on public budgeting for the University of San Francisco.

This piece was originally published by Fox and Hounds Daily

Comments

  1. The above treatment on the “pay to play” budget ballot propositions is a PRIME example on how NOT to govern a state! This boondoggle is what happens when you have single party (democrat) dictatorial rule or control! There are NEVER any alternative ideas or thoughts! This incredible budget nightmare scenario, in any logical rational legislative time can and SHOULD be debated and solved in the legislature chambers!!! That is where budget problems were SUPPOSED to be resolved!! But not anymore special interest lobbyists ( mostly hard leftwing whack jobs) control all facets of life here in the looney bin -AKA Kommifornia!! I wonder when sanity will ever return to Stinkramento? Never as long as only ONE party controls EVERYTHING and alternative and different ideas are NEVER allowed to surface or be debated! As we continue circling around the cesspool drain of history with democrats in total unrelenting death grip control!!

  2. I never vote yes on any initiative that has a dollar sign in it or the description. The stupid fools that blindly vote yes have no idea of what indebtedness they are bringing down on the heads of their offspring. Dumb bastards just keep voting for liberals and spending others funds.

  3. Wreaking Havoc?
    How could we tell when it’s already a complete disaster?

  4. Thank you for this excellent article about budget-busting ballot initiatives.
    Another budget busting proposition is Prop 66, the Death Penalty Reform initiative. The Initiative promises to speed up the death penalty and clear death row. An assessment by the Legislative Analysts’s Office says that Proposition 66 will cost the state tens of millions of dollars annually to operate. A recent report from Loyola Law Professor Paula Mitchell reviews the cost and workability of Prop 66. Prof. Mitchell reports that implementing Prop 66 will clog up county courthouses for years to come. Prop 66 requires county courts to appoint lawyers to represent death row inmates without allocating any funds to the county to pay these lawyers. For example, Riverside county has 65 capital murderers in San Quentin. Under Prop 66, those defendants and their cases would be sent back to Riverside County for postconviction trials. Riverside county taxpayers will be left holding the bag to pay these attorneys $300,000 per case at a minimum. Riverside county only has 61 judges. If each case were assigned to a single judge, every courtroom in Riverside will be occupied for months on end.
    When these cases are sent back to Riverside, the the Riverside District Attorney’s office will prosecute them. Now, without the added burden of Prop 66, the Riverside DA’s office is running $5 million in the red. Last week the Riverside County D.A., Mike Hestrin, threatened to lay off deputy district attorneys and to cut overtime pay. Should Prop 66 pass, Mr. Hestrin will have to find lawyers to prosecute 65 lengthy, complex capital appeals.
    Mr. Hestrin has urged Riverside citizens to be fiscally irresponsible and vote Yes on Prop 66, all the while knowing the extraordinary cost that Riverside County will have to bear.
    The Death Penalty has long been seen to be ineffective in California as a deterrent, as an avenue for justice for victims families. Death row inmates are more likely to die in prison than be executed. It is widely acknowledged that the death penalty costs California taxpayers $150 million per year.
    The fiscally responsible action for Riverside County and all California citizens is to repeal the death penalty. Proposition 62 will do just that. The Legislative Analysts’s Office reported that the passage of Prop 62 repealing the death penalty will save the state of California $150 million annually. All Californians, particularly those from Riverside County can benefit from these savings.
    No on Prop 66. Yes on Prop. 62.

    Nancy Haydt, California Attorneys for Criminal Justice

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