The Daily News of Los Angeles
January 10, 2003 Friday, Valley Edition
HEADLINE: WHERE NOW, GRAY?;
BYLINE: Robert Krol And Shirley Svorny, Local View
THE California budget is not unlike a person undergoing
heart surgery. Emergency surgery is scheduled, and we'll hear from the governor
today. But if we don't start eating right and exercising, we'll find ourselves
in this mess again.
California has a constitutional limit that allows
government spending to rise with population growth and personal income. However,
personal income fluctuates considerably with swings in the economy. In
expansions, personal income increases, allowing the government to spend a lot,
only to be faced with the need for dramatic cuts as personal income declines in
a recession. That is where California legislators find themselves today. This
can be avoided by limiting spending growth to conform to growth in the cost of
living (as measured by the consumer price index, for example), rather than
income. The advantage of using a cost-of-living measure to limit state spending
growth is that it is not as cyclical as personal income. This means that, during
expansions, we wouldn't be spending so much that we are caught short in the
subsequent recession.
When we are caught short in a recession, politicians
inevitably cut social programs, such as funding for hospitals and emergency care
for the poor. Politicians are drawn to this path because poor people don't vote
as often and, also, the threat of cutting essential services for the poor makes
tax increases an easier sell to the voters in general.
In 1979, Californians passed an expenditure limitation law,
Proposition 4, that effectively limited state spending increases during economic
expansions to the sum of population growth and cost of living increases. But in
1990, Proposition 111 expanded the set of expenditures exempted from the
limitation and replaced the cost-of-living adjustment in the spending constraint
with one based on growth in per-capita income.
Under the old law, state government expenditures would have
been 25 percent lower going into the 2001 recession. We would not be facing a
$35 billion deficit over the next 18 months. Politicians would not be
threatening to cut essential services. The adjustments needed to solve a much
smaller deficit would be easier to stomach.
In 1992, despite catastrophic predictions by politicians
and public employee union members, Colorado voters approved a constitutional
amendment, the "Taxpayers Bill
Because Colorado politicians have had to control spending,
the state is on a far more solid financial footing than California is today.
Between fiscal years 1997 and 2001, the taxpayers of Colorado received more than
$3 billion dollars' worth of tax refunds.
The spending limit appears to have had a positive effect on
the performance of the Colorado economy. It has been consistently ranked as one
of the top performing state economies during the 1990s.
An advantage of tax limitations is that they constrain the
size of government. Study after study has suggested that, although some spending
on infrastructure and basic public services enhances state growth, excessive
state spending and the accompanying higher tax rates hamper job formation and
economic activity.
Because governments have the power to tax, politicians
don't feel the pressure that households and businesses face to prioritize
spending. The logic of a state expenditure limit is to force politicians to set
clear legislative priorities and to work to increase the efficiency of
government services.
California should go back to the tax expenditure limits
imposed by Proposition 4, with an automatic tax rebate provision as in Colorado.
If we had such a policy, we wouldn't be talking about closing emergency hospital
facilities, nor other severe cuts to existing programs.
California has been moving in the wrong direction for a
long time with respect to promoting economic growth. An expenditure limit that
slows the growth in government
EDITOR-NOTE: Robert Krol and Shirley Svorny are professors
of economics at California State University, Northridge. Krol is the author of a
Cato Journal study on state expenditure limitations.