Wednesday, May 24, 2017

Unkind Cut - Part 3

Back in 1978, voters passed Prop 13 which drastically cut local property taxes (and thus indirectly pushed responsibility for local services, especially K-14, to the state.) A year later, still in an anti-tax mood, voters enacted Prop 4 which placed a limit on spending based on a formula. That formula's impact was significantly reduced by a later proposition but it's still on the books and the state is now bumping against it. The governor's interpretation of what the limit is, embedded in his budget proposal, differs from what the LAO and others believe. So there is yet another constraint on the state budget:

Legislative lawyers suggest Gov. Jerry Brown’s interpretation of a long-standing state spending limit is wrong

John Myers   LA Times   5-23-17

Lawmakers from both sides of the aisle raised concerns Tuesday that Gov. Jerry Brown’s state budget plan relies on a faulty calculation of a spending limit imposed by voters in 1979.

“This is really a big deal,” state Sen. Jim Nielsen (R-Gerber) said during a meeting of the Senate’s budget committee.

At issue is how to interpret a 38-year-old state appropriations limit that, if breached, would require excess revenues to go to schools or be paid to taxpayers as rebates.

An April 28 opinion from the legislative counsel of California, released publicly Tuesday, said that certain appropriations that Brown's budget looks to exclude from the spending limit "must be included" per the language that voters placed in the California Constitution.

That opinion aligns with a March report by the independent Legislative Analyst’s Office, which criticized Brown’s plan to exclude $22 billion in state spending from counting under what’s known in Sacramento as the Gann limit, named in honor of its author, the late anti-tax activist Paul Gann.

Advisors to Brown told state senators during the budget hearing that they believed the spending limit had been misinterpreted in the past and were simply trying to realign it with the law.

The otherwise arcane issue is of importance because the interpretation by the Legislature’s analysts could force some $1.8 billion in lower spending — which could then trigger unexpected cuts in a variety of programs even as tax revenues are generally outpacing projections.

The committee ultimately went along with Brown's framework, though the topic may come up again before a final spending plan is ratified next month.

“I have to say I’m concerned,” said state Sen. Richard Roth (D-Riverside) after asking a series of detailed questions about the impact to the state's finances if the legal spending limit is breached.

Whether lawmakers ultimately agree to Brown’s interpretation may not be the last word on the issue, as the law makes clear that California courts could impose a final interpretation.


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