Saturday, April 7, 2018

(Gann) Room at the Top

From the Legislative Analyst's Office (LAO): Proposition 4 (1979) added Article XIIIB to the Constitution, which established an appropriations limit on the state and most local governments. These limits are also referred to as “Gann Limits” in reference to one of the measure’s coauthors. The fundamental purpose of the Gann Limit is to keep real (inflation adjusted) per person government spending under 1978‑79 levels. The measure requires that a complex series of calculations be performed each year to compare appropriations to the limit. If in two consecutive years the state has revenues that cannot be appropriated because of the limit—meaning the state has “excess revenues”—the Constitution requires the excess to be split between taxpayer rebates and additional Proposition 98 spending...


Actually, the original Prop 4 didn't refer to Prop 98 since Prop 98 wasn't enacted until 1988. When Prop 4 in its original form caused rebates, the educational establishment put Prop 98 on the ballot which allocates funding to K-14 and modified Prop 4. There was a further modification a few years later under Prop 111. But that is history. The key point is that although the Gann limit was relaxed, it still exists. At the peak of the dot-com boom, we actually hit the limit but only for one year and so no rebates occurred. 

We have been getting close to the limit again and the Brown administration - in the eyes of LAO - has been doing some creative accounting to keep below it. LAO recommends less creativity. And if that were to occur, instead of a margin (dubbed "room") between the limit and actual revenue of $12 billion next fiscal year, there would be only $5.6 billion. Effectively, reducing the "room" would make spending beyond what Brown proposes (and which UC wants for itself), more difficult. Whether the legislature would go along with LAO's recommended accounting methodology is another matter. Of course, one could imagine litigation by anti-tax groups if under a plausible interpretation of the Gann limit, the "room" went negative.

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