Constitutional Reform and the California Budget Process Introduction California Constitution Revision Commission (1996) California Commission on Tax Policy in the New Economy (2003) California Citizens Budget Commission (1998) Constitutional Reform in California (1995) Other Reports and Recommendations More Hot Topics on California Budget Issues:   - Tax and Expenditure Limitation   - Vehicle License Fee   - Debt, Borrowing & Balanced Budgets   - Sales Tax on Services February 2004 Final update of text and links.

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Introduction

Proposals for constitutional reform of California's budget process and tax and spending policies tend to focus on four areas:

• The two-thirds legislative vote requirement to pass budget bills.
• Revenue and expenditure limits, especially Proposition 13 (1978) which limits property taxes, and Proposition 4 (1979) which limits growth in appropriations to growth in personal income and population.
• Constitutionally mandated spending, notably Proposition 98 (1988) which guarantees minimum funding for education.
• Prohibitions on debt and deficits, and explicit mandates for a balanced budget.

California Constitution Revision Commission.
"Improving the State Budget and Fiscal Process: Developing a Long-term Vision with Increased Fiscal Discipline." In: Final Report and Recommendations to the Governor and the Legislature. Sacramento: The Commission, 1996, p. 33-44.

Recommendations 13 through 22 concern the budget process. A key recommendation is requiring a majority vote, instead of the current two-thirds vote, to enact budget and budget-related legislation. Other key recommendations include requiring a four-year capital outlay plan, a two-year budget cycle, a "rebalancing" mechanism midway through the fiscal period, a balanced budget, and a prohibition against borrowing to finance a deficit.
Recommendations regarding Proposition 13 are included in Section V, "Strengthening Local Government: Clarifying Roles, Enhancing Collaboration and Strengthening Home Rule" (p. 71-80). While the commission recommended no changes in the property tax, it did recommend eliminating Proposition 13's distinction between special taxes and other taxes, and allowing such taxes to be passed by majority vote. Dissenting members of the commission favored maintaining the current two-thirds vote requirement for local taxes.

California Commission on Tax Policy in the New Economy

The California Commission on Tax Policy in the New Economy, chaired by William J. Rosendahl, was created in 2000. The enabling legislation (SB 1933) gave the commission a broad mandate to examine tax policy.

The commission issued two interim reports, the second, noted below, in response to California's economic and fiscal crisis.

California Commission on Tax Policy in the New Economy.
Options for Revising the California Tax System. Sacramento: The Commission, June 15, 2003. 56 p.

Constitutional reform proposals are briefly outlined in Appendix A, "Proposed Structural Reforms of the State Budget Process." The proposals are: "1) In order to make the spending limit more transparent, revise it to limit spending based on the prior year level, adjusted for population and economic growth, 2) in order to reduce the fiscal shock of economic downturn, require the maintenance of a reserve, 3) establish a system for rebalancing the state budget when it becomes unbalanced, and 4) initiate a fiscal planning requirement that will require the state budget process to plan longer than 12 months." Part 5 of the appendix outlines proposals intended to foster a "culture of accountability" in the budget process.

California Citizens Budget Commission

The California Citizens Budget Commission was formed in 1993 under the aegis of the Center for Governmental Studies. The commision had 25 members representing the state's public and private sectors, and was co-chaired by Lisa Foster, Robert T. Monagan and A. Alan Post.

California Citizens Budget Commission.

A 21st Century Budget Process for California: Recommendations of the California Citizens Budget Commission. Los Angeles : Center for Governmental Studies, 1998. 94 p.

On the two-thirds vote requirement: "The state budget should be enacted by simple majority vote of the two houses of the Legislature [ p. 5].
"Defended as a restraint on spending, there is no clear evidence that this supermajority requirement does, in fact, have that effect. Legislators can as easily withhold votes to secure increases in spending for their favorite programs as they can secure spending reductions [p. 2].
"Rather than holding down spending, the two-thirds vote requirement places the power to control or block the budget into the hands of a small minority in either house of the Legislature--thereby promoting gridlock and enhancing special interest group influence [p. 3]."

 

On a balanced budget: "The Commission recommends that California join the great majority of states with true balanced-budget requirement and require that all future state budgets have a balanced General Fund as presented to the Legislature, passed by the Legislature and enacted into law. ...
"The Commission sees no easy solution to the problem of enforcing a constitutional state balanced-budget requirement. ...
"Most experts reject the idea of having the courts enforce balanced-budget requirements. ...
"The Commission concludes that the best approach to enforcing the balanced-budget requirement would be to spell out the balanced-budget principles and requirements in the California Constitution and allow the people to enforce them through the regular political processes. ... [p. 41]."

 

On external borrowing: "The Commission ... recommends that the Constitution be amended to prohibit all external short-term borrowing, unless it is used to meet the State's normal cashflow fluctuations and is repaid within the same or next budget year from designated revenues [p. 42]."

 

On short-term debt: "The Commission believes that long-term borrowing (more than five years) is appropriate to finance public investments that provide long-term public benefits, such as highways, parks or state buildings, as long as projected revenues can service the debt. ...
Therefore, the Commission recommends that the Constitution be amended to limit long-term debt to the financing of long-term capital investments. [p. 43-44]."

Constitutional Reform in California

In 1995 the Institute of Governmental Studies Press published Constitutional Reform in California: Making State Government More Effective and Responsive, edited by Bruce E. Cain and Roger G. Noll (514 p.). The three chapters that deal with the budget process and budget policy are noted below, with links to full-text versions.

Ellwood, John W.; Sprague, Mary.
"Options for Reforming the California State Budget Process," p. 329-352.

Provides an overview of problems and constitutional issues involving the California budget process and summarizes various alternatives for constitutional reform. The authors advocate "a classical 'clean' system that would include:

1. To the extent possible, everything being on the table so that the marginal dollar of X can be compared to the marginal dollar of Y.
2. The elimination of supermajorities and limitations of all sorts.
3. The simplification of California's governmental structure by modifying the initiative so that its results can be altered by the normal political process and so that it cannot be used to create mandated spending.
4. Increasing the analytic capability that supports the decision-making process."

The authors acknowledge that "such a system would probably lead to a larger public sector and would not significantly decrease budgetary conflict [p. 350]."

McCubbins, Matthew.
"Putting the State Back into State Government: the Constitution and the Budget," p. 353-375.

The author contends that current problems are the result of "decades of incremental, piecemeal reforms that were intended to increase government accountability, but have had precisely the opposite effect [p. 353]." The author advocates a unicameral legislature, elimination of the two-thirds vote requirement, and a change in the initiative process that would give the legislature more power to restrict voter-sponsored measures with a fiscal impact.

Kiewiet, D. Roderick.
"Constitutional Limitations on Indebtedness: the Case of California," p. 377-397.

The author notes that current limitations on the use of general obligation bonds have "led the state to issue more costly debt instruments, most notably lease-payment bonds and certificates of participation [p. 392]," and argues that new constitutional restrictions are needed as a safeguard against excessive debt from these instruments. The author's recommendations include "a comprehensive, unified, multi-year capital budget [p. 393]" and a requirement limiting the cost of long-term bonds to a 12 percent average of general fund revenues in the preceding three years.

Other Reports and Recommendations

Examples of Past Fiscal Reform Proposals. Sacramento: Institute for Local Self Government, 2004-

Lists seven major reform proposals (several already noted here), with links to full-text. The site includes a matrix that compares and contrasts the proposals.

Nolan, Martin F.
"Balloting with Unintended Consequences," California Journal, v. 35, no. 2 (Feb. 2004), p. 36-39.

"The two-thirds vote to pass a state budget in California dates back to an obscure constitutional amendment passed in a 1933 special election. Today, after 70 years of tweaking and amending, it remains one of the most significant--and unintended--consequenses in the history of state ballot meassures."

Krolak, Richard.
California's Budget Dance: Issues & Process. 2nd ed. Sacramento: California Journal Press, 1994. 150 p.

Krolack is not convinced that eliminatating the two-thirds vote requirement for budget bills by itself will make the budget process more effective and accountable. "Perhaps a more fruitful approach," he says, "would be to consider removal of the two-thirds vote requirement together with other changes to the entire organization of California state government. Such issues as the appropriate role for state and local governments, incumbent-oriented redistricting, campaign finance reform and the need to strengthen political parties are typically identified for consideration on such a list [p. 115]."

Simmons, Charlene Wear.
A Summary of Recommendations for Reforms to the State Budget Process. (CRB Note vol. 9, no. l). Sacramento: California Research Bureau, 2002. 14 p.

Conveniently summarizes proposals from various commissions and study groups for improving California's budget process. Some proposals would require constitutional revision, some not.

Prepared by the staff of the IGS Library. Send comments to igsl@uclink.berkeley.edu.