Spending Limit: Been There, Done That

[courtesy of California Progress Report]

By Mark Paul
Senior Scholar
New America Foundation

There's been a lot of coverage of the demand by Republicans in the California legislature that any budget be accompanied by a new state spending limit. Unfortunately, most of the reporting has neglected one key fact: California already has a spending limit.

California's spending limit was passed as Act II of the late-1970s tax revolt set off by the famous Proposition 13 property tax measure. Approved by voters in 1979, Proposition 4, championed by Paul Gann, a co-author of Proposition 13, limited spending by local and state governments to the growth of population and the lower of inflation or per capita personal income. It required revenues collected in excess of the limit to be returned to taxpayers.

Californians soon regretted their decision. The limit pinched California's ability to fund schools and infrastructure. So voters changed course. In 1990, spurred by a coalition that included labor and many of the state's top business leaders, they approved Proposition 111. It loosened the Gann limit to allow spending to grow with population, school enrollment, and the rise in personal income. They moved California from a limit that would ratchet down the size of government over time to one that keeps government from growing faster than the economy as a whole.

The modified limit has rarely factored in state budgeting. The deep recession that slammed California immediately after the passage of Proposition 111 curtailed spending for half a decade, keeping it well below the limit. When brisk revenue growth returned later in the decade, Gov. Pete Wilson and the Legislature enacted tax cuts that kept the state below the ceiling. The state bumped up against the limit at the peak of the dot-com boom, but the popping of the Internet stock bubble forced the Legislature to curtail spending over the next several years. California state spending subject to the limit is currently more than $10 billion below the ceiling that voters set in 1990.