Since the 1978 passage of Proposition 13, California has exhibited sharp changes in its spending levels. During boom times it increases its spending at a higher rate than other states, and during bust years it spends at a markedly lower rate.

A 2006 paper by California State University, Sacramento, “The ‘Roller Coaster’ of California State Budgeting after Proposition 13,” discusses the Californian fiscal crisis since 1978. Among other significant changes, Proposition 13 capped property tax increases at 2% per year and 1% of value and required a two-thirds majority in both legislative houses for state tax increases.

The paper’s findings include:

• Constitutional amendments since 1978 have further limited the state’s fiscal flexibility. They include state spending limits, a mandatory requirement of a proportion of the state’s general account budget to be dedicated to K-12 education and measures to protect local funding sources.
• California’s greater reliance on more volatile forms of tax revenue such as individual and corporate income taxes and sales/gross receipt taxes has made the state’s fiscal position to be more unstable than other states. In 2001-2002, while these sources accounted for about 19% of all aggregate state revenue, they accounted for nearly 26% of all California’s revenue.
• A growing underclass (such as higher incidence of poverty among immigrants) has increased the proportion of general fund expenditures devoted to health and human service activity to 36% as compared to the 27% that all states devote.

The author views that the most acceptable fiscal reform to resolve the Californian budget crisis would be a reduction in the two-thirds vote requirement to pass a state budget and raise state taxes and/or an increase in the vehicle license fee rate.

Tags: California, municipal

By Sui-Jade Ho | January 5, 2010