Tag: Proposition 2

NO on Proposition 2 – Rainy Day Fund

Ten years ago California voters approved the creation of a state government “rainy day fund” (Proposition 58 in 2004). This November we are being asked to approve a major revision in the form of Proposition 2. The net effect of its many new rules and exceptions is to make the state’s budgetary straight jacket even tighter than it already is.

Proposition 2 looks complicated, and it is. Among other things, it appears to decrease the annual required contribution to the fund but increase the fund’s total size in the long run. In order to provide a fig leaf of progressive taxation, it gets part of the contribution from taxes on capital gains. It requires that for the next 15 years a large part of the contribution be used to pay down specific kinds of debt rather than go directly into the reserve fund. It restricts the amount that can be withdrawn to cope with budget crises to half of the fund balance in any one year.

Proposition 2 also creates a controversial new rainy day fund for schools. Under rules so complex that only lawyers and judges will even try to understand them, a portion of the state’s obligation to school districts under Proposition 98 will instead go into a separate reserve account. Educate Our State, an organization opposed to Proposition 2, argues that schools will be forced to use up their own savings when they don’t receive this money, and that withdrawals from the reserve account during budget crises will provide the state with yet another mechanism for ducking its responsibilities under Proposition 98. They write:

The Legislature wants the right to give schools LESS than the minimum guarantee for school funding, while squirreling away the difference to help its cash flow. Then, in a bad year, it will ‘give’ schools their own money, while spending the State’s money elsewhere.

We generally oppose budgeting rules that tie the Legislature’s hands in advance, and don’t necessarily think Proposition 98 is the right way to guarantee adequate funding to schools. But the devastating effects of Proposition 13 (passed in 1978) made Proposition 98 appear necessary to voters when they adopted it in 1988. We’re not defending that choice. We’re pointing out that Proposition 2’s rainy day fund for school money makes school funding worse rather than better.

The many provisions of Proposition 2 are not all equally bad. For example, while the earmarking of capital gains tax money doesn’t make taxes more progressive (the amount collected remains the same), it does tap a source of revenue that grows in good times, when it’s easier to save, and contracts in bad times. But it creates considerable uncertainty in the process, and does nothing to redistribute the tax burden from workers to bosses.

Under completely different circumstances, a rainy day fund might be useful as a way to soften the periodic blows of the depressions and recessions that are built in to capitalist economies. But only if it is funded from steeply progressive taxes on the rich and their corporations. And only if this revenue is sufficient to create real surpluses when the economy is growing. And only if the government is left with enough resources to do the work it needs to do today. With our current tax structure and meager state budgets, everything that goes into these reserve accounts is being taken away from desperately needed services and infrastructure projects.

Financial shell games cannot solve the state’s budget crisis. Only radical changes to our regressive tax structure, along with removal of the budgetary straight jacket that was the real purpose of Proposition 13, can do that. We urge a No vote on Proposition 2.