Government Spending Caps

Our loyal readers know we are appalled by profligate government spending. It is a well-documented fact that politicians--at all levels of government--simply cannot resist the temptation to layer on the pork... and almost always to a key voter block.

While putting the curbs on federal spending is seemingly not possible given the entrenched bureaucracy and Rubik's-Cube-like legislative roadblocks, state government is another matter. Not only is it closer to home, but in some places the levers of change are within the reach of anyone. Now, across the country, there is a growing inclination among citizens to seize those levers.

The buzz phrase du jour is spending caps.

We credit Governator Arnold Schwarzenegger with focusing the national spotlight on this issue. Schwarzenegger may pump up his muscles, but he's been trying to do the opposite with the California budget ever since he arrived in Sacramento. And as goes California...

In reality, caps are nothing new. Several states already have some variety of spending limits that are tied to population growth, personal income, or inflation. But the publicity generated by actions being taken in the nation's most populous state has hard-line conservatives drooling over the possibility of a grassroots movement working to achieve their full fiscal agenda: First cut taxes, then cut spending. They remember the tax revolt started a generation ago in California by Prop 13.

"The general gist is the same," says anti-tax advocate and former House of Representatives majority leader *** Armey. "It is that we citizen activists have got to find a way to put restraints on our legislators." Adds Americans for Tax Reform President Grover Norquist, "This is the next big thing at the state level. . . Soon you will see it on the ballot in every initiative state."

When he came to office, Schwarzenegger's first order of business was to do something about the fiscal chaos he inherited from his predecessor. He took several steps, including forcing passage of a bond issue to delay the reckoning day on years of unbalanced budgets. As promised, he cut the car tax. Then he turned his attention to spending.

He wanted the legislature to enact a spending cap, and tried hard to ram it through. He failed. But in California, as in other citizen initiative states, that is not the end of the road. So Schwarzenegger turned to Plan B, the process that got Gray Davis recalled and him elected in the first place. Gather enough signatures to get it on the ballot.

At that he succeeded. The result is Proposition 76, a/k/a the "Live Within Our Means Act." What it mandates is that the state budget may not grow faster than the average increases in state revenues over the previous three years. It is not only an attempt to curb spending, but also an effort to insulate the state somewhat from the year-over-year vicissitudes of its economy.

Schwarzenegger is stumping hard for this--"Did you know that for every dollar the state takes in in California, our legislators spend $1.10?" the governor asks in a TV ad that's been running for months. "We don't have a revenue problem, we have a spending problem."

Thus far, he doesn't have much to show for his efforts. He's faced spirited campaigning against the measure by most Democrats and their allied unions, including the powerful California Teachers Association, and by the mayors of several of California's largest cities, including Antonio Villaraigosa of Los Angeles, Gavin Newsom of San Francisco, and Jerry Brown of Oakland, who claim Prop 76 would slash funding for public safety and education. There appear to be no spending restraints on lobbying for and against the bill.

In polls conducted in early October, the anti-Prop 76 forces hold the upper hand. Two out of three respondents say they're opposed. But Schwarzenegger has shown an ability in the past to snatch victory from the jaws of defeat in the final weeks before votes are cast. Whether he can pull off another miracle this time remains to be seen.

If he does, though, watch out, says *** Armey. "We think California is very important. It is a trend-setting state. Getting it done in California will set a very good example for all these other states."

The other states include Ohio, which will vote on a similar proposal this fall; Maine, Oklahoma and Oregon, which are preparing initiatives for 2006; and Georgia, Missouri, Tennessee and Wisconsin, where spending cap bills are picking up significant support in legislatures. Overall, conservative groups are poised to blitz the public with the issue in some 20-odd states, with activists going directly to the ballot wherever they can.

On the flip side is Colorado, a state that more than a decade ago passed the Taxpayer's Bill of Rights (TABOR), which created a de-facto cap by placing limits on the revenues the state can use in any year. Now, leaders of the state's business community and Republican governor Bill Owens--a strong original backer of TABOR--have determined that "a more stable means of funding state budgetary needs" is required, and they're asking voters to approve an initiative on the fall ballot that would let the state retain more revenue than allowed under TABOR, for the next five years. In other words, a temporary lifting of the cap.

Owens is having a tough time selling the public on this. In a recent Denver Post poll, only 43% of them supported his proposal.

But whatever happens elsewhere, California is the bellwether. How the people vote there on November 8 will go a long way toward determining the viability of the spending cap movement nationwide.

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Posted 10-25-2005 12:27 AM by Doug Casey