Is There Really No Connection Between Jerry’s Taxes and Realignment?

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Prop Zero and your blogger were criticized by the California Budget Project for this post about the realignment provisions in Gov. Jerry Brown's temporary-tax ballot initiative.

CBP's problem? That Prop Zero said the temporary tax hikes in the initiative are connected to his realignment plans. CBP also said Prop Zero's analysis of Brown's initiative -- that it was a temporary tax tied to a constitutional change in spending -- was off.

Your blogger's response: CBP has a point about one thing Prop Zero reported, and is wrong about everything else. And the way that the usually reliable budget project was wrong speaks volumes about what's wrong with Sacramento's thinking about the state's budget crisis.

Let's look at the heart of CBP's criticism, which says that Prop Zero was confused about the nature of Brown's initiative and its connection to the governor's plan for "realignment" -- the term for turning over some state government duties, particularly in corrections, to local governments.

A recent post on Prop Zero, for example, claims that “much of the tax revenues [the Governor] would raise in his measure go to providing funding to locals for his realignment plans.” The post further argues that the Governor’s measure makes “the mistake of establishing a permanent change in governance … with temporary taxes.” This analysis is off the mark. As explained above, the Governor’s measure would place in the state Constitution the current, ongoing revenues that were already shifted to counties as part of last year’s realignment. In other words, the measure would combine a permanent change in governance with a permanent source of funding for counties’ new responsibilities. In contrast, the Governor’s proposed temporary tax increase has nothing to do with realignment. Instead, it would raise revenues in order to help balance the budget and stabilize the state’s fiscal situation. In short, the Governor’s initiative encompasses two separate sets of revenues with different purposes and time frames – and never the twain shall meet.

Now let's break this down, to show how CBP is advancing an argument -- an argument that Brown and his allies make -- that is profoundly misleading.

Here's the truth of it: the specific tax revenue that would be derived from the temporary tax increases in Brown's would not go directly to funding the constitutional guarantee of money for realignment of state functions to local functions. The money to fund that guarantee comes from a different source -- at least at first. Prop Zero was wrong to suggest otherwise.

Full stop. That's the only thing CBP gets right.

CBP takes that specific point and uses it to make claims that could be called misleading at best. The central claim is: "the governor's proposed temporary tax increase has nothing to do with realignment." That's wrong to the point of being preposterous, since it's contradicted by the plain text of -- and indeed the very existence of -- Brown's measure.

Three ways CBP is wrong:

1. The temporary taxes and the constitutional guarantee of money are in the very same initiative. They are connected in that fundamental, undeniable way: you can't pass one without passing the other.

2. Money in the budget is money in the budget. The constitutional guarantee of funding for realignment takes tax sources that were dedicated to realignment via the state budget process -- and commits them instead via the constitution. So that side of the initiative takes money from the budget and puts it into the constitution. On the other side of the initiative, the temporary taxes feed back into the budget, to fund things like schools and higher education. So the initiative takes from the budget with one hand (to fund realignment constitutionally), and then gives to the budget (albeit only temporarily, via taxes) with another.

3. The plain language of the initiative says that if the funding sources for the constitutional guarantee don't prove to be enough, the realignment must be funded by drawing from the budget. Temporary taxes are providing funds for the budget.

This third point shows the problem with CBP's claim that Brown's initiative is merely a "permanent change in governance" with "a permanent source of funding for counties' new responsibilities." The guarantee for the realignment money is constitutional -- and forever. But the source of funding remains state taxes that were part of the larger budget. And while the initiative is taking money out of the budget that could have been available for other programs forever, the money coming into the budget -- the initiatives' taxes -- are only temporary.

This sort of thing is very common to California ballot initiatives that promise reforms. Also common: constitutional guarantees. But such guarantees are not cures; they are the disease. All the guarantees in the constitution create obligations for the state and make the state difficult to govern.

Think of it this way:  In seven years, when the temporary taxes go away, the state will be left with a structural deficit, and this constitutional guarantee on the books. And so the legislature -- because of this constitutional guarantee of funds-- will have even less flexibility than it previously had to deal with the budget deficit. And (irony alert!) the budget deficit is the problem that CBP and Gov. Brown say his initiative will address.

The legislature won't have the option of taking back the specific tax sources for realignment that will have been baked into the constitution by this initiative. It will have to draw on a diminished state budget, and it won't have permanent tax increases to make up the difference.

Of course, to CBP's way of thinking, the above paragraph would be evidence that CBP's original claim is right. Yes, the temporary taxes aren't really connected to the constitutional guarantee -- because the temporary taxes will be gone in seven years and the constitutional guarantee will still be there.

As CBP says, "Governor’s initiative encompasses two separate sets of revenues with different purposes and time frames – and never the twain shall meet."

That is at once true -- and a misleading sleight of hand. Yes, there is a disconnect between the temporary taxes and constitutional guarantee. But that disconnect is in fact the connection between the two. The constitutional guarantee draws down the budget and the flexibility of lawmakers -- but the temporary taxes only feed the budget for a little while.

If this explanation confuses you, don't worry. Everyone is confused, even the smart people writing these initiatives. The California state budget system is a complicated, Kafkaesque alternative reality, which is why California needs a new constitution, and a simple budget system that can be explained and understood.

Your confusion is also why measures like Brown's aren't reform; they add confusion to a confused system. They add complexity to a too-complex system. They are more of the same.

Lead Prop Zero blogger Joe Mathews is California editor at Zocalo Public Square, a fellow at Arizona State University’s Center for Social Cohesion, and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (University of California, 2010).

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