It’s not often you will hear us say this, but we all owe a vote of thanks to Jerry Brown

When Brown started his third term as governor in 2011, he complained that no politician should face the type of catastrophic financial crisis he inherited when returning to the state’s top office. At the time, outgoing Republican Gov. Arnold Schwarzenegger’s finance department was forecasting a $28.5 billion deficit over the next 18 months. California’s credit rating hit bottom, downgraded to the lowest level of any state in the nation, raising the cost of state borrowing.

By 2014, Brown shepherded Proposition 2, “Changes to State Budget Stabilization Fund Amendment,” (what we now call the Rainy Day Fund) through the legislature, and 69 percent of the voters approved. The fund has grown to $21 billion.

Among the provisions of Prop. 2 is a requirement that the governor has to declare a state of emergency and seek legislative approval to dip into the fund. Gavin Newsom included $15 billion from the fund in his proposed budget this year under the emergency provisions.

Now It Gets Weird

Oddly, the state shows a $26 billion surplus in tax collection this year. In no small measure, this is because California relies on taxing the rich, and the stock market seemed to ignore the Covid-19 calamity. Capital gains increased, and the rich got richer.

In the late 70s, during Jerry Brown’s second term, there was a taxpayer revolt. Proposition 13 was born from that revolution. So was a more obscure law, Proposition 4, known as the “Gann Limit,” honor of taxpayer watchdog Paul Gann, which restricted per capita government spending to 1978-79 levels at both the local and state level.

Now the weird part. The second part of the Gann Limit requires the state to refund excess taxes over the Gann limits. The last time that happened was 1986 when the state cut $1.1 billion in rebate checks. Governor Brown dodged the paybacks through legislative legerdemain in 2017, according to the state Legislative Analysts Office.

During his January budget message, Governor Newsom acknowledged the Gann Limit might come into play this year. Newsom’s budget says the state would exceed the limit by $102 million. According to his budget proposal, half of the money would go to schools, and half would go back to taxpayers if the trends hold.

Here we are, waiting for our tax rebate checks and our stimulus checks from the Feds. What could go wrong?

 

By Garrett Francis, ECA President Email: [email protected]