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Press Release

    The Spirit of 76:

    10/01/2005

    INTRODUCTION

    It is the inevitable tendency of government, in all places and at all times, towards growth. To resist its encroachment on individual freedom and initiative requires eternal vigilance and vigorous public debate. To promote such informed and focused debate, and to provide private alternatives to government intervention, is the role of the Pacific Research Institute.

    The Institute addresses the critical issues of our day, including one that is particularly glaring and urgent in California—government spending. The state’s continuous spending spiral has been unchecked for far too long, jeopardizing future economic growth and stifling innovation. Californians have been left with fewer of their hard earned dollars to spend as they choose. If left unchecked, this trend poses a grave threat to the state’s future.

    These times call to mind a more dramatic, but highly
    relevant, episode in history. In January 1776, Thomas Paine’s pamphlet “Common Sense” was released among an oppressed populace that was, nevertheless, still loyal to its king. This scant 46-page work argued for what would become the bedrock principles of American democracy: sovereignty of the people and checks and balances on the government. In doing so, it lit a fire to a movement and produced a revolution.

    PRI’s ambitions are not as dramatic. But no less lofty is our aspiration to empower the people. No less fervent is our passion for liberty. And no less determined is our commitment to reaching and inspiring the everyman—the California voter.

    In launching a new series of PRI Pamphlets, our purpose
    is to reinvigorate public debate and to ensure that more
    policy decisions are made by people, rather than
    governments. While we do not suffer the tyranny of a king,
    the state has grown far beyond its original scope and is
    testing the means of its taxpayers. PRI seeks to restore the proper limits on government growth. And more important, we aim to remind Californians, and all Americans, that the power to govern rests squarely with them.

    The ideals of 1776 are as valid and precious today as they were then, and the results are as important to every individual.

    EXECUTIVE SUMMARY

    On November 8, California voters will decide the fate of Proposition 76, the Schwarzenegger-backed “Live Within Our Means” Act. The initiative promises to live up to its title by restricting state spending and fixing California’s lingering fiscal problems.

    Since 2001, California has experienced sizable budget deficits and has accumulated a considerable amount of debt. Though most of the blame for this was placed on the post- 9/11 recession decline in revenue and the dot-com bust, constant increases in expenditures are the biggest culprit. These perpetual spending increases are due to two factors: formulaic spending mandates that require categorical expenditure increases regardless of the state’s fiscal health and an absence of fiscal responsibility on the part of the state’s elected officials.

    California is in a state of unregulated government growth. The costs are borne by the taxpayers in the form of tax hikes and lower economic productivity. Reform is needed if California is to improve its fiscal climate. Proposition 76 is one opportunity for reform. It aims to restrain California’s state expenditures by limiting their growth, controlling the state’s autopilot spending mandates, and permitting the governor to make mid-year expenditure cuts. It also contains a number of beneficial provisions dealing with expenditure allocation and the budget-adoption process.

    The Pacific Research Institute is committed to the principles of individual freedom and limited government, the building blocks of a robust economy. PRI encourages and supports policies that reduce government spending in order to foster economic growth.

    This PRI Pamphlet assesses the provisions of Proposition 76 to determine if they meet the standard of effective fiscal reform, namely, to ensure a restrained, fiscally responsible
    state government.

    The assessment is mixed. Though the initiative fails to establish adequate safeguards against potential abuses that could lead to government expansion, it would instill some fiscal discipline that could reduce the size and severity of the state’s budget problems.

    On the positive side, Prop. 76 would:

    Reduce budget volatility by smoothing out revenue peaks and valleys.

    Reduce deficit spending by controlling spending mandates and resurrecting some of the executive powers exercised by previous governors.

    Reduce debt accumulation by requiring the state to repay its debts.

    Unfortunately, Prop. 76 also has the following negative
    characteristics:

    Retains deficits, because the three-year revenue average will not necessarily reflect current revenues or expenditures.

    Retains legislative power to increase taxes and fees.

    Contains no guarantee to rebate excess revenues to the taxpayers.

    Prop. 76 does provide a framework for limiting the growth of government, something that has been lacking in California for many years. With its spending reduction and budget balancing provisions, Prop. 76 is a good first step towards decreasing the level of government spending relative to the state’s output.

    Yet the initiative also contains some loopholes that if exploited could lead to possible government expansion. Since the legislature would retain its power to tax at will, any increase in taxes would in turn influence the spending limitation, and thus increase the amount of expenditures permitted each year.

    Therefore, Prop. 76, if adopted, should be strengthened by subsequent legislation or ballot initiatives that would close the loopholes. This can be achieved by granting voters direct approval of special fund designations and tax and fee increases via ballot initiative. Also, the state should require that a portion of the excess revenues collected during highrevenue years be given back to the taxpayers.

    With these additions, California’s spending limitation would resemble the successful spending caps of several other states, especially Colorado’s Taxpayer Bill of Rights (TABOR). Since its adoption in 1992, Colorado has experienced a stable fiscal environment and reduced government growth. It has also rebated billions of tax dollars back to its residents.

    Out-of-control spending and annual deficits have plagued California for years, bringing it to the brink of bankruptcy and overburdening taxpayers. Fiscal restraint is needed to limit government, keep its elected officials accountable, protect the earnings of the public, and encourage future economic growth and innovation.

    James Madison wrote: “In framing a government, which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed, and in the next place, oblige it to control itself.”

    On November 8, California voters will decide whether they want to impose the needed controls on state government through Proposition 76.

    To continue and read the full PRI Pamphlet click here: The Spirit of 76: Will Proposition 76 End California’s Spending Spiral