Wanted: a Real Budget

The idea behind governmental budgeting is to set priorities from year to year. But Gov. George Deukmejian is finding at the state level what already is apparent in Washington: As more and more of the budget is earmarked for specific items or protected in some other way, less of the available resources can be used to meet priorities--sometimes the most urgent priorities.

Thus it is that the governor now is talking about budget reform in California, and his chief of staff, Michael R. Frost, indicates that a variety of changes will be considered. The governor should be encouraged in this quest, because the race is on by special interests to lock up as much of the budget as possible for their own causes.

The latest and most successful interest is education, which won approval in November for Proposition 98, earmarking at least 40% of the total general-fund budget for classroom use from kindergarten through 12th grade. Frost says that the repeal or revision of Proposition 98 is one of the changes that the governor is examining. Such a move would seem politically inappropriate so soon after the election, but education cannot be excluded from any examination of total budget reform.

The problem is not that California is spending too much on education but that Deukmejian must allocate in his 1989-90 budget an added $200 million for schools that otherwise would have been available for other budget categories. That figure will grow to $400 million in the following year.

Another 2% of the budget goes to education-related costs like teacher retirement. The governor has noted also that 47% of the budget is devoted to other mandated spending requirements like welfare and Medi-Cal. In all, nearly 90% of next year’s income must be devoted to mandatory spending programs, leaving precious little of the budget for discretionary items and emergencies.

The basic problem is the Gann spending limit, established by ballot initiative in 1979. Under the Gann provision, California governments can spend only so much additional money each year based on a formula that includes the national consumer price index and population increases. But state needs like health care and prison operations sometimes bear little relation to these trends. Michael J. Boskin, the Stanford economics professor who is President-elect George Bush’s nominee to be chairman of the Council of Economic Advisers, has pointed out that the Gann index also does not reflect the state’s productivity growth--an indicator of the real economic vitality of the state.

Boskin says that, over time, the Gann limit will tend to impede economic growth, because the state will not have enough revenue to finance essential needs like the highway system and a properly educated work force. The distortion is exacerbated as more of the budget is earmarked for specific interests.

The Legislature should work with Deukmejian for real budget reform that restores the meaning of the budget process and gives it flexibility to meet current needs, not just special-interest wants. The Gann limits should be repealed, or at least adjusted to reflect reality. With rare exceptions, all state revenues should go into the general fund for distribution through the budget process each year. This would mean that state officialsand legislators would be forced to test each state program against every other program, and make the tough choices that they are elected to make.