California's LWOM Act

California residents may get to vote on a ballot initiative entitled the California Live Within Our Means Act (LWOM). In essence, LWOM proposes to add on an new state spending limit and grant the Governor unprecedented line item veto power; making the Legislature almost completely unnecessary in the budgetary process during times of "emergency".

According to California’s Legislative Analyst’s Office:

This measure retains the existing appropriations limits, but adds a new limit on the annual growth in state expenditures. Specifically, annual state expenditures (General Fund and special funds) in a given fiscal year — beginning in 2006-07 —
would be limited to the prior-year expenditure level plus the average growth rates in combined General Funds and special funds revenues over the prior three years.

This method of limiting state spending carelessly assumes that what happened three years ago will hold true for the future. The additional spending limit proposed under LWOM could actually run counter to reality. If California had three boom years but is currently in a rough year, the state could spend as if it were still in the boom years - running a possible deficit. And of course this example can be reversed - three poor previous years with a current boom year.

The other major policy provision of LWOM deals with Gubernatorial power:

Following the enactment of a budget, the measure permits the Governor to issue a proclamation declaring a fiscal emergency at the end of the quarter — and call the Legislature into special session to deal with the emergency — when the administration determines either of the following conditions:

General Fund revenues have fallen by at least 1.5 percent below the Department of Finance estimate.

The balance of the BSA* will decline by more than one-half between the beginning and then end of the fiscal year.

So far, not too bad. Allowing for adjustments throughout the year could be a good thing. However, here comes the power play:

Once the emergency is declared by the Governor, the Legislature would have 45 days to enact legislation which addresses the shortfall. Absent such legislation, the Governor would be permitted to reduce most items in the budget (with the exception of items discussed below), either proportionally or disproportionately, to eliminate the shortfall. Language in the measure suggests that gubernatorial reductions could also occur at the beginning of the fiscal year in the event of a late budget — 30 days after the issuance of an emergency proclamation and absent the enactment of legislation addressing the shortfall.

The exceptions to the "gubernatorial reductions" are spending required by federal laws and regulations, appropriations where the result of a reduction would be in violation of contracts to which the state is a party and debt service. So in essence, the Governor can cut whatever he/she wants with very few exceptions. During an "emergency" the Governor gets to act as both the state’s chief administrator and Legislature.

Working in state tax policy, you see haphazard spending limit measures being brought before voters all the time. However, the LWOM act is just absurd. Never before have I seen a spending limits measure that grants the Governor pretty much complete legislative control with a veto pen. LWOM doesn’t seem to be much about controlling state spending as much as it’s about pure political power.

For a more in-depth analysis of LWOM, I suggest you check out this report by the California Budget Project.

*BSA stands for Budget Stabilization Fund - a reserve fund.