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By Tom Cushing

November Ballot Prop 2 ? Devils or Angels in the Details?

Uploaded: Sep 27, 2014

This year's Prop 2* is proof that there's no good, simple idea that can't be made complicated if you study it long enough. Former Speaker/Prop author Perez claimed to have been at the task of drafting it for over a year, and it shows.

The over-arching concept is so sensible that it's practically biblical (remember Pharoah's dreams in Genesis?) ? indeed, it dates from the much earlier advent of agriculture itself. That is: we are wise to put away surplus in the fat years, against shortages of the lean years that are sure to follow. California's vibrant, turbulent economy has been particularly prone to boom-or-bust cycles ever since the days of the Gold Rush; hence the value of a state-level 'rainy day fund.'

It's not even a new concept in Sacramento. In 2004, the voters passed (72-to-28%) similar Prop 58, which established such a Budget Stabilization Account. The trouble was that it failed to adequately define the "surplus" from which funds would be sequestered, and it allowed the Governor to suspend its application ? which both its author, Mr. Schwarzenegger, and Mr. Brown have done.

So, basically, Prop 2 reads into the State Constitution a requirement to annually set aside 1.5% of state general fund revenues, against an upper limit of a 10% accumulation. Actually, it's a bit more complicated than that. From "The long-form summary reads:

 Requires annual transfer of 1.5% of general fund revenues to state budget stabilization account.
 Requires additional transfer of personal capital gains tax revenues exceeding 8% of general fund revenues to budget stabilization account and, under certain conditions, a dedicated K?14 school reserve fund.
 Requires that half the budget stabilization account revenues be used to repay state debts and unfunded liabilities.
 Allows limited use of funds in case of emergency or if there is a state budget deficit.
 Caps budget stabilization account at 10% of general fund revenues, directs remainder to infrastructure."

And actually, the long-form summary does not do it justice, on the complication front. Note, for instance, the emphasis on capital gains tax revenue. It is there because of Google. Capital gains revenue is remarkably volatile: varying from 3% to 14% of the general fund (the latter in 2006, when Google went public). Such a windfall ($7B per the Google IPO) is seen as a prime candidate for socking-away, as long as it exceeds the annual average of 8% of the general fund in-take.

Further, the biggest source of complication ? and controversy ? is not even contained in the summary above. Rather, it is a finer-print provision that caps similar sequestering by local school districts at 5% of Their revenues. The objections to that provision seem to be two: first, it is a power-grab by Sacramento that curtails local control over school budgets, and second, that 5% is not enough, especially given the cash flow concern that districts are locally funded by lumpy property tax revenues mostly received in May and December.

The former concern seems to predominate, especially given the state's spotty record in supporting local schools. California traditionally ranks very low among all states in per-pupil expenditures, and Sacramento has been seen as an unreliable partner in augmenting local funds. This measure would appear to increase local dependency on that volatile source ? thus, there is deep distrust among some education advocates. There is also a suspicion that this is really a teachers' union ploy to force districts to spend money ? and where better than teacher compensation?

Supporters of the measure counter-argue that Prop 2 (still further) provides that Districts may go above that 5% cap by applying to their County Superintendent of Schools ?. and the beat goes on. Now it must be added that Prop 2 passed unanimously in the legislature, that it is supported by both major Parties, both gubernatorial candidates, the League of Women Voters and our own local fishwrap. 43% currently approve, against 33% opposed and 24% undecided (per ballotpedia, as above).

Mr. Brown, secure in his own re-re-re-election prospects (can you name his opponent?), has launched his own side-campaign to promote both Props 1 (ably described and advocated by my colleague, Ms. Roz) and Prop 2.

I am particularly hopeful of hearing from both School Board reps (and candidates) and perhaps our local legislative contingent on the merits of this Proposition. Does it overcome the deficiencies of its predecessor on the loophole front? Is it enough, or too much? Is the school districts' cap a practical problem? Do the anti-union conspiracy theorists have a point?

Please weigh-in ? thanks!

* (as opposed to the landmark food-animal treatment standards referendum passed in 2008)