ACA 4: The Good Idea that California Politicians Hate

Yesterday at Fox and Hounds, Loren Kaye gave us a quality run-down on the pros and cons of ACA 4, a constitutional amendment that California voters will weigh next June. This measure, which the Legislature placed on the ballot through a provision in Arnold Schwarzenegger's last budget, would cap the rate of growth in state spending at 3.8%, while requiring excess revenues during good years to be deposited into a rainy day fund. Predictably, spending-addicted politicians are already sounding the alarm: last week, state Treasurer Bill Lockyer warned that the bill would have "mischievous unintended consequences," as the state would be forced to impose further cuts to higher education in order to comply with its limits. "As a long-term investment strategy for the state of California to invest in those public sectors that create jobs, and create good jobs, it's doing exactly what we shouldn't be doing."

Yet, as Kaye explains, Lockyer is missing the point entirely. ACA 4 doesn't make sense because it's all that restrictive a spending cap (it isn't), or because spending caps have a good track record at restraining government growth (they don't); it makes sense because it prevents temporary spikes in tax revenue from turning into permanent programs that needs to be paid for after the good times end. You'd think that California would've learned this lesson from the dot com bubble a dozen years ago or the real estate bubble 6 years later, but dumb habits die hard. The reality, actually, would be much the opposite of what Lockyer fears: by saving tax windfalls during boom times, spending priorities like education would actually be protected from cuts during down years. Of course, that's not how people like Lockyer think: they'd rather spend freely during the boom years and extort more money from the taxpayers after it blows up in their faces.