Elections Have Consequences for California's Economy
Voter guides are hitting doorsteps across California with a thud. Clocking in at over 220 pages, an inch thick, and weighing about 10 ounces, the 2016 guide is akin to an election novella. Its size reinforces the enormous responsibility Californians have when voting. Here's a snapshot of some of the good, bad, and ugly on this November's ballot.
The Good - Holding crony capitalists accountable: Propositions 67 and 65 may seem like esoteric environmental debates, but in reality they are about business manipulation of government policy for personal gain. The two measures relate to Senate Bill 270 - California's statewide ban on single-use plastic bags. After a statewide plastic bag ban failed in 2013, then-State Senator Alex Padilla (now Secretary of State) reintroduced the ban in the form of SB 270, which included a last minute, backroom deal with the California Grocers Association to include a mandated minimum 10 cent fee for all compliant reusable carry-out bags purchased at the grocery store to be collected and retained by the grocery store. Consumers are mandated by state law to pad the profits of grocery stores - the very definition of crony capitalism. Proposition 67 is a voter referendum to overturn SB 270 and eliminate this encoded crony capitalism (Note: a "NO" vote overturns SB 270).
But just in case Proposition 67 passes and upholds the crony capitalist-law, Proposition 65 can step in. This measure would create a special environmental protection account overseen by the Wildlife Conservation Board and audited every two years by the State Auditor funded by - you guessed it - the 10 cents fee currently collected and retained by the grocery stores. To teach Sacramento a lesson about crony capitalism, vote "NO" on Proposition 67 and "YES" on Proposition 65. At the very least, the initiative system should be used to keep our government honest.
The Bad - Flirting with one-party rule super-majorities: State Democrats are seeking to regain legislative super-majorities in the State Assembly and State Senate. To do so, they need to net two seats in the State Assembly and one in the State Senate. And in both chambers, they have options. In the Assembly, Democrats are targeting AD 16, AD 35, AD 36, AD 40, AD 60, AD 65, and AD 66. In aggregate, Democrats won 51% of the vote in those seven districts in the June Primary. In fact, just two of the districts saw the aggregate Republican vote outpace the Democratic (AD 16 and AD 35). Meanwhile, Assembly Republicans don't have any plausible pick-up opportunities to offset loses. In the State Senate, Republicans are fighting to retain SD 21 and SD 29. Again, in aggregate, Democrats won 51% of the vote in the June Primary with Republicans grabbing a majority in SD 21. And while at the start of the election cycle Republicans theoretically had two pick-up opportunities - SD 25 and SD 27 - the June Primary aggregate vote was 62% Democratic in these two districts.
Winning the super-majority in both chambers obviously allows Democratic one-party rule a clear path to pass new taxes, increase taxes, place anything on the ballot, and pass constitutional amendments. So, why is this "the bad" and not "the ugly?" Because it theoretically empowers the "Mod Dems," thus enabling Republicans to build coalitions with the more moderate caucus on common fiscal responsibility issues. It's what we've seen in other states with dominant one-party rule - like Rhode Island's moderate Democrats and Kansas' moderate Republicans.
The Ugly - Doubling down on volatile revenues: As State Controller Betty Yee states, "Under our outdated tax structure, revenues fluctuate greatly from month to month..." And California is dangerously close to doubling down on this systemic characteristic. The driver behind California's volatile revenue is the state's reliance on personal income taxes to fund government operations. In Fiscal Year 2014-2015, personal income taxes accounted for 67% of total General Fund revenue (and just under half of total revenues). This is up from the low-to-mid 40 percent levels in the 1980s and 1990s. And why is this a problem? The personal income tax has come to rely heavily on the wealthiest of Californians. In Tax Year 2013, those making $400,000 or more in AGI accounted for half of California's personal income tax liability, a jump from just 23% in Tax Year 1993. And why is this a problem? Wealthy individuals rely more heavily on non-salary-and-wage income, such as capital gains on investments, which is extremely sensitive to swings in economic cycles.
Therefore, by relying more and more on a source of revenue that itself is more reliant on a tax base that is itself reliant on highly volatile income, California's revenue situation is ripe for rollercoaster-like booms and busts, which means the state's budget swings wildly between good and bad times. Proposition 55, which extends the 2012 Proposition 30 personal income tax rate increases on California's wealthiest, exacerbates this situation. What makes this "the ugly" is that California is due for an economic downturn and Sacramento hasn't prepared for it by fixing California's revenue volatility.
There is a lot on California's November ballot, including seventeen ballot propositions, all Assembly races, half of the State Senate districts, the first open U.S. Senate race since 1992, a presidential race, and countless local and county races and ballot measures. This is a just a snapshot of the sort of decisions voters have to make (see here for more information on California's 2016 elections). As the saying goes, "elections have consequences," and 2016's consequences could be far-reaching.
