California legislators weigh in on how to spend Gann limit surplus

State lawmakers could see their spending ambitions hampered in the coming fiscal year because of a 42-year-old constitutional amendment that caps spending.

A projected $31 billion surplus will almost certainly exceed the state appropriations limit, also known as the Gann limit, a 1979 law designed to limit the states total spending at levels of that year, adjusting for inflation and population growth. Gov. Gavin Newsom said earlier this month the state is looking at a $2.6 billion breach, a number he said could substantially change. 

It would be just the second time in the law’s history the cap was exceeded; the first breach occurred in 1987. Given various exceptions, lawmakers can opt to spend the excess funding in select ways, among them infrastructure projects, education or rebates given back to taxpayers. 

Last year, Newsom avoided passing the limit by preemptively issuing $1,100 checks — “the Golden State Stimulus” — to two-thirds of the state’s adult population after facing a $16 billion breach. Taxpayers in ’87 were given $1.1 billion worth of rebates. This time around, Newsom indicated the funds would be split between rebates and education spending. 

And though unlikely to happen within the coming fiscal year, the limit could also be sent to voters for reform. That may well happen with pressure mounting from some Democrats.

The state Senate’s budget plan introduced last month stated a key value of considering “future reforms to modernize Gann limit while respecting original intent.” The Assembly budget blueprint stated also a desire to address the limit, and the governor said he would be “open to reforms and discussion.”

“Ultimately the voters would have to decide,” said Assemblyman Kevin Mullin, D-South San Francisco. “I do feel it may be time to review the current Gann limit formula so that it better reflects current economic conditions and priorities of this state.”

Mullin pointed to issues surrounding climate and homelessness, problems he said did not confront the state as they do today when the law was written. 

Given the current restraints, he said a surplus should be prioritized for infrastructure given “deferred maintenance as a result of past lean budget years.” Providing additional resources to schools and a taxpayer rebate he said should also be included.

According to the state Legislative Analyst’s Office, other exempt spending includes “appropriation for a fixed asset (including land and construction)” and “emergency expenditures” which must be tied to an emergency declaration by the governor and a two-third vote from the legislature. Lawmakers could also avoid a breach by lowering tax revenues.

Assemblymember Phil Ting, D-San Francisco, who chairs the Assembly Budget Committee, indicated two potential Gann-except categories in his budget blueprint, suggesting $10 billion for school facilities and $10 billion for transportation.

State Sen. Josh Becker, D-San Mateo, said a surplus should be used to address “pressing needs for pandemic recovery,” along with advancing “efforts to achieve greater resilience of our state through strong climate action.”

State Sen. Scott Wiener, D-San Francisco, took a stronger stance on the issue, calling the cap “really bad policy” implemented in a time when a number of “right-wing, anti-tax, anti-government” constitutional amendments were adopted.

Paul Gann, the legislation’s author, had co-authored the contentious Proposition 13 just a year earlier, capping property taxes at levels of the time — a rule that has proven to be one of the most significant limits on the state government to this day. 

“It’s just a terrible constitutional provision and I hope that we can at some point get rid of it,” Wiener said of the Gann limit.  “It harms California’s ability to support middle-income and low-income families, to expand access to health care, to expand access to child care, to expand senior services.”

Wiener said in the meantime the excess funds should go to infrastructure, with investments made to bolster climate resiliency, like addressing sea level rise. Transportation and water systems, suffering from “massive unmet needs” could also benefit from the spending, he said.

While he said education spending would also be a good use, a rebate, he said, would not be “of service, because it means that we’re not making critical investments that improve people’s lives.”

The governor in May will provide a budget revision, something he said will more closely reveal the form and degree of likely “substantial contributions back to the taxpayers.’

“The Gann limit, the constitutional caps, all of these things will be more clear in the May revise,” he said. “I look forward to working with stakeholders including parents and leaders across the spectrum in this state to determine what [Gann limit] reform should look like.”

corey@smdailyjournal.com

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