Gov. Jerry Brown is no stranger to spending caps. He served as governor when voters last approved a strict limit on expenditure growth, in 1979.
That law, known as the "Gann Limit" for anti-tax activist Paul Gann, has since been watered down by voters.
But GOP lawmakers are pursuing a new spending cap as one condition for placing tax hike extensions on the ballot to help solve a remaining $15.4 billion deficit.
Republicans want spending to increase no faster than the rate of inflation and population growth, with extra money going primarily to reserves and debt repayment.
Democrats believe such a restriction would lock in spending at recessionary levels and hamper the state's ability to pay for future needs, especially as health care demands are expected to rise.
Democratic backers such as labor unions and social service advocates oppose a strict spending cap, which makes it unlikely Republicans will win a constitutional proposal as far-reaching as some propose.
According to a document released Friday by Senate Republicans, Brown rejected a permanent "hard spending cap" during budget negotiations. Republicans countered with a temporary hard cap that remains in effect until the state pays off various forms of debt and builds a 10 percent reserve, with an exemption for K-12 and community college spending growth.
Under the counterproposal, once the hard cap ends, Republicans want the state to use a lighter spending restriction that lawmakers and former Gov. Arnold Schwarzenegger agreed last year to place on the 2012 ballot. But it could take many years for the hard cap to end, given the various forms of debts and deferrals required to be repaid first.
For instance, the Legislative Analyst's Office said in November that the state could still owe schools as much as $13 billion after 2015-16, money that the Republican proposal would require to be repaid.
Talks broke down Friday, so it remains to be seen whether such a proposal will make the ballot. If it doesn't, Republicans are hoping to gather enough signatures for a ballot initiative in 2012. The Howard Jarvis Taxpayers Association filed one version last week.
Flexibility vs. restrictions
The debate is not merely one of partisan philosophy; it also splits between those who believe voters should impose long-term budget restrictions vs. those who believe elected representatives should have fiscal flexibility.
"We've had this 30-year trend of limiting the Legislature and governor from making choices, and spending limits do that," said Fred Silva, a former legislative budget aide and adviser with the think tank California Forward.
A Public Policy Institute of California survey in January found that 73 percent of likely voters support strictly limiting growth in annual state spending. That includes 69 percent of Democrats.
"This is very popular among the people," said Sen. Tony Strickland, R-Moorpark, who has introduced legislation for a spending cap ballot measure. "They can understand that you don't spend beyond your means."
Critics caution that a formulaic limit on future spending will fail to address crucial needs. According to Legislative Analyst's Office data compiled by the treasurer's office, spending on prisons has outpaced average growth in inflation and population by 4 percent annually dating back to 1998-99.
Medi-Cal costs have also grown 1.1 percent faster, and the program could consume more of the budget if medical inflation continues to outpace consumer inflation and the aging population requires more services. A hard cap would force state leaders to make tougher choices between education, health and welfare, and corrections, the three largest general fund spending areas.
In a letter sent Friday, the Health and Human Services Network of California, a coalition of leading health and welfare advocates, urged Democrats to reject a spending cap. They said it would lock in "health and human services spending at levels that should be a floor, not a ceiling" and "force additional cuts to health and human services" due to rising health care costs.
Joe Mathews, co-author of "California Crackup," which examines the state's governance problems, said adding another spending limit "is almost kind of insane" because of how many budget restrictions are already in place.
Mathews said it is impossible to know how any new spending cap will interact with other budget requirements like the Proposition 98 requirement for school funds.
"Californians have decided they don't trust people," he said. "They'd rather have mathematical equations, even mathematical equations they can't explain."
Gauging tax revenue
The debate, in part, is rooted in disagreement over whether California has sufficient tax revenue to pay for services. Republicans like Strickland say the state can fund schools, prisons and social services with the money it has now. Democrats say the state currently captures too little income by historical standards. Brown's budget proposal would spend $5.05 per $100 of personal income earned statewide, the lowest amount since 1972-73.
Former Gov. Arnold Schwarzenegger sought spending restraints during most of his tenure. He persuaded voters to approve a 2004 measure establishing a "rainy-day fund" requirement that was easy to suspend. In 2005, he went back at voters with a spending cap proposal, but it was rejected.
In 2009, the voters also rejected a new rainy-day fund requirement stricter than the 2004 proposal; Schwarzenegger chalked up its defeat to its linkage to a tax extension.
Last year, Schwarzenegger and state lawmakers placed a similar proposal on the 2012 ballot. That would require the state to save 3 percent in good years until the reserve fund equals 10 percent of general fund revenue. The state would not have to put aside money when it takes in less than necessary to pay for the previous year's expenditures, accounting for inflation and population growth.
Strickland and the Howard Jarvis Taxpayers Association don't believe that measure goes far enough. They say it does not directly address spending, though unions believe it has the same effect.
As for the Gann Limit? After it provided $1.1 billion in tax rebates in 1987, voters amended it to direct money to schools in 1988 and then in 1990 to exempt certain programs and take effect only if the state had a surplus for two consecutive years.
The state has not gone over the Gann Limit since 1999-2000 and is currently $18.2 billion under its cap.