November Ballot Initiatives Showdown Between California Taxers, Taxpayers

Published October 1, 2005

No foe California Gov. Arnold Schwarzenegger (R) has had to face in his movies has proved as tough to conquer as the real-life state budget.

In March 2004, less than six months after taking office as the Golden State’s chief executive, Schwarzenegger was able to capitalize on his then-high popularity and convince California voters to pass Propositions 57 and 58. The former allowed the state to finance its debt at lower interest rates; the latter limited future state spending and required a balanced budget.

The measures slowed the flow of red ink the state had been gushing since the dot-com bust dried up windfall tax revenues, and it bought enough time for a more serious remedy to come along.

Spending Limit on Ballot

That time will arrive November 8 in the form of Proposition 76. The measure is part of the governor’s three-initiative reform package, for which he has called a special election. The other two are Proposition 74, which deals with teacher tenure, and Proposition 77, which would change the way the state draws its legislative districts.

The governor is not nearly as popular as he was a year ago, and teachers, nurses, firefighters, and police unions have organized well-financed and concerted opposition. The polarity of the issue is evident in the subtitles proponents and opponents have appended to Proposition 76. Supporters call it “The Live Within Our Means Act.” Opponents call it “The Cut School Funds Act.”

If passed, Proposition 76 would limit growth in future state budgets to an average of the three previous years’ revenue growth and would create a rainy-day fund during flush times. It would give governors new power in making midyear cuts should the economy start to turn really bad, a provision that particularly rankles the state’s teacher unions.

Prop 76 Affects Schools

Proposition 76 would weaken the teacher unions’ hard-fought Proposition 98, an initiative passed 17 years ago that guaranteed a minimum amount of school funding in all future state budgets from that time forward. The Alliance for a Better California (, the umbrella organization for opponents of Proposition 76, claims the state’s public schools would lose $4 billion a year, or $600 per student.

Not so, say proponents, whose umbrella Web site,, says Proposition 76 will “stabilize K-12 education spending. The initiative would repeal the formula that allows school funding to drop below what was promised when Proposition 98 was enacted.”

California is a celebrity state, and education is a hot celebrity issue. Both Schwarzenegger, a Republican, and fellow Hollywood heavyweight Rob Reiner, a Democrat, have successfully passed ballot initiatives on funding for pre- and after-school programs. The celebrities’ debate over Proposition 76 represents the battle over which star or group will own the mantle of education in the state.

Small Businesses Support Bill

One group with no confusion whatsoever is the state’s small-business owners. By a margin of 92 percent to 2 percent, Main Street shop owners favor passage of Proposition 76, according to a survey conducted by the 35,000-member National Federation of Independent Business/California, part of America’s largest small-business advocacy organization. The NFIB/California survey was released August 8 and had 1,200 respondents.

In the past five years, California small-business owners have been buffeted by a state-government-created energy crisis, a doubling to quadrupling of workers’ compensation premiums, one of the highest unemployment insurance rates in the country, and a new family leave law. A universal health care proposal that would stick them with the tab was narrowly defeated.

When NFIB ranked the 26 largest-economy states in terms of business environment, California came in second to last. If Proposition 76 fails, small-business owners fear the state legislature will come after them first when it comes time to raise taxes.

Michael Shaw ([email protected]) is the California assistant state director for the National Federation of Independent Business.