Budget Tied to Revenue

By Tom Campbell

Under existing law, every year the Legislature and the Governor set a budget based on what they expect revenue to be. Instead, they should set the budget on the lower of:

1) what they expect revenue to be, or

2) what the revenue actually was in the previous fiscal year. 

When revenue is growing, the extra amount will earn interest. When revenue is falling, the legislature will have one year's lead time; they can spread the necessary cuts over two years.  It will take some years to phase in this proposal. To be conservative, let's give it 10 years. After 10 years, we will collect money in the current year, put it in an interest-bearing account, and not spend it until the next year. What's in that account is what we have to spend. 

A fiscally responsible Governor can begin to implement such an approach immediately. Such a Governor would line-item veto across the board a small amount, to get the state on course for hitting the mark in 10 years' time. Assuming fiscally conservative Governors, we could actually effectuate this without a Constitutional amendment, just by using the line-item veto which already exists. 

This approach prevents the Legislature and Governor from assuming unrealistically that revenue will be higher than it actually is. Indeed, it takes the assumption work out entirely.   We should budget on the basis of the amount of money we know the state has, not the amount of money politicians wish it had.

The above are statements on several public policy issues drafted by Tom Campbell, former US Congressman, former California State Senator, former Director of Finance for California, and currently Interim Chairman of the Common Sense Party. They are meant to initiate consideration of several important issues; they are not the official views of the Common Sense Party. Please feel free to submit your own thoughts on these issues on the Open Policy Discussion Page.