SACRAMENTO, CA - As tax day approaches, Californians can ponder two initiatives that supporters claim will fix the state's fiscal problems. One has a better chance of delivering the goods than the other.

This year, once again, California's projected spending exceeds its projected revenues. Governor Arnold Schwarzenegger, emboldened by his call for reform, has proposed a new weapon. He wants a spending limitation that would restrict budget increases to the three-year average rate of revenue growth.

Dubbed the California Live Within Our Means Act, the initiative stipulates that spending increases are limited to a three-year average of revenue growth. Had this measure been law in 2004, instead of a 12.73 percent increase in spending, the budget would have grown by only 2.94 percent.

Citing this, the governor and others are calling the initiative "the solution to the budget roller coaster." But
California voters should be weary of such proclamations because the Live Within Our Means Act fails to rid the state of deficits.

The problem lies in its three-year averaging. Because high-revenue-growth years can be averaged with
low-revenue-growth years, the resulting figure does not necessarily reflect the current year's revenue picture. Since it allows more spending than current revenues, deficits will appear in years with rapid declines in tax revenue.

Under this plan, fiscal year 2004 would have been in the black, but deficits would have remained from 2000 through 2003. In fact, it would have allowed a greater deficit in 2000 than actually occurred.

California needs to enact an initiative that truly imposes fiscal responsibility, like Colorado did with its Taxpayer
Bill of Rights (TABOR). Since enacted in 1992, Colorado has seen annual budget surpluses totaling nearly $5 billion, much of that refunded to state taxpayers. Colorado ranks second in the U.S. Economic Freedom Index, a measure of how friendly state policies are toward business. California ranks a dismal 49th.

While most states, including California, were deep in the red during the recent economic downturn, Colorado continued to avoid shortfalls. Only recently has Colorado experienced minor deficits, but that is attributable to an education-funding mandate carved out of TABOR.

Colorado's TABOR has worked because it follows the model of successful tax and expenditure limitations: it restricts spending increases to the rate of inflation plus population growth; it mandates that the voters approve all tax increases; and it requires a balanced budget.

California has an initiative in the hopper that operates under this framework. Called the Deficit Prevention Act, much of the proposal follows Colorado's TABOR, except for a few provisions.

It allows a looser inflation calculation and doles out a portion of future budget surpluses to school and highway
projects. Despite these compromises, the Deficit Prevention Act is a step in the right direction. To its credit, it also includes a two-thirds majority requirement on all tax and fee increases.

Whether or not these proposals will succeed in a special election is uncertain, but if 2005 is to be the Year of
Reform, half-measures will not do. Hard-working Californians, who toil nearly four months a year to fund federal, state, and local government, deserve a tax and spending cap that is strong enough to put the state's fiscal house in order.

Anthony P. Archie is a Public Policy Fellow at the PacificResearch Institute. He can be reached via email at
aarchie@pacificresearch.org.