It’s Our Money: Unlike SD, California Directs Surplus Toward Taxpayer Rebates

Despite an underperforming state economy, South Dakota finagled a budget surplus out of the coronavirus pandemic, thanks largely to wind farm construction and federal coronavirus relief. Our conservative Legislature went on spending binge, but I don’t recall hearing any of them talk about sending that money back to the taxpayers.

Meanwhile, California has racked up a surplus of $75.7 billion, thanks less to federal subsidies and more to its own progressive tax structure:

California’s coffers are bulging thanks to the high-flying Silicon Valley, surging stock market and a large share of professionals who were able to continue working remotely during Covid-19. The state has a progressive income tax structure that leans heavily on top earners, allowing the state to enjoy record revenues despite widespread job losses in the travel and service industries that have kept California’s unemployment rate among the nation’s highest [Kevin Yamahura, “California Has a Staggering $75.7B Budget Surplus,” Politico, 2021.05.10].

Governor Gavin Newsom has proposed his own heap of public projects in which to invest that surplus, but he also wants to send some of that money back to taxpayers:

Aided by an astonishing nearly $76 billion budget surplus, California Gov. Gavin Newsom on Monday proposed tax rebates of up to $1,100 for millions of households and more than $7 billion to help people affected by the pandemic cover rent and utilities.

…Under his plan, roughly 11 million low- and middle-income Californians would see direct, one-time payments. Taxpayers making between $30,000 and $75,000 a year would get a $600 payment. Households making up to $75,000 with at least one child would get an extra $500 payment. It builds on an earlier payments to the lowest-income Californians and immigrants who pay taxes but did not get federal stimulus payments, including those living in the country illegally [Kathleen Ronayna, “With $76B Surplus, California Proposes Rebates for Millions,” AP, 2021.05.10].

It’s easy to portray Governor Newsom’s surplus largesse as a mere ploy to escape a likely recall election (although polls suggest he doesn’t need to worry much about losing his job, and Newsom’s alleged motives won’t matter one whit to the working families receiving this relief). But Californians can thank themselves and direct democracy for these rebates—in 1979, California voters passed a ballot measure requiring that surpluses beyond a certain amount go back to the people:

If California Gov. Gavin Newsom avoids getting recalled from office later this year, he could owe a debt of gratitude to a conservative Republican political activist from the 1970s and 1980s.

It was Paul Gann who led the 1979 campaign that convinced voters to put limits on government spending. When the limit is exceeded, money gets returned to taxpayers.

That threshold has been reached only once — in 1987, when $1.1 billion was returned. And now it’s happened again and the return is much larger.

…Most California homeowners know about Proposition 13, the 1976 initiative that placed limits on property tax increases. Gann helped that law pass, too. But it his more gregarious colleague, Howard Jarvis, who gets most of the attention for that law to this day.

While Proposition 13 would go on to shape government spending for generations, the Gann limit fell into obscurity as it was so rarely used. The only other time it was used was in 1987, when the state had $1.1 billion in excess revenue and former Republican Gov. George Deukmejian returned the money to taxpayers.

Since then, voters have amended the limit twice, making it harder for the state to surpass it. That’s why Jon Coupal, president of the Howard Jarvis Taxpayers Association, argued Newsom shouldn’t get all the credit for his proposal to return some of the money.

“The people who deserve the credit are the people who are writing checks to the government,” he said [Adam Beam, “Decades Later, California’s ‘Gann Limit’ Back in Spotlight,” AP, 2021.05.10].

Liberal California enjoys a budget surplus thanks to its sensibly balanced tax policy, and a voter-approved initiative requires that the state return some of that money to the people. Meanwhile, professedly conservative South Dakota gets a windfall from green power and socialist handouts, and the Legislature not only ignores the opportunity for tax rebates to workers but tries to rig elections to make it even harder for the public to demand the kind of fiscal consideration California voters have imposed on their government. California seems to respect the power and the purse of the people more than South Dakota does.