INSIDE POLITICS - SAN DIEGO UNION TRIBUNE Economic boom shines spotlight on Gann limit By Ed Mendel April 10, 2000 SACRAMENTO -- They buried Paul Gann more than a decade ago -- right about the time the "Gann limit" on state and local government spending seemed to be put away with him. But the booming California economy, which continues to pile up tax revenue at a surprising rate, has officials dusting off the books. Gann's Proposition 4, a follow-up to the Proposition 13 property-tax cut, may now be back in play. The nonpartisan Legislative Analyst's Office quietly estimated last week that state tax revenue during the current fiscal year will exceed Gov. Gray Davis' forecast in January by more than $4 billion. "If our estimate were to hold, we would be a little over the Gann limit in the current year," said Brad Williams of the analyst's office. Of course, the big forecast won't come out until next month, when the Davis administration issues the annual "May revise" of revenue and spending requirements for the new fiscal year beginning July 1. But if the state is well over the Gann limit, the governor and the Legislature will face new budget pressures. They could spend more in areas exempt from the limit: schools, capital outlay for construction and equipment, and transfers to local government. Or they could deadlock, failing to get the two-thirds vote in the Legislature required for a new spending plan, and the revenue over the Gann limit would be automatically rebated to taxpayers. That's what happened in 1987, when then-Gov. George Deukmejian presided over a rebate of $1.1 billion triggered when revenue exceeded the Gann spending limit. Gann, a real estate salesman in suburban Sacramento, was overshadowed by the blustery Howard Jarvis when the two sponsored the landmark Proposition 13 property-tax cut in 1978. But the mild-mannered Gann followed up with the spending-limit initiative the following year. A similar spending limit had failed in the Legislature, bogged down in part by a dispute over whether it would bear the name of Republican Deukmejian or Democrat John Garamendi. Former Gov. Jerry Brown, a Proposition 13 opponent who became a convert after its passage, called a special election in 1979, and Gann's "Spirit of 13" initiative was approved by nearly 75 percent of the voters. But as state and local governments felt the pinch during the 1980s, the spending limit was loosened around the time that Gann died in 1989 of complications from AIDS, contracted through a blood transfusion during heart surgery. The Proposition 98 school-funding guarantee approved in 1988 gave schools a claim to some funds over the spending limit. The big change came with Proposition 111, a business-backed gasoline tax increase approved in 1990. The formula for calculating the spending limit was rewritten by changing the benchmark year, dropping inflation and adding per-capita income. Some spending also was excluded from the limit. "Everybody thought the Gann limit was forever dead," said Jonathan Coupal of the Howard Jarvis Taxpayers Association. But they did not reckon on a surging California economy, retooled after a deep recession last decade. Senate Budget Committee Chairman Steve Peace, D-El Cajon, predicted in February that the May revision would reveal a $6 billion surplus. "There is no longer any question of that," Peace said last week. As a surprising amount of tax revenue pours in, he said, some legislators are speculating that the surplus could reach $10 billion. One expert thinks a big surplus over the Gann limit could solve a problem for Davis, who does not want to make long-term commitments with what may be a short-term surplus. Only a quarter of the Gann surplus spent on schools goes into the permanent Proposition 98 guarantee for schools. "It gives him a better deal than if he tries to revise things to show we are under the limit," said Dave Doerr of the California Taxpayers Association. "But that's something they are going to have to decide." ED MENDEL is Capitol bureau chief for the Union-Tribune. Copyright 2000 Union-Tribune Publishing Co.