Proposition 31

ANALYSIS BY THE LEGISLATIVE ANALYST

OVERVIEW

This measure changes certain responsibilities of local governments, the Legislature, and the Governor. It also changes some aspects of state and local government operations. Figure 1 summarizes the measure’s main provisions, each of which are discussed in more detail below.

AUTHORIZES AND FUNDS LOCAL GOVERNMENT PLANS

Proposal

Allows Local Governments to Develop New Plans. Under this measure, counties and other local governments (such as cities, school districts, community college districts, and special districts) could create plans for coordinating how they provide services to the public. The plans could address how local governments deliver services in many areas, including economic development, education, social services, public safety, and public health. Each plan would have to be approved by the governing boards of the (1) county, (2) school districts serving a majority of the county’s students, and (3) other local governments representing a majority of the county’s population. Local agencies would receive some funding from the state to implement the plans (as described below).

Allows Local Governments to Alter Administration of State-Funded Programs. If local governments find that a state law or regulation restricts their ability to carry out their plan, they could develop local procedures that are “functionally equivalent” to the objectives of the existing state law or regulation. Local governments could follow these local procedures—instead of state laws or regulations—in administering state programs financed with state funds. The Legislature (in the case of state laws) or the relevant state department (in the case of state regulations) would have an opportunity to reject these alternate local procedures. The locally developed procedures would expire after four years unless renewed through the same process.

Allows Transfer of Local Property Taxes. California taxpayers pay about $50 billion in property taxes to local governments annually. State law governs how property taxes are divided among local government entities in each county. This measure allows local governments participating in plans to transfer property taxes allocated to them among themselves in any way that they choose. Each local government affected would have to approve the change with a two-thirds vote of its governing board.

Shifts Some State Sales Tax Revenues to Local Governments. Currently, the average sales tax rate in the state is just over 8 percent. This raised $42.2 billion in 2009–10, with the revenues allocated roughly equally to the state and local governments. Beginning in the 2013–14 fiscal year, the measure would shift a small part of the state’s portion to counties that implement the new plans. This would not change sales taxes paid by taxpayers. The shift would increase revenues of the participating local governments in counties with plans by a total of about $200 million annually in the near term. The state government would lose a corresponding amount, which would no longer be available to fund state programs. The sales taxes would be allocated to participating counties based on their population. The measure requires a local plan to provide for the distribution of these and any other funds intended to support implementation of the local plan.

Figure 1

Major Provisions of Proposition 31

Authorizes and Funds Local Government Plans

• Transfers some state revenues to counties in which local governments implement plans to coordinate their public services.
• Allows these local governments to develop their own procedures for administering state-funded programs.
• Allows these local governments to transfer local property taxes among themselves.

Restricts Legislature's Ability to Pass Certain Bills

• Restricts the Legislature’s ability to pass certain bills that increase state costs or decrease revenues unless new funding sources and/or spending reductions are identified.
• Exempts various types of bills from the above requirement.
• Requires almost all bills and amendments to be available to the public at least three days before legislative approval.

Expands Governor’s Ability to Reduce State Spending

• Allows the Governor to reduce spending during state fiscal emergencies in certain situations.

Changes Public Budgeting and Oversight Procedures

• Changes the annual state budget process to a two-year state budget process.
• Requires the Legislature to set aside part of each two-year session for legislative oversight of public programs.
• Requires state and local governments to evaluate the effectiveness of programs and describe how their budgets meet various objectives.

Fiscal Effects

In addition to the shift of the $200 million described earlier, there would be other fiscal effects on state and local governments. For example, allowing local governments to develop their own procedures for administering state-funded programs could lead to potentially different program outcomes and state or local costs than would have occurred otherwise. Allowing local governments to transfer property taxes could affect how much money goes to a given local government, but would not change the total amount paid by property taxpayers. Local governments also likely would spend small additional amounts to create and administer their new plans. The changes that would result from this part of the measure depend on (1) how many counties create plans, (2) how many local governments alter the way they administer state-funded programs, and (3) the results of their activities. For those reasons, the net fiscal effect of this measure for the state and local governments cannot be predicted. In some counties, these effects could be significant.

RESTRICTS LEGISLATURE’S ABILITY TO PASS CERTAIN BILLS

Current Law

Budget and Other Bills. Each year, the Legislature and the Governor approve the state budget bill and other bills. The budget bill allows for spending from the General Fund and many other state accounts. (The General Fund is the state’s main operating account that provides funding to education, health, social services, prisons, and other programs.) In general, a majority vote of both houses of the Legislature (the Senate and the Assembly) is required for the approval of the budget bill and most other bills. A two-thirds vote in both houses, however, is required to increase state taxes.

As part of their usual process for considering new laws, the Legislature and Governor review estimates of each proposed law’s effects on state spending and revenues. While the State Constitution does not mandate that the state identify how each new law would be financed, it requires that the state’s overall budget be balanced. Specifically, every year when the state adopts its budget, the state must show that estimated General Fund revenues will meet or exceed approved General Fund spending.

Proposal

Restricts Legislature’s Ability to Increase State Costs. This measure requires the Legislature to show how some bills that increase state spending by more than $25 million in any fiscal year would be paid for with spending reductions, revenue increases, or a combination of both. The requirement applies to bills that create new state departments or programs, expand current state departments or programs, or create state-mandated local programs. Exemptions from these requirements include bills that allow one-time spending for a state department or program, increase funding for a department or program due to increases in workload or the cost of living, provide funding required by federal law, or increase the pay or other compensation of state employees pursuant to a collective bargaining agreement. The measure also exempts bills that restore funding to state programs reduced to help balance the state budget in any year after 2008–09.

Restricts Legislature’s Ability to Decrease State Revenues. This measure also requires the Legislature to show how bills that decrease state taxes or other revenues by more than $25 million in any fiscal year would be paid for with spending reductions, revenue increases, or a combination of both.

Changes When Legislature Can Pass Bills. This measure makes other changes that could affect when the Legislature could pass bills. For example, the measure requires the Legislature to make bills and amendments to those bills available to the public for at least three days before voting to pass them (except certain bills responding to a natural disaster or terrorist attack).

Fiscal Effects

This measure would make it more difficult for the Legislature to pass some bills that increase state spending or decrease revenues. Restricting the Legislature’s ability in this way could result in state funds spent on public services being less—or taxes and fees being more—than otherwise would be the case. Because the fiscal effect of this part of the measure depends on future decisions by the Legislature, the effect cannot be predicted, but it could be significant over time. Because the state provides significant funding to local governments, they also could be affected over time.

EXPANDS GOVERNOR’S ABILITY TO REDUCE STATE SPENDING

Current Law

Under Proposition 58 (2004), after the budget bill is approved, the Governor may declare a state fiscal emergency if he or she determines the state is facing large revenue shortfalls or spending overruns. When a fiscal emergency is declared, the Governor must call the Legislature into special session and propose actions to address the fiscal emergency. The Legislature has 45 days to consider its response. The Governor’s powers to cut state spending, however, currently are very limited even if the Legislature does not act during that 45-day period.

Proposal

Allows Governor to Reduce Spending in Certain Situations. Under this measure, if the Legislature does not pass legislation to address a fiscal emergency within 45 days, the Governor could reduce some General Fund spending. The Governor could not reduce spending that is required by the Constitution or federal law—such as most school spending, debt service, pension contributions, and some spending for health and social services programs. (These categories currently account for a majority of General Fund spending.) The total amount of the reductions could not exceed the amount necessary to balance the budget. The Legislature could override all or part of the reductions by a two-thirds vote in both of its houses.

Fiscal Effects

Expanding the Governor’s ability to reduce spending could result in overall state spending being lower than it would have been otherwise. The fiscal effect of this change cannot be predicted, but could be significant in some years. Local government budgets also could be affected by lower state spending.

CHANGES PUBLIC BUDGETING AND OVERSIGHT PROCEDURES

Proposal

Changes Annual State Budget Process to a Two-Year Process. This measure changes the state budget process from a one-year (annual) process to a two-year (biennial) process. Every two years beginning in 2015, the Governor would submit a budget proposal for the following two fiscal years. For example, in January 2015 the Governor would propose a budget for the fiscal year beginning in July 2015 and the fiscal year beginning in July 2016. Every two years beginning in 2016, the Governor could submit a proposed budget update. The measure does not change the Legislature’s current constitutional deadline of June 15 for passing a budget bill.

Sets Aside Specific Time Period for Legislative Oversight of Public Programs. Currently, the Legislature oversees and reviews the activities of state and local programs at various times throughout its two-year session. This measure requires the Legislature to reserve a part of its two-year session—beginning in July of the second year of the session—for oversight and review of public programs. Specifically, the measure requires the Legislature to create a process and use it to review every state-funded program—whether managed by the state or local governments—at least once every five years. While conducting this oversight, the Legislature could not pass bills except for those that (1) take effect immediately (which generally require a two-thirds vote of both houses) or (2) override a Governor’s veto (which also require a two-thirds vote of both houses).

Imposes New State and Local Budgeting Requirements. Currently, state and local governments have broad flexibility in determining how to evaluate operations of their public programs. This measure imposes some general requirements for state and local governments to include new items in their budgets. Specifically, governments would have to evaluate the effectiveness of their programs and describe how their budgets meet various objectives. State and local governments would have to report on their progress in meeting those objectives.

Fiscal Effects

State and local governments would experience increased costs to set up systems to implement the new budgeting requirements and to administer the new evaluation requirements. These costs would vary based on how state and local officials implemented the requirements. Statewide, the costs would likely range from millions to tens of millions of dollars annually, moderating over time. These new budgeting and evaluation requirements could affect decision making in a variety of ways—such as, reprioritization of spending, program efficiencies, and additional investments in some program areas. The fiscal impact on governments cannot be predicted.

SUMMARY OF MEASURE'S FISCAL EFFECTS

As summarized in Figure 2, the measure would shift some state sales tax revenues to counties that implement local plans. This shift would result in a decrease in state revenues of $200 million annually, with a corresponding increase of funding to local governments in those counties. The net effects of this measure’s other state and local fiscal changes generally would depend on future decisions by public officials and, therefore, are difficult to predict. Over the long term, these other changes in state and local spending or revenues could be more significant than the $200 million shift of sales tax revenues discussed above.

Figure 2

Major Fiscal Effects of Proposition 31

State Government Local Government

Authorizes and Funds Local Government Plans

Funding for plans $200 million annual reduction in revenues. $200 million annual increase in revenues to local governments in counties that develop plans.

Effects of the new plans Cannot be predicted, but potentially significant. Cannot be predicted, but potentially significant in some counties.

Restricts Legislature’s Ability to Pass Certain Bills Potentially lower spending—or higher revenues—based on future actions of the Legislature. Potential changes in state funding for local programs based on future actions of the Legislature.

Expands Governor’s Ability to Reduce State Spending Potentially lower spending in some years. Potentially less state funding for local programs in some years.

Changes Public Budgeting and Oversight Procedures

Implementation costs Potentially millions to tens of millions of dollars annually, moderating over time. Potentially millions to tens of millions of dollars annually, moderating over time.

Effects of new requirements Cannot be predicted. Cannot be predicted.

In good times and bad, California has long had a state budget deficit, with politicians spending more money than state government brings in—much of it lost to waste, abuse and over-borrowing. Budgets are often based on the influence of special interests rather than the outcomes Californians want to achieve. Proposition 31 forces state politicians to finally live within their means, and it gives voters and taxpayers critical information to hold politicians accountable.

The non-partisan state auditor reported in an audit of several state agencies between 2003 and 2010 that the state could have saved taxpayers approximately $1.2 billion had the auditor’s own proposals to reform operations and improve efficiency been enacted. The recent effort to create a unified Court Case Management System cost taxpayers more than $500 million, more than $200 million over budget, to connect just 7 of 58 counties before being abandoned.

Proposition 31 requires a real balanced budget. It stops billions of dollars from being spent without public review or citizen oversight. Unless we pass Proposition 31, hundreds of millions of dollars every year will continue to be wasted that could be better used for local schools, law enforcement and other community priorities.

Proposition 31 does not raise taxes, increase costs to taxpayers or set up any new government bureaucracy. Proposition 31 makes clear that its provisions should be implemented with existing resources—and it will generate savings by returning tax dollars to cities and counties.

Yes on 31 will:

• INCREASE PUBLIC INPUT AND TRANSPARENCY —Stops the state from passing budgets without public review. Currently, the state budget has no real transparency or public reporting requirements. Proposition 31 requires state government to make available the proposed state budget for public review for a minimum of three days before lawmakers vote on it.
• IMPOSE FISCAL OVERSIGHT AND CONSTRAINTS ON NEW GOVERNMENT SPENDING —Proposition 31 prohibits the state from funding any new expenditure or decreasing revenues of more than $25 million without first identifying a funding source.
• INCREASE LOCAL CONTROL AND FLEXIBILITY —The 2012 state budget took $1.4 billion away from local government. Proposition 31 returns up to $200 million to local government to be used for local priorities. It provides cities, counties, and school districts more flexibility and authority to design services that improve results and meet local needs.
• REQUIRE PERFORMANCE AND RESULTS IN BUDGETS —Requires state and local governments to focus budgets on achievement of measurable results, and provides accountability by requiring the state legislature and local governments to issue regular public performance reports, and evaluate the effectiveness of programs before additional spending decisions are made.
• REQUIRE PERFORMANCE REVIEWS OF STATE GOVERNMENT PROGRAMS —Requires all state government programs to be publicly reviewed for performance to identify ways to improve results—or shift their funding to more efficient and effective programs.
• REQUIRE A TWO-YEAR STATE BUDGET —Prevents politicians from passing short-term budget gimmicks. Requires lawmakers to develop long-term fiscal solutions.

Vote YES on 31. Limit Government Spending—Increase Public Confidence in State Budgeting.

HON. CRUZ REYNOSO California Supreme Court Justice (Retired) HON. DELAINE A. EASTIN Former Superintendent of Public Instruction PROF. JAMES FISHKIN, Ph.D. Stanford University

PROPOSITION 31 WON’T BALANCE THE BUDGET, INCREASE PUBLIC INPUT OR IMPROVE PERFORMANCE.

If Proposition 31 actually did what its argument promises, WE would support it. But it doesn’t. Instead it adds complicated new rules, restrictions and requirements, inserted into California’s Constitution. It makes government more cumbersome, more expensive, slower, and less effective. The provisions are so confusing and ambiguous that it will take years of lawsuits for the courts to sort out what it means.

PROPOSITION 31 WILL INCREASE COSTS, INCREASE BUREAUCRATIC CONTROL, AND UNDERMINE PUBLIC PROTECTIONS.

It allows local politicians to override or alter laws they don’t like, undermining protections for air quality, public health, worker safety WITHOUT A VOTE OF THE PEOPLE.

PROPOSITION 31 WILL MAKE IT ALMOST IMPOSSIBLE TO CUT TAXES OR INCREASE FUNDING FOR EDUCATION.

It prohibits tax cuts unless other taxes are raised or programs cut, and prevents increases in funding for schools unless taxes are raised or other programs cut.

PROPOSITION 31 HAS SO MANY FLAWS THAT SEVERAL MEMBERS OF THE SPONSORING ORGANIZATION RESIGNED IN PROTEST OVER THE DECISION TO SUBMIT IT TO VOTERS.

Bob Balgenorth, a former board member of California Forward Action Fund, the organization behind Proposition 31 said it “contains serious flaws . . . and will further harm California.” In his letter of resignation he said that he was “disappointed that California Forward submitted signatures to the Secretary of State without correcting the flaws in the initiative.”

WE CAN’T AFFORD ANOTHER FLAWED INITIATIVE. VOTE NO ON PROPOSITION 31.

ANTHONY WRIGHT , Executive Director Health Access California LACY BARNES , Senior Vice President California Federation of Teachers LENNY GOLDBERG , Executive Director California Tax Reform Association

PROPOSITION 31 IS SO POORLY WRITTEN AND CONTRADICTORY THAT IT WILL LEAD TO LAWSUITS AND CONFUSION, NOT REFORM.

We all want reform, but instead Proposition 31 adds bureaucracy and creates new problems. It adds layer upon layer of restrictions and poorly defined requirements, leaving key decisions up to unelected bureaucrats, decisions such as whether tax cuts are allowed or programs can be changed—decisions that will be challenged in court year after year. We need real reform not more lawsuits.

PROPOSITION 31 WILL SHIFT $200 MILLION FROM EDUCATION AND OTHER VITAL FUNCTIONS TO FUND EXPERIMENTAL COUNTY PROGRAMS.

The state can barely pay its bills now. And the majority of the state’s budget goes to education. Yet this measure transfers $200 million per year from state revenues into a special account to pay for experimental county programs. This is not the time to gamble with money that should be spent on our highest priorities.

PROPOSITION 31 WILL PREVENT THE STATE FROM INCREASING FUNDING FOR EDUCATION UNLESS IT RAISES TAXES OR CUTS OTHER PROGRAMS—EVEN IF THE MONEY IS AVAILABLE.

As strange as it seems, Proposition 31 actually prevents the state from adopting improvements to programs like education or increasing funding to schools even if it has the money to do so, UNLESS IT RAISES TAXES or cuts other programs. This provision could tie up additional funding for schools for years.

PROPOSITION 31 PREVENTS THE STATE FROM CUTTING TAXES UNLESS IT RAISES OTHER TAXES OR CUTS PROGRAMS—EVEN IF THE STATE IS RUNNING A BUDGET SURPLUS.

The contradictory nature of these tax provisions would prohibit the state from cutting one tax unless it raises another, even when there is a budget surplus—either this was intended to prevent the state from cutting your taxes or is another case—a serious case—of careless drafting. And, Proposition 31 locks this into the State Constitution.

PROPOSITION 31 THREATENS OUR PUBLIC HEALTH, WATER QUALITY AND PUBLIC SAFETY BY ALLOWING COUNTIES TO OVERRIDE OR ALTER CRITICAL STATE LAWS.

California has adopted statewide standards to protect public health, prevent contamination of air and water and provide for the safety of its citizens. Proposition 31 contains a provision that allows local politicians to alter or override these laws WITHOUT A VOTE OF THE PEOPLE, and without an effective way to prevent abuse.

PROPOSITION 31 WILL COST TENS OF MILLIONS OF DOLLARS PER YEAR FOR ADDITIONAL GOVERNMENT PROCESS AND BUREAUCRACY—TO DO WHAT GOVERNMENT IS ALREADY SUPPOSED TO DO.

Performance-based budgeting is more of a slogan than anything else. It’s been tried many times before. The one thing we know it will do is raise costs. The official fiscal analysis by the non-partisan Legislative Analyst’s Office says it will raise the costs of government by tens of millions of dollars per year for new budgeting practices, with no guarantee any improvement will result. Certain costs, uncertain results.

We all want reform, but Proposition 31 will make things worse, not better.

JOIN US IN VOTING NO ON PROPOSITION 31.

SARAH ROSE , Chief Executive Officer California League of Conservation Voters JOSHUA PECHTHALT , President California Federation of Teachers RON COTTINGHAM , President Peace Officers Research Association of California

“Proposition 31 creates greater transparency, public review, and oversight over state and local government. This government accountability measure will protect environmental safeguards and worker protections while making sure taxpayers aren’t taken advantage of by special interests and lobbying groups.”

• Hon. Cruz Reynoso, California Supreme Court Justice (Retired)

“It’s time to shine a light on California’s budget process—no more multi-billion dollar deficit surprises. We need reforms that will work, not business as usual.”

• Professor James Fishkin, Stanford University

“Proposition 31 will lessen the state temptation to borrow and spend. Prop. 31 provides incentives to local governments and community schools to focus on improving education and increasing public safety. YES on Proposition 31 is a yes for California schools and students.”

• Hon. Delaine Eastin, Former State Superintendent of Public Instruction

YES on Proposition 31 will:

• Not raise taxes or require increased government spending.
• Prevent state government from spending money we don’t have.
• Add transparency to a budget process currently prepared behind closed doors.
• Shift more control and flexibility from Sacramento to cities and counties.
• Require state and local governments to publicly report results before spending more money.

Please review the measure for yourself at www.sos.ca.gov and help prevent further waste in government spending.

Proposition 31 meets the highest standards of constitutional change requirements. The measure is well written, legally sound, and will clearly improve the budget process and governance of California.

BILL HAUCK , Former Chairman, California Constitution Revision Commission

Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency.