Wait, How Much Was That Again?

Assessing California’s pricey propositions

By Justin Chapman, Berkeley Political Review, Winter 2008-09

On November 4th, when Californians went to the polls in record numbers to elect the first African-American President of the United States, they also weighed in on a dozen state ballot measures with wide ranging political and financial implications. While several propositions will result in revenue loss for the state of California, some of the measures that were approved by voters, including 1A, 3, and 12, are expected to cost the state a total of $23.2 billion over the next thirty years. These pricey propositions will be funded by the sale of tried and true government bonds, however, amidst the current economic crisis nothing is certain.

Recently investors have avoided bonds that state and city governments sell to pay for basic services like road repair and library construction. Analysis are hopeful that the situation will change. In order to fund Props 1A, 3, and 12, California will be required to sell billions in new bonds. Their ability to do so will be contingent upon the state of the bond market over the next few years. Analysts at the state Legislative Analyst Office in Sacramento say they are not too worried about covering the costs of the bonds.

Eric Thronson, an analyst specializing in Prop 1A, which will establish a high speed train service linking Southern California counties, the Sacramento/San Joaquin Valley, and the San Francisco Bay Area, admits they weren't sure what they were going to do, but added that money has been appropriated through the Public Transportation Account. He noted that the project is expected to take twelve years and since the bonds will not be sold for at least one to two years, the adverse effects on the state will be small.

However, Prop 1A's financial needs will continue even after its construction as the state expects to spend more than $1 billion a year to operate and maintain the train system. According to Secretary of State Debra Bowen's office, the costs would be "at least partially, and potentially fully, offset by passenger fare revenues, depending on ridership."

Prop 3, another bond act, will also need a year or two to sell bonds totaling $2 billion, according to analyst Farra Bracht. She noted that there is still money left over from Prop 61, which was approved by voters in 2004, and that some of those funds will be appropriated to help cover the costs of Prop 3. The rest will be repaid from the state's General Fund to fund the construction, expansion, renovation, and furnishing of children's hospitals, with 80 percent of bond proceeds going to hospitals that focus on leukemia, cancer, heart defects, diabetes, sickle cell anemia, and cystic fibrosis. The other 20 percent will go to University of California general acute care hospitals.

Analyst Shawn Martin said there is an 80 year history of bonds being paid on time at the correct interest rate, so he is confident "there will be a market for bonds," though he added that it depends on how the bond market performs over the next two years. Prop 12, which will provide loans to California veterans to purchase farms and homes, will cost about $1.8 billion which will be appropriated from the state General Fund if loan payments from participating veterans are insufficient to cover the cost of the bonds.

Meanwhile, other approved measures may result in a decrease in state and local tax revenues. An example would be Prop 2, which requires that calves raised for veal, egg-laying hens, and pregnant pigs be confined with enough room to fully extend their limbs and turn around freely. The Secretary of State's office estimates the decrease to be in the range of several million dollars annually. There may also be minor state and local enforcement and prosecution costs, but these will be partly offset by increased fine revenue.

Infamous Prop 8, which eliminates the right of same-sex couples to marry, will result in revenue loss from sales taxes over the next few years totaling in the tens of millions of dollars. Prop 9, which addresses victim's rights and new provisions for input during bail, pleas, sentencing, and parole, may cost the state future savings on prison operations and increased county jail operating costs that collectively amount to hundreds of millions of dollars annually. This is due to restricting the early release of inmates to reduce facility overcrowding.

This proposition cycle witnessed the passage of measures that require exorbitant funding while rejecting some that could have potentially generated increased state revenues. Despite a global financial crisis and massive state budget cuts, voters approved measures that will financially burden the state, undercutting the notion that voters vote with their pocketbooks.