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Propositions 1 and 2: State Budget Boogaloo

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By Mark Wilson, Esq. on October 07, 2014 4:35 PM

This is the sixth and final entry in a series about this year's California ballot propositions. Hopefully we can help sort out the wheat from the chaff when it comes to claims about what these propositions do and don't do. In case you missed them, here are our discussions of Propositions 45, 46, 47, 48, and the missing-in-action Prop. 49.

The first big question is: "Why are these numbered 1 and 2 when the other propositions start at 45?" Glad you asked. They began life as Propositions 43 and 44 -- which makes sense -- and then got tweaked a little. After Prop. 43 was submitted, it got altered slightly, which meant it needed a new number. Because Gov. Jerry Brown considers them a package deal, Prop. 44 got renumbered so that voters would know they go together.

What Does Prop. 1 Do?

Prop. 1 is a bond bill. ("The name's Bond. General Obligation Bond.") The state would issue $7 billion in bonds to improve state water infrastructure, which includes drinking water systems, water recycling, dams, and cleaning up groundwater contamination. If you haven't heard, California is deep in the throes of a water crisis. Sixty percent of the state is in an "exceptional" drought -- which in this case means "unusual," not "unusually good."

Opponents of Prop. 1 aren't opposed to water infrastructure; they're opposed to the way Prop. 1 does it. The groups against Prop. 1 consist of environmentalists (who don't want to see new dams built), anti-corporate types (who believe the public will be funding water projects for "corporate agribusiness"), and anti-tax advocates (who don't want public money used to finance projects that will benefit private interests).

Notably, the new version of Prop. 1 -- that is, this version, not the old Prop. 43 -- was slimmed down at Brown's request from $11 billion in bonds that he called "pork-laden." So, hey, it could be worse.

What About Prop. 2?

During the recession, California's budget revenues took a nose-dive. At the time, Gov. Schwarzenegger terminated several state programs using his line-item veto power. This was supposed to be smart decision-making, but it ended up making many Californians angry.

Prop. 2 decreases the amount of money set aside in the state's "rainy day" fund, from 3 percent to 1.5 percent, allowing more tax revenues to be used on spending instead of put into savings. But on the flip side, whenever revenues from state capital gains taxes are more than 8 percent of general fund revenues, those capital gains revenues get put into the rainy day fund too.

The proposition also caps the amount that can be saved by school districts; after that, additional savings will be placed into the general fund and a newly created Public School System Stabilization Account (PSSA). It's this last part that's controversial and one that many newspaper op-eds ignore when talking about Prop. 2.

While we don't currently know how much districts save, the Legislative Analyst predicts that local school districts will be permitted to save 3 to 10 percent of their annual operating budgets before having to give the rest to the state. The amount that each district would be permitted to save would be determined by the district's size, and if "extraordinary financial circumstances" warranted it, the district could seek exemption from the limit.

Because we don't know how much each district would be limited to, the Legislative Analyst can't say for sure what would happen in each district. While districts might be disadvantaged in recession years when local tax revenues are low, such problems would be mitigated by the ability to use the PSSA to shore up revenue.

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