McGeorge School of Law

Proposition 1A

Proposition 1A:
Protection of Local Government Revenues.

By Stephen A. Strain

Copyright © 2004 by University of the McGeorge School of Law

JD, McGeorge School of Law, University of the Pacific
to be conferred May 2005
B.A., History, University of California at Santa Barbara, 1996

Table of Contents

I. Executive Summary
II. The Law
III. Drafting Issues
IV. Constitutional Issues
V. Public Policy Considerations
VI. Conclusion

I. Executive Summary

Proposition 1A, an amendment to the California Constitution, would limit the state Legislature’s authority over local revenues. The Amendment, if adopted, would guarantee that local governments receive Vehicle License Fee [hereinafter VLF] revenues of no less than those generated by the current rate of .65 percent of the market value of each vehicle registered in California and would require the state to back fill any revenue lost by local governments if the VLF rate falls below the current level. Cal. Res. SCA4, 2003-2004 Session (July 27, 2004). In addition, the state would be prohibited from reducing the amount of property tax allocated to local governments in the absence of some very specific circumstances. Id. Any property tax allocated to the state at the expense of local governments in the event of these special circumstances would be characterized as a loan and the state would be required to repay local governments with interest within three years. Id.

Additionally, Proposition 1A prohibits the state from restricting the ability of local governments to impose sales tax and guarantees that the state will backfill with property tax the local revenues that are lost due to the ¼ cent sales tax suspension resulting from the adoption of The Economic Recovery Bond Act of 2004 in the most recent primary election. Id. Also guaranteed is the return of the ¼ cent sales tax when the bonds issued under The Economic Recovery Bond Act of 2004 are retired. Id. The Amendment would also limit the circumstances under which the state could reallocate sales tax revenues among local governments. Id.

Finally, the amendment limits the ability of the state to enforce mandates on cities, counties, and special districts with some limited exceptions. Id. The amendment requires the state to reimburse cities, counties, or special districts whenever it mandates implementation of a program or a higher level of service in regard to an existing program. Id. If the state fails to allocate funds for reimbursement, then the mandate will be suspended until funds are allocated. Id.

II. The Law

A. Existing Law

Property tax, the uniform local sales tax, and the VLF play major roles in the ability of California cities, counties, and special districts to provide many services. Legislative Analyst’s Office, Proposition 1A, Local Government Finance. State Constitutional Amendment http://www.lao.ca.gov/ballot/2004/1A_11_2004.htm (accessed Aug. 2004). These services include fire protection, law enforcement, water, libraries, parks and recreation, and, in recent years, additional services that have been imposed on local governments as a result of state mandates. Id. Examples of a state mandate that are very much in the public eye are the requirements of local law enforcement under “Megan’s Law” to register convicted sex offenders and make reports to the Department of Justice concerning registered sex offenders. State of CA Comm. on State Mandates Rpt. To the Leg.: State Mandates, June 1, 2002-January 31, 2003 (2003).

1. Property Tax

A one percent property tax is levied on real property and provides general-purpose revenues for local governments and revenues for schools and community colleges. Cal. Const. art. XIIIA, § 1. These revenues were approximately $15 billion for local governments and $16 billion for schools and community colleges during the 2003-04 fiscal year. Legislative Analyst’s Office, Proposition 1A, Local Government Finance. State Constitutional Amendment http://www.lao.ca.gov/ballot/2004/1A_11_2004.htm (accessed Aug. 2004). The amount of these revenues received by individual local governments varies greatly because allocation is based on the property tax rates charged by the local governments during the mid-1970s. Id.

In addition to cities, counties, special districts, schools, and community colleges, Redevelopment Agencies also receive funding from property taxes. Cal. Const. art. XVI, § 16. The California Constitution allows them to retain the difference between property tax revenue produced by a piece of property prior to their redevelopment efforts and the increased property tax revenue produced by a piece of property after their redevelopment efforts. Id. The California Constitution states that it is generally within the discretion of the state Legislature to determine whether or not this revenue will be protected from reallocation to other areas of government. Id.

The passage of Proposition 13 in 1978 greatly reduced the amount of property tax revenue received by local governments by capping property tax rates at one percent. Cal. Const. art. XIIIA, § 1. Also contributing to the reduction in revenue was that the property tax would be levied each year based on the property’s value in 1975 and would only be reevaluated in the event of a change of ownership or new construction on the property. Cal. Const. art. XIIIA, § 2. To mitigate the need for local governments to discontinue programs and services because of a lack of funds, in 1979 the state shifted property tax revenues received by schools and community colleges to local governments and backfilled the resulting loss in revenues to schools and community colleges with other state funds. California Budget Project, What would Proposition 1A mean for State and Local Government Finance http://www.cbp.org/2004/0409prop1A.pdf (Sept. 2004).

In 1988, Proposition 98 passed and established a guaranteed level of funding for schools and community colleges from a combination of state and local funds. Id. In 1992 and 1993, to lessen the state’s burden to satisfy its obligations to schools and community colleges under Proposition 98, it shifted some of the property tax revenues given to local governments in 1979 back to schools and community colleges. Id. Proposition 172, passed in 1993, partially backfilled the lost property tax revenues to cities and counties through a ½ cent sales tax increase. Id.

The 2004-05 State Budget included shifts of property tax revenues totaling $1.3 billion ($350 million in property tax revenues each from cities, from counties and from special districts and $250 million from redevelopment agencies) to schools and community colleges in both 2004-05 and 2005-06. Id. This shift was not accompanied by any provision to backfill the $2.6 billion in revenues lost to local governments. Id. As a result, a coalition of cities, counties, and special districts placed Proposition 65 on the upcoming ballot. Id. Proposition 65 would require, among other provisions, a majority vote of the electorate to approve the $2.6 billion dollar shift of property tax revenue. Id. Because of uncertainty by the Proponents of Proposition 65 as to whether or not it would be adopted and the budget gap that would face the state if the shift of property taxes did not take place, the coalition of cities, counties, and special districts and Governor Schwarzenegger developed Proposition 1A. Proposition 1A would allow the property tax shift in 2004-05 and 2005-06 while providing protections for local governments against similar future shifts of property tax revenues. Gary Scott, Measure offers protection of local revenues from the state, Pasadena Star News (July 28, 2004). Both Proposition 1A and Proposition 65 will appear on the November ballot.

2. Vehicle License Fee (VLF)

The VLF is a tax that is levied annually on the value of vehicles registered in the state. Legislative Analyst’s Office, Proposition 1A, Local Government Finance. State Constitutional Amendment http://www.lao.ca.gov/ballot/2004/1A_11_2004.htm (accessed Aug. 2004). For most of the century the tax was two percent of the value of the vehicle but in 1999 the state began reducing the percentage charged and backfilling the revenues that were lost by the cities and counties. Id. Currently, the VLF is set at .65 percent of the value of the vehicle and the revenues are primarily allocated to county governments for health and social services programs although some are allocated to cities for general purposes. Id.

In June 2003, then Governor Gray Davis reinstituted the full VLF of two percent of the value of the vehicle. Institute of Governmental Studies-University of California, California Vehicle License Fee-Introduction http://www.igs.berkeley.edu/library/ htCAVehicleLicense2003.html (last updated November 2003). When Davis was recalled in October 2003, new Governor Arnold Schwarzenegger revoked the fee increase by executive order and restored the VLF at .65 percent of the value of the vehicle. Id. The increase in the VLF rate made by former Governor Davis was expected to produce approximately $4.1 billion in additional revenue that would go to local governments and reduce the amount the state would have to backfill. Id. This $4.1 billion in anticipated revenue was lost when Governor Schwarzenegger returned the VLF rate to its previous level. Id. For 2004, this lost revenue will be replaced with property tax revenue shifted from schools and community colleges. Legislative Analyst’s Office, Proposition 1A, Local Government Finance. State Constitutional Amendment http://www.lao.ca.gov/ballot/ 2004/1A_11_2004.htm (accessed Aug. 2004). This shift does not reduce the financial burden on the state, however, because Proposition 98 of 1988 guarantees the level of funding of schools and community colleges that comes from property taxes and state funds. To meet the requirements of Proposition 98 of 1988, the state must now provide funds to schools and community colleges to take the place of the property tax funds shifted to local governments to alleviate the loss of VLF revenues. This funding gap will be at least partially addressed by the revenue produced by the issuing of the bonds under the Economic Bond Recovery Act of 2004. California Secretary of the State, California Official Voter Information Guide, Proposition 1A (2004).

3. Local Sales Tax

Cities and counties receive revenues from a uniform local sales tax levied on the purchase of most goods. Legislative Analyst’s Office, Proposition 1A, Local Government Finance. State Constitutional Amendment http://www.lao.ca.gov/ballot/ 2004/1A_11_2004.htm (accessed Aug. 2004). This tax was levied at a rate of 1.25 percent during 2003-04 and produced approximately $5.9 billion in revenue. Id. Currently, eighty percent of the revenue generated from this tax is allocated to the local government where the sale occurs and the remaining twenty percent is allocated to counties to fund transportation. Id. The Economic Recovery Bond Act of 2004 has pledged some of the revenue generated from the uniform local sales tax to pay the debt service on state-deficit related bonds issued under the act. Id. The revenue lost to local governments as a result is being backfilled with additional property tax revenue. Id.

Cities and counties can also impose some additional sales taxes for local purposes. Id. During 2003-04 forty jurisdictions levied optional sales taxes and generated approximately $3.1 billion which was used primarily for transportation. Id.

4. State Mandates

The California Constitution provides that whenever the state Legislature or a state agency

mandates a local government to implement a new program or provide a higher level of service in regard to an existing program the state must reimburse the local government. Cal. Const. art. XIIIB, § 6. The California Constitution does not, however, provide a mechanism for local governments to obtain relief in the event the state government fails to reimburse them. Id. The state deferred payments to local governments for mandates in 2002, 2003, and 2004 and is approximately $2 billion behind in reimbursements for mandates from prior years. California Budget Project, What would Proposition 1A mean for State and Local Government Finance http://www.cbp.org/2004/0409prop1A.pdf (Sept. 2004). In some cases the state has suspended mandates in order to eliminate the need for the state to pay and, consequently, the need for the local government to comply. Legislative Analyst’s Office, Proposition 1A, Local Government Finance. State Constitutional Amendment http://www.lao.ca.gov/ballot/ 2004/1A_11_2004.htm (accessed Aug. 2004).

B. The Effects of Proposition 1A

Proposition 1A, if adopted, would create a variety of limitations on the state’s control over local revenue. Currently the VLF Rate is statutorily set at two percent of the market value of any vehicle registered in California although the state has voluntarily reduced it to .65 percent and backfilled the difference in revenue between .65 percent and two percent. League of California Cities, Proposed Local Government Agreement http://www.cacities.org/index.jsp (last updated July 29, 2004). Proposition 1A would statutorily fix the VLF rate at .65 percent and make the backfill in revenues a statutory requirement. Cal. Res. SCA4, 2003-2004 Session (July 27, 2004). Additionally, Proposition 1A would amend the state constitution to guarantee that cities and counties will receive revenues each fiscal year equal to those that would be generated at a VLF rate of .65 percent by requiring the state to backfill any lost revenues if the VLF rate falls below .65 percent. Id. These changes would eliminate the state’s ability to reduce the amount of VLF funds available to cities and counties and thus provide cities and counties with increased fiscal certainty as they would have a fixed, guaranteed revenue stream that could be relied upon in making future plans.

Proposition 1A would also reduce the state’s control over property tax revenues. Id. Currently the state Legislature may reallocate property tax revenues within the county where collected by a majority vote. California Budget Project, What would Proposition 1A mean for State and Local Government Finance http://www.cbp.org/2004/0409prop1A.pdf (Sept. 2004). Proposition 1A would prohibit the state from reducing the percentage of property tax revenue allocated among all of the local agencies in a county below the percentage of property tax revenues they would receive under the statutes in effect November 3, 2004. Cal. Res. SCA4, 2003-2004 Session (July 27, 2004). This would eliminate the state’s ability to reduce the property tax revenues allocated to local agencies in order to meet the school and community colleges funding requirements dictated by Proposition 98 of 1988. Proposition 1A states that this provision will only apply to statutes enacted after November 3, 2004, thus making it inapplicable to the statutes passed in regard to the 2004-05 budget and allowing the $2.6 billion shift of property taxes in 2004-05 and 2005-06. Id.

Proposition 1A would allow the prohibition on reallocation of property tax revenues to be suspended under certain circumstances. Id. Beginning with the 2008-09 fiscal year, the state would be able to reallocate property tax revenues only if the governor declares that the state is experiencing a severe financial hardship and the declaration is approved by a 2/3 vote of each house of the Legislature. Id. The amount that the state may reallocate will be capped at eight percent of the property tax allocated to cities, counties, and special districts the previous fiscal year and must be repaid with interest within three fiscal years. Id. The state may only exercise this exception twice in any ten year period and is prohibited from exercising the exception if it has not fully repaid a previous loan of local revenues taken in accordance with the exception. Id. None of the provisions of Proposition 1A offer any protection for property tax revenue allocated to redevelopment agencies beyond what is given by the California Constitution. Id.

Proposition 1A would also amend the state constitution to prohibit the state from restricting the ability of local governments to impose sales tax under the Bradley-Burns Uniform Local Sales and Use Tax Law and guarantees that the state will backfill with property tax the local revenues that are lost due to the ¼ cent sales tax suspension resulting from the adoption of The Economic Recovery Bond Act of 2004 in the most recent primary election. Id. Also guaranteed by Proposition 1A is the return of the ¼ cent sales tax when the bonds issued under The Economic Recovery Bond Act of 2004 are retired. Id. Currently the state Legislature may adjust the sales tax rate and how the derived revenues are distributed by a majority vote and neither the backfill of lost revenues due to The Economic Recovery Bond Act of 2004 nor the return of diverted sales tax revenue once the bonds are retired is guaranteed. League of California Cities, Proposed Local Government Agreement http://www.cacities.org/index.jsp (last updated July 29, 2004). The only exceptions to these provisions are that the state will be able to change the method of distribution of revenues derived from local sales and use taxes in order to participate in an interstate compact or comply with federal law. Cal. Res. SCA4, 2003-2004 Session, (July 27, 2004). Proposition 1A would also allow the state to authorize two or more agencies within a county to contract to exchange allocations of property tax revenue for sales and use tax revenue if the agencies consent. Id.

Finally, Proposition 1A would amend the state constitution to require the state to suspend mandates to cities, counties, and special districts that require implementation of new programs, higher levels of service in existing programs, or shifts in the cost of a program from the state to the local government if the state fails to allocate funds for reimbursement. Id. Currently, the California Constitution is silent as to the rights possessed by local governments in the event the state does not reimburse them for mandates of this kind and the definition of a mandate does not include the shift in cost from the state to a city, county, or special district. Cal. Const. art. XIIIB, § 6. Proposition 1A does not encompass mandates to schools and community colleges and also excludes the following types of mandates:

1. Mandates requested by the affected local agency

2. Legislation defining a new crime or changing an existing definition of a crime

3. Legislative mandates enacted prior to January 1, 1975, or executive orders or regulations initially implementing legislation enacted prior to January 1, 1975

4. Requirements to provide or recognize any procedural or substantive protection, right, benefit, or employment status of any local government employee or retiree, or of any local government employee organization, that arises from, affects, or directly relates to future, current, or past local government employee. Cal. Res. SCA4, 2003-2004 Session (July 27, 2004).

Additionally, Proposition 1A would allow the state to reimburse cities, counties and special districts for money owed on state mandates from previous years over a term of years but would prohibit reimbursement through the use of property tax revenues. Id.

C. Comparison with Proposition 65

Proposition 1A and Proposition 65 both appear on the November ballot and are aimed at the protection of local government revenues from state control. It would be difficult to assess the true impact of either one without comparison to the other.

Proposition 65 does not prohibit the state from reducing revenues to local governments derived from property tax, local sales tax, or VLF funds, but it does make any such change subject to approval by a majority of the electorate. California Attorney General, The Local Taxpayers and Public Safety Protection Act http://www.caag.state.ca.us/initiatives/pdf/sa2003rf0067.pdf (Dec. 10, 2003). Any such reduction in revenues approved by the voters would not be subject to repayment. Id. Also subject to voter approval would be any action that affects the reestablishment of the sales tax rate at 1.25 percent after the retirement of the bonds issued under The Economic Recovery Bond Act of 2004. Id.

In contrast, Proposition 1A does prohibit reductions in the amount of revenues from property tax, sales tax, and VLF funds received by local governments, but it is not a total prohibition as the state may still have access to local revenues under certain circumstances. Cal. Res. SCA4, 2003-2004 Session, (July 27, 2004). Proposition 1A fixes the level of revenues local governments receive from VLF funds but allows the state to reduce this amount as long as it backfills any lost VLF funds with other funds. Id. Further, the state may shift a limited amount of property tax revenues from local governments in the event the governor declares it is necessary due to severe financial hardship and such declaration is approved by a 2/3 vote of the Legislature. Id. Such a shift could only be done twice in any ten year period, could not be done in consecutive years, and would require the state to repay local governments with interest over three years. Id. Additionally, Proposition 1A would constitutionally prohibit any state action that would effect the backfill of lost sales tax revenue resulting from The Economic Recovery Bond Act of 2004 or the reinstatement of sales tax revenue once the bonds are retired. Id.

Essentially, it seems that Proposition 65 still allows the state access to local revenues but creates an onerous barrier to that access by requiring statewide voter approval. Proposition 1A creates a less onerous barrier for the state to overcome in gaining access to local revenues but limits the frequency and circumstances under which that access can be gained. Proposition 1A also places a complete prohibition on state interference with the backfill and eventual reinstatement of sales tax resulting from The Economic Recovery Bond Act of 2004 and requires the state to repay any local revenues it takes. Proposition 65 would allow the state to interfere with the backfill and eventual reinstatement of sales tax resulting from The Economic Recovery Bond Act of 2004 if it receives voter approval and Proposition 65 does not have any repayment provision if the state takes property tax revenue.

Another key difference between Proposition 65 and Proposition 1A is the date they would take effect. Proposition 65 would be retroactive to any law passed after November 1, 2003, while Proposition 1A would not be retroactive and only take effect on November 3, 2004. California Attorney General, The Local Taxpayers and Public Safety Protection Act http://www.caag.state.ca.us/initiatives/pdf/sa2003rf0067.pdf (Dec. 10, 2003); Cal. Res. SCA4, 2003-2004 Session (July 27, 2004). The most noteworthy impact of this difference is that the $2.6 billion shift in property taxes from local governments to the state under the 2004-05 state budget would not be impacted by Proposition 1A, but would be suspended pending voter approval under Proposition 65, thus putting the state at risk of a large budget gap.

Both Propositions aim to add teeth to the requirement of the California Constitution that the state reimburse local governments for mandated actions, but they differ in their approach. Proposition 65 applies to cities, counties, special districts, schools, and community colleges and gives them an option between suspending the mandated action if they do not receive reimbursement from the state or continuing the action subject to future reimbursement. California Attorney General, The Local Taxpayers and Public Safety Protection Act http://www.caag.state.ca.us/initiatives/pdf/sa2003rf0067.pdf (Dec. 10, 2003). Proposition 1A does not apply to schools and community colleges and requires the state to suspend mandates to local governments if it does not allocate money for reimbursement. Cal. Res. SCA4, 2003-2004 Session (July 27, 2004).

In regard to state mandates, Proposition 65 seems to provide more protection to local governments while Proposition 1A seems to offer more protection for the state. If the state is unable to pay the local government for implementation of the mandated action, under Proposition 65 the local government has the option to continue to implement the mandate and continue to increase the state’s debt. Proposition 1A, on the other hand, suspends the state’s mandate thus eliminating both the local government’s need to comply and the state’s need to pay. Additionally, Proposition 1A does not apply to schools and community colleges, thus allowing the state to continue to issue mandates to those entities while deferring payment indefinitely.

Finally, while the provisions of Proposition 65 apply to redevelopment agencies as well as other local government entities, Proposition 1A does not. California Attorney General, The Local Taxpayers and Public Safety Protection Act http://www.caag.state.ca.us/initiatives/pdf/sa2003rf0067.pdf (Dec. 10, 2003); Cal. Res. SCA4, 2003-2004 Session (July 27, 2004). The Proponents of Proposition 1A have defended this difference by relying on the protections given redevelopment agencies by California State Constitution Article XVI, §16. California Secretary of the State, California Official Voter Information Guide, Proposition 1A (2004). Although this section appears to give the state Legislature discretion in whether or not property revenues are distributed to redevelopment agencies, the discretion is whether or not to allow redevelopment plans to include provisions for allocating property tax revenues to the redevelopment agency. Cal. Const. art. XVI, § 16. The distribution becomes effective once the ordinance implementing the redevelopment plan takes effect. Id. Essentially, it seems that this section of the state constitution provides protection for property taxes already allocated to redevelopment agencies through existing redevelopment plans but does not protect future redevelopment plans or property tax distributions. However, this may be a dubious protection because the fact that the Legislature approved the division of property taxes to redevelopment agencies in the first place does not offer such distribution any constitutional protection and therefore may be subject to repeal by the state Legislature. Proposition 65, on the other hand provides redevelopment agencies all the protections given to other local governments under the Proposition. California Attorney General, The Local Taxpayers and Public Safety Protection Act http://www.caag.state.ca.us/initiatives/pdf/sa2003rf0067.pdf (Dec. 10, 2003).

III. Drafting Issues

There do not appear to be any major drafting issues but a couple observations are noteworthy. Proposition1A does not include a severability clause stating that in the event any part of the proposition is found to be unconstitutional the remaining provisions should still be enacted. This alone does not completely rule out the potential severability of the proposition because the Supreme Court of California has stated that, “ it is clear that severance of particular provisions is permissible despite the absence of a formal severance clause .” Legislature v. Eu, 54 Cal. 3d 492 , 535 (Cal. 1991).

The California Supreme Court has articulated three criteria for severing an initiative and upholding the constitutional portions of a ballot measure despite the unconstitutional portions. The valid sections must be grammatically, functionally, and volitionally separable from the invalid sections. Id. Proposition 1A appears to have four distinct sections, one dealing with VLF revenues, one dealing with property tax revenues, one dealing with sales tax revenues, and one dealing with state mandates. Each could be severed grammatically without affecting the understanding of the other provisions and functionally without impeding the function of the other provisions, but Proposition 1A seems unable to be severed volitionally. In Legislature v. Eu, the California Supreme Court articulated the volitional test as whether or not “ the framers and voters undoubtedly would have adopted the remaining provisions had they foreseen the success of petitioners' challenge.” Id. at 535. The text of Proposition 1A states that “this measure is intended to be a comprehensive and competing alternative to Proposition 65, it is the intent of the people that this measure supersede in its entirety proposition 65….” Cal. Res. SCA4, 2003-2004 Session (July 27, 2004). While this statement is made in the context of how to implement Proposition 1A and Proposition 65 in the event both receive enough votes to be adopted, the statement that Proposition 1A is intended to be comprehensive and to be enacted in its entirety seems to express clearly that the framers, and likely the voters, would not adopt any portion of Proposition 1A if any other portion is invalidated.

Proposition 1A’s explicit statement that it should completely supercede Proposition 65 if both receive enough votes to be adopted is also noteworthy because it necessitates discussion of what parts, if any, of Proposition 1A will be enacted if both measures receive enough votes to be adopted but Proposition 65 receives more votes. Article II, § 10(b) of the California State Constitution states, “If provisions of 2 or more measures approved at the same election conflict, those of the measure receiving the highest affirmative vote shall prevail.” Cal. Const. art. II, § 10. This calls for a determination of whether or not Proposition 1A and Proposition 65 are competing. If they are determined to be supplementary or complimentary rather than competing then the provisions of the proposition receiving fewer votes that do not conflict with the proposition receiving a greater number of votes would be merged with the proposition receiving a greater number of votes. Gerken v. FPPC, 6 Cal. 4th 707, 720 (1993). In Gerken v. FPPC, the California Supreme Court stated that a determination as to whether ballot measures addressing the same subject matter are complimentary, supplementary, or competing depends on how the propositions are presented to the public. Id. Proposition 1A and Proposition 65 appear to be competing initiatives. In addition to the explicit language of Proposition 1A stating it is intended to completely supercede Proposition 65 if both receive enough votes to be adopted, all the official supporters of Proposition 65 have shifted their support to Proposition 1A and are urging the voters to adopt 1A and not Proposition 65. California Secretary of the State, California Official Voter Information Guide, Argument Against Proposition 65 (2004).

It seems that the two propositions are being presented to the public as necessitating that voters choose one or the other. This would make them appear as competing propositions and therefore, if Proposition 65 were to receive more votes than Proposition 1A, it would likely completely supercede Proposition 1A even if both receive enough votes to be adopted.

IV. Constitutional Issues

A. Federal Constitution

Proposition 1A does not raise any federal constitutional issues.

B. State Constitution

Proposition 1A does not raise any state constitutional issues.

V. Public Policy Considerations

A. Proponents

The Proponents of Proposition 1A refer to it as, “A historic bipartisan agreement among local governments, the State Legislature, Republican Governor Arnold Schwarzenegger, and authored by State Senator Tom Torlakson.” California Secretary of the State, California Official Voter Information Guide, Argument in Favor of Proposition 1A (2004). The negotiations that led to this “historic bipartisan agreement” were prompted by the placement of Proposition 65 on the ballot by the Leave Our Community Assets Local (LOCAL) coalition made up of cities, counties, and special districts. California Budget Project, What would Proposition 1A mean for State and Local Government Finance http://www.cbp.org/2004/0409prop1A.pdf (Sept. 2004). The supporters of Proposition 1A now include every official supporter of Proposition 65 as well as the governor and the majority of the state Legislature. California Secretary of the State, California Official Voter Information Guide, Argument Against Proposition 65 (2004).

The reasons for this widespread support, Proposition 1A’s supporters say, is that it offers the same protections for local governments sought by Proposition 65 while allowing flexibility for the state government to address its financial concerns that was not allowed under Proposition 65. California Secretary of the State, California Official Voter Information Guide, Argument in Favor of Proposition 1A (2004). Chris McKenzie, the executive director of the California League of Cities and one of the original Proponents of Proposition 65 has said of Proposition 1A, “This is a fair and balanced agreement that ensures local governments will never again be used as the state’s ATM machine. It draws a bright line separating local revenues from state revenues, and protects our most valued local services.” David Chircop, Hopes High to Protect Local Funds, Merced Sun Star (July 28, 2004).

The Proponents of Proposition 1A state that it was placed on the ballot in order to stop the reduction in the number of firefighters and law enforcement officers, the increase in wait time in emergency rooms, and the increase in local taxes and fees that have resulted from the state taking billions of dollars in local tax dollars each year. California Secretary of the State, California Official Voter Information Guide, Argument in Favor of Proposition 1A (2004). Proposition 1A, its Proponents claim, offers protection from state raids of local tax dollars so that revenues that are meant for local governments will remain with local governments and allow them to hire the firefighters, hire the law enforcement officers, increase emergency room service, and provide or improve many other services implemented by local governments without requiring an increase in local taxes and fees. Id. These are the same goals targeted by Proposition 65. Id. The Proponents of Proposition 1A assert, however, that Proposition 65 simply shifted the financial hardship from local governments to the state where Proposition 1A is flexible enough to accommodate the needs of the both the state and local governments. Id. This flexibility comes from the fact that the state will still have access to local revenues in the case of severe financial hardship declared by the governor and affirmed by a 2/3 vote of the Legislature, while still protecting local governments by limiting the amount of local revenues that can be raided, limiting the frequency with which the state can raid local revenues, and requiring timely repayment. Id. Proposition 65 would only allow the state access to local revenues if approved by a majority vote of the state electorate. California Attorney General, The Local Taxpayers and Public Safety Protection Act http://www.caag.state.ca.us/initiatives/pdf/sa2003rf0067.pdf (Dec. 10, 2003). Instituting this vote would be a much more difficult threshold for the state to meet than those outlined in Proposition 1A and, if approved, would not guarantee repayment to the local governments as Proposition 1A does.

The Proponents of Proposition 1A also argue that the fact that redevelopment agencies are not included in these protections is inconsequential because they believe the protections provided redevelopment agencies by the state Constitution discussed earlier are sufficient. California Secretary of the State, California Official Voter Information Guide, Argument in Favor of Proposition 1A (2004).

The “historic bipartisan agreement” that is Proposition 1A came as a negotiated response to the placing of Proposition 65 on the ballot by a coalition of local governments and local government organizations. Id. All official supporters of Proposition 65 have shifted their support to Proposition 1A because they believe it provides the protection that local governments need in a way that allows for more flexibility in helping both the state and local governments in meeting their social and economic responsibilities. Id.

B. Opponents

There is no organized opposition to Proposition 1A, but arguments against it have been made by the State Board of Equalization as well as some state and local politicians. California Secretary of the State, California Official Voter Information Guide, Rebuttal to Argument in Favor of Proposition 1A (2004) . The State Board of Equalization points out that Proposition 1A was developed at the last minute in response to Proposition 65 being put on the ballot and did not involve any public input. Id. They also call attention to the fact that the revenues the state has been taking from local governments for twelve years will have to be replaced from somewhere and that place is going to be schools, community colleges, and other educational programs that do not have any of the protections that Proposition 1A gives to local governments. Id.

The State Board of Equalization further point out that while locking in the sales tax rate provides stability to local governments and protects local government funds from the state, it also prevents the Legislature from reducing not just the amount of sales tax distributed to the local governments but from reducing the total amount of sales tax levied against the taxpayers, effectively eliminating the possibility of any sales tax relief to the taxpayer. Id. Proposition 1A also provides no restrictions on how local governments use the revenue created by sales tax, property tax, and the VLF. California Secretary of the State, California Official Voter Information Guide, Argument Against Proposition 1A (2004) . Essentially the State Board of Equalization believes that Proposition 1A protects local government revenues at the expense of education and with no mechanism for assuring that the local governments use the revenue effectively. Id.

Assemblyperson Darrell Steinberg (D-Sacramento), who led the opposition to Proposition 1A in the Legislature, has also criticized the proposition for leaving in place incentives for local governments to seek big box stores rather than affordable housing. Jake Henshaw, Cities eye funding solution with Prop. 1A, Visalia Times Delta (Sept. 23, 2004). Although assemblyperson Loni Hancock (D-Berkeley) remains neutral on Proposition 1A she has voiced the same concern, “It [Proposition 1A] locks in fiscalization of land use by keeping in perpetuity and unchangeably the current incentive for cities to get retail as the major source of their financial security, as opposed to building housing.” J. Douglas Allen-Taylor, Cities, County Look to November Vote for Funds, Berkeley Daily Planet (Aug. 13, 2004).

An additional criticism of Proposition 1A, articulated by Pasadena Finance Director Jay Goldstone, is that it offers no protection for redevelopment agencies and leaves vulnerable tax increment that cities earn from increased property taxes in redeveloped areas. Gary Scott, Measure offers protection of local revenues from state, Pasadena Star News (July 28, 2004).

Essentially, those who have criticized Proposition 1A have done so on the grounds that it protects local revenues without holding local governments accountable in how they use the revenues, it perpetuates a property tax system that promotes retail development at the expense of other valuable areas of development such as housing, and it does not protect all local government revenues.

VI. Conclusion

If Proposition 1A is adopted by the California voters in the upcoming election it will amend the California Constitution to significantly limit the state government’s power over local revenues. Cal. Res. SCA4, 2003-2004 Session (July 27, 2004). Proponents argue that this is a historic bipartisan solution that accommodates both local governments’ need for steady sources of revenue to provide fire, law enforcement, health, and other services while still allowing the state access to additional funds when it is really necessary. California Secretary of the State, California Official Voter Information Guide, Argument in Favor of Proposition 1A (2004) . Opponents argue that Proposition 1A protects local governments at the expense of schools and community colleges whose revenues will become the new target of state raids. California Secretary of the State, California Official Voter Information Guide, Rebuttal to Argument in Favor of Proposition 1A (2004 ). They also contend that Proposition 1A imposes no oversight or fiscal accountability on local governments, does not protect all local revenues, and locks in a property tax system that promotes retail development over other valuable areas of community development. California Secretary of the State, California Official Voter Information Guide, Argument Against Proposition 1A (2004) ; Jake Henshaw, Cities eye funding solution with Prop. 1A, Visalia Times Delta (Sept. 23, 2004); J. Douglas Allen-Taylor, Cities, County Look to November Vote for Funds, Berkeley Daily Planet (Aug. 13, 2004).