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Proposition 60A

Proposition 60a:
Surplus Property.

By Jennifer Wada

Copyright © 2004 by University of the McGeorge School of Law

J.D., McGeorge School of Law, University of the Pacific
to be conferred May 2005
B.A., Communications Studies, Loyola Marymount University, 2000

Table of Contents

I. Executive Summary
II. Existing Law
III. Effects of Proposition 60A
IV. Drafting Issues
V. Constitutional Issues
VI. Public Policy Issues
VII. Conclusion

I. Executive Summary

In 2003, the California Legislature authorized a $10.7 billion deficit-financing bond in an attempt to address the budget shortfall that had accrued over approximately five years. In March 2004, in the midst of a massive budget deficit, Proposition 57 was approved by voters which authorized the issuance of up to $15 billion in bonds in order to finance these past budget deficits. Legislative Analyst’s Office, Proposition 60A http://www.lao.ca.gov/ballot/2004/60a_11_2004.htm (accessed Sept. 10, 2004). Proposition 60A has been placed on the November 2004 ballot in an attempt to help pay off these bonds. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004).

State agencies annually review real property holdings to determine if there is any property that exceeds the state’s foreseeable needs. Id. If so, this “surplus state property” is sold or disposed of. Id. Proposition 60A would require that in the event the property is sold, the proceeds be used to help pay off the principal and interest on the Proposition 57 bonds. Id. Currently, the bonds are to be repaid from General Fund sources over a period of up to fourteen years. Id.

Proceeds from the sale of state surplus property are not a significant source of revenue and are expected to accelerate the bonds’ repayment by a few months. Id. Proposition 60A is not expected to change the amount of bond principal and is estimated to contribute to interest savings in the low tens of millions of dollars. Id.

Originally, Proposition 60A was part of Proposition 60, another measure on the November ballot relating to election rights of parties. Institute of Governmental Studies, University of California Proposition 60A: Surplus State Property http://www.igs.berkeley.edu/library/htProp60ASurplusProp.html (accessed Sept. 10, 2004). With both election rights and surplus property issues being addressed by the measure, Proposition 60 was immediately challenged on the ground that it violated the state constitution’s requirement that there be separate votes on separate subjects. Californians for an Open Primary v. Shelley, _Cal. App. 4th_, 16 Cal. Rptr. 3d 797 (App. 2004). The Third District Court of Appeals ordered Proposition 60 be split into two separate propositions resulting in the surplus property provision standing alone as Proposition 60A. Id.

II. Existing Law

A. Background on Proposition 57 Bonds

In March 2004, voters approved Proposition 57, which authorized the issuance of up to $15 billion in bonds to finance past budget deficits. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004). Proposition 57 was viewed as a necessary response to the chronic shortfalls between revenues and expenditures that arose in 2001-02 due to economic and stock market downturns. Office of the Secretary of State, California Official Voter Guide Proposition 57: The Economic Recovery Bond Act http://www.voterguide.ss.ca.gov/propositions/prop57-analysis.html (accessed Sept. 9, 2004).

Prior to Proposition 57, the California Legislature had authorized a $10.7 billion deficit-financing bond in an attempt to address the budget shortfall that had accrued over approximately five years. Assembly Budget Committee, Concurrence in Senate Amendments Analysis: ABX1 7 http://www.leginfo.ca.gov/pub/bill/asm/ab_0001-0050/abx1_7_cfa_20030730_145824_asm_floor.html. The intent of this bond was to eliminate the cumulative budget deficit that would have existed at the end of 2002-2003. Office of the Secretary of State http://www.voterguide.ss.ca.gov/propositions/prop57-analysis.html. However, the $10.7 billion bond was challenged in court for violating the state constitutional provision requiring that long term debt be approved by voters and issuance of the bond was therefore delayed. Id. Short-term borrowing took place in the meantime and repayment was due in June 2004. Id. Hence Proposition 57, the measure that allowed the state to issue bonds of up to $15 billion to use in lieu of the $10.7 billion deficit-financing bond and to deal with the state’s remaining fiscal crisis Id.

The debt service on the Proposition 57 bonds is to be repaid from the General Fund over a nine to fourteen year period. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004). Cost to the General Fund to repay the principal and interest on the bonds is the equivalent of one-quarter-cent share of the state sales tax. California Secretary of the State, California Official Voter Information Guide, An Overview of State Bond Debt (2004). This amounts to over $1.2 billion in 2004-05. Id.

B. Surplus State Property

California law requires state agencies to review the State’s real property holdings, owned or leased, and identify and report any property that is surplus to its current or future needs. Cal. Govt. Code Ann. § 11011.10 (West 2004). This property is called “surplus state property” which includes both unused and underutilized property. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004). Once real property is identified as surplus, the state may sell it or otherwise dispose of it, such as giving it away to local government. Id. When surplus property is sold, it must first be offered to local government and then it can be offered to private entities and individuals. Cal. Govt. Code Ann. § 11011.10 (West 2004). Proceeds from the sale are deposited into the account that originally paid for the acquisition of the property, which is in most cases the General Fund. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004). The proceeds deposited in the General Fund can be expended on any state program. Id.

III. Effects of Proposition 60A

A. Proposition 60A Requirements

If approved, Proposition 60A would add section 9 to article III of the California

Constitution to require that proceeds from the sale of surplus state property purchased with General Fund moneys be used to pay the principal and interest on Proposition 57 bonds. Cal. Sen. Const. Amend. 18, 2003-2004 2nd Reg. Sess. 2 (June 24, 2004). Property acquired with General Fund money includes property purchased by General Fund revenue or by bonds secured by the General Fund. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004). The measure would only dedicate surplus property proceeds that the State received on or after the passage of the measure. Id. Once the bonds are paid in full, surplus property proceeds would then be deposited back into the General Fund, as is the practice now. Id.

Proposition 60A does not apply to properties acquired with specified transportation funds such as property purchased with revenue from taxes on motor vehicles or fuel. Id. The measure is also inapplicable to property acquired with other special fund moneys. Id.

B. Fiscal Impact on the California State Budget

Currently, the amount of proceeds from the sale of surplus state property fluctuates greatly each year. Id. Surplus property proceeds are not a major source of General Fund revenue and are actually quite small in comparison to total General Fund revenues. Id. As the Legislative Analyst points out, surplus property sales over the past decade have averaged roughly $30 million a year. Id. However, total General Fund revenues in 2003-04 were roughly $75 billion. Id. The Department of General Services estimated in 2003 that the average annual revenue from the disposal of surplus proprietary lands was $35,764,240.00 during the last five fiscal years. The Department of General Services, 2003State Surplus Property Report h ttp://www.documents.dgs.ca.gov/Legi/Publications/2003Reports/2003SurplusPropertyReport.pdf (accessed Sept. 12, 2004). In Fiscal Year 2001-02, the total surplus property revenue was $149,364,700.00. Id. The Proponents of Proposition 60A estimate that California has more than $1 billion worth of surplus property. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004).

The debt service on the Proposition 57 bonds is to be repaid from the General Fund over a nine to fourteen year period. Id. Repayment is the equivalent of one-quarter-cent share of the state sales tax. Office of the Secretary of State http://www.ss.ca.gov/elections/bp_nov04/an_overview_of_state_bond_debt.pdf. By dedicating surplus property proceeds to this debt service, the Legislative Analyst estimates that Proposition 60A would most likely only accelerate the bonds’ repayment by a few months. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004).

Because surplus property yields relatively conservative amounts and the debt service on the bonds is so large, Proposition 60A would not change the amount of bond principal, but it would reduce the amount of interest payments over the life of the repayment period. Id. With the help of surplus state property, the state would pay out more for debt service on Proposition 57 bonds in the short term and less in the longer term. Id. The Legislative Analyst compares Proposition 60A’s effect to that which occurs on a car or home loan payment when the debtor makes additional payments on top of their normal monthly payment. Id. The interest savings due to Proposition 60A are estimated to be in the low tens of millions of dollars. Id.

IV. Drafting Issues

A. Severability

Originally, Proposition 60A was part of Proposition 60, the measure seeking to retain the closed primary system. Institute of Governmental Studies, University of California http://www.igs.berkeley.edu/library/htProp60ASurplusProp.html. On July, 30 2004, the California Third District Court of Appeal ordered the two sections proposed in Proposition 60 (Election Rights and Surplus State Property) be split and submitted to the voters as separate measures.Californians for an Open Primary, _ Cal.App.4th at _, 16 Cal. Rptr. 3d at 806.

In order for provisions of a single measure to be severed into two separate measures, several criteria must be present: 1) the language of the statute must be grammatically severable; 2) the valid portions must be capable of independent application; and 3) there must be a likelihood that the Legislature would have adopted the valid portions separately had it foreseen the partial invalidation of the statute. Peoples Advoc. Inc. v. Superior Court, 181 Cal. App. 3d 316, 330-333 (1986).

Here, the provisions could be grammatically severed since the two provisions constituted separate sections. They could be independently applied since one dealt strictly with elections where the other solely addressed the paying of debt bonds with surplus state property proceeds. Further, the court found that the provisions were independently substantive and unrelated. Californians for an Open Primary, _ Cal. App. 4th at _, 16 Cal. Rptr. 3d at 801. Finally, there is evidence that the Legislature would have separately adopted each proposal since, although they were voted on as one proposal, the provisions were given independent consideration and analyzed separately. Senate Rules Committee, SCA 18 Third Reading Analysis http://www.leginfo.ca.gov/pub/bill/sen/sb­_0001-0050/sca_18_cfa_20040621_105426_sen_floor.html (June 21, 2004). Therefore, there are no severability problems with Proposition 60A.

V. Constitutional Issues

A. Federal

Proposition 60A does not raise any Federal Constitutional issues.

B. State

1. Third District Court of Appeals Ruling

The Third District Court of Appeals ruling required Proposition 60 to be split and presented to voters as separate measures – hence, Proposition 60 & Proposition 60A. A discussion of the ruling is important to understand why the split was necessary in order for the measure to conform to constitutional standards. It should be noted that the Supreme Court has agreed to review the legal issues discussed in this Court of Appeals case at a later time, after it has sufficiently deliberated on the matter. Californians for an Open Primary v. Shelley, 95 P.3d 810 (Cal. 2004). In the event that the Court of Appeals ruling is overturned by the State Supreme Court, both Proposition 60 and Proposition 60A would be affected. For example, if the Court were to find that the original Proposition 60 (which included both the election and state property provisions) was unconstitutional and should have been stricken from the ballot as a whole instead of being split into two measures, Proposition 60 and Proposition 60A would be invalid.

a. Separate Vote Requirement

In its original form, Proposition 60 consisted of two provisions – election rights of political parties and the sale of surplus state property. Institute of Governmental Studies, University of California http://www.igs.berkeley.edu/library/htProp60ASurplusProp.html. Californians for an Open Primary challenged the initiative on the basis that it violated the separate vote requirement of article XVIII, section 1 of the California Constitution. Id. Section 1 provides:

The Legislature by a roll call vote entered in the journal, two-thirds of the membership of each house concurring, may propose an amendment or revision of the Constitution and in the same manner may amend or withdraw its proposal. Each amendment shall be so prepared and submitted that it can be voted on separately.

Cal. Const. art. XVIII, § 1 [emphasis added].

The petitioners asserted that SCA 18, the statute passed by the Legislature to put Proposition 60 on the ballot, contained two unrelated “amendments” and therefore must be submitted separately to the voters. Californians for an Open Primary, _ Cal. App. 4th at _, 16 Cal. Rptr. 3d at 802. The Legislature argued that the two amendments in SCA 18 made up one “revision” to the constitution and it was thus within their power to submit it to the People as one package. Id. The Court rejected this argument and stated that the mere joining of two unrelated amendments does not constitute a revision. Id. at 800. It found that the two proposed changes, although substantive in nature, do not change the Constitution in a fundamental way that alters the basic governmental plan, and thus, they do not make up one revision. Id. at 808. The Court declared that section 1 authorizes the Legislature to propose multiple amendments in a single resolution to be voted upon by the Legislature as one package; however, the package needs to then be prepared and submitted in a way where each amendment can be voted on separately by the People. Id. at 806. Therefore, that the Legislature executed one vote to put both proposals on the ballot was proper.

b. Single Subject Rule

The California Constitution states that, “an initiative measure embracing more than one subject may not be submitted to the electors or have any effect.” Cal. Const. art. II, § 8(d). To determine if the initiative embraces more than one subject, it must be determined whether the provisions of the measure are reasonably germane to each other and the general purpose of the initiative. Brosnahan v. Brown, 32 Cal.3d 236, 241 (1982). The single subject provision does not require that each of the provisions interlock in a functional relationship, but they must be reasonably related to a common theme or purpose. Senate of the State of California v. Jones, 21 Cal. 4th 1142, 1157 (1999). This requirement is intended to minimize voter confusion and to prevent joining different subjects together in order to gain tactical advantage (i.e. “logrolling” where Proponents obtain approval of certain unfavorable provisions by attaching them to favorable provisions). Id. at 1157-1158.

Because the Court found that the surplus state property and the election rights provisions were not related at all and are now being submitted separately to voters, there is no problem with the single subject rule. Despite objections by the Opponents of the measure, and regardless of the fact that Proponents did not advocate for such a remedy, the Court allowed both provisions to remain on the ballot provided they were submitted separately. Californians for an Open Primary, _ Cal. App. 4th at _, 16 Cal. Rptr. 3d at 815. The Court held that both provisions were constitutional and were not withdrawn by the Legislature pursuant to section 1, article XVIII of the Constitution and therefore did not need to be removed from the ballot. Id.

The surplus state property provision now stands alone in Proposition 60A. The language of the measure solely addresses the sale of this property in order to help pay off Proposition 57 bonds. Therefore, Proposition 60A does not violate the single subject rule.

VI. Public Policy Issues

A. Proponents

Proponents assert that Proposition 60A gives voters an opportunity to reduce the cost of the bonds that they passed in March by an overwhelming majority vote in an effort to help ease the state’s budget crisis. California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004). Proponents emphasize that the bonds involve high amounts of interest. Id. However, California is estimated to have more than $1 billion worth of surplus property. Id. Proponents claim that if this property were to be sold and proceeds were contributed to payment of the debt service on these bonds, Proposition 60A would have a significant impact on early repayment thereby reducing costs that taxpayers would have to bear. Id.

Proponents of Proposition 60A include State Senator Ross Johnson (R – Irvine), State Senator Dede Alpert (D – San Diego), Former Chairman of the California Fair Political Practices Commission Dan Stanford, Director for the Institute for the Study of Politics & Media at California State Sacramento Barbara O’Connor, and retired Associate Justice for the 5th District Court of Appeal George N. Zenovich. Id

B. Opponents

Opponents of Proposition 60A do not base their opposition on disagreement with the concept of contributing surplus property proceeds to repayment of the bonds. Id. Rather, Opponents assert that Proposition 60A stops short of its goal. Id. The measure does not actually force the sale of surplus state property in California; it only directs the money go towards payment of the bonds if surplus property is sold. Id. Although Proposition 60A does no harm, voters deserve more. Id.

Opponents assert that in seeking to compromise, the Proponents of Proposition 60A compromised too much and should have included in the measure a provision to force the sale of hundreds of millions of dollars worth of surplus state property. Id. In emphasizing the amount of revenue that could be gained by forcing the sale of surplus property, Opponents cite examples of state owned property such as a Bay Area massage parlor, part of a golf course, strip malls, and properties in Sausalito and Tahiti. Id. The opposition urges that in order for these properties to be sold, there needs to be more stringent requirements to force bureaucrats to actually sell the properties. Id. Because the Department of General Services estimated an average annual revenue from the disposal of surplus lands was $35,764,240.00 during the last five fiscal years, and the Proponents estimate California has more than $1 billion worth of surplus state property, it is arguable that forcing the sale of surplus property could reduce the amount of interest payments on the bonds by more than the amount estimated by the Legislative Analyst.

Opponents include State Senator Bill Morrow (R – Oceanside) and State Assemblymember Sarah Reyes (D – Fresno). California Secretary of the State, California Official Voter Information Guide, Proposition 60A: Surplus Property (2004).

VII. Conclusion

If approved on November 2, 2004, Proposition 60A would require that funds from the sale of surplus state property purchased with General Fund money be used to pay down the $15 billion in deficit bonds that were overwhelmingly approved by voters in March 2004. By dedicating these proceeds to the debt service on Proposition 57 bonds, Proposition 60A is estimated to accelerate repayment by a few months and reduce the amount of interest payments in the low tens of millions of dollars.

Proponents view Proposition 60A as a way to reduce costs to taxpayers by dedicating state surplus property revenue to early repayment of the bonds that were approved by voters in March. Opponents agree that dedicating such revenue to repayment of the bonds is a good idea but that Proponents should have gone further by forcing the sale of such property. In November, voters will have the opportunity to decide the fate of Proposition 60A. The question they will need to ask themselves is whether state surplus property proceeds are better deposited into the General Fund to be used for various programs or whether proceeds are better spent when dedicated solely to repayment of the bonds that were passed in the quest for economic recovery in California. Perhaps a better question they should ask is whether they should reject Proposition 60A in the hopes that a measure that forces the sale of state property will be introduced the next time around.