Proposition 1B

Proposition 1B:
Highway Safety, Traffic Reduction, Air Quality
and Port Security Bond Act of 2006.

By

Gail Maiorana
J.D., University of the Pacific, McGeorge School of Law
to be conferred May, 2007
B.A., Journalism, Arizona State University, 1983

Copyright © 2006 by University of the Pacific McGeorge School of Law

Table of Contents

I. Executive Summary
II. Drafting Issues
III. Constitutional Issues
IV. Public Policy
V. Conclusion

I. Executive Summary

A. Background

Proposition 1B, the Highway Safety, Traffic Reduction, Air Quality, and Port Security Bond Act of 2006, is a statute that would:

• - make safety improvements and repairs to state highways;
• upgrade freeways to reduce congestion;
• repair local streets and roads;
• upgrade highways along major transportation corridors;
• improve seismic safety of bridges;
• expand public transit;
• help complete the state’s network of car pool lanes;
• reduce air pollution;
• and improve anti-terrorism security at shipping ports

by providing a general obligation bond issue of up to $19.925 billion. Cal. Sec. of State, Cal. General Election Official Voter Information Guide at 18 (“Voter Guide”). Under Proposition 1B (“Prop. 1B”), each of 12 methods of improving infrastructure would have its own dollar appropriation, ranging from $4.5 billion for relieving travel congestion to $125 million to match federal funds for bridge seismic retrofit. Prop. 1B §1, 8879.23(a)-(l). Many of those 12 amounts are further subdivided.

The bonds would be repaid over 30 years at a total cost of about $38.9 billion, including both principal and interest, although the ultimate cost of these bonds would depend on interest rates in effect at the time they are sold. Voter Guide at 19 and 21. There would be additional unknown costs to operate and maintain the infrastructure but some of those costs could be offset with revenue generated by the improvements such as fares and tolls. Id at 21.

The California Taxpayer Protection Committee, based in Elverta, Calif., calls this the nation’s largest bond measure ever. Telephone interview with Thomas N. Hudson, Exec. Director, Cal. Taxpayer Protection Comm., Sept. 14, 2006 (Notes on file with the University of the Pacific, McGeorge School of Law, Capital Center for Government Law and Policy).

Critics and supporters of Prop. 1B agree the flurry of bond measures on the November 2006 ballot represents an attempt to return to the halcyon decades of 1950-70, in which an emergent California invested huge sums in education, water and transportation. Lou Cannon, Is $33 billion too much for voters? It may be too late for supporters to sell November’s infrastructure bonds to Californians. www.latimes.com, accessed Sept. 3, 2006.

B. Existing Law

California spends about $20 billion a year from a combination of state, federal and local funds to maintain and improve its roadways, rail and transit systems. Voter Guide at 18. There are two primary state tax sources that fund state transportation programs: an 18 cent per gallon excise tax on gasoline and diesel fuel and a sales tax on gasoline and diesel fuel. Id. The state also gets revenue from weight fees on commercial vehicles. Id. at 19.

Proposition 42, passed by voters in 2002, amended the California Constitution to try to assure that revenue generated by the state gasoline and diesel sales tax would be used for transportation purposes, but the act left one major exception. Proposition 42, §1(b). Proposition 42 allowed the governor to declare that the sales tax needed to be transferred to the General Fund to avoid a “negative fiscal aspect.” Id. at. 1(d). On the November 2006 ballot, Proposition 1A is a companion measure to Prop. 1B that seeks to make it more difficult for the Legislature and the Governor to use the gasoline sales tax revenue for General Fund needs in lean years by amending Art. XIX B of the California Constitution. Proposition 1A, §§ 1(d)(A)-(C). In concert with Prop. 1B, Proposition 1A could provide even more money for transportation projects as well as making the funding sources more stable.

In addition to state funds, California’s transportation system receives federal and local money. The state receives about $4.5 billion a year in federal gasoline and diesel fuel tax revenues for various transportation purposes. Voter Guide at 19. Collectively, local governments invest roughly $9.5 billion annually into California’s highways, streets and roads, passenger rail, and transit systems. Id. This funding comes mainly from a mix of local sales and property taxes, as well as transit fares. Local governments have also issued bonds backed mainly by local sales tax revenues to fund transportation projects. Id.

Another source of transportation money is general obligation bonds. Bond financing is a type of long-term borrowing that the state uses to raise money for various purposes. The state obtains this money by selling bonds to investors. In exchange, it agrees to repay this money, with interest, according to a specified schedule. League of Women Voters of California, http://ca.lwv.org/lwvc/edfund/elections/2006nov/bonds.html, accessed Oct. 8, 2006. The state Legislature may create and establish a General Obligation Bond Proceeds Fund in the State Treasury. Cal. Const. art. XVI §§1, 1.5. Every legislative act providing for the preparation, issuance and sale of bonds of the State of California must be submitted to voters. Cal. Const. art. XVI §2(a).

Since 1990, voters have approved about $5 billion in state general obligation bonds to fund transportation. Voter Guide at 19. That amount includes a $2 billion seismic retrofit of bridges and other roadways under Proposition 192 in 1996. University of California, Hastings, ballot measures archive, http://traynor.uchastings.edu/cgi-bin/starfinder/3224/calprop.txt, accessed Oct. 11, 2006. As of June 2006, all but about $355 million of the $5 billion authorized bonds had been spent or authorized for projects. Voter Guide at 19.

C. Proposed Changes

Prop. 1B does not propose to make any changes to state government, other than to establish certain line-item funds in the General Obligation fund. Prop. 1B’s main purpose is to authorize bonds under existing laws in the following amounts and for the following purposes:

Credit: Voter Guide at 20.

II. Drafting Issues

A. Legislative History

Senate Bill 1266 was introduced as a measure covering charter school enrollment formulas on Feb. 9, 2006. California Legislative Information Service, http://www.legislature.ca.gov/cgi-bin/port-postquery?bill_number=sb_1266&sess=CUR&house
=B&author=perata , accessed Sept. 11, 2006. A gut and amend motion introduced May 4, 2006, transformed it into the current initiative. Id. It passed the Assembly and Senate at 2:52 a.m. May 5. Assembly Daily Journal for May 4, 2006, at 5293.

A gut and amend motion is available to legislators in California to remove all text from a bill that is all but dead and recycle the bill number using new text on a completely different topic. It can often get through to the floor without hearings on the new text. This method is available in other state legislatures under other names. But despite the legitimacy of the gut-and-amend method, critics contend that such maneuvering on a bill of this financial size indicates that backers had something to hide.

Before the legislature placed SB 1266 on the ballot as a bond measure, construction companies had contributed hundreds of thousands of dollars to an effort to gather signatures for a similar bond proposal, according to Cal-Access campaign disclosure records for the 2005-2006 election cycle maintained by the California Secretary of State. Sec. of State, Cal-Access financial disclosure, http://cal-access.ss.ca.gov/Campaign/Committees/Detail.aspx?id=
1274538&session=2005&view=received. The construction companies appear to have dropped their efforts when the legislative measure was fashioned. Id.

B. Pre-election challenges

Procedural irregularities in signature gathering and other mechanics of the process, under case law, may disqualify a measure from being submitted to voters. Costa v. Superior Court, 37 Cal. 4 th 986 (2006) and Independent Energy Producers Association v. McPherson, 38 Cal. 4 th 1020 (2006). However, opponents have not launched any such challenges.

Opponents say the ballot statement is misleading because it does not indicate the degree to which public transit systems would benefit more than highways and does not mention that bond funds could be spent for private railroad projects and private port facilities. Undated memo via e-mail from Thomas N. Hudson, Exec. Director, Cal.Taxpayer Protection Comm., Sept. 14, 2006. Whenever the Legislature submits any measure to the voters of the state, the author of the measure gets to write the argument in favor of adoption or choose another legislator to do so. Cal. Elec. Code 9041. While Hudson said he would not have challenged the measure on the ballot summary because it complied with the Election Code, he still finds the result to be a disservice to voters. E-mail from Thomas N. Hudson, Oct. 6, 2006.

C. Single-subject rule

Under the single subject rule, the terms of a measure must be reasonably germane to a common theme or purpose. Senate v. Jones, 21 Cal 4 th 1142, 1158 (1999). At first glance, this measure may appear to be a grab bag with issues as diverse as school buses and ports and radiation monitors. However, such items could reasonably fit under the infrastructure label because of the word’s dictionary definition: the system of public works of a country, state, or region; also: the resources (as personnel, buildings, or equipment) required for an activity. Merriam Webster’s online dictionary, http://www.m-w.com/dictionary/infrastructure, accessed Oct. 11, 2006.

Prop. 1B does not purport to amend any existing statutes, while ballot measures that ran afoul of the single-subject rule under California case law mixed changes in codes with changes in legislative procedural rules or changed statutes in a way that amounted to violations of the separation of powers. Jones, 21 Cal.4 th 1142; Manduley v. Superior Court, 27 Cal. 4 th 537 (2002). Because its structure is fairly simple and similar bond measures have not run into legal problems, Prop. 1B would likely withstand any single-subject challenges based on the Jones standard.

Originally several housing, traffic and levee measures were to be included in one giant bond package under SB 1024, but that measure failed. California Legislative Information Service. What resulted was a bipartisan compromise that led to four different ballot measures. Andy Furillo and Jim Sanders, Putting aside partisanship: Bonds package sparks rare cooperation between parties, p. A1, Sacramento Bee, May 6, 2006. This seems to indicate that separate bond measures would better meet the state’s single-subject rule.

D. Severability

Since opponents have expressed concerns about the timeframe of the measure, as well as provisions applying to port operators, severability becomes an issue. There is no express severability clause in the text of Prop. 1B even though such clauses are typical in non-bond ballot measures. When a court finds parts of a bill invalid, the other portions can still take effect if they are severable . The test for severability is that the language of the statute is mechanically, functionally and volitionally severable. Otherwise, the whole statute is invalid. People’s Advocate v. Superior Court, 181 Cal. App. 3d at 330-332 (1986).

Prop. 1B is grammatically severable because individual paragraphs create different funds assign specific dollar figures to those funds. The text is functionally severable – that is, under the People’s Advocate test, valid sections could stand on their own and be capable of independent application. Prop. 1B meets the functional severability test because the many subsections apply to different geographical projects or projects distinguishable by type or purpose so they are capable of independent application. Finally, the text likely is volitionally severable, that is, it would have been adopted by the legislative body should there be a partial invalidation of the statute and if state law did not require bond measures be submitted to voters.

III. Constitutional Issues

A. Federal constitutional issues

No federal constitutional issues have been found with this bond measure.

B. State constitutional issues

Opponents of Prop. 1B classify some of the measure’s expenditures as illegal “giveaways” to construction companies and private port operators. Telephone interview with Thomas N. Hudson, Sept. 14, 2006. Hudson pointed out that private port operators – often large multinational corporations -- will get public funds to buy such items as video surveillance equipment and cargo scanners.

California’s history of legal challenges to bond measure initiatives is sparse, but one of the most recent did hinge on bond measures’ benefits to private firms. In People's Advocate v. Independent Citizens' Oversight Committee 2006 WL 1417983 Cal. Superior (2006), opponents sought declaratory and injunctive relief after voters passed an initiative that approved bonds for stem cell research. They sought to invalidate the California Stem Cell Research and Cures Bond Act on the grounds that it violates Article XVI, §3 of the California Constitution by mandating the drawing of moneys from the State Treasury for the purpose or benefit of an institution not under the exclusive management and control of the State. Id.

The People’s Advocate court found that Article XVI, § 3 of the state Constitution concerning bonds is not a blanket prohibition against any appropriation of funds to entities that are not exclusively under state control. The restriction applies only when the expenditure of public funds solely benefits an uncontrolled entity. People v. Honig, 48 Cal.App.4th 289, 352 (1996) ; Cal. Housing Finance Agency v. Elliott, 17 Cal. 3d 575 (1976). The state Constitution’s prohibition does not apply when private parties benefit from state appropriations only as an incident to the promotion of a public purpose. Id. Therefore, the port operations provisions of Prop. 1B likely would survive a legal challenge based on benefits to private entities.

IV. Public Policy

A. Supporters

Proponents say the state’s crumbling infrastructure needs to be fixed under a comprehensive bond issue. The state needs to get a jump on projects it knows are needed rather than through a piecemeal approach. Voter Guide at 22. “Proposition 1B puts backlogged transportation projects on the fast track, reducing congestion and improving highway safety.” Id.

Supporters compare the funding mechanism to a mortgage on a house that lets you live in your home while you pay for it. Id. “ California’s population will reach 50 million in the next 20 years – twice what the current infrastructure was designed for – and it can’t be rebuilt overnight. ” Id. They say that annual audits and public reports required by Prop. 1B constitute strict fiscal safeguards to protect taxpayers. Id.

Crumbling infrastructure could eventually drive business away from the state. Marisela Caraballo, Port of Los Angeles legislative representative, said the cargo could go elsewhere if California fails to build the needed public works. Laura Mecoy, Empowering the ports/Improvements key to future jobs, advocates warn, Sacramento Bee, A3, Apr. 16, 2006 Already, Mexico is considering building a port to compete with Los Angeles and Long Beach, and Washington state ports are vying for the California business. Id. "There isn't one silver bullet that is going to fix it," Caraballo said. "It's going to be all these being built simultaneously that will fix it." Id.

B. Opponents

Opponents say Prop. 1B is overreaching and technically flawed and it will saddle future generations with too much debt.

“Improved transportation is a critical issue for our state, but equally important is that each additional borrowed dollar we spend worsens our budget deficit and could cause significant consequences for hard working California families,” writes MikeVillines, a Central Valley assemblyman who voted against putting Prop. 1B on the ballot. Voter Guide at 22.

“If the legislature turned its attention to streamlining construction projects and easing over burdensome regulations, we wouldn’t need to borrow billions of dollars. Instead, we would use an annual portion of our general fund tax dollars with limited borrowing to complete these projects. Id.

Several issues concerning timeframe have alarmed opponents. They say there was no need to include an urgency statute, which applies to regular legislation, because an initiative can be drafted to go into effect the day after voters approve it or at any future date. Under Cal. Const., art IV, § 8, cl. 3 (d): “Urgency statutes are those necessary for immediate preservation of the public peace, health, or safety. A statement of facts constituting the necessity shall be set forth in one section of the bill. In each house the section and the bill shall be passed separately, each by roll call vote entered in the journal, two thirds of the membership concurring. An urgency statute may not create or abolish any office or change the salary, term, or duties of any office, or grant any franchise or special privilege, or create any vested right or interest.” Id. The existence of the urgency statute, when it does not seem to be have been needed adds to opponents’ concerns over the use of the gut-and-amend and other processes that helped to speed the measure to the ballot.

Opponents also are concerned that an existing panel, the California Transportation Commission, is charged with developing and adopting guidelines for Prop. 1B by Dec . 1, 2006, three weeks after the election, which raises the danger that money being hurriedly spent will be money misspent. Prop. 1B, § 8879.23(a)(2). The Commission has been in existence since 1978 and has administered countless bond measures in the past. Cal. Transportation Committee, http://www.catc.ca.gov/ and http://www.catc.ca.gov/reports/2001Vol2.pdf, accessed Sept. 16, 2006.

Tony Bizjak, transportation writer at the Sacramento Bee who cannot take a public stance on Prop. 1B under a company ethics code, says his interviews indicate some projects likely to get Prop. 1B money are those where groundwork – community meetings, environmental reviews, engineering work, and even land acquisition – has been done but lack of money has stalled the next step. Interview with Tony Bizjak, transportation writer, Sacramento Bee, Sept. 12, 2006. This would seem to ease the fears of opponents that the Legislature put too much of a burden on the California Transportation Commission.

The Sierra Club has taken a neutral stance because of the mix of mass transit funding, which it supports, and roadway funding, which it does not. http://www.sierraclub
california.org/elections/bondarticle.shtml

California Bicycle Coalition is outspoken against the measure, saying Prop. 1B fails to promote bicycling as a mode of transportation or to increase safety for bicyclists who use the state's roadways. E-mail from Rebecca Markussen, communications director, California Bicycle Coalition, Oct. 9, 2006. The coalition members feel that Prop. 1 B would weaken decades’ worth of environmental legislation. Id. “Most notably, AB32, legislation signed earlier this month by Governor Schwarzenegger to address global warming, will be undermined by the bond's proposed expenditures,” the coalition says. Id. The bond would encourage ever more motor vehicle trips, causing air and water pollution, and strand those who cannot afford or choose not to own cars. Id.

V. Conclusion

Prop. 1B is one of the largest ballot measures ever put before voters anywhere in the United States. While it has been drafted with few technical flaws, it raises a fundamental policy issue of how and when to pay for massive transportation infrastructure projects: in one fell swoop, with interest, or on a pay-as-you go basis. As with most bond measures, oversight is also a key issue.