McGeorge School of Law

Proposition 1A (2006)

Proposition 1A:
Transportation Funding Protection.
Legislative Constitutional Amendment

By

Christopher Chaffee
JD, McGeorge School of Law, University of the Pacific
to be conferred May, 2008
B.A., Political Science, University of California Berkeley, 2003

 

Copyright © 2006 by University of the McGeorge School of Law


Table of Contents

I. Current Law
II. Changes Under Proposition 1A
III. Constitutional Issues
IV. State Constitutional Issue
V. Public Policy Considerations
VI: The Future
VII. Conclusion


I. Current Law

Currently the transportation budget of California is funded by about $20 billion in state revenues each year. Legislative Analyst Office, Proposition 1A, www.lao.ca.gov/ballot/2006/1A_11_2006.htm (accessed Sept. 11, 2006). This revenue is generated through various local and state tax provisions. Two of the sources of funding are the gas tax and the sales tax on gasoline. Id. The gas tax is an excise tax placed on every gallon of gasoline sold in the state of California; currently this tax is 18 cents per gallon. Id. The gas tax generates about $3.4 billion per year. Id. Nearly half (49.7 %) of transportation funding in the state budget comes directly from the excise taxes on gas. Erin Riches & Adrienne Fernandes, How Is Transportation Funded in California?, California Budget Project, pg. 1 (Sept. 2006). The sales tax applies a 6 percent tax on the sale of gasoline and diesel fuel throughout California. Legislative Analyst Office, Proposition 1A, www.lao.ca.gov/ballot/2006/1A_11_2006.htm (accessed Sept. 11, 2006). The sales tax generates about $2 billion in revenue per year. Id. The sales tax on gas generates about twenty percent (20.8%) of the revenue for transportation funding. Erin Riches & Adrienne Fernandes, How Is Transportation Funded in California?, California Budget Project, pg. 1 (Sept. 2006). Other transportation revenue comes from weight taxes imposed on commercial trucking operations, 14% of the transportation budget, other sales taxes on motor vehicle fuels, 5.2% of the budget, and miscellaneous taxes on bridges, toll roads, and transportation bonds, 10.2% of the budget. Id.

The federal government also contributes to transportation funding in California. These revenues fluctuate yearly and California has received differing levels of federal funding from year to year and administration to administration. Id. at 6-8. Currently under the Save, Accountable, Flexible, Efficient Transportation Equity Act (SAFETEA) passed in 2005, California will receive $23.4 billion through 2009. Id. Most of this amount is targeted to highways, $18 billion, while $5 billion will be allocated for transit, and the remaining $452 million will be spent on transportation safety. Id.

The California Constitution limits the use of the gas tax to constructing, maintaining, and operating public streets and highways, acquiring rights of way, constructing public transit systems, and reducing the environmental effects of transportation facilities. Cal. Const. art. XIX. Proposition 42 (“Prop 42”) passed by voters in 2002 sought to safeguard the sales tax revenue from gasoline and diesel fuel. California Secretary of State, Official Voter Pamphlet, http://ss.ca.gov/elections/viguide_pe02/bp_pe02.pdf, (accessed, Oct. 8, 2006) (See, pg. 16). Voters approved Prop 42 with 69.1% of the vote in the primary election of 2002. California Secretary of State, http://ss.ca.gov/elections/sov/2002_primary/measures.pdf, (accessed Oct. 1, 2006). Prop 42 amended Article XIX of the California Constitution through the addition of Section B to Article XIX. California Secretary of State, Official Voter Pamphlet, http://ss.ca.gov/elections/viguide_pe02/bp_pe02.pdf, (accessed, Oct. 8, 2006) (See, pg. 16). The language of Section XIXB has not been amended since the passage of Prop 42 through voter enactment of a ballot initiative.

Proposition 42 amended the California Constitution and assured that revenue generated by the sales tax on gasoline would be used for transportation uses with one major exception. Prop 42, § 1(b). Proposition 42 allowed the Governor to declare that, without transfer of the gas tax revenues to the General Fund, there would be a shortfall in the overall state budget. Id., § 1(d). To allocate the sales tax to the General Fund the legislature is required to pass a bill by a two-thirds vote. Id., § 1(d)(2). Proposition 42 also allocated the sales tax between four different transportation funding areas: 1) Twenty percent to public transit and mass transportation; 2) Forty percent to transportation capital improvement; 3) Twenty percent to street and highway maintenance, rehabilitation, reconstruction, or storm damage conducted by cities; and 4) Twenty percent to street and highway maintenance, rehabilitation, reconstruction, or storm damage conducted by counties. Id., §§ 1(c)(A), (B), (C), (A).

Proposition 42 was passed by voters to safeguard the funds generated by the sales tax on gas for transportation, in a period of growing state revenues and an ever expanding economy. Soon after Proposition 42 passed, the “bubble burst” on the tech industry and California saw its budget revenue steadily decrease. Budget crises in ensuing years saw the state legislature divert Proposition 42 revenues to the General Fund to counterbalance revenue shortfalls. Joshua Sabatini, Bay Area transit stands to gain billions from fall ballot measures, San Francisco Examiner (Sept. 5, 2006)
(www.examiner.com).

II. Changes Under Proposition 1A

Proposition 1A (“Prop 1A”) is a Constitutional Amendment making specific changes to Article XIXB of the California Constitution, which was created by Proposition 42. Proposition 1A will make it more difficult for the legislature and the Governor to use the sales tax revenue for General Fund needs in years where there is a deficit in General Fund Revenues. Proposition 1A sets specific limitations and restrictions on the ability of the sales tax revenue to be used for non-transportation uses. Prop 1A, §§ 1(d)(a)(A), (B), (C). The first change is to the content of the Governor’s declaration. Under Proposition 42, the Governor simply had to proclaim that their was a fiscal need to use sales tax revenue for General Fund issues. Id., § 1(d)(1)(A). Under Proposition 1A, the governor must declare there is a severe state fiscal hardship requiring the transfer. Id. This change is mostly semantic but it could increase the likelihood that a sitting governor will refrain from raiding the sales tax revenue because of the political ramifications of declaring that the state is facing a severe fiscal hardship. Such a proclamation could be spun by the press to read, “State faces severe fiscal crisis and must divert billions of dollars in transportation funds to other vital state programs.”

The second major change is frequency of and conditions upon which the Legislature and the Governor may expropriate the sales tax for the general fund. Under Proposition 1A, only two years out of every ten can the sales tax revenue be diverted from transportation funding. Prop 1A, § 1(d)(2)(A). Diverted funds are treated as a loan from the transportation fund, which must be repaid within three fiscal years. Id., § 1 (d)(1)(C). The loan must also be repaid with interest. Id. Further, no funds can be diverted until all funds are repaid to the transportation budget that have been borrowed in the past. Id., § 1(d)(2)(B). This provision would force the legislature and the Governor to repay all outstanding loans with interest on a specific timetable before the sales tax could be used to augment the General Fund in a fiscal crisis. This is a major change from Prop 42, where the repayment was voluntary. See Prop 42, § 1. Prop 1A treats all diverted funds from transportation budget to the General Fund as a loan that must be repaid within three fiscal years. Prop 1A, § 1(d)(1)(C).

Prop 1A also sets a specific timetable for the Legislature and the Governor to repay the funds borrowed from the sales tax revenue in 2003-04 and 2004-05 years. Prop 1A, § 1(f)(1). Under Prop 1A these funds must be repaid in full by June 30, 2016, including the incurred interest. Id. Further, Prop 1A calls for at least one-tenth of the borrowed sum to be repaid each year. Id.

Prop 1A also allows the legislature and Governor to pass bond measures that use the sales tax revenue on gasoline to pay back the bonds over time. Prop 1A, § 1(f)(2). This would allow for the legislature, with the Governor’s approval, to issue bonds without a ballot proposition. Id. Bonds issued under Prop 1A and paid for by the revenue generated by the gas tax would have to be used for the purposes set out in Article XIXB of the California Constitution: public transit, transportation capital improvement projects, and street or highway maintenance by either cities or counties.

III. Constitutional Issues

There are no federal constitutional issues at stake under Prop 1A.

IV. State Constitutional Issue

A. The Constitutional Validity of Prop 1A

Prop 1A amends Article XIX B of the California Constitution that was created through passage of Prop 42 by California voters in 2002. One section of Prop 1A could be challenged under the California Constitution. California Secretary of State, http://ss.ca.gov/elections/sov/2002_primary/measures.pdf, (accessed Oct. 1, 2006). Prop 1A mandates that the Legislature must enact a statute that sets out a repayment plan for full payment of all money borrowed from the sales tax revenue from the Transportation Investment Fund. Prop 1A, §1 (d)(1)(C). The California Constitution gives legislative power to the Senate and the Assembly. Cal. Const. art. IV, § 1. Also, the California Constitution gives the power over the budget to the legislature. Cal. Const. art. IV, § 12. These powers will be limited under Prop 1A. Prop 1A will not allow the legislature to use the sales tax for general fund needs during times of fiscal problems without passage of a bill by two-thirds vote of the legislature. Prop 1A, §1 (d)(1)(C).

The California Supreme Court, in Raven v. Deukmejian, was confronted a question concerning the scope of the initiative process. Raven v. Deukmejian, 52 Cal. 3d 336 (Cal. S. Ct. 1990). The California Supreme Court stated in Raven that the initiative and referendum process was coexistent with the legislative power of the California Legislature. Id. at 341. The California Supreme Court stated that Article IV, §1, which vested legislative power to the Senate and Assembly, also reserved the power of the people to pass initiatives and referendum. Id. The powers vested and reserved in the people to pass initiatives could augment the legislative power of the Senate and Assembly and this power had to be liberally construed. Id.

In Am. Fedn. of Lab. v. Eu, the California Supreme Court was confronted with a ballot proposition that ordered the legislature to enact a Legislative Resolution calling for a balanced budget amendment to the US Constitution. Am. Fedn. of Lab. v. Eu, 36 Cal. 3d 687 (1984). In Eu, the California Supreme Court held that the ballot proposition violated the power of the initiative process. Id. at 694. The court ruled that, under Article II, Section 8 of the California Constitution the people reserve the power to pass or nullify statutes or to amend the California Constitution through the initiative process, but could not force a Legislative Resolution. Id. In Eu, the California Supreme Court held that a ballot proposition that forces the legislature to pass a Legislative Resolution violated the power of the ballot initiative process and could not be voted on by the voters unless it was amended. Id. at 694, 695.

Under the rational followed in Raven and Eu, Prop 1A and its declaration that the legislature must enact a statute laying out the repayment of any money diverted from the sales tax revenue would probably be found valid under the California Constitution. Article IV, Section 1 of the California Constitution vests reserved power to the people to alter and amend the California Constitution and enact legislation. Cal. Const. Art. IV, § 1. Prop 1A declares that each time the legislature passes a bill that diverts money from the sales tax on gasoline from the transportation fund to the General Fund, the bill must be accompanied by a separate bill that lays out how the diverted funds will be repaid. Prop 1A, §1 (d)(2)(C). Prop 1A declares, with voter approval, that the legislature will enact legislation following the language of Prop 1A, this is the normal action of the legislature when a ballot initiative is passed.

B. Extension of Bond Authority to the Legislature

Under the California Constitution bonds can be issued through a two-thirds vote of the Legislature and a majority vote through a ballot initiative. Cal. Const. Art. XVI, §2. The California Constitution has been amended to allow the legislature to issue bonds or to guarantee loan payments for specific purposes without voter approval. In Methodist Hospital of Sacramento v. Saylor, the Supreme Court of California held that a ballot proposition that allowed the legislature to guarantee loan amounts for the construction and improvement of health facilities did not violate Article XVI, §1 of the California Constitution. 5 Cal. 3d 685, 687, 688 (Cal. S. Ct. 1971). The court stated that due to the specific language of the initiative an exception to Article XVI, §1 was created, allowing the legislature to guarantee loans and issue bonds for health facilities without voter approval of a ballot proposition. Id. at 691. The court noted that the California Constitution can be amended through the initiative process, a reserved power of the people, and by doing so, the people allowed the legislature to issue bonds without voter approval. Id. at 695, 695.

Proposition 1A will create a similar exception to the ballot initiative that was held to be valid in Saylor. Proposition 1A if passed will allow the legislature to distribute bonds for the purpose of building highways, funding transportation, and other transportation needs of the state. Prop 1A, §1 (f)(2). These transportation bonds will be paid for through revenue collected from the sales tax on gasoline. Id. Proposition 1A is valid under the same reasoning the California Supreme Court implemented in Saylor.

V. Public Policy Considerations

A. Proponents Argument

Proponents of Proposition 1A contend that the initiative simply closes the loophole created by Prop 42. California Secretary of State, Official Voter Guide, www.voterguide.ss.ca.gov (accessed Oct. 8, 2006). Proponents point to the fact that, since 2002, the sales tax on gas has been transferred to the General Fund on two occasions. Id. In 2003 and 2004, all the revenue collected through the gas tax was transferred to the General Fund through a two-thirds vote by the legislature and signed by the Governor due to a fiscal crisis in California. Closing a loophole in the gas-tax spending, Orange County Register (Oct. 2, 2006). After a steady increase in revenue during the Dot Com Era, the bubble had burst and California was facing a budget shortfall from 2003 forward. Joshua Sabatini, Bay Area transit stands to gain billions from fall ballot measures, San Francisco Examiner (Sept. 5, 2006) (www.examiner.com). To reduce the budgetary shortfall the legislature diverted the sales tax funds to the General Fund. Id. The money diverted in 2003 and 2004 has yet to be repaid to the Transportation Investment Fund created under Prop 42 for sales tax revenues on gas. California Secretary of State, Official Voter Guide, www.voterguide.ss.ca.gov (accessed Oct. 8, 2006). Proponents of Proposition 42 contend that Proposition 1A is a reaction to the legislature using the sales tax for General Fund purposes during fiscal shortfalls without a plan to repay it. Id.

Proponents further contend that the voters passed Proposition 42 with the understanding that any diversion of the sales tax from the transportation budget to the General Fund would be the exception and not the rule. California Secretary of State, Official Voter Guide, www.voterguide.ss.ca.gov (accessed Oct. 8, 2006). Proponents note that Proposition 42 was enacted and approved by voters because they wanted all of the sales tax revenue generated by the gasoline tax to be invested in the transportation needs of California except during fiscal emergencies. Id. Voters approved Proposition 42 with the understanding that any revenue collected through the gasoline tax and then diverted to the General Fund would be repaid to the transportation fund. Id. The legislature has not repaid the revenue that it borrowed from the transportation fund and used to close the fiscal deficit of 2003 and 2004. Id. Proposition 1A simply closes the loophole created by Proposition 42 and makes it more difficult to divert funds from the sales tax to the General fund and ensures any revenue diverted will be repaid within 10 years. Id.

Proponents of Proposition 1A include: Thomas V. McKernan, President, Automobile Club of Southern California (AAA); Michael Brown, Commissioner, California Highway Patrol; Marian Bergeson, Chair, California Transportation Commission; Steve Krull, President, California Police Chiefs Association; Mark Watts, Interim Executive Director, Transportation California; Allan Zaremberg, President, California Chamber of Commerce.

B. Opponents Argument

Opponents of Proposition 1A focus on the importance of allowing legislative control of revenues generated by the state. California Secretary of State, Official Voter Guide, www.voterguide.ss.ca.gov (accessed Oct. 8, 2006). Proposition 1A is another initiative that takes the power away from Legislature to decide how revenues generated by the state will be spent. Id. Proposition 1A is another initiative in a long line of initiatives that create ballot box budgeting, something that has come under fire in recent years. Under Proposition 98 the legislature and Governor are forced to spend more than half the states revenue on educational funding. Legislative Analyst Office, http://www.lao.ca.gov/2005/prop_98_primer/prop_98_primer_020805.htm (accessed Oct. 8, 2006). The state government has further constraints on its spending discretion due to federal guidelines, health care responsibilities, and other state mandates. Proposition 1A will simply place more state revenue beyond the discretion of the legislature and the Governor. California Secretary of State, Official Voter Guide, www.voterguide.ss.ca.gov (accessed Oct. 8, 2006). Although many concede that California’s transportation system is under-funded and in drastic need of repair, opponents of this measure question the need to lock in certain funds to the transportation budget. Id.

As Assemblymember Jackie Goldberg has articulated in her opposition to Prop 1A, the initiative will place about $2 billion outside the ability of the Legislature to use in emergency situations. California Secretary of State, Official Voter Guide, www.voterguide.ss.ca.gov (accessed Oct. 8, 2006). Although Proposition 1A allows for loans from the sales tax revenues in state fiscal emergencies it specifically limits the Legislature’s ability to do so as explained above. Assemblymember Goldberg in her opposition articulates that Proposition 1A places the needs of transportation above that of educational funding. Id. Opponents of Proposition 1A include: Assemblymember Jackie Goldberg, Chair, Assembly Education Committee

VI. The Future

Voters will face a similar proposition on the 2008 primary election ballot. The current proponents of Proposition 1A submitted signatures to place an initiative titled: Initiative Constitutional Amendment and Statute 1182. (SA2005RF0123) Transportation Funding. Initiative Constitutional Amendment and Statute. California Secretary of State, http://www.sos.ca.gov/elections/elections_j.htm#2008General (accessed Oct. 8, 2006). This initiative is very similar to Proposition 1A but there is no “fiscal crisis” section within the initiative. Id. The new transportation initiative, on the 2008 primary ballot, will force the sales tax revenues on gas to be transferred to the Transportation Investment Fund. No loophole for a fiscal crisis is included in the initiative. Id. Proponents of both Proposition 1A and the new transportation initiative have stated that if Proposition 1A passes they will not fund a campaign and will state in the voter guide that due to Proposition 1A’s passage the new transportation initiative is not necessary. Michael Gardner, Voters will see a tough regulation of gas tax money initiative on ’08 ballot. Compromise up for fall vote, Compley News Service (Aug. 24, 2006). The new transportation initiative was placed on the ballot because it had the number of signatures necessary for an initiative to qualify for the ballot. Randy Riddle, California ballot measure that backers tried to kill won’t die, www.calelectionlaw.com/archives(Aug. 24, 2006). The signatures were submitted to the Secretary of State’s office by proponents because they believed not enough signatures were collected. Id. Secretary of State McPherson announced that this was not the case and that enough signatures had been collected and it would be on the 2008 Primary ballot. Id.

VII. Conclusion

Proposition 1A will further restrict the ability of the legislature to use the sales tax revenue on gasoline for the General Fund. Proposition 1A will allows the legislature to divert revenue from the gasoline tax in only two years out of every ten years. To divert revenue from the transportation fund to the General Fund the Governor must state that there is severe fiscal hardship and the legislature must pass a bill by two-thirds vote. Also, any money diverted must be repaid to the transportation fund. Proposition 1A also gives the legislature the ability to issue bonds for transportation purposes to be repaid through revenues from the sales tax on gasoline.