JD, McGeorge School of Law, University of the Pacific
to be conferred May 2004
B.A., University of California at Chico, 2000
LLM in Government and Public Policy to be conferred December 2003
JD, McGeorge School of Law, University of the Pacific, May 2003
B.A., Sociology, University of California, Santa Cruz, 1999
Copyright © 2003 by University of the McGeorge School of Law
As the Legislative Analyst's Office appropriately stated, "One of the basic functions of government is to provide the public infrastructure--land, streets and highways, buildings, and utility systems--that is integral to delivering public services, fostering economic growth, and enhancing the quality of life." Chuck Nicol, Overhauling the State's Infrastructure Planning and Financing Process, December 1998, at (last accessed August 23, 2003). Infrastructure was defined by the Governor's Commission on Building for the 21st Century as "the basic resources and systems required for Californians to be mobile, secure and productive in order to enjoy a high quality of life." Governor's Commission on Building for the 21st Century, Ch. 2, 2002, at (last accessed August 23, 2003). There is no dispute as to California's critical need for modern infrastructure and its impact on the daily lives of Californians. However, Proposition 53 ("Prop 53") asks California voters to determine how infrastructure fits in their public welfare priorities in comparison with the potential cuts it other programs that may be a consequence of improved infrastructure.
After decades of disjointed infrastructure policy, the catalyst for the present initiative came from a 1998 Legislative Analyst's Office (LAO) report on overhauling the State's infrastructure. In the report, the LAO exposed major infrastructure concerns in California and possible reasons for those infrastructure problems, such as the lack of programmatic treatment of infrastructure investment, the lack of a stable funding source and an over reliance on bond funding with little pay-as-you-go financing from the General Fund. Chuck Nicol, Overhauling the State's Infrastructure Planning and Financing Process, December 1998, at .
Proposition 53 was created to address these problems and ensure a secure funding source for infrastructure projects at state and local levels by allocating an increasing percentage of General Fund revenues each fiscal year. Proposition 53, also known as Assembly Constitutional Amendment (ACA) 11, proposes to establish the "California Twenty-First Century Infrastructure Investment Fund" (hereinafter 21 C. Fund). This would be initially funded by one percent of the revenues from the General Fund beginning in 2006-2007, as long as revenues to the General Fund increase by 4% from the prior year. Contingent upon increasing General Fund revenues, the percentage would gradually be raised by .3% each year, through 2013-2014, capping at 3% of the General Fund revenues. The monies from the 21 C. Fund would be divided between state and local governments to fund their respective infrastructure projects. However, Proposition 53 leaves open important ambiguities such as the lack of a definitive statement of what "infrastructure" means, as well as, how and where the State's money may be spent.
Following is an objective analysis of Proposition 53, including the legal background of California's present funding sources, or lack thereof; the impact of potential state constitutional problems; and the views of Prop 53 supporters and opponents. This information is intended to assist Californians in answering this important question: Where should infrastructure belong on the long list of public welfare necessities and is Proposition 53 part of the solution to infrastructure problems in California?
A. Existing Law
Despite the vast investments that California has made over the last several decades in infrastructure such as schools, roads, prisons and other facilities, it was not until 2002 that the first coordinated infrastructure plan was developed to guide financial allocations, expenditures, and program priorities. Previously, billions of dollars had been allocated to various state and local infrastructure projects on an ad hoc basis, without any coordinated framework for project growth and implementation. Chuck Nicol, Overhauling the State's Infrastructure Planning and Financing Process, December 1998, at . The impetus for the plan partially stemmed from the 1998 Legislative Analyst's Report on Overhauling the State Infrastructure. According to the LAO's report, to effectively assess the complexity of capital projects, the state needed a well-defined process for planning, budgeting, and financing these projects which it previously lacked. The consequence of such disjointed decision-making was that "funding proposals [were] often considered without an overall sense as to how any proposal fit within statewide needs and priorities or how it affect[ed] the state's ability to finance those and other needs over time." Id. Figure 1 is taken from the 1998 report to illustrate the enormous investment the State has in infrastructure. Id. at 1-2.
Figure 1 Major
|Water Resources||Major State Infrastructure|
|32 lakes and reservoirs|
|17 pumping plants|
|3 pumping-generating plants|
|5 hydro-electric power plants|
|660 miles of canals and pipelines|
|1,595 miles of levees and 55 flood control structures in the Central Valley|
|50,000 lane miles of highways|
|9 toll bridges|
|11 million square feet of Department of Transportation offices and shops|
|209 Department of Motor Vehicles offices|
|138 California Highway Patrol offices|
|192 primary and satellite campuses of higher education, including 10,000 buildings containing 138 million square feet of facilities space|
|266 park units containing 1.4 million acres and 3,000 miles of trails|
|238 forest fire stations and 13 air attack bases|
|21 agricultural inspection stations|
|33 prisons and 38 correctional conservation camps|
|11 youthful offender institutions|
|12 crime laboratories|
|General state office space||
|4 mental health hospitals comprising over 4 million square feet of facilities and 2,300 acres|
|5 developmental centers compromising over 5 million square feet of facilities and over 2,000 acres|
|2 public health laboratory facilities|
|8.5 million square feet of state-owned office space|
|16.6 million square feet of leased office space|
In 1999, AB 1473 (Hertzberg) was adopted by the Legislature and incorporated into Chapter 606, Statutes of 1999. This measure required the State, commencing in January 2002, to develop a coordinated statewide five-year infrastructure plan. Specifically, the statute requires the Governor to annually submit a proposed five fiscal year infrastructure plan to the legislature, in conjunction with his budget, each beginning with the same fiscal year. The Legislature is then required to either adopt or amend the infrastructure plan which is then approved with the final budget.
2. Current Program Funding for State Infrastructure
The backdrop for Proposition 53 is found in a compilation of programs. According to the California Budget Project (CBP), state infrastructure projects are currently funded through a combination of federal and state funds. Erin Riches, California Budget Project, Proposition 53: Should California Earmark General Fund Revenues for Infrastructure?" August 2003, at (last accessed August 23, 2003). Prior to AB 1473, most infrastructure planning was developed by the state agencies and was not coordinated into a statewide plan. LAO 2003 Budget Analysis: Capital Outlay, California Infrastructure Plan, p. 2. This unsystematic method of resource allocation resulted in hundreds of pieces of legislation that affect California infrastructure. The following are the primary financing mechanisms and a few key pieces of legislation that greatly impact current program funding for California infrastructure.
The principal state finance mechanisms for infrastructure incorporate the following methodologies:
· General Obligation (GO) Bonds: GO bonds are a form of debt backed by the state's General Fund. GO bonds are repaid from the General Fund and have constitutional priority over other spending in the event of a shortfall. Programs that are funded by this method must first be placed on a ballot and requires the approval of a majority of voters, resulting in a timely process. CBP Brief, p. 2.
· Lease Payment Bonds: These bonds are repaid out of rent payment made to bond holders over the life of the facility. Lease payment bonds are slightly more costly than GO bonds and are not approved by voters, but instead are approved by the legislature. Id.
· Dedicated Revenues: Some programs have dedicated revenues that must be used for specific purposes. Transportation-related infrastructure (highways and mass transportation) is currently the only major state infrastructure program that is funded by dedicated revenue sources (such as state gasoline taxes and federal funds). Over the past five years, the state has annually spent approximately $2.3 billion on transportation related projects. LAO, Prop 53 Analysis, August 11, 2003, p. 2.
· Direct General Fund Appropriations: Some infrastructure programs use direct appropriations, also called "pay-as-you-go" financing, which appropriates a small amount of the General Fund each year. This financing is the least expensive method to pay for capital outlay since there is no interest pay as with bond measures. However, these appropriations can vary significantly from year-to-year resulting in a potentially unstable revenue source. Id.
In addition to the above financing mechanisms, there are other specific funding sources for state infrastructure, including the following which was compiled by the California Budget Project, Budget Brief: Prop 53, August 2003, p.3-4:
· Gas Tax Revenues. Article XIX of the state Constitution provides that the revenues collected from the fuel tax will be earmarked for transportation purposes only. Proposition 111 of 1990 increased the gas tax by 9 cents per gallon over a five year period, raising an additional $1 billion per year for transportation at full implementation. According to the CBP, fuel taxes will raise approximately $2.8 billion in 2003-04. Approximately one-third of the revenues raised by fuel taxes are allocated to local governments for streets and highways. State law designates the proceeds of the sales tax levied on fuel to the Public Transportation Account which can be used to purchase buses or other "rolling stock."
· Infrastructure Bank. The California Infrastructure and Economic Development Bank, created in 1994, provides funding for infrastructure projects, such as drainage and flood control, parks and recreation facilities, upgrades of utilities, and streets and county highways. Local jurisdictions must apply to the Bank for assistance and put up matching funds as a condition of receiving aid.
· Transportation Congestion Relief Act/ Proposition 42. In July 2000, the Legislature enacted AB 2928, the Transportation Congestion Relief Act (TCRA). This legislation dedicated motor vehicle fuel sales tax revenues to transportation for five years and provided additional funding for state and local transportation needs. The following year, the Legislature approved a constitutional amendment, ACA 4, to make the TCRA program permanent which was approved by voters in March 2002 in the form of Proposition 42.
· Local Revenue Sources. Local government uses the same financing mechanisms for infrastructure as the state. Local bonds are generally repaid through a special rate added to the property tax. Local bonds require a two-thirds approval of local voters. In addition, ¼-cent of the 1¼ - cent local sales tax goes to county transportation programs (approximately $1 billion per year).
B. Prop 53 and its Effects
The consequence of the piecemeal financing of state infrastructure chronicled above is the lack of a dedicated funding source to ensure that capital outlay projects are maintained and furthered. To remedy this problem, Proposition 53 was sponsored by the state Assembly as a constitutional amendment. A constitutional amendment must be approved by a majority of California voters before it can become law. If approved by the voter's, any subsequent changes in the constitutional amendment must also be approved by a majority of the voters.
To understand the potential ramifications of Prop 53, it must first be broken down into its various provisions. The purpose of Proposition 53 is to establish the "California 21st Century Infrastructure Investment Fund" (21 C. Fund). To finance the creation of the 21 C. Fund, a specified percentage of revenues would be transferred from the General Fund four times a year, depending upon the increase in the general fund from the prior year. Transfers into the fund are made on August 1, November 1, February 1, and May 31. The last two payments may be recalculated based on the Governor's May Revision of the budget. The May Revise, as this process is called, reconsiders the original budget proposal (which is issued at the beginning of each year) with more definitive and certain figures. Proposition 53 would also require the Department of Finance to prepare a report on how to expend the fund transfers if not otherwise directed by Governor. The revenues from the fund would be allocated at a 50% divide, half going to the state, and the other half directed to local government. The bill provides the money shall be used for acquisition, construction, rehabilitation, modernization, or renovation of infrastructure. School Districts are specifically excluded from Proposition 53.
The payments to the 21 C. Fund will not begin until at least 2006-07, depending on the revenues in the General Fund. The trigger provision for the first transfer into the 21C. Fund will not begin until the Department of Finance estimates the General Fund will increase by at least 4% from the prior year. The required amount transferred into the fund will depend on the level of revenues in the General Fund. For example, more revenues may be transferred into the fund if there is a substantial increase in the General Fund, or the transfer may be decreased or suspended if there is a General Fund deficit. Specific provisions regarding the transfer would commence in 2006-07, with the initial transfer amount equivalent to 1% of the General Fund and subsequent increases at an annual rate of .3%, capping at 3% of total General Fund revenue in fiscal year 2013-14. This is assuming no suspensions, interferences, or delays and excludes transfers from other funds into the General Fund and transfers from the General Fund it into other funds. According to Assembly Floor analysis and the LAO, barring any suspensions or delays, the transfer should result the amount of $850 - $950 million in the first year and increase to $4.4 billion in 2015-16, if an annual growth of 5% in the General Fund is assumed. LAO, Proposition 53 Analysis, August 11, 2003, p. 5, at (last accessed August 23, 2003).
Proposition 53 also includes a series of mandatory and discretionary triggers, reductions and suspensions of the 21 C. Fund transfer, which is predicated on the increase or decrease in the level of revenues in the General Fund. For the specific provisions, see Appendix A.
To create an effective law, the drafters must begin with the proper text. Proposition 53 is a legislative-sponsored constitutional amendment. Highlighted below are three key textual omissions that create potential legal issues and may result in litigation that could have been avoided with thorough, complete drafting. The first and most critical issue lies in the fact that there is no definition for "infrastructure." In the Proposition, the drafters set forth particular types of projects for which the state and local government may use the allocated money. Although there may be a common understanding of what this term means, any term that relates to the heart of the initiative is likely to be litigated in court after the initiative becomes law. The second omission relates to the Legislature's failure to indicate which inflation measure it would use in making the determination whether the General Fund increased to make the required allocations. The last omission is a mathematical error that has a correlation to Proposition 98; a constitutional initiative provision which sets out minimum funding guarantees for public schools based on General Fund revenues.
A. Legal Omissions
1. Definition of "infrastructure" and State Government Spending Boundaries
While the drafters were very clear about how local governments can spend their fifty-percent of the infrastructure fund money, the drafters failed to indicate clearly how the state Legislature is to spend the state's portion of the money. In Section 5 of the initiative, the drafters simply wrote that the money would be allocated for the use of "capital outlay." As the initiative relates to state government, it simply states, "Fifty percent [of the fund proceeds will go] for acquisition, construction, rehabilitation, modernization, or renovation of infrastructure that is owned, or is to be acquired by, the State." A.C.A. 11, 2001-2002 Leg. Sess. (Cal. 2002) at Section 5(a). Local governments, on the other hand, have specific restrictions on spending that are set forth in the initiative. Section 5(b) states, "Fifty percent [of the fund proceeds may be used] for acquisition, construction, rehabilitation, modernization, or renovation of infrastructure, including, but not limited to, streets, roads highways, transportation, water, parks, and open space, that is owned, or is to be acquired by, local governments, including cities, counties, a city and county, and special districts, but not school districts or community college districts." A.C.A. 11, 2001-2002 Leg. Sess. (Cal. 2002), at Section 5(b). Here, the Legislature specifically tells local governments what falls into the category of "infrastructure." The language does give the local governments some discretion when it adds the catch-all phrase, "including, but not limited to." Id.
The lack of a legal definition of "infrastructure" creates a potential problem because any ambiguity in statutory language will force a second government entity -the Legislature, the courts, or the California voters -to define it correctly and design some kind of spending boundaries for the Legislature.
The Legislature recently attempted to enact legislation that would address this omission. See A.B. 1011, 2002-2003 Leg. Sess. (Cal. 2003). AB 1011, introduced by Assembly Members Richman and Canciamilla on February 20, 2003, would have taken effect immediately if Proposition 53 were to be approved by California voters. The bill sets forth specific allocation and expenditure plans for the state and local governments to follow when the Infrastructure fund begins to collect. AB 1101, 2002-2003 Leg. Sess., at Chapter 2. For the local governments, fifty percent would be distributed to cities and counties for transportation purposes, fifteen percent (at least $20,000 for cities and at least $100,000 for counties) would be distributed through competitive grant programs, another fifteen percent distributed to cities, counties, park districts, and conservancies for parks and open space. Id. at Chapter 2 (a) (1)-(4). As the Assembly Appropriations Committee summary and analysis states, this is an arbitrary amount with no established need in these specific areas. AB 1011 Assembly Appropriations Committee Analysis, § 3 - Concerns Regarding State Allocation, p. 4, May 21, 2003. This piece of legislation would have served as a gap-filler to the initiative, by specifically designating the allocation of money to state government. AB 1011 did not get past the Assembly Appropriations Committee, so if Prop 53 passes, the Legislature must address these omissions in the future.
The Legislature's ability to address these omissions is also in doubt. Because of the specific constitutional constraints on the ability to make law that changes a constitutional provision, the Legislature may be barred from making any changes. Article II, section 10, subdivision (c) of the California Constitution states, "[t]he Legislature…may amend or repeal an initiative statute by another statute that becomes effective only when approved by the electors unless the initiative statute permits amendment or repeal without their approval." Proposition 53 does not include any language that will allow the Legislature to amend the statute, requiring any amendment to be passed by a majority vote of the electorate at a statewide election. This raises the question: what constitutes "amending" the language as opposed to adding to it or explaining it? In Huening v. Eu, the court considered this very question. 231 Cal. App. 3d 766, 774-6 (1991). The court stated that an amendment is "any change of the scope or effect of an existing statute, whether by addition, omission, or substitution of provisions, which does not wholly terminate its existence, whether by an act purporting to amend, repeal, revise, or supplement, or by an act independent and original in form." Id. at 775. A change of the statute to fill in the gaps is arguably an amendment that would have to be approved by the California voters. On the other hand, there is a strong presumption of constitutionality which supports the Legislature's acts. Amwest Surety Ins. Co. v. Wilson, 11 Cal. 4th 1243, 1251 (1995). However, this is no guarantee that the Legislature can fill in those gaps that the drafters made, and it will inevitably lead to some litigation, which is very costly and time-consuming. In effect, by leaving to the Legislature the job of filling in the gaps of this proposition, the drafters are in effect "asking for" constitutional problems.
If the issue is litigated, a court might look to the local government allocation provisions in which the drafters specified how local governments could spend the revenue. A court may infer that since the drafters were specific on some points, their failure to be specific on others was indeed intentional. In that case, the court would not allow the legislature to fill in the gaps because the legislation was intended to leave it open. Therefore, any change in the intended language would be conflicting, resulting in an unconstitutional amendment to the language of Proposition 53.
Proposition 53 leaves more in question when it fails to provide a method for the actual allocation of money to local governments. It directs the Legislature to provide a method for allocation of this revenue. A.C.A. 11, 2001-2002 Leg.Sess. (Cal. 2002), at Section 5(b). The Proposition provides no guidelines for the Legislature to determine the allocation or provide a deadline for the Legislature to develop a method, thus giving the Legislature a great deal of discretion. Id. The proponents of the proposition state that drafters intended on using channels of allocation that are already established in the state government, specifically the State Board of Equalization and the State and Local Highway accounts. However, the drafters are unsure how the Legislature will provide for the allocation because that provision was repealed from the bill as it passed through the legislature. Dan Pellisier Interview, September 16, 2003 (notes on file with McGeorge School of Law); see also various versions of A.C.A. 11 available at .
2. Inflation Measure.
The text of Proposition 53 fails to set forth which inflation measure the state will use in adjusting the allocation of the General Fund to the 21st Century Fund. While this is a small omission, the potential impact could be considerable. See A.C.A. 11, Section 3. The California Budget Project notes that there are many different ways to measure inflation, including the national or state Consumer Price Index and the California Necessities Index. CBP at endnote 1. These different indexes can vary significantly, resulting in drastic calculation differences of the total General Fund revenues. Id.
3. Mathematical Error.
Section 3(e)(2)(B) of A.C.A. 11 contains a math equation that affects the transfer rate from the General Fund into the 21 C. Fund. Written into the statute is a complex algebraic equation that relates to the amount of growth in the General Fund and the amount of revenue that will go to education pursuant to Proposition 98 minimum funding guarantee.
In this equation, there is a significant mathematical error. The result of this error is that the reduction written into the statute would create a forty-nine percent larger reduction than what the drafters actually intended. This error would only be felt when allocations for schools are greater than the General Fund growth and the transfer to the 21 C. Fund is not already reduced by another reduction provision. The provisions in AB 1011 attempted to correct this math error. However, since this bill failed to pass, the mathematical error will become the law if Proposition 53 is approved. Since the mathematical error is obviously not the intention of the drafters, the Legislature or a court may be able to reform the language to allow for the correct equation. However, again the Legislature might run into problems "amending" the statute. See Huening, 231 Cal. App. at 775. Fixing a mathematical equation would clearly be a "substitution of provisions." Id. A court might be less inclined to allow an amendment, especially since the drafters are aware of the problem and unwilling to fix it or take the proposition off the ballot before the election. However, a court may reform a statute to save it from being invalidated as unconstitutional when a two part test is met. See Cal. Prolife Council v. Scully, 989 F.Supp. 1282, 1300 (E.D. Cal. 1998). It is likely that neither a court nor the Legislature will be able to correct this error. Instead, California may be enacting a law, some provisions of which are clearly intended to have a different effect than the effect it will have in reality.
A. Federal Constitution
There are no federal constitutional issues raised by Proposition 53.
B. State Constitution
There are two primary state constitutional concerns that arise with Proposition 53. The first concern focuses on the fundamental concepts regarding the passage of a constitutional amendment. The second issue discusses the impact of a continually appropriated funding stream carved out from the General Fund.
1. Single Subject Rule
The state constitution governing the initiative process has many requirements. Before a state constitutional amendment may be implemented, article XVIII of the California Constitution requires the amendment to appear on the statewide ballot and that it must be approved by a majority of California voters. To change the amendment once it becomes effective, the same procedures must also be followed. The constitution also restricts the content of an amendment. An initiative measure may only encompass one subject or it will not be submitted for voter approval and will have no effect. Cal. Const. Art. II, §8(d) (West 2002). The California Supreme Court has defined single subject to mean germaneness or the reasonable relatedness of a provision to a common theme or purpose of the entire initiative. Legislature v. Eu, 54 Cal.3d 492, 512 (1991).
Assembly Constitutional Amendment 11, or Proposition 53, does not violate the single subject rule. All provisions within the proposed amendment are directed at the creation, establishment, and financing of the infrastructure fund, including the various provisions for increases, decreases and suspensions of the transfer. Therefore, since all of the provisions are reasonably related to the topic of the creating and financing the 21 C. Fund, which is the overall purpose of the amendment, the single subject requirement is satisfied.
2. Constitutionality and Authority to Create Dedicated Funding Streams
There is little disagreement over the need to maintain, modernize, and build California infrastructure. However, the issue is whether the framework proposed by Proposition 53 is the mechanism that Californians will choose. There are many constitutional policy issues raised by the continued appropriation of a dedicated funding stream. A consequence could be the diminished ability of present and future legislatures to allocate funds to other programs. This section focuses on two primary questions: does the Legislature have the authority to continually appropriate, or dedicate a portion of, the General Fund revenues and is this action constitutional? This analysis will be concluded with a brief examination of the constitutional policy concerns implicated by the constitutional legal arguments involved with Proposition 53.
a. Legislative and Constitutional Authority
Although Proposition 53 does not directly conflict with any state constitutional provision,
continual appropriations have been the subject of extensive litigation and policy
concerns. The self-executing character of continuing appropriations has been the primary
issue. In other words, this type of appropriation does not require annual legislative
oversight as do other budget measures the Legislature approves with the annual state
budget. Instead, Prop 53 would cause a percentage of the General Fund revenue (which
has been continually appropriated to provide a dedicated funding stream for infrastructure)
to be automatically transferred by the State Controller into the 21 C. Fund. Therefore,
the question is whether the Legislature has the authority to automatically allocate
funds, without yearly oversight of the appropriations and whether these actions divest
future legislatures of their power allocate revenue.
There is a fundamental principle which guides all legislative actions. It is that no legislative board may divest itself or future boards of the power to enact legislation within its competence. People's Advocate, Inc. v. Superior Court of Sacramento County, 181 Cal. App. 3d 316, 328 (1986). Another critical element of legislative authority is that the California Constitution is a limitation or restriction on the powers of the Legislature, unlike the federal Constitution, which is a grant of power to Congress. California Teachers Association et al., v. Thomas W. Hayes, 5 Cal. App. 4th 1513, 1531 (1992). As the California Appellate Court stated, an important consequence flows from this fact. The "entire lawmaking authority of the state, except the people's right of the initiative and referendum, is vested in the Legislature, and that body may exercise any and all legislative powers which are not expressly or by necessary implication denied to it by the Constitution." Id. at 1531-32.
The authority for the Legislature to propose a constitutional amendment that is submitted to the California electorate is derived from article XVIII, section 4 of the California Constitution. Legislative authority to appropriate money, including special appropriations measures which may be adopted outside the budget bill process is set forth in Article IV, Section 12 of the Constitution. This constitutional provision has been extensively litigated. Recently, the provision was at issue in White v. Davis, a taxpayers' action filed against the State in the wake of a budget impasse, in which a preliminary injunction was issued barring the state controller from making payments in the absence of passage of a budget bill or an emergency appropriation. In this case, the California Supreme Court declared that "nothing in article IV, section 12, expressly bars continuing appropriations. On its face, section 12 prohibits the Legislature from sending specified appropriation bills to the Governor prior to the enactment of a budget, and it provides for exceptions to this prohibition; it does not otherwise limit the Legislature's authority to enact appropriations." White v. Davis I, 98 Cal.App.4th 969, 984 (2003).
The Court further noted the relevant constitutional provisions did not on their face preclude the Legislature from enacting continuing appropriations. Id. As additional support, the Court looked to legislative history and intent of the provision. It explained that the predecessor to current article IV, section 12 had been interpreted by the court to permit the Legislature to enact continuing appropriations that were available for expenditure independent of the budget act. In quoting the Appeals Court, the Supreme Court went on to say "there was no indication that the drafters or the voters intended any change in meaning in this regard when article IV was substantially revised and its current provisions of article IV, section 12, were adopted." The Supreme Court ultimately concluded that continuing appropriations are constitutionally permissible. White v. Davis, 30 Cal. 4th 528, 540-541 (2003). Thus, the framework proposed by Proposition 53 to continually appropriate a dedicated funding stream is constitutional.
However, the next question is whether future legislatures have their power limited as a consequence of a continuing appropriation carving out a portion of the General Fund. This question was discussed by the California Court of Appeal in People's Advocate v. Superior Court, a case challenging the constitutionality of the Legislative Reform Act of 1983 which sought to make sweeping changes in the Legislature's operation, as well as the content of future legislation. The Court of Appeal, after first historically recognizing the legislative ability to pass continuing appropriations was first determined in 1923, stated the power to continually appropriate "does not authorize the placement of a legal limit upon the power of the Legislature to enact future appropriations legislation." People's Advocate, 181 Cal. App. 3d 316, 329. The Court stated further that a provision "containing a continuous appropriation may limit the Legislature's financial choices in other appropriations measures, but such a limitation is not one imposed by law which governs the content of the legislation." Id.
Thus, although the Legislature's choice in allocating funds will inevitably be impacted by a dedicated funding stream carved out of the General Fund, it is not a limitation on the powers of the Legislature to appropriate revenue and is therefore constitutional.
b. Constitutional Policy Concerns
The above analysis has chronicled the potential constitutional legal arguments that may be used in opposition to Proposition 53. Highlighted below are some constitutional policy concerns that may be raised, including the precedential value of Proposition 53, as well as its impact on the amount of General Fund revenues that the Legislature may realistically utilize to fund other programs.
The California Budget Project (CBP) analyzed the constitutional impact of Proposition 53. In their brief, the CBP stressed the impact this Proposition may have on other advocates. Specifically noted is the change in traditional program funding. "This sets a precedent for advocates of other programs funded by the General Fund to bypass the annual budget process by seeking to earmark General Fund monies through another initiative." Id. at 8. The impact of Proposition 53 could potentially cause an influx of other initiatives which also carve out a dedicated revenue source. This could ultimately result in a diminished General Fund, with little or no revenue to be used for other programs.
Another concern the California Budget Project highlights is the impact of a constitutional amendment. As previously discussed, Proposition 53 could not be changed without subsequent voter approval. The CBP comments that if budget priorities change, the Legislature cannot alter the funding allocation. The CBP also compiled the various initiatives that were approved in 2002. They warn that:
In 2002 alone, voters approved seven initiatives that increase demands on the state budget (Table 2). Two of these [initiatives] earmark existing revenues for transportation and education programs. The others are bond initiatives, which impose long-term General Fund costs in the form of annual debt service payments over the life of the bond. Setting state budget priorities through the initiative process encourages voters to consider spending for one area, such as infrastructure, in isolation from other state spending. While many voters may support spending for new infrastructure projects and maintenance, they might prefer to spend less than required by the measure if they knew that it could result in cuts to health or higher education or increases in taxes. CBP, p. 8.
Therefore, it is ultimately up to the California voters to determine whether or not a constitutional amendment is the proper method for insuring our State's infrastructure is maintained and built. Although this mechanism for financing passes constitutional muster and may be less expensive than bond measures, there may also be less appropriations for various programs as a result of a diminished General Fund.
V. Public Policy Considerations
As with any legislation, there are opinions on both sides of the fence. Those who are concerned about the passage of this proposition claim that because of the unexpected election and the acceleration of the date the proposition will appear on the ballot, the arguments and campaigns for and against the initiative have not had time to develop like they would in a normal election. Regardless, proponents and opponents have still had time to issue various public statements of support or opposition, highlighting the need for the initiative and, conversely, the potential evils that the initiative may present.
1. Need for Infrastructure fund.
In the past 5 years, there have been many different state-sponsored groups that critically analyzed the state's infrastructure issues. While proponents claim that these reports were not the specific catalysts for introducing the bill in the Legislature, these reports no doubt lend support to the claim that an infrastructure fund is needed to maintain California's infrastructure.
In December 1998, the Legislative Analyst's Office (LAO) published a report entitled "Overhauling the State's Infrastructure Planning and Financing Process." Chuck Nicol, Overhauling the State's Infrastructure Planning and Financing Process, December 1998, at www.lao.ca.gov. This report was a critical commentary on California's failure to plan and finance infrastructure projects, and included was a three-part recommendation on overhauling the infrastructure planning system. The three recommendations the LAO made were: (1) Develop an integrated statewide infrastructure plan; (2) Adopt a policy that dedicates six percent of annual General Fund revenues to infrastructure investment; and (3) Establish legislative committees to oversee development and financing of the statewide infrastructure plan. Id.
In 1999, Governor Davis appointed a Commission to assess the infrastructure problem as well. The California Commission on Building for the Twenty-First Century came out with its recommendations in spring 2002, and set forth what it saw as an adequate 20-year investment framework, urgent and immediate priorities, plan for building a sustainable foundation for investment, and tips for meeting our financial challenge. The Commission pointed out some important facts about the status of California infrastructure:
· Each year, California produces 50,000 - 70,000 fewer homes than needed;
· During the past 100 years, more than 90% of California wetlands have been lost, with negative impacts on water quality, flood protection, and habitat;
· It is estimated that earthquake retrofitting will cost California's 473 hospitals $5 - 10 billion over 10 years;
· Almost 50% of the in-state electrical generation capacity is from facilities that are more than 30 years old;
· Nearly three-quarters of the State's courthouses were built prior to 1980 an over half were built before 1970.
Governor's Commission on Building for the 21st Century, Ch. 4, 2002 at (last accessed August 23, 2003). The Commission recommended that the state create a permanent infrastructure investment fund separate from the funds that are already formed to fund infrastructure. Id.
As a result of these and many other reports on the failing California infrastructure system, proponents argue that CA has "long-neglected infrastructure" and there is no stable way to provide for infrastructure improvements in the future. Yes on 53, at . They argue that our infrastructure problem is the result of years of failing to pay for improvements, and that this deficit has been caused by many different things, including other initiatives passed by California voters. Id. The way that other initiatives have affected California's infrastructure is subtle, but they have had effects. Prop 13, the initiative that in 1978 slowed the growth level of property taxes, for example, has created revenue shortages in local governments, which have consequently encouraged local governments to seek out higher-taxed businesses instead of developers to build residential buildings. This allegedly has created and influx of "big-box stores" such as Home Depot, which has also increased traffic and other infrastructure problems. See James Sterngold, Hard times fuel debate on the initiative process, SAN FRANCISCO CHRONICLE, Aug 17 2003, available at (last accessed August 23, 2003). "The economy can't function if we don't rebuild aging infrastructure and build facilities for an ever-increasing population," stated Bill Hauck, president of CA Business Roundtable (as quoted in John Hill, Prop 53, recall will share ballot, SACRAMENTO BEE, August 17, 2003).
The Yeson53 Campaign points out that during the Pat Brown and Ronald Reagan eras of California governance, the state invested between fifteen and twenty percent of the General Fund in infrastructure. Yeson53, About Proposition 53, available at . Between the years of 1990 and 2002, the state has invested an average of .23 percent in California infrastructure programs. Id. Dan Pellisier from the Yes on Prop 53 campaign stated that the "general decay of infrastructure" and the realization that the "Legislature wasn't going to do anything about it" were the reasons that the bill was introduced. Interview with Dan Pellisier, September 16, 2003 (notes on file with McGeorge School of Law). The Infrastructure Investment Fund for the 21st Century is attempting to remedy this massive shortfall in infrastructure funding.
2. Proposition 53 Advantages
Proponents are selling Proposition 53 as a fiscally responsible-sounding "pay as you go" infrastructure program. Dr. Peter Mehas, Resources/Library: Ballot Pamphlet Reply, at . It is "pay as you go" because it takes a small portion of the budget each year and applies it to infrastructure instead of financing infrastructure projects through bond measures and other mechanisms that put off complete payment to the future. Supporters claim that this fund provides a way to fund infrastructure without raising taxes. Furthermore, this fund does not change any funding of public education. However, the "Yes on 53" campaign glosses over the fact that community colleges are left out of the funding programs, despite the call for campus building updates that the Governor's Commission and the Legislative Analyst's Office made in their respective reports. Jon Coupal, Background Info: Ballot Pamphlet Statement, available at www.yeson53.org; Governor's Commission on Building for the 21st Century, Ch. 8, (2000) at ; Chuck Nicol, Overhauling the State's Infrastructure Planning and Financing Process (1998). The Yes on 53 campaign indicates that Proposition 53 requires the Legislature to use money from the Infrastructure Fund to pay for K-12 schools and community colleges in times of short budget for schools. See Yes on 53, available at www.yeson53.org.
Proponents are mostly cities and counties who would get a large chunk of money from the fund, slated for local government infrastructure needs. Construction unions and contractors are also backing it; they stand to get work from public facilities contracts. Business groups are also backing it. John Hill, Prop 53, recall will share ballot, SACRAMENTO BEE, August 11, 2003 at www.sacbee.com. Some of the most well known official supporters are the California Chamber of Commerce, the California Farm Bureau, The California Park and Recreation Society, the California Business Roundtable, the California State Association of Counties, the Howard Jarvis Taxpayers Association, and the League of California Cities. Yes on 53, Proposition 53 Supporters at .
B. Opponents' Arguments
Opponents argue two main points. First, the initiative ties the legislature's hands in exercising its spending duties; second, opponents feel that as a result of tying the Legislature's hands, the funds earmarked for infrastructure may take away money from other important programs.
1. Tying the Legislature's Hands.
Opponents say that the initiative ties the Legislature's hands, "giving it little say over the spending of billions of dollars while opening lawmakers up to fierce criticism when they make cuts from other parts of the budget to pay for the infrastructure improvements." James Sterngold, Hard times fuel debate on the initiative process, S.F. CHRONICLE, August 17, 2003, at . In the past few decades, California voters have limited in many ways the Legislature's ability to use discretion in spending. According to the Legislative Analyst's office, "voters have passed 15 major initiatives since Prop 13 in 1978 that altered the state's ability to tax and spend." Id. They are Propositions 98, 13, 49, 10, and 42. Id. Initiatives have tied up over one-third of the state's general fund and other programs take huge amounts out of the state General Fund. Id. Aside from initiatives that earmark certain monies for certain programs, $6 billion of the state budget goes to the state university systems, $3 billion for repaying bond interest and principal on state debts, and more than $2 billion is spent on pensions. Id.
Furthermore, it is ironic that in the worst budget year in history, California voters are asked to give the Governor and the Legislature less discretion in creating a balanced budget. "The voters will make it that much harder for the governor to balance the budget at the same time they are expressing their anger at the governor for not balancing the budget." Id. (quoting Jean Ross, Executive Director of the California Budget Project). On the other hand, this may be exactly what California voters want - a chance to ensure that their Legislature spends their General Fund money on the specific things voters choose.
Current State Superintendent of Schools and former State Senator Jack O'Connell has been one of the outspoken opponents to the Proposition 53 campaign. He claimed that the initiative would "'increase spending on public works even if there is a deficit and no money is available' and it would 'take away funding from our kids' classrooms and force more cuts in education.'" Press Release, Prop 53 Team Sues Opponents on "Blatant" Lies, (August 20, 2003) at www.yeson53.org. As a result of these comments, the Proposition 53 proponents filed a lawsuit against Secretary of State Kevin Shelley, which was later resolved without a trial. Id.; Dan Pellisier Interview, September 16, 2003 (notes on file at McGeorge School of Law). Also regarding education, some opponents believe that proposition 53 will force Proposition 98 to be a ceiling, not a floor, simply as a result of not having enough money to fund everything. John Hill, Prop 53, recall will share ballot, SACRAMENTO BEE, August 11, 2003, at . Proponents claim that these statements are false, and they appear to be false, judging from the language of the initiative and the Legislative Analyst's Office summary of the initiative. Specifically, the initiative provides for multiple reductions in the allocations to the fund if there has not been an increase in the General Fund or if the mandatory allocations to schools straps the GF too much. See A.C.A. 11 § 3(b)-(e), 2001-2002 Leg. Sess. (Cal. 2002).
2. Interference with other state obligations.
Opponents have a "common concern: that money dedicated to public facilities will starve other state operations and public employee salaries." John Hill, Prop 53, recall will share ballot, SACRAMENTO BEE, August 11, 2003, at . They believe that by tying the Legislature's hands, state funded programs such as nutritional programs for seniors, health care and grants for aged, blind and disabled people might suffer. Id. Jean Ross, the Executive Director of the California Budget Project, states the problem with Proposition 53 is that "it doesn't say what you need to cut to get there…" Id. If three percent of the General Fund is being funneled to infrastructure, without raising taxes, it logically follows that the three percent is being taken from other state obligations, whether the money comes from programs, state employee salaries, pensions, or anything else. It remains to be seen what state obligations are affected, and how the Legislature would deal with these spending obligations.
Official opponents include the Congress of California Seniors and the Service Employees International Union, an organization that represents many public employees. Teachers and other school officials are likely to oppose it as well. Id.
3. Other concerns.
The special election at which this proposition will be voted on has been the subject of much litigation in state and federal courts. Recently, a three judge panel of the Ninth Circuit postponed the election indicating that the statistically high error rates of punchcard voting machines in six California counties with large minority populations was likely to create a violation of the U.S. Constitution's equal protection clause. Southwest Voter Registration and Education Project v. Shelley, No. 03-56498 (9th Cir. September 15, 2003). The panel also determined that the state's interest in placing Propositions 53 and 54 on the October 2003 special election ballot was not great. In fact, the panel indicated that postponement of a vote on the ballot initiatives would be in the public interest. Id. at 59-60. An en banc panel of the Ninth Circuit did not agree with the three judge panel's opinion. In a more limited ruling, which focused on the discretion of the trial judge in preliminary injunction hearings, the eleven judge panel affirmed the trial court's denial of a preliminary injunction and confirmed that the special election would go forward on October 7, 2003. Southwest Voter Registration and Education Project v. Shelley, No. 03-56498 (9th Cir. September 23, 2003).
The concerns expressed by the three judge panel concerning the limited time for review of the ballot initiatives prior to the election may arise if Proposition 53 is litigated after the election. A plaintiff trying to invalidate the measure could utilize some of the Ninth Circuit analysis to make a case that the voters did not have time to adequately consider all angles of the infrastructure problem and the potential shortfalls of the initiative.
California voters will eventually be asked to approve or disapprove Proposition 53, a constitutional amendment that will have a profound effect on the General Fund but perhaps a positive effect on the status of our state's infrastructure. Proposition 53 will provide an increasing percentage of the General Fund to the 21st Century Infrastructure Fund, until the percent reaches a high of three percent. However, the allocations from the General Fund to the Infrastructure Fund will be reduced or stopped depending on the status of inflation and the increase in General Fund revenues. There are some ambiguities regarding the expenditure of funds on the state level which leave open avenues for litigation. Yet, after nearly fifteen years of failing to provide money for infrastructure, this is California's first attempt in recent history to address any non-highway infrastructure issues. Ultimately California voters will have to decide whether the priority is infrastructure or the programs that may be sacrificed at its expense.
SPECIFIC PROVISIONS OF PROPOSITION 53
1. General Amount of Transfer (assuming no suspensions, interferences, or delays):
a. Beginning in FY 2006-07, Initial Transfer is equivalent to 1% of GF (excluding transfers from other funds in the GF and transfers from the GF into other funds) and increases at an annual of .3% capping at 3% of total GF revenue in FY 2013-14.
b. According to Assembly analysis, barring any suspensions or delays, the transfer should result in $950 million in the first year and increase to $4.4 billion in 2015-16, if an annual growth of 5% in GF is assumed.
2. Delays, Interferences, Reductions, Suspensions
a. Mandatory Delay: one FY delay if GF revenues do not increase by an amount greater than 4% (as compared with the prior FY).
b. Mandatory Acceleration: if GF revenues increase by an amount greater than or equal to 8% (as compared with the prior FY), then automatic acceleration of transfer by one FY.
c. Mandatory Reductions:
i. Conditional Reduction: If Prop 98 allocations are greater that GF growth AND the transfer for the 21C. Fund is not already reduced then the following formula applies to determine the reduced transfer allocation:
(A) general % of transfer - Prop 98 allocation
(B) Equivalent amount of Prop 98 spending x % of GF growth
(C) [A - B] x .5 = amount allocated to 21C. Fund.
ii. Prop 51 Reduction: Amount of Transfer shall be reduced by an amount equal to the sales tax revenue on vehicles that is diverted to the Prop 51 infrastructure fund.
iii. Graduated Reductions:
A. If, according to May Revise, revenue projections are
2-5% below, then the total 21 C. Fund transfer allocation shall only be 75% of general transfer provisions.
B. If, according to May Revise, revenue projections are
0-2% below, then the total 21 C. Fund transfer allocation is not affected.
d. Discretionary Cap: Transfer allocations may not exceed the difference between 7.5% of GF revenues and bond debt payments of the previous FY.
e. Mandatory Suspensions:
i. Suspension of February Payment: based on the May revise, if the GF revenues are more than 5% below the revenue projections for the current FY, then the Feb. is suspended until at least May 31.
ii. Suspension of February and May Payment: based on the May revise, if the GF revenues are more than 5% below the revenue projections for the current FY, then the last two payments shall be suspended for that FY. If the Feb. payment had already been made, then the amount shall be used as a credit for the following year.
iii. Suspension due to Year-to-Year Decline: if there is a year to year decline in FY revenues estimated to either less than actual revenues in the prior FY, OR, more than 4 percent below actual revenues for the prior FY after adjusting for inflation, then:
A. Transfer will be suspended for that year. If the decline is based on Jan. or May Revise, any payments made in Aug., Nov., or Feb will be credits for the following year.
B. If the transfer is suspended in any fiscal year, the transfer the following year shall only be one half of the required payment, including credits from the previous year.