BILL ANALYSIS Ó
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Date of Hearing: May 17, 2011
ASSEMBLY COMMITTEE ON ELECTIONS AND REDISTRICTING
Paul Fong, Chair
ACA 7 (Feuer) - As Introduced: December 6, 2010
SUBJECT : Initiative measures: funding source.
SUMMARY : Prohibits an initiative measure - if determined by
the Director of Finance (Director) and Legislative Analyst
(Analyst) to result in a net increase in state or local
government costs - from being submitted to the electors or from
having any effect until and unless it is jointly determined by
the Director and Analyst that the initiative measure provides
for additional revenues in an amount that meets or exceeds the
net increase in costs. Provides that costs attributable to the
issuance, sale, or repayment of bonds do not apply to this
prohibition.
EXISTING LAW :
1)Allows electors to propose statutes and amendments to the
Constitution and to adopt or reject them through the
initiative process.
2)Requires the Attorney General (AG), upon receipt of a draft of
a petition for a proposed initiative measure, to draft a title
and summary of the proposed measure.
3)Provides that if the AG determines that a proposed measure
would affect state or local revenues or expenditures, he or
she must include in the title and summary either the estimate
of the amount of change in state or local revenues or costs,
or an opinion as to whether or not a substantial net change in
state or local finances would result if the proposed
initiative is adopted.
4)Requires the Department of Finance (DOF) and the Joint
Legislative Budget Committee (JLBC) to jointly prepare the
fiscal estimate that is included in the title and summary.
5)Requires any ballot measure that appears on the statewide
ballot to receive a majority of the votes cast on the measure
in order to be approved.
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FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the Constitutional Amendment : According to the
author:
The Legislature's ability to determine a distribution of
limited funds according to the State's highest priority
needs in any given year is hindered by initiatives that
have costs but no offsets. Further, these initiatives are
an underlying cause of the State's ongoing structural
deficit, now projected to be at least $20 billion for each
of the next five years.
Absent other reforms to the initiative process, the
Legislature's ability to adopt a balanced budget that
adequately meets the needs of its citizens is significantly
circumscribed by the fiscal effects of many past and
possibly future ballot initiatives under the current
California Constitution. ACA 7 is a reasonable approach to
reduce the fiscal uncertainties voter approved initiatives
create without restricting peoples' constitutional right to
propose statutes and constitutional amendments, and to
adopt or reject them.
2)Current Restrictions on Initiative Measures : The California
Constitution places certain restrictions on the content of
initiative measures. Specifically:
a) An initiative measure embracing more than one subject
may not be submitted to the electors or have any effect.
b) An initiative measure may not include or exclude any
political subdivision of the State from the application or
effect of its provisions based upon approval or disapproval
of the initiative measure, or based upon the casting of a
specified percentage of votes in favor of the measure, by
the electors of that political subdivision.
c) An initiative measure may not contain alternative or
cumulative provisions wherein one or more of those
provisions would become law depending upon the casting of a
specified percentage of votes for or against the measure.
d) No initiative that names any individual to hold any
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office, or names or identifies any private corporation to
perform any function or to have any power or duty, may be
submitted to the electors or have any effect.
This constitutional amendment does not restrict an initiative
measure from having a fiscal impact on state and local
governments; however by prohibiting a measure from being
submitted to the electors if it has an increase in costs
without a funding source, this constitutional amendment may
limit the number of such measures that are proposed.
3)Fiscal Disclosures Required Under Current Law : Current law
requires that the fiscal impact of a proposed measure be
analyzed and included in both the circulating title and
summary, prepared by the Attorney General, and in the
analysis, prepared by the Legislative Analyst, printed in the
state ballot pamphlet. The intent of these fiscal disclosures
is to provide voters with all available information about a
proposed measure's potential impact. These disclosures allow
voters to make informed decisions about whether to approve or
reject measures, without limiting the ability of the
electorate to have a voice in government. This constitutional
amendment does not require additional disclosures regarding
costs or revenues; rather, it would prohibit specific measures
from being submitted to the electorate or from taking effect
unless the measure provides additional revenue.
4)Why Not Bonds ? The restrictions in this constitutional
amendment are only applicable to measures that would result in
a net increase in state or local government costs, other than
costs attributable to the issuance, sale, or repayment of
bonds. According to the author, the approval of initiative
measures in the past two decades has put pressure on the
general fund at an ever increasing rate and makes it necessary
to constitutionally require initiative measures to offset
potential costs. However, as noted in the background
information provided by the author's office, many of the
initiative measures that have passed have approved the
issuance of general obligation bonds, which can also put
pressure on the general fund with future debt.
In 2009, the Little Hoover Commission released a report
entitled, "Bond Spending: Expanding and Enhancing Oversight."
The report, in part, was in response to several statewide
measures that approved the issuance of bonds for specific
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purposes. In 2006, Californians approved $54 billion in
spending in the form of seven statewide general obligation
bonds for transportation, education, and water projects. In
2008, California voters approved another $10.5 billion in
bonds directed towards a high-speed rail system and
improvements for children's hospitals.
Given that the money to repay state general obligation bonds
comes from the general fund, the report notes that, "General
obligation bonds are guaranteed by the California
Constitution, as a result, repayment of bonds takes priority
over virtually all other state government expenses beyond
education?As Californians commit more to debt without revenue
increases, they limit the choices that future generations and
future lawmakers can make about spending priorities." If this
constitutional amendment were to pass, measures that would
result in a net increase in state costs due to the issuance of
general obligation bonds could still be submitted to the
electors and take effect without providing for additional
revenues.
5)Reduction in Revenues ? This constitutional amendment focuses
solely on initiative measures that would result in increased
costs; however, there are other types of measures that may
also have an impact on the state's general fund without
imposing new costs. For example, initiative measures that
propose to decrease taxes would, in turn, decrease state
revenues. Such a measure would not be restricted from
appearing on the ballot, under the provisions of this
constitutional amendment. The committee may wish to consider
if the disparate treatment of statewide initiative measures is
appropriate, given that the fiscal impacts may be similar.
6)Low Costs, High Costs : This constitutional amendment would
prohibit any initiative measure with a cost, regardless of the
amount, from being submitted to the electors. The committee
may wish to consider if it is appropriate to place a
restriction on initiative measures that would result in only a
minor cost to the state or local government. Such initiatives
may not pose the same financial burden on the state or local
government, but may be greatly beneficial to, and valued by,
the electorate.
7)Current Procedure for Determining Initiative Fiscal Impact :
While the DOF and the JLBC are required to prepare the joint
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estimate of the fiscal impact on state and local government
that is included in all titles and summaries for initiative
measures that are submitted to the AG's office, the actual
process differs. When the DOF and JLBC receive notice from
the AG requesting a fiscal analysis, the Legislative Analyst's
Office (LAO) typically takes the lead and begins the process
of investigative research, including how programs would be
affected and how possible passage and implementation would
impact the state as a whole. Once the LAO has completed this
investigative analysis, the DOF is then contacted for review
and concurrence. After the DOF has signed off on the LAO's
work, the estimate is then returned to the AG for inclusion in
the title and summary.
8)Implementation : This constitutional amendment provides that a
measure, as described, may not be submitted to the voters or
have any effect unless the Analyst and the Director jointly
make a determination regarding revenue. However, it is
unclear at what point in the initiative process the
determination would be made that a proposed measure will not
be placed on the ballot, and what entity will be responsible
for making that determination. Given that the fiscal estimate
is determined prior to the preparation by the AG of the
circulating title and summary, would the AG still be required
to prepare a circulating title and summary on a proposed
initiative that would result in increased costs without
providing additional revenues? If the AG did prepare the
circulating title and summary, it is unlikely that proponents
would gather signatures if it is known that the proposed
measure would not be submitted to the electors, regardless of
whether enough signatures were collected.
In addition, after receipt of the fiscal estimate, the AG has 15
days to prepare the circulating title and summary. Within
those 15 days, proponents of an initiative measure may submit
amendments to the proposed initiative; however, it is unlikely
that 15 days is enough time for proponents to draft new
language that would provide for additional revenues. Further,
is it reasonable to require the AG to continue preparation of
a title and summary, if it is known that proponents may be
submitting substantial amendments to address fiscal concerns?
9)Planning Ahead : Current law requires the Secretary of State
(SOS), upon the request of the proponents of an initiative
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measure, to review the provisions of the measure, prior to its
circulation, and provide an analysis, comments, and a
statement of fiscal impact prepared by the Legislative
Analyst. In the past, this process has not been widely
utilized, presumably because proponents receive a fiscal
impact estimate and an analysis from the AG once the measure
is submitted to the AG for circulating title and summary.
However, given the limited amount of time proponents have to
amend an initiative measure after receiving the fiscal
estimate from the AG, if this constitutional amendment were to
pass, it is reasonable to assume that the use of this review
process by the SOS would increase, as it would be beneficial
for proponents to have a statement of fiscal impact prior to
submitting a measure to the AG.
10)Other States . According to the National Conference of State
Legislatures (NCSL), as of 2006 the following eleven states
have restrictions on the use of the initiative with regard to
appropriations and funding mechanisms.
Alaska: No dedication of revenues or making or
repealing appropriations.
Arizona: If an initiative requires a reduction in
government revenue or a reallocation from currently funded
programs, the initiative text must identify the program(s)
whose funding must be cut or eliminated to implement the
initiative. If the identified revenue source provided
fails in any fiscal year to fund the entire mandated
expenditure for that fiscal year, the legislature may
reduce the expenditure of state revenues for that purpose
in that fiscal year to the amount of funding supplied by
the identified revenue source.
Florida: Measures that propose a tax or fee not in
place in November 1994 require a 2/3rds vote to pass.
Maine: Expenditures in an amount in excess of available
and unappropriated state funds remain inoperative until 45
days after the regular legislative session, unless the
measure provides for raising new revenues adequate for its
operation.
Massachusetts: May not be used to make a specific
appropriation from the treasury. However, if such a law,
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approved by the people, is not repealed, the legislature
must raise by taxation or otherwise and appropriate such
money as may be necessary to carry such law into effect.
Mississippi: Sponsor must identify in the text of the
initiative the amount and source of revenue required to
implement the initiative. Initiatives requiring a reduction
in government revenue or a reallocation from currently
funded programs must identify the program(s) whose funding
must be reduced or eliminated to implement the initiative.
Missouri: May not appropriate money other than new
revenues created and provided for by the initiative.
Montana: May not appropriate money.
Nebraska: No measure may interfere with the
legislature's ability to direct taxation of necessary
revenues for the state and its governmental subdivisions.
Nevada: No appropriations or other expenditures of
money unless such statute or amendment also imposes a
sufficient tax or otherwise constitutionally provides for
raising the necessary revenue.
North Dakota: No appropriations for the support and
maintenance of state departments and institutions.
Wyoming: No dedication of revenues or making or
repealing appropriations.
NCSL further comments that initiative measures which mandate
the expenditures of large amounts of public revenue without
including a new dedicated revenue source (such as taxes or
fees) can make it difficult for the legislature to continue to
fund existing state services and programs. In addition,
initiatives that increase or create new taxes to fund new or
existing programs negatively affect the legislature's ability
to impose reasonable taxes to fund necessary programs for
citizens.
1)Arguments in Opposition : The California Taxpayers
Association, in opposition to this constitutional amendment,
writes:
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ACA 7's "pay-as-you-go" provisions are biased against
constitutional amendments that are not proposed by the
Legislature, since initiatives proposed by the public must
identify new revenue to support new expenditures, while
ballot measures proposed by the Legislature are not held to
the same standard. A problem with the "pay-as-you-go"
approach is that proponents of an initiative will not have
an official fiscal analysis of their initiative until after
it enters circulation. If it does not meet the
"pay-as-you-go" requirements, it may be too late to submit
another version for a title and summary from the attorney
general, collect signatures, and then submit signatures to
the election officials for certification - this is a
lengthy process that requires months of planning. Also
virtually all initiatives will have some "costs," even
proposals to increase taxes have associated administrative
costs.
Also in opposition to this bill, the Howard Jarvis Taxpayers
Association argues that, "This bill is an open assault on the
People's power of initiative. By essentially requiring
initiative measures to identify how they will be funded, ACA 7
would allow government leaders to arbitrarily manufacture
reasons to not allow measures on the ballot. This inhibits
voter choice in a number of areas."
2)Approval of Voters : As a constitutional amendment, this
measure requires the approval of the voters to take effect.
3)Previous Legislation : This constitutional amendment is
substantially similar to SCA 14 (Ducheny) of 2009, which was
placed on the Senate inactive file by the author.
ACA 3 (Blakeslee) of 2009, would have required an initiative
measure that authorized the issuance of state general
obligation bonds of $1 billion or more to identify a funding
source. ACA 3 was approved by this committee, but was never
brought up for a vote on the Assembly Floor.
4)Related Legislation : This constitutional amendment is
substantially similar to SCA 4 (DeSaulnier), which is pending
in the Senate Appropriations Committee, and ACA 6 (Gatto)
which will also be heard in this committee today.
ACA 5 (Portantino), which is pending in the Assembly Budget
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Committee, establishes a "pay-as-you-go" requirement for ten
years that all voter initiatives, statutes, bond issuances and
bond sales costing more than $250,000 must provide additional
state revenue to be enacted.
AB 1021 (Gordon) requires additional fiscal information be
included in the circulating title and summary prepared by the
AG and the summary statements prepared by the Legislative
Analyst for a proposed initiative. AB 1021 was approved by
this committee on a 5-2 vote, and is pending in the Assembly
Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
California Taxpayers Association
Howard Jarvis Taxpayers Association
Analysis Prepared by : Maria Garcia / E. & R. / (916) 319-2094