BILL ANALYSIS
ACA 18
Page 1
Date of Hearing: August 24, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
ACA 18 (Evans) - As Introduced: March 26, 2009
2/3 vote. Fiscal committee.
SUBJECT : State budget: vote requirement: state taxes.
SUMMARY : Proposes amendments to the California Constitution
regarding the vote requirement for the annual budget bill and a
statute changing a state tax, and the voters' power of
referendum to approve or reject statutes. Specifically, this
bill :
1)Exempts General Fund (GF) appropriations made in a "budget
bill" from the two-thirds vote requirement.
2)Defines a "budget bill" as a bill that makes appropriations
for the support of the government of the State for an entire
fiscal year.
3)Permits the Legislature, by majority vote in each house, to
propose to the voters a change in a state tax for purposes of
increasing revenue through a statute enacting a budget
implementation bill. Provides that such a statute becomes
effective only if approved by a majority vote of those
electors.
4)Defines a "budget implementation bill" as a bill that is
identified in the budget bill as containing only changes in
law necessary to implement the budget bill.
5)Provides that a statute enacting either the budget bill or a
budget implementation bill shall go into immediate effect upon
its enactment, unless a statute enacting the budget
implementation bill changes a state tax for purposes of
increasing revenue, in which case it becomes effective one day
after the election at which the statute is approved by the
electors.
ACA 18
Page 2
6)Limits the voters' power of referendum to approve or reject a
statute by exempting from a referendum a statute enacting the
budget bill, a statute enacting a budget implementation bill,
and any statute that is required to be submitted to the
electors.
EXISTING LAW :
1)Requires that GF appropriations, except appropriations for the
public schools, be passed by a two-thirds vote of each house
of the Legislature. (California Constitution, Section 12(d),
Article IV).
2)Specifies that statutes take effect on January 1 following a
90-day period from the date of enactment. Allows statutes
calling elections, statutes providing for tax levies or
appropriations for the usual current expenses of the State and
urgency statutes to take effect immediately upon their
enactment. (California Constitution, Section 8(c), Article
IV).
3)Defines an "urgency statute" as a statute necessary for
immediate preservation of the public peace, health, or safety,
and specifies that an urgency statute must be passed by a
two-thirds vote of each house of the Legislature. (California
Constitution, Section 8(d), Article IV).
4)Requires that any change in state taxes enacted for the
purpose of increasing revenues be imposed by an act passed by
a two-thirds vote of the membership of each house of the
Legislature. (California Constitution, Section 3, Article
XIIIA).
5)Provides that a referendum measure may be proposed to the
electors to approve or reject statutes or parts of statutes,
except urgency statutes, statutes calling elections, and
statutes providing for tax levies or appropriations for usual
current expenses of the State.
6)Requires that a proposed constitutional amendment be submitted
to the voters for their approval at a statewide election.
FISCAL EFFECT : Unknown.
COMMENTS :
ACA 18
Page 3
1)Author's statement : The author states, "In good times and in
bad, California's Legislature has had difficulty finding the
votes to pass a budget on-time. Prior to this year, these
delays were marked with some limited media interest, but
little economic impact. However, in the last year, the
gridlock that delayed solving both the budget deficit and
mid-year fiscal problems resulted in the shut down of over
5,400 public works projects, impacted tens of thousands of
workers across California. California cannot afford the
economic cost of continued gridlock, we must develop an
alternative process to adopt a budget that allows a majority
of the members of the Legislature to take leadership and
accountability in balancing the State budget.
"This provision provides a compromise solution to address the
state's historic budget gridlock by reducing the voting
threshold for the budge to a majority. This solution balances
the power it would give the majority in the Legislature to
adopt a comprehensive budget package with protections for
taxpayers by only reducing the vote-threshold [to a majority
vote] for budget-balancing tax provisions if they subsequently
need to be approved by the voters to take effect.
"Historically, there are two reasons why this solution would be
a workable improvement to the budget process. First, tax
increases have been part of a budget package only once in the
last fifteen years, so a majority could send a budget to the
Governor in most years. Second, voters have shown a
willingness to increase taxes in cases where the value of the
services is clearly identified, such as the case in both
Proposition 10 and Proposition 63. ACA 18 draws on this
history as the formula for improving the budget process but
recognizing the protections on legislative power than has been
expressed by the electorate in past elections."
2)Arguments in support . The proponents believe that the
"majority" rule is a fundamental part of our democracy and
this measure would provide the Legislature with a means to
resolve a budget stalemate. The two-thirds vote requirement
is a major impediment to enactment of the budget on time. A
supermajority vote rule is fundamentally undemocratic and
provides a minority with veto power over the will of the
majority. With the two-thirds vote requirement, a minority
party can hold the budget hostage and coerce the majority
ACA 18
Page 4
party into trading off programs wanted by the majority of the
people or allowing the minority party's "pet" programs to be
included in the budget. Lengthy budget delays create a
hardship for state workers, vendors to state agencies, local
governments, among others. Further, bond rating services have
downgraded the state's bonds in recent years due to budget
delays and several restrictions, including the two-thirds vote
requirement, on the state's ability to respond to budget
crises.
The proponents emphasize that this constitutional amendment, if
approved by the voters, would make no change in the current
two-thirds vote requirement for state tax increases but would
provide the ultimate safety valve - the voters - to decide on
taxes. This measure represents a great compromise by allowing
voters to have the ultimate authority to accept or reject a
budget compromise.
3)Arguments in opposition . The opponents of this measure argue
that long-standing taxpayer protections should not be thwarted
based on the need for revenue. The state's fiscal problems
are not the result of the two-thirds vote requirement but of
the state's failure to consistently produce prioritized,
balanced budgets. The opponents believe that the two-thirds
vote requirement for a tax increase is a last resort and
should not be lowered. It gives the minority the ability to
be heard and prevents it from being excluded from the budget
process. Finally, the opponents state that limiting the
voters' right to referendum would narrow an important check on
government power.
4)Background . There are two distinct supermajority vote
requirements that are addressed in this measure: One applies
to a passage of a budget bill and the other one is required
for a passage of legislation that makes a change in state
taxes for the purpose of increasing revenue.
California's constitutional budget procedures were put in place
in 1922, with the two-thirds vote requirement added as a part
of a tax reform program enacted in 1933, in the depth of the
depression. According to a 1996 Senate analysis of SCA 26
(Thompson), the two-thirds vote requirement was originally put
in place to allow the Legislature to override the 5% growth
limitation imposed on state and local expenditures. In 1962,
the 5% growth limit was removed from the California
ACA 18
Page 5
Constitution, leaving the two-thirds vote requirement in place
and, thus, making it applicable to all new GF appropriations.
The history of the two-thirds vote requirement for a passage
of a budget bill, thus, demonstrates that it was not intended
as a general procedural reform, but rather was enacted only as
the price of overriding what proved to be an unrealistically
restrictive spending limit.
In contrast, the two-thirds vote requirement that applies to a
bill imposing a new or increasing an existing tax (California
Constitution, Section 3, Article XIII A), was intended to
limit the power of the Legislature and, eventually, local
governments, to impose new taxes or increase existing taxes.
California Constitution, Article XIII A, which was added by
the electorate's approval of Proposition 13 at the June 6,
1978, statewide primary election, prescribes a two-thirds vote
requirement for certain measures increasing state taxes, as
part of an interdependent and interrelated system of
provisions necessary for effective real property tax relief.
[Amador Valley Joint Union High School Dist. v. State Board of
Equalization (1978) 22 Cal.3d 208, 231].
5)A majority vote budget - a new idea ? According to the
author's office, over the last 40 years, the California budget
has been adopted on time only 15 times. California is one of
only three states in the United States that have a two-thirds
vote requirement for adopting a budget. ACA 18 proposes to
reform California's dysfunctional budget process by lowering
the vote threshold for passing a budget bill.
The idea of a majority vote budget is not new. In 1998, the
California Citizens Budget Commission, a nonprofit,
bipartisan, private organization formed in 1993, issued a
report recommending that the state budget, including the
budget implementation bills, be adopted by majority vote, the
same vote required for most major actions by the Legislature.
The Commission found no clear evidence that the two-thirds
vote requirement acts as a restraint on spending since
legislators can as easily withhold votes to secure increases
in spending for their favorite programs as they can to secure
spending reductions. (A 21st Century Budget Process for
California, Recommendations of the California Citizens Budget
Commission, The Commission's Findings, p. 2, 1998). In fact,
the Commission concluded that the two-thirds vote requirement
places the "power to control or block the budget into the
ACA 18
Page 6
hands of a small minority in either house of the Legislature -
thereby promoting gridlock and enhancing special interest
group influence." (Id., p. 3). Furthermore, it allows
"political parties in the Legislature to avoid responsibility
for unpopular budget decisions and blame them on others."
(Ibid.). Finally, the Commission decided that the present
limitations on the state budget process are not necessary
because the state budget does not create new programs and the
"Governor's line-item veto authority is always available to
restrain the pet project appropriations that may result from
legislative deal making." (Ibid.).
Several other organizations, such as the California Constitution
Revision Commission, the California Council for Environmental
and Economic Balance, and the California Business Roundtable,
also issued reports recommending that the State of California
adopt a majority vote budget process. Partly in response to
those recommendations, from 1992 to 1999, California
legislators introduced several constitutional amendments to
lower the vote requirement for a passage of a budget bill from
two-thirds vote to a majority; however, all of those bills
either failed passage on the floor or were sent to the
Inactive File (See #7 below).
6)The existing two-thirds vote requirement for tax legislation .
It is widely known that the passage of Proposition 13 in
California was in response to the 1970 soaring property taxes.
Proposition 13 provided property tax relief to beleaguered
property owners when it "triggered one of the nation's largest
state and local tax reductions by immediately cutting
California property taxes by $5 billion." (Proposition 13 and
State Budget Limitations: Past Successes and Future Options,
Michael J. New, Cato Institute Briefing Papers, No. 83, June
19, 2003, at p. 1). It also implemented certain tax
limitation mechanisms that are still in force today. (Id., at
p. 2). However, while Proposition 13 clearly stabilized
property tax bills, it shifted power from local governments to
the state and created new inequities in the allocation of the
property tax burden. Furthermore, some observers argue that
Proposition 13 set rules that contribute to California
repeatedly missing its budget deadline, in particular the
two-thirds vote requirement for legislation that increases an
existing tax or imposes a new tax. (Are State and Local
Governments Nearing a New Tax Revolt? An event sponsored by
the Urban Institute and the Urban-Brookings Tax Policy Center
ACA 18
Page 7
on October 7, 2008).
The two-thirds vote requirement for approving tax increases is
one of Proposition 13's fundamental principles. In
particular, California Constitution, Section 3 of Article XIII
A (Section 3) states that any change in state taxes enacted
"for the purpose of increasing revenues collected pursuant
thereto" must be passed by a two-thirds vote of the membership
in each house of the Legislature. In determining whether the
"changes in state taxes" proposed by a bill are enacted for
purposes of increasing revenues, the Legislature, for more
than 30 years, has consistently looked at the overall effect
of particular legislation on state tax revenues. The
Legislature's practice has been to ascertain whether the
"changes in state taxes" proposed by a bill would, if
considered in their entirety, result in a cumulative net
increase in state tax revenues. Since 1978, when Proposition
13 was adopted, bills that proposed "changes in state tax" but
had no net increase in state tax revenues were enacted by a
simple majority vote of the Legislature.
The two-thirds vote requirement of Section 3 equally applies to
tax legislation that proposes to eliminate or reduce tax
credits, deductions or other tax benefits, even though only a
simple majority vote is required for the Legislature to adopt
tax expenditures. Noting this inconsistency in voting
requirements for increasing and decreasing tax expenditures,
the California Citizens Budget Commission recommended that any
alteration, reduction or repeal of tax "breaks" require only a
majority vote of the Legislature. The Commission noted,
however, that this recommendation should not be interpreted as
meaning that the Commission supported a change in the
two-thirds vote requirement for enacting new taxes or
increasing existing taxes. The report issued by the
Commission in 1998 stated that Section 3 vote requirement
should remain in place, given continuing wide public support
for Proposition 13.
7)Should the two-thirds vote requirement applicable to tax
legislation be modified? As discussed, the two-thirds vote
requirement for passage of legislation that makes a change in
state taxes for the purpose of increasing state revenues was
intended as a limitation on the Legislature's ability to raise
state taxes. The California Supreme Court has held that any
tax savings resulting from the operation of Article XIII A
ACA 18
Page 8
could be depleted by additional or increased state or local
levies of taxes other than property taxes and, thus, the
provisions of Section 3 must be read in light of the voters'
intent to place restrictions upon the imposition of those
other taxes s well. (Amador, 22 Cal.3d 208, 231). The
purpose of Section 3 is clear. However, similarly to the
supermajority vote requirement for a passage of the budget
bill, the two-thirds vote requirement for tax legislation has
been used as a leverage to achieve goals that are unrelated or
only remotely related to the tax legislation in question.
More often than not, the tax proposals agreed upon in the "Big
Five" meetings were not subject to the regular committee
process, including public hearings. Further, although
Proposition 13 has been extensively litigated, the courts have
never opined on the Legislature's practice of looking at the
cumulative effect of the "changes in state taxes" on state
revenues for purposes of the two-thirds vote requirement,
thus, leaving the Legislature's interpretation of the
two-thirds requirement mandated by Section 3 vulnerable to
legal challenges. Just recently, in January of this year, the
Howard Jarvis Taxpayers Association filed a petition for
review (which was denied by the Court of Appeal) in the
lawsuit challenging the Legislature's interpretation of the
two-thirds vote requirement and approval by majority vote of
now-vetoed budget legislation. (Howard Jarvis Taxpayers
Association et al. v. Legislature of the State of California
et al., Case Number C060795).
The proposed measure, ACA 18, does not appear to alter the
constitutional limitations placed on the Legislature's ability
to raise state taxes. Even though this measure permits the
Legislature, by a majority vote, to propose a tax increase to
the people of California, it does not allow a statute that
increases existing taxes or imposes a new tax to go into
effect, unless and until it is either enacted by the
two-thirds vote of the Legislature or approved by the majority
of the electorate. Moreover, ACA 18 is designed to address a
very specific problem - a budget stalemate - by eliminating
the possibility of the two-thirds vote requirement being used
as a political tool. But every tax bill, other than a budget
implementation bill, that makes a change in state taxes for
purposes of raising state revenues would continue being
subject to the same requirements that apply to tax legislation
under existing law. Finally, by requiring the electors to
weigh in on the proposed tax increase, ACA 18 would reduce the
ACA 18
Page 9
likelihood of a legal challenge.
8)Related legislation .
ACA 4 (Bass), which was introduced in the current legislative
session, would allow the Budget Bill to be enacted by a
majority vote of the Legislature and would add, as statutes
that take effect immediately and are exempt from referendum,
statutes enacting the Budget Bill and statutes enacting budget
implementation bills. ACA 4 was referred to the Assembly
Appropriations Committee.
SCA 5 (Hancock), which was introduced in the current
legislative session, is similar to ACA 18 but it does not
permit the Legislature, by majority vote in each house, to
propose to the voters a change in a state tax for purposes of
increasing revenue through a statute enacting a budget
implementation bill. SCA 5 is in the Senate Committee on
Elections, Reapportionment, and Constitution Amendments.
SCA 9 (Ducheny), which was introduced in the current
legislative session, would lower the vote threshold for a
passage of the Budget Bill and any budget implementation bill
to a 55% vote in each house of the Legislature and would
delete the two-thirds vote requirement applicable to a passage
of a statute that makes a change in state taxes for purposes
of increasing revenue. SCA 9 has been double-referred to
Senate Banking and Elections Committees.
ACA 4 (Papan), which was introduced in the 1999-2000
Legislative Session, would have required that the Budget Bill
be passed by a majority vote of the Legislature and that a
statute enacting a budget bill take effect immediately upon
enactment. ACA 4 was placed on the Inactive File in the
Assembly.
ACA 26 (Torlakson) and SCA 16 (Lockyer), both introduced in
the 1997-98 Legislative Session, would have required, among
other things, that the Budget Bill be passed by a majority
vote and that statutes enacting Budget Bills go into immediate
effect. ACA 26 failed passage on the Assembly Floor and SCA
16 was placed on the Inactive File in the Senate.
SCA 26 (Thompson), which was introduced in the 1995-96
Legislative Session, would have required that the Budget Bill
ACA 18
Page 10
be passed by a majority vote and that it would go into
immediate effect. SCA 26 failed passage on the Senate Floor
by a 23-13 vote.
SCA 2 (Kopp), which was introduced in the 1995-96 Legislative
Session, would have required, among other provisions, that the
Budget Bill be passed by a majority vote and that it would go
into immediate effect. SCA 2 failed passage on the Senate
Floor by 18-21.
ACA 2 (Hannigan), which was introduced in the 1993-94
Legislative Session, would have eliminated the two-thirds
requirement for a vote to pass the budget. ACA 2 was sent to
the Inactive File.
SCA 6 (Lockyer) and ACA 7 (O'Connell), both introduced in the
1991-92 Legislative Session, sought to reduce the vote
requirement from two-thirds to a majority. SCA 6 failed
passage on Assembly Third Reading but passed the Senate Floor
with a 27-11 vote. ACA 7 died in the Assembly Rules
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Teachers Association
California Tax Reform Association
Opposition
California Taxpayer Association
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098