Summary
California Proposition 4 would authorize the state of California to issue $10 billion in new bonded debt to pay for a variety of capital projects, including:
- New water management facilities ($3.8 billion);
- Forest management ($1.5 billion);
- Management of coastal areas ($1.2 billion);
- Land conservation ($1.2 billion);
- Industrial wind turbines, transmission lines, and battery development ($850 million);
- Public parks ($700 million);
- Heat protection, disaster shelters, and local environmental projects ($450 million); and
- Farmland and farmworker support, community gardens, soil health, and water conservation ($300 million).
The measure stipulates that at least 10% of bond revenue be spent within communities where the median household income is less than 60% of the statewide average. At least 40% of bond revenue must be spent in communities where the median household income is less than 80% of the statewide average or in a “community that faces a disproportionately heightened risk or increased sensitivity to impacts of climate change.”
Fiscal Impact
The California Legislative Analyst’s Office reviewed the potential fiscal impact of Prop. 4 and determined that the cost of bond repayments would be about $400 million annually for the next 40 years. In other words, California taxpayers would repay $10 billion in principal and $6 billion in interest over the lifetime of the bond.
Although the state of California is delinquent in publishing financial statements, its most recent statement—for the fiscal year ending June 30, 2022—reports the state had $103.7 billion in bonds outstanding. Legally separate component units, including the University of California and the California Housing Finance Agency, held an additional $30.6 billion in bonds outstanding. Total long-term obligations amounted to $280.9 billion. External auditors highlighted several significant problems with California’s accounting, but the reported value of bonded debt outstanding was not among the several issues auditors raised.
Proponents’ Arguments
There is no official campaign advancing Prop. 4, but it is supported by various environmental groups and labor unions. Supporters argue California will not be able to achieve its environmental goals without a dedicated funding source. In October 2020, Gov. Gavin Newsom issued an executive order announcing the 30×30 initiative, in which the state aims to acquire six million acres, including 500,000 coastal acres, from private owners as a conservation measure. “That’s really hard without funding,” says Sonoma Land Trust Public Policy Manager Ariana Rickard.
Proponents also argue that climate change is disrupting Californians’ lives and that urgent response measures are needed. California State Director of the Environmental Defense Fund, Katelyn Roedner Sutter, says, “This is not a problem that can wait until it’s convenient to fund it in the budget.”
State Assemblymember Lori Wilson (D-Suisun City), who sponsored the measure in the legislature, says she considered a bond measure focusing solely on agriculture but, after learning other lawmakers were considering bond questions dedicating money to other projects, decided that voters would not have an appetite for multiple bonds as they also deal with rising costs due to inflation.
Opponents’ Arguments
There is no official campaign opposing Prop. 4. The Howard Jarvis Taxpayers Association has opposed the bond question because state taxpayers would need to pay interest to bond purchasers. The association argues it would be more responsible to fund the underlying projects without issuing debt, saying, “These bonds will be paid by people decades from now that didn’t even get to vote for their authorization.”
Discussion
Prop. 4 would raise money for California to undertake a wide range of unspecified projects. Although tranches of this money would be dedicated to projects related to a specified purpose, the individual projects are not specified. The bond instead gives legislators discretion to allocate these funds to the projects they deem worthy. For instance, language in the bond measure says, “The sum of one billion two hundred million dollars ($1,200,000,000) shall be available, upon appropriation by the Legislature, for the protection of California’s biodiversity and to protect nature and restore landscape health to achieve California’s climate change goals.”
This lack of a clear plan gives voters limited insight into how the bond proceeds will ultimately be used. California has an abysmal record of using such bonds to actually build projects. In 2015, California voters approved a $7.5 billion bond to build dams and water facilities. As of last year, not a single project had been built with those funds. Over the last 30 years, voters have approved four initiatives to borrow nearly $9.7 billion for park and environmental projects that have built very little, saw most of the money spent on studies and agency budgets, and yet saddle state taxpayers with billions in debt.
A concerning aspect of Prop. 4 is the stipulation that at least 40% of bond proceeds be spent either in communities where the median household income is less than 80% of the statewide average or communities that face a disproportionately heightened risk or sensitivity to climate change. Although voters might read this description and believe bond proceeds will be spent in ways that benefit low-income communities, lawmakers could satisfy this requirement by spending money exclusively in California’s wealthiest coastal communities on the basis that these communities are most sensitive to climate change.
Land acquisition is specified as an approved use for up to $870 million in bond proceeds and could be used to meet Gov. Newsom’s land conservation goals. However, government ownership of land is not the only method of conserving the natural environment. Many private land owners can be conscientious conservationists, and there are many voluntary land conservationists in the U.S., like the Land Trust Alliance or The Nature Conservancy. Moreover, roughly 46% of California’s land area—48 million acres—is already owned by the federal government. Among these federal lands, 15 million acres are owned by the Bureau of Land Management, which holds lands in trust for conservation purposes. Further increasing government ownership also restricts the availability of land for private development—resulting in higher home prices and living costs. According to a recent report from the Legislative Analyst’s Office, California home prices already far exceed those in the rest of the country.
Although opponents bemoan the interest cost associated with raising debt capital, this is a standard feature reflecting the time value of money. A dollar today is worth more than a dollar tomorrow for most people, and so interest rates simply reflect the price negotiated between borrowers and savers for using money today. Therefore, the cost of spending on the projects that would be funded by Prop. 4 would be identical in present-value terms regardless of whether it is financed out of the current budget or through a debt issuance.