California Ballot Initiative Analysis: Proposition 2


California Ballot Initiative Analysis: Proposition 2

Proposition 2 would allow the state to issue up to $2 billion in bonds to build housing for mentally ill homeless individuals. 

California Proposition 2: Authorizes Bonds to Fund Existing Housing Program for Individuals with Mental Illness. Legislative Statute.

Proposition 2 would allow the state to issue up to $2 billion in bonds to build housing for mentally ill homeless individuals. Debt service on the bonds, estimated at $120 million annually, would be paid from income tax revenues the state already receives from a ‘millionaire’s income tax surcharge’ enacted in 2004.

Fiscal Impact

The debt service is supposed to be paid from the state’s Mental Health Services fund, which receives the proceeds of a 1 percent surtax on incomes over $1 million enacted by Proposition 63 (2004). Until now, Proposition 63 revenues have been dedicated to country mental health services. Proposition 2 would effectively redirect county mental health service funding to debt service.

Proponents’ Arguments For

Proponents argue that more supportive housing is needed for mentally ill people who are living on city streets. They estimate that the bond proceeds would fund 20,000 supportive housing units, which would lower public health costs and reduce blight.

Opponents’ Arguments Against

Opponents argue that counties need the funds that would be redirected to debt service. They also allege the state-administered supportive housing program would be inefficient, with funds going to bondholders, developers, and bureaucrats rather than the mentally ill homeless. Finally, they note that counties can already use their allocations of Proposition 63 funds for supportive housing.


Rather than redirect income tax surcharge funds, the state should consider abolishing the surtax entirely. Proposition 63, together with other voter-approved measures, has raised the state’s highest marginal tax rate to 13.3 percent, which is higher than every other state and stands in stark contrast to states that don’t have state income taxes like Nevada and Texas, where many taxpayers are moving to. With the deductibility of state and local taxes now capped by last year’s federal tax law, California’s high marginal rates will have an even greater impact on its citizens.

Legislators are once again using debt to pay for a program that should be, and already is, funded on an ongoing basis, thus adding long-term interest payments to the cost with no added benefits.  Although California’s economy and state tax receipts are strong at the moment, a state or national recession could seriously reduce the surtax revenues. In that event, the estimated $120 million annual carve-out for debt service, would more seriously impact county mental health funding, creating demands for more general fund support.

Voters’ Guide to the 2018 California Ballot Initiatives

The Voters’ Guide offers analysis of each of the 11 ballot propositions certified for the election being held on November 6, 2018.