Summary
Under current law, established by California voters with Proposition 13 in 1978 and Proposition 218 in 1996, any local bond measure to borrow money must pass with a two-thirds (66.67%) vote. California Proposition 5 would create an exception to the Proposition 13 requirements and lower the voter approval requirement to 55% for debt to fund affordable housing and infrastructure projects.
Fiscal Impact
Passing this initiative is not anticipated to have a state-level fiscal impact. However, it may impact local governments that choose to increase their debt.
Proponents’ Arguments
Proponents argue that current laws make it too hard to get voter approval for new local government debt to pay for important projects, even when a clear majority of voters support it but fail to reach the 66.67% threshold. California Assembly Majority Leader Cecilia Aguiar-Curry (D- Winters), who sponsored putting Prop 5 on the ballot, said:
[Prop 5] will level the playing field and create parity between school districts and cities, counties, and special districts so that all local governments have a variable financing tool to address community needs. It also contains various transparency and accountability measures, including an expenditure plan of projects and programs proposed, audits, and monitoring by a citizens’ commission to assure resources are being spent as proposed.
The California Professional Firefighters have pointed out that in recent years, a number of special taxes and bond measures for public safety projects received over 55% support but were not approved because they did not reach 66.67% of the vote.
Opponents’ Arguments
Opponents argue that voters approved supermajority votes for new local government taxes and debt to combat years of rising taxes and debt. Without those constraints, local governments will borrow to spend today and leave the next generation of Californians saddled with paying for it.
Discussion
California’s Proposition 5 initially created an exception to the Prop. 13 and Prop. 218 supermajority requirements for both local government tax hikes and new deb, which caused a lot of pushback on making it easier to increase local taxes, and the California state legislature subsequently removed the tax provision. So now, Prop. 5 would only change the rules on local government debt.
Making it easier for local governments to take on more debt is not as controversial. The financial institutions that lend money to local governments examine a government’s finances to assess the government’s ability to pay back the funding. These institutions consider the current law’s limitations on the government’s ability to raise taxes. Moreover, local governments have often found ways to get around tax limitations and increase revenue to pay for debt by utilizing special fees and similar indirect taxes.
A crucial question for California voters is whether local governments are managing their debt wisely. As of 2023, California counties have about $140 billion in liabilities or approximately $3,860 per resident, and cities have $193 billion in liabilities or $6,337 per resident. In just the first seven months of 2024, those cities and counties have taken on another $29.8 billion in debt. Given the debt numbers, it seems governments are not having trouble getting voter approval for new debt or finding lenders.