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Proposition 53 – Voter Approval of Revenue Bonds

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Official Title:

Revenue Bonds.  Statewide Voter Approval.  Initiative Constitutional Amendment  (Read How is the California Constitution Amended?)

Overview:

Bonds are mechanisms that allow state and local governments to borrow money.  In general, governments sell bonds to investors to provide “up-front” funding for projects (such as infrastructure projects) and then commit to repay the investors, with interest, over a period of time.

Government entities choose to utilize bond funding for a number of reasons.  For example, bonds are sometimes used to pay for large infrastructure projects that may be difficult to pay for up front.  Because bonds spread the cost of a project over time, they may be particularly useful when the project provides services over many years.

There are also different types of bonds.  The two most common types of bonds used by state and local governments in California are "general obligation" bonds and "revenue" bonds.

State general obligation bonds are guaranteed by the state government’s full faith and credit and are generally repaid using the state’s general tax revenues.  Local general obligation bonds are typically funded by increased property taxes.  The California Constitution requires voter approval of state and local general obligation bonds.

Unlike general obligation bonds, revenue bonds are not guaranteed directly by state or local government taxing powers.  Instead, revenue bonds are repaid using designated funding streams generally associated with the projects they finance.   A bridge toll is an example of a revenue bond where the users of a project pay for it through fees or other charges.  Projects that are commonly funded by revenue bonds include public office buildings, bridges, and water treatment facilities.  Unlike general obligation bonds, revenue bonds do not require voter approval under existing state law.

Proposition 53 would require statewide voter approval for revenue bonds for projects that meet all of the following conditions:

·         The total amount of revenue bonds sold for the project exceeds $2 billion. The proposition specifies that the $2 billion threshold be adjusted annually based on the Consumer Price Index.

The project funded by the revenue bonds would be funded, owned, operated, or managed by the state, including any joint powers agency or similar body created by the state or in which the state is a member

Fiscal Impact:

According to the Legislative Analyst Office (LAO), the fiscal effect of Proposition 53 on state and local governments is unknown and would vary by project.  It would depend on (1) the outcome of projects brought before voters, (2) the extent to which the state relied on alternative approaches to the projects or alternative financing methods for affected projects, and (3) whether those methods have higher or lower costs than revenue bonds.

CCC Position:

No position

Support:

The primary supporters for this initiative are Dean Cortopassi, a Stockton businessman, and his wife Joan Cortopassi.

Supporters state that Proposition 53 will stop politicians from issuing blank check debt by requiring voter approval for state projects that would use over $2 billion in state revenue bonds and requiring full disclosure of the total cost of any state revenue bond project greater than $2 billion.  Supporters claim that, currently, state bonds for water, school, and transportation projects require voter approval.  However, a loophole in state law allows politicians and unaccountable state agencies to circumvent a public vote and borrow billions in state revenue bond debt for massive state projects without voter approval.  As an example, supporters cite the state high-speed rail project, which was originally estimated to cost $10 billion but has now increased to over $60 billion. Supporters argue that Proposition 53 gives California voters a voice, a vote, added transparency, and holds politicians accountable. 

Opposition:

Opponents of Proposition 53 include the California Professional Firefighters, the California State Sheriffs’ Association, the Association of California Water Agencies, and the League of California Cities.  

Opponents contest that this measure erodes local control and jeopardizes vital infrastructure improvements in communities across California.  As a result of this proposition, cities and towns that come together to form a joint powers agency or similar body with the state to build needed infrastructure could have to put their local project on a statewide ballot.  Voters from faraway regions could then veto some local projects needed by communities, such as water storage or bridge safety repairs.  Opponents also argue that Proposition 53 fails to contain an exemption for natural disasters or major emergencies, which could delay the state’s ability to rebuild critical infrastructure following earthquakes, wildfires, floods, or other natural or man-made disasters. 

Opponents argue that Proposition 53 is an ill-conceived idea that would cause costly delays in repairing our roads, colleges and water systems and make it harder to respond to natural disasters.

They argue that our state is suffering from a backlog of essential needs across the state including outdated water systems that are vulnerable to earthquakes, crumbling roads and bridges and overcrowded hospitals and universities.  This proposition worsens an already grave situation and threatens our economy and job creation.

Opponents also argue that this proposition is deceptive.  Since neither the General Fund nor state taxpayers are on the hook for repayment of revenue bonds, it is misleading and unnecessary to call for a statewide vote.

Reflections on Church Teaching:

The "principle of subsidiarity" must be respected: "A community of a higher order should not interfere with the life of a community of a lower order, taking over its functions." In case of need it should, rather, support the smaller community and help to coordinate its activity with activities in the rest of society for the sake of the common good. —Pope John Paul II, Centesimus Annus, #48 (1989)

The Magisterium recognizes the validity of the principle concerning the division of powers in a State: “it is preferable that each power be balanced by other powers and by other spheres of responsibility which keep it within proper bounds. This is the principle of the ‘rule of law', in which the law is sovereign, and not the arbitrary will of individuals”.[840]  In the democratic system, political authority is accountable to the people. Representative bodies must be subjected to effective social control. This control can be carried out above all in free elections which allow the selection and change of representatives. The obligation on the part of those elected to give an accounting of their work — which is guaranteed by respecting electoral terms — is a constitutive element of democratic representation.  Compendium of the Social Doctrine of the Church [408]

Another instrument of political participation is the referendum, whereby a form of direct access to political decisions is practiced. The institution of representation in fact does not exclude the possibility of asking citizens directly about the decisions of great importance for social life.  Compendium of the Social Doctrine of the Church [413]