May 19, 2009 Ballot Prop. 1A

Proposition 1A is the centerpiece of the February 2009 budget package created by Gov. Arnold Schwarzenegger and the California Legislature. Prop. 1A would make significant changes to the state's budgetary procedures regarding rainy day reserve accounts and state spending.

Proposition 1A was proposed by Senate Constitutional Amendment 13 of the 2007–2008 Regular Session (Resolution Chapter 144, Statutes of 2008) and Assembly Constitutional Amendment 1 of the 2009–2010 Third Extraordinary Session (Resolution Chapter 1, 2009–2010 Third Extraordinary Session). It expressly amends sections of, and adds a section to, the California Constitution. The measure was placed on the ballot when six Republicans from the Legislature crossed party lines during negotiations and agreed to a two-year extension of new tax increases so that the new taxes will be in effect for up to four years. In exchange, Democrats agreed to a 12.5 percent spending cap. The powerful California Teacher's Association agreed to support the measure with the introduction of Proposition 1B. 

Proposition 1A

Rainy Day Accounts

Under current law, the state annually estimates the amount of revenues that it expects to receive in the upcoming year. It sets aside an allotment of these revenues into rainy day reserve funds in case the state experiences unforeseen expenses or economic downturns in the future year. There are two rainy day reserve funds: the Budget Stabilization Account (which is renamed by this proposition as the Budget Stabilization Fund or BSF) and the Special Fund for Economic Uncertainties (SFEU). Currently, any unexpected revenues the state receives are deposited into the SFEU. Each year, the BSF receives 3 percent of estimated General Fund state revenues. It was created through the passage of Proposition 58 in 2004. Transfers to the BSF can be halted by the Governor in years when the state is facing budget problems. Transfers are not made once the account has met its specified target of $8 billion or 5 percent of General Fund revenues, whichever is greater. 

Prop. 1A would change the size and amount that the state contributes annually to the BSF. It would institute a process to ascertain unanticipated economic downturns in state earnings. These expectations would be based on revenues received over the last ten years. The process would be adjusted to exclude the impact of shorter-term taxes. Beginning in 2010-11, extra revenues would be allocated for specific purposes: Proposition 98 K-14 education funding, meeting the target for the BSF, and pay back of budgetary borrowing and debt. Any revenues left could be spent on an array of purposes including funding of infrastructure, unpaid health care liabilities for state employees, and adding to the Budget Stabilization rainy day account.

Prop. 1A would increase the reserve target of 5 percent or $8 billion to 12.5 percent

Proposition 88 would be subject to annual audits to determine that funds are not being mismanaged.

For details on public financing of education, see the California Department of Education Finance and Grants website.

Spending and Transfers

here are several existing requirements on state spending in California. Article XIIIB of the State Constitution places a limit on the amount of tax revenues that can be spent each year. The limit each year is based on the previous year's limit adjusted for population and inflation. Proposition 111, passed in 1990, revised the spending limit and introduced a new factor for determining inflation. It also doubled the state's gasoline tax (from 9 cents a gallon to 18 cents over five years) and excluded capital outlay and debt service from the limit. More recently, Proposition 58, passed by voters in 2004, requires the legislature to release a balanced budget each year. The Governor can attempt to reduce spending but legislative approval is required. 

 Proposition 1A would allow the Governor to reduce spending on general state operations and make cost-of-living adjustments without additional legislative approval. Prop. 1A would transfer half of the annual contribution to the BSA to two newly created accounts, the Supplemental Budget Stablization Account (SBSA) and the Supplemental Education Payment Account (SEPA). Transfers to the SEPA account are contingent on the passage of Proposition 1B (see section below) which would modify aspects of Proposition 98 education funding. If both Proposition 1A and Proposition 1B pass in May, the state would pay K-12 schools and community colleges $9.3 billion in supplemental funds to address Prop. 98 education funding reductions in the last few years. Once educational payments have been made, or if Proposition 1B does not pass, 1.5 percent of revenues each year would go into the SBSA to pay for infrastructure or state bond debt.

The Governor can currently halt transfers made into the BSF with an executive order. Under Prop. 1A, the Governor could only stop the transfer in years when the state does not have enough funds to pay for spending equal to the spending in the previous year adjusted for population changes and inflation. Prop. 1A would mandate that all SEPA transfers could not be stopped for any reason. 

Tax Increases

The February 2009 budget package includes $12.8 billion in tax increases to balance the budgets for 2008-09 and 2009-10. Proposition 1A would extend these increases for one or two additional years. The tax increases include a hike in California's Vehicle License fee, a 1-cent-per-dollar sales tax increase, and a .25% increase in the state's Personal Income Tax on all Californians. The Vehicle License fee and the state income tax would be extended two years and the sales tax would be extended for one year.

• Prop. 1A increases the amount of the reserve target for the Budget Stabalization Account to 12.5 percent of state revenues. 
• Extra revenues would go to meet the target for the Budget Stabilization rainy day account.
• The Governor could only halt transfers to the Budget Stabilization rainy day account in years when California does not have the revenues to cover spending equal to the prior year's spending.
• If both Proposition 1A and 1B Pass, the state would pay the K-12 schools and the community colleges $9.3 billion to make up for education funding reductions. See section below for more information.
• 1.5 percent of state revenues would be used to pay for infrastructure projects or to pay off state bond debt after education payments are made. These payments would Budget Reform Now (Image: Budget Reform Now)be made in lieu of education payments if Prop. 1B does not pass.
• Transfers out of the Budget Stabilization account would be limited to addressing emergencies and to cover state spending in years with low revenues.
• If Prop.1B passes Prop. 1A would decrease the size of economic recovery bond payments (usually one-half of transfers) transferred to the Budget Stabilization account.
• Governor would be given authority to reduce spending on general state operations and cost-of-living adjustments for programs specified in the budget. The Governor can make these reductions without legislative approval under Prop. 1A.The February 2009 budget package features tax increases. If Prop. 1A passes, those tax increases will be extended by one to two years. 

Prop. 1B Component

Proposition 1B is the Prop. 98 funding element of the six-proposition budget deal reached between the Governor and the Legislature in early 2009. The provisions of Proposition 1B will not go into effect unless Proposition 1A passes. Prop. 1A would require 1.5 percent of state revenues put into the Rainy Day Fund annually to go to California public education costs. The funds would be deposited into the fund until the entire $9.3 billion in supplemental payments had been paid. If Prop. 1B does not pass, then the education requirements in Prop. 1A would not go into effect. 

Voter Information

Title, Summary, and Analysis

Arguments and Rebuttals 

Campaign Information

Campaign contributions database - Individual Committees (Secretary of State website)

Campaign contributions database - total (Secretary of State website) Select May 2009 special election" and "Prop.1A" in dropdown box. 

Public Opinon Resources

Field Polls

March 3, 2009
April 29, 2009

Public Policy Institute of CA

March 2009
May 2009

Survey USA
April 22, 2009
May 11, 2009

Non-Partisan Resources

Ballotpedia

League of Women Voters

Reports and Studies

The Basics of Proposition 98: A Tutorial for State Policymakers. Legislative Analysts Office, May 2009.

What Would Proposition 1A Mean for California’s Future? A Preliminary Analysis, California Budget Project, Updated March 23, 2009

Proposition 98: a Primer. Sacramento, Calif.: Legislative Analysts Office, Feb. 2005.

Audio and Video

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