bonds – Page 2 – Public Policy Institute of California

Funding Measures and the June Ballot

Last week’s primary election garnered considerable statewide and national attention, with much of the focus on the governor’s race and contested congressional seats. Further down the ballot, however, voters were asked to decide on millions of dollars of local tax, bond, and fee initiatives. On the whole, these measures enjoyed considerable success across the state.

We found that Californians voted on 107 local tax, bond, and fee measures, representing the range of fiscal tools that local jurisdictions can use to raise revenue and borrow funds. Bond measures were the most popular, with 42 different local governments seeking voter approval (37 K–12 school districts; 2 community college districts; 3 cities). There were also 32 parcel tax measures; those related to K–12 schools (12) and fire/public safety (10) were most common. Ballots also included proposals to impose or increase taxes on cannabis (13) general sales (9), gross business receipts (2), and hotel stays (3). And there were proposals to raise utility fees (3), business license fees (1), and bridge tolls (1).

Most of the long list of funding proposals passed—but just putting a measure on the ballot did not guarantee success. Although counties are still counting some ballots, which could affect a race or two, at this time, we observe the following:

Overall, voters passed 76 of the 107 measures.
Of the 39 school bond measures, 30 passed. Proposition 39, passed in 2000, lowered the threshold for passing school bonds from a two-thirds majority to 55%. Had these measures been subjected to the previous standard, only 11 would have passed. The 19 measures approved under the current standard increased borrowing for investment in public schools by $1.8 billion.
On the heels of one of the states’ worst seasons of wildfires on record, California voters held the line on parcel taxes intended to support fire protection, with only 3 of the 9 measures passing.
All 13 of the cannabis tax proposals passed overwhelmingly.

California touched off a revolt against taxes 40 years ago. Primary voters in 2018 generally voted for increases but were relatively discriminating in their support, depending upon the type of tax and its intended purpose. This discernment comes at a time when the state’s economy is growing and unemployment is low. It will be interesting to see what happens in November, when we expect to see even more funding measures on the ballot.

Video: Californians’ Views of K–12 Education

Despite increases in state spending on K–12 education, most Californians say state funding for their local public schools is inadequate. And most support an extension of the Proposition 30 tax increase on higher incomes, as well as state and local school bonds. These are among the key findings in PPIC’s 12th annual survey on Californians and education that were presented in Sacramento last week by Lunna Lopes, survey research associate.

Lopes said that concerns about the quality of education are at a record-low 40 percent, and less than a third of Californians say that teacher quality is a big problem. Concern about a teacher shortage is higher, with a majority calling it a big problem.

Among the other findings discussed:

There are partisan divisions on Common Core, but public school parents are confident that it will help students be college ready and develop critical thinking skills.
Few Californians have heard about Local Control Funding Formula, but when presented with a short description of the policy, most are supportive.
Californians see preschool as important for K–12 success and most prefer to spend some of the state budget surplus on early childhood education programs.

Video: PPIC Survey Examines Election Landscape

As California heads into an election year, the PPIC Statewide Survey looks at residents’ views on a broad range of issues that are already flashpoints in the presidential primary races and will likely surface in statewide campaigns next year.

PPIC research associate Lunna Lopes presented the survey’s key findings at a Sacramento briefing last week. She was joined by Mark Baldassare, PPIC president and CEO, for a question and answer session afterward. He noted a link between Californians’ “modestly optimistic view of the economy,” their belief that there is income inequality in the state, and their attitudes about which ballot issues are important. Twice as many residents say that increasing the state minimum wage is very important than say legalizing marijuana is very important.

“In California, the belief that this state is divided into the haves and have-nots—and the feeling among many Californians that they are among the have-nots—are going to be driving forces in the election,” he said. The survey briefing was held just after the mass shooting in San Bernardino, and the briefing touched on Californians’ views about gun laws. PPIC research associate David Kordus provided findings from the September survey on this issue: Compared to adults nationwide, Californians are more likely to favor stricter laws than we have now. Most also say that controlling gun ownership is more important than protecting the right of Americans to own guns.

Local School Funding & the Exclusive Electorate

State funding for K-12 public education has been rising, but 70 percent of public school parents say it is “not enough” in our April PPIC Survey. Are California voters likely to heed these parents’ calls and support local ballot measures for school funding?

It doesn’t look likely. To begin with, likely voters are much less likely (54%) than public school parents to say that the state’s funding for their local schools is not enough. More important, in our recent poll likely voters and public school parents have starkly different views about specific ways to increase funding—local bonds and local parcel taxes—for their local public schools. Specifically:

When it comes to local school bonds, 75 percent of public school parents would vote yes if their local school district had a bond measure on the ballot to pay for school construction projects. But only 53 percent of likely voters would do so—lower than the 55 percent required to pass a local school bond.
As for funding schools through local parcel taxes, 61 percent of public school parents would vote yes. But just 49 percent of likely voters would. A two-thirds majority yes vote is needed to pass a local parcel tax for schools.
What about lowering the majority needed to pass local parcel taxes—from two-thirds to 55 percent? This tax reform is rated as a good idea by 57 percent of public school parents. Only 44 percent of likely voters agree—less than the majority required to make this change.

The poll’s findings reflect the fact that California’s “exclusive electorate” controls the fate of ballot measures for local school funding. Today, many public school parents are nonvoters. And most likely voters are not public school parents. According to a PPIC report, likely voters are disproportionately white and tend to be homeowners, older, college graduates, and affluent.

Latinos, renters, and the younger, less educated, and less affluent are strong supporters of local bonds and local parcel taxes for local schools. They also favor lowering the vote threshold for passing local taxes. But these groups are outnumbered among those who cast ballots in elections.

It’s not impossible to pass local bonds and parcel taxes for school funding. CaliforniaCityFinance.com reported last December that eight in 10 local bonds and 6 in 10 local parcel taxes for local public schools have passed since 2001. But funding advocates have to carefully pick and choose the timing and location of these local school funding measures in deference to the higher vote thresholds required and the propensities of California’s exclusive electorate. A PPIC study concludes that the overall fiscal impact of parcel taxes has been fairly limited statewide.

School funding proponents want a state bond measure on the November 2016 ballot. The presidential election will attract the largest and most diverse electorate. It would take a simple majority vote to pass a state school bond. Our poll finds that 55 percent of likely voters and 77 percent of public school parents would vote yes on a state bond for school construction projects.

Meanwhile, the governor has stated that local voters should be deciding if they want more local school funding and that state voters should not be asked to pass state school bonds. This idea of local control resonates with Californians, who generally distrust the decisions made in Sacramento. But as our survey suggests, likely voters are unwilling to lower the local two-thirds threshold for passing local parcel taxes, leaving it easier to pass school funding measures at the state level than at the local one.

In other words, the state is likely to continue to play an oversized role in local school funding—until the California electorate reflects the will of the people who are relying on local public schools to improve their children’s futures.

Drought Watch: Regional Solutions

This is part of a continuing series on the impact of the drought.

Across California, local water agencies are scrambling to apply for new state matching grants authorized under February’s emergency drought legislation. The program aims to accelerate the use of remaining state bond funds for integrated regional water management: activities in which local agencies team up to generate mutual benefits. One example—water suppliers and stormwater agencies that work together to incorporate captured stormwater into local water supplies. Such projects can simultaneously enhance water supply reliability and the quality of water in rivers and coastal areas.

Regional integration has already led to some significant successes, most notably the enhanced ability of urban water suppliers in Southern California and the Bay Area to cope with the current drought. Successes include ramping up water conservation and recycled wastewater storage to increase supplies in storage, and building new connections between local water systems to enable emergency sharing. Outside funds are often needed to jump start these collaborations, both to encourage innovation and to enable some partners—such as stormwater agencies – to participate even if they don’t have the necessary funds.

But as we showed in our study Paying for Water in California, integrated regional water management is on the brink of fiscal failure because state bond funds are running out. Both the legislature and local water agencies have pushed the idea that bonds should continue to provide these dollars, and the major bond proposals under consideration include substantial new funds for this purpose.

But there might be a better way: adding a small statewide surcharge on water use to support regional projects. Local water agencies have often rejected this idea, arguing that if they send money to Sacramento they won’t see it again. But what if the funds go directly to the regions?

Here’s how we think this could work. The legislature (or state voters) would pass the surcharge and set broad criteria for funding eligibility. The funds would be apportioned to the state’s 12 principal hydrologic regions—the large basins that are already used to divvy up bond funds. But rather than having state agencies award the grants, this task would go to new Regional Water Commissions—regional counterparts to the California Water Commission, the state body tasked with awarding matching grants for storage projects under most bond proposals.

Though more politically tricky to pass than a bond, the statewide water surcharge would have numerous advantages. The revenues would be more reliable than bond funds. And relying on Regional Water Commissions to allocate these dollars could encourage broader collaborations than we have seen from the state-sponsored grant program, which has nearly 50 planning regions, often too small to reap the real benefits of integration. Many groundwater basins, for instance, have different boundaries than the current planning regions, and groundwater agencies could use assistance from these regional funds to support better management.

Finally, this statewide option is preferable to creating local or regional surcharges, which can be difficult to raise without approval of two-thirds of local voters. To raise $200 million annually—the amount that’s been available through bonds—a surcharge 7.5 cents/1,000 gallons on urban water bills would suffice. This would increase the average cost of tap water by just 2.8 percent, while creating a valuable incentive fund that helps local water managers enhance the quality and reliability of regional water supplies. As part of a package with a new bond devoted to areas of true statewide need, a statewide water surcharge would help ensure that our water system can support a healthy economy, society, and environment.

Local Water Funding in the June Primaries

Much of the current water talk in Sacramento surrounds a new state water bond for the November ballot. Yet as we show in our study Paying for Water in California, most water spending—84 percent—is actually raised locally. While passage rates on local water measures have been fairly high since 1995 (72 percent passing), few make it on the ballot (on average only six per year). This is largely because funding for many critical water services—including stormwater management, flood protection, and ecosystem and watershed improvements—often requires two-thirds of voters to approve, and local officials are reluctant to put such measures on the ballot unless they think they can win. In the June 3 primary election, only two local water measures were proposed. The results illustrate the challenges of funding water services that require direct voter approval.

In Contra Costa County, Orinda’s Road and Storm Drain Repair Bond passed with 75 percent approval. It authorizes the city to issue $20 million in general obligation bonds to fund the restoration and repair of roads and storm drains, plus a property tax increase to pay for the bonds. Broader funding measures like this—which include a water service along with something else—have generally been more successful than exclusively water-focused measures. Local governments seem to have recognized this reality and have increased these kinds of measures in recent years. Unfortunately, measures that fund multiple activities may generate less funding than is needed to fill water service gaps.

The second local water measure, the Lake County Healthy Lake Tax, failed with 64 percent approval (repeating an earlier failed attempt in 2012 that had 63 percent approval). It would have increased the local sales tax by one-half cent for 10 years to pay for the eradication of weeds, algae, and invasive mussels from Clear Lake, the restoration of wetlands, and the improvement of water quality.

As the Lake County example suggests, the two-thirds voter threshold for local special taxes and bonds is a significant obstacle. Orinda twice failed to pass measures in the mid-2000s, despite 64 percent approval. Since 1995, 65 percent of the measures requiring two-thirds approval passed, but 84 percent would have passed at the 50 percent threshold that is required for local general taxes and statewide fiscal measures. We can’t know how many more measures would have been put on the ballot had the voter threshold been lower.

Funding these essential water services through local tax and bond measures is a marked contrast to funding for water supply and sewer services, which are paid for with revenues from monthly customer bills. These services are generally in good fiscal shape because when new funds are needed, providers are required only to give customers the opportunity to protest rate increases.

To help address water funding gaps, California should consider treating flood and stormwater services like water and wastewater. It would also be helpful to treat local special taxes like local general taxes and statewide fiscal ballot measures—requiring a simple majority vote. Of course, this would require constitutional reforms. But without these changes, the state will need to provide much more support to local governments to pay for services that are essential to all Californians.

Drought Watch: Lessons from Kansas

This is part of a continuing series on the impact of the drought.

As summer approaches, signs of the drought are intensifying, with early season wildfires, new reductions in supplies from California’s depleted rivers, and many farmers scrambling for appointments with well drillers to access more groundwater. In Sacramento, there is also a heightened sense of urgency regarding money for the water system, as the June 26th deadline looms for legislative action on a new bond for the November 2014 ballot. The drought has drawn policymaker attention to water system investments, and it has raised hopes that the public will be willing to support new borrowing. While this is good news for California’s water system, the focus on bonds is a missed opportunity to go bigger.

As we showed in our March 2014 study, Paying for Water in California, a new bond can at best provide about $1 billion per year in new funds for water. So even if a bond passes in November, California will still be facing an annual funding gap of $1– $2 billion to meet critical needs. Bonds alone can’t do the job, and now’s the time—during, not after the drought—to consider a broader package of solutions.

One important place to look for additional funds is new state fees and taxes dedicated to underfunded areas like safe drinking water, flood protection, and healthy watersheds. And here’s where Kansas comes in: Since 1989, Kansas has had a small surcharge on urban water use (6 cents/1,000 gallons) to help fund projects of statewide importance. A small surcharge on agricultural chemicals also goes into this fund, as do fines charged to water polluters. And Kansas is not alone. Missouri and New Jersey both have surcharges on urban water use (1 cent/1,000 gallons) to support safe drinking water programs. Maryland, whose environmental problems in the Chesapeake Bay rival those of California’s Delta, has small parcel taxes to fund stormwater control. Minnesota uses a small increment on the state sales tax (0.12 cents/dollar) to support healthy watersheds.

For perspective, the typical price of tap water in California is $2.67/1,000 gallons, so a 6 cent surcharge (as in Kansas) would raise this to $2.73/1,000 gallons, an increase of just 2.2 percent. And the typical California sales tax is 8.5 cents/dollar, so a 0.12 cents/dollar surcharge (as in Minnesota) would raise this to 8.62 cents/dollar, an increase of just 1.4 percent. And these small surcharges would bring in some badly needed cash: About $175 million/year for a Kansas-style urban water fee, and about $575 million/year for a Minnesota-style sales tax increment.

These surcharges could be passed by California’s legislature (by a simple majority or two-thirds vote of both houses, depending on whether they qualify as regulatory fees or taxes) and then signed into law by the governor. Or they could be put before voters alongside a new bond. Of course, the politics of new fees and taxes are trickier than those of new state bonds, for which the bill comes later, when most current officeholders will be termed out. But for the sake of a healthy and secure economy, society, and environment, the time for bold action is now. California will have plenty of company.

Trouble Ahead for Local School Ballot Measures?

This commentary first appeared on EdSource.org on April 30, 2014.

The elections this year offer the first statewide look at Californians’ willingness to raise revenue for their local schools since passage of Proposition 30, the tax initiative to benefit education that voters passed in November 2012. While it’s too early to know how many local school districts will test the waters by placing a construction bond or parcel tax on the ballot, there are undercurrents in our new survey that spell trouble ahead for local school ballot measures. In short, the public’s sense that schools are in crisis has diminished.

Our annual PPIC Statewide Survey on Californians and Education shows that likely voters view fiscal conditions in education as generally improving. The proportion who say that the state budget situation is a “big problem” for California’s K–12 public education has dropped by 10 points—from 72 percent to 62 percent—between April 2012 and today. More importantly, the proportion of likely voters saying that the level of current state funding for their local public schools is “not enough” has also dropped by 10 points between April 2012 and today—from 59 percent to 49 percent. In other words, the likely voters who currently view state funding of their local schools as problematic now make up less than a majority.

In our recent poll, 55 percent of likely voters would vote yes if there was a local school bond on the ballot—just barely meeting the minimum passage level. By contrast, 48 percent of likely voters would vote yes on a local school parcel tax—falling far short of the two thirds needed to pass.

It is important to note that likely voters who are public school parents are bucking these statewide trends: a majority of them view state funding for their local public school as inadequate, and over 60 percent say they would support a local school bond and a local school parcel tax this year. But our poll finds that public school parents make up less than 30 percent of the likely voters who will determine the ballot outcomes.

Since 2001, the statewide passage rate for local school bonds has been 81 percent and for local school parcel taxes, 60 percent, as noted by CaliforniaCityFinance.com and EdSource. This year, those rates may fall. Alternatively, there may be fewer local school ballot measures this year as funding proponents focus on a smaller set of school districts with voter profiles that offer favorable odds for passing these measures. For instance, our poll finds majority support for local school bonds and local school parcel taxes among Democratic, Latino, lower-income, and Bay Area likely voters.

Meanwhile, some legislators have proposed lowering the vote threshold needed to pass these taxes from two-thirds to 55 percent, which requires changing Proposition 13. But since the Democrats lost their supermajority when three of their senators were suspended, the legislature is much less likely to send this change to the voters for approval. Californians are not inclined to make this change anyway. The proportion of likely voters who say that this change to Proposition 13 is a good idea has declined—from 46 percent in April 2011 to just 39 percent today.

It is possible that voter concern about school funding needs will surface later this year, as school districts implement two dramatic changes: the Common Core Standards in the classroom and the Local Control Funding Formula, which provides more money for districts with higher proportions of English Learners and lower-income students. These changes could offer two new avenues to engage voters about the need for local school funding. For now, though, we will be watching for signs that Proposition 30’s passage will make it harder for local school ballot measures to succeed in 2014.

Drought Watch: Essential Elements for a Water Bond

This is part of a continuing series on the impact of the drought.

In both houses of the California Legislature, multiple versions of a new water bond are being amended and debated to make the June deadline for replacing the $11.1 billion bond now slated for the November election. Originally intended for the November 2010 ballot, the bond has been twice delayed due to concerns it would not pass. The March 2014 PPIC Statewide Survey showed a bump in public approval since last year, with 50 percent of likely voters now saying they would approve it, up from 42 percent in March 2013. Survey responses to other questions about water suggest that this rise in support likely reflects concerns over the drought. For example, a record share of residents (15%) named water as the most important issue facing the state (up from 2% a year earlier).

As the legislature considers the final size and shape of this new bond, it is worth reviewing how bond funds have been used in the past and the areas that most need bond support in the future.

The 2000s were a big decade for water bonds, with approved funds totaling almost three times as much as the three previous decades combined. Even so, bond funds currently only contribute about $1 billion a year to the water sector, a small portion of the $30 billion that is spent annually on the state’s water system.

Moving forward, new bond funds are likely to be more limited (as shown by the current bond’s bumpy road to approval), so it makes sense to focus them on areas that lack sustainable and reliable funding sources. As we show in our report Paying for Water in California, these areas include small water systems in rural, low-income communities, flood protection, stormwater pollution management, aquatic ecosystem recovery, and integrated water management. The bond funds approved in the 2000s have been spent overwhelmingly in these areas, yet the need is still great.

For activities that more readily raise funds from local ratepayers—such as water supply and wastewater management—future bond support should be limited to projects that generate broad public benefits. This might include water supply projects that promote better integration of our water system (e.g., by capturing stormwater, which can improve both water supply and prevent pollution) or ecosystem recovery (e.g., by improving the quality or quantity of water to support fish and wildlife).

Even if a new water bond passes this fall, California will need to find other ways to pay for small system drinking water quality, critical improvements to flood protection, stormwater management, aquatic ecosystems, and integrated water management. As part of its deliberations, the legislature will need to think beyond bonds, and consider new statewide fees or special taxes—such as a small surcharge on water use or a small increment on the sales tax—to help fill these gaps with a reliable revenue stream.

Chart Source: Paying for Water in California.