This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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Proposition 39: Pro and Con Views

Bill Hauck is president of the California Business Roundtable.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

California's business community has long made providing first-rate, quality schools a top priority and the November 7 election is no exception. Business leaders from across the state are all taking a prominent role in the efforts to gain voter approval of Proposition 39 - a measure that would reform the way school districts raise school bonds while adding increased accountability and taxpayer protections to the process.

California schools need dramatic improvement if we are to provide our children with a learning environment that will prepare them for the 21st century. While there is no one cure or quick fix that will solve all of our schools' problems, this November we have an opportunity to address a significant part of the problem - our desperate need to build new classrooms and renovate older ones.

Proposition 39 requires a fair 55 percent vote to approve local school bonds. More importantly, however, the new measure and supporting legislation (which will be triggered if - and only if - Proposition 39 is enacted in November) provides a number of strong additional taxpayer protections, several of which have been promoted by Cal-Tax in the past. Passage of this measure:

• Prohibits districts from using bond funds for administration or bureaucracy;
• Requires school administrators to produce a detailed list of specific school construction and repair projects to be funded by a proposed bond;
• Requires schools to undergo two rigid, independent financial and performance audits every year throughout the life of a bond;
• Mandates independent citizen watchdog committees comprised of local taxpayers, homeowners, parents and business leaders to make sure bond funds are not wasted. School district employees are ineligible from participating on these committees;
• Empowers watchdog committees to take steps to stop any project and seek prosecution if audits show wasteful or unauthorized spending;
• Prohibits these bond votes except at regularly scheduled elections; and
• Caps/limits how much property taxes can be raised by a local school bond.

California schools rank among the most overcrowded in the nation. Some classes hold as many as 50 students at a time. Research has shown that students in overcrowded schools score significantly lower on both mathematics and reading exams. We're simply not providing our children with an environment that fosters educational growth.

Few would argue that we aren't facing a school facilities crisis here in California. Even Proposition 39 opponents concede that we must build new schools and repair our outdated facilities. Instead, the critical question is: How do we address our state's school facilities needs while still protecting taxpayers?

• Local school districts will require more than $40 billion over the next 10 years for school construction and repair. State funding cannot come close to meeting those needs. Even with this year's budget surplus, the state cannot devote that much money to schools. Too many other state programs are competing for funding and there is no guarantee that surpluses will be there in years hence.
• According to the Department of Finance, the state's untapped bonding capacity is only about $20 billion over the next 10 years, about half of what is actually needed. And even when California voters approve a statewide school bond as they did in 1998, it is unclear how much, when, or even if a local school district will receive funds to improve schools in their area. What's more, school districts must first pass a local school bond before they can receive matching funds from the state.
• Local bonds play a critical role - sometimes the only role - in the financing of local school construction and repair. Local school bonds give voters in a specific district the ability to build and repair schools and classrooms when and where they're needed. But despite the overwhelming need, only about a third of California's 1,000-odd school districts have passed a bond since 1986. Many have failed on multiple occasions - some as many as five times. One-hundred and eleven districts have never passed a bond, although they have tried.

The simple fact remains: As individual citizens and as corporate citizens, we all have a responsibility - and a vested financial interest - to address our school facilities needs. If we're going to rely on local school bonds to finance these projects, it is critical that we give local districts a realistic opportunity to pass those bonds. But first, we must also take steps to overhaul the way administrators spend money to protect taxpayers and to eliminate the waste and mismanagement that has plagued many districts throughout the state.

This is the rationale behind Proposition 39. This measure represents a fiscally responsible approach to fixing our aging, overcrowded schools and classrooms by reforming the way local districts raise and spend capital for school construction and repair.

Given the serious condition of California schools, it is imperative that the business community stand together to promote serious solutions to fixing our schools and fixing the way our schools spend money. Proposition 39 is a serious solution that does both.

In the famous words of Yogi Berra, it's deja vu all over again. This November, Californians will face yet another attempt to destroy the 121-year-old two-thirds vote protection for the approval of local school bonds.

Proposition 39 is identical to Proposition 26, which taxpayers defeated in March, except that instead of replacing the two-thirds vote requirement to pass local school bonds with a simple majority, Proposition 39 would lower the requirement to 55 percent. This standard would provide little comfort to taxpayers because it would mean that, based on elections since 1996, more than nine out of 10 (94 percent) bonds would pass. Each of these bonds would burden property owners with additional taxes. The legislative analyst estimates the cost to taxpayers at hundreds of millions of dollars annually. But Proposition 39 promoters have stated that, if Proposition 39 passes, it will bring in $20 billion in new revenue. Counting interest on the new bonds, that's nearly $40 billion in new property taxes - on both businesses and homeowners.

Since its inception in the original California Constitution, the two-thirds vote has maintained a high level of popularity. Efforts in 1966, 1993 (Proposition 170) and, of course, Proposition 26 in March, all failed. Independent polling on just the issue of the two-thirds vote for local general obligation bonds consistently garners about 70 percent support.

The basic rationale of two-thirds vote for local bonds is simple. Unlike state bonds, local bonds always come with a tax increase and, more importantly, a tax increase that discriminates against property owners. Subjecting property owners to a long-term debt repayment via a simple-majority vote is not in the public interest.

The two-thirds vote requirement appears throughout our state and federal constitutional frameworks. A two-thirds vote appears 10 times in the United States Constitution and is used for important matters where some degree of certainty and consensus is necessary. Impeachment and the adoption of treaties are just two examples.

Californians have, for more than a century, held the belief that the passage of local bonds was one of those important matters requiring a higher degree of consensus and certainty. Not only does the passage of a local bond, as discussed above, automatically result in the imposition of a discriminatory tax against property owners, the debt assumed is irrevocable - the voters can't change their minds once the bonds have been sold. (In upholding the constitutionality of supermajority votes, the United States Supreme Court noted that such bonds "commit the credit of generations yet unborn.") Moreover, the debt assumed becomes a lien on the property. Failure to pay property taxes can lead to the loss of the property - whether a home or a business.

A fundamental question facing the promoters of Proposition 39 is why is it necessary? California is enjoying a $14 billion to $16 billion surplus, just a portion of which could easily be dedicated to school construction. Even a fraction of the surplus could support a $10 billion-$20 billion statewide school bond which does not face the discriminatory tax increase implications of local bonds. (California has not submitted a statewide school bond to voters since Proposition 1A in 1998. In the meantime, since 1996, local voters have approved over $13 billion in new school construction financing with the two-thirds vote requirement in place).

There is little doubt that, were Proposition 39 to present just the issue of the two-thirds vote, it would fail. However, in order to enhance its chance of passage, the promoters of the initiative have added what they contend are accountability measures and provisions related to making bond proceeds available to charter schools. The voters don't seem to buy it. The sensible reaction has been to ask why should we sacrifice an important constitutional protection in order to get accountability and help for charter schools?

Voters also want to know why promoters of 39 are back so quickly having just lost a few months ago. The answer is probably that the Proposition 26 outcome was very close - the measure lost by a margin of a couple of percentage points. According to the promoters, the turnout in November is bound to be more liberal, and thus, more tax friendly.

But it appears that the promoters of Proposition 39 have miscalculated. In a just-released Public Policy Institute of California poll, Proposition 39 was trailing badly - 55 percent opposed, 35 percent in favor. There are undoubtedly several explanations for this abysmal showing. First, the backers have lost the clarity of perhaps their best issue: the principle of "simple-majority vote." Proposition 39's 55 percent supermajority appears nowhere in any democratic system. In short, 55 is a speed limit, not a vote threshold. Second, the electorate may be reacting negatively over having to face this issue again after having just voted on the issue. "What part of 'No' don't you understand?" the voters seem to be asking. Third, the California Teachers Association is sitting this one out - absorbed in its battle against Proposition 38, the voucher initiative. Although the promoters of Proposition 39 have virtually unlimited funding, CTA provided its significant army of foot soldiers and affiliated organizations which will not make a major showing in support of the new measure.

Most disappointing to the opponents of Proposition 39, principally the Howard Jarvis Taxpayers Association, is the support of some business groups for the proposal. Both the California Chamber of Commerce and the Business Roundtable are supporting the measure. However, the opponents are, for the first time, reaching beyond their base of homeowners and are enlisting the aid of apartment owners, the agricultural community, and other interests that would suffer from significant increases in property taxes.

Proposition 39 presents Californians with a clear choice: Do we need higher property taxes or should we retain the two-thirds vote which has served California well for more than a dozen decades.