LOS ANGELES – Californians are gearing up for election season in what may prove to be “the year of the initiative,” with two explicitly bond-related questions already qualified for the November ballot and several more of interest to public finance likely to follow.
A 2011 law shifted all California initiatives, defined as potential laws proposed by citizens without the support of the legislature, to the even-year November general election ballot.
There is no way to know for sure how many initiatives will eventually qualify, but there is good reason to believe that voters could be faced with a historically high number of ballot initiatives. Some state and local officials have already expressed concern over how some of the initiatives could impact local control of infrastructure projects and other financial decisions.
To qualify for the ballot in California, backers of initiatives that are not constitutional amendments must collect signatures of support from registered voters equal to 5% of the votes cast in the most recent gubernatorial election.
California voters turned out in low numbers in 2014, re-electing Gov. Jerry Brown but casting only about 7.3 million votes in the process. By contrast, Californians cast more than 10 million votes when Brown won election for an open seat in 2010 and some 8.5 million voters participated when incumbent Arnold Schwarzenegger defeated Phil Angelides in 2006.
Karen Krop, a Fitch Ratings analyst, said that California’s propensity to legislate by initiative can restrict the state’s ability to manage its finances but that individual bond questions tend not to have a huge impact on a state with a net tax-supported debt calculated by Fitch at around $90 billion.
“We view it as taking away some of the management flexibility that the state might otherwise have,” Krop said.
The low 2004 turnout means that the bar to qualify an initiative for this November is only 365,880 signatures, and some initiatives noteworthy to the municipal market have already qualified.
A ballot measure backed by wealthy Stockton farmer Dean Cortopassi would require a referendum whenever the state wants to use revenue bonds to borrow more than $2 billion for infrastructure projects.
Currently, general obligation bonds paid for from the state’s general fund require voter approval, but revenue bonds, typically paid for with user fees, do not. Cortopassi has spent some $4 million in support of the measure.
Backers of that initiative insist that its sole purpose is to make sure Californians have a voice in the state’s borrowing, but others see it as a stealthy attack on Gov. Jerry Brown’s $15 billion plan to construct two tunnels through California’s Sacramento-San Joaquin River Delta to divert water to the south.
Lt. Gov. Gavin Newsom said earlier this year that the measure would erode local control of infrastructure projects and create new obstacles to infrastructure financing.
The governor’s water plan, which involves issuing revenue bonds that would be repaid by water districts, may have taken a step forward last week when the Metropolitan Water District of Southern California reached an agreement to purchase some islands in the Delta, about 60 miles east of San Francisco, from a Swiss insurance company that owns them.
Steve Arakawa, manager of the Bay Delta Program for Metropolitan Water District, told The Bond Buyer that no formal purchase agreement has been signed yet but that it was in the works and that the money would come from Metro’s existing revenues.
Arakawa said that the board made the decision independent of Brown’s water plan and that the district expects to make environmental improvements as part of its eventual ownership of the islands, but said that the purchase would also be helpful to the eventual construction of Brown’s proposed tunnel system.
“That’s part of it,” Arakawa said.
Newsom isn’t the only official concerned about a loss of local control through initiatives.
Writing for the Los Angeles County Division of the League of California Cities, Cerritos Mayor Carol Chen said in the group’s March news brief that the potential for a historic initiative year makes it important for members to support CitiPAC, the league’s political action committee.
“Are you ready for the longest ballot in California history? Experts say it could happen and have dubbed 2016 as the ‘Year of the Initiative’ thanks to a 2011 law shifting all initiatives to the general election ballot,” Chen wrote.
“With so many proposals vying for the attention of voters, we may not know what the next threat to local control will be, but we can prepare for it,” she continued.
Bill Carrick, a Los Angeles-based political consultant, said a variety of factors could end up tempering the expected crowded ballot.
“Even though the threshold is lower, the difficulty in obtaining signatures has been really tough,” Carrick said.
Firms hired to gather signatures generally farm the work out to freelance signature-gatherers who set up shop in public places and ask registered voters for their autographs, he said, but California has to compete with other states where other firms are also paying for the work.
“These people can be nomadic and go from state to state,” said Carrick. “Wherever there is the most signature-gathering activity.”
Carrick said that bad weather has hampered signature gathering in northern California, while big box retail stores that signature-gatherers have long used as a place to interact with voters are increasingly banning such activity on their properties.
Carrick said that the executive and legislative branches of the California government are not generally inclined to help create a more efficient system to put lawmaking directly in the hands of citizens, making the process laborious and inefficient and generally open only to backers with significant money to dedicate to an extensive grassroots campaign.
One measure that has cleared the signature hurdles to qualify for the ballot is a K-12 school and community college bond initiative to authorize $9 billion in state general obligation bonds.
That would include $3 billion for new construction and $3 billion for modernization of K-12 public school facilities; $1 billion for charter schools and vocational education facilities; and $2 billion for community college facilities.
The measure would also bar amendments to existing authority to levy developer fees to fund school facilities, until new construction bond proceeds are spent or Dec. 31, 2020, whichever is earlier.
Brown, who has tried to restructure the state capital funding program for schools, opposes the measure because he views the existing school facilities program as “overly complex” and fraught with inefficiencies, such as incentivizing school districts to build new schools even if they can already absorb enrollment growth.
The initiative would bar amendments to the existing State Allocation Board process for allocating school construction funding with respect to these bonds. The state Director of Finance has estimated the total cost of the initiative at $17.6 billion including bond interest.
Also working their way through the qualification process are initiatives that would reallocate billions in unsold bonds for California’s high-speed passenger rail project to water development, or simply prevent further issuance from the $10 billion of bond authority California’s voters granted the rail project in 2008 if voters do not reallocate the bonds via the water measure or another initiative on the ballot.
The California High-Speed Rail Authority released a business plan last month that effectively reversed direction on the project’s construction plans, saying that its Bakersfield-to-San Jose segment will be constructed before the Bakersfield-to-Los Angeles stretch. The move will save money, the authority said. The project faces protests and litigation, particularly from landowners along the project’s northern stretch.
June 30 is the final day for the California Secretary of State to determine whether a measure qualifies for the ballot or requires further signature verification.
