A Taxpayer’s Guide to California Propositions 2018

Copyright 2018 Tony Lima.  All rights reserved.  Permission is granted to quote excerpts of less than 250 words providing the following credit is included: “Copyright 2018 Tony Lima.  Excerpted with permission. Full text available at https://gonzoecon.com/2018/10/a-taxpayers-guide-to-california-propositions-2018/.”


[Updated October 21 to add a few missing links as well as a paragraph explaining how international trade will mitigate the effects of Proposition 12.]

Why a “taxpayer’s guide?”  Because people care about taxes.  I won’t bother comparing costs and benefits.  Instead, I’ll answer one simple question: If this proposition passes, will taxpayers end up paying more or less? This is a taxpayer’s guide to California propositions 2018.

Overview

Doug Porter in the San Diego Free Press[1] gives a nice overview of this year’s batch of initiatives:

There are eleven ballot measures for voter consideration on the 2018 general election ballot in California. Three were placed on the ballot by the legislature, the rest via signature gatherers (mostly) paid for groups with an interest in shaping the legal and political landscape.

Four propositions (1-4) ask voter approval for bond measures to borrow money to build things. In the case of General Obligation Bonds, payments are made through the state treasury from tax dollars collected on Californians. In the case of Revenue Bonds, an existing or newly dedicated source of funding is used to make payments. Voters have approved 79.49% of bonds submitted in statewide elections over the past 25 years.

Four propositions (6, 8, 10, & 12) have proponents and opponents with enough money for advertising and public relations campaigns. Hot-button campaigns for and against repealing transportation funding, regulating dialysis clinics, allowing localities to consider rent control ordinances, and how animals raised for food are treated will be vying for voter attention.

Two ballot measures (5 & 6) are already working on re-qualifying for the 2020 ballot in case they don’t make it this time.


Proposition 1: Issue Bonds to Build More Housing

Put on the ballot by the state legislature

This is a no-brainer. It would authorize $4 billion in general obligation bonds “for housing-related programs, loans, grants, and projects and housing loans for veterans” (Porter).  General obligation bonds are backed by the full faith and credit of the state treasury.  Translation: these bonds are backed by your tax dollars.  Interest and principal will be paid out of the pockets of you, your kids, and probably their kids.

As an aside, government has no business building housing.  If the state wants more housing, they can start rolling back the myriad regulations and restrictions that prevent builders from putting up housing.  A good first step would be repealing the solar energy mandate.


Proposition 2: Divert Funds to Repay a Bond

Put on the ballot by the state legislature

There is no new taxation or spending here.  It simply allows the legislature to use funds from an existing tax (Proposition 63 (2004) — a 1 percent tax on income above $1 million for mental health services) to pay for $2 billion in revenue bonds for homelessness prevention housing for persons in need of mental health services.

Philosophically, I don’t like several aspects of this whole scheme.  But in terms of your wallet, there will be no effect.


Proposition 3: California Water Bond 2018

Put on the ballot by petition signatures

This initiative authorizes $8.877 billion in general obligation bonds for water infrastructure, groundwater supplies and storage, surface water storage and dam repairs, watershed and fisheries improvements, and habitat protection and restoration.  In other words, a grab-bag of projects favored by mainly environmentalists.  After the Proposition 1 fiasco a few years ago (read my takes here and here), there are many reasons to vote no on this can of worms.

But the key phrase is “general obligation.”  Like this year’s Proposition 1, these bonds are backed by your tax dollars.  Interest and principal will be paid out of the pockets of you, your kids, and probably their kids.


Proposition 4: Build Children’s Hospitals

Put on the ballot by petition signatures

Authorizes $1.5 billion in general obligation bonds for the construction, expansion, renovation, and equipping of children’s hospitals in California.

By saying it’s “for the children” proponents are trying to distract us from the phrase “general obligation.”  We’re smarter than that.


Proposition 5: Improve Portability of Property Tax Base

Put on the ballot by petition signatures

Proposition 5 allows homebuyers who are age 55+ or severely disabled to transfer the tax-assessed value from their prior home to their new home, no matter (a) the new home’s market value; (b) the new home’s location in the state; or (c) the number of moves.

This actually fixes a problem among California counties.  I own a house in San Mateo County.  I’ve owned it for 35 years.  The tax base for property taxes is a fraction of the market value.  If I sell that house and buy a house in neighboring Santa Clara County, I can take that tax base with me for my new home.  However, if I want to move to San Luis Obispo County, I will be taxed based on the selling price of the house.  Santa Clara and San Mateo counties have entered into an agreement to allow tax base portability.  San Luis Obispo County is not a party to that agreement.  The real question is equitable treatment across all counties.

But the legislative analyst estimates that property tax revenue will eventually fall by $2 billion a year.  That revenue decrease will probably be met with higher taxes in other areas, most likely a sales tax increase.  No thanks.


Proposition 6: Repeal the Gas Tax

Put on the ballot by petition signatures

I recommend yes with an asterisk. Lower taxes mean you get to keep more of your income.  But if you regularly drive fairly long distances over pothole-infested roads you may well find your gas tax savings turning into car repair bills.  Vote carefully.


Proposition 7: Permanent Daylight Saving Time

Put on the ballot by the legislature

This little number would let the California legislature switch the state to year-round daylight saving time with a 2/3 vote.  But the law would only take effect if and when the U.S. Congress passes a bill giving approval.

I can see no impact on your personal finances one way or the other.  If I’m wrong, please let me know.


Proposition 8: Price Ceiling on Kidney Dialysis

Put on the ballot by petition signatures

This baby requires dialysis clinics to issue refunds to patients or patients’ payers for revenue above 115 percent of the costs of direct patient care and healthcare improvements.  As is always the case with a price ceiling set below the equilibrium price, this will result in a shortage.  Meaning there will be longer waits for dialysis.  Or you could drive to Nevada, Oregon, or Arizona where there is no such ceiling.

The impact on taxpayers will come in two parts.  First, there will be an expansion of the Sacramento bureaucracy to enforce this new law.  Second, there will be an increase in medical costs as some dialysis patients end up in the hospital when they can’t get timely treatment.

Why, you may ask, are we voting on something like this?  The answer is a dispute between a union – the SEIU-United Healthcare Workers West – and owners of these clinics. The union alleges unfair labor practices by the clinics.  This is their way of fighting back.  Voters should tell the two parties to work it out between themselves.


Proposition 9: Three Californias

Put on the ballot by petition signatures

Removed from the ballot by the state supreme court.


Proposition 10: Expand Rent Control

Put on the ballot by petition signatures

I’m recommending a no even though the tax impact of this law is very uncertain.  For one thing, the effects depend on the number of cities that implement new rent restrictions, the nature of those restrictions, and the extent to which neighboring cities do or do not restrict rents.  But rent control will cause single-family house prices to rise even faster.  As a homeowner I should be in favor of this.  As an economist, I am opposed.

This initiative would expand the ability of local governments to adopt rent control ordinances. The Costa-Hawkins Rental Housing Act currently prohibits certain types of rent control throughout the state.  The text of this proposition is simple: it repeals the Costa-Hawkins act.  Which tells you exactly nothing about what’s actually being done.

Ballotpedia[2] has an excellent summary of the situation:

Costa-Hawkins provides that cities cannot enact rent control on (a) housing first occupied after February 1, 1995, and (b) housing units where the title is separate from connected units, such as condominiums and townhouses. Costa-Hawkins also provided that landlords have a right to increase rent prices to market rates when a tenant moves out.

So a city could apply rent control to any unit.  They could prohibit market price adjustments when an apartment changes hands.  They could apply rent control to newly-constructed housing.

There is already too little housing in this state.  Rent control will cause construction of new rental housing to decrease even further.  Instead construction companies will concentrate on new, single-family homes that will be sold.  Casual landlords, such as someone who happens to own a second house that could be rented, may find they are subject to rent control.  And housing prices will increase even faster.  But the price of rental housing in rent-controlled areas is likely to fall.  (I’m talking about the selling price of the building itself, not the rent.)  That may reduce property tax revenues.


Proposition 11: Ambulance Employees Paid On-Call Breaks, Training, and Mental Health Services Initiative

Put on the ballot by petition signatures

You cannot make this stuff up.  Again from Ballotpedia[3] a yes vote supports

  • allowing ambulance providers to require workers to remain on-call during breaks paid at their regular rate;
  • requiring employers to provide additional training for EMTs and paramedics; and
  • requiring employers to provide EMTs and paramedics with some paid mental health services.

This is likely to increase the price of EMT services. But I can’t see any direct impact on taxpayers. Again, why in the world are we voting on this?  Ballotpedia has an explanation which I recommend reading.


Proposition 12: Farm Animal Confinement Initiative

Placed on the ballot in California as an initiated state statute on
November 6, 2018

You may recall Proposition 2 from 2008.  That initiative “ban[ned] the confinement of pregnant pigs, calves raised for veal, and egg-laying hens in a manner that did not allow them to turn around freely, lie down, stand up, and fully extend their limbs. Proposition 2 did not provide specific square feet when defining prohibited confinement. Rather, the size restrictions were based on animal behavior.”[4]  Proposition 2 also left enforcemnt to local officials.  Proposition 11 would create a brand new, shiny, expensive state bureaiucracy to enforce its provisions.  More bureaucrats means more spending means more taxes. 

And it will do no good.  The industry will simply relocate to Mexico.  In the U.S. the Interstate Commerce laws let California impose the same restrictions on other states that are imposed within the state.  In other words, if you want to sell eggs in California those eggs must be produced according to California standards.  But there’s a glaring exception to this: Mexico. There is a 137 mile border where interstate commerce does not apply.  International trade agreements rule.  If this proposition passes it will be a boon to Mexico’s economy.

More from Ballotpedia[5]

Proposition 12 of 2018, unlike Proposition 2, would ban the sale of meat and eggs from calves raised for veal, breeding pigs, and egg-laying hens confined in areas below a specific number of square feet. The size restrictions based on animal behavior would be repealed and replaced. Beginning in 2020, the proposal would ban:[1]

  • whole veal meat from a calf (young domestic cow) that was confined in an area with less than 43 square feet of usable floor space per calf;
  • whole pork meat from a breeding pig or the immediate offspring of a breeding pig that was confined in an area with less than 24 square feet of usable floor space per pig; and
  • shell eggs and liquid eggs from an egg-laying hen (chicken, turkey, duck, goose, or guinea fowl) that was confined in an area with less than 1 square foot of usable floor space per hen.

Beginning in 2022, producers would be required to confine egg-laying hens in outdoor or indoor cage-free housing systems based on the United Egg Producers’ 2017 cage-free guidelines.

While this will drive up food prices and cause more agricultural firms to leave California, there is no apparent impact on taxpayers.  Except, of course, for enforcement:

The ballot initiative would make the California Department of Food and Agriculture and the California Department of Public Health responsible for the measure’s implementation. Violations of the initiative would be considered misdemeanors, with fines up to $1,000.[1] Proposition 2 (2008) did not authorize a state department to enforce the ballot initiative. Therefore, local law enforcement agencies were made de facto responsible for enforcing Proposition 2’s size restrictions.[6]

More state bureaucrats means more spending which means higher taxes.  Sorry, folks.

Conclusion

Friends who live in other states occasionally ask me if California has gone insane.  After this little romp through the state ballot, I’ll have a hard time saying no.

[1] Doug Porter “A First Look at Propositions on the California November 2018 Ballot” August 28, 2018 San Diego Free Press. https://sandiegofreepress.org/2018/08/a-first-look-at-propositions-on-the-california-november-2018-ballot/. Accessed October 20, 2018
[2] https://ballotpedia.org/California_Proposition_10,_Local_Rent_Control_Initiative_(2018) Accessed October 20, 2018.
[3] https://ballotpedia.org/California_Proposition_11,_Ambulance_Employees_Paid_On-Call_Breaks,_Training,_and_Mental_Health_Services_Initiative_(2018) Accessed October 20, 2018.
[4] https://ballotpedia.org/California_Proposition_12,_Farm_Animal_Confinement_Initiative_(2018) Accessed October 20, 2018.
[5] Ibid
[6] Ibid

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.