California Proposition 54, Bonds for Prison Construction (1986)
Proposition 54 permitted the State of California to sell $500 million in general obligation bonds to obtain funds with which to build youth and adult prisons. General obligation bonds of the sort approved by Proposition 54 are backed by the taxing power of the state, which meant that the state was authorized to use its taxing power to assure that money was available to pay off the bonds.
Authorized expenditures under Proposition 54 included buying land, constructing new prisons, remodeling existing prisons and maintaining facilities. The proposition did not specify how the money would be divided between the Department of Corrections and the Youth Authority, although the state legislature had already approved a 1986 budget that included spending $14 million for construction projects at Youth Authority institutions to be funded through Proposition 54, if it passed.
The fiscal estimate provided by the California Legislative Analyst's Office said:
Paying Off the Bonds. For these types of bonds the state typically would make principal and interest payments over a period of up to 20 years from the state's General Fund. The average payment would be about $43 million each year if the bonds were sold at an interest rate of 7 percent.
Borrowing Costs for Other Bonds. By increasing the amount which the state borrows, this measure may cause the state and local governments to pay more under other bond programs. These costs cannot be estimated.
State Revenues. The people who buy these bonds are not required to pay state income tax on the interest they earn. Therefore, if California taxpayers buy these bonds instead of making taxable investments, the state would collect less taxes. This loss of revenue cannot be estimated.
Path to the ballot
The California State Legislature voted to put Proposition 54 on the ballot via Assembly Bill 2545 (Statutes of 1986, Chapter 409). It added sections to the state's Penal Code.