California Proposition 1A, Temporary Tax Increase (May 2009)

This article is about a 2009 ballot measure in California. For other measures with a similar title, see Proposition 1A.

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California Proposition 1A was on the special, statewide May 19 ballot in California as a legislatively-referred constitutional amendment, where it was defeated. Proposition 1A came about as part of the 2009-2010 fiscal year California state budget and tax increase agreement.

If Proposition 1A had passed, $10 billion in "temporary" sales, use, income and vehicle taxes imposed as part of the 2009-2010 budget agreement would each have been extended for one or two years, resulting in a further tax increase of some $16 billion. ,

The defeat of Proposition 1A has been interpreted as evidence of an emerging mood in the country. According to Newt Gingrich, "...the defeat of the May 2009 California referendum that would have raised taxes" is proof of an "underlying desire for smaller government...As Assemblyman Chuck DeVore noted, the entire California establishment was for the referendum. They outspent the smaller government forces by more than 20 to 1."

Election results

California Proposition 1A
Result		Votes	Percentage
d No		3,152,141	65.4%
Yes		1,668,216	34.6%

Overview

If Proposition 1A had passed, $10 billion in "temporary" sales, use, income and vehicle taxes imposed as part of the 2009-2010 budget agreement would each be extended for one or two years, resulting in a further tax increase of some $16 billion. ,

Although the measure was often characterized as a limitation on state spending, it would not have capped the amount of revenues that could be collected by the state or the amount of spending that could occur. Unlike a "Taxpayer Bill of Rights" type initiative, the measure did not restrict the ability of the legislature and the governor to approve tax increases. It would have allowed increased spending for infrastructure projects, and for accumulating money to pay health care benefits that the state has said over the years it would pay to retired government workers.

Proposition 1A would have required any annual state revenue increase that was above "historic trends," plus an increase for the rate of inflation and population growth, up to a maximum of three percent of annual revenues, to be deposited into the state budget stabilization fund (BSF or "rainy day fund") each year until the fund reached an increased target balance equal to 12.5 percent of the state general fund. However, even if there were a revenue increase, BSF deposits would only have occurred once education spending levels mandated by Proposition 98 (1988) had been attained.

If BSF deposits were made, some or all of the money would be paid out from the fund in the same year according to a specific schedule. If Proposition 1B also passes, then approximately the first $1.5 billion deposited in a given year (specifically, an amount equivalent to 1.5 percent of state revenues) would be earmarked for a payment to schools and community colleges. These mandated payments would continue each year until $9.3 billion had been paid. (This figure is the difference between the amount actually appropriated to education in recent budgets, and the amount that, under some interpretations of Proposition 98 (1988), should have been spent. See Proposition 1B.)

The next 1.5 percent deposited into the BSF in any year would be paid out to pay off debts accumulated from past government infrastructure project borrowing, and past deficit spending (authorized by California Proposition 57 (2004)).

The measure also revises other "rainy day fund" details. Until the target fund balance was reached, BSF withdrawals could be made only to increase state spending to the amount of the previous year plus inflation and population growth, and for natural disasters. The measure would also modestly increase the governor's authority to reduce purchases or capital projects by state departments, and to limit some cost-of-living increases mandated for certain programs (but not ones for government employee pay raises).

Spending revisions

If Proposition 1A had passed, it would not have limited the amount of revenue the state could take in, but would have affected the annual allocation of that revenue, primarily by shifting more spending to education, infrastructure, and debt payments.

• Revenue above an amount based on revenue growth trends over the previous 10-year period, plus inflation and population growth, would have been deposited in the Rainy Day Fund.
• The cap on the fund would have been increased from 5% to 12.5% of revenue.
• Any amount above that could have been used to pay debt or for one-time purposes, but not ongoing programs.
• If Proposition 1B had also passed, the first $1.5 billion out into the Rainy Day Fund each year would go into the state's public education fund to cover a disputed $9.3 billion difference between what Arnold Schwarzenegger's office estimated was due to the education fund under California Proposition 98 (1998) and what the state's education groups believed was owed under Proposition 98's provisions. The next $1.5 billion would have gone to pay off debts accumulated from government infrastructure projects and past deficit spending.

$16 billion tax increase

If Proposition 1A had passed, the tax increases included in the February 2009 budget package would have been extended for one or two additional years. ,,

These tax increases included:

• A 1-cent-per-dollar increase in the state sales tax, from 8% to 9%, would have been extended for one year through 2011-12.
• The state's Vehicle License Fee would have gone from .65% to nearly 1.15% of a vehicle's value for two additional years through 2012-13.
• An increase of 0.25% in the state's Personal Income Tax on every tax bracket, would also have been extended for two more years through the 2012 tax year.

Background

Proposition 1A was one of six statewide ballot propositions on the May 2009 ballot as part of the 2009-2010 California state budget and tax increase agreement (Propositions 1A, 1B, 1C, 1D, 1E and 1F). They were intended to close an approximately $42 billion gap between desired spending and expected revenues. In absolute terms, however, as of March 2009 projections, when the budget deal's $10 billion tax increase and the $5 billion in borrowed money proposed by Proposition 1C are included, total general fund spending in the 2009-2010 budget will only decline by around 2 percent, from $94.089 billion to $92.206 billion. However, the nonpartisan California Legislative Analyst's Office which is the source of those figures, also said in early March that tax revenues flowing into the state treasury are "well below" the projections it used earlier in the year, and that California's government faced an additional $8 billion gap betweeen expected revenue and the amount appropriated.

Deficit growth:

On May 11, Schwarzenegger told state legislative leaders that in spite of a significant amount of money the state received from the federal bailout bill, a decline in tax revenues as businesses across the state stagnated meant that the state's budget deficit was at least $15.4 billion.

The state expected to respond to its cash-flow issues by borrowing money in the first months of the next fiscal year.

Moody's Investors Service suggested that the state's bond rating might decline if Prop 1A and the other May 19 ballot measures are rejected.

Constitutional changes

Proposition 1A proposed to amend the California Constitution in three different places. It would have:

• Amended Section 12 of Article IV
• Amended Section 20 of Article XVI
• Added an entirely new section, proposed Section 21, to Article XVI.

Text of measure

Title

The ballot title was:

State Budget. Changes California Budget Process. Limits State Spending. Increases "Rainy Day" Budget Stabilization Fund. Legislative Constitutional Amendment.

Ballot title lawsuit

The liberal group "Health Access California", and the Howard Jarvis Taxpayers Association, filed a lawsuit against the California Secretary of State saying that the ballot language for Proposition 1A is "misleading" and "advocacy language.",

A Sacramento judge ruled in favor of the plaintiffs on March 5. His ruling said:

• Where the original ballot title said "reforms", it must now say "changes" the budget process.
• The title must say Proposition 1A "could" limit deficits and spending, not that it will or does limit them.

Summary

The official summary provided to describe Proposition 1A said:

• Increases size of state "rainy day" fund from 5% to 12.5% of the General Fund.
• A portion of the annual deposits into that fund would be dedicated to savings for future economic downturns, and the remainder would be available to fund education, infrastructure, and debt repayment, or for use in a declared emergency.
• Requires additional revenue above historic trends to be deposited into state "rainy day" fund, limiting spending.

Fiscal impact

See also: Fiscal impact statement

The fiscal estimate provided by the California Legislative Analyst's Office said:

• Higher state tax revenues of roughly $16 billion from 2010-11 through 2012-13 to help balance the state budget.
• In many years, increased amounts of money in state "rainy day" reserve fund.
• Potentially less ups and downs in state spending over time.
• Possible greater state spending on repaying budgetary borrowing and debt, infrastructure projects, and temporary tax relief. In some cases, this would mean less money available for ongoing spending.

Supporters

See also: Supporters of California Propositions 1A, 1B, 1C, 1D, 1E or 1F (May 2009)

The name of the official "Yes on 1A" committee was Budget Reform Now, a coalition of groups assembled by then-Governor Arnold Schwarzenegger to support the overall 2009-2010 budget agreement and tax increases.

Groups and organizations that signed on to support Proposition 1A included public safety groups, groups representing senior citizens, labor, education, a taxpayer group, business groups and politicians.

Some of the groups listed as supporting 1A were:

California Teachers Association California Fire Chiefs Association California Police Chiefs Association California Chamber of Commerce

California State Council of Laborers California Senior Advocates League California Taxpayers Association California State Conference of the NAACP

• For a more complete list, see Supporters of California Proposition 1A, 1B, 1C, 1D, 1E or 1F (May 2009)

Although the Democratic Party's state legislative leaders support Proposition 1A, on April 26 the California Democratic Party at its annual convention declined to endorse Proposition 1A and instead adopted a position of neutrality on the measure.

Arguments

Campaign ad for Prop 1A

Supporters of Proposition 1A argued that the measure would fundamentally changed California's dysfunctional budget system, replacing it with a stable and predictable one that would protect education, public safety, healthcare, transportation and taxpayers who are burdened every time the state runs a deficit.

Proponents argued that:

• Proposition 1A gets to the heart of doing away with the dysfunctional budget status quo, by requiring the state to save in good years so that we have money in bad years, mandating increased savings, and stabilizing state spending.

• Had Proposition 1A been in place 10 years ago, the rainy day reserve would have allowed us to avoid $9 billion in tax increases and deep cuts that were passed as part of this years' budget.

• Unless Proposition 1A passes, the state will face another huge budget hole, including a loss of $16.2 billion in revenues between 2010-2013 that will put California back on the brink of insolvency.

• Then-Attorney General Jerry Brown said, "If Prop 1A does not pass, we will face an even more difficult budget that could lead to massive cuts to law enforcement, education, healthcare and transportation."

• Former San Francisco Mayor Willie Brown said "Propositions 1A through 1F would end the erratic budget cycles we face year after year and restore accountability to how our tax dollars are spent. Establishing these fiscal policies makes great sense and would prevent devastating cuts to the valuable services that millions of people depend on in the future."

• Jeannine English, President of AARP in California, said, "Props 1A through 1F are absolutely critical to provide the short-term revenues we need to get our state through the devastating economic downturn we currently face. By establishing a rainy day fund that will require lawmakers to save, these measures also provide the lasting reforms we need to end the volatile budget cycles we experience every year and stabilize funding for healthcare, public transportation and other vital services."

• David A. Sanchez, president of the 340,000-member California Teachers Association, said, "The repayment of some of the money cut from education will allow local school districts to restore student programs, reduce class sizes and rehire educators who have been laid off. Many of these initiatives, especially Propositions 1A and B, are dependent on each other and if they fail, the state is back to square one in trying to balance the budget and our schools could face even deeper cuts."

• Alameda County Fire Chief Sheldon D. Gilbert, President of the California Fire Chiefs Association, said, "Year after year, fire districts and local governments are left wondering if the state budget is going to short-change fire protection services. We’ve got to provide stability and save during good years so we don’t always face such drastic cuts in bad years."

Schwarzenegger

San Quentin: Slated for sale?

Gov. Schwarzenegger led an energetic campaign to pass Propositions 1A through 1E. In a March 12 address to the Commonwealth Club in San Francisco, the governor said, "The far left and the far right that prefer dysfunction over change have already launched a campaign to confuse people and defeat the reform." He indicated he would criss-cross the state to advocate for the package of six budget ballot measures.

Schwarzenegger said in late April that he was concerned about public confusion over Proposition 1A caused by Republicans emphasizing that it is a tax hike and newspaper columnists saying that it is complex.

As the election approached, Schwarzenegger's final message was described as "unleashing Armageddon." The governor presented a budget package that he said would go into effect if his ballot propositions failed; this budget was described as the "doomsday budget." This budget "...would lay off thousands of workers, cut billions from schools, strip poor children of healthcare coverage, slice money for child welfare services, swipe billions from cities and send tens of thousands of convicts to county jails or federal custody, all to fill a yawning $21.3-billion hole."

Schwarzenegger indicated that if voters failed to approve Proposition 1A and the other May 19 measures, he would sell California landmarks such as San Quentin state prison, Los Angeles Memorial Coliseum, the Cow Palace in Daly City, and the Sacramento and San Diego fairgrounds.

School districts

According to an MSNBC report of March 13, "People in the Santa Maria Bonitia School District say the May election is their last hope. They say if the propositions do not pass, more cuts could be on the way....'The outcome of the May special election can really help school districts or it can be extremely detrimental', said Maggie White, spokesperson for the Santa Maria-Bonita School District."

Donors to Prop 1A

See also: Donors to Proposition 1A (May 2009)

$32,822,826 was reported contributed to the campaign in favor of a "yes" vote on Proposition 1A, with an additional $798 of reported independent expenditures in support. Since the campaign committees advocating for a "yes" vote on Proposition 1A were simultaneously advocating for a "yes" vote on Propositions 1B, 1C, 1D, 1E and 1F, it isn't possible to determine how much money was raised or spent just on Proposition 1A's behalf.

Donors included unions, Schwarzenegger's political allies, the media (CBS at $250,000), sports teams (the Los Angeles Lakers, the San Jose Sharks and the San Francisco Giants), oil companies (Exxon Mobile and Occidental Petroleum) and entertainment corporations such as Walt Disney and Universal Studios.

Donors of $200,000 or more were:

Reed Hastings, CEO of Netflix, a $250,000 donor to the "Yes on 1A" campaign

Donor	Amount
California Teachers Association	$9,180,743
National Education Association	$3,010,888
Jerrold Perenchio	$1,500,000
Chevron Corp.	$750,000
California Republican Party	$650,000
California Hospital Association	$600,000
Philip Morris (tobacco)	$500,000
California Chamber of Commerce	$405,000
California Alliance for Jobs	$400,000
General Electric	$355,000
Reed Hastings	$251,491
Cisco Systems	$250,546
Brian L. Harvey	$250,000
Universal City Studios	$250,000
California Dental Association	$250,000
Occidental Petroleum	$250,000
Henry Segerstrom	$250,000
Walt Disney Studios	$250,000
Shell Oil	$200,000
Aera Energy, Inc.	$200,000

Opponents

Logo of the No on Prop 1A campaign

Groups and individuals speaking out for a "no" vote on Proposition 1A included taxpayer advocacy groups and unions. On April 18, the California Republican Party voted to oppose 1A.,

Taxpayer groups opposing 1A included the Howard Jarvis Taxpayers Association (HJTA), Americans for Prosperity, Americans for Tax Reform , People's Advocate and Spending Cap.,,

Unions that opposed Proposition 1A included SEIU, AFSCME, and the California Federation of Teachers.,,

The three people who signed the official ballot arguments against 1A were Hank Lacayo (State President, Congress of California Seniors), Lillian Taiz (President, California Faculty Association) and Richard Holober (Executive Director, Consumer Federation of California).

Arguments against 1A

• The California Faculty Association says it is "a flawed measure filled with fine print and loopholes."
• Some liberal activists and groups opposed the measure because they believe that it might slow the growth of state social welfare spending. The "Peace and Freedom" Party, which describes itself as "California's feminist, socialist party," said Proposition 1A would "force cuts in social programs and hurt the neediest Californians."."
• Jon Fleischman, a Republican Party of California vice-chairman and website publisher, said, "At the end of the day, what voters need to understand is to put this plan on the ballot, the Legislature passed the largest tax increase in California history."
• Paul Hogarth, the managing editor of "Beyond Chron", an online website that primarily covers San Francisco news, said of Prop 1A, "A spending cap would give California a permanent fiscal straitjacket - which is precisely what the right-wing extremists in the legislature have always wanted."

Donors against 1A

$5,749,186 was reported donated to the campaign in opposition to Proposition 1A, with an additional $165 of reported independent expenditures.

Donors of $200,000 or more were:

Donor	Amount
California Faculty Association	$2,489,902
California State Council of Service Employees	$1,284,753
No New Taxes	$829,276
California Federation of Teachers	$517,676
AFSCME and AFSCME-California $465,550	$300,550

Polls

See also Public opinion polling for all May 2009 statewide ballot propositions

• A January 2009 poll by the Public Policy Institute of California indicated that more than 70% of voters believe the state should cap future spending increases.

• The Field Poll conducted a public opinion research survey between February 20 and March 1 on Proposition 1A and the other five budget-related measures that will appear on the May 19 ballot. A Sacramento Bee story reported that the poll question on Prop 1A "omitted the fact that it would trigger $16 billion in tax hikes.",

• The Los Angeles Times reported that when those polled were told that Prop 1A extends the tax increase, support dropped from 57% of likely voters to 34% of likely voters.

• A Public Policy Institute of California poll that concluded in late March showed declining support for Proposition 1A.,

• On April 20-21, SurveyUSA conducted a poll of 1,300 California adults for KABC-TV Los Angeles, KPIX-TV San Francisco, KGTV-TV San Diego, and KFSN-TV Fresno. 15% of the registered voters they spoke with had already cast their vote. They concluded that for Proposition 1A, "support is flat, opposition is up, particularly among men and Independents."

• Field conducted a second poll between April 16-26 that indicates that "voters strongly oppose" five of the six budget measures on the May 19 ballot, including Prop 1A. According to Field Poll Director Mark DiCamillo, "The majority of voters just doesn't believe what is being sold to them. The skepticism extends up and down the ballot. Voters feel the Legislature isn't doing its job, hasn't been able to work with the governor and is just passing these things on to them."

• PPIC conducted its second poll on the propositions between April 27-May 4. This poll shows support for Prop 1A down to 35%. Worse news, from the point-of-view of supporters, is the poll's finding that "the more voters learn about the measures, the more likely they are to want to vote them down."

• A SurveyUSA poll conducted between May 8-10 of 618 "likely and actual" voters for CBS 5 KPIX-TV showed 1A failing by 17 points.

Date of Poll	Pollster	In favor	Opposed	Undecided
February 20-March 1	Field	57 percent	21 percent	22 percent
March 10-17	PPIC	39 percent	46 percent	15 percent
March 11-12	SurveyUSA	27 percent	29 percent	44 percent
April 20-21	SurveyUSA	29 percent	42 percent	29 percent
April 16-26	Field	40 percent	49 percent	11 percent
April 27 - May 4	PPIC	35 percent	52 percent	13 percent
May 8-10	SurveyUSA	38 percent	51 percent	11 percent
May 15-17	SurveyUSA	32 percent	57 percent	10 percent

Editorial opinion

"Yes on 1A"

Newspapers endorsing a "yes" vote on Proposition 1A included:

• The Los Angeles Times, which wrote, "...we cannot be as cheerful as the campaign ads that began running last week...but the good outweighs the bad....A larger reserve, with restrictions on when money could be released to pay for new programs, would help protect California from the kind of budgeting disaster that hit last year and will linger at least into next year."

• The San Francisco Chronicle, which said Proposition 1A, "Buffers California's budget against boom-and-bust economic cycles by channeling 3 percent of general fund revenues into a 'rainy day' account each year"

• The Santa Cruz Sentinel wrote that they "support 1A because by eliminating swings in state revenue, it will end the budget crises endangering vital services year after year"

• The Modesto Bee said "If voters choose wisely, they could help close the state's deficit, an essential step for selling bonds, investing in public works and helping to stimulate the economy."

• The Fresno Bee said that a vote in favor of Prop 1A is important and that "If you think it would be better to allow the state to go off the financial cliff, you are living in a fool's world."

• The Mercury News, which said, " Tuesday's ballot measures were designed to get the state out of an immediate crisis and to provide services residents need and demand."

• The Ventura County Star, which said, "Because the budget shortfall is currently so large, continuing the increased taxes for an additional two years will help California get through these tough times."

"No on 1A"

Media endorsing a "no" vote on Proposition 1A included:

• The San Diego Union-Tribune, which said, "We offer three compelling reasons to reject it. The first reason is the grossly dishonest, ends-justifies-the-means manner by which the Sacramento political establishment is trying to force Proposition 1A down voters' throats... The second reason is the high likelihood that Proposition 1A wouldn't achieve its ostensible goal of forcing the state to live within its means... The third reason to reject Proposition 1A is to send a message to the Sacramento political establishment that voters are fed up with its trickery – the same lesson the establishment should have drawn from the 2003 recall election but didn't."

• La Prensa San Diego, which said, "Instead of looking for the easy way out by adding more taxes onto the working man, our State Legislatures need to go back to work and close obvious corporate and rich tax loop-holes."

• The North County Times, which said, "The state's broken fiscal system desperately needs reform, not the complex and expensive "kick the can down the road" these measures provide. The argument that this is the best voters can hope for, given the Legislature's irresponsibility in budgeting, isn't an answer."

• The Santa Clarita Signal, which said, "The Legislature should be setting aside money for a rainy day. But it should be doing it with windfall tax dollars such as the surplus revenues it received during the dot-com bubble — not with a tax hike in lean times."

• KSBW-TV, which said that Prop 1A and 1B are "no more than a hocus-pocus twosome of unintended consequences waiting to happen."

• The Clarion Online, a student newspaper at Citrus College, which said, "Linking the two propositions [1A and lB] to pressure voters into passing 1A, along with hiding the idea of more taxes is unacceptable behavior on the part of our state government."

• The Taft Independent, a weekly community newspaper located in Western Kern County, which said, "We suggest that the State of California is in big trouble, not so much because we have such huge deficits and massive debt. It’s because we lack leadership in the legislature or the Governor’s office. California is suffering from an existential lack of leadership." www.taftindependent.com

Path to the ballot

The California State Legislature voted to put Proposition 1A on the ballot via Senate Constitutional Amendment 13 of the 2007–2008 Regular Session (Resolution Chapter 144, Statutes of 2008) and Assembly Constitutional Amendment 1 of the 2009–2010 Third Extraordinary Session (Resolution Chapter 1, 2009–2010 Third Extraordinary Session).

Votes in legislature to refer to ACA1 to ballot
Chamber	Ayes	Noes
Assembly	74	6
Senate	30	8

Votes in legislature to refer to SCA13 to ballot
Chamber	Ayes	Noes
Assembly	64	6
Senate	39	0

Six Republicans in the California State Legislature, who became known as the Sacramento Six, negotiated Proposition 1A onto the ballot in exchange for agreeing to a two-year extension of new tax increases so that the new taxes will be in effect for up to four years. The increased taxes would be on gas, income and vehicles.

Reportedly, the rationale for the agreement was:

• Unions who would otherwise fight a spending cap will agree not to fight it, in exchange for the temporary tax increases. Dan Schnur, a former Republican strategist, said, "Three years of tax increases are a pretty good bribe to keep the unions from running a 'no' campaign."
• Fiscal conservatives, who would otherwise fight the tax increases, would agree not to in exchange for the future spending caps.

The overall strategy included Proposition 1A in particular, which was tied to Proposition 1B, a promise to schools that they will receive $9.3 billion beginning in 2011-12. Reportedly, this was to discourage teachers unions from opposing the spending limit.

External links

Center for Governmental Studies Review of Prop 1A

Basic background information:

• Official Voter's Guide to Proposition 1A
• PDF of the mailed May 19, 2009 voter guide for Proposition 1A
• May 19, 2009 ballot proposition election returns
• Proposition 1A in the Smart Voter Guide
• Analysis of Proposition 1A from the Institute of Governmental Studies
• Guide to Proposition 1A from the California Voter Foundation
• Summary of donors to and against Proposition 1A from Cal-Access
• Donors for and against Proposition 1A from Follow The Money
• Text of Senate Constitutional Amendment 13
• California Secretary of State's announcement about May 19 ballot measures

Studies:

• Interview with economist Ben Zycher
• What would Proposition 1A mean for California's Future?, an analysis by the California Budget Project

Advocacy websites (yes):

• Budget Reform Now, official website in favor of Prop 1A (archived)
• Campaign finance reports of Budget Reform Now

Advocacy websites (no):

• No on Proposition 1A
• Californians Against New Taxes
• The New California Tax Revolt, official website opposing Prop 1A
• Spending Cap. Unaffiliated mobilization to oppose Prop 1A
• "No on Prop 1A" Facebook Group
• California League of Women Voters
• Vote No on 1A

Additional reading:

• Daniel Weintraub: Right, left united in opposition to Prop 1A, March 8, 2009.
• It's back to the drawing board if budget propositions lose, March 17, 2009.
• What is voters reject the May 19 props?, March 12, 2009
• Margaret A. Bengs: Proposition 1A's passage would open doors to more taxation, April 24, 2009
• Proposition 1A is another bad deal for California, April 26, 2009
• Prop 1A asks voters to save for rainy day
• Strange times for Democrats looking at May 19 vote
• Budget fixes cut huge rift
• Voters wary of Prop 1A measure to cut spending
• Proposition 1A would limit spending but keep tax hikes
• State's future at stake in May 19 vote
• Los Angeles Times on the ballot measures