Pete recommends:
Proposition 1: $11B Bonds for Affordable Housing – YES
Summary: $10 billion in bonds to kick-start housing construction in California, plus $1.25 billion to reseed the marvelous CalVet Home Loan program at no net cost to the state. Most of the $10 billion will provide low-interest loans to local governments and developers to build and renovate rental housing, with a requirement to reserve units for low-income renters. These loans will enable more housing projects to pencil out and actually get built, slowly easing our housing crisis.
See My Semi-biennial Lecture on Bonds, below, for my opinion of bonds in general.
Details: coming soon
Proposition 2: Double Size of Rainy Day Fund – YES
Summary: Revenue from state income taxes fluctuates wildly year-to-year, depending largely on capital gains from unpredictable real estate and stock markets. In 2014, after a series of grisly budget crises, voters wisely approved a strong “rainy day fund” to hold reserves deposited in high-revenue years for use in lean years. The rainy day fund currently tops out at 10% of the size of the General Fund. Prop 2 would double that to 20%. Given the enormous volatility in recent income tax revenue (down 18% in 2020, up 73% in 2021, down 34% in 2023, up 28% in 2024), this is eminently sensible.
Details: coming soon
Proposition 3: Make Permanent the Tax on High Incomes – YES
Summary: In 2012, voters increased state income taxes for high earners, making our tax system less regressive. The increase affects only the Top Two Percent: those with taxable incomes above $743,000 (for joint filers; half that for single filers). But the increase is temporary, set to expire in 2030. If that happens, roughly the top third of taxpayers, with incomes above $145,000, will all pay the same marginal rate, moving us closer to a regressive, flat income tax. Prop 3 will prevent the increase from expiring, ensuring that high earners continue to pay their fair share. The impact on the state budget will be significant: continuation of a revenue stream on the order of $10 billion annually, directed to education, healthcare, and other vital programs.
Details: coming soon
Proposition 4: Public Campaign Finance – YES
Summary: Currently, public financing of political campaigns is banned in California, except in charter cities such as Los Angeles and Oakland. Prop 4 would allow (but not require) the state and local governments to enact public financing. To receive public funding, candidates would first have to prove their viability, and then abide by spending limits. Fourteen states and the District of Columbia have some form of public finance, and the results are worth emulating. Prop 4 will make campaigns less about fundraising and wealth (with its ever-present danger of corruption), and more about ideas, communities, and serving the people.
Details: coming soon
Proposition 5: Recall Election Reform – YES
Summary: If the Governor of California is recalled, Prop 5 would promote the Lieutenant Governor to be the new Governor. It’s vastly preferable to our current procedure for choosing a replacement: a free-for-all election on the same ballot as the recall, with potentially hundreds of candidates; majority vote not required. The existing process encourages minority parties (looking at you, GOP) to instigate spurious recall elections, as they did in 2021, in an attempt to install their own Governor with a small fraction of the vote. We don’t need that circus again.
Details: coming soon
Proposition 37: Loans for Middle-Income Buyers of New Homes – YES
Summary: Provides low-interest loans to “middle-class” buyers of new homes, at no cost to the state. Buyers’ family income cannot exceed twice the median income in the area, and the purchase price must accommodate a conforming mortgage (e.g., maximum price of $1.04 million in Fresno or $1.56 million in San Jose). Buyers would put down 3% of the purchase price, the state would lend 17%, and the rest would be a conventional 80% mortgage. Buyers would repay the state at a rate that completely covers the state’s expenses, so Prop 37 won’t cost taxpayers a dime. By facilitating home sales, Prop 37 will help more owner-occupied homes get built, just as Prop 1 does for rental housing. A big win for everyone.
Details: coming soon
Proposition 38: $8.4B Bonds for Immunology Research – NO
Summary: A self-dealing “buy-a-law” subsidizing a single research lab to the tune of $4.2 billion, and other labs another $4.2B, likely providing negligible benefit for the state. Bond funding should always be for long-lived, tangible acquisitions such as buildings and infrastructure. But Prop 38 will squander interest-burdened bond money on salaries, chemicals, and other ephemeral expenses. It’s a serious misuse of bond funding and the initiative process itself.
See My Semi-biennial Lecture on Bonds, below, for my opinion of bonds in general.
Details: coming soon
Proposition 39: Voter ID – NO
Summary: Part of President Trump’s antidemocratic scheme to disqualify as many voters as possible, based on a pack of lies about purported “voter impersonation” and supposed lack of “public confidence and trust in the electoral process” (both quotes from the text of the proposition). There is absolutely no need for this destructive and wasteful measure.
Details: coming soon
Proposition 40: Billionaire Tax – YES
Summary: Imposes a one-time, 5% tax on the total assets of the roughly 200 Californians whose net worth is over $1 billion. If allowed to go into effect (a very big “if”), it could bring the state as much as $100 billion. The revenue will be used chiefly to offset $112 billion to $300 billion in cuts to Medi-Cal over the next ten years due to the heartless One Big Beautiful Bill Act. Prop 40 will let millions of Medi-Cal patients stay enrolled, averting a looming public health disaster. Billionaires, unlike the rest of us, have the means to avoid income taxes entirely, ducking their obligation to society. Is it fair to levy this wealth tax, leaving them with only $950,000,000 out of every $1 billion, so that millions of poor Californians can occasionally visit a health clinic? I’m thinking yes.
Details: Let’s talk small. There are about 200 billionaires in California. That’s not the top One Percent, or even the top Tenth of a Percent. In a state of 40 million people, it’s the top 0.0005 percent. (“The top five ten-thousandths of a percent” makes a great tongue twister!) That’s who we’re arguing about here. They’d all fit into one movie theater, or one Boeing 787 airliner, or the Enchanted Tiki Room at Disneyland.
Now, let’s talk big. It’s easy to think that a million and a billion are almost the same—just one letter different, right? But one billion is a very large number. Imagine someone wants to give away $1 million by donating one thousand dollars a day. It would take less than three years. But if they wanted to give away $1 billion at the same pace, it would take more than 2,700 years. It’s mind-boggling. Billionaires have an unbelievable amount of money.
A 2021 report in Pro Publica details how billionaires avoid income taxes in ways unavailable to mere centi-millionaires and the rest of us common folk. To pay their living expenses, billionaires don’t take high salaries or sell securities, which would be taxable. Instead, they use their massive assets as collateral for enormous loans, tax-free. For example, Oracle’s Larry Ellison reportedly has a $10 billion credit line, and Tesla’s Elon Musk $57 billion, all secured by shares. Yes, they must repay any loans, but the interest is deductible, actually reducing the billionaire’s tax liability. In this way, Carl Icahn was able to pay zero federal income tax in both 2016 and 2017 despite reporting a total adjusted gross income of $544 million, and Jeff Bezos paid zilch in 2007 on $46 million income. So please park your skepticism: billionaires can and do avoid paying their fair share.
And their federal tax obligation grows ever lighter, with new benefits such as the $30 million estate/gift tax exemption in the One Big Beautiful Bill Act (OBBBA). Considering all that, a 5% wealth tax may be the least we should be asking of them.
Now, let’s turn to Medi-Cal. Medi-Cal provides free and low-cost health coverage to low-income families and individuals, seniors, and people with disabilities. The program covers 14 million Californians—one-third of the population, including more than half of all children in the state. The program is not cheap. In fiscal 2024, it cost $156 billion, of which $95 billion came from the federal government.
Last year, the Republican-led U.S. Congress passed OBBBA, which cut federal funding of Medi-Cal by somewhere between $12 billion and $30 billion annually, revoked eligibility from certain immigrants, and required many enrollees to work or study. The net impact is that 1.4 million Californians are expected to be fully kicked off of Medi-Cal, and another 2.1 million will have their benefits severely reduced. These people will no longer receive regular checkups, vaccinations, or health care for common ailments. Routinely treatable infections will become life-threatening emergencies, and manageable chronic conditions will spiral out of control. As a last resort they will show up at ERs, where treatment is far more expensive than preventive care. I’ve given up trying to understand why supporters of OBBBA think this is a good thing.
Prop 40 hopes to prevent the worst of this from happening by raising cash from California’s billionaires. Prop 40 will impose a one-time, 5% tax on the total assets of all billionaires in the state. Taxpayers would have a choice of paying it all in one lump sum or spreading payments over five years, at an additional cost of 7.5% of the remaining balance each year. The tax could raise as much as $100 billion, depending on who you ask. It will be enough to forestall the looming public health disaster for at least a few years. As a bonus, Prop 40 will also put a small dent in the problems of wealth inequality and tax avoidance.
Prop 40 specifies how the Billionaire Tax will be spent: 90% to backfill federal Medi-Cal cuts, and 10% for education, food assistance, and administration. If the tax were to be collected regularly, I’d denounce it as budgeting by ballot box; I loathe such measures because they lock down budget priorities permanently in an ever-changing state. But Prop 40 isn’t budgeting by ballot box, because it’s one time only; after it’s been collected and spent, it won’t lock down anything.
Still, there are valid reasons to oppose Prop 40. For starters, it may not work. There’s a strong chance courts will invalidate the tax. Jared Walczak of the Tax Foundation lists at least seven constitutional vulnerabilities in the law, from the retroactive residency date to excessive fines on appraisers who undervalue assets. Even if none of these challenges succeeds, litigating them would delay collection of the tax, potentially for many years.
Prop 40 may spur the ultra-wealthy to leave California, depriving us of their state income tax payments every year. Several high-profile billionaires have already departed. How painful would that be? The Legislative Analyst guesses lost revenue would total under $1 billion per year (i.e., less than 0.4% of a $250 billion General Fund). But remember how billionaires are able to avoid income taxes? If they’ve been doing that, then the departing income taxes would add up to only a small fraction of that estimate. So this could just be scaremongering.
Prop 40 would enact the first wealth tax in the nation. While it’s limited to a one-time levy on about 200 people, some argue it would open the door to more such taxes, applied more often to more taxpayers. I can’t say this is an unfounded concern. But in this case, this year, the threat to our public health is so dire that I’m willing to tolerate the risk.
How you vote on Prop 40 may depend on how you think it will play out. What does your crystal ball say?
- Will the Billionaire Tax be killed by the courts? What do Neil Gorsuch and Amy Coney Barrett think?
- If it survives, how much will the Billionaire Tax actually collect? Would it be zero, $20 billion, $100 billion, or more?
- Will the money collected be enough to close the Medi-Cal gap?
- Will billionaires find ways to duck the wealth tax just as they duck the income tax today?
- How many billionaires will flee the state? How much will that cost the General Fund every year?
- If Prop 40 passes, will it truly be a one-off, or will it be the first of many wealth taxes? If there’s a next one, will it still apply just to billionaires, or will it expand to ensnare more—or all—taxpayers? Could it become a standard part of taxation?
Here’s what I see in my crystal ball. If Prop 40 passes, it will instantly be challenged in court and put on hold. No wealth tax will be collected while it’s being litigated, which will take at least three years. In the meantime, hundreds of thousands of Californians, shut out of Medi-Cal, will be unable to get routine medical treatment, as supporters of OBBBA take a victory lap. Curable illnesses will linger and cause permanent damage, and people will die unnecessarily. The state government will do what it can to fill the gaping budget hole, but millions will lose coverage anyway. Eventually, the Supreme Court will strike down Prop 40. By then, either the public will have become accustomed to third-world healthcare for a substantial portion of our populace, or Congress will have come to its senses and restored Medi-Cal funding; my crystal ball is foggy that far out.
If the near-term outlook is so ominous, and the long-term so iffy, then why do I bother supporting Prop 40 (and droning on about it for so long)? Because these are desperate times. The administration in Washington has made a priority of dismantling the social safety net, with disastrous consequences for the most vulnerable among us. Under these circumstances, I’ll grasp at any solution, no matter how unlikely. And even if the Billionaire Tax never collects one penny, we voters will have sounded the alarm about healthcare and wealth inequality. It’s worth a try.
Postscript: You may have noticed that Prop 40, which I support, is sponsored by the same healthcare workers’ union that sponsored Prop 44, which I abhor. Despite their shared lineage, the two measures are very different. Prop 44 is the residue from a failed attempt to boost union membership; it persists now only as a kind of spiteful parasite. Prop 40, on the other hand, is a serious response to a real threat to the union. If Medi-Cal provider payments plummet, then healthcare clinics will be forced to lay off significant numbers of staff, including many union members. Prop 40, by mitigating Medi-Cal cuts, will preserve existing union jobs. From that standpoint, the fact that Prop 40 would also protect the health of many thousands of Californians is, I suppose, a happy side benefit.
Proposition 41: Thwart the Billionaire Tax, Part 1 – NO
Proposition 42: Thwart the Billionaire Tax, Part 2 – NO
Summary: Regardless of how you vote on Prop 40, you should definitely vote “no” on the countermeasures, Props 41 and 42. They are poison pills designed to kill the Billionaire Tax forever, but they would have detrimental impacts far beyond that. Prop 41 would invalidate any tax which is excluded from the Appropriations Limit, while Prop 42 would prohibit wealth taxes and retroactive taxes. These measures would straitjacket the Legislature if some future emergency requires tapping these capabilities, even temporarily. Both measures have mouthwatering candy coatings to induce unwitting voters to swallow them. Stop drooling. If you oppose the Billionaire Tax, then vote against Prop 40. But don’t restrict how the state can tackle future crises.
Details: coming soon
Proposition 43: Close the “Upland Loophole” on Local Taxes – NO
Summary: Prop 218 of 1996 requires that special taxes (i.e., taxes that fund specific programs) must be approved by a two-thirds vote of the electorate. But in 2017, the state Supreme Court ruled that special taxes proposed by initiative can be approved by simple majority. That case was California Cannabis Coalition v. City of Upland; hence the Upland Loophole. Prop 43 would effectively reverse the court’s decision, requiring a two-thirds vote of the electorate to enact, extend, or increase local special tax initiatives. There are many good reasons to oppose Prop 43. I like the argument that two-thirds of voters will approve a special tax only when there’s an urgent crisis, which will be far more damaging and expensive to fix than if it had been prevented earlier by a simple majority who care about the public good.
Details: coming soon
Proposition 44: Require Clinics to Spend 90% on Healthcare – NO
Summary: Remember those nuisance propositions about dialysis clinics a few years back? Prop 44 is a tired retread of those, this time targeted at community health clinics in medically underserved areas. More extortion than legislation, this measure was intended to be withdrawn before the ballot was finalized in exchange for boosting union membership at certain clinics. But negotiations broke down, and here we are. There is no reason anyone should vote for Prop 44.
Details: coming soon
Proposition 45: Speed Up Environmental Reviews – NO
Summary: Not what you think it is. Prop 45 would speed up approval of most housing, transportation, water and health projects by imposing time limits on environmental reviews and lawsuits that occur under CEQA, the state’s environmental review law. At first glance, it appears to be a straightforward battle pitting developers and YIMBYs, who want to reduce obstacles to development, against environmentalists, who want to preserve the existing process. But that’s a smokescreen; YIMBY and environmental groups don’t seem to care. Instead, Prop 45 is actually a clash between developers, who want cheaper labor for housing projects, and construction worker unions, which want to preserve their leverage. Regardless of how you feel about that fight, it shouldn’t be decided by a ballot measure, especially one where voters misunderstand the question. This issue belongs in the Legislature, which can (and regularly does) fine-tune CEQA to fit current conditions.
Details: coming soon
My Semi-Biennial Lecture on Bonds
When California wants to finance a large project, it asks voters for permission to take out a loan. Props 1 and 38 on this ballot are just such requests. If voters approve, the state may take out loans for the projects by selling general obligation bonds, which are paid back with interest over 20-30 years. The bond payments come out of the state’s main budget, the General Fund. So when we vote on bond measures, we are really voting on whether the projects in question ought to be added to the state’s budget.
“Wait a minute!” I hear you cry. “What about those interest payments? Won’t we end up paying more for interest than for the bonds themselves?” This may once have been so, but at today’s rates, each dollar of bond money will cost only fifteen cents in interest, accounting for inflation. (See details on p. 80 of your ballot pamphlet.)
“Okay,” you admit, “but loans are still more expensive than pay-as-you-go.” This is true. Still, loans are the only way to buy a house, or a car, or anything else that you need immediately but can’t pay for yet. It’s worth paying the premium of interest to get the funding now.
“Well and good,” you continue. “But there are $18 billion in bonds on this ballot. Isn’t that too much to borrow?” For you, yes, but the State of California can handle it. Bond payments today amount to about 3% of the General Fund, down from a high of nearly 6% sixteen years ago and below the historical average of 4%. Props 1 and 38 would increase it to about 3.5%, still within reasonable limits.
The bonds on this ballot fund long-lived, tangible acquisitions, such as apartment buildings, water and sewage infrastructure, and college dorms. It’s sensible to make extended payments for things that will be used far into the future.
[Here I depart from the usual lecture:] It is not sensible, however, for bonds to fund operational or transient expenses such as lab administration, research staff salaries, consumable goods, and other indirect costs, as Prop 38 proposes. Prop 38 is a flagrant violation of sensible bond-use principles. For this reason and others, I oppose Prop 38. [End of departure.]
Remember, too, that California’s population continues to grow by millions every decade. (Yes, there was a brief lull after the pandemic, but that’s over. This is still the best state to live in, and everyone knows it.) Borrowing makes particular sense if you know your income will go up in the future. As the state grows, over time the General Fund will grow too.
There is one last reason to vote for a bond measure. In addition to being formal requests for permission to take out loans, bond measures are also looked upon as referenda on the merits of the proposed projects. If a bond measure fails, legislators are likely to believe that the public feels the project is not worthy of receiving state funding. By voting no, you may have meant, “Yes on the project but no on the bonds,” but your message to Sacramento will read, “No on the project.” So if you vote down a bond measure just because you don’t like bonds, you may well have killed forever the project the bonds were to have funded.