Prop. 46 Would Shift Power of Purse Back to the People
With interest rates falling to numbers not seen in years, Californians are reveling in fresh evidence of the benefits of being able to borrow money at a lower cost.
Proposition 46 on Tuesday’s ballot offers a way to increase those benefits where tax dollars are involved. With it comes a chance to help put school buildings, streets and other essential facilities into good shape.
Proposition 46 is a state constitutional amendment to allow local governments, with local voter approval, to once again use lower-cost, traditional general-obligation bonds.
By blocking voters from pledging property-tax revenue for local debt, Proposition 13 had a side effect of leaving local governments without an economical borrowing tool.
The bonds that Proposition 46 would make usable again are a lower-cost way to borrow than with lease-revenue bonds or other new financing devices.
General-obligation bonds are a familiar workhorse. Lenders feel safer with them because they are secured by property values, not by project revenue. In addition to lower interest cost, general-obligation bonds are less expensive to taxpayers than are lease-revenue bonds because:
--Bond security eliminates the need for added borrowing for the large reserve fund required in revenue-bond financing.
--Less legal and accounting work is needed.
--Repayment can begin immediately from tax revenue; no extra funds need be borrowed to make interest payments from construction start until project revenue results.
--More competing bidders bring lower interest costs; commercial banks are prohibited by law from revenue-bond trading.
The investment firm of Paine Webber Inc. estimates that by using general-obligation bonds instead of lease-revenue bonds on a $10-million project, there would be a saving of $3.2 million over the life of a 20-year loan.
That amounts to $160,000 a year. If the money is freed for other government purposes, it could pay for three dozen lifeguards for a summer’s work on Los Angeles County beaches or almost three full-time police officers in the City of Los Angeles.
Proposition 46 carries added benefits for new home buyers, who are better off paying for their schools, streets and sewers through general-obligation bonds via their property tax than through fees built into their mortgage or charged separately. Proposition 46 would give taxpayers a greater say in project decisions. General-obligation bonds must be authorized in advance on a project-by-project basis by two-thirds of the local electorate.
In 1980 voters defeated a similar proposition to restore general-obligation bonds. The opposing ballot argument raised fears that the bonds could be used to purchase personal property. No opposing ballot argument was submitted on Proposition 46. Its language carries a triple taxpayer safeguard: bond money could be spent only on real property; borrowing could not be done to meet operating expenses, and no bonds could be issued without approval of two-thirds of the voters.
Proposition 46’s language was approved by the Legislature with only four negative votes out of 120. Although Gov. George Deukmejian has not announced endorsement, the budget that he presented in January stated support. Business and labor are united behind Proposition 46.
Conservative economics writer James Ring Adams, in a 1984 book praising Proposition 13, admits that “one of Proposition 13’s most serious weaknesses was its practical prohibition of general-obligation financing, which reduced the funds available for maintaining infrastructure.”
Some believe that the 1980 proposition failed because it came too soon after Proposition 13. They speculate that the voters were suspicious of any change to the landmark local tax initiative.
But voters approach every election somewhat suspicious of all propositions--tax-related or not. Since 1978, voters have approved and rejected statewide tax-cut proposals. They have approved and rejected amendments fine-tuning Proposition 13. During this time they have gained experience with the new property-tax system and the government services being provided under it.
In Proposition 46, Californians will be voting on restoring their power to decide locally for themselves whether to authorize a project and pay for it.
If they vote yes, they will be acting on a theme at the political core of Proposition 13--the shift of the power of the purse from the politicians to the people.
Proposition 46 is the right combination of tax control, local control and response to the need to fix, build and rebuild the public works essential to the state’s economy and the health and well-being of its citizens.