Two “repeal” ballot measures shaping California’s policy future this November

Two statewide ballot measures this November represent microcosms of the two largest policy issues facing future of California — taxes and housing. Both are invoking a repeal to existing law, which adds some slight nuances to the issues at hand.

Taxes: Repeal of Gas Tax

The first, and most well known, is the repeal of SB1 which the state legislature adopted last year to raise the state gas tax and tie it to inflation (something it doesn’t currently do) into the future. Data clearly shows how much we have been under-investing into transportation infrastructure (same story at the federal level) as revenue from the gas tax has not been adjusted from its fixed rate since 1994. Last year, Jerry Brown, in his final term as governor, prodded the legislature to act on this — and they did. SB1 raised two different taxes on gasoline sales and increased the vehicle registration fee for all vehicles, with a new fee for electric vehicle owners, who obviously don’t pay any gas taxes.

Now, roughly 12 months later, a Democrat who voted to support SB1 has already been recalled, the measure is polling at roughly 50% with a simple majority needed to pass the repeal, and the emergence of John Cox into the “top 2” race against Gavin Newsom will enable Cox to surf this repeal wave all the way to November.

As to the merits of the program, the infusion of dollars (roughly $50B over 10 years) will fund major highway and transit projects across the state designed to increase mobility, reduce congestion, and increase the flow of goods and commerce as major economic drivers for our state.

However, the bigger question here is whether we’ve reached our limits on state and local taxes in California. In many ways, governments are doing more with less from a service delivery standpoint. That’s because hiring and employee staffing levels have remained relatively flat since the 2008 recession, yet government budgets are now 20–40% higher in many cases. So, another way to frame things is that governments are taking more and providing less due to the rising overhead costs for our government workforce.

The implications of raising special fund revenue — in this case, a tax on gasoline sales to fund transportation infrastructure programs — increases the ability of the state to decrease its contributions to the same programs from the General Fund, which receives all our other taxes such as property tax, income tax, and sales tax. It’s a rather subtle shell game that all governments have been playing since the 2008 recession — and a trend which has been very hard to isolate as an issue into the mainstream dialogue/debate/media.

Housing: Repeal of Rent Control Limits

The second measure would repeal the Costa Hawkins Act, which establishes limits on local rent control ordinances in California. Costa Hawkins, adopted by the state legislature in 1995, was passed to slow the roll of some cities that had been adopting rent control laws at the time.

Costa Hawkins does three primary things:

1. Enables a landlord to raise rent to a market rate once a tenant moves out.
2. Exempts units built after February 1995 from any rent control policy.
3. Exempts single family homes and condos from any rent control policy.

A total of 15 cities currently have some form of rent control: Berkeley, Beverly Hills, Campbell, East Palo Alto, Fremont, Hayward, Los Angeles, Los Gatos, Oakland, Palm Springs, San Francisco, San Jose, Santa Monica, Thousand Oaks, and West Hollywood. (Amazingly, prior to 1995, a few cities including Santa Monica and West Hollywood had laws capping a unit’s rent even after a tenant moves out.)

In the midst of California’s housing affordability crisis, in which we have drastically under-built new units to add to our housing stock over the past 20 years, we are witnessing extraordinary burdens carried by renters in our population centers in California. These burdens have become particularly severe over the last 3–5 years.

While the benefits to renters from rent control are obvious, there are many, many studies that show how rent control reduces property values and also creates unintended negative impacts for renters over the long run by limiting the supply new of rental housing. In addition, rent control does not have an income/means test and disproportionately favors older generations over younger generations including young families.

This measure will thrust our housing crisis into the forefront of a statewide debate on housing policy solutions — with our largest and most impacted population from the housing crisis, renters, as the focal point.

Notably, both candidates for governor, Democrat and Republican, are not supporting the repeal to Costa Hawkins.

Other Measures

A third measure likely to qualify will ask voters whether seniors can carry their current property tax payments (and their implied tax rate) into new home purchases. This measure is a consequence of Prop 13 many decades later. Under Prop 13, homeowners who stay in the same home for decades end up paying a fraction of the property tax that a new home buyer would pay for the exact same home in the exact same area.

The measure is funded by realtor associations, who stand to gain from increased turnover in home sales. It will likely be critiqued first for its impact to state and local government budgets. But it may also bring into focus the generational inequities that Prop 13 has created over time for younger homeowners who are now heavily subsidizing the property tax burden of their elders. Should we really continue to subsidize the property tax burden of our older generations, who have already accrued substantial benefits from Prop 13 over time, while simultaneously risking cuts to government budgets?

And perhaps the most distracting, and ludicrous, measure will be the 3 Californias proposal. It’s very likely unconstitutional, anyway, which means it will be an extraordinary waste of time, energy and resources to entertain on the ballot. Those signature gatherers really cashed in.