Proposition 2: Yes
by Max Dubler
Introduction
To reduce housing costs, we need to reduce local fees. That requires state revenue reform.
California YIMBY has found substantial success reforming many of the barriers to housing growth in our state. From zoning reforms, to ADUs, to parking reforms, our land use agenda is making progress in Sacramento, and across California.
But land use reform is just one leg of the housing abundance stool. We also need to bring down costs, where we can – and one of the remaining barriers are exorbitant fees that local governments charge to builders of new homes.
That’s why we’ve turned our attention toward addressing the cost issue. Local “impact fees” for new housing are a significant cost driver in many jurisdictions, with parks fees alone sometimes adding tens of thousands of dollars to the cost of building a new home. While we have been able to require fee transparency, delay the payment of fees until a building is completed, and trim some fees for ADUs, our attempts at directly reducing fees have not been as successful as our work on zoning and permitting – because the state legislature is reluctant to limit local governments’ ability to raise revenues. Further, our social housing pilot was vetoed explicitly on fiscal grounds.
California YIMBY supports replacing the current impact fee system with direct state-to-local transfers. Doing this will require significant financial flexibility at both the state and local level.
Proposition 2’s changes to the way the state government collects revenues will help create this flexibility, making it more likely that we can fund infrastructure needs through general fund revenue, rather than with fees that drive up the cost of new housing.
Analysis
What is the Gann Limit, and Why Does it Matter to Housing?
In 1978, California voters passed Proposition 13, which limited property tax growth.The following year, anti-tax activists put tight limits on government spending as well. Proposition 4, the “Spirit of 13” Initiative, created the State Appropriations Limit (SAL). The SAL, which is commonly known as the “Gann Limit” (after Paul Gann, the anti-tax activist who wrote Prop 4), caps per-capita California state and local government spending “derived from taxes” at the 1978-79 level.
However, certain types of spending are exempt from the Gann Limit – notably, spending on capital projects and infrastructure, which includes housing.
In any year that the state collects tax revenue in excess of the Gann Limit, the state constitution requires that this money either be appropriated for purposes exempt from the Limit (capital projects), or split between taxpayer rebates and additional K-12 and community college district spending.
The state is limited in its ability to save money in flush years because payments into the state’s “rainy day fund” are counted against the Gann limit in the year they are deposited, not the year they’re withdrawn.
Further information on the Gann Limit: FAQ from the California Budget and Policy Center, long explainer from the Legislative Analyst’s Office.
What is the Budget Stabilization Account?
California has a variety of savings accounts that the state uses to stabilize the budget during recessions and other periods of low government revenues . One of these is the Budget Stabilization Account (BSA), often referred to as the “rainy day fund.” The BSA is limited to 10% of General Fund tax revenues.
Payments into the BSA are mandatory under Proposition 2 (2014) and are counted as appropriations under Prop 4, which means they are subject to the Gann Limit in years when the money is deposited, not when it’s spent.
Money in the BSA can only be spent if the Governor proclaims a budget emergency; and lawmakers can only spend up to 50% of the fund in the first year of an emergency.
How does Prop 2 help address these issues?
Prop 2 helps resolve the challenges posed by the Gann limit and its impact on the BSA. It:
- Doubles the allowable size of the BSA from 10% of expected General Fund tax revenues to 20%.
- Changes when BSA and other rainy day fund money is counted against the Gann Limit. Instead of being counted the year it’s deposited, it will be counted the year it’s withdrawn and spent. In other words, it would stop treating savings deposits in higher-tax-collection years as spending for the purposes of the spending cap.
- Increases BSA deposits by changing the deposit formula.
- Provides that the Governor’s May budget revision constitutes a proclamation of a budget emergency when the conditions for one exist.
What does California YIMBY think of this?
This is basic good governance that will give state and local governments fiscal leeway to make important investments. It also positions the pro-housing movement to find a source of replacement funds for local fees that are currently used to fund local services and amenities, like parks and safe streets improvements.
By moving these fees off the backs of new housing, and into the state general fund, we can spread the cost of public amenities across the entire public – where they belong.