Prop 41: Requires New Audits of Special Tax Programs

Olivia Allen-Price: You’re going to see a lot about taxes on this year’s ballot.

Ericka Cruz Guevarra: Yesterday we talked about Prop 40, which would be a one-time tax on billionaires. If you haven’t listened to that episode yet, I suggest you go give it a listen, because today we’re dropping episodes on Props 41 and 42. And both of those are related to Prop 40.

Olivia Allen-Price: Now, Prop 41 would require more audits on the programs that are funded by special taxes. Is it good governance or red tape meant to make it harder to pass new taxes?

Ericka Cruz Guevarra: This is how Prop 41 reads on your ballot, and just a warning, it’s pretty wonky.

Voice Over: Prohibits new state taxes that exclude revenues from state spending limit. Requires audits for new state special taxes.

Ericka Cruz Guevarra: I’m Erika Cruz Guevara, host of The Bay.

Olivia Allen-Price: And I’m Olivia Ellen Price, host of Bay Curious. You’re listening to PropFest, our special series that goes through the statewide propositions on your ballot. They can be so confusing and consequential. 

Ericka Cruz Guevarra: We’ll explain the ins and outs of each one in hopes that you feel confident in your vote, no matter which side you come down on.

Olivia Allen-Price: Here to walk us through Prop 41 is KQED political correspondent and co-host of the podcast, Political Breakdown, Marisa Lagos. Welcome, Marissa. Hey. So the language of Prop 41 sort of sounds like gobbledygook to some voters. And we will straighten that out pretty soon. But maybe before we dive into all those specifics of this ballot measure, give us some context about who put this on the ballot and why.

Marisa Lagos: Yeah, this was placed on the ballot, essentially by the billionaires who were opposing Prop 40. That’s the billionaire tax. And both Prop 41 and another measure, Prop 42, were written after the billionaire proposal was already out collecting signatures. So they were crafted really as an attempt to undercut that ballot measure. And so it’s kind of impossible to talk about them without talking about the billionaire tax and the billionaires who are trying to kill the tax. Got it. OK, helpful context. So now let’s get into what Prop 41 does. So Prop 41 has kind of three main provisions. The first one is it’s going to require ongoing audits of state programs that are funded by what’s called special taxes. So in California, when tax money comes in, most of it goes to the general fund. That is the main spending account that pays for K-12 schools and most of the things the state does. 

But, sometimes that revenue has been sort of written into law as a special tax, and those are earmarked for specific programs. You can think of something like the gas tax, which, you know, funds roads and infrastructure. That is not money that goes into the general fund. This measure says that before voters even weigh in on a proposed special tax they need to have an audit of what the money would be spent on. And then it requires ongoing audits in the future if a tax is actually passed. And so it’s being framed by proponents as a good government measure, right? This gives more transparency. Why are we spending billions of dollars in state money and not knowing where it goes essentially? Prop 41 has two other important provisions, and these are the ones that would conflict with the billionaire tax and potentially nullify them. And they both have something to do with the GAN limit, otherwise known as the state spending limit. This was a law put in place by voters in the 1970s, and it puts a cap on how much revenue the state can spend every year. It essentially says that if state revenues grow too fast, you gotta give some of that money back to taxpayers. Some special taxes are excluded from that limit, including the gas tax example. So one of the provisions in Prop 41 says new special taxes would all be subject to the state’s spending limit. So you can imagine if the billionaire tax passes and we have $100 billion in new spending, that would really increase the state revenue, right? So then the other provision prohibits the state from enforcing taxes that are not subject to the spending limit, so. Basically, either of these things would undercut Prop 40.

Olivia Allen-Price: Let’s dig in a little bit more on that first provision about the audits, because there is a state auditor whose job is to audit what are they doing, are these new audits necessary?

Marisa Lagos: Yeah, I think opponents would say they’re not. You do have the ability of the legislature to request an audit of anything that they vote to. And yeah, we have an auditor who very regularly looks at state agencies and programs and spending and comes out with reports based on what the legislature has decided are the priorities.

Ericka Cruz Guevarra: We need to take a quick break, but when we get back, more on Prop 41. If PropFest is helping you out, let us know by supporting our work. Your donations help keep projects like PropFast going. Contribute at donate.kqed.org. And you can get some sweet podcast swag as a thank you gift.

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Olivia Allen-Price: Welcome back. We’re talking with KQED’s Marisa Lagos about Proposition 41, the tax audit prop. Marisa, let’s get into who supports and opposes this prop. First up, what does support look like?

Marisa Lagos: This was crafted by the folks who are opposing Proposition 40. It’s been largely funded by the same billionaires who are opposing that, again, sort of led by Sergey Brin. But a lot of familiar names here. 

Olivia Allen-Price: Names like Larry Page, who, with Sergey Brin, co-founded Alphabet, Mark Zuckerberg of Meta, Larry Ellison of Oracle, Jensen Huang of NVIDIA, mostly a who’s who of Silicon Valley.

Marisa Lagos: Yeah, but you also have folks like the California Chamber of Commerce, the California Taxpayers Association supporting this, and you know, these are groups that generally think that California spends too much money and have questions about whether it’s being properly spent. I mean, we’ve heard a lot of talk about this around homeless funding, right, in the governor’s race. Like, why are we spending billions of dollars and not addressing the underlying problem or making progress? So I think groups like the Chamber, the Cal Taxpayers Association, first of all, you know, just. Are pretty opposed to higher taxes and regulation, but also think that there would be some benefit in auditing all state spending, especially these special taxes, which, you know, arguably in some cases may not be getting sort of the scrutiny that they could. 

Olivia Allen-Price: Who is lining up against Prop 41 and why? 

Marisa Lagos: Yeah, so the opponents are the same groups that are supporting Prop 40 that put the billionaire tax on the ballot. So SEIU, HW West, the State Democratic Party. The California Federation of Labor Unions, they see this really as an attempt to undercut, to nullify the billionaire tax proposal and that it’s not really as much about good government as it is about that.

Olivia Allen-Price: So if Prop 40 and 41 were both to pass, how does that play out?

Marisa Lagos: On which one gets more votes. If Prop 40 got more votes, then it would stand and the only provisions of Prop 41 I believe that would take effect would be, you know, the audits and the spending limit. It would affect future special taxes, not this one. If 41 got more vote than 40, it would make it sort of unenforceable because so many provisions in 41 conflict with 40 and under California law, if something is on the same ballot together and they’re in a certain way, whatever gets more votes is kind of the law of the land. 

Olivia Allen-Price: But in the past, I know that’s gone to a judge, ultimately, to decide. Is that what would happen here, too?

Marisa Lagos: I think regardless of whether any of these pass individually, I believe that there will be court challenges.

Olivia Allen-Price: How do you think voters are going to be thinking about this suite of three props, proposition 40, 41 and 42? Will they be connecting them all and voting in one direction, or could it go like we’ve seen in the past, where sometimes you get this mixed message from voters on sort of opposing props? 

Marisa Lagos: I think that’s really gonna depend on how well the Yes on 40 campaign can draw a straight line between getting someone’s support and getting them to oppose these other measures. The billionaires and other folks who oppose the billionaire tax are not gonna wanna talk about Prop 40 when they talk about props 41 and 42. They wanna make these sort of just standalone good government measures. And so I think that’s sort of an outstanding question because you don’t have a traditional campaign against 41 and 40 too. Can the Yes on 40 folks really make clear in voters’ minds that these are all tied together, and even if you like some of the provisions of these other ballot measures, that by supporting them, you would essentially be casting another vote against the billionaire tax.

Olivia Allen-Price: When it comes to campaign spending, what are we seeing here?

Marisa Lagos: This one is very lopsided. We’ve seen the folks pushing Prop 41, yes on 41, raise more than 46 million so far. Most of that is coming from the same pack that is fighting the billionaire tax. It’s called Building a Better California. It was founded by Google co-founder Sergey Brin and other billionaires. And I think one thing that’s important to note is that We’re probably going to be seeing some crossover messaging. So a lot of the money being spent on the other ballot measures will also affect this one. 

Olivia Allen-Price: But sounds like really no spending on the no side.

Marisa Lagos: No, and I think what you’re seeing is really that these are sort of a combined campaign for the other side. The unions that are pushing the billionaire tax are also pushing back against 41 and 42, but there isn’t that same level of like an organized campaign against each of them, in part because these are good government measures that sound very good on their face. I think it’s not something that you have the same sort of coalition. Able to sort of raise money and stand up against the way you might in some other sort of more traditional fights between the business community and labor.

Olivia Allen-Price: Marisa Lagos is a political correspondent at KQED and co-host of the podcast, Political Breakdown. Thanks, Marisa. 

Marisa Lagos: It was my pleasure. 

In a nutshell, a vote yes on Prop 41 would create new rules about auditing state programs that would receive revenue from special taxes. It would also make new special taxes part of the state’s spending limit. A vote no means things would stay the same as they are now.

Ericka Cruz Guevarra: That’s it for PropFest today. This series is a collaboration between The Bay and Bay Curious podcasts. 

Olivia Allen-Price: It’s produced by Erika Cruz Guevara, Alan Montecillo, Ericka Cruz Guevarra, Gabriella Glueck, Pauline Bartolone, Katrina Schwartz, Christopher Beale, Anna Casalme and me, Olivia Allen-Price. 

Ericka Cruz Guevarra: We get extra support from Katie Springer, Jen Chien, Maha Sanad, Ethan Toven-Lindsey.

Olivia Allen-Price: You can find audio and transcripts for this series at kqed.org slash prop fest.

Ericka Cruz Guevarra: Support for the bay is provided in part by the Osher Production Fund.

Olivia Allen-Price: Some members of the KQD podcast team are represented by the Screen Actors Guild American Federation of Television and Radio Artists, San Francisco, Northern California Local.

Ericka Cruz Guevarra: I’m Erika Cruz Guevara. We’ll be back tomorrow with an explainer on Proposition 42, which aims to make it harder to create a wealth tax in California. 

Olivia Allen-Price: We’ll get into all that tomorrow. See you then.