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California Initiative Review 2026 EDITION Topics

Students

Proposition 1 Proposition 2 Proposition 3 Proposition 4 Proposition 5 Proposition 37 Proposition 38 Proposition 39 Proposition 40 Proposition 41 Proposition 42 Proposition 43 Proposition 44 Proposition 45

Nikki Adkins Sabrina Agaiby Robert Carter Grace Cimpan Andrew Dale Madison Datus Bryce Divine Adrienne Duarte Teddy Fagin Siena Giampaoli Dalton Mabery Marco Summariva Bella Valdivieso Sara Walling Brandi Waschau Rachel Yoas

University of the Pacific McGeorge School of Law | 3200 5th Avenue, Sacramento, CA 95817 | law.pacific.edu

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Andrew Dale J.D., University of the Pacific, McGeorge School of Law, to be conferred 2027 B.A., Political Science, Public Policy, University of California, San Diego, 2021 &

Sara Walling J.D., University of the Pacific, McGeorge School of Law, to be conferred 2027 B.A., Government, California State University, Sacramento, 2012

EXECUTIVE SUMMARY

Proposition 1 authorizes the sale of $11.25 billion in state general obligation bonds for housing programs, as outlined below.1 This includes $10 billion in general obligation bonds for various state housing programs to support a wide range of Californians and $1.25 billion that would support a home loan program for veterans, to be repaid by the veterans’ monthly loan payments.2 The California State Legislature placed the Veterans and Affordable Housing Bond Act of 2026, on the ballot through Senate Bill 417.3 Legislative Analyst’s Office: Proposed Uses of Bond Funds (in Millions) 4

Even though this proposition is presented as a single Bond Act, there are two different types of bonds that would be issued if Proposition 1 passes, and each has a different repayment structure. The $10 billion general obligation bond would cost the State $500–$600 million annually for roughly twenty-five years.5 This portion is estimated to cost less than one percent (.25 percent) of the State’s total General Fund budget.6 The State would also pay interest on the 1

Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs. Legislative Statute. (Nov. 3, 2026) at 2., https://perma.cc/HJW6-WMMD. 2 Id. 3 2026 Cal. Stat. ch. 16. 4 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 3. 5 Id. 6 Id.

bond, increasing its total cost by fifteen percent after adjusting for inflation.7 Monthly payments from participating veterans would be used to repay the $1.25 billion in veterans’ bonds, covering the State’s borrowing costs. Historically, these payments have always covered the amount owed on such bonds.8 A “YES” vote on this measure means: The State could borrow $11.25 billion to support veterans and affordable housing.9 A “NO” vote on this measure means: The State could not borrow $11.25 billion to support veterans and affordable housing.10 II.

THE LAW A. Historical Background on California’s Housing Crisis

California has the second lowest homeownership rate in the country.11 This is in large part due to the lack of construction of new housing in the State.12 California is a popular place to live; however, many of the sought-after locations in California do not have sufficient housing to accommodate all of the people who want to live here.13 Since 1980, home prices in California have increased by approximately 870 percent.14 In other words, a home that cost $100,000 in 1980 would cost about $970,000 today. California Housing Prices Over Time

Id. Id. 9 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 4. 10 Id. 11 Marisol Cuellar Mejia, Hans Johnson & Julien Lafortune, California’s Housing Divide, Pub. Pol’y Inst. of Cal. (Oct. 21, 2024) https://perma.cc/NK6W-AGFJ. 12 Legis. Analyst’s Off., California’s High Housing Costs: Causes and Consequences 5 (Mar. 17, 2015), https://perma.cc/B6XC-U73H. 13 Id. at 10. 14 Fed. Hous. Fin. Agency, All-Transactions House Price Index for California, Fed. Rsrv. Bank of St. Louis (Aug. 25, 2026), https://perma.cc/9LMJ-B8Y3. 8

Incomes have not kept pace with rising home prices, eroding the real purchasing power of potential buyers. While housing prices have risen by approximately 9.7 times since 1980, the median household income has increased by only about 4.8 times, from about $21,000 in 1980 to approximately $100,100 today.15 However, general inflation over the same period accounts for a roughly four-fold increase.16 This has resulted in home prices growing nearly twice as fast as incomes. As a result, soaring housing prices, coupled with families spending a higher percentage of their incomes on housing, have severely affected middle- and low-income families’ purchasing power.17 In recent decades, California has approached the problem of housing affordability for low-income Californians and those with unmet housing needs by subsidizing the construction of affordable housing through bond measures, like Proposition 1 (2026).18 Housing affordability and homelessness consistently rank as important concerns among Californians, with sixty-eight percent describing housing affordability and sixty-three percent describing homelessness as a big problem.19 In order to meet the housing demand, California needs to construct 2.5 million additional homes by 2030 and no less than one million of those homes must meet the needs of lower-income households.20 These 2.5 million homes must be built across the State to ensure that each locality meets its housing needs.21 The price of bottom-tier homes (homes valued in the 5th–35th price percentile range) in California has grown out of proportion to the national average. Today, a bottom-tier home in California is thirty percent more expensive than a mid-tier home (homes valued in the 35th–65th price percentile range) in the rest of the United States.22 As of March 2026, the cost of a bottomtier home in California was $472,000 and the average price of a mid-tier house in another state is $366,000.23 This means that the people most in need of housing are paying more for the cheapest homes in California than they would for an average-priced home in another state.

U.S. Census Bureau, 1980 Census of Population: General Social and Economic Characteristics, California (1983); U.S. Census Bureau, American Community Survey 1-Year Estimates (2024), Table S1901 (reporting California median household income). 16 U.S. Bureau of Lab. Stat., Consumer Price Index for All Urban Consumers (CPI-U), U.S. City Average, All Items, Series CUUR0000SA0, https://perma.cc/C4TR-VJJB. 17 Legis. Analyst’s Off., California’s High Housing Costs: Causes and Consequences, supra note 12, at 3. 18 Id. 19 Pub. Pol’y Inst. of Cal., Californians and the Housing Crisis, https://perma.cc/T4NC-CEKW. 20 Cal. Dep’t of Hous. & Cmty. Dev., A Home for Every Californian: 2022 Statewide Housing Plan (Mar. 2022), https://perma.cc/U3G4-T34A. 21 Id. 22 Legis. Analyst’s Off., California Housing Affordability Tracker (2nd Quarter 2026) (July 20, 2026), https://perma.cc/C8SF-5E9D. 23 Id.

California Housing Costs by Tier Compared to National Average

B. Prior Similar Bond Initiatives 1. General Obligation (GO) Bonds and Revenue Bonds Bonds allow the government to borrow money from investors to receive funding up-front for infrastructure projects, such as housing projects, and pay those investors back over time, usually over decades.24 GO bonds are required to be approved by the voters and are usually repaid from California’s General Fund, which pays for most state services, including schools, health care, and prisons.25 A GO bond works similarly to a home mortgage, where the State borrows a large sum of money now to pay for construction, then repays it with interest over many years from the General Fund. As demonstrated below, it is common for the State to fund home building and homeownership programs through bond initiatives.26 Revenue bonds are a different source of state funding. Instead of being repaid from the General Fund, revenue bonds are typically repaid with fees or other charges paid by users of the project they finance, such as toll bridges.27 Unlike GO bonds, revenue bonds do not require voter approval.28 Proposition 1 (2026) funding includes both GO and revenue bonds. Under Proposition 1, $11.25 billion would be issued as GO bonds, but the two components of the initiative would be repaid in different ways.29 The ten billion dollars for state housing programs

Legis. Analyst’s Off., An Overview of State Bond Debt (Nov. 3, 2026), https://perma.cc/C5XM-P5PL. Id. 26 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 1. 27 Legis. Analyst’s Off., Infrastructure Funding, https://perma.cc/88SL-AGSQ. 28 Id. 29 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 1–2. 25

would be repaid from the General Fund, like a traditional GO bond.30 The $1.25 billion for veterans’ home loans would be repaid by the veterans’ monthly payments on their loans, much like a revenue bond is repaid by the users of a project.31 Since the veterans’ bonds are still GO bonds backed by the full faith and credit of the State, the General Fund would cover any shortfall if veterans’ payments are ever insufficient.32 2. Proposition 1 (2018): Veterans and Affordable Housing Bond Act of 2018 In 2018, California voters passed another Proposition 1, the Veterans and Affordable Housing Bond Act of 2018.33 The initiative authorized a total of $4 billion in GO bonds, including $3 billion for various state housing programs and $1 billion in veterans housing loans.34 The funding for state housing programs included: (1) $1.8 billion in affordable multifamily housing programs to build or renovate rental housing; (2) $450 million in infrastructure programs to support building in urban areas and near public transportation; (3) $450 million in down-payment assistance programs; and (4) $300 million to build farm worker housing.35 There were no direct costs to taxpayers for the $1 billion in veterans housing loans because participating veterans repaid those loans. However, the various state housing programs were expected to cost $170 million annually for 35 years.36 In total, calculating for both the principal and interest, the estimated amount is $5.9 billion, which is roughly one-tenth of one percent of the State’s General Fund budget.37 The initiative passed in 2018 with 56.2 percent of the vote.38 Due to overwhelming demand, the funding for Proposition 1 (2018) was exhausted within 5 years of its passage.39 While the money was fully committed, only a little over half of the original three billion dollars in non-veteran housing bond money has been issued. There is still $1.36 billion in unissued bond money.40 Additionally, the State owes $1.46 billion in outstanding debt on the issued bonds.41 This means that the State has only paid off about $174 million of the principal.

Id. at 2–3. Id. 32 Cal. Proposition 1 § 2 (2026), https://perma.cc/5DDV-WMYK. 33 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds to Fund Specified Housing Assistance Programs. Legislative Statute 1 (Nov. 6, 2018), https://perma.cc/4L26-HTSW. 34 Id. at 3–4. 35 Id. 36 Id. at 4. 37 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 4. 38 Cal. Sec’y of State, Statement of Vote: General Election, November 6, 2018, at 100 https://perma.cc/AC42-YPAS. 39 Monica Davalos, Proposition 1: California’s Veterans and Affordable Housing Bond, Cal. Budget & Pol’y Ctr. (July 2026), https://perma.cc/EVV3-TJHZ. 40 Cal. State Treasurer’s Off., Debt Affordability Report (Oct. 2025), https://perma.cc/632Q-HMPK at 17. 41 Id. 31

3. Proposition 1 (2024): Behavioral Health Services Program and Bond Act of 2024 In 2024, California voters narrowly passed the Behavioral Health Services Program and Bond Act of 2024 with about 50.2 percent of the vote.42 The initiative authorized $6.4 billion GO bonds, which included $4.4 billion to build facilities for mental health and drug or alcohol treatment and $2 billion to local governments to turn hotels, motels, and other buildings into housing and to construct new housing.43 Over half of the $2 billion was set aside for housing veterans.44 It was estimated that the bond would aid in the construction of up to 4,350 housing units, with 2,350 set aside for veterans.45 The majority of this bond is still unissued. Only about $320 million of the $6.38 billion has been issued and of that $300 million is still owed as debt. This means only $20 million of the principal has been paid off.46 C. Prior Similar Legislation Proposition 1 (2026) builds on nearly a decade of legislative efforts to finance affordable housing through state bonds and other revenue sources. In 2017, the Legislature enacted Senate Bill 2 (Atkins), the Building Homes and Jobs Act, which created the Building Homes and Jobs Trust Fund.47 SB 2 imposes a seventy-five dollar recording fee for real estate documents capped at $225 per transaction.48 The fund allocates fifty percent of its monies to local governments to streamline housing production by updating planning documents and zoning ordinances.49 The other fifty percent of its funding is directed to assist unhoused people by providing rapid rehousing, rental assistance, navigation centers, and rental housing.50 Around the same time, the Legislature passed Senate Bill 3 (Beall) which authorized a $4 billion general obligation bond for housing: $3 billion for affordable housing programs and $1 billion for veterans’ home loans.51 Upon passing, this bill was added to the ballot as the Veterans and Affordable Housing Bond Act of 2018.52

Cal. Sec’y of State, Statement of Vote: Presidential Primary Election, March 5, 2024, at 244 https://perma.cc/E6KE-F6F6. 43 Legis. Analyst’s Off., Proposition 1: Authorizes $6.38 Billion in Bonds to Build Mental Health Treatment Facilities for Those with Mental Health and Substance Use Challenges; Provides Housing for the Homeless. Legislative Statute (Mar. 5, 2024), https://perma.cc/67GD-P5EQ. 44 Id. 45 Id. 46 Cal. State Treasurer’s Off., supra note 40, at 15. 47 2017 Cal. Stat. ch. 364. 48 Id. 49 Id. 50 Id. 51 2017 Cal. Stat. ch. 365. 52 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds to Fund Specified Housing Assistance Programs, supra note 33, at 1.

Senate Bill 492 (Menjivar, 2026) was introduced as a General Obligation bond for youth housing when introduced.53 Since youth housing is a part of Proposition 1 (2026), SB 492 was later amended into an unrelated wildfire data sharing bill.54 Additionally, Assembly Bill 1657 (Wicks, 2024) was the predecessor to SB 417 which became Proposition 1 (2026). AB 1657 was almost identical to SB 417, but did not include the $1.25 billion set aside for veterans.55 AB 1657 died in the appropriations committee in early July 2024, meaning it failed to advance and could not become law that session. Facing a roughly $56 billion two-year budget shortfall and limited borrowing capacity, legislative leaders chose two other $10 billion bonds for the November 2024 ballot: Proposition 2 (2024) (for school facilities), and Proposition 4 (2024) (for climate change resilience). The 2024 budget also cut about $1.1 billion from affordable housing programs and $500 million from student housing.56 In 2024, the Legislature attempted to amend the Constitution (ACA 1) to lower the required vote to approve local bonds and special taxes for affordable housing and public infrastructure from a two-thirds vote to 55 percent of the voters of a city, county, or special district.57 This amendment included an audit and oversight requirement.58 After passing the Legislature, it was placed on the November 2024 ballot as Proposition 5 (2024).59 Voters rejected the amendment with 45 percent of voters voting yes and 55 percent voting no.60 Because local housing bonds still require a two-thirds vote to pass, statewide bonds like Proposition 1 (2026) remain a principal way to fund affordable housing development. III.

PROPOSED CHANGES A. Pathway to the Ballot

Proposition 1 (2026) was proposed through SB 417 of the 2025–2026 Regular Session, as the Veterans and Affordable Housing Bond Act of 2026.61 The bill originated in the Senate Committee on Housing, originally authored by Senator Cabaldon.62 SB 417 began in the Senate Committee on Housing as a $10 billion housing bond, without a dedicated apportionment to veterans.63 Assembly Member Wicks introduced the companion bill AB 736, in the State Assembly.64

SB 492, Leg., 2025–2026 Reg. Sess. (Cal. 2025) (as introduced on Feb. 19, 2025). SB 492, Leg., 2025–2026 Reg. Sess. (Cal. 2026) (as amended on Jan. 22, 2026). 55 AB 1657, Leg., 2023–2024 Reg. Sess. (Cal. 2024) (as amended on Mar. 4, 2024, but not enacted). 56 Adhiti Bandlamudi, Why a $10 Billion California Housing Bond Won’t Be on November’s Ballot, KQED (July 8, 2024), https://perma.cc/N2QX-9TG8. 57 ACA 1, 2023–2024 Reg. Sess. (Cal. 2023). 58 Id. 59 California Proposition 5, Lower Supermajority Requirement to 55% for Local Bond Measures to Fund Housing and Public Infrastructure Amendment (2024), Ballotpedia, https://perma.cc/L9ZL-9TN4. 60 Id. 61 Cal. Proposition 1 (2026) supra note 32. 62 SENATE COMMITTEE ON HOUSING, COMMITTEE ANALYSIS OF SB 417, at 1 (Jan.5, 2026). 63 Id. 64 ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT, COMMITTEE ANALYSIS OF SB 417, at 1 (Apr. 20, 2026). 54

In June 2026, Senate President pro Tempore Monique Limón and Assembly Speaker Rivas became the bill’s sponsors. During the bill’s third reading, the bond measure increased from $10 billion to $11.25 billion to accommodate $1.25 billion in a new veterans housing provision.65 The bills passed their respective chambers and were signed by Governor Newsom to be placed on the ballot for the November 2026 General Election.66 B. Proposition 1: Veterans and Affordable Housing Bond Act of 2026 1. Additions to Existing Statutes Proposition 1 (2026) would add a new section, Part 16.1 to Section 54050–54088, to the Health and Safety Code and a new section, Article 5ab Section 988.750–998.764 to Chapter 6 of Division 4, of the Military and Veterans Code.67 2. State Housing Program The proposition creates the Affordable Housing Bond Act Trust Fund of 2026 within the State Treasury to fund the proposition’s affordable rental and home ownership programs.68 The State would fund various housing programs using $10 billion in GO bonds.69 To ensure program accountability, the administering agency shall publish an annual report regarding the investment of funds.70 First, the proposition provides for $7.2 billion to be used for the Multifamily Housing Program.71 These funds will be used to acquire, build, or renovate rental housing.72 The bond allocates $6.25 billion to the Housing and Rehabilitation Loan Fund. At least ten percent of $5.1 billion shall go towards affordable housing programs directed to extremely low-income households (households earning thirty percent or less of the area’s median income).73 Of these funds, $150 million shall be set aside for “youth housing.”74 Youth housing refers to current or former foster youth and youth at risk of becoming unhoused.75 Additional funds are allocated to programs that support home purchase and down payment assistance funds, the acquisition and rehabilitation of housing units and attach affordability restrictions (legal limits that keep rents or sale prices affordable for a set number of years), and safeguard against current resident displacement.76

ASSEMBLY FLOOR, COMMITTEE ANALYSIS OF SB 417, at 1 (June 24, 2026). Cal. Legis., Bill History: S.B. 417, The Veterans and Affordable Housing Bond Act of 2026, https://perma.cc/AY8C-4VV3. 67 Cal. Proposition 1 (2026), supra note 32. 68 Id. at 1. 69 Id. at 1–3. 70 Id. at 4. 71 Id. at 1. 72 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 73 Id. 74 Cal. Proposition 1, § 2, (2026) supra note 32. 75 Id. 76 Id. at 1–2. 66

Second, Proposition 1 (2026) would provide $1.1 billion to support low and moderateincome households to afford homeownership.77 These funds would provide first-time homebuyers with loan assistance and provide nonprofits and other entities with loans to acquire land to build homes for eligible low-income homebuyers.78 Third, the proposition provides $450 million to the Joe Serna, Jr. Farmworker Housing Grant Fund.79 This fund provides housing grants and loans to agricultural workers and their families.80 The funds may be used for rental and owner-occupied housing.81 Fourth, the proposition would appropriate $200 million to the Tribal Grant Program.82 The funds would be granted to tribes to finance housing and housing-related activities to rebuild their communities.83 This includes the construction and repair of owner-occupied and rental housing.84 Fifth, Proposition 1 (2026) would provide $500 million for the Infill Infrastructure Grant Program (“infill” means building on vacant or underused lots in areas that are already developed).85 This program supports infrastructure projects that serve affordable housing developments, like water, parks, sewage, and transportation.86 Sixth, Proposition 1 (2026) would appropriate $350 million for new affordable student housing.87 The funds shall be split between the University of California and the California State University evenly.88 Finally, the proposition would create a $200 million fund for pilot programs by cities, counties, and certain other entities aimed at developing housing at reduced costs.89

Id. at 2. Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 79 Cal. Proposition 1, § 2 (2026) supra note 32. 80 Id. 81 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 82 Cal. Proposition 1, § 2 (2026) supra note 32. 83 Id. 84 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 85 Cal. Proposition 1, § 2 (2026) supra note 32. 86 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 87 Cal. Proposition 1, § 2 (2026) supra note 32. 88 Id. 89 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 78

3. Veterans Home Loans The proposition allocates $1.25 billion in home loan assistance to veterans.90 Veterans may use these loans to finance the purchase of single-family homes, condominiums, farms, and mobile homes.91 Veterans who receive these loans make monthly payments, and those payments repay the bonds. If the payments ever fall short, the General Fund would cover the difference.92 According to the Legislative Analyst’s Office, veterans’ payments have always covered the amount owed on these bonds and the program has always operated at no direct cost to the State.93 IV.

CONSTITUTIONAL AND STATUTORY ISSUES A. Constitutional Issues

The bond was put forward by the State Legislature because the California Constitution requires the people to vote on bond measures through the initiative process.94 Pursuant to Article XVI, Section I of the California State Constitution, the Legislature shall not create any debts or liabilities that exceed $300,000 without passing it by a two-thirds vote of the Legislature and receiving a majority of the votes by the people in an election.95 “The proceeds from the sale of bonds authorized by this part are not ‘proceeds of taxes’ as that term is used in Article XIIIB of the California Constitution, and the disbursement of these proceeds is not subject to the limitations imposed by that article.”96 California has an annual limit on how much it can spend from tax revenue, known as the Gann Limit.97 When state and local governments collect taxes, the revenue from those taxes is subject to the Gann Limit to ensure the government does not overspend. Any excess revenue that exceeds the Gann Limit is distributed between tax rebates and increased funding for schools and community colleges. Because bonds are not considered taxes, they are not subject to the Gann Limit.98 Therefore, this provision of the California Constitution means money from selling these bonds does not count against that cap. B. Statutory Issues The bill is clearly drafted by the State Legislature. It allocates funds to various housing programs and there are no ambiguous terms.

Cal. Proposition 1, § 3 (2026) supra note 32. Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 92 Cal. Proposition 1, § 3 (2026) supra note 32. 93 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 3. 94 Cal. Const. Art. XVI, § 1. 95 Id. 96 Cal. Proposition 1, §§ 2, 3 (2026) supra note 32. 97 California Proposition 4, Government Spending ‘Gann Limit’ Initiative (1979), Ballotpedia, https://perma.cc/8T9W-BXCZ. 98 Legis. Analyst’s Off., The State Appropriations Limit, LEGIS. ANALYST’S OFF., (Apr. 21, 2021), https://perma.cc/P5A7-UJ47. 91

FISCAL CONSIDERATIONS

There are multiple figures circulating regarding the cost and duration of the bond debt. According to the California Budget & Policy Center, repaying the $10 billion bond would cost $580 million per year over the next thirty years, totaling $17.4 billion.99 However, the Legislative Analyst’s Office and the November 2026 Voter Guide each estimate the time frame to be twenty-five years with an annual cost of about $500–600 million.100 This would put the total cost between $12.5 billion and $15 billion. The reason for this discrepancy is the number of unknown variables. Bonds are not all issued at once; some may be issued on passage of Proposition 1 (2026), while others may be issued years later. As a result, different bonds may have different interest rates. The State sells bonds in batches over many years, as projects are developed. Each batch carries the interest rate at that time, so the final cost cannot be known in advance. In September 2026, the Federal Reserve raised interest rates by a quarter of a percentage point, citing persistent inflation.101 It is unknown if the Federal Reserve will raise them again, decrease them, or keep them the same while new bonds are being issued under Proposition 1. The proposition requires that the bonds be paid back within thirty-five years of the issuance date. The $1.25 billion in veterans’ farm and home loans is intended to be self-supporting because it is repaid through the veterans’ monthly payments on those loans. However, if veterans’ payments are insufficient, the bonds are backed by the General Fund. As a result, the veterans’ portion is not expected to cost taxpayers, but that outcome is not guaranteed. Under the 2026-27 state budget, California currently has $7 billion in debt service on GO bonds. This amounts to approximately 2.9 percent of the General Fund’s expenditures. 102

The funds are estimated to have the following impact: subsidies for 40,000 multifamily rental units,103 subsidies for 2,500 farmworker housing units,104 about 1,200 new beds for university students (UC and CSU),105 and homebuyer assistance for up to 40,000 households (including about 2,100 veterans).106

Davalos, supra note 39. Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 101 Jeff Cox, Fed Rate Decision September 2026: Rates Rise to 3.75%-4%, CNBC (Sept. 16, 2026), https://perma.cc/UP4V-PGXC. 102 Legis. Analyst's Off., The 2026-27 California Spending Plan: Other Provisions, Statewide Infrastructure: Debt Service (Oct. 2, 2026), https://perma.cc/B7RN-T2YV. 103 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 3. 104 Id. 105 Id. 106 Id. 100

VI.

CAMPAIGN FINANCE

There are three political action committees funding the support for Proposition 1 (2026).107 There are no political action committees funding the opposition of the proposition.108 The first committee supporting Proposition 1 is Californians for Affordable Homes, Yes on Proposition 1, Sponsored by NPH Action Fund.109 The committee is composed of four main donors. These donors include two individuals, Scott Cook and Signe Ostby, a political action committee, and a senior assisted home facility. In total, this committee accounts for nearly $1.08 million in funding for the Yes on Proposition 1 campaign.110

Source: Cal. Fair Pol. Pracs. Comm’n, Top 10 Contributors List, November 2026 General Election.

The second committee supporting the initiative is Yes on Prop 1 Californians for Homes, Jobs, and Affordability 2026, Sponsored by Affordable Housing Organizations.111 The committee is made up of a diverse group of donors, including: individuals, the Democratic Party, foundations, building developers, and coalition groups.112 In total, they have contributed almost 6 million dollars to the campaign.113

107

Cal. Sec’y of State, Proposition 1 - SB 417 (Limon) The Veterans and Affordable Housing Bond Act of 2026 https://perma.cc/5A5S-FM2L. 108 Id. 109 Id. 110 Cal. Fair Pol. Pracs. Comm’n, November 2026 General Election (Sept. 28, 2026), https://perma.cc/D3ZG-57E8. 111 Id. 112 Id. 113 Id.

Source: Cal. Fair Pol. Pracs. Comm’n, Top 10 Contributors List, November 2026 General Election.

The third committee supporting the proposition is Yes on Prop 1, California Homeless and Housing Coalition Fund.114 This committee is made up of two individuals, Scott Cook and Signe Ostby, who are also two of the four main donors to the first committee, Californians for Affordable Homes.115 Cook co-founded the software company Intuit, and he and Ostby founded the Valhalla Foundation, a philanthropic organization.116 In total, they have contributed $290,000.117 Their individual contributions do not exceed $50,000 and are therefore not subject to disclosure under the Disclose Act, which requires contributors to be listed in political advertisements as top contributors.118 114

Cal. Sec’y of State, Campaign Finance: Yes on Prop 1: California Homeless and Housing Coalition Action Fund, https://perma.cc/PSS4-W24W. 115 Cal. Fair Pol. Pracs. Comm’n, November 2026 General Election (Sept. 28, 2026), supra note 110. 116 Scott Cook, Computer Hist. Museum, https://perma.cc/5SWP-TGEA; People, Valhalla Found., https://perma.cc/V9F3-RHCJ. 117 Cal. Fair Pol. Pracs. Comm’n, November 2026 General Election (Sept. 28, 2026), supra note 110. 118 Laurel Rosenhall, Lawmakers Torn over Whether to Reveal True Funders Behind Campaign Ads, CalMatters (June 28, 2017), https://perma.cc/2YFL-K3MG.

VII.

PUBLIC POLICY ISSUES A. Proponents’ Argument

Proposition 1 (2026) has a broad range of supporters including veterans, senior advocates, youth/education advocates, housing providers, labor unions, business organizations, community advocates, environmental groups, transportation advocates, local government, and Democratic organizations.119 Proponents argue that Proposition 1 helps to create and preserve housing for homeless individuals and those who are one crisis away from becoming homeless. They argue that Proposition 1 provides crucial funding needed to build up the housing supply. Veterans groups argue that Proposition 1 honors veterans’ service by providing them with much-needed loan assistance to thank them for their service. The $1.25 billion for veterans’ housing and farm loans is estimated to benefit 2,100 veterans. Proponents argue that because this portion is self-funded by the veterans’ monthly payments on their CalVet home loans, it does not require any new taxes. However, while the plan is for this portion to be self-funded, the General Fund acts as a backstop to ensure California does not default on this bond debt. Proposition 1 will fast-track new housing development by funding the construction of 40,000 new affordable homes. While this is a marginal step towards the 2.5 million homes goal, Proposition 1 helps bring us closer to meeting demand. B. Opponents’ Argument There are no registered opponents of Proposition 1 (2026).120 However, there were nine state legislators who voted against the measure.121 Senator Shannon Grove (R) voted against the bond when it was in the Legislature, arguing that it didn’t go far enough to support unhoused veterans and previous funding has not done enough to address the homelessness crisis.122 Assembly Member Carl DeMaio (R), Chairman of Reform California, also voted against the bond when it was in the Legislature.123 He claims that the proposition will make housing more expensive, the proposition “uses veterans as window dressing,” that the bond measure maxes out the State’s “credit card”, and that the money will largely go to developers.124 The late addition of veteran housing loans when the bill was in the Legislature could suggest that this was used to secure support for the bill. On the other hand, there was strong 119

Yes on Prop 1, https://perma.cc/VPH8-3QUN. Cal. Sec’y of State, Proposition 1 - SB 417 (Limon) The Veterans and Affordable Housing Bond Act of 2026, supra note 107. 121 Cal. Legis., Bill Votes: S.B. 417, The Veterans and Affordable Housing Bond Act of 2026, https://perma.cc/AY8C-4VV3. 122 Mike Cherry, California Housing Crisis on the Ballot as Prop 1 Asks Voters to Back $11 Billion Bond, KCRA 3 (Aug. 16, 2026), https://perma.cc/W7WD-HES6. 123 Id. 124 Reform Cal., CA Voter Guide: No on Props 1 & 37; Yes on 45! (July 31, 2026), https://perma.cc/8N77-39VH. 120

support for the bill prior to the addition of veteran housing loans.125 The fiscal costs of the program would cost taxpayers $500–600 million per year for twenty-five years, but this is less than 0.5 percent of the State’s General Fund.126 An additional concern is the unissued bonds from Proposition 1 (2024), the Behavioral Health Services Program and Bond Act of 2024. As of March 2026, only $768 million of the $1.033 billion available through Homekey+ was allocated.127 This suggests there is existing untapped bandwidth for housing bonds that is not being fully actualized. Further, even though funds are being allocated, building has yet to be completed.128 As of March 2026, none of the proposed buildings in the 2024 proposition have opened, all have either been delayed or cancelled.129 The California Department of Health Care Services cited issues with construction permitting, site conditions, and construction pressures, alongside supply-chain strain from President Trump’s tariffs as reasons for the delays.130 These issues could impact Proposition 1 (2026), if passed, from fully being actualized. VIII.

CONCLUSION

Proposition 1 (2026) authorizes $11.25 billion in general obligation bonds for affordable housing programs and for veteran housing loans.131 The initiative would fund affordable multifamily housing programs, homeownership programs, infrastructure programs, farmworker housing programs, student housing programs, tribal housing programs, local pilot programs and veteran housing programs.132 Repaying the $10 billion housing bond would cost taxpayers $500– 600 million annually for about twenty-five years.133 A YES vote on this Initiative means: The State could borrow $11.25 billion to support veterans and affordable housing. A NO vote on this Initiative means: The State could not borrow $11.25 billion to support veterans and affordable housing.

125

Assemb. Floor Analysis, Analysis of S.B. 417, 2025–2026 Reg. Sess., at 1 (Cal. May 20, 2026). Legis. Analyst’s Off., Overview of State Bond Debt, 1-2 (Nov. 3, 2026) https://perma.cc/NQ8A-UHFF. 127 Cal. Dep’t of Hous. & Cmty. Dev., Prop. 1 Continues to Create Affordable Homes for Californians with Behavioral Health Challenges, Including Our Veterans (Mar. 2, 2026), https://perma.cc/87V5-GUTT. 128 Marisa Kendall, 10 Projects from Newsom’s Mental Health Bond Were Supposed to Open in 2025. That Didn’t Happen, CalMatters (Mar. 12, 2026), https://perma.cc/3Y56-PGCZ. 129 Id. 130 Id. 131 Legis. Analyst’s Off., Proposition 1: Authorizes Bonds for Housing Affordability Programs, supra note 1, at 2. 132 Id. 133 Id. 126

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Robert Carter J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., History, Sacramento State University, 2023 &

Madison Datus J.D., University of the Pacific, McGeorge School of Law, to be Conferred December 2027 B.S., Business Administration, University of Denver, 2021

EXECUTIVE SUMMARY

Proposition 2 is a legislatively referred constitutional amendment that, if enacted, would increase the state’s emergency savings, extend and expand certain debt repayments, and change how the Governor may declare a budget emergency.1 Assemblymember Jesse Gabriel (Democratic Party, Assembly District 46, San Fernando Valley) introduced Assembly Constitutional Amendment 20 (“A.C.A.”) during the 2025–26 legislative session.2 A.C.A. 20 received the requisite two-thirds vote from each house of the legislature, requiring the Secretary of State to submit the constitutional amendment to the first general election to occur within 131 days of the amendment’s qualification for the ballot.3 This measure mirrors a similar measure passed in 2014 that increased the balance cap on money set aside in state reserves. Proposition 2 seeks to provide funding for education, health care, public safety, and other essential services during economic downturns by increasing the capacity of the Budget Stabilization Account (B.S.A.), also known as the Rainy Day Fund. A “YES” vote allows this amendment to: (1) increase the Rainy Day Fund cap from ten percent to twenty percent of estimated General Fund revenues from taxes, (2) extend the requirement that half of the 1.5 percent of General Fund revenues set aside for debt repayments continue until the 2039–40 fiscal year, (3) add federal loans to the state’s debt repayment options, (4) exclude deposits into the Budget Stabilization Account and other reserve accounts from the Gann Limit, instead counting withdrawals against it, and (5) provide that the Governor’s May budget revision constitutes a proclamation of a budget emergency when one exists. A “NO” vote opposes this amendment to change rules governing the state’s Rainy Day Fund, extra debt repayments, and fiscal state of emergencies, thus keeping the status quo.

Cal. Proposition 2 (2026), https://perma.cc/QP7D-DDQH. ACA 20, 2026 Leg., 2025-2026 Reg. Sess. (Cal. 2026); Assembly Member Jesse Gabriel District 46, How Can I Help You?, 2026 CAL. STATE ASSEMB. DEMOCRATIC CAUCUS, https://perma.cc/93XM-PKMU. 3 CAL. ELEC. CODE § 9040 (2025); Shirley N. Weber, Referendum, CAL. SEC’Y OF STATE, https://perma.cc/GVC5CRRV. 2

II.

THE LAW A. Existing Law

Current law requires the state to set aside a percentage of General Fund revenues each year to sustain vital services during budget emergencies and make certain constitutionally required debt repayments.4 Emergency funds for those services are held in the B.S.A.5 Since deposits became mandatory under Proposition 2 (2014), B.S.A. reserves have been capped at ten percent of the total General Fund tax revenue for a given year.6 If the Governor declares a budget emergency, the state may make withdrawals from the account, as well suspend or reduce annual deposits.7 Created under Proposition 58 (2004), the B.S.A. is California’s largest fiscal reserve.8 4

CAL. CONST. art. XVI, § 20(a)(1)(B)(2). Id. 6 CAL. CONST. art. XVI, § 20(e). 7 CAL. CONST. art. XVI, § 22(a). 8 California Poised to Redesign Rainy Day Fund, PEW CHARITABLE FUNDS (June 2014), https://perma.cc/Q49BNKST; Proposition 58 The California Balanced Budget Act, LEGIS. ANALYST’S OFF. (Dec. 2003), https://perma.cc/7JSL-WB3X. 5

Under current law, the state must set aside 1.5 percent of General Fund revenues each year. Of the 1.5 percent of revenues set aside, half must be used to pay down state debts, and the other half must be deposited in the B.S.A. until 2030.10 After 2030, the full 1.5 percent must be deposited into the B.S.A. with the option for state leaders to redirect one-half of the deposit to paying down state debts.11 In years when the estimated General Fund revenues from personal income taxes on capital gains exceed 8 percent of the total General Fund proceeds from taxes, the state must set aside additional General Fund revenues for the B.S.A. and debt repayment (provided there are no funding gaps for K-12 schools and community colleges, which have guaranteed funding requirements under Proposition 98 (1988)).12 9

The B.S.A. balance cannot exceed a maximum of ten percent of General Fund tax revenues, and if the balance exceeds that amount, any revenues originally designated for the B.S.A. will instead be spent on infrastructure, including housing projects.13 Since Proposition 2 (2014) increased the cap from five percent to ten percent of General Fund tax revenues, the cap has only been reached twice (during the 2022–23 and 2023–24 budget years).14 In addition to the mandatory annual deposits, the Legislature has the option to save additional discretionary revenue in the B.S.A. during any year in which a budget emergency is not occurring.15 In the event of a budget emergency, the state may reduce or suspend all deposits, including mandatory ones, with a simple majority vote from each house.16 A budget emergency is defined as (1) a situation where conditions of disaster or extreme peril are present, or (2) where the state has insufficient resources to maintain General Fund expenditures at the highest level of spending in the three most recent fiscal years (adjusted for state population growth and cost of living changes).17 If these conditions are met, the Governor may issue a standalone budget emergency proclamation allowing the state to withdraw funds from the B.S.A., but the entire balance cannot be removed at once.18 Only the amount needed to address the budget emergency may be withdrawn and that amount cannot exceed fifty percent of the B.S.A. balance in the first year of a budget emergency.19 However, if a budget emergency continues for a second consecutive year, all of the remaining funds from the B.S.A. may be withdrawn and may go towards any purpose the Legislature chooses.20

Scott Graves & Kayla Kitson, California’s Rainy Day Fund and Other Budget Reserves Overview, CAL. BUDGET & POL’Y CTR. (Apr. 2026), https://perma.cc/RE46-NBXM. 10 Id. 11 Id. 12 Id. 13 Id. 14 Graves & Kitson, supra note 9. 15 Id. 16 Id. 17 Id. 18 Id.; CAL. CONST. art. XVI, § 22. 19 Graves & Kitson, supra note 9. 20 Id.

1. State Reserves When the economy is doing well in California, the state puts money into reserves; however, in doing so, the state is saving money that could be spent on current public programs.21 When the economy is in decline, the state uses reserves to supplement spending on public programs to avoid spending cuts, tax increases, and/or borrowing to make up for the deficit.22 The Legislative Analyst’s Office (“L.A.O.”) recently estimated that California currently has about $20 billion in reserves that can be used for any public program.23 2. State Debts California currently has more than $250 billion in debt, including infrastructure project loans, pension plans, and state retiree health benefits.24 Each year, the state makes payments towards reducing the debt.25 The California Constitution requires the state to make extra debt payments toward pension and health benefits (that extra payment is equal to the amount initially deposited in the B.S.A. each year).26 The extra payments towards pension and retiree health care debts save the state money in the long-term, but the requirement to make these extra payments expires in 2030.27 After 2030, the Governor and Legislature will have the option to deposit the entire 1.5 percent set aside from General Fund revenues to the B.S.A., or to continue directing up to half that amount towards paying state debts.28 3. School Reserves Proposition 98 (1988) required the state to spend forty percent of the state’s budget on public schools, setting a minimum funding level for public K-12 schools and community colleges.29 However, changes in tax revenue drastically affect the state’s ability to fund public schools.30 As such, school reserves help to mitigate shortfalls in low tax revenue years.31 Proposition 2 (2014) established the Public School System Stabilization Account (“The School Account”), setting aside a portion of General Fund revenues for California’s K-12 schools and community colleges.32 The School Account has no annual deposit requirement, but a deposit may be required if all of the following requirements are met: (1) General Fund revenues from personal income taxes on capital gains exceed eight percent of total General Fund proceeds from taxes, (2) growth in the General Fund revenues leads to “strong growth” in the state’s annual

CAL. SEC’Y OF STATE OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION, TUESDAY, NOVEMBER 3, 2026, at 21, https://perma.cc/PM9X-ZB93 [“NOVEMBER 2026 VOTER GUIDE”]. 22 Id. 23 Id. 24 NOVEMBER 2026 VOTER GUIDE, supra note 21 at 22. 25 Id. 26 Id. 27 Id. 28 Id. 29 Jonathan Kaplan & Erik Saucedo, What is Proposition 98 and How Does the State Budget Shortfall Affect It?, CAL. BUDGET & POL’Y CTR. (Feb. 2024) https://perma.cc/52TZ-XSL9. 30 Id. 31 Id. 32 Graves & Kitson, supra note 9.

minimum funding guarantee for K-12 schools and community colleges, and (3) the Legislature does not suspend the annual K-14 education minimum funding guarantee.33 In the event of a budget emergency, deposits into The School Account may be reduced or suspended, or funds may be withdrawn.34 All School Account funds can be withdrawn in the first year, but the funds must be used to support K-12 schools and community colleges.35 According to the L.A.O., the state will end the 2026-27 fiscal year with $9.2 billion in The School Account.36 Proposition 3 (2026) would permanently extend tax rates on high income earners currently set to expire in 2030 and it is possible that if the high-income tax were to expire, The School Account would be further relied on to cover the shortfall in public school funding.37 4. Gann Spending Limit The Gann Limit, enacted under Proposition 4 (1979) caps state spending at 1978-1979 levels, adjusted for inflation and population growth.38 Under current law, B.S.A. deposits count towards the this limit, meaning that money saved is considered money spent.39 Because the Gann Limit is indexed to population growth and inflation, it is less likely the limit will be hit when state revenues and population grow concurrently.40 However, in times like the present, when the state’s revenues grow but its population declines, the state is more likely to hit the limit.41 In the event that state revenues exceed the limit over a two-year period, those excess revenues must be distributed to taxpayers (with some discretion as to how), as well as K-12 schools.42 In practical terms, counting B.S.A. deposits towards the Gann Limit means that the Legislature in good years is constrained on how much it can spend meeting the state’s needs. The Gann Limit also impacts school funding. If revenues from taxes increase at a greater rate than average daily school attendance and inflation, issues can arise for local educational agencies (“L.E.A.”).43 Such issues occur because L.E.A.s are considered to share a combined total limit with the state and as such, if an L.E.A. has more tax revenue than the Gann Limit allows, they may request that the state share some of the state’s limit to cover their expenditures 33

Id. A School Account deposit can only occur in “Test 1” years under the state’s Prop. 98 (1988) minimum funding guarantees for K-12 schools and community colleges. A Test 1 year guarantees K-14 education a percentage of General Fund revenues based on fixed percentage of the state’s General Fund revenue (generally 30-39%). However, even in certain Test 1 years, the amount of growth in state per capita personal income from the prior year can prevent a deposit to The School Account. 34 Id. 35 Id. 36 The 2026-27 Budget Overview of the Spending Plan, LEGIS. ANALYST’S OFF. (Aug. 26, 2026), https://perma.cc/G7WL-QU6A. 37 Proposition 3 Make income on higher earners permanent to fund education and healthcare, CALMATTERS, https://perma.cc/MS8F-HKK9. 38 Kayla Kitson et al., How the Gann Limit Threatens Ongoing Investments for Californians, CAL. BUDGET & POL’Y CTR. (Dec. 2022) https://perma.cc/R3TU-TZGZ. 39 CAL. CONST. art. XIII B, § 5. 40 Interview with Wesley Hussey, Professor of Political Science and California Government at California State University, Sacramento, in Sacramento, CA. (Sept. 11, 2026) (on file with the California Initiative Review). 41 Id. 42 Kayla Kitson et al., supra note 38. 43 Gann Limit, CAL. DEP’T OF ED., https://perma.cc/CV5N-7PCK.

or must otherwise issue refunds to taxpayers amount exceeding the limit.44 In 2021, AB 130 changed the Gann Limit for L.E.A.s by requiring that once an L.E.A. is at or above its limit, it must increase the limit rather than refund taxpayers.45 B. Proposed Law Proposition 2 would change how the state saves and spends money, repays certain debts, and declares budget emergencies.46 If the measure passes, the B.S.A. balance cap would increase from ten percent of the General Fund to twenty percent, potentially doubling state’s emergency reserves.47 The initiative would also extend the period in which the state is required to make certain debt repayments while expanding the types of debt it must repay.48 Additionally, deposits into the B.S.A. would no longer count towards the Gann Limit, permitting the state to save and spend funds that might have met the limit in past years.49 Finally, Proposition 2 would permit the Governor to formally proclaim a budget emergency in the May Revision, before a budget is passed the following June.50 1. Increases the Size of the Rainy Day Fund Proposition 2’s primary change to existing law would increase the balance cap on the B.S.A. from the current ten percent of General Fund tax revenues to twenty percent.51 The Proposition would also require the state to make larger contributions to the B.S.A. in years when taxes on investment gains are high.52 Specifically, instead of committing all capital gains revenue in excess of eight percent of the General Fund tax revenues to the B.S.A. and repaying debts, Proposition 2 would create a new category of “excess” capital gains.53 Under this new plan, 1.5 percent of revenues between eight percent and ten percent of the General Fund would be allocated to debts and savings equally, while anything exceeding ten percent would require the state to save 1.5 times that amount.54 In other words, if the state took in $1 million in excess of ten percent of the General Fund tax revenues, it would be required to set aside $1.5 million under Proposition 2. 2. Extends the Deadline and Types of Extra Debt Payments Proposition 2 extends the deadline on extra debt payments from 2030 to 2040.55 The extra debt payments would continue to be half of the 1.5 percent of General Fund revenues set aside (the same amount deposited in the B.S.A. each year), but the amount set aside could also 44

Id. Id. 46 Cal. Proposition 2 (2026), supra note 1. 47 Id at § 20. 48 Id. 49 Id. 50 Id. 51 Cal. Proposition 2 (2026), supra note 1 at § 20. 52 Id. 53 Scott Graves et al., Should Voters Approve Proposition 2? How California’s Rainy Day Fund Would Be Updated, CAL. BUDGET & POL’Y CTR. (Aug. 2026), https://perma.cc/8FQ6-RL38. 54 Id. 55 Cal. Proposition 2 (2026), supra note 1 at § 20. 45

be used for an expanded set of purposes (like making the required payment to K-14 schools), repaying borrowing from other state funds, and repaying debts to the federal government (like federal unemployment insurance loans).56 3. Changes How the B.S.A. Interacts with the Gann Limit Under Proposition 2, B.S.A. deposits would no longer count against the Gann Limit, and instead withdrawals would apply.57 Under current law, if the state reaps $10 million in tax revenues and sets aside the required $1.5 million for savings and debts, that $1.5 million is considered spent and $8.5 million would remain.58 However, if the Gann Limit were set at $8.5 million, the state would only be able to spend $7 million of that remainder on state needs with the rest going to tax rebates and schools. This would not be the case under Proposition 2. In the same scenario, but where the set-aside revenue is not considered spent, the state would be left with $8.5 million to spend (while also saving $1.5 million) without exceeding the Gann Limit. This would mean more money for state programs in years where the economy is doing well. In years when the state withdraws B.S.A. funds to account for a budget emergency, that withdrawal would apply to the limit. However, this is likely to occur in years where the state would be less likely to hit the limit anyways, so the withdrawals are therefore unlikely to exceed it. Additionally, deposits towards other accounts the state uses to set aside funds when revenues are high will no longer count towards the Gann Limit and instead only count when money is withdrawn from the reserves.59 Proposition 2 also limits the amount excluded from the spending limit to not be more than ten percent of General Fund tax revenues in a given year.60 For example, if the General Fund were worth $100 million, the Legislature could not exclude more than $10 million in B.S.A. deposits from the spending limit.61 4. Changes How Budget Emergencies are Declared Proposition 2 would also give the Governor an option to declare a budget emergency in the May budget revision, rather than a separate formal proclamation as provided under current law.62 Under the new rule, the Governor’s May Revision would automatically constitute a budget emergency proclamation if the emergency conditions exist and the revision proposes either (1) a suspension or reduction in B.S.A. or The School Account deposits, or (2) a B.S.A. or The School Account withdrawal.63 This automatic proclamation is designed to prevent instances where the Governor suggests a budget emergency in May, but does not formally do so until after the June 15 budget deadline when the Legislature has already passed a budget that may not sustain emergency conditions.64 Such a situation occurred on June 27, 2025, when the Governor

Id. Cal. Proposition 2 (2026), supra note 1 at § 20. 58 CAL. CONST. art. XIII B, § 5. 59 Cal. Proposition 2 (2026), supra note 1 at § 20. 60 Id. 61 Id. 62 Cal. Proposition 2 (2026), supra note 1 at § 22; CAL. CONST. art. XVI, § 22(a). 63 Cal. Proposition 2 (2026), supra note 1 at § 22. 64 Graves & Kitson, supra note 9. 57

proclaimed an emergency requiring the Legislature to reduce billions in appropriations, both in that fiscal year and in a budget passed twelve days prior.65 III.

DRAFTING ISSUES AND STATUTORY INTERPRETATION

Proposition 2 is comprised of amendments to Sections 20 and 22 of Article XVI of the state Constitution which were amended by Proposition 2 (2014).66 Our analysis detected drafting issues similar to the California Initiative Review Proposition 2 (2014) analysis, which bear repeating and expanding upon here. The Legislative Analyst’s Office noted that Proposition 2 (2014) could further reduce the public’s already limited understanding of the state’s budget process by adding more formula driven measures to that process.67 Propositions 98 (1988) (school funding) and 111 (1990) (amending the Gann Limit) were both used as examples of complex initiatives that made formula-based changes to the budget that the public struggled to understand.68 Proposition 2 (2026) does nothing to abate that confusion. The Proposition’s text is a maze of formulas, estimates, and cross-references between paragraphs that are likely opaque to the average reader not familiar with the California budget. For example, Proposition 2 recalculates excess capital gains as “that portion of the updated estimate in clause (i) that is in excess of 8 percent, but not in excess of 10 percent, of the updated estimate made under subparagraph (A).”69 On top of being inaccessible to readers for whom the budget has real consequences, this sort of language is open to mischaracterizations as to what Proposition 2 actually does. One of the main arguments against the proposition, discussed below, is that it will create a discretionary fund for the Legislature at the expense of constitutionally required tax rebates when the state exceeds the Gann Limit70 As discussed below, these claims are likely misleading. IV.

CONSTITUTIONAL ISSUES A. Procedural Rules of the Initiative Process

A failure to comply with the rules governing the initiative process may violate the California Constitution.71 When deciding if a violation occurred, a court determines whether the substantive purpose of the rule was violated.72 It is presumed that the title and summary prepared by the Attorney General for each initiative is accurate.73 However, if a court deems that the 65

Graves & Kitson, supra note 9; CA Budget Emergency Proclamation (June 27, 2025) https://perma.cc/57UK257G. 66 Cal. Proposition 2 (2026), supra note 1. 67 Robert Binning & Eric Rivera-Jurado, Proposition 2: State Budget—Budget Stabilization Account, 12 CAL. INIT. REV. 19, 27 (2014), https://perma.cc/XTL8-DSDC. 68 Id. 69 Cal. Proposition 2 (2026), supra note 1 at § 20. 70 CA Statewide Voter Guide, REFORM CAL., https://perma.cc/4VGF-5YQU. 71 Assembly v. Deukmejian, 30 Cal. 3d 638 (1982). 72 Id. 73 Zaremberg v. Superior Court, 115 Cal. App. 4th 111 (2004).

Attorney General did not provide accurate descriptions of the initiative, a violation of the procedural rules may be found and the initiative may be ruled unconstitutional.74 Those wishing to challenge ballot language must bring a challenge within the Voter Guide 20-day public display period.75 Despite allegations that the title is misleading, there is still not likely to be a constitutional challenge as the Attorney General is afforded “considerable latitude” in creating a ballot title.76 “Only in a clear case should a title so prepared be held insufficient. Stated another way, if reasonable minds may differ as to the sufficiency of the title, the title should be held to be sufficient.”77 Additionally, the 2026 California Voter Guide was released for circulation on August 10, 2026, and there was no constitutional challenge brought forth in the 20-day public display period.78 V.

FISCAL CONSIDERATIONS

The Legislative Analyst's Office predicts that an increased Rainy Day Fund would allow the state to save more over time and increase deposit amounts in boom years.79 This would in turn make balancing the budget an easier process when revenues decline, especially considering the state’s tax volatility.80 Additionally, the requirement that the state make debt payments through 2040 could allow the state to reduce more debts than it would have without the proposition.81 A. Campaign Finance No official campaign committees have been formed in either support or opposition to this measure; however, each has received independent expenditures.82 1. Support As of October 16, 2026, late independent expenditures in favor of Proposition 2 were made by Planned Parenthood of California ($23,460.25), Community Partners ($1040.14), and AAPI Edquities ($455.61), for a total of $24,956.00 .83 These expenditures covered staff hours, voter guides, and consulting.84

Id. (“The main purpose of the title and summary requirements is to avoid misleading the public with inaccurate information.”) 75 CAL. ELEC. CODE § 88006 (2026); see also, Laws governing the initiative process in California (2026), BALLOTPEDIA, https://perma.cc/9QLN-YVJA. 76 McDonough v. Superior Court, 204 Cal. App. 4th 1169 (2012). 77 Id. 78 NOVEMBER 2026 VOTER GUIDE, supra note 21, https://perma.cc/783W-5F8K. 79 Cal. Proposition 2 (2026), supra note 1. 80 Id. 81 Id. 82 Proposition 002 – ACA 20 (Gabriel) Save for California’s Future Act. (Res. Ch. 130, 2026), CAL. SEC’Y OF STATE, https://perma.cc/7ESD-BUTE. 83 Late Independent Expenditures, Proposition 2, CAL. SEC’Y OF STATE, https://perma.cc/ZX3N-GSQF. 84 Id.

2. Oppose As of October 16, 2026, late independent expenditures opposing Proposition 2 total $40,500, all of which come from Reform California, a public interest group chaired by Assemblymember Carl DeMaio.85 These expenditures covered slate mailers, door hangers, and campaign management.86 VI.

PUBLIC POLICY CONSIDERATIONS A. Proponents’ Rationale

Proponents say California needs ample savings in the B.S.A. to account for the revenue volatility inherent in the state’s progressive tax structure.87 Because that volatility brought the state from a $100 billion surplus to a $50 billion deficit in just a few years, they claim that saving more is a matter of common sense that would protect vital services in stormy fiscal years and is thus a nonpartisan concern.88 B. Proponents’ Main Arguments The official voter guide arguments in favor of Proposition 2 were prepared by California Professional Firefighters President, Darrell Roberts; State Assembly Budget Committee Chair Jesse Gabriel; and Los Angeles Chamber of Commerce CEO, Maria S. Salinas.89 They argue that increased state reserve requirements would promote financial security, protect social services, and prevent overspending by withholding excess revenues from legislators.90 Moreover, they argue that Proposition 2 protects education funding guarantees by ensuring that money constitutionally directed towards those expenditures is in fact available during economic downturns.91 To emphasize their point that this is a common sense initiative rather than a political one, proponents note the non-partisan Legislative Analyst’s office recommendation that the Rainy Day Fund increase to fifty percent of the general fund.92 C. Other Support In an opinion piece for Capitol Weekly, Lenny Mendonca and Tara Key of CA Forward made the argument that income tax volatility is a higher-than-usual concern for the state.93 They note specifically that while AI revenues are in a boom period, there is no guarantee they will last 85

Id. Id. 87 NOVEMBER 2026 VOTER GUIDE, supra note 21 at 24. 88 Id. 89 Id. 90 Id. 91 Id. 92 NOVEMBER 2026 VOTER GUIDE, supra note 21, at 24. 93 Lenny Mendonca & Nuin-Tara Key, California Can’t Afford to Put Off Rainy Day Reform, CAPITOL WEEKLY (September, 1 2026) https://perma.cc/WUD5-LJFW. 86

forever.94 Passing Proposition 2, they argue, will ensure that if and when those revenues bust, vital services, wildfire protection, and other climate emergency resources are safe without increasing taxes.95 The League of Women Voters’ voter guide also emphasizes the delicate nature of the state’s progressive tax structure.96 Because capital gains revenues and income taxes depend almost entirely on a healthy economy, they argue that Proposition 2 is a common sense measure that would force the state to spend the good years preparing for the bad years.97 Like other supporters, they note this could help the state avoid borrowing, tax increases, and cuts while leaving a robust fund for meeting climate challenges.98 D. Opponents’ Rationale Opponents oppose Proposition 2 because it fails to address the “wasteful spending” they see as the root cause of California’s budget struggles, and would instead enable such spending.99 This, they claim, would disturb Californians’ constitutional right to tax rebates in years where revenues exceed the state spending limit.100 E. Opponents’ Main Arguments Authors of the argument against Proposition 2 include Assembly Budget Committee Vice Chair David Tangipa, Senate Elections and Constitutional Amendment Committee Vice Chair Steven Choi, and Assemblymember and Reform California Chairman Carl DeMaio.101 First, they argue that the measure would weaken the spending limit imposed by voters in 1978 (Gann Limit), creating a “slush fund” for legislators to subsidize their “runaway spending habits.”102 Second, they argue that counting B.S.A. withdrawals against the Gann Limit rather than deposits would move the goalpost on when Californians could receive constitutionally required tax refunds.103 Finally, they argue that the Proposition perpetuates a perceived trend of spending on “boondoggle” projects that fail to address the more immediate needs of Californians.104 They predict that an increased Rainy Day Fund will create a more volatile budget by failing to address spending excesses that they argue are the actual cause of budget difficulties in the state.105

Id. Id. 96 LWVC BALLOT RECOMMENDATIONS FOR NOV. 3. 2026, Proposition 2, Ballot Recommendations - LEAGUE of WOMEN VOTERS of CALIFORNIA, https://perma.cc/L2KR-U2PG. 97 Id. 98 Id. 99 NOVEMBER 2026 VOTER GUIDE, supra note 21 at 25. 100 Id. 101 Id. 102 Id. 103 Id. 104 NOVEMBER 2026 VOTER GUIDE, supra note 21 at 25. 105 Id. 95

F. Other Opponents The Howard Jarvis Taxpayers Association argues that the state’s reliance on progressive taxes cannot sustain its “reckless” spending habits, and that Proposition 2 thus amounts to a “Band-Aid on a severed limb.”106 Like other opponents, they are primarily concerned with a perceived weakening of the Gann Limit.107 They argue that while the change “makes sense from the perspective of addressing revenue volatility,” it fails to address earlier voter-enabled changes to the state spending limit that permit the Legislature to create budget emergencies of its own making.108 Fiscal discipline in spending rather than saving, they say, is the better remedy for budget crises.109 State Senator Tony Strickland echoes and adds to these concerns, arguing that “the state doesn’t have a revenue problem, it has a wasteful spending problem.”110 Senator Strickland posits that surplus revenues should pay down state debt and go to individual refunds to help account for the state’s affordability crisis.111 G. No Position Taken Education interest groups are largely absent from the debate over Proposition 2. Those groups formed a major opposition bloc to Proposition 2 (2014) over its provision capping the amount local school districts could keep in their own reserve accounts, instead establishing the the School Fund.112 Their chief argument was that such a fund could lead the public to incorrectly believe school funding was adequate.113 However, Proposition 2 (2026) contains no language affecting schools directly. As such, past opponents including the Association of California School Administrators and California Teachers Association have taken no position on Proposition 2.114 At least one education advocacy group, the California State Parent Teacher Association, has endorsed Proposition 2 (2026).115 The organization views the initiative as consistent with its commitment to legislative fiscal responsibility and protecting the Proposition 98 (1988) guarantees on General Fund money for schools.116 One possible explanation for the change is that while these groups opposed Proposition 2 (2014) for its restriction on local school savings, expanding the B.S.A. is an ultimate good for schools.117 Under Proposition 98 (1988), a smaller general fund leads to less education spending, 106

2026 Voting Guide for California Statewide General Election, HOWARD JARVIS TAXPAYERS ASS’N, https://perma.cc/B2QN-NNEX. 107 Id. 108 Id. 109 Id. 110 Kurtis Ming, California Voters To Decide On Proposition 2 To Expand Rainy Day Fund, KCRA 3 (July 26, 2026), https://perma.cc/7MFM-MTTP. 111 Id. 112 Binning & Rivera-Jurado, supra note 67 at 3. 113 Id. 114 ACSA Endorsements, ASS’N OF CAL. SCHOOL ADMIN., https://perma.cc/AWD2-F6JQ; 2026 November General Election Initiative Recommendations, CAL. TEACHERS ASS’N, https://perma.cc/3VW2-GNWN. 115 State Ballot Measures, CAL. STATE PARENT TEACHER ASS’N, https://perma.cc/2SN4-CWM6. 116 Id. 117 Interview with Wesley Hussey, supra note 40.

and so these groups likely embrace the ability to paper over funding gaps in emergencies, even if an earlier iteration of this initiative restricted school savings at the local level.118 H. Increasing the Size of the Rainy Day Fund Generally Opponents and proponents agree that the state needs fiscal responsibility, but they differ as to the means. Partisanship aside, a larger balance in the B.S.A. would mean more revenue is available in years when the state faces a budget emergency, regardless of that emergency’s cause. For the fourth year in a row, both the L.A.O. and Governor’s Office predict a multi-year budget deficit of $20 billion to $35 billion annually.119 The B.S.A. is currently valued at just under $19 billion.120 With deficits currently projected through 2030 and the likelihood of a stock market downturn in the next year affecting the state’s capital gains revenue, strengthening the state’s reserves may be a reasonable response.121 Another consideration is the federal funding losses resulting from the federal “One Big Beautiful Bill” Act (HR 1). In California, healthcare and food benefits programs faced instant cuts.122 Over the next ten years HR 1. is projected to cost the state’s food assistance program, CalFresh, between $1.7 billion and $3.7 billion annually while ending or reducing benefits for 3 million individuals.123 As for healthcare funding in general, the state stands to lose between $112 billion and $187 billion in federal funding over the coming decade.124 These are the types of losses that a larger Rainy Day Fund could help absorb. I. The Gann Limit, Debt Repayment, and “Slush Fund” Accusations Proposition 2 would change the current rule of counting B.S.A. deposits against the Gann Limit and instead apply withdrawals.125 This change would create more opportunities for the legislature to save and spend in economically strong years without hitting the limit.126 Opponents claim this would create a “slush fund” for Legislators by enabling more spending.127 While it may be a “clever” way to spend money in good years without hitting the Gann Limit, the claim that Proposition 2 creates a discretionary fund may not be entirely accurate.128 Proposition 2 does not create a specific fund from which the Legislature can draw money, nor does it vest any broad spending discretion in its language.129 The counterargument is that a Legislature already saving money for emergencies should be able to spend on the state’s 118

Id. GABRIEL PETEK, THE 2026–27 BUDGET: OVERVIEW OF THE GOVERNOR’S BUDGET, LEGIS. ANALYST’S OFF., at 8 (Jan. 2026), https://perma.cc/89MC-SFN8. 120 Id. 121 Id. at 8, 10. 122 H.R. 1 and the Federal Budget: How California Leaders Can Respond to Trump’s Cuts, CAL. BUDGET & POL’Y CTR. (July 2025), https://perma.cc/DFE9-PJ9Z. 123 Id. 124 Id. 125 Cal. Proposition 2 (2026), supra note 1. 126 Interview with Wesley Hussey, supra note 40. 127 NOVEMBER 2026 VOTER GUIDE, supra note 21 at 25. 128 Interview with Wesley Hussey, supra note 40. 129 Cal. Proposition 2 (2026), supra note 1. 119

needs without brushing against constitutional spending limits enacted in a different political climate.130 Where each argument falls appears to be a matter of political preference as to when and how much a government should spend. Opponents are vague as to exactly how Proposition 2 creates a “slush fund,” but debt repayments may play a role in that claim.131 Opponents theorize that expanding the debt required to be paid down would allow the Legislature to pull money from the B.S.A. in bad years while borrowing against the obligations Proposition 2 requires it to pay down.132 Borrowing against those expanded obligations would mean money that could be directed to the B.S.A. in good years would instead be required to pay debts from the bad.133 After 2040, when debt payments become optional, the state would be left with more debt as a result.134 This may be a mischaracterization, or at the very least a distraction from a fiscally prudent initiative, given Proposition 2 only expands repayment requirements for existing obligations and does not invent new categories on which the Legislature can spend.135 Moreover, while the Legislature could use the expanded obligations as a line of credit in bad years, it would be doing so at its own political peril.136 Ultimately, the argument goes, voters would have the power to check this practice.137 J. Proclaiming a Budget Emergency in the May Revision Under Proposition 2, the Governor’s May Revision would automatically constitute a budget emergency proclamation if such conditions exist and the Governor proposes either 1) a suspension or reduction of B.S.A. or School Account deposits or 2) a withdrawal from either account.138 As discussed above, this could prevent situations where the Legislature passes a budget in June that cannot withstand an emergency that the Governor forecast the previous May.139 However, this could theoretically create a separation of powers concern if the Legislature and Governor disagree on whether a budget emergency truly exists but the Governor is nevertheless able to coerce the legislature into passing an emergency budget. Budget forecasts between the Legislative Analyst and the Executive Department of Finance often differ, and while it is within the Legislature’s power to pass the budget, the Governor retains the power to veto the final product in whole or in part.140 A situation would arise in which the Governor wants or needs to proclaim a budget emergency that is either politically unpopular or at odds with the Legislative Analyst’s forecasts for the fiscal year. In such a scenario, the Governor could proclaim an emergency in the May Revision (rather than a more public formal proclamation) while threatening to veto line items that legislators who oppose the proclamation need for their 130

Id. Interview with Wesley Hussey, supra note 40. 132 Id. 133 Id. 134 Id. 135 Id. 136 Interview with Wesley Hussey, supra note 40. 137 Id. 138 Cal. Proposition 2 (2026) supra note 1 at § 20. 139 Id. 140 Interview with Wesley Hussey, supra note 40; Scott Graves, Guide to the California State Budget ProcessBudget & CAL. BUDGET & POL’Y CTR (Sep. 2026), https://perma.cc/84ZC-DM2G. 131

districts Those legislators may then face a choice between passing a budget they disagree with, or losing appropriations for their constituents. Thus, this obscure provision could give the Governor new leverage over a legislative function (the budget) while avoiding accountability for proclaiming an unpopular or dubious emergency. K. State Reserves in an Ongoing Affordability Crisis Affordability is a major issue in California, so it is worth considering the political wisdom in allowing the state to increase savings that could instead be spent meeting citizens’ needs directly. Home prices in the 35th to 65th percentile range in California are more than twice as expensive as similar homes nationally, and bottom tier homes outpace other states by roughly thirty percent. 141 Median annual household income sits around $100,000, while the income required to qualify for a bottom and mid-tier home mortgage is around $140,000 and $228,000, respectively.142 Meanwhile, prices have risen sharply on gasoline, utilities, and goods.143 While homelessness has declined by almost three percent since 2024, over 180,000 residents remain unhoused.144 Voters responded to a somewhat similar climate by enacting Proposition 13 (1978).145 A populist “revolt” against high taxes, soaring home prices, and a legislative refusal to spend a sizeable tax surplus on its citizens spurred voters to enact seismic changes to the state’s tax structure.146 Many argue this put state and local government in a “fiscal straitjacket.”147 Changes included a cap on property taxes and supermajority requirement in the Legislature for all new and increased taxes. While Proposition 13 remains popular, state and local governments have struggled to account for the loss of property taxes in their budgets, often passing that need onto citizens and corporations in the form of regulatory and service fees.148 While Proposition 2 would be a voter-enacted change and not a direct withholding by the Legislature, a populist “revolt” could miss this nuance. Voters today may similarly perceive the state to be sitting on a treasure chest while its citizens suffer financially. Still, twenty percent of the General Fund in savings may not be enough to generate the same backlash as Proposition 13 (1978), especially when fiscal conservatives do not enjoy the same population share in 2026 as they did in 1978.149 At any rate, voters and the Legislature would be wise to keep the history and consequences of Proposition 13 in mind when considering how frugal the state should be.

141

Alex Bentz, California Housing Affordability Tracker (2nd Quarter 2026), LEGIS. ANALYST’S OFF. (July 20, 2026), https://perma.cc/7ZD5-L3LP. 142 Id. 143 Id. 144 Marissa Kendall, Homelessness is down in California and across the country, says new federal report, CALMATTERS (May 30, 2026), https://perma.cc/SH8J-QQ7R. 145 Julie L. Koyama, Financing Local Government in the Post-Proposition 13 Era: The Use and Effectiveness of Nontaxing Revenue Sources, 22 PAC. L.J. 1333 (1991). 146 Id. 147 Id, at 1332–34, 1361. 148 Id. at 1359. 149 Interview with Wesley Hussey, supra note 40.

VII.

CONCLUSION

A “YES” vote supports this measure to: (1) change rules for building state budget reserves and paying down extra state debts, (2) allow for a greater proportion of the state budget , and (3) require the State to make extra debt payments for longer.150 A “NO” vote opposes this measure and means the rules for building state budget reserves would not change and extra debt payments would expire in 2030.151

150 151

NOVEMBER 2026 VOTER GUIDE, supra note 21 at 5. Id.

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Proposition 3: Provides Permanent Funding for Schools and Health Care by Extending Existing Tax on High Incomes Initiative Constitutional Amendment Copyright © 2026 by the University of the Pacific, McGeorge School of Law

By Teddy Fagin J.D., University of the Pacific, McGeorge School of Law, to be Conferred December 2027 B.A., Molecular and Cell Biology, University of California, Berkeley, 2012

& Dalton Mabery J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2027 B.S., Digital Media and Design, Southeastern University, 2021

EXECUTIVE SUMMARY

Proposition 3, the “California Children’s Education and Health Care Protection Act of 2026,” is a citizen-initiated constitutional amendment that would make permanent the existing income tax rates on high incomes that were originally passed by Proposition 30 (2012) and extended by Proposition 55 (2016).1 Currently, individuals pay a tax rate between 10.3 percent and 12.3 percent on taxable income over $371,000 (for single filers) and $743,000 (for joint filers).2 All revenues collected from the income taxed in that range are allocated to the Education Protection Account (“EPA”).3 That account is dedicated to providing funds to K-12 schools and community colleges.4 Those tax rates are currently set to expire after 2030, and if they expire, the maximum tax rate for individual and joint filers in the high-income range will be 9.3 percent for income below $1 million.5 Proposition 3 makes those tax rates permanent.6 A “YES” vote supports amending the state Constitution to make permanent the existing personal income tax rates of 10.3 percent, 11.3 percent, and 12.3 percent that apply to income above $371,000 for single filers or $743,000 for joint filers.7 A “NO” vote opposes that amendment, thereby allowing the existing tax rates to expire after 2030. The top income tax rate would then return to 9.3 percent for income below $1 million.8 II.

THE LAW A. Tax Brackets

California’s personal income tax rates are determined based on an amalgamation of statutes and a constitutional provision. Section 17041 of the Revenue and Taxation Code outlines the general tax brackets and sets the rates that individuals pay based on their filing status. That section sets a maximum tax rate of 9.3 percent.9 Section 17043 imposes an additional one percent tax on all taxable income over $1,000,000, which funds mental health care services in California.10 Finally, Section 36 of Article XIII of the California Constitution imposes a tax of 10.3 percent, 11.3 percent, and 12.3 percent on taxable income over $371,000 (for single filers) and $743,000 (for joint filers).11 The voters initially adopted those tax rates when they passed

See generally CAL. SEC’Y OF STATE, OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION, TUESDAY, NOVEMBER 3, 2026, at 26, https://perma.cc/N6WG-L62U (listing the propositions, their arguments, and their proposed text) [“NOVEMBER 2026 VOTER GUIDE”]. 2 Id. at 27. The Franchise Tax Board recomputes the income ranges subject to the high-income tax every year to adjust for inflation. CAL. REV. & TAX. CODE § 17041(h) (2026). Therefore, the ranges listed are approximate. 3 Education Protection Account: Frequently Asked Questions, CAL. DEP’T OF EDUC., https://perma.cc/3BU7-V7NF. 4 CAL. CONST. art. XIII, § 36(e)(3). 5 Id. § 36(f)(2); CAL. REV. & TAX. CODE § 17041 (2026). 6 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 26. 7 Id. The income ranges subject to these tax rates are subject to inflation adjustments. See CAL. REV. & TAX. CODE § 17041(h) (2026). 8 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 27. 9 CAL. REV. & TAX. CODE § 17041(a)(1) (2026). 10 CAL. REV. & TAX. CODE § 17043 (2026). 11 CAL. CONST. art. XIII, § 36(f)(2). The income range specified in Section 36 of Article XIII is from 2012. The Franchise Tax Board recomputes income ranges every year to adjust for inflation. CAL. REV. & TAX. CODE § 17041(h) (2026).

Proposition 30 (2012).12 The voters renewed those rates with the passage of Proposition 55 (2016).13 They are set to expire after 2030.14 B. Revenue Allocation Proposition 30 (2012) also created the Education Protection Account, and it is funded by the revenues generated by the additional taxes that Proposition 30 imposed on high incomes.15 That account essentially functions as a separate bank account that the Legislature can only use to spend on education.16 The California Constitution requires that of the revenue within the EPA, eighty-nine percent must be spent on K-12 schools, and eleven percent must be spent on community colleges.17 C. School Funding, Proposition 98, and Proposition 30 To properly understand Proposition 3 and the policy impacts that flow from its acceptance or rejection, one must first understand the four propositions that led to its creation. Those are Propositions 13 (1978), 98 (1988), 30 (2012), and 55 (2016). 1. Proposition 13 (1978) and Proposition 98 (1988) Before 1978, property taxes were the primary source of school funds.18 But Proposition 13 changed that because, among other things, it removed local school boards’ power to levy taxes and capped property taxes at one percent.19 This took a substantial source of revenue away from schools.20 Schools then turned to the Legislature to fill that funding gap, but the Legislature had other priorities, and public schools fell into a steep decline.21 In 1988, concerned with the state of the public school system in California (and learning about second-order effects), the voters passed Proposition 98 (1988).22 That Proposition amended the California Constitution to require the Legislature to provide a certain amount of funding to schools every year, called the “minimum funding guarantee.”23 The minimum guarantee amount is calculated based on one of three tests.24 Generally, the tests provide that the minimum guarantee amount must be approximately forty percent of the

William Chen, What Has Proposition 30 Meant for California?, CAL. BUDGET & POL’Y CTR. (Sept. 2016), https://perma.cc/35RV-CVBZ. 13 Proposition 55: High-Earner Tax, CALMATTERS (Sept. 28, 2016), https://perma.cc/RC8T-FK6T. 14 CAL. CONST. art. XIII, § 36(f)(2). 15 Education Protection Account: Frequently Asked Questions, supra note 3. 16 Id. 17 CAL. CONST. art. XIII, § 36(e)(3)(A)–(B). 18 Who Pays for Schools?: Where California’s Public School Funds Come From, ED100, https://perma.cc/4FM8NDG9. 19 Prop 13 and Prop 98: Initiatives That Shaped California’s Education System, ED100, https://perma.cc/9D9968FL. 20 Who Pays for Schools?: Where California’s Public School Funds Come From, supra note 18. 21 Id. 22 Id. 23 CAL. CONST. art. XVI, § 8(a); see Jonathan Kaplan & Erik Saucedo, What is Proposition 98 and How Does the State Budget Shortfall Affect It?, CAL. BUDGET & POL’Y CTR. (Feb. 2024), https://perma.cc/52TZ-XSL9 (explaining Proposition 98). 24 CAL. CONST. art. XVI, § 8(b).

State’s General Fund revenue, adjusted every year based on average daily attendance and the overall health of the economy.25 The Legislature can suspend the minimum guarantee and allocate less money to schools than is required under Proposition 98 for any given year by a two-thirds vote in both the Assembly and Senate.26 But if the Legislature so votes, the difference between the minimum guarantee and the amount actually allocated—the “maintenance factor”—must be paid back in subsequent years.27 2. How Proposition 98 and Proposition 30 Work Together a. Why Proposition 30 (2012) Was Needed Proposition 98 (1988) led directly to Proposition 30 (2012) because the funding guarantee was putting significant pressure on the State’s budget in the late 2000s.28 After the 2008 recession, the Legislature suspended the minimum guarantee and diverted those funds elsewhere in the budget.29 But because Proposition 98 requires those funds to be paid back in subsequent years, this created a “massive internal IOU,” and by 2011, Proposition 98’s maintenance factor exceeded $12 billion.30 To make up for that deficit, Governor Jerry Brown supported Proposition 30 (2012).31 Instead of taxing high incomes at the standard 9.3 percent, Proposition 30 imposed an additional one to three percent tax on that income.32 Those new tax rates generated additional revenue that the State was not collecting before and, in subsequent years, helped meet Proposition 98’s minimum guarantee and maintenance factor.33 But in fiscal year 2025–26, California faced a budget deficit for the third year in a row.34 To reduce that deficit, the Legislature chose not to fully fund Proposition 98’s minimum guarantee without taking the twothirds vote required to suspend it.35 b. How Proposition 30 Works Proposition 30 does not hand schools a separate pot of money in addition to Proposition 98’s minimum guarantee amount. Rather, the revenue created by Proposition 30 is counted as General Fund revenue, and the minimum guarantee is then calculated based on the size of the General Fund.36 Schools get more money under current law, not because Proposition 30 created

The 2026–27 Budget: Proposition 98 Guarantee and K-12 Spending Plan, LEGIS. ANALYST’S OFF. (Feb. 4, 2026), https://perma.cc/5JZ4-TBMQ. 26 CAL. CONST. art. XVI, § 8(h). 27 Id. § 8(d)–(e). 28 Prop 13 and Prop 98: Initiatives That Shaped California’s Education System, supra note 19. 29 Id. 30 Id. 31 Id. 32 Id. 33 Chen, supra note 12. 34 The 2025–26 Budget: Overview of the Spending Plan, LEGIS. ANALYST’S OFF. (Oct. 16, 2025), https://perma.cc/7EE7-D2HQ. 35 California Teachers Association Files Lawsuit to Uphold Constitution, Reclaim Billions in Funding for Public Schools After Violation of Prop. 98, CAL. TEACHERS ASS’N (Sept. 15, 2026), https://perma.cc/MP9G-7PDB. 36 Chen, supra note 12.

an additional line of funding, but because the increase in taxes on high incomes grows the General Fund by taxing personal income at a higher rate than before.37 For example, in fiscal year 2024–25, for purposes of Proposition 98’s minimum guarantee calculation, the General Fund revenue was approximately $215 billion.38 Under Proposition 98, the Legislature was therefore required to appropriate approximately $85.6 billion to public schools and community colleges from the State’s General Fund.39 The additional tax revenue created by Proposition 30 added approximately $14.8 billion to the General Fund, a number which was already factored in to calculate the $85.6 billion schools were owed.40 Under Propositions 98 and 30, the Legislature was not required to allocate $85.6 billion (approximately forty percent of the General Fund) plus $14.8 billion (100 percent of Proposition 30’s revenue) to public schools and community colleges, but only $85.6 billion, $14.8 billion of which came directly from Proposition 30’s taxes.41 Without Proposition 30’s taxes, the minimum guarantee would have been approximately $80 billion, calculated by subtracting the $14.8 billion that the high-income taxes added to the General Fund, and allocating to schools forty percent of that amount.42 Proposition 30’s tax rates were initially set to expire in 2018.43 But Proposition 55 (2016) extended the tax rates through 2030.44 D. Proposed Law 1. The Text Proposition 3 makes permanent the existing temporary taxes on high-income earners initially created by Proposition 30 (2012).45 The California Constitution currently contains sunset provisions that would make inoperative the 10.3 percent, 11.3 percent, and 12.3 percent tax rates after 2030.46 Proposition 3 repeals language such as, “For any taxable year . . . before January 1, 2031, [the tax rates are . . . ],” thereby making the tax rates permanent.47

Id. Schedule 13 at 2026 Budget Act Proposition 98 Final Certification, CAL. DEP’T OF FIN., https://perma.cc/LX6RMYS8. 39 Id. The Final Certification for fiscal year 2024–25 shows that the Legislature actually allocated approximately $92 billion for the Proposition 98 minimum guarantee, but that includes an additional maintenance factor payment that is added to the forty percent General Fund amount. 40 Id. 41 Id. 42 Id. 43 Cal. Proposition 30 (2012), https://perma.cc/VM7C-7Y3G. 44 Cal. Proposition 55 (2016), https://perma.cc/ESY5-TH7D. 45 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 26. 46 CAL. CONST. art. XIII, § 36(f)(2). 47 Cal. Proposition 3, § 4 (2026), https://perma.cc/TT58-ZX5T. 38

Figure 1. Current and Proposed Income Tax Rates Under Proposition 3

Single Filer

Joint Filer

Current Tax Rate

Tax Rate After 2030 if Proposition 3 Passes

$371k – $446k

$743k – $892k

10.3 percent

9.3 percent

11.3 percent

9.3 percent

12.3 percent

9.3 percent

$446k – $743k Above $743k

$892k – $1.5 million Above $1.5 million

Tax Rate After 2030 if Proposition 3 Fails

2. Fiscal Considerations Like all tax revenues tied to personal income, the high-income tax revenue fluctuates significantly based on the performance of the stock market.48 Accordingly, the Legislative Analyst’s Office estimates that Proposition 30’s taxes raise between $5 billion and $15 billion annually.49 California will forgo that entire amount if the tax rates expire after 2030.50 III.

DRAFTING ISSUES

In 2016, Proposition 55 amended the constitutional provisions that Proposition 30 enacted to direct additional General Fund revenue to health care.51 To do so, the Director of Finance estimates how much of the additional tax revenue generated by the high-income taxes, “when combined with all other available” General Fund revenues, will be needed to fund the State’s minimum guarantee obligation and workload budget, which is the cost to provide authorized state services as of 2016.52 Let us call this the “Proposition 55 Estimate.” If the Director estimates that there will be additional revenue remaining in the General Fund after subtracting the minimum guarantee and workload budget estimates, then half of that remaining amount must be allocated to the California Department of Health Care Services.53 But unlike the rest of Proposition 3’s proposed text, which makes permanent the provisions that Propositions 30 and 55 enacted, the section that requires the Director of Finance to calculate the Proposition 55 Estimate is not amended.54 Rather, it still reads, “(E) . . . Before June 30 of each year from 2019 to 2030,” which therefore sunsets this provision after 2030.55

Proposition 3, LEGIS. ANALYST’S OFF., https://perma.cc/44EB-8U28. Id. 50 Id. 51 The 2018–19 Budget: The Administration’s Proposition 55 Estimates, LEGIS. ANALYST’S OFF. (Mar. 1, 2018), https://perma.cc/2ZGA-CGJC. 52 CAL. CONST. art. XIII, § 36(e)(2)(E). 53 CAL. CONST. art. XIII, § 36(e)(2)(F). 54 See Cal. Proposition 3, supra note 47, § 4. 55 Id. 49

While the subsection that directs the overflow money to the Department of Health Care Services does not expire after a certain year, the overflow amount hinges on the Director of Finance’s estimate “pursuant to subparagraph (E).”56 But subparagraph (E) still expires after 2030, so there will not be an estimate that can be calculated to determine the overflow.57 It is unclear why Proposition 3 allows the overflow scheme to expire when it makes the other provisions indefinite, and only one source has explicitly mentioned that Proposition 3 does not extend the overflow scheme.58 In fact, language used to describe what Proposition 3 does makes it unclear whether this is intentional or an oversight by the drafters. For example, Ballotpedia’s Proposition 3 webpage explains that additional funds are “required to be allocated to the state Department of Health Care Services.”59 Additionally, CalMatters describes the allocation of money that Proposition 3 will create in the following way: “Eighty-nine percent of the money goes to K-12 public schools and 11% goes to community colleges, with any excess going to public healthcare.”60 That statement is not entirely incorrect, because the additional tax revenues do indirectly fund health care and other public services, but whether that indirect interpretation was meant remains unclear.61 The likeliest reason Proposition 3 does not extend the overflow scheme may be that, in the decade since the scheme’s enactment, no overflow has ever been directed to the Department of Health Care Services.62 IV.

CONSTITUTIONAL ISSUES

Proposition 3 presents no serious constitutional issues because it simply makes permanent taxes that were enacted in 2012 and extended in 2016, and there was no successful litigation over the substantive provisions when they were originally enacted. But there are two potential constitutional questions that are worth considering. A. Proposition 3 Circumvents the Legislature’s Taxing Power The California Constitution requires that any tax measure pass the Assembly and Senate by a two-thirds vote.63 So raising taxes through the initiative process is theoretically simpler, because passing an initiative only requires more than fifty percent of the voters’ approval to become law.64 While this is important to understand, it does not raise constitutional concerns because the voters have enacted numerous measures that increased taxes through propositions.65

CAL. CONST. art. XIII, § 36(e)(2)(F). Compare CAL. CONST. art. XIII, § 36(e)(2)(E) (“Before June 30 of each year from 2019 to 2030.”), with Cal. Proposition 3, supra note 47, § 4 (leaving that text unamended). 58 Should Voters Approve Prop. 3? How Top Tax Rates Have Helped Californians, CAL. BUDGET & POL’Y CTR. (July 2026), https://perma.cc/DY8Z-RZ85. 59 California Proposition 3, Renew State Income Tax Increase for Education Funding Initiative (2026), BALLOTPEDIA, https://perma.cc/M6DA-HPCM. 60 Proposition 3, CALMATTERS, https://perma.cc/9T2F-D6C3. 61 Should Voters Approve Prop. 3? How Top Tax Rates Have Helped Californians, supra note 58. 62 Id. 63 CAL. CONST. art. XIII A, § 3. 64 CAL. CONST. art. II, § 10(a). 65 See, e.g., Cal. Proposition 30, supra note 43 (imposing income and sales taxes); Cal. Proposition 63 (2004), https://perma.cc/BKQ2-Y92G (imposing a one percent tax on income over $1 million). 57

B. Proposition 3 Does Not Conflict with Proposition 40 When ballot propositions approved at the same election conflict, the proposition with the greatest number of affirmative votes prevails.66 Propositions conflict when they “are expressly offered as ‘all-or-nothing’ alternatives or because each creates a comprehensive regulatory scheme related to the same subject.”67 Proposition 3 expressly states that it conflicts with another measure that affects “the tax rates for personal income.”68 Proposition 40, if passed, would impose a five percent tax on individuals with assets over $1 billion.69 Although both propositions impose taxes on wealthy Californians, they are unlikely to conflict because Proposition 40 imposes a tax on an individual’s net worth and assets, not their income.70 The taxes imposed under Proposition 3 will reach a larger pool of taxpayers, and the nature of the tax is categorically different. V.

PUBLIC POLICY A. Proponents’ Arguments

Organizations that support Proposition 3 include the California Teachers Association, the California School Employees Association, the California State Parent Teacher Association, the California Democratic Party, and the California Medical Association.71 As of October 15, 2026, Proposition 3 supporters have contributed over $60,000,000.72 The California Teachers Association has contributed a majority of that amount.73 1. Proposition 3 Will Solidify California’s Future and Protect Other Vital Health and Human Services Proponents insist that investing in children’s education is the key to improving and solidifying California’s future, but if Proposition 3 does not pass, that will become difficult.74 If the taxes expire after 2030, California will forgo approximately $5 to $15 billion in tax revenue each year.75 Since its inception in 2012, the tax has raised more than $104 billion for schools and education, allowing the Legislature to allocate much-needed funds to other essential services.76 Without that additional tax revenue, proponents argue that not only will teachers be laid off, but the Legislature will be forced to take money away from services that California communities depend on—such as Medi-Cal and wildfire protection efforts—because Proposition 98’s minimum guarantee must be funded.77

CAL. CONST. art. II, § 10. Taxpayers to Limit Campaign Spending v. Fair Pol. Pracs. Comm’n, 51 Cal. 3d 744, 747 (1990). 68 Cal. Proposition 3, supra note 47, § 5. 69 Cal. Proposition 40 (2026), https://perma.cc/GAY4-7LNC. 70 Id. § 8. 71 California Proposition 3, Renew State Income Tax Increase for Education Funding Initiative (2026), supra note 59. 72 Top Contributors List, CAL. FAIR POL. PRACS. COMM’N, https://perma.cc/S6UZ-CL7W. 73 Id. (indicating the California Teachers Associations has contributed nearly $44,000,000). 74 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 28. 75 Id. 76 Proposition 3 – Annotated Legal Text, GROWSF (July 14, 2026), https://perma.cc/UFL2-LKHE. 77 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 29. 67

The California Teachers Association’s recent lawsuit against the Director of Finance reveals that this argument is more than theoretical.78 Filed on September 15, 2026, the lawsuit alleges that the State of California failed to fund the minimum guarantee in fiscal years 2024–25 and 2025–26, and allocated that money elsewhere to reduce the State’s budget deficit.79 It further alleges that this reduction resulted in $988 less spent per student in those years.80 While the State has given schools the $1.9 billion it withheld for fiscal year 2024–25, it has yet to pay the $3.9 billion it withheld for fiscal year 2025–26.81 Therefore, it is not hard to imagine that if the State is already deliberately siphoning Proposition 98 funds when Proposition 30’s additional revenue is available, schools will receive far less money if that revenue is lost. As another consideration, due to federal cuts from H.R. 1, Proposition 3 would maintain a consistent revenue source for California as it faces “serious budget pressure.”82 H.R. 1 could “cost [California] ‘tens of billions’ of dollars in federal funding every year” in the form of millions of Californians losing health coverage and food assistance.83 2. Proposition 3 Only Taxes the Top Two Percent of Earners The tax rates that Proposition 3 makes permanent only affect the top two percent of earners in California.84 Proponents therefore urge that if the rates are not extended, millionaires and billionaires will receive a minor tax cut at the expense of California’s future, Medi-Cal, firefighters, and other emergency response programs.85 The continued imposition of the highincome tax rates would relieve significant financial pressure on essential services and help preserve a fair tax system.86 3. Income Taxes Have Not Caused Individuals to Flee California Wealth flight—wealthy individuals leaving for states with lower income tax rates—is one of the general arguments against imposing additional income taxes on high earners.87 But while proponents do not explicitly rebut this assertion, the data tells a different story. Between 2013 and 2024, the number of Californians subject to the tax rates at issue nearly doubled.88 In addition, over the past fifteen years, the incomes of the wealthiest households have risen dramatically.89 For the top one percent, the average income exceeds $3 million, whereas for the

Plaintiff’s Verified Petition for Writ of Mandate and Complaint for Declaratory Relief, Cal. Teachers Ass’n v. Stephenshaw, No. 26CV210668 (Cal. Super. Ct. Sept. 15, 2026). 79 Id. at 2. 80 Id. at 13. 81 Id. at 11. 82 Chris Hoene, Opinion: California’s Top Earners are Thriving. Prop. 3 Asks Them to Keep Paying Their Fair Share., MERCURY NEWS (Aug. 28, 2026), https://perma.cc/2L3D-FBMF. 83 Monica Saucedo & Hannah Orbach-Mandel, Timeline of Funding Cuts to Medi-Cal and CalFresh in California, CAL. BUDGET & POL’Y CTR. (July 2026), https://perma.cc/5K9F-LYT2. 84 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 28. 85 Id. at 29. 86 Ballot Measure Recommendations, LEAGUE OF WOMEN VOTERS OF CAL., https://perma.cc/9RPQ-SLZS. 87 Preston Brashers, If You Tax Them, They Will Run: Millions of Americans Flee from California and New York, THE HERITAGE FOUND. (Mar. 12, 2025), https://perma.cc/6WV5-JCCE. 88 See Should Voters Approve Prop. 3? How Top Tax Rates Have Helped Californians, supra note 58. 89 Hoene, supra note 82 (describing California’s high-income earners).

middle fifth of Californians, income sits around $56,000.90 Thus, as the wealth gap has increased, there has also been a net increase in the number of wealthy Californians.91 B. Opponents’ Arguments Organizations that oppose Proposition 3 include the California Taxpayers Association, Howard Jarvis Taxpayers Association, and Reform California.92 “No on Proposition 3,” a committee sponsored by the California Taxpayers Association, raised $5,500 to defeat Proposition 3.93 These organizations are the primary opponents of various measures on the ballot this November, and their lack of spending in opposition to Proposition 3 might be explained by their significant spending elsewhere. For example, the Howard Jarvis Taxpayers Association has contributed $1,038,217 supporting Proposition 43, a measure that would require a two-thirds vote to impose local special taxes via a ballot initiative.94 1. Proposition 30 Was Originally Pitched as a Temporary Tax, and a Temporary Tax It Should Stay Proposition 30’s taxes were initially proposed as a temporary measure to rescue the State’s budget after the 2008 recession.95 Opponents therefore argue that because the taxes completed their job, they should now expire.96 Wayne Winegarden—a senior fellow at the Pacific Research Institute—arguing against Proposition 3 and paraphrasing Milton Friedman, quipped, “The most permanent thing in the world is a temporary government program.”97 2. If Proposition 3 Fails, It Will Not Seriously Impair School Funding The California Teachers Association—the primary proponent behind Proposition 3— contends that if it does not pass, schools and students will lose “almost $15 billion annually.”98 But while no official opponent refutes that argument directly, that math is not entirely correct. Recall that Proposition 98 requires the Legislature to apportion approximately forty percent of General Fund revenues to education and schools, and in fiscal year 2024–25, the minimum guarantee was $85.6 billion, $14.8 billion of which came from the high-income taxes.99 Proposition 30’s additional tax revenue is already included in the General Fund, even though that money can only be spent on education.100 Therefore, if Proposition 3 fails and the General Fund forgoes the additional $14.8 billion, under Proposition 98’s funding guarantee, schools would

Id. Id. 92 California Proposition 3, Renew State Income Tax Increase for Education Funding Initiative (2026), supra note 59. 93 Campaign Finance: No on Proposition 3, Sponsored by California Taxpayers Association, CAL-ACCESS, https://perma.cc/69H7-S79E. 94 Top Contributors List, supra note 72. 95 Prop 13 and Prop 98: Initiatives That Shaped California’s Education System, supra note 19. 96 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 28. 97 Dan Levin, Teacher-Backed Initiative Makes California’s Temporary Tax Hike Permanent, STRAIGHT ARROW NEWS (Apr. 3, 2026), https://perma.cc/65KD-2Z7M. 98 Yes on Proposition 3, CAL. TEACHERS ASS’N (July 22, 2026), https://perma.cc/48NZ-3FL5. 99 CAL. CONST. art. XVI, § 8(b); Schedule 13 at 2026 Budget Act Proposition 98 Final Certification, supra note 38. 100 Starr Avila, Proposition 3 Sustains California Schools. Losing the High-Income Tax Would Be Devastating, CALMATTERS (Aug. 18, 2026), https://perma.cc/Q9QS-2MQA. 91

still be entitled to approximately $80 billion. So schools are at risk of losing approximately $5.6 billion in funding, not $15 billion.101 Opponents similarly argue that rather than taxing individuals more, the Legislature should fix its “spending problem.”102 Support for this contention can be found in the California Teachers Association’s recent lawsuit against the Director of Finance. The lawsuit alleges that the State has intentionally chosen to underfund Proposition 98’s minimum guarantee to reduce the budget deficit.103 So even with the additional revenue created by Proposition 30, the State is continuing to overextend itself. Therefore, opponents argue that the focus should be on fixing the State’s spending problem first, and not on increasing or extending taxes.104 3. Proposition 3 Does Not Guarantee Additional Funds for Schools The original opponents to Proposition 30’s (2012) taxes argued that the increased revenue allowed the Legislature to play a “shell game” by taking existing money allocated for schools and spending it elsewhere, and then replacing that money with revenue from the new taxes.105 While no specific opponent has raised this argument against Proposition 3, the critique is still valid. Proposition 98 requires the Legislature to allocate approximately forty percent of all General Fund revenues to schools and education.106 With the tax revenue that Proposition 30 created, and that Proposition 3 would make permanent, the Legislature can more easily meet the minimum guarantee because that tax revenue can only be spent for that purpose.107 Therefore, money that would ordinarily be required to fund the guarantee is freed up and can be spent elsewhere.108 Due to the fungible nature of dollars, this can obfuscate where the Legislature allocates the additional revenue and thus undercuts the argument that Proposition 3 has “tough accountability.”109 VI.

CONCLUSION

Proposition 3 makes permanent the existing personal income tax rates on the State’s highest earners.110 The revenue generated from those additional rates must be spent on funding K-12 schools and community colleges.111 Proponents of Proposition 3 argue that if the taxes expire, there will be detrimental effects for public schools and the state budget.112 They further urge that the State’s wealthiest individuals should not receive tax cuts at the expense of

101

Proposition 3, supra note 48. NOVEMBER 2026 VOTER GUIDE, supra note 1, at 29. 103 Plaintiff’s Verified Petition for Writ of Mandate and Complaint for Declaratory Relief, supra note 78, at 2. 104 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 29. 105 CAL. SEC’Y OF STATE, OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION, TUESDAY, NOVEMBER 6, 2012, at 19, https://perma.cc/Z7E5-8NW5. 106 CAL. CONST. art. XVI, § 8. 107 CAL. CONST. art. XIII, § 36. 108 See George R. Crowley & Adam J. Hoffer, The Effects of Dedicating Tax Revenues, MERCATUS CTR. (June 14, 2012), https://perma.cc/4BA7-ZC7B (describing earmarking). 109 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 28. 110 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 26. 111 CAL. CONST. art. XIII, § 36(e)(3)(A)–(B). 112 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 28. 102

California’s future.113 Opponents urge voters to reject making permanent what was meant to be temporary without fixing California’s “spending problem” first.114 A “YES” vote supports amending the state Constitution to make permanent the current temporary income tax rates of 10.3 percent, 11.3 percent, and 12.3 percent that apply to taxable income above $371,000 for single filers or $743,000 for joint filers.115 A “NO” vote opposes that amendment, thereby allowing the existing tax rates to expire after the 2030 tax year. The top income tax rate would return to 9.3 percent for income below $1 million.116

113

Avila, supra note 100. NOVEMBER 2026 VOTER GUIDE, supra note 1, at 29. 115 NOVEMBER 2026 VOTER GUIDE, supra note 1, at 26. 116 Id. at 27. 114

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Teddy Fagin, J.D., University of the Pacific, McGeorge School of Law, to be Conferred December 2027 B.A., Bachelor of Arts in Molecular and Cell Biology with an Emphasis in Biochemistry and Molecular Biology, with Honors, University of California, Berkeley, 2012 &

Siena Giampaoli, J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., Bachelor of Arts in Psychology and Religious Studies, Gonzaga University, 2024 &

Marco Sumarriva J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.S., Global Health, University of Southern California, 2013

EXECUTIVE SUMMARY

Proposition 4, officially titled the “Allow Public Financing of Election Campaigns Measure,” would enact Senate Bill 42, known as the “California Fair Elections Act of 2026,” that repeals the existing prohibition on state and local governments offering public funding for candidates’ election campaigns.1 Under current law, state and local governments are barred from using public funds for election campaigns, except in charter cities and counties, which are exempt from this restriction.2 This measure repeals that prohibition and would allow state and local governments to create public campaign financing programs for candidates who agree to specified spending limits and meet eligibility criteria.3 The measure prohibits public funding programs from using funds earmarked for education, transportation, or public safety, and it also prohibits using public funds for fines, legal defense, or repayment of personal loans.4 In addition to lifting the funding ban, the measure would triple the maximum fine for campaign contributions made by foreign entities.5 A “YES” vote on this measure would allow state and local governments to create campaign financing programs for candidates for public office, subject to limits on which public funds can be used, how they can be used, and who can receive them. A “NO” vote on this measure means that state and most local governments would remain unable to create public campaign finance programs for election candidates. II.

THE LAW A. History of Restrictions on Public Campaign Financing

Following the 1972 Watergate political espionage scandal, several states sought to enact legislation to ensure political accountability and transparency.6 California led this movement by successfully passing the Political Reform Act in 1974 (PRA), which put guardrails on campaign finance and lobbying.7 In the ensuing decades, state and federal courts vacillated between enacting and invalidating election contribution regulations, particularly on Constitutional First Amendment grounds that recognize money as speech, thereby limiting the restrictions imposed by voters on political contributions.8

California Proposition 4, Allow Public Financing of Election Campaigns Measure (2026), BALLOTPEDIA, https://perma.cc/2JG2-MJNH. 2 Cal. Proposition 4, § 2 (2026), https://perma.cc/QH6Q-MHWH. 3 Id. 4 Id. 5 Id. 6 About the Political Reform Act, CAL. FAIR POL. PRACS. COMM’N, https://perma.cc/4NHC-KGXW. 7 Id. 8 Id.

1. Proposition 9 (1974): The Political Reform Act of 1974 Californians passed Proposition 9 (1974), or the PRA, as part of a nationwide movement targeting corruption in the political process.9 The PRA had multiple provisions, including mandatory spending limits for candidates, mandatory disclosures for lobbyists, and limitations on incumbents’ advertising at public expense.10 The PRA enjoyed popular support from nonpartisan political watchdog groups such as Common Cause, as well as from Jerry Brown during his first term as governor.11 Despite this initial popular support for political oversight regarding campaign finance, subsequent case law, beginning with the 1976 United States Supreme Court case Buckley v. Valeo,12 would successfully challenge many of these provisions on Constitutional grounds. 2. Buckley v. Valeo The 1976 U.S. Supreme Court case Buckley v. Valeo is a foundational case where the Court held that mandatory spending limits are unconstitutional.13 Although it did not address California statutes directly, the plaintiffs challenged the constitutionality of the Federal Election Campaign Act, including its spending limits and mandatory disclosures.14 The Court permitted disclosure requirements for anonymous contributions exceeding one hundred dollars, although a later case, Americans for Prosperity Foundation v. Bonta15 in 2021, reversed this decision, guaranteeing donor anonymity on First Amendment grounds. Additionally, the Buckley Court upheld limitations on individual contributions to candidates but held that limits on campaign expenditures, including limits on candidates’ spending of their own personal funds, violated the First Amendment, creating a constitutional basis for future challenges on campaign finance reform.16 3. Proposition 68 (1988) Twelve years after the Buckley decision, California voters passed Proposition 68 (1988), the Campaign Contributions Initiative, which limited campaign contributions for State Assembly and Senate races.17 This proposition placed limits on individual campaign contributions and created the Campaign Reform Fund, a public campaign fund which would match campaign contributions that qualifying candidates obtained via other sources.18 Individuals could contribute up to $3 annually to the fund, which was accessible by candidates who met a threshold contribution amount while adhering to campaign expenditure limits.19 Proposition 68 9

Id. Id. 11 About the Political Reform Act, supra note 6. 12 Buckley v. Valeo, 424 U.S. 1, 58 (1976). 13 Id. at 1. 14 Id. 15 Ams. for Prosperity Found. v. Bonta, 594 U.S. 595 (2021). 16 Buckley, 424 U.S. at 58–59. 17 About the Political Reform Act, supra note 6. 18 Id. 19 Id. 10

(1988) limited individual contributions to $1000 per candidate and political committee contributions to $5,000 per candidate. The proposition successfully passed with 58 percent of California voters endorsing it.20 Although it passed, Proposition 68 (1988) shared the ballot with the successful Proposition 73 (1988), which contradicted major provisions of Proposition 68 by prohibiting election campaigns from accessing public funds.21 In the 1990 case Taxpayers to Limit Campaign Spending v. Fair Political Practices Commission,22 the California Supreme Court held that when multiple successful initiatives on the same ballot offer incompatible regulatory schemes, the proposition receiving more affirmative votes prevails. Because Proposition 68 (1988) received fewer affirmative votes than Proposition 73 (1988), Proposition 68’s provisions were inoperative following the decision.23 4. Proposition 73 (1988) In addition to placing limits on individual campaign contributions, Proposition 73 (1988) barred campaigns from accessing public funds as well as funds from other candidates.24 Subsequent cases invalidated certain provisions of Proposition 73 (1988), but the proposition’s ban on public campaign finance remains largely intact today.25 In 1992, the 9th Circuit struck down the proposition’s limits on campaign contributions and candidate transfers in the case Serv. Employees International Union, AFL-CIO, CLC v. Fair Political Practices. Commission.26 Later that year, the California Supreme Court held that Proposition 73 (1988) limitations on public campaign finance were not absolute in Johnson v. Bradley.27 5. Johnson v. Bradley: Charter Cities Four years after Proposition 73 (1988) prohibited public campaign financing programs, the California Supreme Court recognized an exception whereby certain charter cities could establish public campaign financing schemes.28 Under the California state constitution, charter cities such as Los Angeles hold the power to enact laws conflicting with state laws when a city regulates municipal affairs as opposed to matters of statewide concern.29 The Court held that regulations of local funds and elections fell under the former category, enshrining charter cities’ right to establish public campaign financing programs.30

Id. Id. 22 Taxpayers to Limit Campaign Spending v. Fair Pol. Pracs. Comm’n, 51 Cal. 3d 744 (1990). 23 Id. 24 About the Political Reform Act, supra note 6. 25 Id. 26 Serv. Employees Int’l Union, AFL-CIO, CLC v. Fair Pol. Pracs. Comm’n, 955 F.2d 1312 (9th Cir. 1992). 27 Johnson v. Bradley, 4 Cal. 4th 389 (1992). 28 Id. 29 Id. 30 Id. 21

6. Proposition 208 (1996) This 1996 proposition placed limits on campaign contributions to candidates and created voluntary spending limits, but subsequent cases and statutory law would render it invalid almost instantly.31 Opponents would stymie Proposition 208 (1996)’s effect within the year by obtaining a temporary injunction against it in California Prolife Council Political Action Committee v. Scully32 before later repealing most of its provisions with Proposition 34 in 2000. 7. Proposition 34 (2000) Upon its passage, Proposition 34 (2000) amended the PRA to limit individual contributions to candidates, create disclosure requirements, limit lobbyist contributions, and increase penalties for campaign contribution violations.33 While it placed dollar limits on contributions to specific offices and elections, it also created political contribution committees through which individuals could functionally circumvent contribution limits.34 Proposition 34 (2000)’s language limiting campaign contributions remains present in the PRA as of 2026.35 8. Proposition 25 (2000) and Proposition 15 (2010) These ballot initiatives reflect two unsuccessful attempts to amend the PRA to permit public campaign financing programs following Proposition 73 (1988).36 Both measures failed by wide margins, with only 34.7 percent of the voters supporting Proposition 25 (2000) and 42.7 percent of voters supporting Proposition 15 (2010).37 Proposition 25 (2000) would have created a scheme for public financing campaign advertisements and voter information brochures.38 In addition to repealing the PRA prohibition on public campaign financing, Proposition 15 (2010) would have created a campaign finance pilot program solely for the office of California Secretary of State.39 Notably, while Proposition 4 (2026) is a successor to these failed initiatives, it seeks only to repeal the prohibition on public campaign contributions and does not seek to enact any statewide or local campaign finance structure.40

About the Political Reform Act, supra note 6. California Prolife Council Political Action Committee v. Scully, 989 F. Supp. 1282 (E.D. Cal. 1998). 33 Proposition 34, LEGIS. ANALYST’S OFF., https://perma.cc/G8JV-G5UE. 34 Id. 35 Cal. Gov. Code § 85100 (2026). 36 About the Political Reform Act, supra note 6. 37 Election Campaigns. Contributions and Spending Limits. Public Financing. Disclosures., UC LAW SF SCHOLARSHIP REPOSITORY: CALIFORNIA BALLOT PROPOSITIONS AND INITIATIVES, https://perma.cc/3AWJ-A2NN; Proposition 15: California Fair Elections Act, UC LAW SF SCHOLARSHIP REPOSITORY: CALIFORNIA BALLOT PROPOSITIONS AND INITIATIVES, https://perma.cc/QXJ6-Y24L. 38 Proposition 25, LEGIS. ANALYST’S OFF., https://perma.cc/9QTX-YY5J. 39 NOVEMBER 2010 VOTER GUIDE, at 66–67, https://perma.cc/4T8N-MT3L. 40 Cal. Proposition 4, supra note 2, § 2. 32

9. Citizens United v. Federal Election Commission (2010) In 2010, the same year California voters rejected Proposition 15, the U.S. Supreme Court decided Citizens United v. Federal Election Commission,41 which reshaped the constitutional framework for campaign finance regulation. The Court noted a distinction between direct contributions to candidates and independent expenditures by corporations and unions in support of or opposition to a candidate.42 While permitting government limitations on direct contributions to candidates, the Court struck down federal prohibitions on independent expenditures for political advocacy by corporations and unions, reasoning that these independent expenditures did not produce corruption in the political system and were protected by the First Amendment.43 10. Senate Bill 1107 (2016) After failed attempts at the ballot box in 2000 and 2010, campaign finance reformers found legislative success in 2016.44 The California legislature enacted Senate Bill 1107 (2016), which amended the PRA to allow state and local governments to establish campaign finance programs.45 The state legislature passed this bill arguing it served the PRA’s purpose by reducing candidates’ reliance on contributions from lobbyists and special interests.46 However, this success was short lived, as the California Court of Appeals struck down Senate Bill 1107 in Howard Jarvis Taxpayers Association v. Newsom47 in 2019. 11. Howard Jarvis Taxpayers Association v. Newsom (2019) In 2019, the California Court of Appeal held Senate Bill 1107 (2016) invalid in the case Howard Jarvis Taxpayers Assn. v. Newsom because the legislature lacked the power to end the prohibition on public campaign financing.48 The decision hinged on which branch of government had the power to determine the PRA’s purpose.49 In passing Senate Bill 1107, the legislature asserted that it was advancing the PRA’s purpose of reducing candidates’ dependency on private donations.50 The court held that the judicial branch, not the legislative branch, could determine the PRA’s purpose, and that Senate Bill 1107, which permitted public campaign financing, directly conflicted with the PRA’s purpose.51 This decision regarding the PRA’s purpose as a bar to public campaign finance applies only to legislative acts.52 The PRA permits the Legislature to 41

Citizens United v. Fed. Election Comm’n, 558 U.S. 310 (2010). Id. at 357, 365. 43 Id. 44 Tara Malloy, Court Decision is a Setback for Public Financing Programs in California, CAMPAIGN LEGAL CENTER (Oct. 9, 2019), https://perma.cc/6XBF-6P5W. 45 Id. 46 Id. 47 Howard Jarvis Taxpayers Ass’n. v. Newsom, 39 Cal.App.5th 158 (3d Dist. 2019). 48 Id. 49 Id. 50 Id. 51 Id. 52 Howard Jarvis Taxpayers Ass’n., 39 Cal.App.5th at 158. 42

amend the PRA only to further the Act’s purpose, but voters are not similarly constrained.53 Because the PRA is an initiative statute, the electorate may amend both the statute and its purpose, either by a subsequent initiative or by approving an amendment the Legislature submits to the electorate.54 Thus, while the Legislature could not lift the ban on public campaign financing directly, it could ask the voters to do so, which is exactly what it did by placing Proposition 4 (2026) on the ballot.55 B. Proposed Law Proposition 4 would end the prohibition on state and local governments offering public funds to candidate election campaigns while imposing basic guidelines for future implementation at the state and local level.56 Proposition 4 amends Government Code Section 85300 to allow state and local governments to allocate public funds to political candidates’ election campaigns, subject to certain restrictions.57 For instance, if Proposition 4 passes, governing bodies could not use funds that are allocated for education, transportation, or public safety to fund public campaign financing program.58 Proposition 4 also would amend Government Code Section 85320 to prohibit foreign governments, principals, or nationals from making direct or indirect financial contributions to local or state ballot measures or candidate election campaigns.59 Proposition 4 does not require state or local governments to establish public campaign finance programs.60 It also leaves decision-making and criteria largely up to governing bodies that choose to implement such a system.61 1. Limitations on Available Public Funds Proposition 4 permits state and local governments to allocate public funds to election campaigns only if the funds are not earmarked for education, transportation, or public safety.62 2. Limitations on State and Local Governments Enacting Public Campaign Finance Programs Proposition 4 does not impose extensive requirements that state or local governments must follow when determining if a candidate may qualify for public funding under programs those governing bodies may create in the future.63 Neither does Proposition 4 create a model or sample framework that states must or may follow when creating their own programs.64 Instead, 53

CAL. GOV’T CODE § 81012(a)–(b) (2026). Id. 55 Bill Text: CA SB 42, LEGISCAN (Oct. 2, 2025), https://perma.cc/W87J-62XN. 56 Proposition 4 – Annotated Legal Text, GROWSF, https://perma.cc/DH4A-258C. 57 Id. 58 Id. 59 Id. 60 Id. 61 Proposition 4 – Annotated Legal Text, supra note 56. 62 Id. 63 Id. 64 Id. 54

Proposition 4 requires candidates to meet strict criteria to qualify for public funds, such as showing broad grassroots support, while leaving the determination of what constitutes strict criteria almost entirely up to state and local governments.65 Public funds in this context are funds which a state or local governmental entity provides to candidates seeking office.66 Although Proposition 4 leaves this determination largely to state and local governments, it provides one parameter for establishing public campaign finance programs.67 When determining the strict criteria which candidates must follow to obtain public funds, state and local governments must relate those criteria to a candidate’s demonstrable public support.68 However, where individual donations are the measure of this public support, no statute, ordinance, or charter may require an individual contribution greater than ten dollars.69 3. Limitations on Candidates Accepting Public Funds Proposition 4 includes limitations on how candidates may use public funds. Candidates may not use funds for their legal defense fees, fines, or repayment of personal loans to their campaign.70 Even after a campaign ends, candidates may not use public funds to repay personal loans to their campaigns.71 Candidates seeking public funds must also adhere to the relevant expenditure limits required by their state or local government.72 These expenditure limit requirements would only apply to candidates who voluntarily seek public funding.73 Proposition 4 does not specify said expenditure limits, leaving them up to the enacting governing body.74 4. Limitations on Candidates Accepting Foreign Contributions Proposition 4 amends section 85320 of the Government Code to identify categories of foreign entities which may not contribute financially to state or local candidates or ballot measures.75 These entities include foreign governments, foreign principals, and foreign nationals.76 Foreign nationals are individuals who are neither lawfully admitted permanent residents (LPR) nor citizens of the United States.77 Individuals who have been granted deferred action

Id. Proposition 4 – Annotated Legal Text, supra note 56. 67 Id. 68 Id. 69 Id. 70 Id. 71 Proposition 4 – Annotated Legal Text, supra note 56. 72 Id. 73 Id. 74 Id. 75 Id. 76 Proposition 4 – Annotated Legal Text, supra note 56. 77 Id. 66

under the federal Deferred Action for Childhood Arrivals (DACA) program do not fall under the classification of foreign nationals.78 Foreign principals, by contrast, are generally entities rather than individuals.79 The category includes foreign political parties and partnerships, associations, corporations, organizations, or other combinations of persons organized under the laws of a foreign country or having their principal place of business in a foreign country.80 Foreign principals also include persons outside the United States who are not United States citizens, as well as organizations not created under the laws of the United States or any states with their principal place of business outside the United States.81 The category further includes domestic subsidiaries of foreign corporations if the decision to contribute or spend funds is made by an officer, director, or management employee of the foreign corporation who is neither an LPR nor a United States citizen.82 5. Penalties Proposition 4 amends Government Code Section 85320, which imposes fines on foreign entities that violate this section.83 Whereas previous violators paid a penalty equal to their offending contribution, Proposition 4 raises this fine to a minimum of triple the amount an offending entity contributed.84 Proposition 4 maintains the language in the section that deems the illegal contributions a misdemeanor and states that the aforementioned penalty exists in addition to any other penalties the actions may incur.85 6. Fiscal Considerations Proposition 4’s estimated annual costs are less than one-tenth of a percent of the State’s total General Fund budget.86 This amount, approximately a few hundred thousand dollars per year, will primarily fund legal staffing at the Fair Political Practices Commission (FPPC).87 The FPPC will answer questions from state and local governments to facilitate the lawful implementation of public funding programs.88 Notably, Proposition 4 would only remove the existing prohibition and would not itself raise taxes or authorize public spending.89 Instead, the financial burden of any public financing program would fall on the local government that chooses to establish one.90 Accordingly, the Legislative Analyst’s Office cautions that the cost

Id. Id. 80 Id. 81 Proposition 4 – Annotated Legal Text, supra note 56. 82 Id. 83 Id. 84 Id. 85 Id. 86 Proposition 4, LEGIS. ANALYST’S OFF., https://perma.cc/US6H-NDS5. 87 Id. 88 Id. 89 California Proposition 4 (2026): Repeals Prohibition Against Public Funding of Election Campaigns, BALLOTQUESTIONS.VOTE, https://perma.cc/24LX-36PC. 90 Id. 79

could be significant for governments that elect to create such programs.91 The overall cost would ultimately depend on the local government and the structure of the program it adopts.92 There also appears to be little indication that any California cities or counties intend to establish a public financing program if Proposition 4 passes. As it stands, California has approximately 125 charter cities, but only five, Berkeley, Long Beach, Los Angeles, Oakland, and San Francisco, have adopted public campaign financing programs, with Berkeley being the most recent in 2016.93 III.

DRAFTING ISSUES

Proposition 4 presents minimal substantive drafting issues because, as a “legislatively referred state statute” in the form of Senate Bill 42, amended in the Assembly before passing both the State Senate and Assembly,94 it straightforwardly undoes the existing ban on public campaign funding.95 In amending Section 85300 of the Government Code, it includes precise definitions that control its added seven subdivisions, eleven paragraphs, two subparagraphs, and two clauses.96 The bill, now Proposition 4, was drafted with broad rules to create a flexible framework that allows local governments to “design and implement their own programs” if they choose.97 However, if legal challenges do arise against state or local public campaign financing programs, this broad framework could give judges broad latitude in interpreting the programs’ legality. Though the public financing rules are intentionally broad to leave decisions to future local decision makers, the bill contains guardrails to rein in the use of the funds, including who can qualify for the funds (candidates who demonstrate broad grassroots support), which funds can be used (not money reserved for education, transportation, or public safety), and how the funds can be used (not for loans or legal fees).98 In addition, local governments can seek guidance from the FPPC to help avoid legal disputes altogether.99 The FPPC would not oversee or enforce these public financing laws; instead, it would merely provide guidance to state and local governments seeking to comply with public financing rules.100 Another change not detailed by Proposition 4 involves when exactly enhanced penalties will be imposed for illegal foreign contributions. In addition to amending Section 85300 of the 91

See Proposition 4, supra note 86. Id. 93 Sofia Williams, What is Prop. 4? Measure Allows Public Campaign Financing in Local Elections, THE SACRAMENTO BEE (Sept. 24, 2026), https://perma.cc/52PX-5EZ9; Kota Suzuki, ‘Charter’ Cities are Gaining Popularity in California, but Voters are Worried about New Taxes, SAN FRANCISCO CHRONICLE (Nov. 20, 2024), https://perma.cc/3B8X-8YZW. 94 See California Proposition 4, Allow Public Financing of Election Campaigns Measure (2026), supra note 1. 95 CAL. GOV’T CODE § 85300 (2026). 96 See Proposition 4 – Annotated Legal Text, supra note 56. 97 Proposition 4, supra note 86. 98 Id. 99 Id. 100 Id. 92

Government Code, Proposition 4 also amends Section 85320, which currently makes it a misdemeanor for a person to solicit or accept foreign money for campaigns.101 AB 953 recently amended Section 85320 by elaborating on the definition of a foreign national.102 Proposition 4 would further amend it to change the fine from an amount equal to the amount unlawfully contributed to up to “three times the amount [unlawfully] contributed,” but it does not specify how a court should determine the amount of the penalty within that range.103 Provisions allowing courts to impose enhanced penalties within a statutory range are not uncommon. For example, California Civil Code section 340.11 permits a factfinder to award up to three times actual damages in certain childhood sexual-assault cases, with courts considering factors such as the defendant’s blameworthiness and the purposes of punishment and deterrence when determining the amount of the enhancement.104 Similarly, Civil Code section 3345 permits a court to award up to three times an otherwise authorized amount when specified circumstances involving senior or disabled victims are present.105 These cases direct the factfinder to consider factors including the defendant’s knowledge, the extent of the victim’s losses, and the victim’s vulnerability.106 These provisions demonstrate that allowing a court to impose a penalty below a statutory three-times maximum is not inherently arbitrary; courts may exercise discretion based on the circumstances of the violation and factors identified by the Legislature. Thus, Proposition 4’s authorization of different penalties for different violations would not, by itself, create a drafting issue. The potential concern, instead, is that Proposition 4 does not identify factors or circumstances to guide courts in determining where a particular penalty should fall within the one-to-three-times range, leaving courts to develop those standards on a case-by-case basis. IV.

CONSTITUTIONAL AND STATUTORY ISSUES

Proposition 4 does not appear to pose any constitutional issues, such as a potential violation of the single-subject rule of California Constitution Article II Section 8(d) or the separate-vote issue of Article XVIII Section 1, because all of the Proposition 4’s “parts are ‘reasonably germane’ to each other[ ] and to the” issue of repealing the public funding ban.107 However, if a germaneness issue did exist, it would concern the California Constitution’s separate-vote provision, not the single-subject rule, because Senate Bill 42 brought Proposition 4 to the ballot, not a people’s initiative.108 No news articles allege an Article XVIII violation, likely because the amendments to Sections 85300 and 85320 of the Government Code, respectively, to end the ban on public campaign funding and to increase fines for foreign contributions, both 101

CAL. GOV’T CODE § 85320 (2026). AB 953: Political Reform Act of 1974: Contributions and Expenditures by Foreign Nationals, CALMATTERS DIGITAL DEMOCRACY, https://perma.cc/X8FV-6TSM. 103 See § 85320, supra note 101; Proposition 4 – Annotated Legal Text, supra note 56. 104 CAL. CIV. PROC. CODE § 340.11 (2026). 105 CAL. CIV. CODE § 3345 (2026). 106 Id. 107 Raven v. Deukmejian, 52 Cal.3d 336, 346 (1990); Californians for an Open Primary v. McPherson, 38 Cal.4th 735, 763 (2006). 108 Californians for an Open Primary, 38 Cal.4th at 763. 102

reduce disparities in campaign contributions. While public financing would empower voters and candidates to compete with high-spending campaigns, the risk of greater fines for candidates utilizing foreign funds would ultimately result in smaller war chests for big money players. As such, by weakening money’s impact on elections, these amendments are reasonably related and avoid triggering the separate-vote rule. V.

PUBLIC POLICY ISSUES A. Proponents’ Arguments

Proponents of Proposition 4 primarily argue that money, in the form of private campaign contributions, should not determine who campaigns and who wins elections.109 Organizations that support Proposition 4 include California Common Cause, California Clean Money Campaign, League of Women Voters, and California Democratic Party.110 Additional supporters include the ACLU, AFSCME, Asian Law Caucus, Bay Rising Action, California Environmental Voters, California Nurses Association, California Labor Federation, Courage California, Dolores Huerta Foundation, Indivisible, La Defensa, and many other state, local, and national organizations.111 1. Leveling the Playing Field Proponents argue that public fundraising can “curb the influence of private money in politics.”112 Public funding would let candidates without substantial financial resources compete more effectively against candidates supported by wealthy donors or who are self-funded.113 Proponents argue that campaigns should be won, not bought.114 Ideas and merit should determine elections.115 Since 2020 alone, more than a billion dollars has been spent on California state elections.116 Accordingly, a large majority of Californians (eighty-one percent) believe that wealthy private contributors have too much influence over elected officials.117 In addition to reducing the influence of donors and special interests, proponents contend that public financing could lessen incumbents’ advantages and promote more open, competitive, and accountable elections.118 Public campaign financing programs would also provide candidates with greater access to resources needed to compete in elections.119

109

Cal. Proposition 3, supra note 2, § 2. Proposition 4, supra note 86. 111 California Fair Elections Act: Allow Public Funding of Campaigns So Elections are Won, not Bought, CALIFORNIANS FOR FAIR ELECTIONS, https://perma.cc/6FQY-FUAX. 112 Proposition 4, CALMATTERS, https://perma.cc/AL2C-968F. 113 Linh Tat, What is Proposition 4 Before California Voters in the 2026 Election?, THE MERCURY NEWS (Jul. 6, 2026), https://perma.cc/ST2L-KSRB. 114 See California Fair Elections Act, supra note 111. 115 The League of Women Voters of California, The League of Women Voters of California’s Ballot Measure Recommendations for 2026, FULLERTON OBSERVER (Sept. 6, 2026), https://perma.cc/TL9S-RW9H. 116 California Fair Elections Act, supra note 111. 117 Id. 118 The League of Women Voters of California, supra note 115. 119 See Tat, supra note 113. 110

2. Public Financing Will Result in Greater Diversity in Both Candidates and Contributors, Which Will Better Reflect California’s Diverse Population Proponents argue that by removing the ban on public funding, Proposition 4 will not only allow a greater number of qualified candidates to compete against special interest-backed politicians, but it will also empower small-dollar donors both by helping them be heard and by holding elected officials accountable to the people they represent.120 After all, “Latino, Asian American, and Black Californians make up almost two-thirds of California’s population.”121 Therefore, when candidates speak to their lives and address their concerns, this large crosssection of the population would be more inclined to participate in civic engagement.122 As it stands, California’s large, diverse population is underrepresented in elected offices.123 Proposition 4 would potentially expand opportunities for people from all backgrounds to run and participate across the State if public financing programs were adopted in state and local elections.124 3. Supporters Assure That Proposition 4 has Strict Rules That are Specifically Designed to Prevent Corruption and to Ensure That It is Not a Free-for-All Money Grab Proposition 4 requires that, under any public funding programs adopted in California, candidates must show “broad-based support in their district and agree to spending limits and other program rules” before they are eligible to receive public funding.125 Spending limits and grassroots support requirements protect public funds by ensuring that the funds are used appropriately.126 Although the measure leaves many program details to local governments, it establishes a framework governing both eligibility and expenditures.127 Candidates must meet “strict criteria” demonstrating broad-based district support, which may include collecting smalldollar contributions or vouchers from a specified number of voting-age residents.128 However, the measure does not specify how many contributors a candidate must reach, leaving that threshold to the state or local government that establishes the public-financing program.129 If a local government decides to evaluate broad-based support by issuing a minimum number of individual donations requirement, any donation greater than ten dollars ($10) will simply be tabulated as one $10 donation.130 Instead of letting large donors tip the scales by making large donations to access public funding, the framework requires candidates to show 120

Ballot Initiatives, LEAGUE OF WOMEN VOTERS: BERKELEY ALBANY EMERYVILLE (Aug. 18, 2026), https://perma.cc/LL5F-9ST9. 121 Id. 122 Id. 123 The League of Women Voters of California, supra note 115. 124 See 2026 Election ACLU Cal Action Voter Guide, ACLU CAL. ACTION, https://perma.cc/N68P-ATJ5. 125 Proposition 4, supra note 86. 126 The League of Women Voters of California, supra note 115. 127 California Proposition 4 (2026), supra note 89. 128 Proposition 4, supra note 86. 129 Cal. Proposition 3, supra note 2, § 2. 130 Proposition 4 – Annotated Legal Text, supra note 56.

grassroots support before they can access public funding. In addition, Proposition 4 would prohibit discrimination on the basis of incumbency or party affiliation.131 Further, candidates do not have carte blanche to spend the money indiscriminately; instead, candidates are strictly prohibited from using the funds to pay off loans, fines, and legal fees.132 Furthermore, the public monies dedicated to a campaign funding program cannot come from accounts reserved for education, transportation, or public safety.133 This protects the funds used for core public services.134 And again, the FPPC would not administer or enforce any local public financing programs but would only issue guidance for local governments to follow.135 Correspondingly, because Proposition 4 simply repeals the existing funding ban, it does not mandate public funding. Instead, local governments would retain discretion over whether to implement such programs.136 4. Public Funding Systems Work Proposition 4 supporters also point to the “different types of public funding systems” to show that they can work.137 Proposition 4 would allow public funding systems such as matching funds systems, democracy voucher systems, clean election systems, and full public funding voucher systems.138 Publicly funded candidates, such as Mayor Zoran Mamdani in New York City and Mayor Karen Bass in Los Angeles, have proven capable of winning against big money campaigns.139 “Billionaires spent over $40 million against Mamdani” and over $108 million against Bass, but both won because public financing allowed them to reach voters anyway.140 In the wake of Citizens United,141 public campaign financing has become increasingly popular, going hand-in-hand with the new changes to contribution limits; this is broadly known as the Electoral Reform Wave.142 Since, Citizens United and related cases allowed unlimited super PAC spending, wealthy donors and outside groups have gained influence over political campaigns on a scale not seen in decades.”143 Proposition 4 gives voters more power while reducing the influence of “wealthy donors and special interests.”144

131

Vote with the League Toolkit 2026, THE LEAGUE OF WOMEN VOTERS OF CALIFORNIA, https://perma.cc/Y4P2GFBN. 132 Proposition 4, supra note 86. 133 Id. 134 Vote with the League Toolkit 2026, supra note 131. 135 Proposition 4, supra note 86. 136 Tat, supra note 113. 137 California Fair Elections Act, supra note 111. 138 Id. 139 Id. 140 Id. 141 Citizens United, 558 U.S. 310. 142 Allow Public Financing of Election Campaigns Measure, MULTISTATE ELECTIONS, https://perma.cc/K3CGQ5BL; See also Electoral Reform: Overview, EBSCO, https://perma.cc/6L5D-JWH3 (“Electoral reform refers to changes in electoral policy aimed at enhancing the fairness, transparency, and effectiveness of the election process”). 143 Citizens United, 558 U.S. at 315; See also Influence of Big Money, BRENNAN CENTER FOR JUSTICE, https://perma.cc/4KQ8-FZVN. 144 See The League of Women Voters of California, supra note 115.

Matching funds systems “empower small donors to compete with larger ones” because small donations can be matched with public funds, which magnifies the small donors’ impact.145 Under Proposition 4, the local government would design and implement its own plan. For example, New York City matches eligible donations at a rate of 8:1 for contributions up to $175, while Los Angeles, San Francisco, and Berkeley provide 6:1 matches for smaller contributions.146 Proponents point to these systems as allowing candidates such as Mayors Mamdani and Bass to remain competitive despite substantial financial opposition.147 Voucher systems work by providing residents with a small sum of money, a coupon of sorts, that they can give to eligible candidates.148 For example, Seattle gives residents four $25 vouchers that they can use for endorsing candidates, which allows everyone to fund campaigns even if they could not afford to donate otherwise.149 “Full public funding clean election systems” seek to reduce candidates’ reliance on private donors by providing qualifying candidates with public grants subject to two conditions.150 Candidates must first demonstrate sufficient grassroots support by raising a required amount from small contributions.151 Once they qualify, candidates cannot continue raising private funds for their campaigns.152 The states of Connecticut, Maine, and Arizona, and the city of Albuquerque, New Mexico, use this system.153 The California Clean Money Campaign has also proposed a hybrid approach called “full public funding democracy vouchers,” which combines elements of voucher-based and full public financing systems.154 Under this model, candidates who collect enough vouchers could qualify for public grants sufficient to finance their campaigns, meaning they would not rely on contributions from wealthy donors or special interests.155 Overall, public funding systems allow more people to participate in the democratic process, which ultimately increases the likelihood that elected officials will represent their constituents’ best interests. B. Opponents’ Arguments Opponents of Proposition 4 primarily contend that the measure would open the door to taxpayer-funded political campaigns without adequate safeguards against abuse, special-interest influence, or fiscal waste.156 This opposition includes the California Taxpayer Association, the 145

California Fair Elections Act, supra note 111. Id. 147 Id. 148 Id. 149 Id. 150 California Fair Elections Act, supra note 111 (Title case removed). 151 Id. 152 Id. 153 Id. 154 Id. (Title case removed.) 155 California Fair Elections Act, supra note 111. 156 California Proposition 4, Allow Public Financing of Election Campaigns Measure (2026), supra note 1. 146

Howard Jarvis Taxpayers Association, the California Hispanic Chambers of Commerce, United Latinos Action, Reform California, and the Family Business Association of California.157 1. Preemptive Nature of Opposition As a preliminary matter, much of this opposition is preemptive: Proposition 4 does not itself create or fund a public financing program, nor does it force any government to adopt one.158 Instead, it repeals the existing statutory ban under the Political Reform Act of 1974 and allows the state or any individual local governmental entity to decide independently whether to establish its own public financing fund.159 Any entity that creates such a fund must set strict eligibility criteria and expenditure limits that participating candidates must agree to follow.160 Most of the opposition therefore targets the potential consequences of that choice rather than the measure’s actual details. 2. Adequacy of Eligibility Requirements The most organized opposition comes from a coalition that includes California Taxpayers Association, the California Hispanic Chambers of Commerce, United Latinos Action, Reforms California, and the Family Business Association of California. Dan Schnur (former chair of the Fair Political Practices Commission), Colleen McAndrews (a former FPPC commissioner), and Julian Canete (president of the California Hispanic Chambers of Commerce).161 Together, these opponents argue that Proposition 4 does not establish eligibility requirements for candidates to receive public campaign funds, and that the same politicians who stand to benefit from the system would later write those requirements.162 What the statute leaves unspecified is the “strict criteria” for demonstrating broad-based district support, including how many contributors a candidate must reach, leaving that determination to the state or local entity that creates the program.163 Opponents also raise the concern that candidates could receive public funds while continuing to accept money from special interests, and argue that taxpayers should not have to fund political campaigns at all.164 They further contend that the measure sets no limit on the number of candidates who could receive public funding, giving states and local governments broad discretion over participation in the program.165 According to opponents, without a fixed limit or sufficient oversight, taxpayers could ultimately be responsible for funding an unlimited number of candidates and campaigns.166

157

Id. CAL. GOV’T CODE § 85300(a)–(b) (2026); see also Cal. Proposition 3, supra note 2, § 2. 159 Id. 160 Id. 161 California Proposition 4 (2026): Repeals Prohibition Against Public Funding of Election Campaigns, supra note 89. 162 Id. 163 Id. 164 California Proposition 4, Allow Public Financing of Election Campaigns Measure (2026), supra note 1. 165 Id. 166 Id. 158

3. General Opposition to Taxpayer-Funded Campaigns This same coalition also voices a broader objection to taxpayer-funded campaigns as a matter of principle. The Howard Jarvis Taxpayers Association (HJTA) points out that the Political Reform Act has barred the use of tax dollars to finance political campaigns since 1974.167 The HJTA has previously won court challenges upholding that ban, and its position has not changed: taxpayers, in HJTA’s view, should never have to cover candidates’ or incumbents’ campaign costs.168 The California Taxpayers Association frames the objection in terms of priorities, arguing that when people pay taxes, they expect that money to go toward schools, fire departments, libraries, and roads rather than negative political advertising during election season.169 However, the measure carves out an exception that preserves that priority, prohibiting public financing programs from using funds earmarked for education, transportation, or public safety.170 4. Continued Special-Interest Influence Opponents recognized in the California Voter Guide raise a related but distinct concern: that lifting the ban risks opening the door to greater special-interest influence rather than reducing it.171 This concern stems from the measure’s failure to establish a fixed funding amount or limit on how many candidates could draw from a public fund, leaving those details to be worked out after passage by whichever entity implements the program.172 Without these limits, a program could distribute substantial public funds to candidates who continue accepting contributions from wealthy donors and special interests.173 Rather than replacing private financial influence, public financing could supplement it, allowing wellconnected candidates to benefit from taxpayer support while retaining access to private donors who may expect political influence in return.174 This is a reasonable consequence of simply removing a ban rather than enacting a fully specified program. However, opponents see this as a real risk because public financing does not prevent candidates from also accepting money from wealthy donors.175

167

2026 Voting Guide: Ballot Measure Recommendations, HOWARD JARVIS TAXPAYERS ASS’N, https://perma.cc/ST3M-BNTC. 168 Id. 169 Id. 170 Cal. Proposition 4, supra note 2, § 2. 171 Id. 172 Id. 173 Proposition 4: Arguments and Rebuttals, CAL. SEC’Y OF STATE, OFFICIAL VOTER INFORMATION GUIDE (2026), https://perma.cc/8ABH-DVRS. 174 Id. 175 Id.

5. Risk of Fraud and Lack of Oversight Opponents raise another structural concern in the Assembly Legislative Analysis: because the bill leaves candidate eligibility to individual governments and provides no centralized oversight, they argue the system is “ripe for abuse and corruption.”176 The measure also expressly excludes the FPPC from responsibility for administering or enforcing local public financing programs, leaving enforcement to the same governments that administer them and, in opponents’ view, leaving no independent check on how public funds are distributed.177 Opponents contend that public dollars should go toward prudent fiscal priorities rather than campaign subsidies and warn that, without uniform standards or an independent enforcer, public financing could direct taxpayer funds to fraudulent candidates or force taxpayers to fund political speech they do not support.178 6. San Francisco as a Cautionary Example Finally, opponents point to San Francisco’s existing public financing program – permissible pre-Proposition 4 because San Francisco is a charter city – as a cautionary case study.179 From 2012 to 2019, the city matched donations to the Board of Supervisors candidates 2-to-1.180 After 2019, they raised the match to 6-to-1 on the first $150 of a donation.181 Following that change, the median donation size dropped while the city’s overall funding obligation stayed the same, meaning donors saved money while taxpayers absorbed the difference.182 Critics argue that this tradeoff might be justified if it produces more competitive or diverse elections but contend that it did not produce meaningful change.183 By 2024, the program had reached a record $45.8 million in total spending, with taxpayers covering $8.8 million of it.184 Critics contend that these figures illustrate how the program allows politicians to shift the costs of campaigns onto taxpayers, ultimately reducing the amount their donors must contribute.185

176

ASSEMBLY COMMITTEE ON ELECTIONS, COMMITTEE ANALYSIS OF SB 42, at 7 (July 2, 2025), https://perma.cc/GK65-MGRE. 177 Cal. Proposition 4, supra note 2, § 2. 178 See California Proposition 4 (2026): Repeals Prohibition Against Public Funding of Election Campaigns, supra note 89. 179 Proposition 4 — Repeals Prohibition Against Public Funding of Election Campaigns, GROWSF, https://perma.cc/7XHR-4X9T. 180 Id. 181 Id. 182 Id. 183 Id. 184 San Francisco Public Campaign Financing Program Report for the November 5, 2024 Election, SAN FRANCISCO ETHICS COMM’N, https://perma.cc/SHB6-732W. 185 Proposition 4 — Repeals Prohibition Against Public Funding of Election Campaigns, supra note 179.

VI.

CONCLUSION

Overall, the measure works to lift the strict ban on public campaign financing by allowing state and local governments to offer such programs if they choose to. It puts guardrails in place to ensure that qualified candidates receive the funds and that such funds are used appropriately. Supporters of Proposition 4 primarily argue that it would allow ordinary citizens to compete with privately funded campaigns, whereas opponents argue that tax dollars should not be spent on subjecting everyday people to political ads. A “YES” vote translates to approval for the possibility of publicly funded campaigns throughout California. A “NO” vote rejects public funding by keeping the public financing ban in place.

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Proposition 5: Changes Recall Election Process for Statewide Officers Legislative Constitutional Amendment Copyright © 2026 by the University of the Pacific, McGeorge School of Law By Sabrina Agaiby J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2027 B.A., Politics, Saint Mary’s College of California, 2023

& Robert Carter J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., History, California State University, Sacramento, 2023

& Dalton Mabery J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2027 B.S., Digital Media and Design, Southeastern University, 2021

EXECUTIVE SUMMARY

Proposition 5 is a constitutional amendment, initially introduced as Senate Constitutional Amendment (“SCA”) 1, that alters the process for recalling an elected official and voting for the replacement.1 Under existing law, when a recall election is triggered, voters first decide whether to recall the elected official, and then vote on who they want to fill that office.2 With the two-part vote, if there is a candidate who receives a plurality of votes on the second part of the ballot, they become the successor.3 Proposition 5 removes the second question from the ballot and creates a special process for filling the office of a recalled Governor.4 Under Proposition 5, voters at the recall election would only vote on whether the incumbent should be recalled. 5 If the Governor is successfully recalled, the Lieutenant Governor would serve as Governor.6 Under Proposition 5, the recalled officer is eligible to run again in the future election for the office.7 For State Senate and Assembly offices, if the recall is successful, the office remains vacant until it can be filled through a special election.8 A “YES” vote means: Recall elections would not include a question about who should fill a vacant office if the recall is successful. Instead, vacancies will be filled through appointment or special elections consistent with existing laws for filling vacancies. A “NO” vote means: The recall process would remain unchanged, and voters would still be asked who should fill the vacant office following a successful recall election. II.

THE LAW A. Legal Background 1. A History of the Recall Process

The recall process as a political tool has an uncertain origin, but it at least dates back to the Greeks and Romans.9 While the idea was debated at the Constitutional Convention, it was never seriously considered or formally voted upon.10 Therefore, the recall process did not play a prominent role in American politics until the Progressive Movement in the early 20th century sought to “clean[] up the moral and political health of the country.”11 The Progressives’ main tool for doing so was Direct Democracy—a form of government whereby the people, and not their elected representatives, directly vote on laws and policies.12 The initiative and referendum procedures that California and many other states use are the primary descendants of this Direct

Cal. Proposition 5 (2026), https://perma.cc/6JS4-T2BC. CAL. CONST. art. II, § 15. 3 Proposition 5, LEGIS. ANALYST’S OFF., https://perma.cc/7DLR-7GB3. 4 CAL. SEC’Y OF STATE OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION, TUESDAY, NOVEMBER 3, 2026, at 34, https://perma.cc/N6WG-L62U [“NOVEMBER 2026 VOTER GUIDE”]. 5 Cal. Proposition 5, supra note 1. 6 Id. 7 Id. 8 Id. 9 JOSHUA SPIVAK, RECALL ELECTIONS: FROM ALEXANDER HAMILTON TO GAVIN NEWSOM 22 (2021). 10 Id. 11 Id. at 25. 12 Direct Democracy, EBSCO, https://perma.cc/HL73-3CGC. 2

Democracy movement.13 Curiously, the major proponents of Direct Democracy initially rejected the recall process for fear that it “involves the personal element in a manner allowing for reprisals and political revenge.”14 California became the third state in the country to adopt the recall process in 1911.15 Spurred by the Southern Pacific Railroad’s complete domination of the state legislature and most other elected offices in California, Hiram Johnson became Governor with one goal in mind: “kick the Southern Pacific out of politics.”16 His strategy for doing so was Direct Democracy, and in that year the People voted to amend the state Constitution to include the initiative, referendum, and recall powers.17 Proponents of the recall argued that the People must wield “the power to remove a dishonest, incapable, or unsatisfactory servant.”18 Reasoning that no corporation or partnership could effectively operate without the ability to fire an underperforming employee, proponents asked, “Why then should not the public whose business is vastly more important than private enterprise be permitted to possess this power for its protection if occasion should acquire?”19 Of the twenty-three Constitutional amendments on the ballot in 1911, the recall amendment received the second-largest margin of votes in favor.20 There have since been 179 attempts to recall a state official in California.21 Only eleven attempts triggered an election, and just six officials have been recalled.22 Of the nineteen states that have a recall process, California has the second highest number of recall elections, with half of all gubernatorial recall elections in American history taking place in California within the last twenty years.23 2. Problems with the Current Recall Process The Little Hoover Commission—a non-partisan oversight agency dedicated to improving state government operations and policy—identified two primary problems with the current recall process.24 First, voters can too easily put a recall question on the ballot.25 Second, the current recall process allows an incumbent to be replaced by a candidate who received fewer votes than the duly elected officeholder.26 Additionally, the officer can be recalled even when more voters vote against the recall than they do for the replacement candidate.27 For example, in 2018, fortytwo percent of voters (66,000 votes) voted against recalling State Senator Josh Newman, yet he 13

SPIVAK, supra note 9, at 25. Id. William Howard Taft called the recall process the “‘hair trigger’ form of government.” Id. 15 Id. at 26. 16 Id. at 30; THEODORE H. WHITE, AMERICA IN SEARCH OF ITSELF 65 (1982) (“Hiram Johnson . . . [tore] California politics apart in the first decade of the Twentieth Century.”). 17 Kira L. Klatcho, The Progressivist Origins of the 2003 California Gubernatorial Recall, 35 MCGEORGE L. REV. 701, 703 (2004). 18 REFORMING THE RECALL, LITTLE HOOVER COMM’N, at 8 (Feb. 2022), https://perma.cc/VA7S-SYFB [“REFORMING THE RECALL”]. 19 Id. 20 SPIVAK, supra note 9, at 31. 21 REFORMING THE RECALL, supra note 18, at 10. 22 Id. 23 Id. 24 Id. 25 Id. 26 REFORMING THE RECALL, supra note 18, at 10. 27 Id. 14

was replaced by Ling Ling Chang, a candidate who received 50,000 votes.28 This also happened in 1995, when more votes were cast against recalling Assemblymember Paul Horcher (20,000) than were cast for his ultimate replacement (18,000).29 3. Related and Prior Legislation There have been three legislative attempts in recent years to alter the recall process. In 2022, California enacted AB 2582.30 That bill changed the local recall election process in the same manner that Proposition 5 proposes to do for statewide recalls.31 In 2021, Senator Allen introduced SCA 3, a proposed Constitutional amendment that would have eliminated both questions from the recall ballot and would have simply placed the incumbent’s name alongside the other potential candidates.32 Under that process, the candidate who received the most votes would win—even if it was the incumbent.33 That amendment was referred to the Senate Committee on Elections and Constitutional Amendments, but it was never heard.34 Also in 2021, Senator Newman introduced SCA 6, a proposed Constitutional amendment identical in form to the provisions of Proposition 5.35 SCA 6 was similarly referred to the Senate Committee on Elections and Constitutional Amendments, but the Committee took no further action.36 4. Proposition 5 (2026)’s Theory in Action The Legislature passed AB 2582 in 2022, and therefore local recall elections may project how Proposition 5 will work at the state level.37 But so far, the results are not encouraging.38 After Catherine Alvarez was recalled, her seat on the Downey City Council remained vacant— and her former district remained unrepresented—for over a year because the City charter only allowed a vacancy to be filled by an election, but the City refused to hold one.39 After Oakland Mayor Sheng Thao was recalled in 2024, City Council President Nikki Fortunato Bas was supposed to become interim mayor by operation of the City charter.40 But at the same election where Thao was recalled, Bas was elected to the Alameda County Board of Supervisors.41 So from December 17, 2024, to January 6, 2025, Bas served as interim mayor of Oakland.42 Then Kevin Jenkins became City Council President, thereby making him interim

Id. at 22. Id. at 20. 30 AB 2582, 2021 Leg., 2021–2022 Reg. Sess. (Cal. 2021). 31 Id. 32 SCA 3, 2021 Leg., 2021–2022 Reg. Sess. (Cal. 2021). 33 Id. 34 Complete Bill History of SCA-3, https://perma.cc/YT9C-VGJR. 35 SCA 6, 2021 Leg., 2021–2022 Reg. Sess. (Cal. 2021). 36 Complete Bill History of SCA-6, https://perma.cc/AB74-VYFD. 37 AB 2582, 2021 Leg., 2021–2022 Reg. Sess. (Cal. 2021). 38 Joshua Spivak, Takeaways from California’s recent local recalls, SCOCABLOG (Nov. 25, 2024), https://perma.cc/PZC8-JS55. 39 Alex Dominguez, Catherine Alvarez was recalled. Now what?, THE DOWNEY PATRIOT (Feb. 7, 2023), https://perma.cc/W4B7-XUWX. 40 Katie DeBenedetti, Oakland Has a Special Election Mess on Its Hands After Mayoral Election. Here’s Why, KQED (Dec. 4, 2024), https://perma.cc/4NUE-NM4Q. 41 Id. 42 Id. 29

mayor until a special election could be held to vote on Thao’s permanent replacement.43 Had Thao’s recall election taken place before AB 2582 went into effect, the next mayor would have been chosen on the same ballot as Thao’s recall, but instead, Oakland went through three mayors in the span of just a few months.44 These complications at the local level highlight the uncertainties around altering a process that impacts important state offices and should encourage policy leaders to brainstorm potential complications Proposition 5 may create and ensure there are ways to address them before they occur. B. Existing Law 1. The Recall Election Ballot The People of the State of California have the power to recall any state officer or elected official.45 If the recall effort is successful, the officer or official is removed from their office before their term would otherwise expire.46 The California Constitution contains numerous procedural and technical provisions that must be complied with to subject an officer to a recall election.47 If the proponents successfully comply with those procedures, the recall ballot currently contains two parts.48 The first part asks, “Shall [name of officer sought to be recalled] be recalled (removed) from the office of [title of office]?”49 Following that question, the second part contains a list of replacement candidates and a space for voters to write in a candidate of their own.50 Existing law prevents an incumbent from being a replacement candidate.51 If a majority of the voters vote “Yes” on the first question, the official is removed.52 The official’s replacement is the candidate who received the most votes on the second question, even if that individual did not receive a majority.53 But if a majority of the voters vote “No” on the first question, the official remains in office.54 2. Filling a Vacancy If the Governor’s office becomes vacant for a reason other than a recall, such as by death, incapacitation, or resignation, the Lieutenant Governor fills the vacancy and becomes Governor.55 If another constitutional office becomes vacant for a reason other than a recall, the Governor fills that office via appointment and confirmation by the Senate and Assembly.56 Those

Leslie Brinkley & Lena Howland, Kevin Jenkins selected to serve as next interim mayor of Oakland; third mayor in 3 months, ABC7 NEWS (Jan. 6, 2025), https://perma.cc/7HLP-DB2H. 44 Id. 45 CAL. CONST. art. II, § 15. 46 CAL. ELEC. CODE § 11385 (2026). 47 CAL. CONST. art. II, § 14; see generally Mary-Beth Moylan, Advocating for Cause: the California Recall Process Needs a Purpose, 130 DICK. L. REV. 469, 476 (2026) (describing the procedures). 48 CAL. CONST. art. II, § 15. 49 REFORMING THE RECALL, supra note 18, at 7. 50 Id. 51 Id. 52 Id. 53 Id. 54 REFORMING THE RECALL, supra note 18, at 7. 55 CAL. CONST. art. V, § 10. 56 CAL. CONST. art. V, § 5(b).

offices include the Lieutenant Governor, Secretary of State, and Attorney General.57 When a vacancy occurs in the Senate or Assembly for a reason other than a recall, the Governor must call an election to fill that vacancy within fourteen days.58 But if the vacancy in the Legislature occurs after the close of the nomination period in the final term of office, then the office simply remains vacant until the next regularly scheduled election.59 C. Proposed Law If Proposition 5 passes, the recall ballot would only ask one thing: should this officer be recalled? 60 The process by which a replacement candidate will be selected to fill a recalled officer’s position depends upon the type of officer that was recalled. If the Governor is recalled, the Lieutenant Governor becomes Governor.61 If the recall occurs before the close of the nomination period for the next election, then a special election will occur alongside the primary election for a new Governor.62 From there, the candidate who obtains a majority vote takes office.63 If there is no majority candidate, then a special election between the top two vote-getters will be held at the general election. If the recall occurs in the last two years of a Governor’s term, the Lieutenant Governor fills the remainder of the term until the next regular election.64 If the recall for an elected official other than the Governor is successful, the resulting vacancy is filled according to the California Constitution.65 For vacancies in the Assembly or Senate, a subsequent special election is held to vote on a successor.66 III.

DRAFTING ISSUES

Proposition 5 is silent on whether, when a candidate is appointed or elected to serve out the remainder of a recalled official’s term, those years of service count towards that candidate’s term limits. A state senator or assemblymember may not serve more than a combined total of twelve years in either chamber during their lifetime.67 A Governor may not serve more than two terms.68 Courts have strictly construed questions of term limits in the past, so time spent serving out the remainder of a recalled official’s term will likely count toward an individual’s term limits or maximum years of service. In Schweisinger v. Jones,69 the court considered whether Doris Allen—an Assemblymember who was recalled before the end of her third term—could run again for an Assembly seat. The Secretary of State refused to place her name on the ballot, contending that if she were elected, she would serve more than the three terms then allowed for state 57

Id. CAL. CONST. art. IV, § 2(d); CAL. GOV’T CODE § 1773 (2026). 59 CAL. GOV’T CODE § 1773 (2026). 60 Cal. Proposition 5, supra note 1. 61 Id. 62 Id. 63 Interview with Dan Schnur, Professor, Former Chair, California Fair Political Practices Commission (Sept. 25, 2026) (on file with the California Initiative Review). 64 Cal. Proposition 5, supra note 1. 65 NOVEMBER 2026 VOTER GUIDE, supra note 4, at 34. 66 CAL. CONST. art. IV, § 2(d). 67 Id. § 2(a)(4). 68 CAL. CONST. art. V, § 2. 69 Schweisinger v. Jones, 68 Cal. App. 4th 1320 (3d Dist. 1998). 58

representatives.70 The court agreed, reasoning that it would make no sense to allow a recalled official to be able to serve longer than someone who was never recalled.71 In Arntz v. Superior Court,72 the court applied similar reasoning to a county supervisor who filled a vacancy. Michela Alioto-Pier was appointed to fill a Board of Supervisors position that opened when Gavin Newsom left to become mayor.73 She served in that position from January 2004 to November 2004, was elected to serve out the remainder of Newsom’s four-year term, and then was re-elected to her own four-year term in 2007.74 San Francisco’s charter prohibits Supervisors from serving more than two terms and provides that, “Any person appointed . . . to complete in excess of two years of a four-year term shall be deemed . . . to have served one full term.”75 When Alioto-Pier sought re-election after her own four-year term ended, she argued that she had been appointed for only ten months since she was elected in November 2004 to serve out the remainder of Newsom’s term, and therefore that time should not be rounded up.76 But the Court disagreed and held that because she originally served out the remainder of an appointed term that lasted more than two years, that service counted as one full term.77 It would be clearer if Proposition 5 explicitly addressed the impact of the time spent serving the remainder of a recalled official’s term, just as the San Francisco City Charter did in Arntz. But even without such clear language, it is likely that any time spent serving out a recalled official’s term will count towards that individual’s term limits or maximum years of service. IV.

PUBLIC POLICY ISSUES A. Proponents’ Rationale

Proponents claim Proposition 5 is necessary to defend the voters’ will against weaponized recalls.78 Because they view the current process as having incentivized dangerous and wasteful recall efforts, they believe that removing the replacement vote is a commonsense reform.79 B. Proponents’ Arguments The argument favoring Proposition 5 in the Secretary of State’s Official Voter Information Guide is signed by League of Women Voters Co-President, Lorrel Palmer; California Common Cause Executive Director, Darius L. Kemp; and former Chair of the California Fair Political Practices Commission, Dan Schnur.80 Proponents argue that a “yes” vote would protect majority rule by preventing candidates who receive a plurality of the vote from replacing an

Id. at 1330. Id. at 1325. 72 Arntz v. Superior Court, 187 Cal. App. 4th 1082 (1st Dist. 2010). 73 Id. at 1087–88. 74 Id. 75 Id. at 1085. 76 Id. at 1095. 77 Id. at 1099. 78 NOVEMBER 2026 VOTER GUIDE, supra note 4, at 38. 79 Id. 80 Id. 71

incumbent that a majority voted to recall.81 Therefore, proponents say, the democratic process is best served if Proposition 5 passes.82 Proponents’ argument points implicitly to the 2021 Gubernatorial Recall Election, as well as the prior recall attempt in 2020 and subsequent attempts in 2024 and 2025 that failed to qualify for the ballot.83 In 2021, the incumbent Gavin Newsom faced a recall against forty six replacement candidates, generating concern over a recall by a majority and replacement by a plurality if the vote among those candidates should split.84 Despite ongoing concerns as to the constitutionality of the state’s current recall process, the United States Court of Appeals for the Ninth Circuit held in 2022 that the process does not violate the Fourteenth Amendment.85 Because those who vote to retain an officer in a recall may nevertheless vote on their replacement, the court saw no dilution of the “one person, one vote” principle.86 Constitutional challenges aside, proponents caution that the current recall process creates opportunities for abuse and fiscal waste. Former California Senator Josh Newman, an early author of Proposition 5 prior to his own 2018 recall, claimed the change would prevent “political gamesmanship” in the current process.87 Many others have criticized the process as a vehicle for political harassment, particularly as it was used against Governor Gavin Newsom in 2021. Writing in support of Proposition 5, Mark Z. Barabak of the Los Angeles Times referred to the 2021 effort as a “political tantrum” that siphoned taxpayer funds to re-litigate the 2018 election, only to confirm its results “to the decimal.”88 The Secretary of State and California Department of Finance estimate the combined state and county costs of the 2021 recall to be $276 million.89 C. Opponents’ Rationale Opponents point to the idea that the process of voting for a recall and replacement on a single ballot is the voters’ indivisible right.90 Splitting the process into two elections, they reason, would be undemocratic.91 D. Opponents’ Arguments The argument opposing Proposition 5 in the Secretary of State’s Official Voter Information Guide is signed by California Senate Minority Leader Brian W. Jones and

Id. Id. 83 Complete List of Recall Attempts, CAL. SEC’Y OF STATE, https://perma.cc/TSP8-W7XV. 84 STATEMENT OF VOTE: SEPTEMBER 14, 2021 CALIFORNIA GUBERNATORIAL RECALL ELECTION, CAL. SEC’Y OF STATE, at 11, https://perma.cc/K3V3-J6TJ; LITTLE HOOVER COMM’N, FACT SHEET: ADDRESSING WEAKNESSES IN CALIFORNIA’S RECALL SYSTEM (2022), https://perma.cc/8JKV-8XL8 [“RECALL FACT SHEET”]. 85 Clark v. Weber, 54 F.4th 590, 592 (9th Cir. 2022). 86 Id. 87 Proposition 5: Delayed Replacing Recalled State Officials, CALMATTERS, https://perma.cc/U355-V74M. 88 Mark Z. Barabak, California’s recall process is a mess. Voters can do something about it, L.A. TIMES (Sept. 9, 2026), https://perma.cc/67AP-U3H4. 89 Letter from Keely Martin Bosler, Dir., Cal. Dep’t of Fin., to Gavin Newsom, Governor of Cal., Gubernatorial Recall Election Costs, at 2 (July 1, 2021), https://perma.cc/YAN7-ZSDR. 90 NOVEMBER 2026 VOTER GUIDE, supra note 4, at 39. 91 Id. 82

Assemblymember Joe Patterson.92 Opponents argue that the current recall process best represents the peoples’ will, and that the changes proposed would injure their right to choose a recalled official’s replacement.93 Opponents also take issue with Proposition 5’s provision on filling vacancies after a recall. While district offices, such as state Senate or Assembly, would remain vacant until a special election occurs, vacancies for state executive offices and judges would be filled by the Governor’s appointment.94 Though this follows existing state provisions on nonrecall vacancies, Proposition 5 opponents argue that allowing appointments by politicians who may be politically aligned with a recalled officer would defeat the purpose of a recall.95 Opponents further point to the taxpayer burden that could result from “costly” special elections to decide on a replacement for a district office, as well as the perceived unfairness in allowing a recalled officer to run in the special election for that office.96 Opponents’ argument echoes the theory that California’s recall process has been largely unchanged since its inception in 1911, and that Proposition 5 is being pushed now as a way to strip state conservatives of their voice in a reliably liberal state. Republican Assemblymember Carl DeMaio points to the fact that Josh Newman, a Democrat and major proponent of Proposition 5 was recalled in 2018, insinuating that the measure would only protect other “failed politicians.”97 Republican Assemblymember Joe Patterson and Republican Senate Minority Leader Brian Jones similarly argue that the amendment would only protect the Democratic majority.98 Opponents also point to the fact that recalls are rarely successful. On this point, Assemblymember Patterson told The Sacramento Bee, “[Newman is] fixing a problem—or he thinks he’s fixing a problem—that just doesn’t exist.” It is true that of 179 recall attempts in the state since 1911, only eleven qualified for the ballot and six led to an officer’s removal.99 Just one—the Gray Davis recall in 2003—removed a sitting Governor.100 E. Other Considerations 1. Frequency of Special Elections Successful recalls are rare in California, and some states using processes similar to the one Proposition 5 proposes suggest a similar outcome should the initiative pass.101 However, accurately comparing two states’ systems proves difficult, as each state has different limitations outside of simply bifurcating the recall and replacement votes. Georgia, for example, requires the officer being recalled to have committed a specific act of malfeasance named in the recall 92

Id. Id. 94 Proposition 5, supra note 3. 95 CA Statewide Voter Guide, REFORM CAL., https://perma.cc/6RKR-CFS9. 96 Id. 97 Carl DeMaio / Reform California, Ca Voter Guide: No on Props 4 & 5!, YOUTUBE (Jul. 30, 2026), https://www.youtube.com/live/PMlG0Ge3ATw?si=Nqvy2M223hSoEDo9 98 Ben Paviour, How Would Prop. 5 Overhaul How California Conducts Recall Elections?, THE SACRAMENTO BEE (July 25, 2026), https://perma.cc/V5NS-RK5W. 99 REFORMING THE RECALL, supra note 18, at 10. 100 California Proposition 5, Eliminate State Officer Recall Successor Elections Amendment (2026), BALLOTPEDIA, https://perma.cc/27DU-ZPHM. 101 REFORMING THE RECALL, supra note 18, at 10. 93

statute.102 Illinois has never recalled an officer, however, it only permits recalls for Governor (with a fifteen percent signature threshold) and has only done so since 2010.103 In addition to legal nuances, different states have their own unique challenges and political characteristics making a recall attempt more (or less) likely in the first place. Thus, predicting whether Proposition 5 will alter the number of special elections in California depends on events that are nearly impossible to foresee.104 2. Lieutenant Governor as a Replacement for the Governor Proposition 5 provides that in the event a governor is recalled,the Lieutenant Governor for the remainder of their term or until the next midterm election.105 Because Lt. Governors are elected independent of the Governor, there are three possible scenarios to consider: In the first scenario, the Lt. Governor may be no more competent than the recalled one.106 Voters tend to scrutinize Lt. Governor candidates less heavily than those running for Governor, and, as such, there may be fewer guarantees as to their fitness for office.107 In the second scenario, the Lt. Governor may be entirely aligned with the recalled Governor in terms of policy.108 In the event a Governor is recalled over public dissatisfaction with their policy choices, replacing them with a political twin could be self-defeating.109 Third, the Lt. Governor may be politically unaligned with the recalled one.110 While this may be ideal for those who wish to recall a governor, this scenario appears to be the least likely, as California is a reliably Democratic state and elections for this office are not generally energetic.111 3. Alternatives Bifurcating recall and replacement votes is one way to temper the recall process, but not the only way. The Little Hoover Commission, a bipartisan state oversight agency, recommended that the state raise its signature threshold for recall of statewide offices from twelve percent of turnout in the previous election for that office to ten percent of registered voters overall.112 Wesley Hussey, a professor of California government at Sacramento State University, agrees that the threshold should rise, but recommends twenty percent of the most recent turnout for that office.113 In either case, a higher signature threshold could prevent the abuses Proposition 5 proponents fear, while leaving the current process mostly intact as opponents want. Another proposed alternative is to require recall proponents to allege and prove the official they seek to recall has done something wrong, rather than simply showing distaste for a

102

GA. CODE ANN. § 21-4-3(7) (2026). ILL. CONST. art. III, § 7. 104 ASSEMBLY COMMITTEE ON APPROPRIATIONS, COMMITTEE ANALYSIS OF SCA 1, at 1 (Aug. 7, 2024). 105 Cal. Proposition 5, supra note 1. 106 Interview with Wesley Hussey, Professor of Political Science and California Government at California State University, Sacramento, in Sacramento, CA. (Sept. 11, 2026) (on file with the California Initiative Review). 107 Id. 108 Id. 109 Id. 110 Id. 111 Interview with Wesley Hussey, supra note 106. 112 RECALL FACT SHEET, supra note 84. 113 Interview with Wesley Hussey, supra note 106. 103

policy the official promotes.114 Professor Mary-Beth Moylan explains that recalls are powerful tools, and without a limitation on when a recall petition may be filed, recalls can too easily be captured by moneyed interests or be used to express “political displeasure” that would be more properly addressed at the next general election.115 Therefore, a cause requirement would ensure that recall proponents can “state and prove to some level of certainty that the elected official that they seek to recall has done something wrong or has failed to uphold the responsibilities of their position.”116 Eight of the nineteen states that have recall provisions in their constitutions have some sort of cause requirement.117 F. Campaign Finance 1. Support No official committees have been formed in support of Proposition 5.118 As of October 16, 2026, late independent expenditures favoring the initiative total $5,387.28, which includes expenditures from Youth Power PAC ($3815.67), Community Partners ($1040.14), and AAPI Equity Alliance ($531.47). 119 These expenditures covered staff time, voter guides, voter data requests, and texting campaigns.120 2. Oppose No official committees have been formed in opposition to Proposition 5.121 As of October 16, 2026, late independent expenditures opposing the initiative total $40,500, all of which come from Reform California, a public interest group chaired by State Assemblymember Carl DeMaio.122 These expenditures covered door hangers, slate mailers, and campaign management.123 G. Fiscal Impact The fiscal impacts of Proposition 5 depend on the frequency of future recalls.124 Although there is a possibility the proposition could affect fewer recalls, it is impossible to predict for sure what the outcome in that area will be.125 An Appropriations Committee report predicts higher costs in the millions to counties and the Secretary of State for special elections in district office recalls.126 The Secretary of State would face a one-time cost of $203,000, paid from the General Fund, for updates to its statewide voter database, VoteCal, to reflect the changes in the ballot

114

Moylan, supra note 47, at 471. Id. at 471, 473. 116 Id. at 490. 117 Id. 118 Campaign Finances: Proposition 005 – SCA 1 (Newman) Elections: Recall of State Officers (Res. Ch. 204, 2024), CAL-ACCESS, https://perma.cc/JFX9-GBN9 (“General Information”). 119 Id. (“Late Independent Expenditures Affecting This Measure”). 120 Id. 121 Id. 122 Id. 123 Id. 124 ASSEMBLY COMMITTEE ON APPROPRIATIONS, COMMITTEE ANALYSIS OF SCA 1, at 1 (Aug. 7, 2024). 125 Id. 126 Id. 115

questions.127 For statewide recalls, the report places the average cost per page of state voter guides at $123,000.128 Affected counties will be responsible for voter guide costs in district recalls.129 The report also predicts “minor and absorbable” costs in the event the Controller or Secretary of State are required to perform the recall duties of an office as Proposition 5 provides.130 In terms of savings, the state would save on printing the names and candidate statements of replacement candidates in statewide recalls, as there would be no voting on a replacement.131 The dollar amount would depend on counterfactuals, including how many candidates would have qualified for the replacement ballot had the election been conducted under the existing process.132 Either way, the Legislative Analyst’s Office estimates a net fiscal impact of less than 0.1 percent of the state’s General Fund in terms of cost or savings.133 Which direction this would go depends on unpredictable factors including the circumstances of future recalls and legislative decisions affecting state and county elections.134 V.

CONCLUSION

Proposition 5 is a proposed constitutional amendment that changes recall procedures for state officials and the replacement protocol. Proposition 5 originated in the State Legislature and is sponsored by former State Senator Josh Newman.135 Under current law, citizens vote on whether to recall an elected official and, if so, who to replace them.136 This permits a replacement candidate to win by a plurality of the vote rather than a majority. Proposition 5 changes that two-part process so that during a recall election, voters would decide only whether to remove the public official. If the recall passes, then the office becomes vacant, and either a special election is held, or the Governor appoints a replacement, depending on the existing provisions of law.137 If the Governor is recalled, the Lieutenant Governor becomes Governor. If the Governor is recalled within the first two years of the term, then a special election will be called during the next primary election.138 Proponents believe that the Proposition ensures that the recall process is used as “tool for accountability,” rather than a method to remove an official that they do not like.139 Opponents of

127

Id. Id. 129 Id. 130 ASSEMBLY COMMITTEE ON APPROPRIATIONS, COMMITTEE ANALYSIS OF SCA 1, at 1 (Aug. 7, 2024). 131 Proposition 5, supra note 3. 132 Id. 133 Id. 134 Id. 135 Paviour, supra note 98. 136 Id. 137 NOVEMBER 2026 VOTER GUIDE, supra note 4, at 39. 138 California Proposition 5, Eliminate State Officer Recall Successor Elections Amendment (2026), supra note 100. 139 NOVEMBER 2026 VOTER GUIDE, supra note 4, at 39. 128

the Proposition believe that the current recall process better represents the will of the people, and that the proposition will make recalls less effective.140 The Legislative Analyst’s Office estimates that Proposition 5’s fiscal impact is less than 0.1 percent of the state’s General Fund.141 Proposition 5’s impact is heavily unpredictable as it is dependent on the frequency and circumstances behind future elections. A “YES” vote means: Recall elections would not include a question about who should fill a vacant office if the recall is successful. Instead, vacancies will be filled through existing appointment or special election processes. A “NO” vote means that recall voters would still be asked who should fill the vacant office following a successful recall election.

140 141

Id. Proposition 5, supra note 3.

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Siena Giampaoli J.D., University of the Pacific, McGeorge School of Law, to be conferred 2028 B.A., Psychology and Religious Studies, Gonzaga University, 2024 &

Sara Walling J.D., University of the Pacific, McGeorge School of Law, to be conferred 2027 B.A., Government, California State University, Sacramento, 2012

EXECUTIVE SUMMARY

Proposition 37 would create a homebuyer assistance program with three main provisions.1 First, the measure authorizes California Housing Finance Agency (CalHFA) to sell up to $25 billion in revenue bonds to fund loans covering up to seventeen percent of a qualifying home’s purchase price, with homeowners’ payments on those loans repaying the bonds and covering the program’s administrative costs.2 Second, the measure requires buyers to be California residents with household incomes no greater than 200 percent of their county’s area median income, and requires eligible homes to meet specified requirements, including a price limit of no more than $1.5 million and a requirement that the buyer be the first purchaser of the home.3 Third, the measure allows developers to participate in a “qualified builder option,” allowing developers who agree to meet higher labor standards to operate under different construction-defect rules, providing them with greater flexibility in addressing any construction defect complaints that may arise under the program.4 A “YES” vote on this measure means the state would create a new homebuying assistance program. Proposition 37 would authorize up to $25 billion in state revenue bonds, repaid through homeowners’ loan payments, and allow qualified builders meeting specified requirements to elect modified construction-defect standards.5 A “NO” vote on this measure means the state would not be required to create a new homebuying assistance program.6 II.

THE LAW A. Historical Background on California’s Housing Crisis

The U.S. Department of Housing and Urban Development generally defines housing as affordable when an occupant pays no more than thirty percent of his or her monthly income for housing costs, including utilities.7 When a homeowner or renter pays more than thirty percent of their monthly income for housing, they are considered “housing cost-burdened.”8 When they pay over fifty percent of their monthly income for housing, they are considered “severely costburdened.”9

Cal. Proposition 37, § 2, (2026) https://perma.cc/P94F-F97J. Id. 3 Id. 4 Cal. Legis. Analyst’s Off., Proposition 37: Creates Loan Program for Middle-Income Buyers of Qualified New Homes. Initiative Statute., (Nov. 3, 2026), at 1, https://perma.cc/58LK-WX7Z. 5 Id. 6 Id. 7 U.S. Dep’t of Hous. & Urb. Dev., Glossary of HUD Terms, https://perma.cc/JZ5G-DKHB. 8 Id. 9 Id. 2

In 1970, fifty-five percent of California households owned their homes.10 For those who rented, two-thirds of them lived in affordable homes.11 However, this began to change during the 1970s.12 The share of California renters who paid an unaffordable percentage of their income on rent and utilities dramatically increased.13 Compared to 1970, nearly four times as many Californians are severely rent burdened, spending over fifty percent of their income on housing costs.14 Today, California has the second lowest homeownership rate in the nation.15 For renter households, over half are cost burdened and over a quarter are severely cost burdened.16 For homeowners with mortgages, over a third are cost burdened.17 Unaffordable housing costs also disproportionately affect people of color in California.18 Over two-thirds of people who are housing cost burdened are people of color. 19 B. California Housing Finance Agency (CalHFA) The CalHFA was created in 1975 through the passage of the Zenovich–Moscone–Chacon Housing and Home Finance Act.20 The agency was created to help address the housing crisis by financing affordable rental housing.21 The agency works with developers as well as local, state, and federal government partners.22 CalHFA also helps provide first-time homebuyers with down payments, closing cost assistance, and access to first mortgage loans.23 The state agency is selfsupported and does not rely on taxpayers dollars for its operational costs.24 It does, however, regularly administer various state and federal resources on the state’s behalf.25 C. General Obligation (GO) Bonds When the state finances a project through bonds rather than paying up front with funds it already has, the total cost of the project increases, because the state must also pay interest on the

Gender Equity Pol’y Inst., The Origins of California’s Housing Crisis: Fifty Years of Rising Housing Costs and the Unequal Impacts on Californians (June 2024), https://perma.cc/C59V-J6WX. 11 Id. 12 Id. 13 Id. 14 Id. 15 Marisol Cuellar Mejia, Hans Johnson & Julien Lafortune, California’s Housing Divide, Pub. Pol’y Inst. of Cal. (Oct. 21, 2024), https://perma.cc/MAG7-PNMS. 16 Sara Kimberlin, California’s Housing Affordability Crisis: Renters and Households With the Lowest Incomes are Hit the Hardest, Cal. Budget & Pol’y Ctr. (Apr. 2019), https://perma.cc/G9NH-U9YQ. 17 Id. 18 Id. 19 Id. 20 Cal. Health & Safety Code § 50000 (2026). 21 Id. 22 Cal. Hous. Fin. Agency, About Us, https://perma.cc/F52L-77YJ. 23 Id. 24 Id. 25 Id.

borrowed amount.26 The size of that additional cost depends on the interest rate secured and the length of time it takes to repay the debt.27 The California Constitution requires that most new bonds receive voter approval, and general obligation bonds are typically repaid from the state’s General Fund: the same account the state draws on to pay for most public services, including education, health care, and prisons.28 As of 2026, California is already carrying roughly $80 billion in outstanding General Fund-supported bond debt, and the state pays approximately $6.3 billion per year from the General Fund toward repaying that debt, out of $8.2 billion in total debt service from all funds.29 D. Revenue Bonds Revenue bonds are a separate category of state borrowing. As with GO bonds, the state sells revenue bonds to investors to receive up-front funding for a public project, and investors are repaid over time with interest.30 The key distinction is in the repayment source: revenue bonds are intended to be repaid using revenues generated by the project itself, such as fees or other payments by the project’s users, rather than from the state’s General Fund.31 E. Proposition 37 Bonds Proposition 37 would authorize CalHFA to use revenue bonds, rather than general obligation bonds, to finance its home-loan program.32 As a revenue bond, it does not require voter approval and could have been enacted legislatively or through a similar program established by CaHFA.33 Because Proposition 37 relies on revenue bonds, repayment is intended to come from revenues generated by the program itself, namely, homeowners’ payments on their assisted loans, rather than from the state’s General Fund.34 This distinction matters for two reasons. First, because the measure authorizes revenue bonds rather than general obligation bonds, voter approval was not constitutionally required.35 The measure appears on the ballot by virtue of the initiative process, not because the bond type demanded it.36 Second, because repayment is structurally tied to program revenue rather than the General Fund, the measure is estimated to result in no direct state or local costs.37 This

Cal. Legis. Analyst’s Off., supra note 4. Id. 28 Cal. Legis. Analyst’s Off. Bonds, https://perma.cc/2RZG-2XS5. 29 Cal. Legis. Analyst’s Off. Bonds, supra note 28; Cal. Legis Analyst’s Off. The 2026-27 Spending Plan: Other Provisions, https://perma.cc/VMM6-G62H. 30 Cal. Legis. Analyst’s Off. Bonds, supra note 28. 31 Id. 32 Id. 33 Monica Davalos, Nishi Nair, and Kristin Schumacher, Will Prop. 37 Make Homeownership More Affordable? It’s Not Guaranteed: Understanding How Proposition 37 Could Affect Homeownership Affordability, Cal. Budget & Pol’y Ctr. (Aug. 2026), https://perma.cc/4XGL-WHKE. 34 Cal. Legis. Analyst’s Off., supra note 3. 35 Id. 36 Id. 37 Id. 27

distinguishes Proposition 37 from the roughly $80 billion in General Fund-supported bond debt the state is already carrying. The allocation of losses from borrower defaults remains unclear. CalHFA may collect overdue payments, enforce mortgages, pledge loans as collateral, and establish reserves or obtain credit enhancements.38 However, the measure does not specify whether these protections would fully cover default-related losses.39 Because the bonds are not backed by the state’s general credit, bondholders could bear any remaining losses if loan defaults leave CalHFA without sufficient funds to meet its bond obligations.40 F. Pathway to the Ballot Proposition 37 is a bond proposal authored by former state Senate Majority Leader and California Assembly Speaker Bob Hertzberg.41 Sen. Hertzberg co-authored SB 1457, the California Family Home Construction and Homeownership Bond Act of 2022.42 The bill would have authorized the issuance of $25 billion in General Obligation bonds to the CalHFA to assist with the downpayment or closing costs for the purchase of a new home.43 However, the bill failed to pass and former Sen. Hertzberg noted he “couldn’t get something just focused on the middle class” through the legislative process, which prompted him to go through the citizen initiative process.44 G. Proposition 37: California Middle-Class Home Ownership and Family Home Construction Act of 202645 1. Additions to Existing Statute Proposition 37 would add a new section, Chapter 11.5, to Part 3 of Division 31 of the Health and Safety Code.46 2. Proposal The CalHFA shall administer and implement Proposition 37 to sell up to $25 billion in revenue bonds.47 The bonds would be used to establish middle-class home ownership loans to create a down payment assistance program for eligible borrowers.48 Homeowners would need to 38

Cal. Proposition 37, § 2, (2026) supra note 1. Id. 40 Id. 41 Edie Lambert, Proposition 37 Proposes $25 Billion Loan Program to Help Californians Buy Homes, KCRA 3 (Aug. 23, 2026), https://perma.cc/9NXL-QQZ5. 42 SB 1457, 2021–2022 Reg. Sess. (Cal. 2022). 43 Id. 44 George Skelton, Three Ballot Measures on Housing, Medical Research but Only One No-Brainer, Sacramento Bee (Sept. 26, 2026), https://perma.cc/AM7Q-R58S. 45 Cal. Proposition 37, § 2, (2026) supra note 1. 46 Id. 47 Id. 48 Id. 39

provide at least three percent down payment and each loan would cover up to seventeen percent of the home’s purchase price.49 3. Borrower Eligibility Eligible borrowers must satisfy Section 51515.01, subdivision (a) to be eligible for the home ownership loans.50 A borrower must 1) be a resident of California for at least one year, 2) shall agree to occupy the home as the applicant’s primary residence within sixty days of closing, 3) shall have a family income that does not exceed 200 percent of the area median income, and 4) shall agree to pay no less than three percent of the home’s purchase price.51 4. New Home Eligibility Qualified new homes are single-family homes that satisfy the requirements established in 51515.01, subdivision (b), which includes, but is not limited to, the qualified builder option established in Section 51515.02.52 To be a qualified as a new home, it must be 1) a newly constructed home, townhome, row house, condominium, or manufactured home where the borrower is the first purchaser, or 2) a condominium or other residential unit in a building that was a nonresidential structure and was retrofitted or repurposed for residential use where the borrower is the first purchaser.53 The maximum sales price shall not exceed 125 percent of the conforming loan limit for a one-unit property (a single-family home) in the county where the home is located.54

Id. Cal. Proposition 37, § 2, (2026) supra note 1. 51 Id. 52 Id. 53 Id. 54 Id. 50

Price of a Home55

Lambert, supra note 41.

Who is Eligible56

Id.

Qualified Builders

State law establishes minimum standards for residential construction and provides procedures that homeowners and builders generally must follow before a homeowner may bring a construction-defect action.57 Proposition 37 preserves those substantive standards but creates an optional alternative for participating builders.58 All developers can build homes eligible for purchase under the CalHFA program.59 There is also a qualified builder option, which housing developers may opt into by certifying the constructions will satisfy the Section 51515.01, subdivision (b) requirements for qualified homes.60 In exchange, participating builders receive different procedural treatment for certain construction-defect claims, but are not exempted from Title 7’s underlying substantive construction standards.61 Qualified builders shall comply with higher labor and enforcement provisions for the project and construction craft conditions pursuant to Section 21080.66, subdivision (d), paragraphs (2)-(5) of the Public Resources Code.62 These provisions establish labor protections, including prevailing-wage requirements for workers on buildings exceeding eighty-five feet in height and a joint labor-management cooperation committee authorized to bring actions for specified construction-site violations.63 The modified construction-defect procedures streamline the process for addressing homeowner claims and provide builders with additional protections following completed repairs.64 Proposition 37 provides that Title 7 of the Civil Code continues to apply to qualified new homes, but modifies specified right-to-repair procedures for homes built under the qualified builder option.65 These modifications include additional notice requirements, direct communication between builders and homeowners during the repair process, limited releases following completed repairs, and litigation timing.66 The qualified builder option is also conditional rather than permanent. If a builder sells a qualified new home built under the option for more than twenty-five percent above the program’s maximum sale price, the modified construction-defect provisions in section 51515.04(e)(1)(B) no longer apply to that home.67 The preferential treatment is therefore conditioned on the builder’s continued compliance with the program’s requirements.

GrowSF, Proposition 37 – Annotated Legal Text (July 14, 2026), https://perma.cc/9WYS-8ESU. Id. 59 Cal. Legis. Analyst’s Off., supra, note 4. 60 Cal. Proposition 37, § 2, (2026) supra note 1. 61 Id. 62 Id. 63 Cal. Pub. Res. Code § 21080.66(d)(2)–(5) (2026). 64 Cal. Proposition 37, § 2, (2026) supra note 1. 65 Id. 66 Id. 67 Id. 58

The statute’s enforcement provisions are more limited than they may initially appear. Proposition 37 establishes a joint labor-management cooperation committee to oversee compliance with specified labor requirements, and the committee may enforce three categories of contractor or subcontractor violations: unemployment insurance obligations, workers’ compensation insurance, and contractor licensing requirements.68 Section 51515.02(b)(2), however, makes the builder itself directly liable only for violations involving unemployment insurance.69 The measure thus connects the preferential treatment to the builder’s participation in a defined regulatory framework while preserving the underlying substantive construction standards. 6. Consumer Protections CalHFA shall also establish consumer protection requirements.70 These protections place limits on lenders fees, prohibit early payment penalties, and require homeownership loans to be fixed rate mortgages.71 There are also protections that allow for additional credit verification, hardship deferrals of monthly interest payments, and construction accountability standards which include right-to-repair procedures.72 III.

CONSTITUTIONAL AND STATUTORY ISSUES A. Statutory Interpretation

The proposition is clearly written as a revenue bond measure that allows CalHFA to issue and sell bonds to be used as a payment assistance program for qualified homes and home buyers.73 The qualified builder option's labor standards are not defined within Proposition 37 itself. Instead, the measure incorporates those standards by cross-reference to Public Resources Code section 21080.66(d), a separate CEQA-streamlining provision that imposes prevailing wage and skilled-and-trained-workforce requirements on qualifying housing projects.74 The specific requirements vary based on factors such as project height, unit count, and affordability mix.75 Builders who opt into the program must therefore satisfy the applicable tier of that external framework in exchange for the modified construction-defect rules the measure provides.76

Id. Cal. Proposition 37, § 2, (2026) supra note 1. 70 Id. 71 Id. 72 Id. 73 Id. 74 Cal. Proposition 37, § 2, (2026) supra note 1. 75 Cal. Pub. Res. Code § 21080.66(d) (2026). 76 Cal. Proposition 37, § 2, (2026) supra note 1. 69

B. Constitutional Analysis 1. Bond Authorization Proposition 37 is structured so that the state is not pledging its taxing power or General Fund to repay the bonds authorized under the measure.77 On this basis, the measure has a strong argument that it does not create the type of “debt” that would trigger the constitutional procedures applicable to state general-obligation debt, since repayment is tied to program revenue rather than the state's broader taxing authority.78 2. Is Using Public Authority to Finance Private Home Purchases Constitutional? Article XVI, section 6 of the California Constitution prohibits gifts of public funds and the lending of public credit.79 Because Proposition 37 directs CalHFA, a state agency, to provide loans to individual Californians to help them purchase private homes, the measure raises the question of whether the state is improperly using public resources for a private purpose. California law, however, permits public entities to engage in programs that benefit individuals when those programs serve a legitimate public purpose.80 Proposition 37 expressly identifies several such purposes; including expanding homeownership opportunities, encouraging new housing construction, addressing California's shortage of single-family housing, protecting consumers from unfair lending practices, and promoting investment in housing.81 Although the individual homeowners receive the immediate benefit of the loans, the measure identifies broader public objectives that extend beyond those individual recipients.82 Voters approving Proposition 37 would therefore be supporting a program directed towards housing supply, homeownership, and economic development.83 California courts have generally recognized that such broader public purposes can support programs that provide incidental benefits to private individuals against challenges under Article XVI, section 6.84 3. California Constitution Article XVI, Section 1 Article XVI, section 1 separately restricts the Legislature from creating state debt above a specified constitutional threshold.85 In California Housing Finance Agency v. Elliott,86 the California Supreme Court considered a housing program financed through CalHFA revenue 77

Cal. Legis. Analyst’s Off., supra note 4. Id. 79 CAL. CONST. art. XVI, § 6. 80 Cal. Hous. Fin. Agency v. Elliott, 17 Cal. 3d 575, 586 (1976). 81 Cal. Proposition 37, § 2, (2026) supra note 1. 82 Id. 83 Id. 84 Cal. Hous. Fin. Agency, 17 Cal. 3d at 586. 85 CAL. CONST. art. XVI, § 1. 86 Cal. Hous. Fin. Agency, 17 Cal. 3d at 587. 78

bonds and held that Article XVI's debt limitation did not apply because the bonds were payable from housing-project revenues rather than the state's General Fund.87 The court explained that the debt covered by Article XVI, section 1 refers to legally enforceable obligations against the state's general funds.88 Proposition 37’s revenue bonds, which would likewise be repaid from the program revenues rather than the General Fund, would likely fall outside that constitutional debt limitation. 4. Single-Subject Challenge to Construction and Labor Provisions The qualified builder option may raise a separate single-subject concern. The singlesubject rule prohibits ballot initiatives from combining unrelated provisions in a single measure.89 Although Proposition 37 primarily establishes a homebuyer assistance program financed through state revenue bonds, it also would regulate participating homebuilders by imposing additional labor requirements and modifying construction-defect procedures.90 The issue is whether these provisions are sufficiently germane to the measure’s principal to satisfy California’s single-subject requirement. Under article II, section 8(d) of the California Constitution, an initiative satisfies the rule if its provisions are “reasonably germane” to one another and to the measure’s general purpose.91 Courts apply this standard liberally, but a purpose framed too broadly will not save a measure.92 Here, the labor requirements likely qualify, because they are conditions on builders who receive the benefit of a publicly financed program.93 The construction-defect provisions present a closer question, but they are likely germane if limited to participating builders, because they set the terms of participation in the program.94 A court would likely uphold the measure. IV.

FISCAL CONSIDERATIONS A. Bond Investors Receive a Return

Under Proposition 37, CalHFA would be required to keep homebuyers’ interest costs as low as possible while retaining discretion over how much of the $25 billion in authorized bonds to issue and when to issue them.95 This structure gives CalHFA flexibility to adjust the program's scale to market conditions. At the same time, the measure does not fix the program’s actual size or pace; those decisions would be made administratively after passage.96

Id. Id. at 588. 89 CAL. CONST. art. II, § 8(d). 90 Cal. Proposition 37, § 2, (2026) supra note 1. 91 Senate of the State of Cal. v. Jones, 21 Cal.4th 1142 (1999). 92 Id. 93 Cal. Proposition 37, § 2, (2026) supra note 1. 94 Id. 95 Id. 96 Id. 88

Because Proposition 37 would use homebuyers’ loan payments to repay bond investors rather than drawing on the state’s General Fund, the measure is estimated to result in no direct state or local costs.97 The bonds, however, would still need to attract investors, and the measure does not identify who those investors would be. The Legislative Analyst therefore identifies investor demand as an unknown factor that could affect the program’s scope and impact.98 B. Who Financially Supports the Initiative? The initiative’s current financial support provides information about who is backing the measure politically, but does not establish who would ultimately purchase its bonds. Supporters include organizations such as the California Association of Realtors (whose supporters include Google co-founder Sergey Brin and former Google CEO Eric Schmidt), Homeownership for Families, and the United Brotherhood of Carpenters & Joiners of America.99 Thus, while industry support may help explain the interests behind the initiative, it would be speculative to conclude that those organizations, or entities aligned with them, would become the eventual bond investors. C. Administrative Costs CalHFA would administer up to $25 billion in revenue bonds, with homeowners’ payments funding both repayment and administrative costs.100 The agency would decide how much to issue and over what period, leaving the program’s actual size and pace uncertain.101 Several practical questions remain unresolved. It is unknown who will purchase the bonds, how the program's costs will compare with CalHFA’s existing down-payment assistance options, or whether it will increase home construction and homebuying as proponents intend. The measure also does not require participants to be first-time buyers, and leaves questions about defaults, administrative costs, and where qualifying homes will be built. Because income limits and housing costs vary by county, the affordability and availability of qualifying homes may vary as well.102 Interest rates add another uncertainty. In September 2026, the Federal Reserve raised its benchmark rate to 3.75–4.00 percent.103 Because CalHFA must set loan terms to cover the bonds’ principal, interest, and related costs, higher bond-market borrowing costs could affect the rates available to homebuyers.104 A rising-rate environment could also affect how readily investors are willing to purchase the program's bonds, compounding the existing uncertainty over who will ultimately buy them. Moreover, Proposition 37 only covers part of a home purchase 97

Id. Cal. Legis. Analyst’s Off., supra note 4. 99 Cal. Fair Pol. Pracs. Comm’n, November 2026 General Election (Sept. 25, 2026), https://perma.cc/99BS-KNKN. 100 Cal. Proposition 37, § 2, (2026) supra note 1. 101 Id. 102 League of Women Voters of Diablo Valley, Vote with the League! CA Ballot Measure Recommendations 2026, https://perma.cc/SC2S-LDTK. 103 Bd. of Governors of the Fed. Rsrv. Sys., Federal Reserve Issues FOMC Statement (Sept. 16, 2026), https://perma.cc/PTB7-WB46. 104 Cal. Proposition 37, § 2, (2026) supra note 1. 98

and does not address the buyer’s primary mortgage, thus its effect on overall affordability will also depend on prevailing mortgage rates and home prices.105 D. Relationship to Existing Down Payment Assistance Programs Proposition 37 would supplement existing state assistance programs. CalHFA already administers at least two down payment assistance programs targeted at defined populations.106 MyHome provides first-time homebuyers with a deferred-payment "silent second" loan covering up to 3-3.5 percent of the purchase price, while the California Dream For All Program offers up to 20 percent, capped at $150,000, specifically to first-generation, first-time homebuyers through a randomized voucher lottery due to demand exceeding available funding.107 Proposition 37 imposes no first-time or first-generation buyer requirement, extending assistance to a broader group of California residents who meet its residency, income, and 3 percent down requirements and purchase qualifying new construction or converted units.108 Because the measure neither replaces nor phases out MyHome or Dream For All, and because its eligibility is broader while its property requirements are narrower than MyHome’s, it would generally reach buyers those programs do not serve. The clearest overlap is limited: a first-time, first-generation buyer purchasing qualifying new construction could potentially qualify for both a Proposition 37 loan and a Dream For All voucher. Outside that narrow group, Proposition 37 would largely fill a gap left by the existing programs rather than duplicate assistance to the same population. V.

CAMPAIGN FINANCE

There are two political action committees funding the support of Proposition 37.109 The Yes on 37 - California Homeownership committee’s largest contributors are organizations for realtors, construction labor unions, and non-profits.110 In total, they have contributed $17.7 million.111 The Homeownership for Families, sponsored by California Association of Realtors committee is comprised of two large contributors, both are organizations for realtors.112 In total, they have contributed $7 million.113 There are no political action committees funding the opposition of Proposition 37.114

105

GrowSF, supra note 57. Cal. Hous. Fin. Agency, Loan Programs, https://perma.cc/464W-4TCK. 107 Id. 108 Cal. Proposition 37, § 2, (2026) supra note 1. 109 Cal. Fair Pol. Pracs. Comm’n, supra note 99. 110 Id. 111 Id. 112 Id. 113 Id. 114 Cal. Fair Pol. Pracs. Comm’n, supra note 99. 106

VI.

PUBLIC POLICY ISSUES A. Proponents’ Arguments

Proposition 37 is supported by Democrats and Republicans, labor and businesses, construction workers, taxpayer and housing advocates, veterans, the California Teachers Association, and the United Nurses Association of California.115 Proponents argue that Proposition 37 will increase the number of middle-class homeowners by decreasing down payments, increase housing availability, raise billions in tax revenue, comes at no cost to taxpayers, has strict accountability measures to ensure loans are repaid, and prioritizes Californians with residency requirements.116 1. More Middle-Class Homeowners Proponents argue that the biggest barrier to home ownership in California is the down payment.117 Proposition 37 seeks to address this by providing fixed rate financing for up to seventeen percent of the purchase price of a home, while reducing the down payment for families to three percent.118 This creates a pathway for homeowners who can afford the monthly mortgage but cannot get their foot in the door without a steep down payment.119 By reducing the down payment, proponents anticipate an increase in home ownership amongst middle-class families. 2. Increases Middle-Class Housing Availability Further, Proposition 37 helps address housing affordability by incentivizing the construction of new homes.120 Every $1 billion in bond capital could support the construction of 7,600 new homes across the state’s twenty-one metropolitan areas.121 At $25 billion, the proposition’s proposed program could produce 190,000 new homes.122 The distribution of homes would likely impact the Riverside, Sacramento, and Los Angeles metropolitan areas, accounting for fifty-six percent of the total new housing, if the distribution of homes remains consistent with production patterns.123

115

Cal. Sec’y of State, Proposition 37: Arguments and Rebuttals, Official Voter Information Guide, https://perma.cc/EA9K-7XFC. 116 Id. 117 Yes on 37, California Middle-Class Homeownership Act, Yes on Prop 37, https://perma.cc/GC67-K4ZX. 118 Id. 119 Yes on 37, California Middle-Class Homeownership Act, Fact Sheet, https://perma.cc/5XSE-XL72. 120 Id. 121 Shane Phillips, Proposition 37: Analysis of Eligible Households, Projected Housing Production and Economic Impact of the California Middle-Class Homeownership and Family Home Construction Act of 2026 2 (2026) https://perma.cc/9ZHJ-AARR. 122 Id. 123 Id.

3. Economic Impact Supporters argue that, assuming the program leads to the construction of homes that would not have been built otherwise, for every $1 billion in bond investments, the state would leverage $4.9 billion in private construction.124 “If all $25 billion is deployed, these figures scale proportionally to roughly $313 billion in output, $111 billion in personal income, $1.6 billion in annual property tax, and $3.1 billion in one-time income tax revenue.”125 4. No Cost to Taxpayers Since Proposition 37 authorizes revenue bonds, supporters argue, there is no direct cost to taxpayers.126 Homeowners’ monthly payments would go toward repaying bond investors and cover the program’s administrative costs.127 This program would impose no direct state or local cost on taxpayers.128 5. Strict Eligibility Requirements and Consumer Protections Proponents argue that homebuyer eligibility requirements, alongside state audits and consumer protections, also make Proposition 37 attractive.129 Applicants must be California residents for at least one year and shall not exceed the family income threshold of 200 percent of their area median income for their family size.130 Even with these restrictions, the Yes on 37 campaign estimates “between 142,000 and 647,000 renter households statewide could qualify for a bond-supported purchase, and between 554,000 and 1.35 million homeowner households could qualify.”131 Under more conservative estimates, the campaign notes that demand for Proposition 37’s housing program is high, with renter households outnumbering bond-supported homes 19:1 and homeowner households 72:1.132 The consumer protections also support home buyers by placing limits on lenders fees, prohibiting penalties for early payments, and requiring fixed rate homeownership loans.133 Additional protections include credit verifications, hardship deferrals of monthly interest payments, and construction accountability standards which include right-to-repair procedures.134

124

Id. Id. 126 Cal. Legis. Analyst’s Off., supra note 4. 127 Id. 128 Id. 129 Yes on 37, California Middle-Class Homeownership Act, Fact Sheet, supra note 119. 130 Cal. Proposition 37, § 2, (2026) supra note 1. 131 Phillips, supra note 117. 132 Id. 133 Cal. Proposition 37, § 2, (2026) supra note 1. 134 Id. 125

B. Opponents’ Arguments No formal argument against Proposition 37 was submitted for the ballot.135 The opposition points below are therefore drawn from other sources rather than an organized “No” campaign, and should be read as identified concerns rather than positions advanced by a named coalition.136 1. Unknown Monthly Terms While Proposition 37 addresses a real down-payment barrier facing prospective homebuyers, critics argue that it does so by saddling buyers with "another mortgage that buyers generally would repay monthly on terms voters would not know in advance."137 Because CalHFA would determine the interest rate, administrative costs, and monthly loan payment only after Proposition 37 passes, voters would authorize the program without knowing its eventual costs or how it would compare with existing options, such as MyHome or Dream For All.138 2. Racial and Economic Gaps Critics also argue that Proposition 37 could reinforce existing racial and economic disparities rather than reduce them because it gives no priority to first-time or first-generation homebuyers.139 Because eligibility is based on income relative to area median income, households earning more than $300,000 in some high-cost counties could qualify if they meet the three percent down-payment requirement.140 Thus, income eligibility alone does not determine who can realistically purchase a home. As one critique explains, “racial and ethnic disparities in income, wealth, credit access, and housing affordability mean that not all eligible families across California may be positioned to benefit from the program as proposed.”141 This concern reflects existing income disparities: white families comprise 46 percent of middle- and upper-middle-income Californians, while Black and Latinx families are underrepresented in those income groups.142 Critics therefore contend that white families could benefit disproportionately, particularly because white households already account for the largest share of homeowners in the state.143

135

Ballotpedia, California Proposition 37, Second Mortgage Homebuyer Program and Revenue Bond Initiative (2026), https://perma.cc/HYE4-3DUF. 136 Id. 137 League of Women Voters of Diablo, supra note 102. 138 Id. 139 Id. 140 Davalos et al., supra note 33. 141 Id. 142 Id. 143 Id.

The three percent down payment also presents a significant upfront barrier. For a $500,000 to $700,000 home, the required down payment would range from $15,000 to $21,000.144 Assuming homes are sold at market value, that amount could exceed the liquid savings available to many California households.145 The Public Policy Institute of California reports that the median amount Californians hold in checking and savings accounts is roughly $18,000.146 Location presents another concern. Proposition 37 limits assistance to new or converted homes but does not require those homes to be near jobs, transit, schools, or services.147 As a result, even eligible households may face limited access to homes in locations that are economically and geographically practical. 3. Does Not Make Housing More Affordable A further criticism is that the state government should not be involved in the mortgage lending market in the first place, and that Proposition 37 fails to address the central issue driving California's housing crisis: housing in the state is simply too expensive.148 Critics argue the measure addresses unaffordability by expanding access to debt rather than reducing housing costs, allowing more people to purchase homes “only... by allowing them to go into even deeper debt.”149 Under this view, Proposition 37 may help middle-class families overcome the initial

144

Id. Davalos et al., supra note 33. 146 Id. 147 League of Women Voters of Diablo, supra note 102. 148 CalMatters, Proposition 37: Create Low-Cost Mortgages for Homebuyers, https://perma.cc/SX2U-7925. 149 Id. 145

barrier to homeownership, but it does not make the homes themselves more affordable.150 Instead, buyers would assume additional debt, interest, and loan payments on terms not yet determined, potentially over a longer repayment period, while the underlying price of the home remains unchanged.151 Further exacerbating this issue is the recent increase in interest rates to 4 percent, which affects the overall cost, making housing less affordable.152 VII.

CONCLUSION

Proposition 37 authorizes the state to sell up to $25 billion in revenue bonds to fund home loans for middle-class homebuyers.153 The bonds would cover up to seventeen percent of the down payment for qualified homebuyers.154 All builders may build homes eligible for purchase under the program, but builders who opt into the qualified builder option and agree to higher labor standards and construction-defect rules receive more flexible right-to-repair procedures for defect claims.155 A YES vote on this measure means: The state would create a new homebuying assistance program.156 The state could sell up to $25 billion in revenue bonds to fund the program.157 Bonds would be paid back by homeowners’ payments on their home loans.158 The measure would also allow qualified builders who meet specified requirements to elect modified construction-defect standards for homes built as part of the program.159 A NO vote on this measure means: The state would not be required to create a new homebuying assistance program.160

150

Id. Id. 152 Bd. of Governors of the Fed. Rsrv. Sys., Federal Reserve Issues FOMC Statement (Sept. 16, 2026), https://perma.cc/WW9F-7G8Y. 153 Cal. Legis. Analyst’s Off., supra note 4. 154 Id. 155 Id. 156 Id. 157 Id. 158 Cal. Legis. Analyst’s Off., supra note 4. 159 Id. 160 Id. 151

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Nikki Adkins J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 M.A., Special Education and Teaching, National University, 2023 B.A., Environmental Studies, San Francisco State University, 2021 &

Brandi Waschau J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., Government with an emphasis in Legal Studies, Grand Canyon University, 2025

EXECUTIVE SUMMARY

Proposition 38 is a bond act proposed by Gary K. Michelson.1 Gary K. Michelson is a cofounder and the chairman of the California Institute of Immunology and Immunotherapy (“CIII”).2 The initiative seeks authorization of $8.4 billion in general obligation bonds to fund immunology and immunotherapy research.3 The $8.4 billion would be split equally and distributed into two $4.2 billion allotments.4 One half would be allocated to an unnamed institute described as a “University of California-affiliated nonprofit medical research institute selected by the California Department of Public Health based on specified criteria” for researching immunology and immunotherapy.5 The CIII has been identified as the only institute that meets the criteria to receive this money.6 The other $4.2 billion would go to a grant program for public or nonprofit universities and institutions represented on an Advisory and Accountability Research Council (“Council”).7 The Council would consist of a seven-member executive committee made up of chancellors of different University of California (“UC”) campuses.8 The executive committee will select ten to fifteen additional Council members who will represent different public or nonprofit universities and institutions. Only universities and institutions with a representative on the Council will be eligible for a grant. The Council will decide which institutions represented by Council members receive a grant. Grant recipients will be required to collaborate with the unnamed institute.9 A YES vote means: the state will authorize $8.4 billion in bonds to fund immunology and immunotherapy research. An allocation of $4.2 billion would be distributed to a UC-affiliated research institute based on specified criteria. A Council would select institutions to which the other $4.2 billion would be distributed through grants. To qualify for a grant, the institution must be represented on the Council. The Council would consist of specified UC chancellors and 10– 15 additional representatives that the chancellors select.10 A NO vote means: the state will not authorize $8.4 billion in bonds to fund immunology and immunotherapy research.11

Proposed Initiative Enters Circulation: Authorizes Bonds for Immunology Research. Initiative Statute, CAL. SEC’Y

OF STATE (Jan. 2, 2026), https://perma.cc/A3M4-WR6V 2 Board of Directors, CAL. INST. FOR IMMUNOLOGY & IMMUNOTHERAPY, https://perma.cc/C7ST-2SKD 3

Cal. Proposition 38 (2026), https://perma.cc/UBX8-N9Q8 at § 130372(a). Id. 5 Id. 6 Id. 7 Cal. Proposition 38, supra note 3 at § 130352(b)(2). 8 BALLOTPEDIA, California Proposition 38, Immunology and Immunotherapy Research Funding Initiative (2026), https://perma.cc/GN88-Q85Q 9 Id. 10 Id. 11 Id. 4

II.

THE LAW A. Background

Medical research and development occur in a multi-stage process with three main stages.12 The first stage is basic research, which is typically conducted by universities.13 The second stage is “applied and clinical research,” usually done by companies.14 The third stage is regulatory review, which ensures treatments are safe and effective.15 Not all projects make it through every stage.16 Government agencies are the main source of funding for medical research.17 Bonds are another significant source of funding for medical research in California and are discussed in more detail later in this section.18 Propositions 71 (2004) and 14 (2020) are two previously approved California measures that provided bond funding for medical research.19 Proposition 71, the California Stem Cell Research and Cures Act, was a ballot initiative proposed by California voters.20 Voters passed the initiative in November 2004, amending the state constitution to make stem cell research a constitutional right.21 The measure allocated $3 billion of general obligation bonds for stem cell research over ten years.22 In addition, the measure led to the creation of the California Institute for Regenerative Medicine (“CIRM”) to allocate funds and oversee stem cell research.23 Proposition 14, the California Stem Cell Research, Treatments, and Cures Initiative, was a 2020 ballot initiative proposed by California voters.24 The initiative authorized an additional $5.5 billion in general obligation bonds for the CIRM to fund stem cell research after CIRM suspended applications for new projects because it had depleted its Proposition 71 funds.25

Authorizes Bonds for Immunology Medical Research Initiative Statute, CAL. LEGIS. ANALYST'S OFFICE, https://perma.cc/52G7-DE65 13 Id. 14 Id. 15 Id. 16 Id. 17 CAL. LEGIS. ANALYST'S OFFICE, supra note 12. 18 Id. 19 Cal. Proposition 71 (2004), Stem Cell Research and Cures Initiative; Cal. Proposition 14 (2020), The California Stem Cell Research, Treatments, and Cures Initiative of 2020. 20 Ceara O'Brien, California Proposition 71 (2004), EMBRYO PROJECT ENCYCLOPEDIA (Apr. 3, 2014), https://perma.cc/9N7F-QRPP 21 Cal. Const. art. XXXV; O'Brien, supra note 20. 22 O'Brien, supra note 20. 23 Id. 24 California Proposition 14, Stem Cell Research Institute Bond Initiative (2020), BALLOTPEDIA, https://perma.cc/WAC4-H9L2 25 O'Brien, supra note 20; BALLOTPEDIA, supra note 24.

B. Current Funding Methods for Research and Development The federal government is the first major source of funding for research and development (“R&D”).26 The Department of Health and Human Services offers grants through agencies such as the National Institutes of Health and the Centers for Disease Control and Prevention.27 These grants fund public health research.28 Other funding sources include businesses, nonprofits, and state and local governments.29 The second major source of R&D funding is bonds.30 Bonds let the government borrow money to pay for projects.31 The state sells bonds to investors and repays the money over time with interest.32 Once the state sells the bonds, it makes yearly payments, typically over a thirty year period.33 The most common type of bond, and the type relevant to Proposition 38, is a general obligation bond.34 General obligation bonds are often used to support public services.35 The state repays general obligation bonds using the General Fund, which primarily consists of income and sales tax revenues.36 C. Current California Law The California Constitution requires voters to approve bond issuance and sale through ballot measures, such as Proposition 38.37 A state bond measure approved by voters must also undergo an annual review process in which a report identifies how the funds are used and the project's status.38 Article XVI, Section 3 of the California Constitution prohibits setting aside or giving state money to “any corporation . . . or any other institution not under the exclusive management and control of the State as a state institution.”39 Article II, Section 12 of the California Constitution states that an initiative statute cannot “name or identify” a private corporation to perform a function or have a power or duty.40 In other words, the initiative cannot 26

Higher Education Research and Development: Fiscal Year 2024, NAT’L CTR. FOR SCI. & ENG’G STATISTICS, https://perma.cc/RZK7-F3D5 27 How Universities Spend Billions in Government Funds, USAFACTS, https://perma.cc/MS27-LZSH 28 NAT’L CTR. FOR SCI. & ENG’G STATISTICS, supra note 26. 29 Id. 30 Frequently Asked Questions About Bond Financing, CAL. LEGIS. ANALYST’S OFFICE (Feb. 2007), https://perma.cc/JRC8-QV89 31 Id. 32 Overview of State Bond Debt, CAL. LEGIS. ANALYST’S OFFICE (July 20, 2016), https://perma.cc/D694-9XE9 33 Id. 34 Bonds, CAL. LEGIS. ANALYST’S OFFICE, https://perma.cc/3EA3-TFFW 35 Id. 36 CAL. LEGIS. ANALYST’S OFFICE, supra note 30. 37 CAL. CONST. art. XVI, § 2 (Amendments to the Constitution providing for issuance and sale of bonds). 38 Cal. Gov't Code § 16724.4 (Annual reporting process for state bond measures approved by voters on or after Jan. 1, 2004; current proposed legislation that seeks to amend this law and add additional requirements to increase public transparency on the use of bond funds). 39 CAL. CONST. art. XVI, § 3 (Appropriation of public money; aid to private institutions). 40 CAL. CONST. art. II, § 12 (Naming individuals to office or private corporations to perform function or have power or duty).

include language that identifies a private corporation performing a public function or having a power or duty.41

Calfarm Ins. Co. v. Deukmejian, 48 Cal. 3d 805, 832 (1989) (Explaining that “formed by an interim board of public members” was sufficient for identifying a particular corporation). 42 Funding, CAL. LEGIS. ANALYST’S OFFICE, https://perma.cc/CT5A-8J5M

III.

PROPOSED LAW A. Background on the Proposed Law

The California Secretary of State identifies Gary K. Michelson as the proponent of Initiative 25-0026A1, which ultimately became Proposition 38.43 Gary K. Michelson is a cofounder and the chair of the board of CIII, a UCLA-affiliated nonprofit.44 Michelson first submitted the measure on October 28, 2025, under the Attorney General's tracking number 250026.45 Michelson then submitted an amended version on December 8, 2025, designated 250026A1.46 The amendments set highly specific parameters for the unnamed institute that would receive $4.2 billion of the bond money.47 The amendment also clarified the grant process for allocation of the other $4.2 billion of the bond money.48 B. Effects of Proposition 38 Proposition 38 would allocate money to an institute and to institutions or universities selected by a Council that the initiative would create. A single nonprofit medical research institute would receive $4.2 billion of the bond money.49 The Council would work with the institute and select grant recipients for the remaining $4.2 billion.50 1. Creates a Research Institute and Council Proposition 38 adds the “California Immunology and Immunotherapy Medical Research Act” to the California Health and Safety Code.51 The act authorizes $4.2 billion of the bond to a “single nonprofit medical research institute.”52 The California Department of Public Health (“CDPH”) selects the institute based on very specific criteria.53 The CIII has been found to be the only institution that would satisfy these criteria. The remaining $4.2 billion is distributed as grants to public and nonprofit universities and institutes represented on the Council.54 The Council consists of a seven-member executive committee made up of the chancellors of the UC campuses at Berkeley, Davis, Irvine, Los

CAL. SEC’Y OF STATE, supra note 1. Phil Hampton, UCLA Receives $120 Million from Alya and Gary Michelson for New California Institute for Immunology and Immunotherapy, UCLA NEWSROOM (Aug. 27, 2024), https://perma.cc/MU5L-9W3Q 45 CAL. SEC’Y OF STATE, supra note 1. 46 Id. 47 Initiative 25-0026A1: Authorizes Bonds for Immunology Research Initiative Statute, CAL. ATT'Y GEN., https://perma.cc/2M6U-KJBW 48 Id. 49 Cal. Proposition 38, supra note 3 at § 130351(e). 50 Cal. Proposition 38, supra note 3 at § 130355(e)(2). 51 Cal. Proposition 38, supra note 3 at § 130350. 52 Cal. Proposition 38, supra note 3 at § 130352(b)(1). 53 Cal. Proposition 38, supra note 3 at § 130351(e). 54 Cal. Proposition 38, supra note 3 at § 130352(b)(2). 44

Angeles (“LA”), Riverside, San Diego, and San Francisco.55 The UCLA chancellor serves as the Council’s first chairperson.56 The committee of the seven UC chancellors would vote to select additional Council members who are physicians, scientists, and researchers representing nonprofit academic and research institutions and nonprofit universities other than UC.57 The executive committee could add between ten and fifteen members.58 The executive committee and the added members would serve together as a general Council.59 The general Council together would select the grant recipients. Only institutions and universities represented on the Council would be eligible to apply for a grant. In other words, the Council would include seventeen to twenty-two representatives from UC and other California institutions, who would then themselves select which institutions among them would receive a grant from $4.2 billion of the bond money. 2. Establishes Conditions on Funding Proposition 38 defines “institute” as a nonprofit medical research institute.60 Only nonprofit medical research institutes exempt from federal income tax can receive funds.61 The single institute that is selected to receive $4.2 billion and lead the research must meet the following criteria: (1) existed on January 1, 2025; (2) founded for, and specializes in research in the field of immunology and immunotherapy; (3) has an affiliation agreement with a campus of UC; (4) leases or owns at least a 200,000 square foot research facility as of January 1, 2026; (5) has secured at least $250 million in donations; (6) has secured at least $50 million for developing a rapid vaccine program and at least $50 million for a microbiome program; and (7) the UC campus that the institute is affiliated with has a campus hospital and clinic with more than 35,000 inpatients and 3.5 million outpatient visits a year.62 Notably, the CIII is the only institute that meets these criteria.63 The CIII is affiliated with UCLA, and Proposition 38 requires each grant recipient to offer UCLA the chance to participate in part of any clinical trials funded by this Act.64 Additionally, Gary K. Michelson, who proposed Proposition 38, co-founded the CIII and chairs its Board of Directors.65

Cal. Proposition 38, supra note 3 at § 130355(b)(1). Cal. Proposition 38, supra note 3 at § 130355(d)(2). 57 Cal. Proposition 38, supra note 3 at §§ 130355(b)(2)(A)–(B); (b)(3). 58 Cal. Proposition 38, supra note 3 at § 130355(b)(2). 59 Cal. Proposition 38, supra note 3 at § 130355(b)(1). 60 Cal. Proposition 38, supra note 3 at § 130351(e). 61 Cal. Proposition 38, supra note 3 at § 130353(a)(1). 62 Cal. Proposition 38, supra note 3 at §§§§ 130353(a)(2); (2)(C); (4); (7). 63 Is this CA proposition written to benefit one research center? CALMATTERS (July, 2026), https://perma.cc/2X2R2QUV 64 Cal. Proposition 38, supra note 3 at § 130357(e). 65 CAL. INST. FOR IMMUNOLOGY & IMMUNOTHERAPY, supra note 2. 56

3. Authorizes a New Bond for Immunology and Immunotherapy Research If Proposition 38 were passed, the California Immunology and Immunotherapy Bond Act of 2026 (“Act”) would be created.66 The Act would authorize $8.4 billion in bonds to be issued and sold.67 Under the Act, the California Immunology and Immunotherapy Medical Research Finance Committee (“the Committee”) is created to issue and sell bonds.68 The Committee includes the State Treasurer, the Controller, and the Director of Finance.69 To obtain funds, the institute must request them from the CDPH.70 The CDPH then brings the request to the Committee, which determines whether the money would support the purposes of the research.71 If the Committee approves a request, the Committee issues and sells the bonds.72 Any proceeds of the issued and sold bonds are deposited into the California Immunology and Immunotherapy Medical Research Fund.73 The Act creates the California Immunology and Immunotherapy Medical Research Fund in the State Treasury, and its disbursement guidelines govern how the proceeds are used.74 If bonds go unsold, the Act authorizes the Director of Finance to withdraw money from the General Fund up to the unsold amount, which must be repaid.75 In other words, even if no one buys the bonds, the Director of Finance can withdraw money from California’s General Fund to fund the research. However, recipients of General Fund money must repay the General Fund the amount they received plus interest. 76 4. Severability Proposition 38 includes a severability clause stating that its provisions are severable. This means that if a court struck down any part of Proposition 38, the remaining provisions would remain in effect.77 Proposition 38, section 5 specifies that “if any provision of this act, or part thereof, is held to be invalid, such invalidity shall not affect any other provision of this act that can be given effect without the invalid provision.”78 C. Fiscal Effects If Proposition 38 passes, bond payments will cost taxpayers approximately $500–$600 million annually for twenty-five years, bringing the cost of the $8.4 billion bond to more than 66

Cal. Proposition 38, supra note 3 at § 130370. Cal. Proposition 38, supra note 3 at § 130372(a). 68 Cal. Proposition 38, supra note 3 at § 130375(a)(1). 69 Cal. Proposition 38, supra note 3 at § 130354(a)(3). 70 Cal. Proposition 38, supra note 3 at § 130376(a). 71 Id. 72 Id. 73 Cal. Proposition 38, supra note 3 at § 130352(a). 74 Id. 75 Cal. Proposition 38, supra note 3 at § 130380. 76 Id. 77 David Gans, To Save and Not to Destroy: Severability, Judicial Restraint, and the Affordable Care Act, AM. CONST. SOC’Y, https://perma.cc/5JUM-44J5 78 Cal. Proposition 38, supra note 3 at § 5. 67

$12 billion.79 Drug therapies developed through the bond’s research could reduce the cost because the state will receive ten percent of licensing revenue from successful research until the bond is paid off.80 The rest of any licensing revenue would go into the California Immunology and Immunotherapy Medical Research Fund.81 Any new drug or technology made through the research associated with the bond proceeds will be sold at a twenty percent discount in California. However, it is unclear whether the discounts will be given directly to California residents or if they will apply to insurance companies. The initiative would also limit California’s administrative costs, such as managing the funding program and overseeing grant distribution, to two percent.82 IV.

CONSTITUTIONAL ISSUES

Under Proposition 38, the Council selects the recipients of grants. Proposition 38 names UCLA’s chancellor as the Council chairperson.83 Under Article II, Section 12 of the California Constitution, an initiative presented to voters cannot identify or name a person or corporation.84 In Calfarm Ins. Co. v. Deukmejian, the California Supreme Court raised this issue when Californians passed Proposition 103 (1988).85 Proposition 103 created a consumer-advocacy corporation established by an “interim board of public members appointed by the Insurance Commissioner.”86 The Court found that this provision alone was sufficient to identify a particular corporation.87 Like Proposition 103, Proposition 38 identifies entities and persons and establishes how they will become part of the entity, but with greater specificity.88 First, Proposition 38 likely identifies an entity because it sets out highly specific criteria concerning the qualifying institute’s size, funding, and UC collaboration. These criteria are even more specific than those at issue in Calfarm, and experts have determined that CIII is the only institute that satisfies them. Accordingly, it is likely a court will find that a specific entity is named in Proposition 38 because CIII is reasonably identifiable.89 Second, Proposition 38’s council provision potentially identifies a person. Under Proposition 38, the Council members specifically include identifiable individuals: the chancellors of seven named UC campuses.90 Additionally, the chairperson is identified as

CAL. LEGIS. ANALYST’S OFFICE, supra note 12. Proposition 38 Arguments and Rebuttals, CAL. SEC’Y OF STATE, https://perma.cc/J69V-QGXB 81 BALLOTPEDIA, supra note 8. 82 Id. 83 Cal. Proposition 38, § 130355(d)(2). 84 Calfarm, 48 Cal. 3d at 833. 85 Calfarm, 48 Cal. 3d at 832. 86 Id. 87 Calfarm, 48 Cal. 3d at 834. 88 Cal. Proposition 38, supra note 3 at § 130353(a)(1)–(7). 89 See Calfarm, 48 Cal. 3d at 834. 90 Cal. Proposition 38, supra note 3 at § 130355 sec(b)(1). 80

UCLA’s chancellor.91 In Calfarm, Proposition 103 used the terms “public members” and identified the “Insurance Commissioner.” The composition and creation of the Council under Proposition 38 is more specific. Therefore, under Proposition 38’s council provision, a court would likely find that it identifies a person. If a court determines that Proposition 38 names or identifies a person or entity, it must determine whether it is a private entity.92 Under the specific criteria outlined for the single institute, a court may plausibly determine CIII as the only qualified institute.93 If it does, the court would need to determine whether CIII is a private corporation. In Calfarm, the court stated that a “nonprofit public benefit corporation” is considered a private corporation within the meaning of Article II, Section 12.94 In this case, CIII was organized “as a California non-profit public benefit corporation.”95 Further, CIII specifically identifies itself as a “private-public partnership,” suggesting it functions like a nonprofit corporation. 96 A court would likely treat CIII as a private corporation, as in Calfarm, even though it is tax-exempt under 501(c)(3). The final step to determine whether an initiative violates Article II, Section 12 of California’s Constitution is whether the identified private corporation performs a public function. In Calfarm, the court rejected the claim that a violation only occurs if the identified private corporation performs a public function.97 Thus, in Calfarm, the court concluded that when an initiative identifies a private corporation to perform a function, the provision is unconstitutional under Article II, Section 12.98 Because Proposition 38 outlines specific criteria for the institute and council that are more specific than those in Calfarm, and because a court could reasonably find that the single institute is the CIII, a court would likely find these provisions unconstitutional.

Cal. Proposition 38, supra note 3 at § 130355 sec(d)(2). Calfarm, supra note 88. 93 CALMATTERS, supra note 63. 94 Calfarm, 48 Cal. 3d at 834. 95 Health Services Committee Item H3, UC BOARD OF REGENTS (Aug. 9, 2023), https://perma.cc/5EC4-5EFC 96 Phil Hampton, supra note 44. 97 Calfarm, 48 Cal. 3d at 835. 98 Calfarm, 48 Cal. 3d at 805. 92

Proposition 38 contains a severability clause. If a court finds these provisions unconstitutional, the court must determine if the provisions are severable from the rest of Proposition 38.99 In California, courts generally consider a measure severable if the sections at issue are grammatically distinct from each other and complete on their own; can be applied independently from one another; and there is an indication in the enacting body that the remaining provisions were intended to stand on their own and be enforced absent the severed law.100 Applying this test, a court will likely find the remaining provisions invalid because they depend on the institute and the Council: the institute receives half of the bond money and works with the Council to determine who receives the individual grants. Further, the remaining provisions depend on the provisions identifying the council because the council represents the public and nonprofit universities and research institutes that are eligible to receive the individual grants.101 If the institute and council provisions are found unconstitutional, the provisions directing where the money goes and how it is allocated will have no effect. Therefore, a court will likely find that the council and institute provisions in Proposition 38 are not severable. V.

PUBLIC POLICY ISSUES A. Ethical Considerations

Proposition 38’s bonds would be allocated in two $4.2 billion segments.102 One unnamed institute would receive $4.2 billion.103 The measure's strict criteria effectively identify CIII as the recipient institute.104 Gary K. Michelson is a co-founder and the chairman of CIII.105 Gary K. Michelson introduced Proposition 38 and is a major donor to the campaign.106 As written, Proposition 38 would likely direct $4.2 billion to the institute Gary K. Michelson co-founded.107 The other half of the bond money would be allocated to select nonprofit and public university researchers in California through a competitive grant application process.108 The executive committee consists of seven named UC chancellors.109 This committee will choose ten to fifteen representatives from other nonprofit universities and research institutions to serve with them as general Council members.110 Grants can only be awarded to research projects proposed by nonprofit universities and research institutions that have members representing them on the

People’s Advocate Inc. v. Superior Ct., 181 Cal. App. 3d 316, 330 (3rd Dist. 1986). Id. 101 Cal. Proposition 38, supra note 3 at § 130352(b)(2). 102 CAL. LEGIS. ANALYST'S OFFICE, supra note 12. 103 Id. 104 Id. 105 THE CALIFORNIA INSTITUTE FOR IMMUNOLOGY AND IMMUNOTHERAPY, supra note 2. 106 CAL. SEC’Y OF STATE, supra note 1. 107 THE CALIFORNIA INSTITUTE FOR IMMUNOLOGY AND IMMUNOTHERAPY, supra note 2. 108 Id. 109 Id. 110 Id. 100

Council.111 In other words, the seven UC chancellors will choose which institutions may be represented on the Council and subsequently apply for a grant. The general Council, together with the UC chancellors and the selected ten to fifteen additional members, will decide which of these applicants will be awarded the grants, including proposals from the institutions they represent.112 Additionally, the unnamed institute awarded the other $4.2 billion will work with the Council to decide which Council-represented nonprofits receive grants.113 The bond language says the “council shall confer with the institute … in making final decisions regarding the funding of grant proposals.”114 Proposition 38 gives one unnamed institute, identified as CIII based on the criteria, $4.2 billion and control over how the other $4.2 billion is allocated and used.115 The grant recipients are also required to maintain a close relationship with this unnamed institute and must offer the institute “the opportunity to substantially participate in and collaborate on any clinical trials conducted as part of the funded research.”116 B. Proponents Named proponents of Proposition 38 include health and disease advocacy organizations, such as the ALS Association, Alzheimer’s Association, American Association of Immunologists, and Prostate Cancer Foundation; medical and research organizations, such as the American Nurses Association and Research!America; and community, environmental justice, and civil rights organizations, such as the California Environmental Justice Alliance, California Black Health Network, and Equality California. Political proponents include the California Democratic Party, California Republican Party, and California Working Families Party.117 Proponents of Proposition 38 argue that the measure could benefit millions of Californians as immunology and immunotherapy are producing major breakthroughs for illnesses such as melanoma, lung cancer, and leukemia, and could lead to treatments or cures for Alzheimer’s, Parkinson’s, ALS, heart disease, diabetes, and other diseases.118 Proponents claim that uncertainty over federal funding for such research and associated funding cuts are disrupting research and threatening progress toward cures.119 Proponents argue Proposition 38 would provide a dedicated, stable funding source so California researchers can continue this work.120 Proponents also argue that the detailed eligibility requirements for receiving bond funds are intentional safeguards to ensure recipients are already highly qualified and can immediately 111

Id. CAL. LEGIS. ANALYST'S OFFICE, supra note 12. 113 CAL. ATT'Y GEN., supra note 44. 114 Id. 115 Id. 116 Id. 117 Yes on Proposition 38 California, YES ON 38, https://perma.cc/QE9P-7FSS 118 CALMATTERS, supra note 63. 119 Id. 120 Id. 112

conduct large-scale immunology research.121 The other half of the bond money goes through competitive research grants to public or nonprofit universities and research institutions in California, but even that half is targeted to a select few institutions.122 Proponents argue that preventing or curing major diseases will reduce long-term healthcare expenditures for both families and the state, and could save California and Californians tens of billions of dollars in avoided medical expenses.123 Patients would benefit from a mandated twenty percent discount below the national average price on drugs and technologies developed through the research.124 Additionally, Proposition 38 requires that ten percent of licensing revenue from successful research return to the state and first be used to repay the bond, including interest.125 Proponents characterize Proposition 38 as being designed to "pay for itself" rather than simply leaving taxpayers with the entire cost.126 C. Opponents Identified opponents of Proposition 38 include League of Women Voters California, Howard Jarvis Taxpayers Association, and Dr. Robert Kaplan, a senior scholar at the Clinical Excellence Research Center at the Stanford School of Medicine.127 Opponents of Proposition 38 acknowledge the importance of continued investment in immunology and immunotherapy research but argue that the measure inefficiently allocates public research funding.128 In particular, opponents object to the measure's decision to dedicate funds to a single scientific field and direct approximately half of those funds to a single qualifying research institute.129 Opponents argue that California's prior use of general obligation bonds to fund specialized medical research demonstrates the long-term fiscal costs of this approach.130 Proposition 71 (2004) authorized $3 billion in bonds for stem cell research.131 Although voters authorized $3 billion in research funding, the state ultimately had to repay both the principal and interest on those bonds.132 The Legislative Analyst's Office (“LAO”) estimated that repaying the $3 billion in Proposition 71 (2004) bonds over thirty years would cost the General Fund approximately $6 billion, including roughly $3 billion in interest.133 Within sixteen

121

Id. CALMATTERS, supra note 63. 123 Id. 124 Id. 125 Id. 126 Id. 127 BALLOTPEDIA, supra note 8. 128 CALMATTERS, supra note 63. 129 Id. 130 Id. 131 O'Brien, supra note 20. 132 Proposition 71: Stem Cell Research. Funding. Bonds., CAL. LEGIS. ANALYST'S OFF., https://perma.cc/UM6T68KE 133 Id. 122

years, the Proposition 71 (2004) funds ran out.134 Voters subsequently authorized additional funds in Proposition 14 (2020).135 Additionally, fiscal concerns are not limited to borrowing costs.136 The financial return from publicly funded biomedical research is inherently uncertain and may take many years to materialize.137 The state can receive a share of revenue from inventions resulting from CIRMfunded research, but the LAO noted that the amount and timing of that revenue were uncertain.138 As of the LAO's 2019 analysis, the state had received only a few hundred thousand dollars in invention-related income from Proposition 71-funded research.139 Proposition 14 continued this funding model by authorizing an additional $5.5 billion in bonds.140 The LAO estimated that those bonds would cost the state approximately $7.8 billion in total, including $2.3 billion in interest, under its assumed repayment schedule.141 The LAO emphasized that any revenue generated by successful research could take decades to materialize and was difficult to predict.142 The LAO estimates that California would incur approximately $500 million in annual costs for 25 years to repay the bonds created by Proposition 38.143 Although the state could potentially recover some or all of those costs if funded research produces revenue-generating discoveries, the LAO describes the amount and timing of such revenue as uncertain and potentially decades away.144 Thus, the opponents’ concern is not that the research itself lacks value.145 Rather, they argue that taxpayers bear a certain, long-term debt obligation while the research’s financial benefits remain uncertain and may not materialize.146 Opponents further argue that locking billions into immunology and immunotherapy could come at the expense of other areas of biomedical research and that research priorities should instead be determined through competitive scientific review.147 Finally, they raise transparency and accountability concerns, arguing that the institute receiving the largest allocation would not be subject to certain public-records, open-meeting, and political-disclosure requirements.148 The

134

Id. Cal. Proposition 14, supra note 19. 136 No on Proposition 38 California, NO ON 38, https://perma.cc/8UVS-8DFL 137 Id. 138 CAL. LEGIS. ANALYST'S OFF., supra note 115. 139 Id. 140 NO ON 38, supra, 136. 141 Id. 142 Id. 143 Id. 144 Id. 145 NO ON 38, supra note 136. 146 Id. 147 Id. 148 NO ON 38, supra note 136. 135

campaign also argues that California should restore federal biomedical research funding rather than replace federal support with additional state debt.149 VI.

CAMPAIGN FINANCE

Gary K. Michelson introduced Proposition 38 and heavily funds its campaign.150 The Michelson Center for Public Policy is currently listed as the largest contributor to the Yes on 38 campaign, with $13 million. Additionally. Gary Michelson and affiliated entities are listed as contributing $8.2 million. Meyer Luskin has contributed another $5 million. Meyer Luskin is also a co-founder of CIII.151 CIII is affiliated with UCLA. In 2024, Michelson gave $120 million to UCLA to help fund CIII.152

Total Raised For YES on 38

Total Raised for NO on 38

~ $38.2 million

~ $640

Item

Side

Amount

Gary K. Michelson and Affiliated Entity Michelson Center for Public Policy

Yes on 38

$20.2 million

Michelson Center for Public Policy

Yes on 38

$3 million

Michelson Center for Public Policy, Inc

Yes on 38

$12 million

Meyer Luskin

Yes on 38

$5 million

California Democratic Party

Yes on 38

$1,946.50

No on Proposition 38 Committee

No on 38

$406.51

Laurence Lang

No on 38

$250

153

149

Id. BALLOTPEDIA, supra note 8. 151 Id. 152 Phil Hampton, supra note 44. 153 BALLOTPEDIA, supra note 8. 150

VII.

CONCLUSION

Proposition 38 will authorize the state to borrow $8.4 billion in bonds.154 This would cost taxpayers approximately $500–$600 million annually for twenty-five years.155 The bonds are sold, and the proceeds go toward medical research in immunology and immunotherapy.156 A single institute that meets specific criteria will receive $4.2 billion.157 The remaining $4.2 billion will be distributed through individual grants to selected non-profit or public universities or other research institutes.158 The council decides who receives the grants, and the grants go to the universities and institutes represented on the council.159 Proposition 38 raises constitutional issues because a court may find that Proposition 38 unconstitutionally directs money to a private institution and identifies individuals. A YES vote on Proposition 38 means: The state could borrow $8.4 billion to support medical research in immunology and immunotherapy conducted by public or nonprofit California research institutes or universities, half of which would be distributed to a “University of California-affiliated nonprofit medical research institute selected by the California Department of Public Health based on specified criteria researching immunology and immunotherapy,” and the other half of which would be distributed to selected public or nonprofit universities and institutions represented on the Advisory and Accountability Research Council.160 A NO vote on Proposition 38 means: The state could not borrow $8.4 billion to support medical research in immunology and immunotherapy conducted by California research institutes and other nonprofit or public universities and research institutes.161

154

Id. CAL. LEGIS. ANALYST'S OFFICE, supra note 12. 156 Id. 157 Id. 158 Id. 159 BALLOTPEDIA, supra note 8. 160 Id. 161 Id. 155

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Proposition 39: Voter Identification, Citizenship Verification, and Registered Voter List Administration Initiative Initiative Constitutional Amendment Copyright © 2026 by the University of the Pacific, McGeorge School of Law

Grace Cimpan J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.S., Economics, University of California, Davis, 2023 &

Rachel Yoas J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., History & Political Science, Fordham University, Rose Hill, 2020

EXECUTIVE SUMMARY

Proposition 39 is a citizen-initiated constitutional amendment initiative proposed by a political action committee called Reform California, which was founded by State Assemblymember Carl DeMaio.1 Proposition 39 has three main provisions: (1) requiring a government-issued identification to cast an in-person ballot; (2) requiring the Secretary of State and local county election officials to keep voter registration lists and use best efforts to verify citizenship; and (3) requiring mail-in ballots to have the last four digits of a government-issued identification that matches an identification on voter registration.2 A YES vote on this measure means: voters would be required to present additional identifying information to election officials each time they vote. Ballots would require new identification, and additional duties would be put in place regarding voter registration lists.3 A NO vote on this measure means: a voter’s identity would continue to be established with the voter’s signature. No additional identification would be required for registered voters’ ballots, and voting lists and registration review would remain unchanged.4 II.

THE LAW

A. Legal Background The responsibilities of the election system in the United States (“U.S.”) are divided amongst federal, state, and local governments.5 The Elections Clause of the U.S. Constitution provides that each state legislature must determine the time, place, and manner of conducting federal elections.6 This means states can set their own voting guidelines and establish election regulations.7 However, the U.S. Congress can make or alter states’ rules for federal elections.8 For state and local elections, states reserve the power to decide how their election system works.9 State and local governments often work together to administer elections.10

Carl DeMaio, CALMATTERS, https://perma.cc/PSB7-XE3A. Cal. Proposition 39 (2026), https://perma.cc/77GC-CR48. 3 Id. 4 Id. 5 Jonathan Diaz & Emily Burns, What Role Does the Federal Government Play in Our Elections?, CAMPAIGN LEGAL CENTER, (Apr. 22, 2026), https://perma.cc/G8XK-TD44. 6 U.S. CONST. art. I, § 4, cl. 1. 7 U.S. CONST. art. I, § 4, cl. 1. 8 CAMPAIGN LEGAL CENTER, supra note 5. 9 The State and Local Role in Election Administration: Duties and Structures, CONGRESS.GOV, https://perma.cc/22LB-87YC. 10 Id. 2

B. Existing Law 1. Current California Laws and Regulations Currently, California law does not require voters to present identification to cast a ballot.11 Rather, the California Elections Code prohibits local governments from requiring individuals to present identification to submit a ballot when voting.12 The California Constitution permits individuals to vote if they are a “United States citizen 18 years of age and resident in this state.”13 The California Constitution enables the Legislature to pass laws to define the term “resident” in Article II section 2, and determine how qualified voters can register to vote.14 The laws the Legislature passes are referred to as the California Elections Code. There are three main categories relevant to Proposition 39 that are currently addressed in the California Elections Code. First, California law requires the identification envelope used for mail-in ballots to contain the voter’s signature 15 When election officials receive mail-in ballots, they compare the signature to other voter documents to ensure it matches.16 To count a provisional ballot, election officials use signature comparison procedures to determine whether to include the ballot in the vote count.17 Second, California law verifies citizenship for voting purposes through a signed affidavit of registration.18 This means voters check a “Yes” box indicating they are a U.S. citizen.19 Finally, state law provides voter identification registration requirements. To register to vote, voters must provide a valid state identification number or California Driver’s License, or the last four digits of your social security number (SSN).20 If voters do not have a valid identifier, the state will assign a unique number for voting purposes.21 In addition to the Legislature enacting laws that establish voting requirements, the Legislature can authorize the California Secretary of State to make rules to carry out the laws.22 The Secretary of State is the state’s Chief Elections Officer and oversees state and federal

California Proposition 39, Voter Identification, Citizenship Verification, and Registered Voter List Administration Initiative (2026), BALLOTPEDIA, https://perma.cc/3RTQ-ECS3. 12 CAL. ELEC. CODE § 10005 (2025). 13 CAL. CONST. art. II, § 2. 14 CAL. CONST. art. II, § 3. 15 CAL. ELEC. CODE § 3011 (2020). 16 Election officials compare it to the “signature appearing on the voter's affidavit of registration” or to “a form issued by an elections official” that has the signature. CAL. ELEC. CODE § 3019 (2026). 17 CAL. ELEC. CODE § 14310 (2018). 18 CAL. ELEC. CODE § 2112 (2026). 19 Voter Registration, CAL. SEC’Y OF STATE, https://perma.cc/F7Y4-QDTV. 20 CAL. ELEC. CODE § 2150 (2022). 21 Id. 22 CAL. GOV’T. CODE § 12172.5 (2023).

elections.23 There are four regulations established by the Secretary of State relevant to Proposition 39. First, the Secretary of State promulgated regulations regarding the duties of election officials.24 For example, the duties of election officials can include posting rules at polling places, ensuring there are no delays or misconduct, keeping mail-in ballot information confidential, and answering questions about the election process.25 Second, the Secretary of State promulgated regulations on the standards for verifying signatures on a vote-by-mail envelope, including how election officials analyze a signature to determine whether the signature is a match with the voter’s registration record.26 Third, the Secretary of State is responsible for coordinating the statewide voter registration system with county election management systems (EMS) to determine voter eligibility.27 “VoteCal” is California's centralized voter registration system and is updated with information from county election officials who collect voter information using their county EMS to register voters.28 VoteCal maintains a list of each registered voter with specific information on the voter, not including citizenship.29 Finally, in federal elections, the identity of voters is verified by crosschecking the document in the voter affidavit of registration with Department of Motor Vehicle records, information in VoteCal, or the county EMS.30 Senate Bill (“SB”) 1420, titled “Vote by mail ballots and early voting,” was signed into law by Governor Gavin Newsom on September 19, 2026, and took effect immediately so that the Secretary of State’s website could include the required information before the November 3, 2026 election.31 However it is unclear if this bill has taken effect as of October 15th given the late enactment. The bill places a requirement on the Secretary of State to create regulations establishing specific procedures to allow any voter to take their vote-by-mail ballot to an inperson polling location and vote there.32 The bill also requires the Secretary of State to create regulations to verify that the voter’s identification matches the vote-by-mail ballot that they bring in.33 While the bill does not specify how the voter will be identified, it is most likely they will be identified via a California driver’s license or California state identification card.

About Us, CAL. SEC’Y OF STATE, https://perma.cc/AL39-3SZB. CAL. CODE REGS. TIT 2, § 20876 (2024). 25 Id. 26 CAL. CODE REGS. TIT 2, § 20960 (2022). 27 CAL. CODE REGS. TIT 2, § 19060. 28 VoteCal, CAL. SEC’Y OF STATE, https://perma.cc/52ZD-GJ6S. 29 CAL. CODE REGS. TIT 2, § 19001(h) (2022). 30 CAL. CODE REGS. TIT 2, § 19073 (2026). 31 SB 1420: Vote by mail ballots and early voting., CALMATTERS, https://perma.cc/HR52-G58H. 32 Id. 33 Id. 24

2. Current Federal Law The two federal laws relevant to Proposition 39 include the United States Constitution’s Elections Clause and the Fourteenth Amendment of the U.S Constitution. The Elections Clause provides that each state legislature will determine the time, place, and manner of administering federal elections.34 However, states need to make sure their laws are in line with the “Equal Protection Clause of the Fourteenth Amendment.”35 In election laws, a state law is invalid under the Fourteenth Amendment when it establishes voter qualifications or requirements that place burdens on voters and do not have a relation to voting qualifications.36 3. Other States a. Current Voter Identification Laws Across Thirty-Six States37 Currently, thirty-six states have laws requiring voters to show proof of identity when voting in person, and the other fourteen states and Washington D.C. use other ways to verify voter identity.38 Of those thirty-six states, twenty-four states require that the proof of identity presented includes a photo, and the other twelve states accept non-photo identification documents (See Figure 1).39 The states that take non-photo identification typically require two forms of documentation such as bank statements, utility bills, paychecks, and other documents that list both the voter's name and address.40 Figure 1. States with Laws Requiring Photo Identification and Non-Photo Identification41 Photo Identification Requirements

Non-Photo Identification Requirements

Alabama, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Carolina, Ohio, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, West Virginia, Wisconsin

Alaska, Arizona, Colorado, Connecticut, Delaware, Iowa, North Dakota, Oklahoma, Utah, Virginia, Washington, Wyoming

U.S. CONST. art. I, § 4, cl. 1. Harper v. Virginia State Bd. of Elec., 383 U.S. 663 (1966). 36 Id. at 670. 37 Voter Identification Laws, NAT’L CONF. OF ST. LEG., (Sep. 3, 2026), https://perma.cc/T3R5-PYYY. 38 Id. 39 Id. 40 Id. 41 Id. 35

b. Voter Identification Laws on Other States’ Ballots in 202642 Six other states have voter identification constitutional amendment initiatives on their ballots this year.43 Of those six initiatives, four were proposed by the State Legislature (Arizona, North Carolina, Ohio, and Oklahoma) and two were proposed by the people (Colorado and Nevada).44 Of these states, only Nevada and California do not currently require voters to present identification at the polls.45 i. Arizona Currently, Arizona’s laws require identification to vote in person, a signature on mail-in ballots, and proof of citizenship to register to vote.46 On November 3, Arizonans will vote on Proposition 144, titled “Voter Identification and Citizenship Voting Requirements Amendment,” that would require voters to provide valid government-issued identification before casting a ballot, prohibit foreign nationals from contributing to Arizona state campaigns, and require that “only citizens may register and vote in Arizona elections.”47 ii. Colorado On November 3, Coloradans will vote on Colorado Amendment 84, titled “[r]equire Voter Identification Number for mail-in-ballots initiative, a citizen-initiated constitutional amendment.”48 Amendment 84 only affects Colorado’s mail-in voting process, which currently requires that voter verification be done through signature verification.49 If passed, this constitutional amendment would require mail-in-ballots to have both a signature and an

States will have New & Stricter Voter Identification Laws on the Ballot in 2026, VOTERIDERS, (Sep. 4, 2026), https://perma.cc/3V27-KQCK. 43 VOTERIDERS, supra note 43; PROPOSITION 144 (2026), ANALYSIS BY LEGIS. COUNCIL, https://perma.cc/8ZRPFKXJ; Arizona Proposition 144, Voter Identification and Citizenship Voting Requirements (2026), BALLOTPEDIA, https://perma.cc/7LBS-AVGL; Colorado Amendment 84, Require Voter Identification Number for mail-in-ballots Initiative (2026), BALLOTPEDIA, https://perma.cc/UDN7-JDVQ; Nevada Question 7, Require Voter Identification Initiative (2026), BALLOTPEDIA, https://perma.cc/J5AY-D5KL; North Carolina Require Voter Identification Amendment (2026), BALLOTPEDIA, https://perma.cc/4H6K-FWNR; Ohio Issue 3, Require Voter Identification Amendment (2026), BALLOTPEDIA, https://perma.cc/3QWV-938L; Oklahoma State Question 846,Voter Identification Amendment (August 2026), BALLOTPEDIA, https://perma.cc/3D4V-8U24. 44 Id. 45 VOTERIDERS, supra note 43; NAT’L CONF. OF ST. LEG., supra note 38. 46 ANALYSIS BY LEGIS. COUNCIL, supra note 45; Arizona Proposition 144, Voter Identification and Citizenship Voting Requirements (2026), BALLOTPEDIA, supra note 45. 47 Id. 48 Colorado Amendment 84, Require Voter Identification Number for mail-in-ballots Initiative (2026), BALLOTPEDIA, supra note 45. 49 Id.

identification number.50 Identification may include: (1) Colorado REAL identification number; (2) Colorado REAL identification driver’s license number; (3) last four digits of SSN; or (4) last four digits of another Colorado identification number that meets federal REAL identification requirements.51 This is similar to the requirements laid out by Proposition 39, however, Proposition 39 is broader and does not specify what will count as an identification number.52 iii. Nevada Nevada does not currently require voters to present identification when voting inperson.53 Nevada’s constitution requires that citizen-initiated constitutional amendments get approval in two consecutive elections.54 Nevada has a citizen-initiated constitutional amendment that was previously approved in 2024 called “Question 7, Require Voter Identification Initiative.”55 If Question 7 passes, then Nevadans will have to present photo identification when voting in person, and when voting by mail, they will need to include the last four digits of their driver’s license or SSN.56 This initiative has similar requirements to Proposition 39, however, Proposition 39 is written broader and does not specify what will count for the identification number.57 iv. North Carolina In 2018, North Carolinians voted and approved a legislative constitutional amendment that required voters to show photographic identification to vote in person.58In 2025, the North Carolina Legislature enacted a statute that required voters to include a photocopy of their photo identification when voting via mail in an absentee ballot.59 The statute allows voters to include the last four digits of their driver’s license or SSN if they are unable to produce a photocopy of their identification for various, enumerated reasons.60

Id. Id. 52 Colorado Amendment 84, Require Voter Identification Number for mail-in-ballots Initiative (2026), BALLOTPEDIA, supra note 45; Proposition 39, supra note 2. 53 Nevada Question 7, Require Voter Identification Initiative (2026), BALLOTPEDIA, supra note 45. 54 Id. 55 Id. 56 Id. 57 Nevada Question 7, Require Voter Identification Initiative (2026), BALLOTPEDIA, supra note 45; Proposition 39, supra note 2. 58 North Carolina Require Voter Identification Amendment (2026), BALLOTPEDIA, supra note 45. 59 N.C. GEN. STAT. ANN. § 163-166.12. 60 Id. 51

This November, North Carolinians will vote on a legislative constitutional amendment that would amend the North Carolina Constitution to require photo identification for all forms of voting.61 North Carolina’s initiative goes further than Proposition 39 by specifically requiring photo identification for all forms of voting. 62 v. Ohio Currently, Ohio law requires voters to show photo identification when voting in person.63 If voting absentee, voters must provide their Ohio driver’s license number, Ohio state identification card number, last four digits of their SSN, or copy of photo identification.64 On November 3, Ohioans will be voting on Issue 3, Require Voter Identification Amendment, a legislatively referred constitutional amendment.65 If enacted, this amendment would make it so when voting absentee, voters would be required to provide proof of photo identification or signature plus an additional form of identification.66 The amendment would also create an alternative process for those with religious objections to being photographed.67 Proposition 39’s has similar identification requirements for mail-in voters, but Ohio’s initiative goes further by requiring photo identification.68

North Carolina Require Voter Identification Amendment (2026), BALLOTPEDIA, supra note 45. North Carolina Require Voter Identification Amendment (2026), BALLOTPEDIA, supra note 45; Proposition 39, supra note 2; N.C. GEN. STAT. ANN. § 163-166.12. 63 Ohio Issue 3, Require Voter Identification Amendment (2026), BALLOTPEDIA, supra note 45. 64 Id. 65 Id. 66 Id. 67 Id. 68 North Carolina Require Voter Identification Amendment (2026), BALLOTPEDIA, supra note 45; Proposition 39, supra note 2; 8 N.C. ADMIN. CODE § 17.0109. 62

vi. Oklahoma Oklahoma’s primary runoff election date was on August 25, 2026, and the people approved Oklahoma State Question 846, the Voter Identification Amendment, which was a constitutional amendment initiative originally proposed by the state legislature.69 Similar to Proposition 39, State Question 846 requires proof of identity but defers to the Legislature to determine what qualifies as proof of identity.70 Oklahoma already had voter identification requirements codified in its statutes.71 Now, those statutes are superseded by the constitutionally required voter identification.72 The amendment moves what is currently in state statute into the Oklahoma Constitution, so any future changes require a vote by the people.73 This constitutional amendment does not change anything procedurally for the Oklahoma voters.74 Figure 2. Oklahoma State Question 846 (2026) Election Results75 Oklahoma State Question 846 (2026) Option Yes No

Percent %

Votes

54.61% 45.39% Total: 535,758

292,599 243,159

C. Proposed Law 1. Path to the Ballot In July 2025, proponents Assemblymember DeMaio, Senator Strickland, and Orange County local business owner Daniel DiCostanzo filed the proposed initiative.76 By September 19, 2025, the Attorney General of California prepared a title and summary of the measure: “Establishes additional voter identification and citizenship verification requirements. Initiative constitutional amendment.”77 Legal battles arose when the Secretary of State’s Voter Guide was 69

Oklahoma State Question 846, Voter Identification Amendment, BALLOTPEDIA, supra note 45. Id. 71 Id. 72 Id. 73 Id. 74 Oklahoma State Question 846, Voter Identification Amendment, BALLOTPEDIA, supra note 45. 75 Id. 76 California Proposition 39, Voter Identification, Citizenship Verification, and Registered Voter List Administration Initiative (2026), BALLOTPEDIA, supra note 11. 77 ATT’Y GEN. CAL., TITLE AND SUMMARY OF PROPOSED MEASURE: ESTABLISHES ADDITIONAL VOTER IDENTIFICATION AND CITIZENSHIP VERIFICATION REQUIREMENTS. INITIATIVE CONSTITUTIONAL AMENDMENT, 250007A1, (CA, 2025) 70

publicized on July 21, 2026, which included arguments for and against the measure and a new title for the measure: “Prohibits citizens from voting unless they present government-issued identification. Initiative constitutional amendment.”78 a. Ballot Label Litigation On July 28, 2026, Petitioners California for Voter ID, Yes on 39, and Donald Discostanzo filed a petition for a writ of mandate against Respondents Secretary of State, Shirley N. Weber, and Attorney General of the State, Rob Bonta, attempting to require the Respondents to change the certified ballot label, title, and summary for Proposition 39.79 The Petitioners sought a writ of mandate directing the Attorney General to amend or delete the statement “prohibits citizens from voting” from the ballot title, summary, and label, and to certify compliant alternative language.80 The Petitioners argued that the current, prohibitive language on the ballot was a false and misleading representation of the measure and violated Election Code § 9051.81 Judge Rockwell, after examining the measure’s provisions, found that the full statement “prohibits citizens from voting unless they present government-issued identification” accurately represents the measure, and that the Respondents did not violate Election Code § 9051.82 The petition was denied.83 b. Ballot Arguments and Summaries Litigation In a separate action, Petitioners Robert Rivas and Monique Limón filed a petition for writ of mandate against Respondents Secretary of State, Shirley N. Weber, and State Printer of the State of California, Louis Butera, to remove numerous statements included in the November 2026 General Election ballot materials concerning Proposition 39.84 The Petitioners argued that the ballot arguments included on the voter guide, claiming the measure will make voting easier and less burdensome, simplify the identification verification process, make voting more private, and save “millions of dollars each election,” were false and misleading statements.85 The court agreed that adding more requirements to the voting process did not make voting easier, less burdensome, or simpler.86 The court additionally agreed that the proposition, by requiring voters https://perma.cc/BTT2-YPE9. 78 PRESS RELEASE FROM SHIRLEY N. WEBER, PH.D., CAL. SEC’Y OF STATE, (July. 21, 2026) [CSS PRESS RELEASE] available at https://perma.cc/3SFT-N2UY; SHIRLEY N. WEBER, PH.D., CAL. SEC’Y OF STATE, ENGLISH BALLOT LABELS AND TIT. AND SUMM. 16-17 (JULY 3, 2026), https://perma.cc/ZMG6-8T8V. 79 Californians for Voter ID, Yes on 39, et al. v. Weber, 2026 CA Super. Ct. No. 26WM000193, at 3, https://perma.cc/RL79-Z7B4. 80 Id. 81 Id. 82 Id. at 6. 83 Id. at 7. 84 Rivas and Limon v. Weber and Butera, 2026 CA Super. Ct. 26WM000195, at 1 (Cal. Super. Ct. Aug 6, 2026), https://perma.cc/9MTT-FB2C. 85 Rivas and Limon, 26WM000195, at 2. 86 Id. at 3.

to expose the last four digits of their identification on their mail-in-ballot envelope, is hardly more private.87 Referencing the Legislative Analyst’s Office’s findings that the measure would likely cost local governments “tens of millions to low hundreds of millions of dollars,” the court agreed with Petitioners that the measure will not save California elections millions of dollars.88 As such, the court found the arguments were false and misleading, and struck the challenged language from the voter guide.89 2. Proposition 39 Proposition 39, a citizen-initiated constitutional amendment, amends California Constitution Article II by adding provisions requiring a more robust citizenship verification process in California elections. a. Requirements for Secretary of State and County Election Officials Subsection (a) requires the Secretary of State and county election officials to maintain voter registration lists accurately.90 They must use their best efforts to verify citizenship attestations by using government data and annually report the percentage of each county’s voter rolls that are citizenship-verified.91 Election officials will count regular or provisional ballots only after verifying the voter’s identity in accordance with this provision’s requirements.92 They will ensure that the voter casts only one ballot in the present election.93 b. Requirements for Voters Subsection (b) requires voters to present government-issued identification every time they cast a ballot in person.94 The ˙˙ they present must match the identification indicated in their voter registration record, and they must be able to access the information on that identification electronically or by telephone.95 When voting by mail, the voter must write down the unique last four digits of their designated, government-issued identification on the front of the envelope.96 The envelope will note which identification the voter designated for this purpose.97

Id. Id. at 3-4. 89 Id. at 12-13. 90 Cal. Proposition 39, supra note 2 at § 3.1(a). 91 Id. 92 Id. 93 Id. 94 Cal. Proposition 39, supra note 2 at § 3.1(b). 95 Id. 96 Id. 97 Id. 88

c. Requirements for the State and the California State Auditor Upon request, the State is to provide eligible voters with a free voter identification card.98 This identification is to be used only to cast ballots.99 In every odd-numbered year, the California State Auditor will audit the State and every county to ensure compliance with these provisions.100 The Auditor will report findings and recommendations for bolstering election integrity for the public.101 d. Expectations for the Legislature and Citizens The Legislature is expected to promptly enact laws implementing the aforementioned provisions and ensure that military and overseas voting is consistent with federal law.102 The Legislature is also expected to ensure that State and local officials comply with and support these laws.103 Citizens may act as an additional safeguard for the State and county’s compliance with these provisions, as they may seek judicial review and a remedy should the State and/or county fail to comply with the new provisions.104 Proposition 39 section 3.1(c) creates a private right of action for citizens to sue their county official or the state.105 e. Severability Proposition 39 also contains a severability clause stating that its provisions are severable, meaning that if any part of the measure were struck down in court, the remaining provisions would remain in effect.106 In California, courts generally consider a measure to be severable if the sections at issue are grammatically distinct from each other and complete on their own; can be applied independently from one another; and there is an indication in the enacting body that the remaining provisions were intended to stand on their own and be enforced absent the severed law.107 Proposition 39, section 3 specifies that “If any portion, section, subdivision, paragraph, clause, sentence, phrase, word, or application of this act is for any reason held to be invalid by a decision of any court of competent jurisdiction, that decision shall not affect the validity of the remaining portions of this act, which shall be given effect without the invalid portion or 98

Id. Cal. Proposition 39, supra note 2 at § 3.1(b). 100 Cal. Proposition 39, supra note 2 at § 3.1(c). 101 Id. 102 Id. 103 Id. 104 Id. 105 Scott Graves, et al., Proposition 39 Explained: What Voter identification Would Mean for California, CALIFORNIA BUDGET & POLICY CENTER, (Sep. 2026), https://perma.cc/VMW7-5J4Z (explaining the citizen’s private right of action and criticizing the ballot for its lack of guidance on how to proceed in such a suit). 106 Cal. Proposition 39, supra note 2 at § 3; David Gans, To Save and Not to Destroy: Severability, Judicial Restraint, and the Affordable Care Act, AM. CONST. SOC’Y, https://perma.cc/5JUM-44J5. 107 People’s Advocate Inc. v. Super Ct., 181 Cal. App. 3d 316, 330 (3rd Dist. 1986). 99

application.”108 The severability provision would be some evidence of the intention to make the provisions severable but is not dispositive. A court would still go through the test outlined above and may or may not find the remaining provisions valid if one or more were struck down.109 f. Fiscal Effects The provisions of Proposition 39 are projected to increase state and local government costs by “tens of millions of dollars to low hundreds of millions of dollars”, representing about 1 percent of California’s General Fund budget.110 Ultimately, the exact costs will be dependent on the Legislature’s decisions in implementing the amendment’s requirements.111 In the Secretary of State’s official voter guide, analysts suggest that the Legislature’s choice of voter identification card design and the popularity of these cards would significantly affect the financing.112 Meanwhile, depending on how discouraged potential voters are because they are ineligible to vote or lack voter identification, the government may save more money than in previous years by the reduction in the voting electorate.113

108

Cal. Proposition 39, supra note 2 at § 3. See People’s Advocate Inc., 181 Cal. App. 3d at 330. 110 Proposition 39, LEGIS. ANALYST’S OFF., (Nov. 3, 2026), https://perma.cc/C4QJ-QF3H. 111 Id. 112 Id. 113 Id. 109

D. Similar Initiatives and Previous Failed Legislation 1. Similar Ballot Initiatives that Failed a. Petitions that Failed to Qualify A.G. File No. 21-0021 was a possible California initiative that was reviewed by the legislative analyst’s office, in 2021.114 At the polls, voters would be required to present a valid driver’s license or a government-issued identification card in order to vote.115 When voting by mail, voters would have been required to provide their driver’s license number or a valid government identification card for their identity to be verified. It would have required in-person voters to provide their full SSN in order to verify their citizenship when first registering to vote and also when verifying their existing voter registration.116 A.G. File No. 21-002 would have required local election officials to assess wait times at polling locations in reports and make such reports available to the public.117 It also would have required county election officials to take action to address any reported long wait times at polling locations.118 Both of these requirements are outside the scope of what Proposition 39 covers.119 The “Voter Identification Requirements” California Initiative was a proposal in 2013 that would have required voters to present government-issued voter identification in order to vote in person at polling locations.120 This initiative would have required additional voter identification when voting by mail along with requiring that a photocopy of the voter’s government-issued identification be included in the envelope with the ballot.121 The initiative would have waived fees associated with obtaining valid identification to vote.122 This proposed initiative was not substantively different from Proposition 39.123 The proposal failed likely because it did not gather enough signatures or never made it to the signature gathering stage of the initiative process as it never became an initiative.

114

LETTER FROM GABRIEL PETEK, LEGIS. ANALYST, KEELY MARTIN BOSLER, DIR. OF FIN., LEGIS. ANALYST’S OFF.,

TO ROB BONTA, CAL. ATT’Y GEN. (Nov. 4, 2021) [LAO LETTER] available at https://perma.cc/KWS2-VHGC. 115

Id. Id. 117 Id. 118 Id. 119 Cal. Proposition 39, supra note 2. 120 PRESS RELEASE FROM DEBRA BROWN, CAL. SEC’Y OF STATE, (Dec. 31, 2013) [CSS PRESS RELEASE] available at https://perma.cc/TSB6-F7UD. 121 Id. 122 Id. 123 CSS PRESS RELEASE, supra note 123; Cal. Proposition 39, supra note 2. 116

b. Proposition 52 (2002): Election Day Voter Registration. Voter Fraud Penalties. Initiative Statute.124 Proposition 52 (2002) was a citizen-initiated legislative statute that would have allowed eligible voters to register to vote on election day, even if they were not previously registered, as long as they had a valid California driver’s license or, alternatively, two forms of identification proving they are a California resident.125 Proposition 52 would have also increased criminal penalties for voter and voter registration fraud and would have criminalized conspiracy to commit voter fraud.126 Proposition 52 failed to get enough votes in the November 2002 General Election to pass.127 Figure 3. Election Results128 California Proposition 52 (2002) Option Yes No

Percent (%) 40.94% 59.06% Total:

Votes 2,888,207 4,166.035 7,054,242

2. Similar State Senate and Assembly Bills that Failed There have been many bills proposed in both the State Senate and Assembly that attempted to include similar voter identification requirements as Proposition 39 both at the polls and via mail-in-ballot.129 The most recent of these were in the 2026-2027 and 2025-2026 124

CAL. SEC’Y OF STATE, OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION, TUESDAY NOVEMBER 5, 2002, at V, 32-25, 98-110, available at https://perma.cc/R5P9-VW2X [“NOVEMBER 2002 VOTER GUIDE”]. 125 Id. 126 Id. 127 California Proposition 52, Election Day Voter Registration Initiative (2002), BALLOTPEDIA, https://perma.cc/YU7A-EDTZ. 128 Id. 129 SB 1174: Elections: voter identification., CALMATTERS, https://perma.cc/3CL2-3F8F; AB 25: California Voter identification and Election Integrity Act of 2025., CALMATTERS, https://perma.cc/S9BM-LDG5; 2013 Annual Digests of Legislation; Elections, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., https://perma.cc/7P9P-FMLK; 2014 Annual Digests of Legislation; Elections, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., https://perma.cc/D7JX-7QXP; AB 1157, LEGINFO, (Feb. 22, 2013) https://perma.cc/88WJ-Z4LS; 2012 Annual Digests of Legislation; Elections, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., https://perma.cc/N3KV9ZMX; AB 663, LEGINFO, (Feb. 22, 2013) https://perma.cc/KV86-HH5N; 2011 Annual Digests of Legislation; Elections, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., https://perma.cc/7DNY-EUM9; SB 465, LEGINFO, (Feb. 26, 2009) https://perma.cc/32TZ-RYUD; SB 465, LEGINFO, (Feb. 26, 2009) https://perma.cc/4XXV-FZH6; 2010 Annual Digests of Legislation; Elections and Reappointment, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., https://perma.cc/W4GD-6LTR; 2008 Annual Digests of Legislation; Elections and Reappointment, OFF. OF S.

sessions. Governor Newsom vetoed Assembly Bill (“AB”) 1116 titled “Elections: Voter registration” on September 27, 2026.130 The bill would have allowed those who are qualified to vote and do not have a California driver’s license or state identification card to submit an affidavit of voter registration with the last four digits of their SSN on the Secretary of State's website.131 The bill would have also required that the Secretary of State collect an electronic image of the voter’s signature and use it when comparing that voter’s mail-in-ballot signature for voter identification purposes. The relevant bills in the 2025-2026 session were SB 405 titled “Elections: voter identification,” and AB 25 titled “California Voter Identification and Election Integrity Act of 2025.”132 SB 405 was an attempt to repeal SB 1174, “Elections: voter identification,” which prohibited local governments from requiring a person to show a form of identification when voting in person.133 AB 25 was nearly identical in its voter identification requirements to Proposition 39’s requirements and was written by State Assemblymember Carl DeMaio, who founded the political action committee behind Proposition 39.134 Proposition 39 follows the requirements of these failed bills, but now as an initiative for the people to vote on.

FLOOR ANALYSES, CAL. STATE S., https://perma.cc/FRF4-VJLZ; 2006 Annual Digests of Legislation; Elections and Reappointment, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., https://perma.cc/GC5H-V5FB; 2004 Annual Digests of Legislation; Elections and Reappointment, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., https://perma.cc/9T5WG55A. 130 AB 1116: Elections: voter registration., CALMATTERS, https://perma.cc/9PWJ-X25F. 131 Id. 132 SB 405: Elections: voter identification., BALLOTPEDIA, [BALLOTPEDIA], https://perma.cc/G5HM-8FFC; SB 1174: Elections: voter identification., CALMATTERS, supra note 139. 133 SB 1174: Elections: voter identification., CALMATTERS, supra note 139. 134 Id.

Figure 4. Similar State and Assembly Bills to Proposition 39 that Failed 2003-2026135 Session Year

Bill

Author(s)

2026-2027

AB 1116: Elections: voter registration.

Marc Berman and Sarah Cervantes

2025-2026

SB 405: Elections: voter identification.

Steven Choi, Marie Alvarado-Gil, Leticia Castillo, Carl DeMaio, Bill Essayli, Brian Jones, Roger Niello, Rosilicie Ochoa Bogh, and Kelly Seyarto

2025-2026

AB 25: California Voter Identification and Election Integrity Act of 2025

Carl DeMaio and Bill Essayli

2013-2014

AB 1157: Elections, voting procedures.

Brian Jones

2011-2012

AB 1716: Elections: voter identification

Martin Garrick

2011-2012

AB 663: Elections: voter identification.

Mike Morrell

2011-2012

AB 945: Elections: voting procedures

Tim Donnelly

2009-2010

SB 465: Voter identification: proof of identity.

Bob Huff, Sam Aanestad, Roy Ashburn, John J. Benoit, Dave Cox, Robert Dutton, and Dennis Hollingsworth

2007-2008

AB 9: Voter identification: proof of identity

Bob Huff

2007-2008

SB 173: Elections: voting identification

Jane Harman

2005-2006

SB 226: Elections: voting identification

Dave Cox

2005-2006

SB 1682: Elections: voting identification

Dave Cox

2003-2004

SB 1282: Elections: voting identification

Bill Morrow

135

SB 1174: Elections: voter identification., CALMATTERS, supra note 139; AB 25: California Voter identification and Election Integrity Act of 2025., CALMATTERS, supra note 139; 2013 Annual Digests of Legislation; Elections, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., supra note 139; 2014 Annual Digests of Legislation; Elections, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., supra note 139; AB 1157, LEGINFO, supra note 139; 2012 Annual Digests of Legislation; Elections, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., supra note 139; AB 663, LEGINFO, supra note 139; 2011 Annual Digests of Legislation; Elections, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., supra note 139; SB 465, LEGINFO, supra note 139; SB 465, LEGINFO, supra note 139; 2010 Annual Digests of Legislation; Elections and Reappointment, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., supra note 139; 2008 Annual Digests of Legislation; Elections and Reappointment, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., supra note 139; 2006 Annual Digests of Legislation; Elections and Reappointment, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., supra note 139; 2004 Annual Digests of Legislation; Elections and Reappointment, OFF. OF S. FLOOR ANALYSES, CAL. STATE S., supra note 139.

3. Cases: California v. Huntington Beach In 2023, the city of Huntington Beach voted on a voter identification charter amendment that passed.136 California Attorney General Rob Bonta sued the city in 2024, and shortly following that lawsuit, Governor Gavin Newsom signed SB 1174 into law.137 This bill prohibits local governments from passing voter identification laws.138 Later in 2025, the California Fourth District Court of Appeal determined that the city’s voter identification measure violated state law.139 E. Pending Federal Legislation & Litigation 1. Legislation Currently, there are two federal bills on voter identification in the Senate.140 If either bill passed, their provisions would be implemented for federal elections across the United States of America.141 a. Safeguard American Voter Eligibility Act On February 11, 2026, the U.S. House of Representatives passed the Safeguard American Voter Eligibility Act (“SAVE Act”) to amend the Veterans Accessibility Advisory Committee Act of 2025.142 Key provisions include requirements for voters to provide documented proof of U.S. citizenship when registering to vote, government-issued identification when casting a ballot, and additional voter list maintenance requirements for federal elections.143 This amendment would affect all fifty states, their processes in conducting federal elections, and would take effect immediately upon passing.144 The amendment is currently stalled in the Senate.145 136

People ex rel. Bonta v. City of Huntington Beach, 115 Cal.App.5th 962 (Cal. App. 4th Dist. 2025), reh'g denied (Nov. 20, 2025), review denied (Jan. 28, 2026). 137 City of Huntington Beach, 115 Cal.App.5th 962; CAL. ELEC. CODE § 10005 (2025). 138 CAL. ELEC. CODE § 10005 (2025). 139 City of Huntington Beach, 115 Cal.App.5th 962; CAL. ELEC. CODE § 10005 (2025). 140 CURRENT BILL STATUS OF S.1383, CONGRESS.GOV, https://perma.cc/4Z88-EY5F; CURRENT BILL STATUS OF H.R. 7008, CONGRESS.GOV, https://perma.cc/NZ4Y-H3DU. 141 VETERANS ACCESSIBILITY ADVISORY COMMITTEE ACT OF 2025, S. 1383, CONGRESS.GOV, https://perma.cc/82KH-CBPC; STOP INSIDER TRADING ACT, H.R. 7008, CONGRESS.GOV, https://perma.cc/TAS7KKXE. 142 CONGRESSIONAL RESEARCH SERVICE, REPORT NO. IF12902, Safeguard American Voter Eligibility Act (SAVE America Act) and Federal Voter Registration Policy and Law (2026), CONGRESS.GOV, https://perma.cc/4AWCZ82R. 143 Id. 144 CONGRESSIONAL RESEARCH SERVICE, REPORT NO. IF12902, Safeguard American Voter Eligibility Act (SAVE America Act) and Federal Voter Registration Policy and Law (2026), CONGRESS.GOV, supra note 152; VETERANS ACCESSIBILITY ADVISORY COMMITTEE ACT OF 2025, S. 1383, § 303A(D), CONGRESS.GOV, supra note 151. 145 CURRENT BILL STATUS OF S. 1383, supra note 150.

b. Stop Insider Trading Act On July 22, 2026, the House passed the Stop Insider Trading Act (“Act”), which included voter identification provisions that reflected the language of the previous SAVE Act and subsequent bills proposing voter identification requirements for federal elections.146 Under Section 3 of the Act, voters are required to provide a “valid physical photo identification” to cast a ballot.147 If a voter cannot immediately provide identification matching the types listed in the Act, they will receive a provisional ballot, pending the voter presenting identification within three days or filing an affidavit if they do not own a photo identification for religious reasons.148 The Act is currently on the Senate’s calendar and may be voted on ahead of the General Election.149 The Act would take effect ninety days after its passage and will apply to all federal elections.150 Should this Act pass, Proposition 39’s provisions would need to be harmonized with Stop Insider Trading Act’s requirements for future elections. 2. Litigation As of now, the U.S. Supreme Court has prevented the Trump Administration from ordering the United States Postal Service (“USPS”) to withhold delivering mail-in-ballots to individuals who were not listed on a federally created citizenship list.151 The Court refused to stay an injunction issued by a District Court in Massachusetts that has the effect of requiring the USPS to deliver people their ballots and return them to state officials even in States that have refused to upload voter information onto a newly created, untested portal, intended to develop a citizenship list.152 For now, the upcoming November, 2026 elections will not be impacted by the Executive Order, titled “Ensuring Citizenship Verification and Integrity in Federal Elections.”153 But it is possible that the cases challenging the Executive Order will be heard on the merits at some point in the future. The main provision of the Executive Order relevant to Proposition 39 is the barcode identifier provision on mail-in-ballots. This provision in the Executive Order is relevant to Proposition 39 because it would conflict with Proposition 39’s four digit requirement on the mail-in-ballot.154

146

The Stop Insider Trading Act (H.R. 7008), HERITAGE FOUNDATION, https://perma.cc/BE27-T8WY; Campaign Legal Center Letter Opposing the Stop Insider Trading Act and the Voter ID Act, CAMPAIGN LEGAL CENTER (July 20, 2026), https://perma.cc/7656-6888. 147 STOP INSIDER TRADING ACT, H.R. 7008, supra note 151. 148 Id. at § 3(a)(1)(B)(i)(II). 149 CURRENT BILL STATUS OF H.R. 7008, supra note 150. 150 STOP INSIDER TRADING ACT, H.R. 7008, supra note 151. 151 U.S. Supreme Court Blocks Postal Service From Restricting Mail Ballots, ACLU (Sep. 14, 2026 8:12 P.M.), https://perma.cc/F9YG-7ZUA. 152 Id. 153 Ensuring Citizenship Verification And Integrity in Federal Elections, Exec. Order No. 14399, 91 Fed. Reg. 64 (Apr. 3, 2026), https://perma.cc/X7EL-NGAP. 154 Cal. Proposition 39, supra note 2 at § 3.1(b).

III.

DRAFTING ISSUES A. Ambiguities in the Language

Proposition 39 includes several phrases and terms that are not clearly defined. Such ambiguous terms raise questions, including which elections these provisions apply to, what “best efforts” entails, and which forms of identification are considered “government-issued identification" under the measure. 1. “Any election in the state” Proposition 39 uses broad language, stating that voters must present a government-issued identification for “any election in the state.”155 The measure does not explain which elections fall under its provisions. When a term is ambiguous within a larger legal document, courts may interpret the term in the context of the document’s entirety.156 As such, Proposition 39 may be considered within the scope of its placement under the California Constitution, Article II–Voting, Initiative and Referendum, and Recall.157 This article specifically considers ten types of elections and electoral processes in the state: congressional and state elective offices; partisan elections for presidential candidates and political party central committees; judicial, school, county, and city offices; the voter initiative and referendum processes; and recall power.158 Should the phrase “any elections in the state” be interpreted within the context of Article II, then it would likely be understood to apply to these elections.

155

Id. Katharine Clark and Matthew Connolly, A Guide to Reading, Interpreting, and Applying Statutes, THE WRITING CENTER AT GULC, at 7 (2017) https://perma.cc/V4VQ-CA92. 157 CAL. CONST. art. II. 158 CAL. CONST. art. II, § 5(a), 5(c), 6, 8, 9, 13. 156

2. “Best efforts” Although the Secretary of State and county officials are called to use their “best efforts” to verify the citizenship of registered voters, what constitutes “best efforts” is unclear.159 The phrase has never been defined within the California Constitution nor analyzed by the U.S. Supreme Court, the California Supreme Court, or the Ninth Circuit. However, the California Court of Appeal has interpreted the phrase in a contracts case.160 There, the court determined that “best efforts” is not generally considered by the courts to mean “every conceivable effort” but can be understood to mean “the diligence of a reasonable person under comparable circumstances.”161 If litigation arises over whether the Secretary of State or a county official used their “best efforts” to fulfill their responsibilities under this proposition, the court may refer to this definition to determine the standard. 3. “Government-issued identification” Proposition 39 defines government-issued identification to mean “documentation that allows conclusive verification of the voter’s identity.”162 What documentation this includes is unclear. Generally, states defer to its legislature to determine the forms of identification acceptable for voter verification.163 Among the states, generally accepted forms of identification include: a driver’s license, U.S. passport, U.S. Military identification card, tribal identification card, and student identification card.164 Ultimately, what California determines to be a government-issued identification per the measure’s requirements will be left to the Legislature’s discretion.165 B. Overlap with Current Regulations 1. Proposition 39 Is Inconsistent with Regulations Prohibiting Identification Requirements Proposition 39 will require voters to present “government-issued identification” when they cast a ballot in person. Meaning, if Proposition 39 is passed and it applies to federal elections, voters will need to present a “government-issued identification” when they cast a vote in person for federal elections. This conflicts with the California Election Code that prohibits local governments from requiring individuals to present identification to submit a ballot. However, there is no language within Proposition 39 that directly undoes this regulation; rather, 159

Cal. Proposition 39, supra note 2 at § 3.1(a). Cal. Pines Prop. Owners Assn. v. Pedotti, 206 Cal. App. 4th 384, 395 (2012). 161 Id. 162 Cal. Proposition 39, supra note 2 at § 3.1(b). 163 See NAT’L CONF. OF ST. LEG., supra note 38. 164 See Id. 165 Cal. Proposition 39, supra note 2 at § 3.1(c); CAL. CONST. art. IV, § 8(b)(3) (establishing that the Legislature implements laws by a simple majority vote). 160

Proposition 39 implicitly invalidates it.166 A law implicitly invalidates another law when it is impossible for both laws to apply at the same time.167 If a court decides that the newer law was intended to replace the older one, the more recently passed law will apply. If Proposition 39 passes and a court decides that the provision which requires “government-issued identification” to cast a ballot in person was meant to replace the California Election Code provision that prohibits establishing the requirement, Proposition 39’s provision will apply. 2. Proposition 39 Is Inconsistent with Verification of Voter Identity Regulation If passed, Proposition 39 will require the Secretary of State and county election officials to use their best efforts to verify voter’s citizenship statements.168 Proposition 39 does not specify whether it is adding to the current list of voter information collected in VoteCal, or if this requires information generated separately.169 Further, Proposition 39 seems to separate the duty of the Secretary of State and county election officials in their collection of voter registration lists and citizen verification. Proposition 39 uses the terms “each have the duty” which suggests there is a separate responsibility.170 However, VoteCal is a single uniform system, and the Secretary of State coordinates with county EMS to send their information to VoteCal.171 Proposition 39 does not address this current system and how, if at all, the citizenship requirement will alter the current reporting system. 3. Proposition 39 Is Inconsistent with Current Signature Requirements If passed, Proposition 39 will establish a system where mail-in ballot envelopes contain a unique identifying number from government-issued identification that matches the one designated by the voter for their voter registration. Proposition 39 does not recognize that it conflicts with current signature requirements. Specifically, Proposition 39 does not indicate whether the four digits will be replacing the signatures or supplementing the signatures. This is important because the signatures are currently used to verify identity for regular mail-in ballots and provisional mail-in ballots. The provisional ballot aspect is especially important because Proposition 39 states that provisional ballots will only be counted once the identity is verified based on the requirements outlined in Proposition 39. Currently, signatures are used to validate provisional ballots. So, the ambiguities related to the four digits on the mail-in ballot could potentially affect how voter identity is verified when casting regular ballots in the mail and the process for verifying provisional ballots.

166

Pro. Eng'rs in Cal. Gov't v. Kempton, 40 Cal. 4th 1016, 155 P.3d 226, 1037 (2007) (explaining that the same implied repeal analysis applies the same when looking at constitutional and statutory provisions). 167 Barratt Am., Inc. v. City of San Diego, 117 Cal. App. 4th 809, 12 Cal. Rptr. 3d 132, 817 (2004). 168 Cal. Proposition 39, supra note 2 at § 3.1(a). 169 Id. 170 Id. 171 VoteCal, supra note 28.

4. Proposition 39 Is Inconsistent with “Barcode Ballots” The same issues mentioned above with the signature requirements conflicting with the four digit requirement would arise if mail-in ballots for federal elections required barcodes under the “Ensuring Citizenship Verification and Integrity in Federal Elections” Executive Order. 5. Subsequent Legislation Not Considered in Drafting After Proposition 39 was approved for the ballot, SB 1420 was introduced and signed into law. Accordingly, Proposition 39 did not directly contemplate the issues addressed in SB 1420. However, SB 1420’s addition to the Election Code does not change any requirements for verifying mail-in ballots or voter identity. Rather, it gives the Secretary of State authority to promulgate rules related to ensuring voters have the correct mail-in ballot and that their ballots are secret.172 By itself, these provisions do not create any apparent conflict with Proposition 39. IV.

CONSTITUTIONAL AND STATUTORY ISSUES

It is possible that if passed, the voter identification requirements added to the California Constitution could be challenged under the Fourteenth Amendment. A similar challenge already occurred in Crawford v. Marion.173 In that case, Indiana had a state law requiring voters to bring a government-issued photo identification when voting in person. Voters challenged this requirement under the Fourteenth Amendment. Indiana's stated purpose was to deter and detect voter fraud, particularly related to deceased individuals or people no longer living in the state.174 The U.S. Supreme Court found that Indiana had a legitimate interest in preventing in-person voter fraud, upholding the law.175 The Court explained that the law did not burden voters because eligible voters who did not have a photo identification could get a voter identification card for free, there was no requirement to have a photo identification to register to vote, and, if the voter forgot their identification, they would be provided with a provisional ballot.176 Proposition 39 is different from the photo identification requirement in Crawford because, in Crawford, the Indiana law allowed people to cast a provisional ballot if they did not have a photo identification. In contrast, under Proposition 39, it is unclear if you can cast even a provisional ballot if you forget your government-issued identification. Proposition 39 is similar to Crawford because California plans to provide free voter identification cards, like Indiana did in Crawford, so a court may determine that there is not a burden on voters. It is unclear how this would be resolved based on the ambiguities in Proposition 39. Any challenges related to violations under the Fourteenth Amendment will likely be based on actions the state legislature takes in response to the Constitutional amendment if Proposition 39 passed. 172

SB 1420: Vote by mail ballots and early voting., CALMATTERS, supra note 31. Crawford v. Marion Cnty. Election Bd., 553 U.S. 181, 574 (2008). 174 Id. at 191. 175 Id. 176 Id. at 197-199. 173

PUBLIC POLICY CONSIDERATIONS A. Proponents’ Arguments

The registered proponents of Proposition 39 are the California Republican Party, Reform California, and Uline CEO Richard Uihlein.177 Proponents claim that requiring identification at polling places would increase confidence in California’s elections and prevent voter fraud. Proponents note that most states already require some form of voter identification.178 Proponents argue the bill fixes issues with mail-in ballots not being counted due to voter signatures changing.179 They cite that in the last election, more than 100,000 ballots were not counted because of signature issues, and that changing the processing to four digits will ensure fewer votes are thrown out.180 Proponents argue that if voters do not have a form of government-issued identification, the proposition provides voter-identification cards free of charge.181 B. Opponents’ Arguments The registered opponents are the American Civil Liberties Union (“ACLU”), Common Cause, League of Women Voters, and the California Democratic Party.182 The opponents argue that voter identification requirements would make voting harder for eligible voters who lack a driver’s license or other supporting documents, disproportionately affecting people with disabilities, low-income voters, and those who have recently moved.183 The League of Women Voters has stated that the measure “would expose voters' sensitive personal information, create new ways to reject eligible ballots, and wrongly target voters through error-prone citizenship checks.”184 Opponents claim that voter impersonation and noncitizen voting are rare, and cite studies from the Brennan Center for Justice, the Cato Institute, and the Bipartisan Policy Center.185 Additionally, the Heritage Foundation’s data show that cases of voter fraud by noncitizens are incredibly rare.186 Over the past thirty years, 129 noncitizens have been

177

Proposition 39; 2026 Voter Guide, CALMATTERS, https://perma.cc/3453-4V8S.

178

Id.

179

Yes on 39 on Voter ID, REFORM CALIFORNIA, https://perma.cc/2UH5-92KT.

180 181

Id. Id.

182

2026 Voter Guide: Proposition 39, CALMATTERS, supra note 183.

183

Id.

184

Voting Rights Groups Launch Campaign to Defeat Voter Identification Ballot Initiative that Would Restrict Access to the Ballot for Millions of Californians, ACLU N. CAL., (Feb. 27, 2026 4:30 P.M.) https://perma.cc/5M4B3HUL. 185

Id.

186

ACLU N. CAL. supra note 188; Aaron Reichlin-Melnick, Unpacking Myths About Noncitizen Voting — How Heritage Foundation’s Own Data Still Proves It’s Not the Problem It’s Made Out to Be, (Aug. 13, 2026) https://perma.cc/8EE9-6STL.

criminally charged for “voting by aliens,” with only seventy-three resulting in a conviction, according to a 2026 Reuters study.187 C. Campaign Finance 1. Support for Proposition 39 Figure 5. Contribution and Expenditure Totals from Committees in Support188 Committees in support of Proposition 39 Committee

Cash Contributions

Total Contributions

Cash Expenditures

Total Expenditures

$9,215,499.65

In-Kind Contribution s $3,051,645.82

Californians for voter ID, Yes on 39 Reform California with Carl DeMario Total

$12,267,145.47

$7,618,625.22

$10,670,271.04

$4,861.966.87

$41,547.82

$4,903,514.69

$2,886,325.30

$2,927,873.12

$14,077,466.52

$3,093,193.64

$17,170,660.16

$10,504,950.52

$13,589,144.16

Figure 6. Contribution and Expenditure Totals from Top Donors in Support189 Top Donors who Contributed to the Support Committees Donor Richard Uihlein Steve Bray Ken Calvert for Congress Oxford Property Investments LLC Tony Strickland for Senate 2026

Cash Contribution $4,000,000.00 $3,500,000.00 $300,000.00 $300,000.00 $300,000.00

187

In-Kind Contributions $0.00 $0.00 $0.00 $0.00 $0.00

Total Contributions $4,000,000.00 $3,500,000.00 $300,000.00 $300,000.00 $300,000.00

Id. Campaign Finance Activity; Propositions & Ballot Measures, CAL-ACCESS, https://perma.cc/K5QL-ZUKL. 189 Id. 188

2. Opposed to Proposition 39 Figure 7. Contribution and Expenditure Totals from Committees in Opposition190 Committees in opposition to Proposition 39 Committee

Cash Contribution

In-Kind Contributions

Total Contributions

Cash Expenditures

Total Expenditures

No on Proposition 39 - Californians for Voting Rights

$265,000.00

$29,656.80

$294,656.80

$15,406.63

$45,063.43

No on Proposition 39 - Voteriders Committee

$0.00

Total

$265,000.00

$29,656.80

$294,656.80

$15,406.63

$45,063.43

Figure 8. Contribution and Expenditure Totals from Top Donors in Opposition191 Top Donors who Contributed to the Opposition Committee

190 191

Donor

Cash Contributions

In-Kind Contributions

Total Contributions

ACLU of Northern California Issues Committee

$250,000.00

$11,601.89

$261,601.89

Disability Rights California

$0.00

$2,763.40

Common Cause

$0.00

$2,124.54

Id. Id.

VI.

CONCLUSION

Proposition 39 would implement various requirements in the California constitution. The amendment would possibly apply to all elections in the State, implementing three specific changes to California’s election process. First, it will require voters to present a governmentissued identification to cast a ballot in person. Second, it will require mail-in ballots to contain the last four digits of a government-issued identification matching one on the voter’s registration. Finally, it will require the Secretary of State and local county election officials to keep voter registration lists and use best efforts to verify citizenship. A YES vote for Proposition 39 would amend the California Constitution, requiring voters to present additional identifying information to elections officials each time they vote and would require elected officials to perform additional verification of citizenship for registered voters. A NO vote for Proposition 39 would mean no changes made to the California Constitution. A voter’s identity would continue to be established with the voter’s signature and voters will not need to present a government-issued identification when casting a ballot inperson.

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Proposition 40: One-Time Wealth Tax for State-Funded Healthcare, Education, and Food Assistance Programs Initiative Initiative Constitutional Amendment Copyright © 2026 by the University of the Pacific, McGeorge School of Law By

Adrienne Duarte J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A, Politics and Legal Studies, Minor in Black Studies, University of California, Santa Cruz, 2024 &

Isabella Valdivieso J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., Political Science and Spanish Literatures and Cultures, University of Nevada, Reno, 2025

EXECUTIVE SUMMARY

Proposition 40, the 2026 Billionaire Tax Act (“Billionaire Tax”), is citizen-initiated constitutional amendment and state statute, to impose a one-time tax of five percent on California residents with assets valued at one billion dollars or more.1 The initiative’s stated purpose is to mitigate the loss of federal funding from HR 1 (“One Big Beautiful Bill”). Of the revenue generated by the 2026 Billionaire Tax Act, 90 percent would be allocated to healthcare and 10 percent to food assistance or educational programs. The initiative prohibits revenue generated by the Billionaire Tax from replacing existing funds for healthcare, food assistance, and educational programs. The drafters of Proposition 40 have projected that the measure would generate approximately $100 billion in revenue over five years.2 A YES vote on Proposition 40 means supporting amendments to the California Constitution and the Revenue and Taxation Code to levy a one-time 5 percent tax on billionaires for the purpose of funding state health care programs, food assistance programs, and public education. This measure would only apply to residents of California, on or before January 1, 2026, with accumulated wealth and covered assets valued over $1 billion dollars. A NO vote on Proposition 40 means opposing amendments to the California Constitution and Revenue and Taxation Code, leaving the current tax structure for billionaires unchanged. II.

THE LAW A. Background

Congress passed HR 1 in 2025, popularly known as the One Big Beautiful Bill Act. HR 1 is predicted to create a $19 billion-per-year deficit in California’s healthcare funds.3 Reductions in federal funding, if unaccounted for, will leave an estimated 1.3–1.6 million Californians at risk of losing Medi-Cal coverage by 2029–2030.4 Additionally, cuts to federal funding for CalFresh food assistance are estimated to cost the state between $2.3 billion and $5.1 billion annually. California’s total state debt is estimated to be $497 billion.5 With nearly 39 million residents, the state’s per capita (“per person”) debt amounts to $12,565.6 According to the most recent data available, California’s economy produced a per capita revenue of $11,367. Consequently, California has “the second-smallest operating margin among all states, at $200 per 1

Cal. Proposition 40 (2026), https://perma.cc/Y7D2-F8N5. Brian Galle, et al., Expert Report on Proposition 40, the California 2026 Billionaire Tax: Revenue, Economic and Constitutional Analysis, BERKELEY ECON. LAB (July 20, 2026), https://perma.cc/6SEG-F2SA. 3 Rhiannon Euhus, et al., Allocating CBO’s Estimates of Federal Medicaid Spending Reductions Across the States: Enacted Reconciliation Package, KFF (July 23, 2025), https://perma.cc/83MQ-EP7T. 4 Kayla Kitson & Nishi Nair, Billionaire Tax Explained: What Proposition 40 Would Mean for California, CAL. BUDGET & POL’Y CTR. (Aug. 2026), https://perma.cc/47XH-GVK3. 5 Geoffrey Lawrence, Fiscal red flags reveal growing problems in California governments and schools districts, REASON FOUND. (Aug. 26, 2026), https://perma.cc/AL8Q-ASKJ; but see Lee Ohanian, Newsom Wants to Add $6.4 Billion to California’s $1.6 Trillion Debt with Proposition 1, HOOVER INST. (Feb. 13, 2024), https://perma.cc/6ZQJQ3AZ (estimating California’s total state debt to be approximately 1.6 trillion). 6 Geoffrey Lawrence & Carter Langofer, Study: New Jersey and Connecticut are the most financially distressed states, REASON FOUND. (Aug. 20, 2026), https://perma.cc/BK2R-LLRD. 2

capita.”7 Meaning, it has less room than other states to provide social services to its citizens and is particularly vulnerable to increased budget pressure and cuts to state spending.8 California is home to 200 billionaires with a collective wealth of $2.307 trillion.9 In mid2026, California billionaires’ wealth was approximated at $2.3 trillion, surpassing “all the annual income reported on income tax returns of all Californians.”10 The wealth of billionaires has outpaced the applicable tax rate. Notably, the four wealthiest Californians account for roughly 40 percent of the total wealth of California billionaires, approximately $1 trillion in business wealth.11 For the top 0.001 percent, wealth growth has increased by 322 percent from 2023 to 2025, compared to the average real family income in California doubling from 1982 to 2026.12 The wealthiest 0.001 percent of Californians, approximately 4 people, pay about 0.04 percent of their wealth in annual income tax. In comparison, California’s other billionaires pay only 0.2 percent of their wealth in annual income taxes, accounting for $3.2 billion per year.13 From 2023 to 2025, the income tax revenue from all billionaires, made up just 2.4 percent of California’s total income tax revenue.14 B. Proposed Law 1. Changes to Tax Code

a. Application of the 2026 Billionaire Tax Act The 2026 Billionaire Tax Act imposes a 5 percent excise tax only on qualifying taxpayers. The individuals who satisfy the valuation threshold are defined as California residents, within Revenue and Tax Code Sections 17014 and 17015.5, as of January 1, 2026, the tax obligation date.15 Under Section 17014, California residency requires physical presence and domicile, with keys rules and exceptions clarifying that temporary absences do not change residence unless an individual is absent from the state for 546 or more consecutive days, and a federal exemption for an individual or spouse holding elective office, making their state residency temporary.16 Section 17015.5 further clarifies that a resident is only seen as “part-year resident” if the individual is resident and non-resident of California during a portion of the same taxable year.17 The Act also imposes the tax on applicable trusts as measured against their net 7

Id. See Lawrence, supra note 5; Mariana Trujillo & Jordan Campbell, Report ranks every state’s debt, from California’s $497 billion to South Dakota’s $2 billion, REASON FOUND. (Oct. 23, 2025), https://perma.cc/DE4P7RDK. 9 See Galle, et al., supra note 2, at 4 (estimating between 200-250 California residents have a net worth of at least $1 billion, based on the Forbes Billionaires List); World’s Billionaires List, FORBES, https://perma.cc/7SWV-JEE8. 10 Josel Boll, Emmanuel Saez & Gabriel Zucman, California Billionaires: Wealth, Taxes, and Wealth Tax Revenue Estimates, NAT. BUREAU OF ECON. RSCH. (May 2026), https://perma.cc/T47Q-3NGP . 11 See Galle, et al., supra note 2 (identifying Larry Page, Sergey Brin, Mark Zuckerberg, Jensen Huang as centibillionaires, individuals with wealth over $100 billion). 12 Id. 13 Id. 14 Id. 15 Cal. Proposition 40 § 50306, supra note 1. 16 Cal Rev. & Tax. Code § 17014 (2025). 17 Cal. Rev. & Tax. Code § 17015.5 (2025). 8

worth as of the valuation date of December 31, 2025.18 Taxpayers may pay the full amount with their 2026 income tax return or spread the payment over five annual installments.19 The deferred payment option carries a 7.5 percent annual nondeductible deferral charge on the unpaid balance.20 b. Valuation of Net Worth Chapter 2 of the 2026 Billionaire Tax Act details rules for what counts toward net worth and how it is valued.21 Section 50302 of the measure states that both “genuine debts and other liabilities owed by the taxpayer shall be taken into account for purposes of determining the taxpayer’s net worth.”22 Additionally, Section 50303 of the measure provides that the value of assets, excluding the specific assets types listed in subdivision (c), is based on the fair market value or “the price at which the asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of the relevant facts.”23 Alternatively, publicly traded assets would be valued based on their market trading value on December 31, 2026.24 Interests in business entities, including equity and ownership interests, debt interests, and other contractual or noncontractual interest is valued based on “the percentage of the business entity owned by the taxpayer,” and the book value or book profits of the business entity at the end of the tax year according to “generally accepted accounting principles.”25 The value of these interests is calculated using a default formula of “book value (the sum of all assets in the business) plus 7.5 times annual book profits (averaged over the most recent 3 years).”26 This formula is modeled from Switzerland’s wealth tax.27 An individual’s net worth also includes “the net worth of any grantor trust of that individual” and if the individual is the beneficiary of a trust, whether the trust is in California or elsewhere, any distributable assets are included in the beneficiaries net worth.28 Real property directly held by the taxpayers will be excluded from the taxable base entirely. This will ensure there is no conflict with Proposition 13 (1978). Additionally, qualified retirement accounts are exempt from taxation, unless they exceed $10,000,000 in present value.29 Other assets, including art and collectibles, and financial instruments are excluded from taxation up to a combined value of $5 million in art, collectibles, and other miscellaneous personal property. Moreover, tangible personal property located outside of California for at least 270 days during 2026 is excluded from an individual’s taxable assets, unless temporary relocation was chosen for the purpose of substantial tax avoidance.30 To determine whether a temporary relocation was made for substantial tax avoidance, the Franchise Tax Board will conduct an audit 18

Cal. Proposition 40 § 50306(o), supra note 1 (defining “valuation date” as December 31, 2026). Cal. Proposition 40 § 50301, supra note 1. 20 Id. 21 Cal. Proposition 40 Ch. 2, supra note 1. 22 Cal. Proposition 40 § 50302, supra note 1. 23 Cal. Proposition 40 § 50303(a), supra note 1. 24 Cal. Proposition 40 § 50303(c)(1), supra note 1. 25 Cal. Proposition 40 § 50303(c)(3)(A)(i)-(iii), supra note 1. 26 See Galle, et al., supra note 2, at 7. 27 See infra Part II. 28 Cal. Proposition 40 § 50303 (c)(6)(C), supra note 1. 29 Cal. Proposition 40 § 50303(c)(7)(B), supra note 1. 30 Cal. Proposition 40 § 50303 (c)(5), supra note 1. 19

to assess whether the move’s timing was suspicious because it coincided with a massive income event or a move to a state with zero income.31 It will also check whether the 546 consecutive-day rule under Revenue and Taxation Code 17014 applied as a safe harbor.32 c. Tax Rate Proposition 40 would impose a five percent tax on the total net worth of billionaire taxpayers, whose wealth is $1.1 billion or above. For Californians with a net worth between $1 billion and $1.1 billion, the rate builds linearly and is reduced by 0.1 percentage point for every $2 million by which their net worth falls below the $1.1 billion benchmark.33 Thus, the tax rate would be “zero percent for taxpayers with exactly $1 billion in net worth to 5% for taxpayers with exactly $1.1 billion in net worth.”34 The Expert Report has asserted that, as of the current Forbes list, only one California billionaire falls within this provision, so its practical effect is negligible.35 d. Optional Deferral Account Although Proposition 40 would impose a one-time tax, qualifying billionaires would have the option to pay in “annual installments of one percent over five years (with a small deferral charge)” or attach their assets to an Optional Deferral Account and pay the tax as they sell the attached assets.36 Unlike the annual installment payments option outlined in Section 50301 subdivision (c), which carries an additional “annual nondeductible deferral charge of 7.5 percent of the remaining unpaid balance” with each subsequent annual payment, the ODA is specifically intended for billionaires who lack the immediate funds to pay even of portion of the tax.37 The drafters of Proposition 40 argue this structure accommodates concerns regarding “billionaire entrepreneurs whose wealth is mostly tied up in a private business or other illiquid assets (e.g., a very successful start-up whose stock does not trade publicly yet) . . . so that the wealth tax does not interfere with business decisions.”38 Proposition 40 provides an Optional Deferral Account (“ODA”) for qualifying billionaire taxpayers “if their wealth tax liability exceeds the combined value of their publicly traded assets.”39 Section 50304 of the measure states that qualifying billionaire taxpayers must “file a declaration that the amount of additional tax that would be owed as a result of this part, without 31

Residency and Sourcing Technical Manual, CAL. FRANCHISE TAX BOARD (rev. Jan. 2026), https://perma.cc/YQ9C -2CT4. 32 Id. 33 Id. 34 See Galle, et al., supra note 2, at 8 (noting that the “ramp-up” is unimportant because only 1 California billionaire reported on the Forbes list has an estimated wealth in the range of $1 billion to $1.1 billion). 35 Id. 36 See Galle, et al., supra note 2, at 1 (imposing a deferral chance of 7.5% on annual installment payments over five years). 37 Cal. Proposition 40 § 50301, supra note 1. 38 See Galle, et al., supra note 2, at 5. 39 David Gamage, et al., Correcting the Record: Responding to Some Legal Arguments About the 2026 Billionaire Tax Act, University of Missouri School of Law Faculty Scholarship (Jan. 9, 2026) at 5, https://perma.cc/5EBHHRWY.

the use of an ODA, would exceed the sum of the combined value of all the taxpayers’ assets which are subject to the valuation rules of [Section 50303].”40 Qualifying billionaire taxpayers may attach assets to an ODA and “pay as they take value out of those holdings, through distributions/withdrawals, with ongoing reporting obligations.” Section 50304 of the measure requires ongoing disclosures and payments upon the withdrawal of attached assets, a transaction effecting such assets, and any material distribution transactions not including “ordinary and necessary transactions for maintaining or increasing the value of assets to which an ODA is attached.”41Assets attached to an ODA are not subject to tax “until specified by Section 50304.” Under Section 50304, deferred payment is structured “to be paid upon stock sale or issuance or upon the payment of dividends.”42 Thus, a tax is imposed on billionaire taxpayers who elect to attach assets to an ODA in the amount of the taxpayer’s accumulated unliquidated tax withholding percentage multiplied by the fair market value of all material distribution transactions for the tax year.43 This resulting tax is due at the same time as annual income taxes. e. Apportionment and Credits Proposition 40 would apply a standard apportionment method on billionaire taxpayers who satisfy the residency requirement as of the tax obligation date. An apportionment is “the division of taxable income among states where the income was earned.44 Under Section 50306, “one hundred percent of any tax imposed under [the measure] is apportioned to California for all applicable individuals and applicable trusts, without reduction or multiplier based on residency history.”45 This means that the measure would tax the entire net worth without a reduction or multiplier to any time spent outside of the state or to a partial residency.46 However, Section 50306(b)(2) provides that alternative apportionment may be used if the standard apportionment method “does not fairly represent the extent to which the taxpayer’s excessive wealth was accumulated in, or substantially sustained by, California.”47 A billionaire taxpayer may petition the Franchise Tax Board for the use of an alternative apportionment method of all or part of the individual’s wealth. The petition must establish, by clear and convincing evidence, that “the excessive wealth did not substantially accumulate in California” and the excessive wealth “was not substantially sustained in California for at least 365 days in the aggregate during the 48 month period ending on the valuation date.”48 If the petition is granted, or the Franchise Tax Board otherwise determines that an alternative apportionment method is appropriate, Section 50306(b)(6) provides that the apportionment percentage shall not be reduced to less than twenty-five percent. Where the taxpayer’s net worth does not have “meaningful connection to California” such that imposing a tax may be grossly disproportionate, the apportionment percentage may be reduced “below 25 percent and, where appropriate, to zero, 40

Cal. Proposition 40 § 50304, supra note 1. Id. 42 See Galle, et al., supra note 2, at 5. 43 Cal. Proposition 40 § 50304, supra note 1. 44 Apportionment and allocation, FRANCHISE TAX BOARD (Dec. 2, 2025), https://perma.cc/575Y-EBMN. 45 Cal. Proposition 40 § 50306, supra note 1. 46 Jared Walczak & David Kline, Proposition 40 White Paper Describes Wealth Tax Measure’s Drafting Errors, Implementation Challenges and Constitutional Problems, CALTAX (Aug. 18, 2026), https://perma.cc/ZG3B-5XLD. 47 Cal. Proposition 40 § 50306(b)(2), supra note 1. 48 Id. 41

to the extent necessary to avoid taxation that is arbitrary or out of all appropriate proportion to the taxpayer’s contacts with this state.”49 Additionally, Section 50307 of the measure provides for the application of a credit against the one-time tax, “equal to the taxpayer’s pro rata share of any taxes paid on a tax on net wealth [in another State or jurisdiction] that is also taxed under this part.”50 The amount of the credit is calculated by the total number of days the taxpayer resided within the other jurisdiction during the 2026 tax year divided by 365. Taxes on real property are not eligible for credits because Proposition 40 does not tax “directly-held real property.”51 f. Enforcement and Anti-Avoidance One anticipated response to Proposition 40 is “avoidance or evasion” by undervaluing or hiding taxable assets. Proposition 40 requires every California resident to declare that their assets are worth less than or equal to $1 billion on their income tax return. The Franchise Tax Board is authorized to audit and “examine all certifications or returns of taxpayers when the Board reasonably believes the taxpayers should have paid the tax imposed by [the measure].”52 To prevent billionaires from hiding assets offshore, Proposition 40 would use a comprehensive tax base, accounting for worldwide wealth. Similarly, assets that are moved outside California are only excluded if located outside for “at least 270 days during 2026” and “shall not be so excluded if relocated temporarily with a substantial purpose of avoiding tax.”53 The measure provides that a billionaire taxpayer may be subject to penalties, if the Franchise Tax Board determines that a transaction lacks economic substance or was conducted for the purpose of obtaining a tax benefit not contemplated by the voters or the Legislature.54 Section 50312(k), the general anti-avoidance rule, provides that the Franchise Tax Board may determine tax consequences “in a manner that is reasonable in light of all the facts and circumstances in order to deny that benefit.”55 Additionally, Section 50312 of the measure imposes penalties on the substantial or gross understatement of tax. An understatement of tax is defined in Section 50312(c)(1) as “the amount by which the tax imposed by this part exceeds the amount of tax shown on an original return or shown on an amended return filed on or before the original or extended due date.”56 An understatement of tax is substantial if it exceeds one million dollars or twenty percent of the tax shown on an original or amended return. An understatement is gross if it exceeds ten million dollars or forty percent of the tax shown on an original or amended return. Section 50312(c)(1)(2) imposes a penalty of twenty percent for the substantial understatement of tax and forty percent for the gross understatement of tax.57

Id. Cal. Proposition 40 § 50307, supra note 1. 51 Id. 52 Cal. Proposition 40 § 50301(e), supra note 1. 53 Cal. Proposition 40 § 50312, supra note 1. 54 Id. 55 Cal. Proposition 40 § 50312(k), supra note 1. 56 Cal. Proposition 40 § 50312(c)(1), supra note 1. 57 Cal. Proposition 40 § 50312(c)(1)-(2), supra note 1. 50

2. Revenue Allocation

All revenue from Proposition 40 would be deposited into the designated 2026 Billionaire Tax Reserve Fund (“Reserve Fund”), established outside of the General Fund.58 Ninety percent of the Reserve Fund would be deposited in a Health Account, and ten percent would be deposited in a combined Education and Food Assistance Account.59 The Health Account would be capped at 22.5 billion in annual appropriation, and the Education and Food Assistance Account would be capped at 2.5 billion.60 Proposition 40 exempts this revenue from three existing constitutional spending constraints: Proposition 98 (1988), Proposition 2 (2026), and Proposition 4 (1979).61 The proposition creates the Reserve Fund to accommodate any excess revenue beyond these limits. These funds would remain in the Reserve Fund through the respective accounts and be treated as rolling balances that could be used for future fiscal years.62 3. Expedited Judicial Review

Proposition 40 Section 50314(a) provides for expedited review of “the facial validity of this act through a validation action.” A validation action is an in rem (“against the thing”) proceeding, meaning “a lawsuit against a thing, rather than against a person, which resolves rights or interests related to that thing.”63 California’s existing Code of Civil Procedure states that validating proceedings may be brought by a public agency “upon the existence of any matter which under any other law is authorized to be determined pursuant to this chapter, and for 60 days thereafter, bring an action in the superior court of the county in which the principle office of the public agency is located.”64 Similarly, Section 50314(c) requires validation actions to be filed within 60 of voters approving the measure. If no actions are filed within 60 days, “the tax and all proceedings . . . including the adoption and approval of the act, shall be held to be facially valid and in every respect legal and incontestable.”65 The provide also provides that the Sacramento County Superior Court is the sole venue for any actions, with direct appeal to the California Supreme Court.66 This expedited review would allow for resolution of challenges brought in the Sacramento Superior Court by April 1, 2027, and by November 1, 2027, for any appeal to the California Supreme Court.67 The purpose of Section 50314, according to Proposition 40’s drafters, is to reduce expenses in implementing the measure and ensure that the short-term funding is immediately distributed to the specified social programs. The text of Proposition 40 incorporates “Proponent Standing” in Section 8, “to ensure the full and complete defense of this act, to protect the people’s right of initiative and the people’s

Cal. Proposition 40 § 5, supra note 1. Cal. Proposition 40 § 4, supra note 1; CAL CONST. art. XIII §37(d). 60 Cal. Proposition 40 § 5, supra note 1. 61 Id. 62 Cal. Proposition 40 § 5, https://perma.cc/2DDF-3QGQ. 63 In rem, LEGAL INFO. INST., https://perma.cc/6MJV-3D6U. 64 Cal. Civ. Pro. Code § 860 (2025). 65 Cal. Proposition 40 § 50314, supra note 1. 66 Id. 67 Id. 59

right to choose who will defend this act in court.”68 Section 8 of the measure states that the state, a government agency or its official, proponents or any citizen of California if proponents are unavailable, are authorized to defend the measure in a validation action. Additionally, if the Attorney General does not defend the act, any fees and costs associated with defending the act with be promptly reimbursed through funds appropriated to the Attorney General. Thus, Section 8 ensures that multiple entities, including the general public, can defend Proposition 40 against legal challenges.69 4. Severability and Judicial Reformation Clause

Proposition 40 Section 50311 addresses severability issues by allowing defective language to be cut from the larger measure, leaving the remaining valid provisions undisturbed.70 Thus, if a provision of the measure is deemed “invalid, unconstitutional, or otherwise unenforceable, that finding shall not affect the enforceability of other provisions or applications.”71 The severability clause also directs the reviewing court to preserve the tax, to the maximum extent consistent with the United States and California Constitutions, “using the most limited adjustment possible to cure any constitutional or other legal defect, while allowing the remaining provisions to operate.”72 If the act is deemed unconstitutional, in whole or in part, because of an invalid tax obligation or valuation date, Section 50311 provides that the act should be construed to the earliest subsequent date(s) that allow the imposition of the tax in 2026, or the earliest permissible subsequent year.73 C. Fiscal Effects The nonpartisan Legislative Analyst’s Office (“LAO”) issued a report estimating that Proposition 40 would generate tens of billions of dollars in revenue.74 The drafters of the Billionaire Tax Act have estimated this figure to be roughly $100 billion.75 This “temporary increase” in revenue would be dispersed over five years beginning in 2027. Alternatively, the LAO report suggests that the Billionaire Tax might decrease income tax revenue by less than $1 billion per year.76 The LAO report estimates that administrative costs to enforce the Billionaire Tax, including the cost to calculate how much is owed, enforcement, and collection, would result in tens of millions of dollars paid from the wealth tax revenues.77 To accommodate these secondary costs associated with the proposed Billionaire Tax, Proposition 40 allocates additional funds to the state agencies responsible for implementing and enforcing the measure.

Cal. Proposition 40 § 8, supra note 1. Id. 70 Raven v. Deukmejian, 52 Cal.3d 336, 355 (1990). 71 Cal. Proposition 40 § 50311, supra note 1. 72 Id. 73 Cal. Proposition 40 § 50311, https://perma.cc/2DDF-3QGQ. 74 Proposition 40: Imposes One-time Tax on Certain Taxpayers, CAL. LEGIS. ANALYS. OFF., https://perma.cc/2S3M7RPJ. 75 Gamage, et al., supra note 39. 76 Proposition 40: Imposes One-time Tax on Certain Taxpayers, CAL. LEGIS. ANALYS. OFF., https://perma.cc/2S3M7RPJ. 77 Id. 69

Critics of wealth taxes note the difficulty of accurately measuring estimated revenue. For example, billionaires may react to the wealth tax in unpredictable ways and take unforeseen measures to circumvent the tax or shelter their taxable assets. Additionally, some billionaires have publicly declared their intent to change their state of residence for purposes of avoiding the Billionaire Tax, resulting in the permanent loss of income tax revenue amounting to hundreds of millions of dollars or more.78 D. Comparable Laws 1. International Context a. Switzerland Proposition 40’s private business valuation formula is modeled after a formula that has been used for wealth taxation in Switzerland for decades, the Swiss Cantonal Wealth Tax valuation practice. A canton in Switzerland is the equivalent of a state in the United States or a province in Canada.79 The Swiss formula has been backed and defended by the drafters of Proposition 40.80 The Swiss cantonal and municipal net wealth taxes have operated for generations and are recorded to have raised approximately 3.9 percent of the total Swiss tax revenue and 9.6 percent of the cantonal and municipal revenue.81 The proponents and the opponents of Proposition 40 draw on the Swiss system for different purposes. Proponents are citing Switzerland’s revenue durability and valuation methodology track record. Opponents are citing Switzerland’s cross-cantonal migration elasticity data. Migration data from Switzerland has measured responses to tax rate variation for their permanent and recurring tax system, which differs from Proposition 40’s one-time, single jurisdiction proposal.82 b. Norway Norway uses a long-running national wealth tax that raises approximately $32 billion per year. The $32 billion raised accounts for about 1 percent of Norway’s total tax revenue and has become a major political issue. In response to Norway’s wealth tax, some individuals have moved out of the country. However, many who left moved to Switzerland, which has its own wealth tax.83 The opponents of Proposition 40 point to Norway’s migration trends as evidence that similar billionaire mobility might occur in response to California’s Billionaire Tax Act. Concern from opponents of Proposition 40, regarding billionaire migration, stem from the potential strain on California’s economy, which is uniquely concentrated with industries 78

Hoover Institution, Proposition Lab: Proposition 40, California Decides, https://perma.cc/5X64-FZGX. Canton, BRITANNICA (last visited October 7th, 2026), https://perma.cc/F2JV-VJW7. 80 Darien Shanske, et al., Solving the Valuation Challenge: The ULTRA Method of Taxing Extreme Wealth, DUKE LAW JOURNAL (2023), https://perma.cc/FQH4-KKET. 81 Samira Marti, Isabel Z. Martines, and Florian Shuer, Does a Progressive Wealth Tax Reduce Top Wealth Inequality? Evidence from Switzerland, https://perma.cc/ADW2-9D5V. 82 Thomas Liebig, Patrick A. Puhani, Alfonso Sousa-Poza, Taxation and Internal Migration: Evidence from the Swiss Census Using Community-Level Variation in Income Tax Rates, https://perma.cc/GT8U-YZSS. 83 See Galle, et al., supra note 2. 79

characterized by billionaire involvement. For example, California’s technology industry comprised thirty percent of the state’s economy.84 Of the estimated 200 billionaires in California, half have amassed a substantial part of their wealth from the technology industry.85 Opponents of Proposition 40 have emphasized documented high-profile departures to highlight the possibility of future impacts on California’s economy.86 2. The Federal “Billionaire Minimum Income Tax” In 2025, President Biden proposed a minimum federal income tax of 25 percent on the income and unrealized capital gains of individuals worth more than $100 million.87 President Biden’s proposal was a part of the 2025 federal budget proposal. The federal proposal did not “fail” as a bill or ballot measure would; rather as it continued to face scrutiny, it stalled and did not reach any possible voter approval or vote by elected representatives.88 Similar to many of the public policy arguments against Proposition 40, opponents of the 2025 tax claimed that once a new tax is created, it would inevitably be extended to those with lower net worth. For both the proposed federal tax and Proposition 40, opponents have asserted the argument of an inevitable tax on “all”.89 However, legislative history does not indicate an intent to tax middle or working class Californians. Unlike the proposed 2025 federal wealth tax, the 2026 Billionaire Tax Act is one-time. Proponents of the federal tax argued that it could help address the widening wealth gap in the United States by ensuring the nation’s wealthiest individuals are paying their “fair share.” Critics of the federal tax argued that it would disincentivize investment and innovation, leading to slower economic growth.90 The Biden proposal also faced similar scrutiny regarding the forced liquidity and potential market distortions. III.

DRAFTING ISSUES

Proposition 40 appears on the California ballots alongside two countermeasures, Propositions 41 and 42. The countermeasures are intended to invalidate Proposition 40 if either initiative were to pass.91 If Proposition 41 or 42 receives more affirmative or “yes” votes than Proposition 40, they could bar Proposition 40 from taking effect, even if Proposition 40 separately collects enough votes for enactment, because California courts may find Proposition

The Role of the Tech Sector in Shaping California’s Economy, CAL. FOUND. FOR COM. & EDUC. (June 2024), https://perma.cc/D4J7-AYW5. 85 Owen Zidar & Eric Swick, California’s Billionaires Look Very Different from the Rest of America’s, THE EVERYWHERE MILLIONAIRE (Jan. 20, 2026), https://perma.cc/NM4K-XNPL. 86 Jon Henley, People are so Angry: How Wealth Tax Became a Battleground in Norway’s Election, THE GUARDIAN (Sept. 7 2025), https://perma.cc/C6C5-RMEP. 87 Office of Management and Budget, Budget of the United States Government, Fiscal Year 2025 (2024), https://perma.cc/E2LH-QBBC. 88 Chuck Marr & Samantha Jacoby, Arguments Against Taxing Unrealized Capital Gains on Very Wealthy Fall Flat, CTR. ON BUDGET AND POL’Y PRIORITIES (Sep. 11, 2024), https://perma.cc/T4NX-Q3HE. 89 Id. 90 Real Taxes for Unreal Wealth, AVE MARIA LAW, https://perma.cc/RMC2-PYJX. 91 Kayla Kitson & Nishi Nair, Billionaire Tax Explained: What Proposition 40 Would Mean for California, CAL. BUDGET & POL’Y CTR. (Aug. 2026), https://perma.cc/5H9T-3PE9.

41 or 42 to conflict with it.92 Section 8 of Proposition 40 provides “[i]n the event that this measure receives a greater number of affirmative votes than a measure deemed to be in conflict with it, the provisions of this measure shall prevail in their entirety, and any conflicting provisions of the other measure or measures shall be null and void.”93 Proposition 40 would add Section 37 to Article XIII of the California Constitution to authorize a one-time five percent tax on the net worth of billionaires. The measure’s language explicitly excludes real property from its tax base.94 Including statutory language that explicitly carves out real property, prevents a potential conflict between Proposition 40 and Proposition 13 (1978), which mandated a tax rate of 1% on real property and requires properties to be assessed at market value at the time of sale.95 Proposition 40 has explicit asset exclusions that calculate net worth by subtracting liabilities from assets, and in doing so excludes real property holdings. This exemption was included because real property holdings are already subject to constitutional tax limitation imposes by Proposition 13.96 IV.

CONSTITUTIONAL AND STATUTORY ISSUES A. Challenges Under the California Constitution 1. Cap on Tangible Personal Property

Article XIII, Section 2 of the California Constitution stipulates that “[t]he tax on any interest in notes, debentures, shares of capital stock, bonds, solvent credits, deeds of trust, or mortgages shall not exceed four-tenths of one percent of full value, and the tax per dollar of full value shall not be higher on personal property than on real property in the same taxing jurisdiction.”97 Opponents of Proposition 40 have suggested that the 5% tax on certain forms of property would conflict with the cap of 0.4% under the California Constitution. However, Proposition 40 amends Article XIII of the California Constitution by adding Section 37, which reads “[n]otwithstanding any other provisions of the Constitution, the Act provides for taxation on all forms of personal property and wealth, whether tangible or intangible, and allows for the classification of personal property and wealth for differential taxation or for exemption, for the purpose of imposing the one-time tax on the wealth of California billionaires.”98 2. Uniformity Clause Article XIII, Section 1 of the California Constitution requires that property taxes “be assessed at the same percentage of fair market value,” unless a specific constitutional carve-out applies or an alternative value standard is prescribed and “the same percentage shall be applied to determine the assessed value.”99 Opponents of Proposition 40 argue that the measure is framed 92

Cal. Prop. 40 § 8, supra note 1. Id. 94 Cal. Prop. 40 § 4, supra note 1. 95 CAL. CONST. art. XIII A § 1-2 (1978). 96 Cal. Prop. 40 § 4, supra note 1. 97 Cal. Const. art. XIII A § 2 (1978). 98 Id. 99 Cal. Const. art. XIII. 93

as an excise tax because it was intended to avoid uniformity and property-tax-cap issues that might accompany a wealth tax on intangible and tangible assets.100 Anticipating constitutional challenges, the drafters of Proposition 40 included language in the measure to address this classification concern. The language clarifies that “the act provides for taxation on all forms of personal property and wealth, whether tangible or intangible, and allows for the classification of personal property and wealth for differential taxation or for exemption, for the purpose of imposing the one-time tax on the wealth of California billionaires of the tax on personal property.”101 Beyond anticipating constitutional challenges under Article XIII, Section 1 of the California Constitution, the drafters state in Chapter 1 of the 2026 Billionaire Tax Act that this is specifically a tax “on the activity of sustaining excessive accumulations of wealth,” not a direct property tax.102 B. Challenges Under the U.S. Constitution California enjoys a broad power to tax under federal law. The Supreme Court has stated “[a]ll subjects over which the sovereign power of a state extends are objects of taxation . . . the states have general dominion . . . over all persons, property, and business transactions within their borders.”103 Additionally, restrictions of federal wealth taxes, under the “Direct Tax Clause” of the U.S. Constitution, do not apply to states.104 Thus, Justices Thomas and Gorsuch have noted that intent of framers appears to “preserve state power to tax wealth.”105 1. Right to Travel The right to travel doctrine allows for the freedom to move between states without unreasonable government interference. Some opponents of Proposition 40 suggest that the onetime tax “denies billionaires the privilege of putting oneself under another state’s laws, including a tax code.”106 If a constitutional issue is raised under this theory, it is likely Proposition 40 would only impact the right to travel indirectly through the possibility of the tax continuing post departure. This only applies if the deferral option of the tax is chosen or an individual relocates after the enactment period. However, Proposition 40 is not a tax that prevents movement. Opponent’s of Proposition 40 additionally suggest that the imposition of a tax, “on the entirety of [billionaire’s] net worth rather than a prorated share reflecting their time in the state,” violates the principle mobilia sequuntur personam (“movable property follows the person”), which provides that a person’s domicile generally determines the applicable law governing movable property.107 100

Constitutional Flaws of California’s Proposed Wealth Tax, TAX FOUND., https://perma.cc/E2LH-QBBC. Cal. Proposition 40, supra note 1. 102 Id. 103 Shaffer v. Carter, 252 U.S. 37 (1920). 104 See Moore v. United States, 602 U.S. 1 (2024) (upholding the Mandatory Repatriation Tax, which attributed a corporate entity’s income to its shareholders and imposed an unapportioned tax on the shareholders); U.S. CONST. art. I, § 9, cl. 4 (requiring that any “direct tax” by Congress be appropriated according to state population). 105 Galle, et al., supra note 2. 106 Constitutional Flaws of California’s Proposed Wealth Tax, TAX FOUND., https://perma.cc/E2LH-QBBC. 107 Mobilia Sequuntur Personam, LSD LAW, https://perma.cc/GPA7-XUHL, (last updated Sept. 2026), https://perma.cc/HUL9-4DXQ; Constitutional Flaws of California’s Proposed Wealth Tax, TAX FOUND., https://perma.cc/E2LH-QBBC. 101

However, as Proponents of the measure point out, few billionaires actually changed their residence before the valuation deadline and California’s stringent residency requirements provide a brightline rule for resolving potential challenges. According to guidelines issued by the California Franchise Tax Board, residency is primarily a “question of fact determined by examining all the circumstances of your particular situation.” A person is considered a resident of California for tax purposes if they are: (1) “present in California for other than a temporary or transitory purpose,” or (2) “domiciled in California, but outside California for a temporary or transitory purpose.”108 Moreover, the residency guidelines reflect the belief that a person is a resident of the location with which they have the “closest connections.” In assessing the closeness of relevant connections, courts consider the following non-exhaustive factors: the duration of time spent in California versus outside of California, location of family members and primary residence, the state in which driver’s or professional licenses are held, and the location of bank accounts and healthcare providers.109 2. Takings Clause110 A possible U.S. constitutional challenge may present itself under the Takings Clause if private property is deemed to be taken for public use without just compensation. Opponents of Proposition 40 rely heavily on Armstrong v. United States to assert that the tax imposes a significant and potentially unconstitutional burden on small group of taxpayers.111 Justice Black noted in Armstrong, “[t]he Fifth Amendment’s guarantee that private property shall not be taken for a public use without just compensation was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be bourne by the public as a whole.”112 In Armstrong the government seized boats and boatmaking materials after a shipbuilder defaulted on its contract to produce vessels for the Navy, but did not compensate the shipbuilder for the value of their liens on those materials. The Court recognized the liens were property interests, which entitled the boatmakers to compensation. However, “it did not announce a rule that a tax is unconstitutional whenever it falls on a small group or is large in dollar terms.”113 Likewise, the Supreme Court has held that “States have long imposed taxes on property” and “[s]uch taxes are not themselves a taking.”114 Thus, it is unlikely that Proposition 40, a one-time tax, would be invalidated as an unconstitutional taking.

108

Id. at 4. Id. at 5. 110 U.S. CONST. amend. V (prohibiting the government from taking private property for public use without providing just compensation). 111 Armstrong v. United States, 364 U.S. 40, 49 (1960). 112 Id. 113 Gamage, et al., supra note 39 at 2. 114 Tyler v. Hennepin County, 598 U.S. 631 (2023) (holding that Hennepin County violated the Takings Clause of the Fifth Amendment when it foreclosed on a debtor’s property and kept the surplus equity of the home). 109

3. Retroactivity Retroactive taxation has been recognized by The Supreme Court as “so arbitrary” . . . that it was not the exertion of taxation but a confiscation of property.”115 If passed, Proposition 40 would tax California billionaires on their total worldwide net worth. The Due Process Clause of the U.S. Constitution prohibits a State from depriving any person of “life, liberty, or property, without due process of law.”116 The constitutional guarantees of the Due Process Clause provide procedural and substantive protections.117 Procedural due process requires the government to abide by established procedures when it attempts to deprive a person of life, liberty, or property.118 Substantive due process requires the government to provide a compelling reason to infringe upon certain fundamental rights.119 In a series of federal cases, United States v. Carlton,120 Blodget v. Holden,121 and Untermeyer v. Anderson,122 the Supreme Court articulated the applicable Due Process standard for challenges brought against retroactive tax legislation. The Court has held that a State may retroactively impose liability on a taxpayer so long as the tax is “rationally related to a legitimate legislative purpose” and has “only a modest period of retroactivity.”123 In effect, “a legislature (or electorate) can adopt [a retroactive] approach for essentially any ‘rational basis,’ meaning any conceivable valid government purpose.”124 Thus, the Court has been reluctant to restrict a state’s ability to impose retroactive taxes, and has not done so since 1928.125 If a constitutional challenge is brought against Proposition 40, California courts would look to Carlton, Holden, and Anderson to rule on whether the 2026 Billionaire tax Act’s purpose of funding healthcare, food assistance, and educational programs, serves a legitimate legislative purpose.126 4. Bill of Attainder Article I, Section 10 of the U.S. Constitution prohibits state legislatures from enacting bills of attainder, defined as “legislation that declares an individual or group guilty of a crime and imposes punishment without the benefit of a judicial proceeding.”127 In determining whether a law is a bill of attainder, Courts utilize a three-part test which evaluates: (1) if the law targets specific individuals or groups, (2) whether the law imposes a punishment, and (3) whether it

115

Milan N. Ball, Cong. Rsch. Serv., IF13234, Retroactive Federal Tax Legislation and Due Process (May 26, 2026), https://perma.cc/KQY8-L49B. 116 U.S. CONST. amend. XIV. 117 Id. 118 What is Due Process?, ACLU, https://perma.cc/XK5S-9AQ6. 119 Id. 120 Id. at 30-34. 121 Blodget v. Holden, 275 U.S. 142, 147 (1927). 122 Untermeyer v. Anderson, 276 U.S. 440, 445 (1928). 123 United States v. Carlton, 512 U.S. 26, 30-34 (1994); Robert C. DeGaudenzi, Death is Still Certain, but are Taxes?: An Examination of the Due Process Limitations on Retroactive Tax Legislation after Carlton v. United States, 67 ST. JOHN’S L. REV. 327 (1993), https://perma.cc/PST8-WSHQ. 124 Gamage, et al., supra note 39, at 3. 125 Untermyer v. Anderson, 276 U.S. 440. 126 United States v. Carlton, 512 U.S. at 30-34. 127 Bill of Attainder, Cornell, https://perma.cc/G8CQ-H3LY.

does so without first adjudicating the matter.128 Billionaires have suggested that Proposition 40 specifically targets a “politically unpopular” group of the wealthiest 0.01 percent of Californians. Proponents argue that burdening a small group of individuals, an estimated 200 people according to the Forbes Billionaires List, requires punitive intent to show a bill of attainder.129 A tax that aims to raise revenue to offset budget deficits does not meeting this punishment standard. Nixon v. Administrator of General Services130 lays out the three-pronged framework for how a court determines if a law violates a constitutional clause. Under Nixon, to identify if a law inflicts punishment a court looks to: (1) whether the law, viewed from what it burdens, reasonably furthers a legitimate and non-punitive legislative purpose; (2) whether the law imposes any historically recognized legislative functions (e.g., public policy, legislation for national importance, preservation of materials for governmental and historical purposes, or ensure availability of evidence); and (3) whether the legislative record shows any congressional intent to punish instead of an intent to regulate for legitimate purpose.131 V.

PUBLIC POLICY ISSUES A. Proponents’ Arguments

Proposition 40 is sponsored by SEIU-United Healthcare Workers West (“SEIU-UHW”). Suzanne Jimenez, SEIU-UHW chief of staff, cautioned that “If we do nothing, we’re heading towards a collapse of our healthcare systems here in California . . . Emergency rooms are going to close, hospitals are going to close. Seniors and veterans will lose access to nursing home care.”132 Additionally, Bernie Sanders, a proponent of federal wealth taxes, has endorsed the measure. The nonpartisan Public Policy Institute of California reported that 54% of Californians and 76% of Democrats surveyed approved of a billionaire tax.133 Nvidia CEO Jensen Huang, whose tech company is worth an estimated $4.4 trillion and has been a prominent supporter of Proposition 40. In a recent interview with Bloomberg, Huang stated that he is “perfectly fine” with a wealth tax.134 According to Huang, “[w]e chose to live in Silicon Valley. Whatever taxes they would like to apply, so be it.”135 Proposition 40 “uses funds from households that gained the most from the recent federal changes in order to protect those who were hurt the most.”136 In addition to disproportionately benefiting from changes in federal law, the drafters of Proposition 40 note that California billionaires pay a relatively smaller portion of the total state income tax, despite controlling a 128

Id. Gamage, et al., supra note 39; World’s Billionaire’s List, FORBES, https://perma.cc/7SWV-JEE8. 130 Nixon v. Adm'r of Gen. Servs., 433 U.S. 425, 97 S. Ct. 2777 (1977). 131 Id. 132 Christopher Grimes, California’s divisive plan to tax billionaires, https://perma.cc/W8LC-WK9Q. 133 Matt Levin, Becerra, Hilton Lead Governor’s Race; Majority Back Billionaire Wealth Tax, PPIC (May 28, 2026), https://perma.cc/5252-NGLD. 134 Nick Turner, et al., Nvidia CEO Says He's 'Perfectly Fine' With Billionaires Tax, Bloomberg (Jan. 6, 2026), https://perma.cc/KGP7-V3EJ. 135 Id. 136 Galle, et al., supra note 2, at 2, https://perma.cc/6CCX-XEEW. 129

vast share of wealth.137 According to one of the drafters, Darien Shanske, Professor at U.C. Davis School of Law, “[p]art of our task is to tax these systematically undertaxed people.”138 Moreover, “billionaires realize only a small fraction of their gains and hence the realizationbased tax system fails to tax most of the gains of billionaires.” According to the measure’s proponents, 65 percent of billionaire wealth is generated from publicly traded stocks, 98.5 percent of which is unrealized gains.139 Unrealized gains are “increases in the value of an asset or investment that an investor holds.”140 Gains or losses are realized when the investment is sold. Overall, an estimated 80 percent of California billionaires’ wealth is unrealized gains. According to drafters of Proposition 40, “[t]his implies that the 5 percent one-time wealth tax is similar, in terms of burden, to a one-time tax on unrealized capital gains at a rate of 6.25 percent.”141 In response to opposition campaigns utilizing aggressive media, the drafters have stated “[e]ven if you think Proposition 40 is a bad idea, the democratic process should have some integrity. They’re lying because they don’t think they’re going to win in an open and fair debate.”142 B. Opponents’ Arguments Proposition 40 has drawn vocal opposition from billionaires who reside in California, and non-resident billionaires who oppose wealth taxes generally. Former Special Advisor to the Trump Administration, David Sacks, who was born in South Africa and raised in Tennessee, suggested the one-time 5 percent tax “is not a one-time tax . . . It’s an asset seizure, a private property seizure. It establishes a precedent that we can define an arbitrary group of people and confiscate a bunch of their property because they’re politically unpopular.”143 Sacks, who is worth an estimated $300 million to $1 billion, has since relocated to Texas.144 Sacks’ co-host on the All-In podcast, Chamath Palihapitiya, a Sri Lankan-born Canadian-American worth approximately 1.2 billion as of 2021, has committed to staying in California, but has claimed: “When you look at our friends that all left, it’s about half a trillion of net worth, which I think is very bad for the long-term budget of California.”145 Likewise, Golden State Promise, a PAC created to oppose Proposition 40, has received funding from billionaire Chris Larsen, who characterized the measure as “toxic” and “misguided.”

137

Cong. Research Serv., Tax Provisions in H.R. 1, the One Big Beautiful Bill Act, Report No. R48550, 3 (May 27, 2025), https://perma.cc/8CXW-SDN8. 138 Interview with Professor Darien Shanske, drafter of Proposition 40, (August 31, 2026) [Shanske Interview] (notes on file with the California Initiative Review). 139 Id. at 17. 140 Troy Segal, What Are Unrealized Gains and Losses?, INVESTOPEDIA (Sep. 20, 2026), https://perma.cc/7FQ7GBQK. 141 Id. at 17. 142 Interview with Professor David Gamage, drafter of Proposition 40, (September 3, 3026) [Gamage Interview] (notes on file with the California Initiative Review). 143 Christopher Grimes, California’s divisive plan to tax billionaires, Fin. Times (Jan. 9, 2026), https://perma.cc/W8LC-WK9Q. 144 David Sacks Net Worth: PayPal Mafia to White House Crypto Czar, BINANCE (May, 28, 2026), https://perma.cc/28FY-587N. 145 Danny Fortson, Tech bros’ dilemma in California: fight the 5% wealth tax or flee?, THE TIMES (Mar. 14, 2026), https://perma.cc/4NHY-PSB4.

Governor Gavin Newsom, a proponent of a national billionaire tax, opposes Proposition 40 calling it “a race to the bottom for states.”146 Other notable democrats that oppose Proposition 40 include gubernatorial candidate Xavier Becerra and Nancy Tung, chair of the San Francisco Democratic Party. Prominent labor unions are also opposed to Proposition 40. David Goldberg, president of the California Teachers Association, stated that the measure “intentionally goes around public education funding, it cuts it out of receiving resources.”147 Dustin Corcoran, CEO of the California Medical Association, claimed that “From a healthcare perspective, you really need revenue that’s ongoing, durable and sustainable. This tax doesn’t meet that measure.”148 Additionally, California Professional Firefighters and Planned Parenthood oppose Proposition 40. 1. Mobility Responses to Wealth Tax As critics of Proposition 40 point out, Larry Page and Sergey Brin have expressed an interest in leaving California due to the one-time tax, and Mark Zuckerberg recently purchased real estate in Florida. Centibillionaire and former California resident Larry Ellison previously changed his domicile to Florida in May 2023. Opponents of Proposition 40 suggest that billionaire migration in response to California’s wealth tax will reduce the projected revenue of the measure and result in the loss of a personal income tax base. Additionally, they argue litigation could delay revenue collection, preventing the desired state programs from receiving short-term funds consistent with the measure’s stated purpose.149 The drafters of Proposition 40 have suggested that a mobility response is unlikely. The measure specifically contemplates residency as of January 1, 2026, which gave billionaires one month to change residence after the ballot was published on November 26, 2025.150 Even if onefourth of resident billionaires left California, studies suggest that “it would take 100 years for the income tax loss to match the revenue from the wealth tax.”151 Moreover, corporate taxes are unaffected by the residence of billionaire-owners, “because it is based on sales to customers in California.”152 Likewise, property taxes and sales and excise taxes will be unaffected. These states taxes are lower than federal individual income tax and corporates taxes.153 Ultimately, the drafters point to the onerous residency burden as one indication that public declarations of intent to change residence are not reflective of true number of billionaires who have legally changed their residence.154

146

Ashley Zavala, Prop 40 would create a first-in-the-world tax on billionaires, KCRA (Sep. 20, 2026), https://perma.cc/QMA9-JRYJ. 147 Maya C. Miller & Jeanne Kuang, California Democrats defy Newsom, back billionaire tax, CAL MATTERS (Aug. 4, 2026), https://perma.cc/R4MR-JWSW. 148 Zavala, supra note 148. 149 Gamage, et al., supra note 39, at 5. 150 Galle, et al., supra note 2, at 8. 151 Boll, supra note 10, at 20. 152 Id. at 8. 153 Id. at 11. 154 See infra Part II.

2. Disincentivizing Entrepreneurship Opponents of Proposition 40 suggest that the one-time tax would disincentive billionaireowners from increasing the valuation of their businesses before December 31, 2026 and consequentially, impair California’s prosperous and entrepreneur-friendly markets. Under the 2026 Billionaire Tax Act, the burden of asset valuation falls on the taxpayer. For startups, whose valuation might be difficult to approximate, this could present challenges and expose companies to steep penalties for erroneous valuations. For example, “[v]enture capitalist funding rounds reveal the value of a private business at the moment the funding occurs, which can increase substantially the valuation of the business for wealth tax purposes.”155 The Tax Foundation has noted that the ordinarily, at the federal level, penalties against certified appraisers for inaccurate asset valuations are “capped at 125 percent of the fee received for the appraisal to ensure sanctions are proportionate.”156 However, the California Billionaire Tax Act does not contain a limitation on appraiser penalties, creating the possibility for steep penalties attached to undervaluations of the assets of billionaire taxpayers. Similarly, opponents have suggested that Proposition 40 would force billionaire-owners to sell their voting-shares in order to pay the one-time tax. If billionaire taxpayers preferred method of payment is not selling shares, the drafters note that they have the option to “sell some of their stakes to outside investors . . . to pay the tax without affecting operations of the businesses they own.”157 Alternatively, billionaires can borrow against their wealth to pay the tax, “pledging their business stakes as collateral.”158 Ultimately, the proponents of Proposition 40 suggest that the prospect of a wealth tax has had no evident deterrent effects on the California’s economy, noting that “the California tech sector is experiencing an AI boom which has led to an unprecedented flux of venture capital funding to Silicon Valley businesses, in spite of the prospects for a possible wealth tax.”159 3. Expanding the One-Time Billionaire Tax to Middle-Class Californians Opponents of Proposition 40 have cautioned that the tax will be made permanent and extended to all Californians. However, a citizen-initiated ballot measure, like Proposition 40, would need to be either reenacted or passed through the State Legislature and subject to a twothirds supermajority to be extended.160 Any extension passed by the State Legislature must be in line with the purpose stated at the beginning of the Billionaire Tax Act. Opponents of the measure have asserted that the ability to extend the tax means that it would become a tax on all Californians, specifically Middle-Class Californians.161

155

Id. at 20. Jared Walczak, Constitutional Flaws of California’s Proposed Wealth Tax, TAX FOUND. (Aug. 12, 2026), https://perma.cc/WBT6-DJ62. 157 Gamage, et al., supra note 39, at 5. 158 Id. 159 Id. 160 Gamage, supra note 39, at 9. 161 California’s Prop 40: Responses to Common Objections, INST. ON TAX. AND ECON. POL’Y, https://perma.cc/3EG6-EA8C. 156

Although opponents of Proposition 40 have asserted that the tax will be made permanent or extended to middle class Californians, Article 2 sec. 10 (c) of the State Constitution states that “the legislature may amend or repeal an initiative statute by another statute that becomes effective only when approved by the electors unless the initiative statute permits amendment or repeal without the electors approval.” Proposition 40 does not permit amendments which would contradict the stated purpose of the measure.162 If the California courts do not find the purpose of this tax to include a tax on middle-class Californians, the tax could not be extended to such a population. Additionally, the legislature at any moment has the authority to tax Californians for the purpose they deem fit.163 The California Legislature has not indicated an intent to extend the tax to middle class Californians.164 The drafters of Proposition 40 have responded to claims about the expansion of the tax to all California taxpayers by stating: “It’s a tax on billionaires. It can only ever be a tax on billionaires.”165 C. CAMPAIGN FINANCE 1. Reported Contributions in Support For the January 1, 2026, to September 19, 2026, reporting period, proponents have raised $31,272,320.53 from two committees. The committee Yes on 40 – Billionaire Tax Now – No on 41 & 42, Sponsored by Service Employees International Union – United Healthcare Workers West, has reported $30,932,095.53 in total contributions and $36,211,593.21 in total expenditures. The committee Tax the Ultra-Rich Now, Yes on 3 & 40, No on 41 & 42, has reported $340, 225.00 in total contributions and $57,230.99 in total expenditures.166 2. Reported Contributions in Opposition For the January 1, 2026, to September 19, 2026, reporting period, opponents have raised $67,566,279.44 from four committees. The committee Californians Against Tax Increases, Sponsored by the California Business Roundtable – No on 40, has reported $95,000.00 in total contributions and $341,504.31 in total expenditures.167 The committee No on Prop 40 – Doctors, Teachers, Small Businesses, Working Families and Public Safety Against the Reckless Wealth Tax Experiment, has reported $56,721,279.44 in total contributions and $59,394,210.91 in total expenditures.168 The committee Stop the Squeeze – No on Prop 40, has reported $300,000 in

162

CAL. CONST. art. II, § 10 (emphasis added) CAL. CONST. art. II, § 9 (general taxes passed by the Legislature not subject to referendum); CAL. CONST. art. XIIIA, § 3 (vote requirement for state taxes is two–thirds vote of both legislative chambers). 164 Interview with Professor Brian David Galle, drafter of Proposition 40, (September 3, 2026) [Galle Interview] (notes on file with the California Initiative Review). 165 Id. 166 Tax the Ultra-Rich Now, Yes on 3 & 40, No on 41 & 42, Cal. Sec’y of State, Cal-Access Campaign Finance Detail, Committee ID No. 1495036, https://perma.cc/5FN5-L3VF. 167 Californians Against Tax Increases, Sponsored by the California Business Roundtable – No on 40, Cal. Sec’y of State, Cal-Access Campaign Finance Detail, Committee ID No. 1485228, https://perma.cc/8YFP-7BCV. 168 No on Prop 40 – Doctors, Teachers, Small Businesses, Working Families and Public Safety Against the Reckless Wealth Tax Experiment, Cal. Sec’y of State, Cal-Access Campaign Finance Detail, Committee ID No. 1492108, https://perma.cc/W4YZ-4BKC. 163

total contributions and $325,896.40 in total expenditures. 169 The committee Golden State Promise – No on Prop 40. For the January 1, 2026, to September 19, 2026, has reported $10,450,000.00 in total contributions and $10,584,581.48 in total expenditures. 170 Campaign Finances, January 1 – September 19, 2026

Committees In Favor of Prop 40 COMMITTEE

CONTRIBUTIONS

EXPENDITURES

Yes On 40 – Billionaire Tax Now – No On 41 & 42, Sponsored By Service Employees International Union – United Healthcare Workers West

$30,932,095.53

$36,211,593.21

Tax the Ultra-Rich Now, Yes On 3 & 40, No On 41 & 42

$340,225.00

$57,230.99

$31,272,320.53

$36,268,824.20

Total

169

Stop the Squeeze – No on Prop 40, Cal. Sec’y of State, Cal-Access Campaign Finance Detail, Committee ID No. 1485007, https://perma.cc/479Y-MMDE. 170 Golden State Promise – No on Prop 40, Cal. Sec’y of State, Cal-Access Campaign Finance Detail, Committee ID No. 1486695, https://perma.cc/33RU-MVUQ, 1486695, https://perma.cc/VSW3-W4Y7.

Committees Against Proposition 40 COMMITTEE

CONTRIBUTIONS

EXPENDITURES

$95,000.00

$341,504.31

$56,721,279.44

$59,394,210.91

$300,000.00

$325,896.40

Golden State Promise – No on Prop 40

$10,450,000.00

$10,584,581.48

Total

$67,566,279.44

$70,646,193.10

Californians Against Tax Increases, Sponsored by the California Business Roundtable – No on 40 No On Prop 40 – Doctors, Teachers, Small Businesses, Working Families and Public Safety Against the Reckless Wealth Tax Experiment Stop the Squeeze – No on Prop 40

VI.

CONCLUSION

A YES vote on this measure means raising temporary funds healthcare, educational, and food assistance programs across the state by imposing a one-time 5 percent tax on billionaires residing in California as of January 1, 2026. A NO vote on this measure means taxes on billionaires residing in California will remain unchanged.

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Proposition 41: Prohibit Excluding New State Taxes from Spending Limit and Require Special Tax Audits Initiative Initiative Constitutional Amendment Copyright © 2026 by the University of the Pacific, McGeorge School of Law

Andrew Dale J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2027 B.A., Political Science, Public Policy, University of California, San Diego, 2021 &

Rachel Yoas J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., History & Political Science, Fordham University, Rose Hill, 2020

EXECUTIVE SUMMARY

Proposition 41 is a citizen-initiated Constitutional Amendment that would do two things: (1) require a series of new audits of programs funded by special taxes and (2) prohibit certain new state taxes, like the one proposed in Proposition 40, from being excluded from the state spending limit.1 First, Proposition 41 (2026) would require one-time audits before special taxes appear on the ballot through the Voter Initiative Process.2 The pre-election audit would be triggered once proponents collect 25 percent of the signatures needed to qualify for the ballot.3 Proposition 41 would also require recurring audits every four years of programs receiving funds from new or increased special taxes after January 1, 2026.4 These audits conducted by the State Auditor would include recommendations on how to reduce the program’s annual costs by 10 percent, and a summary of the audit would be included in the Voter Guide if the initiative qualifies for the ballot.5 These cost-saving proposals would be recommendations only; Proposition 41 requires neither the Legislature nor the audited program to adopt them.6 If the audited initiative passes, the State Auditor would be reimbursed for the audit from the new tax’s revenue. If not, the State's General Fund would cover audit expenses. Second, Proposition 41 (2026) would prohibit new state taxes enacted after January 1, 2026, from being excluded from the existing voter-approved state spending limit.7 In effect, a new tax measure would be unable to circumvent the spending limit simply by declaring that its revenue does not count toward the limit (for example, by depositing the revenue in a special fund outside the General Fund).8 This would include Proposition 40 (2026), a new tax appearing on the November 2026 ballot alongside Proposition 41 (2026).9 A YES vote on this measure means: when special taxes are proposed by voter initiatives, the California State Auditor would be required to review programs funded by the tax before the initiative appears on the ballot.10 This pre-election audit requirement applies only to special taxes

Victoria Antram, Signatures Submitted for California Initiatives to Prohibit Taxes on Personal Savings and Assets, Require Audits for New Special Taxes, and Challenge Proposed Billionaire Tax Measure, BALLOTPEDIA NEWS (May 7, 2026 at 4:24 A.M.), https://perma.cc/3RZ8-CL2K. 2 Legis. Analyst’s Off., Proposition 41: Prohibits New State Taxes That Exclude Revenues From State Spending Limit. Requires Audits for New State Taxes That Exclude Revenues from State Spending Limit. Requires Audits for New State Special Taxes. Initiative Constitutional Amendment, LEGIS. ANALYST’S OFF. (Nov. 3, 2026), https://perma.cc/E6VV-SSEJ. 3 Id.; see also CAL. ELEC. CODE § 9034(a). 4 LEGIS. ANALYST’S OFF, supra note 2. 5 Id. 6 Id. 7 Cal. Proposition 41 at § 4 (2026), https://perma.cc/FTX3-3FAP. 8 Id. 9 Id. at § § 4, 5(a)(1). 10 Id.

proposed by voter initiative, not to special taxes the Legislature places on the ballot.11 The California State Auditor would regularly review programs funded by special taxes approved by voters or the Legislature.12 In addition, the State might not be able to exclude any new special tax spending from its spending limit.13 A NO vote on this measure means: the California State Auditor’s existing responsibility to review government programs would not change.14 The state spending limit requirements would not change. 15 II.

THE LAW A. Existing Law

In 1979, California voters approved Proposition 4 (1979), which added Article XIII B to the California Constitution.16 This established and defined annual appropriation (i.e., spending) limits for state and local government entities based on the prior fiscal year’s appropriations.17 It also required that any revenue exceeding that appropriations limit be returned to the taxpayers by revising tax rates within two fiscal years.18 This spending limit is known as the Gann Limit, named after anti-tax activist Paul Gann, co-author of Proposition 13 (1978) and a leading proponent of Proposition 4 (1979).19

Id. at § 4 (limiting pre-election audits to special taxes proposed by initiative). CAL. SEC’Y OF STATE, OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION, TUESDAY NOVEMBER 3, 2026, at 9, available at https://perma.cc/JV4R-YSSD [“NOVEMBER 2026 VOTER GUIDE”]. 13 Id. 14 Id. 15 Id. 16 CAL. CONST. art. XIII B, §§ 1–2 (adopted by initiative, Special Statewide Elec. (Nov. 6, 1979)); California Proposition 4, Government Spending ‘Gann Limit’ Initiative (1979), BALLOTPEDIA, https://perma.cc/K4CF-TWUR. 17 California Proposition 98, Mandatory Education Spending Initiative (1988), BALLOTPEDIA, https://perma.cc/VF5C-KHES; see also CAL. CONST. art. XVI, § 8.5. 18 California Proposition 4, Government Spending ‘Gann Limit’ Initiative (1979), BALLOTPEDIA, supra note 16. 19 Legis. Analyst’s Off., The State Appropriations Limit, LEGIS. ANALYST’S OFF., (Apr. 21, 2021), https://perma.cc/P5A7-UJ47. 12

1. How the Gann Limit Works In simple terms, the Gann Limit is an annual cap on how much tax revenue state and local governments may spend, and the cap grows each year with changes in population and personal income. If the state collects more tax revenue than the cap allows over a two-year period, it must split the excess between taxpayer rebates and school funding. The limit applies to tax proceeds regardless of which fund they are deposited in. This means that it covers both the General Fund and special taxes. All tax revenues are treated as appropriated for purposes of the Gann Limit unless explicitly excluded.20 The California Constitution excludes certain appropriations from the limit, including debt service prior to 1979, subventions to local governments, federal and court mandates, qualifying capital outlay, and certain emergency spending.21 The Gann Limit has since been modified twice. In 1988, California voters passed Proposition 98 (1988), which established a minimum level of state funding for schools and community college districts.22 Proposition 98 (1988) involved transferring state revenues in excess of the State’s appropriation limit to these schools and exempted those excess funds from the appropriations limit.23 In other words, rather than returning all revenue above the limit to taxpayers, Proposition 98 (1988) redirected a portion of the excess (up to 4 percent of the schools’ minimum funding guarantee) to schools and community colleges.24 In 1990, California voters again modified the Gann Limit by passing Proposition 111 (1990), which changed how the limit measures population growth and the cost of living.25 Originally, the inflation adjustment was based on the lesser of the change in the U.S. Consumer Price Index (CPI) or the change in California per capita personal income, and the population adjustment was based only on statewide population growth.26 Proposition 111 (1990) tied the inflation adjustment solely to the annual change in California per capita personal income and partly weighted the population adjustment by growth in school enrollment.27 These changes generally allowed the limit to grow faster, creating more room for state and local appropriations. Proposition 111 (1990) also required that excess revenues be determined over a two-year period rather than a single year, making it less likely that one strong revenue year would push the State over the limit and trigger rebates, and that half of the excess revenue be allocated to additional Proposition 98 (1988) spending rather than just to taxpayer rebates.28

The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 18. Id. 22 The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 18; see CAL. CONST. art. XIII B, §§ 3(c), 8(a), 9. 23 California Proposition 98, Mandatory Education Spending Initiative (1988), BALLOTPEDIA, supra note 16. 24 Legis. Analyst’s Off., The 2017-18 Budget: Governor’s Gann Limit Proposal, LEGIS. ANALYST’S OFF., (Mar. 2, 2017), https://perma.cc/84LS-E3N8. 25 Id. 26 The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 19. 27 Id. 28 Legis. Analyst’s Off., The 2017-18 Budget: Governor’s Gann Limit Proposal, LEGIS. ANALYST’S OFF., (Mar. 2, 2017), supra note 24. 21

2. Why Exclusions Matter Revenue that is excluded from the limit does not use up the state’s room (the amount by which the revenue exceeds the appropriations that count against the limit) under the limit, so it cannot trigger the tax rebate and requirements to split excess revenue between taxpayer rebates and additional school funding.29 Proposition 40 relies on this kind of exclusion, and Proposition 41 targets it. a. Debt Service The Constitution defines this exclusion as: “appropriations required to pay the cost of interest and redemption charges… on indebtedness existing or legally authorized as of January 1, 1979, or on bonded indebtedness thereafter approved according to law by a vote of the electors.”30 This does not include certain outstanding debt that existed in 1979, including unfunded pension liabilities.31 In plain terms, payments on old debts and on bonds that voters have approved do not count against the limit. b. Subventions to Local Governments The Constitution allows subventions to local governments to be counted against that local government’s limit (instead of the State’s limit).32 In implementing legislation for Proposition 4 (1979), the Legislature defined “subventions” as “only money received by a local agency from the state, the use of which is unrestricted by the statute providing the subvention.”33 In other words, subventions are state funds that a local government may spend as it chooses, rather than funds the State has earmarked for a particular purpose. c. Federal and Court Mandates Proposition 4 (1979) created an exclusion from the limit for appropriations required to comply with mandates imposed by the courts or the federal government; Article XIII B, Section 9(b), remains amended by Proposition 111 (1990).34 To qualify as a mandate under this exception, the federal or court requirement must either (1) require the government to spend money on additional services without any discretion to refuse or (2) unavoidably make existing services more costly.35 The Constitution does not assign this determination to a particular body. However, in practice, the Governor’s administration calculates the limit as part of the annual budget process, including specifying which appropriations qualify for an exclusion.36 Disputes

The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 19. CAL. CONST. art. XIII B, § 8. 31 The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 19. 32 CAL. CONST. art. XIII B, § 8. 33 CAL. GOV’T CODE § 7903. 34 CAL. CONST. art. XIII B, § 9(b). 35 The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 19. 36 Id. 30

over whether a requirement qualifies as a mandate have been resolved by the courts.37 The California Supreme Court has held that a federal requirement can qualify as a mandate even without direct legal compulsion if the state has no realistic choice but to comply.38 d. Qualifying Capital Outlay The Constitution also allows expenditures on capital outlay projects to be excluded from the limit on appropriations.39 These are defined as “an appropriation for a fixed asset (including land and construction) with a useful life of 10 or more years and a value which equals or exceeds one hundred thousand dollars.”40 In plain terms, spending on long-lasting infrastructure, such as buildings, roads, and land, does not count against the limit. e. Emergency Spending The Constitution allows emergency expenditures to be excluded from appropriations subject to the limit.41 There are three conditions necessary. The spending must be: (1) related to an emergency declaration by the Governor; (2) approved by a two-thirds vote of the Legislature (or, for a local government, of its governing body); and (3) dedicated to an account for expenditures relating to that emergency.42 f. What Happens When the State Exceeds the Limit? Since Proposition 111 (1990), excess revenue is measured over two consecutive years. The California Constitution then requires the State to split the excess between taxpayer rebates and additional school funding.43 Half of the excess goes to taxpayer rebates, and the other half goes to schools and community colleges as additional Proposition 98 (1988) spending.44 g. History of Exceeding Gann Limit The State exceeded the Gann Limit in 1986–87, producing roughly $1.1 billion in excess revenue that was rebated to taxpayers.45 In 2022–23, the California budget stayed under the Gann Limit largely through use of these exclusions. For instance, $23.7 billion was designated to capital outlay projects and $13.2 billion was used for emergency spending.46 These expenditures were excluded from the Gann Limit. 37

City of Sacramento v. State of California, 50 Cal. 3d 51, 73–76 (1990) (resolving whether state costs of extending unemployment insurance coverage to local government employees were federally mandated). 38 City of Sacramento, 50 Cal. 3d at 73–76. 39 CAL. CONST. art. XIII B, § 9(d). 40 The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 19. 41 CAL. CONST. art. XIII B, § 3(c). 42 The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 19. 43 CAL. CONST. art. XIII B, § 2(a). 44 Legis. Analyst’s Off., The 2017–18 Budget: Governor’s Gann Limit Proposal, supra note 24 at 7. 45 The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 19. 46 Legis. Analyst’s Off., The 2022-23 California Spending Plan: The State Appropriations Limit, LEGIS. ANALYST’S OFF., (Sep. 30, 2022), https://perma.cc/GXD5-ZCN6.

3. State Auditor’s Existing Role The State Auditor is an independent and nonpartisan office in state government. It reviews how well state and local governments use their money and run their programs. State law makes the office independent of the executive and legislative branches, and the Legislature generally requires its audits by statute or requests them through the Joint Legislative Audit Committee.47 These audits include recommendations to help improve efficiency. Some audits occur regularly while others occur only once.48 B. Proposed Changes to the Law Proposition 41 would add Article XXIV to the California Constitution, which would create pre-election audits for special tax initiatives, requiring ongoing audits of programs funded by new special taxes, and prohibits new state taxes from being excluded from the Gann Limit.49 1. “Pre-election Audits for Special Tax Initiatives”50 The first section of Proposition 41 (2026), “Pre-election Audits for Special Tax Initiatives,” requires that once the proponents of a special tax initiative have collected twenty– five percent of the signatures needed to qualify for the ballot, the California State Auditor begins preparing “a pre-election financial and performance audit” of every program that the special tax would fund.51 A special tax is a tax whose revenue is dedicated to a specific purpose (for example, a wealth tax on billionaires for funding healthcare).52 Proposition 41 requires the audit to address ten specific points.53 Figure 1.54 10 Points Special Tax Audits Must Address 1.

Whether the program is getting the cheapest resources (without compromising on quality) needed

Whether the program is optimizing potential per dollar spent

The extent to which the program is achieving its intended goals and outcomes

About Us, CAL. STATE AUDITOR, https://perma.cc/GDQ6-2Y6K. Proposition 41: Prohibits New State Taxes That Exclude Revenues From State Spending Limit. Requires Audits for New State Special Taxes. Initiative Constitutional Amendment., LEGIS. ANALYST’S OFF., supra note 2. 49 Cal. Proposition 41, supra note 7. 50 Id. at § 4. 51 Id. 52 Id. 53 Id. 54 Cal. Proposition 41, supra note 7 at § 4. 48

Whether the program is addressing prevention of abuse, fraud, and waste, how well it addresses the prevention, and whether there is actual or just potential abuse, fraud, and waste

Whether the program is adequately following relevant policies, laws, and regulations

Whether the program has identified its biggest threats and has a plan to mitigate them

Whether the program is using data that is reliable and accurate

Whether the program is utilizing avenues of oversight and accountability

Whether the program is more costly than a similar program in the private sector

10.

An analysis on how the program could reduce its annual budget by 10 percent

When preparing the audit, the California State Auditor may use the Legislative Analyst’s Office (LAO) recommendations, reports, and analyses, but must also invite LAO to provide input.55 The audit must include an executive summary that summarizes the report's findings and recommendations.56 The California State Auditor must post the full audit report on its website and provide it to the Legislature, the Secretary of State, and the Governor.57 The full audit report must be available to the public.58 If the initiative on a special tax ends up on the ballot, the executive summary from the audit report must be printed in the Voter Guide.59 Thus, the audit must be finished within a reasonable amount of time to allow it to be included in the state Voter Guide.60 The California State Auditor will be reimbursed a reasonable cost for generating this audit as determined by the Controller.61 If the measure passes, the reimbursement will come from the money produced by the special tax that was audited. 62 Otherwise, the General Fund will be required to cover the cost of the audit. 2. “Ongoing Audits for All New or Higher Special Taxes”63 Proposition 41 (2026) would require the State Auditor to conduct financial and performance audits of any programs receiving money from special taxes that the Legislature or voters enact after January 1, 2026.64 Unlike the one-time audit prior to being enacted that only applied to voter-initiated special taxes, the ongoing audits apply to special taxes created or 55

Id. Id. 57 Id. 58 Id. 59 Cal. Proposition 41, supra note 7 at § 4. 60 Id. 61 Id. 62 Id. 63 Id. 64 Cal. Proposition 41, supra note 7 at § 4. 56

increased by the Legislature or the voters.65 Every four years from the date the special tax takes effect, the State Auditor must complete a financial and performance audit. 66 Because the fouryear cycle runs from the tax’s effective date, the first audit must be finished by the tax’s fourth anniversary. Proposition 41 does not specify when the audit must begin, leaving it to the State Auditor to decide when to begin in order to meet the deadline.67 These ongoing financial and performance audits must encompass everything the initial special tax audit encompasses as well as recommendations on cost reduction and effectiveness. Information from the public must be used when making recommendations on cost reduction and effectiveness.68 3. “Prohibition on Exemptions from the State Spending Limit”69 Proposition 41 (2026) would provide that no state tax can be exempt or excluded from the “Government Spending Limitation.”70 The measure then defines when a tax is “exempted or excluded” from the limit. A tax falls within that definition if either: (1) some or all of its revenue is deposited into a fund other than the General Fund and appropriations from that fund are not counted as appropriations subject to the limit, or (2) “the appropriations limit for the State of California is increased by statute pursuant to Section 4 of Article XIII B.”71 In plain terms, a new tax could not get around the limit either by setting its revenue aside in a separate fund or by raising the limit itself to make room for the new revenue. Proposition 41 prohibits any new state tax structured in either way, so placing tax revenue in a special fund outside the General Fund would no longer be a way around the limit. If such a tax is enacted after January 1, 2026, then the state may not enforce or collect the tax.72 Voters have approved such exclusion before; for example, revenues from taxes on cigarettes enacted through Proposition 56 (2016) were excluded from the limit.73 4. “Conflicting Measures”74 If passed, Proposition 41 would apply to all measures “submitted to the electors on or after January 1, 2026.”75 This includes measures on the November 2026 ballot, such as Proposition 40.76

LEGIS. ANALYST’S OFF, supra note 2. Id. 67 Id. 68 Id. 69 Id. 70 Cal. Proposition 41, supra note 7 at § 4. 71 Id. 72 Id. 73 The State Appropriations Limit, LEGIS. ANALYST’S OFF., supra note 19. 74 Cal. Proposition 41, supra note 7 at § 4. 75 Id. 76 Id. 66

III.

DRAFTING ISSUES A. Audit Timing and Content

Proposition 41 triggers the pre-election audits once proponents have collected twenty-five percent of the signatures required to qualify for the ballot.77 This means many initiatives that Proposition 41 would require an audit for may not even make the ballot. Between 1912 (the first year of California ballot initiatives) and 2000, 190 taxation initiatives were circulated. Of these, only 45 (24 percent) qualified for the ballot, and only 11 (6 percent) were approved.78 This means that the State Auditor may spend public resources auditing programs that never even qualify for the ballot. Proposed Section 1(e)(2) of Article XXIV requires the audit, including the summary, to be completed in time to be included in the Voter Guide.79 However, it does not say what happens if the State Auditor cannot finish this in time. The window between the initiative reaching the 25 percent signature threshold and the Voter Guide’s deadlines may be short. For the November 3, 2026 election, the Secretary of State recommended that proponents file their petitions by April 17, 2026; initiatives had to qualify by June 25, 2026; ballot arguments were due July 7, 2026; and the Voter Information Guide was made available for public display and examination from July 21 to August 10, 2026.80 Proposition 41 requires the audit and its executive summary to be completed “by a date sufficient to meet the state voter information guide public display deadlines.”81 For example, the campaign behind Proposition 40 reported collecting 25 percent of its required signatures by early March 2026, which would have given the State Auditor approximately four and a half months to complete a pre-election audit before the public display deadline.82 An initiative that reaches the 25 percent threshold later in the cycle, closer to the April filing deadline, would leave the State Auditor about three months to audit every program the new tax would fund. The pre-election audit would review each program the special tax would fund, yet many of the pre-election audit criteria listed in Article XXIV Section 1(b), whether the program is achieving its intended goals, whether the data the program relies on is accurate and reliable, assume the program already exists.83 A new program cannot possibly be evaluated on whether it has achieved its intended goals before it is even implemented. This makes it unclear what the State Auditor is supposed to audit for these subsections in their pre-election audit.

Id. J. Fred Silva, The California Initiative Process: Background and Perspective, PUBLIC POLICY INSTITUTE OF CALIFORNIA, November 2000, https://perma.cc/EW3R-M9NJ. 79 NOVEMBER 2026 VOTER GUIDE supra note 12 at 147-50. 80 General Election – November 3, 2026: Key Dates and Deadlines, CAL. SEC’Y OF STATE, https://perma.cc/2VP854Z9. 81 Cal. Proposition 41, supra note 7. 82 Victoria Antram, Campaign Behind California’s Wealth Tax Initiative Reports Collecting 25% of the Required Signatures to Qualify for 2026 Ballot, BALLOTPEDIA NEWS (Mar. 2, 2026), https://perma.cc/4TRQ-LWYP. 83 NOVEMBER 2026 VOTER GUIDE supra note 12 at 147-50. 78

B. Conflict between Proposition 41 and Proposition 40 The conflicting measures doctrine of the California Constitution (Article II, Section 10(b)) states that when two or more conflicting measures are on the same ballot, the one with the highest affirmative vote prevails.84 Voters may like the idea of having financial audits of future taxes to know where their money is going but may also support the wealth tax on billionaires. These voters may not realize that if both measures pass, the one with more yes votes prevails. So, if Proposition 41 receives more yes votes, it would block at least part of Proposition 40 because Proposition 40 excludes its revenue from the Gann Limit. Proposition 40 would impose a one-time excise tax of five percent of an individual's net worth if they are worth $1 billion or more, with a tax obligation date of January 1, 2026.85 Most of the revenue generated from Proposition 40 must be spent on healthcare. Revenue from Proposition 40 would go into the 2026 Billionaire Tax Reserve Fund, separate from the General Fund, where it would be split with 90 percent to healthcare and 10 percent to education.86 Proposition 40 has its own audit clause. If Proposition 40 passes, the Franchise Tax Board will examine all returns submitted in accordance with the Proposition and shall determine the correct amount of the tax.87 Proposition 40 states “Appropriations subject to limitation of each entity of government and the state under Article XIII B shall not include appropriations of revenue from the Reserve Fund.”88 This means revenue generated from Proposition 40 will be exempt from the Gann Limit and therefore directly contrasts with Proposition 41. IV.

CONSTITUTIONAL AND STATUTORY ISSUES A. Pre-election Review

Before the election, the California Taxpayers Association and its President, Robert Gutierrez, a proponent of Proposition 41, challenged Proposition 41’s (2026) ballot title, summary, and ballot label in Sacramento County Superior Court.89 The dispute concerned how those ballot materials described the audits that Proposition 41 (2026) would require.90 The challengers contended that omitting the word “public” before “audits” in the ballot label was inaccurate and could mislead the general public.91 The Sacramento County Superior Court agreed and granted a writ (a court order requiring the change).92 Still, Attorney General Rob Bonta petitioned the Third District Court of Appeal, which issued a peremptory writ directing the 84

CAL. CONST. art. II, § 10(b). Proposition 41: Prohibits New State Taxes That Exclude Revenues From State Spending Limit. Requires Audits for New State Special Taxes. Initiative Constitutional Amendment., LEGIS. ANALYST’S OFF., supra note 2. 86 Cal. Proposition 40 § 4 (2026) https://perma.cc/QY3L-EBCS. 87 NOVEMBER 2026 VOTER GUIDE supra note 12 at 147–50. 88 Id. 89 Bonta v. Superior Court (Gutierrez), No. C106933, 2026 WL 2333576 (Cal. App. 3d Dist. Aug. 12, 2026) https://perma.cc/9W63-XS3C; NOVEMBER 2026 VOTER GUIDE supra note 12 at 60–61. 90 Bonta, No. C106933, supra note 90. 91 Id. at 1. 92 Id. at 1. 85

trial court to vacate its ruling (in other words, ordered the trial court to undo it).93 The Court of Appeal found that the California Attorney General’s office had not described Proposition 41 (2026) in a misleading way and allowed the originally drafted wording to be used in ballot materials.94 The Court of Appeal did not hold that the audits are not public.95 Proposition 41’s (2026) text states that audit results “must be shared with the public,” requires the audit report to be “made available to the public,” and requires the State Auditor to “invite input from the public.”96 Instead, the court concluded that omitting the word “public” before “audits” in the ballot materials was not misleading.97 B. Single-Subject Rule Proposition 41 (2026) imposes new audits on special taxes and eliminates the Gann Limit exception for new special taxes. Under the single-subject rule, an initiative “embracing more than one subject may not be submitted to the electors or have any effect.”98 In plain terms, an initiative must stick to one topic, so voters are not forced to accept a provision they oppose in order to get one they support. The test for the single subject rule is whether the provisions are “reasonably germane” to a common theme, purpose, or subject.99 Courts tend to apply this rule liberally but do not allow the single-subject rule to be so broad that the rule becomes meaningless.100 Challengers may argue that Proposition 41 violates the single-subject rule because it combines a procedural transparency mandate – public audits – with a substantive restriction nullifying new taxes that seek exemptions from the Gann Limit. There has not been a challenge to Proposition 41's compliance with the single-subject rule. Proponents may argue that Proposition 41 complies with the single-subject rule because it concerns accountability. Audits increase voter transparency and accountability; proponents may further argue that courts have allowed broader initiatives than Proposition 41 to survive.101 Courts have generally upheld initiatives challenged under the single-subject rule that conform to the deferential "reasonably germane" test. Proposition 41 would likely be upheld if challenged on this ground.102

Id. at 4. Id. at 1. 95 Bonta, No. C106933, supra note 90. 96 Cal. Proposition 41, supra note 7. 97 Bonta, No. C106933 at 4, supra note 90. 98 CAL. CONST. art. II, § 8(d). 99 Brosnahan v. Brown, 32 Cal. 3d 236, 245 (1982). 100 See Legislature v. Eu, 54 Cal. 3d 492, 512 (1991); see also Senate of Cal. v. Jones, 21 Cal. 4th 1142, 1162 (1999). 101 Legislature v. Eu, 54 Cal. 3d at 512. 102 Id. 94

C. Conflicting Measures Doctrine If provisions of two or more measures approved at the same election conflict, the provisions of the measure receiving the highest number of affirmative votes shall prevail.103 If Proposition 41 receives more “yes” votes than Proposition 40 (2026), Proposition 41’s (2026) proposed Article XXIV, Section 3(b) (prohibits the State from enforcing or collecting a new tax that is excluded from the spending limit) would bar collection of the Proposition 40 (2026) tax. Additionally, Section 5(a) (conflicting measures clause) would void at least part of Proposition 40 (2026) because Proposition 41 (2026) would prevent the implementation of a new special tax that is excluded from the Gann Limit.104 Proposition 41’s (2026) conflict clause declares that any measure on the same ballot containing a state tax exemption or exclusion from the spending limit will conflict with the measure. It also provides that if Proposition 41 (2026) receives more affirmative votes, “the provisions of this measure shall prevail in their entirety, and all the provisions of the other measure shall be null and void.”105 The California Supreme Court has held that when competing measures seek to “comprehensively regulate the same subject,” only the measure receiving the most affirmative votes becomes law “unless a contrary intent is apparent in the measures.”106 When measures do not contain competing comprehensive schemes, the initiative receiving fewer votes may still have its non-conflicting provisions take effect. 1. Can Any Part of Proposition 40 Become Law if Proposition 41 Receives More Affirmative Votes? Proposition 41’s conflict clause functions as what the dissent in Taxpayers to Limit Campaign Spending described as a “poison pill” provision, one that establishes a conflict with every provision of a competing measure (in other words, a clause that declares the entire competing measure void, not just the parts that actually conflict).107 However, Proposition 40 contains a severability clause (a clause providing that if one part of the law is struck down, the rest still stands) that states that if any provision of the act is held invalid, “that finding shall not affect the enforceability of other provisions or applications.”108 Proponents of Proposition 40 could argue that the only true conflict is the exclusion from the spending limit, and that the tax itself could survive if that exclusion is severed and the revenue was counted toward the limit. Opponents of Proposition 40 could argue that because the conflict clause is clearly written in the text, the passage of Proposition 41 would show the intent of the voters to void Proposition 40 entirely. If any provision of either Proposition 41 or 42 is challenged, California courts would likely have to settle these claims through litigation. Because Proposition 41’s conflict clause expressly states that its provisions “shall prevail in their entirety” and that “all the provisions of the other measure shall be null and void,” a court applying Taxpayers to Limit Campaign 103

CAL. CONST. art. II, § 10(b). Cal. Proposition 41, supra note 7 § 4. 105 Id. at § 5. 106 Taxpayers to Limit Campaign Spending v. Fair Pol. Practices Comm’n, 51 Cal. 3d 744, 770–71 (1990). 107 Id. at 782 108 Cal. Proposition 40, supra note 86. 104

Spending would likely treat that language as the voters’expressed intent and hold that no part of Proposition 40 (2026) takes effect if Proposition 41 (2026) receives more affirmative votes.109 2. Can Any Part of Proposition 41 Become Law if Proposition 40 Receives More Affirmative Votes? Proposition 40’s conflict clause is much narrower. It states that a measure conflicts only if it levies a tax on, or affects the tax rates on, a billionaire’s net worth, or provides a different use of funds from such a tax.110 Proposition 40 (2026) states that if Proposition 40 (2026) receives more affirmative votes, “any conflicting provisions of other measures shall be null and void.”111 Because Proposition 41 (2026) does not levy a tax on billionaires or affect the tax rates on their net worth, it is unclear whether Proposition 40’s (2026) conflict clause affects Proposition 41 (2026). Even if it does, Proposition 40’s conflict clause only negates the conflicting provisions. Here, the conflicting provision would be Proposition 41’s (2026) prohibition on excluding new state taxes from the Gann Limit (proposed Article XXIV, Section 3), so that part of Proposition 41 (2026) would not take effect if Proposition 40 (2026) receives more yes votes. Proposition 40’s (2026) conflict clause does not negate Proposition 41 (2026) in its entirety, and Proposition 41 (2026) contains a similar severability clause to Proposition 40 (2026).112 Therefore, if Proposition 40 (2026) receives more affirmative votes, it may still allow for Proposition 41’s (2026) audit requirements for future state taxes. However, it is unclear whether the continuing audits would apply to the programs that Proposition 40 (2026) would fund. V.

PUBLIC POLICY CONSIDERATIONS A. Fiscal Consideration

It is unclear what the exact fiscal impact of Proposition 41would be because the cost of each audit would vary based on the size and scope of each new special tax and how many initiatives reach the twenty-five percent threshold. Audits for special tax initiatives under Proposition 41 (2026) that pass would be self-funded from the revenue of said special tax, and the amount taken from the revenue of the special tax could be increased to account for audit expenses. Additionally, there is the cost of the pre-election audits for the initiatives that do not qualify or do qualify but do not pass. The cost of those audits would come out of the California General Fund.113 Because pre-election audits are triggered at the twenty–five percent signature threshold, and historically only about twenty–four percent of circulated tax initiatives qualified for the

109

Taxpayers to Limit Campaign Spending, 51 Cal. 3d at 770-771; Proposition 41 (2026) supra note 7 at § 5(a). Cal. Proposition 41, supra note 7 at § 5(a). 111 Id. 112 Id. 113 Proposition 41: Prohibits New State Taxes That Exclude Revenues From State Spending Limit. Requires Audits for New State Special Taxes. Initiative Constitutional Amendment., LEGIS. ANALYST’S OFF., supra note 2. 110

ballot and only about six percent passed (between 1912 and 2000), the state’s General Fund will likely pay for most pre-election audits.114 The Legislative Analyst's Office (LAO) states that the cost of audits is unknown, but speculates that costs may be in the lower millions of dollars per year, with potential fiscal growth over time.115 Additionally, the LAO estimates that the summary of the State Auditor’s review would add several pages to the Voter Information Guide, which would increase state printing and mailing costs by a few hundred thousand dollars per qualified tax initiative.116 The State Auditor is required to provide a cost saving analysis in every audit. This cost saving analysis is required to include recommendations for how the programs funded by the initiative could save ten percent of their anticipated costs. However, these recommendations are not required to be implemented. Therefore, the savings are unknown because they are dependent on the size and scope of the new state taxes and whether the changes are implemented.117 B. Proponents’ Arguments According to the Official Voter Information Guide, the ballot arguments in favor of Proposition 41 were signed by Robert Gutierrez, President of the California Taxpayers Association; Denise LeDuc Froemming, President of the California Society of Certified Public Accountants; Tom Hayes, a former California State Auditor; Pat Fong Kushida, President of the California Asian Pacific Chamber of Commerce; and Steve Westly, a former California State Controller.118 They argue that key social programs are not functioning efficiently despite high taxes. Proposition 41 would have the State Auditor assess whether programs funded by special taxes spend taxpayer money wisely.119 The initiative’s findings cite an affordability crisis and note that Californians are among the most highly taxed people in the United States. Additionally, the findings state that billions of Californians’ tax dollars have gone into programs to combat homelessness with far too little to show for it.120 Proponents of Proposition 41 (2026) assert Californians pay some of the highest taxes in the country and California’s spending of taxpayer funds has increased by seventy-nine percent since 2019.121 They argue that taxpayers should have access to non-partisan overviews of programs before voting on new taxes.122 This increase is not adjusted for inflation. 114

J. Fred Silva, supra note 79. Proposition 41: Prohibits New State Taxes That Exclude Revenues From State Spending Limit. Requires Audits for New State Special Taxes. Initiative Constitutional Amendment., LEGIS. ANALYST’S OFF., supra note 2. 116 Id. 117 Id. 118 NOVEMBER 2026 VOTER GUIDE supra note 12 at 60–61. 119 2026 Voter Guide, Proposition 41, CALMATTERS, https://perma.cc/G3T7-5GZG. 120 NOVEMBER 2026 VOTER GUIDE supra note 12 at 147-50. 121 Id. 122 NOVEMBER 2026 VOTER GUIDE supra note 12 at 60-61. 115

Proponents argue that having special taxes count toward the state spending limit will make tax rebates for Californians more likely.123 Proponents see exclusions from the Gann Limit as a way for new state taxes to circumvent the tax rebates that voters adopted in 1979. Proposition 40 does exactly this by expressly excluding its revenue from the limit.124 Proponents also argue that the audit summary in the voter guide will educate voters and allow them to make informed decisions, and that an informed electorate needs transparent, accurate information about what it is voting on. C. Opponents’ Arguments According to the Official Voter Information Guide from the California Secretary of State, opponents of Proposition 41 (2026) include U.S. Senator Bernie Sanders and SEIU United Healthcare Workers West.125 The SEIU-United Healthcare Workers West union has stated that Proposition 41 (2026) is intended to deceive voters into inadvertently blocking Proposition 40 (2026), a wealth tax on billionaires.126 Proposition 41’s Section 5(a) is in direct conflict with provisions of Proposition 40 because Proposition 40 includes a special tax that is excluded from the spending limit. If Proposition 41 gets more “yes” votes than Proposition 40, Proposition 40 is null and void even if a majority approves it.127 Proposition 41 is backed by Building a Better California, a group funded by Google cofounder Sergey Brin and several other wealthy tech investors and entrepreneurs.128 Opponents see Proposition 41 as a billionaire-funded scheme designed specifically to undo the billionaire tax. They also state that Sergey Brin (co-founder of Google) has put more than $57 million into Proposition 41.129 Additionally, opponents stress that when an audited initiative does not pass, the General Fund pays for the audit.130 This means less money in the General Fund to fund programs that benefit Californians.

123

2026 Voter Guide, Proposition 41, CALMATTERS, supra note 120. NOVEMBER 2026 VOTER GUIDE supra note 12 at 147-50. 125 NOVEMBER 2026 VOTER GUIDE supra note 12 at 60-61. 126 2026 Voter Guide, Proposition 41, CALMATTERS, supra note 114. 127 NOVEMBER 2026 VOTER GUIDE supra note 12 at 147-50. 128 Ben Paviour, Your Guide to California’s Proposition 41, THE SACRAMENTO BEE, (Sep. 24, 2026), https://perma.cc/ZMH8-SW2G. 129 NOVEMBER 2026 VOTER GUIDE supra note 12 at 147-50. 130 Proposition 41: Prohibits New State Taxes That Exclude Revenues From State Spending Limit. Requires Audits for New State Special Taxes. Initiative Constitutional Amendment., LEGIS. ANALYST’S OFF., supra note 2. 124

D. Campaign Finance Figure 2. Contribution Totals from Committees in Support and Opposed131 Proposition Committees Support Contributor Building a Better California Reform California With Carl DeMaio Ballot Measure Committee Reform Local Government Pac Total

VI.

Oppose Amount $58,250,000.00

Contributor Amount No registered Committees

$21,807.00 $4,500.00 $58,276,307.00

Total

$0.00

CONCLUSION

A YES vote for Proposition 41 means: When special taxes are proposed by voter initiatives, the California State Auditor would review programs funded by the tax before the initiative appears on the ballot.132 The California State Auditor would also regularly review programs funded by special taxes approved by voters or the Legislature.133 In addition, the state might not be able to exclude any new special tax spending from its spending limit.134 A NO vote for Proposition 41 means: The California State Auditor’s responsibility to review government programs would not change.135 The state spending limit requirements would not change.136

131

2026 Voter Guide, Proposition 41, CALMATTERS, supra note 120. NOVEMBER 2026 VOTER GUIDE supra note 12 at 9. 133 Id. 134 Id. 135 Id. 136 Id. 132

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Proposition 42: Prohibit New Taxes on Retirement Holdings, Personal Assets, and Savings and Limit Retroactive Taxes Initiative Initiative Constitutional Amendment Copyright © 2026 by the University of the Pacific, McGeorge School of Law By

Adrienne Duarte J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A, Politics and Legal Studies, Minor in Black Studies, University of California, Santa Cruz, 2024 &

Isabella Valdivieso J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., Political Science and Spanish Literatures and Cultures, University of Nevada, Reno, 2025

EXECUTIVE SUMMARY

Proposition 42 (2026), if passed, would: (1) amend the California Constitution to prohibit California from enacting new taxes on the ownership or control of personal property (retirement holdings, individually owned assets, and other personal savings) and (2) prohibit the retroactive application of taxes (on personal property or otherwise).1 This ballot measure would nullify any tax enacted after January 1, 2026, that conflicts with it. If Proposition 42 receives more affirmative votes than Proposition 40 (2026), the 2026 Billionaire Tax Act, Proposition 42 would nullify Proposition 40 in its entirety.2 If voters approve Proposition 42, it would prohibit any State laws enacted on or after January 1, 2026, from imposing “tax liability based on conduct, activities, or a status that occurred or was present prior to the effective date.” A YES vote on this measure means the California Constitution would be amended to prohibit (1) new taxes regarding the ownership or control of retirement holdings, individually owned assets, and other forms of personal savings and (2) retroactive taxes based on conduct, activity, or status that have existed before the effective date of the tax. A NO vote on this measure means California would retain its existing authority to enact (1) new taxes on the ownership or control of retirement holdings, individually owned assets, and other personal savings (including a measure like Proposition 40) and (2) taxes with retroactive effects, subject to any limits that already exist under the federal Due Process Clause. II.

THE LAW A. Background

Proposition 42, the Retirement and Personal Savings Protection Act of 2026, is a citizeninitiated constitutional amendment. It is one of three related and conflicting initiatives on the November 2026 ballot that address wealth and property taxes. The three related measures include: Proposition 40, the 2026 Billionaire Tax Act; Proposition 41, which imposes special tax audit requirements and prohibits new special taxes from being excluded from State spending limits; and Proposition 42, which prohibits certain kinds of new and retroactive taxes altogether.3 To understand Proposition 42’s impact on California law, voters should understand existing State taxes on the ownership or control of both tangible and intangible assets, other than real property. California taxes certain categories of personal property based on value. This includes the Vehicle License Fee, which is based on the value of your vehicle and business personal property taxes, which counties place on business tools and equipment.4 The State does not tax ownership of certain intangible assets including financial assets such as stocks, bonds, and investment accounts.5 Under California law, an individual is taxed only on the sale of 1

Cal. Proposition 42 (2026), https://perma.cc/K33U-SJLR. CAL. CONST. art. II § 10(b). 3 Eligible Statewide Initiative and Referendum Measures, CAL. SEC. OF STATE, https://perma.cc/5AZR-3YBQ, (Proposition 40 qualified on 6/17/26, Proposition 41 qualified on 6/23/26, and Proposition 42 qualified on 6/24/26). 4 Cal. Rev. & Tax Code § 10751-10753. 5 Cal. Rev. & Tax. Code § 212 (A), (C). 2

intangible assets. Proposition 42 would amend the State Constitution to bar the California Legislature from overturning statutory exemptions for intangible assets or enacting future taxes on the ownership of these assets. Proposition 42 would not repeal any existing tax. Section 1(b) of the ballot measure maintains any tax in effect and directly collected on or before December 31, 2025.6 Proposition 42 applies to future ownership-based taxation of financial assets and other personal property. In other words, it would apply to any property that California has not previously imposed taxes on but that it may be authorized to tax if voters pass Proposition 40 (2026).7 B. Proposed Law Proposition 42 is titled the Retirement and Personal Savings Protect Act of 2026.8 The measure outlines findings on California’s tax burdens and retirement savings needs, noting that California has the third-worst tax burden, highest State sales tax, top marginal income tax rate, and highest gasoline tax in the country. Proposition 42 estimates that Californians would need $2.3 million in savings to comfortably retire for 20 years.9 Thus, the stated purpose of Proposition 42 is “to protect Californians’ ability to save for their futures by prohibiting the imposition of new taxes on our personal property, including the ownership or control of retirement holdings, individually owned assets, and other forms of personal savings as well as requiring all new taxes to only apply prospectively.”10 Proposition 42 (2026) bars any new personal property taxes and grandfathers in any tax that is currently in effect, imposed, or collected, on or before December 31, 2025. The measure’s language explicitly excludes any future real property taxation. This would prevent a potential conflict between Proposition 42 and Proposition 13 (1978), which mandated a tax rate of 1% on real property and requires properties to be assessed at market value at the time of sale.11 Proposition 42 also carries a standard severability clause within Section 6 of the text if proposed laws. A severability clause is a provision included within the measure that preserves the remainder of the measure if a portion of it is invalidated by the courts.12 Calfarm Insurance Co. v. Deukmejian,13 which drew directly from Santa Barbara Sch. Dist. v. Superior Court,14 uses a three-part test to analyze whether a portion that is found to be invalid can be severed from the rest of the voter initiative. Calfarm looks at (1) whether the invalid portioned is a distinct and separate provision that is able to be removed from the rest of the measure without affect other language (2) whether the remaining law is complete by itself and can operate without the invalidated portion and (3) whether the remainder of the approved measure would have been

Letter from Kurt R. Oneto to Rob Bonta, Attorney General (Jan. 12, 2023) https://perma.cc/G56U-6MSJ. Id. 8 Id. 9 Id. 10 Cal. Proposition 42 § 3, supra note 1. 11 CAL. CONST. art. XIII A § 1-2 (1978). 12 See, Raven v. Deukmejian, 52 Cal.3d 336, 355 (1990). 13 Calfarm Insurance Co. v. Deukmejian, 48 Cal. 3d 805 (1989). 14 Santa Barbara Sch. Dist. v. Superior Court, 13 Cal. 3d 315 (1975). 7

foreseeably adopted by voters.15 The text of Proposition 42 provides that “If any portion, section, subdivision, paragraph, clause, subclause, sentence, phrase, word, or application of this act is for any reason held to be invalid by a decision of any court of competent jurisdiction, that decision shall not affect the validity of the remaining portions” and “The people of the State of California hereby declare that they would have adopted this act … without regard to whether any part of this act or application thereof would be subsequently declared invalid.”16 Within Proposition 42’s Section 2 regarding the Prohibition on Retroactive Taxes, the measure includes language that addresses the possibility of a necessary retroactive tax in the case that an emergency is declared by the Governor of California. The text provides that the prohibition on retroactive taxes will not be imposed where “The tax does not apply retroactively for more than 365 days prior to the date the statute takes effect” and “The Governor declares an emergency as a result of a fire, floor, storm, civil disorder, earthquake, volcanic eruption, or actual or imminent attack by a foreign enemy, and the use of the revenues from the tax are expressly limited by the statute to responding to the emergency” or The Governor declares a fiscal emergency … and the use of the revenues from the tax are expressly limited by the statute to responding to the fiscal emergency.”17 The action required by the emergency carve out in Proposition 42 would likely be an official declaration by the California Governor, like a State of Emergency, for the suspension of existing law to allow for immediate action to be taken.18 C. Fiscal Effects The Legislative Analyst's Office has analyzed Proposition 42 for fiscal effects. Although the Legislative Analyst’s Office acknowledges the difficulties of estimating the scope of reductions to future revenue, because there are no current taxes that would be prohibited by the measure, it suggests that reductions might arise because Proposition 42 restricts the types of future taxes that can be enacted. The measure acts as a preventive ban on future taxes rather than repealing active ones.19 Thus, the actual and immediate fiscal outcome of Proposition 42 depends on the passage result of Proposition 40.20 D. Comparable Law: Texas Proposition 3 (2023) Texas voters approved Proposition 3 (2023), a ballot measure adding language to the Texas Constitution prohibiting the State Legislature from enacting a future wealth tax.21 The Texas measure prohibited taxes on wealth or net worth but preserved the ability for the Texas

Id. Cal. Proposition 42 § 6 (2026), supra note 1. 17 Cal. Proposition 42 § 4 (2026), supra note 1. 18 Emergency Procedures, CAL. SEC’Y OF STATE, https://perma.cc/S2QK-299D. 19 Proposition 42: Prohibits New State Personal Property Taxes and Certain Retroactive State Taxes (2026), CAL. LEGIS. ANALYST’S OFF., https://perma.cc/NL6T-JZHD; Cal. Legislative Analyst’s Office (2026), https://perma.cc/PR7V-2GAW. 20 Billionaire Tax Explained: What Proposition 40 Would Mean for California, CAL. BUDGET CTR., (Aug. 2026), https://perma.cc/GE7A-RF95. 21 Texas Proposition 3, Prohibit Taxes on Wealth or Net Worth Amendment (2023), BALLOTPEDIA, https://perma.cc/29QZ-NYCT. 16

Legislature to tax specific classes of property.22 In contrast, Proposition 42 would prohibit new State taxes on a broad class of personal property, including taxes on the mere ownership or control of financial assets, retirement holdings, and personal savings.23 Although both measures shelter net worth from taxation, Proposition 3 barred taxes on an individual’s wealth or net worth, while Proposition 42 would prohibit taxes levied on certain types of personal property. While certain assets could be subject to a wealth tax or property tax, like residential property, wealth taxes apply to broader scope of intangible assets that are traditionally not taxed, including corporate stock or bonds.24 III.

DRAFTING ISSUES

Propositions 41 and 42 look to amend different constitutional provisions. If either measure receives more affirmative “yes” votes than Proposition 40, they could bar Proposition 40 from taking effect. Even if Proposition 40 collects enough votes for enactment, California courts may find it conflicts with Proposition 41 or 42 due to the Propositions’ competing measure provisions.25 Proposition 42 would add a new article to the State Constitution prohibiting personal property and retroactive taxes and states that if the initiative receives more votes than a competing measure, it will prevail in its entirety over another measure on the 2026 ballot that relates to taxing personal assets.26 Proposition 41 would add special tax audit requirements and constrain the Gann Limit, which is the constitutional spending cap under California law that restricts the amount of tax proceeds that State and local governments can appropriate and spend during each fiscal year in totality.27 Proposition 41 states that any 2026 ballot measures that impose different audit rules, or a State tax that is exempt from the State spending limit, would be deemed in conflict.28 Proposition 42 might conflict with Proposition 3 (2026), a measure that extends an existing income tax increase on high-income earners set to expire to 2030.29 It is unclear if Proposition 3 would be classified as a tax “in effect, imposed, and first collected” prior to 2026, and therefore exempt from Proposition 42, or a new tax that would be subject to Proposition 42’s prohibition of taxes “on the ownership or control” or property.30 According to Professor David Gamage, the broad language of “ownership or control” contained in Proposition 42 could potentially extend the measure to “all income-producing personal property” because “it is a

TEX. CONST. art. VIII, § 25; see also CAL. CONST. art. VIII, § 1 Letter from Kurt R. Oneto to Rob Bonta, Attorney General (Jan. 12, 2023) https://perma.cc/G56U-6MSJ; Cal. Proposition 42 § 4, supra note 1. 24 Kyle Pomerleau, A Property Tax is a Wealth Tax, but…, TAX FOUND. (Apr. 30, 2019), https://perma.cc/A7W6LKWR. 25 Cal. Proposition 42, § 7, supra note 1. 26 Cal. Proposition 42, § 2, supra note 1. 27 California Proposition 42, Prohibit New Taxes on Retirement Holdings, Personal Assets, and Savings and Limit Retroactive Taxes Initiative (2026), BALLOTPEDIA, https://perma.cc/T7DQ-N6ZZ; Gann Limit, CAL. DEPT. OF EDUC., (last visited Oct. 6, 2026), https://perma.cc/Y2UD-H3VH. 28 Id. 29 Cal. Sec’y of State, Official Voter Information Guide: California Primary Election, Tuesday November 3rd, 2026, at 62, available at https://perma.cc/G6JU-JCBJ [“November 2026 Voter Guide”]. 30 David Gamage et al., Analysis of the Impacts of Propositions 41 and 41 on California Public Finance (2026), https://perma.cc/BHQ7-FJYK. 23

longstanding income tax principle that income from a property is taxed ‘to the one who controls it.’”31 IV.

CONSTITUTIONAL AND STATUTORY ISSUES A. Conflicting Measures and Revival Clause

Under California law, when two or more conflicting initiatives could be approved during the same election, the measure that receives the highest number of affirmative votes will prevail in its entirety, resulting in nullification of the other.32 However, if a court invalidates the measure that received more affirmative votes, the conflicting measure may be revived and given full legal effect, so long as California voters could have known, from the initiative’s text, that they were contemplating and approving this contingency.33 When courts interpret text, they apply the plain meaning doctrine as a foundational principle of statutory construction.34 The doctrine gives the measure’s words their ordinary and literal meaning.35 If the language is clear and unambiguous on its face, courts will enforce the text as written without looking to subjective voter expectations or altering the text to fit unanticipated consequences, because judges lack the authority to supply missing terms or rewrite clear measures.36 Even so, courts will wrestle with whether plain meaning requires a broad literal interpretation or a narrower contextual reading. Courts will only depart from a ridged literal application if it yields an absurd result that would completely devalue the shown intent of the measure.37 Under Section 5(a)(1) Proposition 42 provides that if the measure appears on the same ballot as a measure that would impose a protected personal property tax or retroactive tax, that measure would be deemed to be in conflict and Proposition 42’s provisions would prevail in their entirety, if it receives more affirmative votes.38 In addition, Section 5(b) provides that in the event Proposition 42 is approved by voters but superseded by a conflicting measure that receives more of the affirmative votes, if the prevailing measure is later invalidated Proposition 42 should be given its full effect.39 Applying the plain meaning doctrine, a court would likely find this statutory language to be clear and unambiguous on its face. Unless a California court could find that reviving Proposition 42 would produce an unreasonable result, it will honor the initiative’s explicit revival clause and conclude that voters pre-authorized the change rather than reserving it for a future ballot.40

Id. CAL. CONST. art. II, 10(b); Yoshisato v. Superior Court, 2 Cal. 4th 978, 987-989 (1992). 33 People v. Robles, 23 Cal. 4th 1106, 1111 (2000); Gerken v. Fair Political Practices Com., 6 Cal 4th 707, 711-714 (1993). 34 Lesher Communications, Inc. v. City of Walnut Creek, 52 Cal. 3d 531, 543 (1990); Bostock v. Clayton County, 590 U.S. 644, 650-653 (2020). 35 Bostock v. Clayton County, 590 U.S. at 654; California Teachers Assn. v. Governing Bd. Of Rialto Unified School Dist., 14 Cal. 4th 627, 633 (1997). 36 Bostock v. Clayton County, 590 U.S. at 654. 37 Smith v. United States, 508 U.S. 223, 228-230 (1993); Amador Valley Joint Union High School Dist. V. State Bd. of Equalization, 22 Cal. 3d 28, 245 (1978). 38 Cal. Proposition 42, § 5(a)(1), supra note 1. 39 Id. 40 Id. 32

B. Retroactivity: Existing Federal Doctrine and How Proposition 42 Differs41 The Supreme Court has recognized that retroactive tax legislation as so arbitrary it cannot be seen as a confiscation of property.”42 The Due Process Clause of the U.S. Constitution prohibits a State from depriving any person of “life, liberty, or property, without due process of law” by providing procedural and substantive protections 43 In a series of federal cases, United States v. Carlton,44 Blodget v. Holden,45 and Untermeyer v. Anderson,46 the Supreme Court articulated that a State may retroactively impose liability on a taxpayer so long as the tax is “rationally related to a legitimate legislative purpose” and has “only a modest period of retroactivity.”47 Proposition 42’s proposed constitutional amendment, establishing a near-absolute bar on any new State tax that applies retroactively, applies broader restrictions on California’s ability to impose taxes that the Due Process Clause recognizes.48 A constitutional challenge raised under this near-absolute bar would require California courts to look to Carlton, Holden, and Anderson, to decide on whether Proposition 42’s broader prohibition on retroactive taxes would conflict with authority currently recognized by the Supreme Court. C. Independent Legal Defense Section 9 of the ballot measure “ensures that the people’s precious right of initiative cannot be improperly annulled” and authorizes the appointment of independent counsel by the Attorney General to ensure the faithful and vigorous defense of Proposition 42, if the “Governor and Attorney General refuse to defend this act to the fullest extent possible on behalf of the State of California.”49 It has become increasingly common for measures to contain such language, as concerns have grown surrounding instances in which elected officials have declined to defend an approved measure in court.50 However, this type of provision does not confer the standing necessary to defend the measure in federal court, thus, the proponents of an initiative often lack standing for appeal when the State chooses to not defend a law.51

See Adrienne Duarte & Isabella Valdivieso, Proposition 40: One-Time Wealth Tax for State-Funded Healthcare, Education, and Food Assistance Programs Initiative, CAL. INIT. REV. (2026) (analyzing retroactivity issues). 42 Milan N. Ball, Cong. Rsch. Serv., IF13234, Retroactive Federal Tax Legislation and Due Process (May 26, 2026), https://perma.cc/KQY8-L49B. 43 U.S. CONST. amend. XIV. 44 Id. at 30-34. 45 Blodget v. Holden, 275 U.S. 142, 147 (1927). 46 Untermeyer v. Anderson, 276 U.S. 440, 445 (1928). 47 United States v. Carlton, 512 U.S. 26, 30-34 (1994); Robert C. DeGaudenzi, Death is Still Certain, but are Taxes?: An Examination of the Due Process Limitations on Retroactive Tax Legislation after Carlton v. United States, 67 ST. JOHN’S L. REV. 327 (1993), https://perma.cc/PST8-WSHQ. 48 Proposition 42: Ban new taxes on personal property, KPBS (2026), https://perma.cc/T4SA-QT7N. 49 Cal. Proposition 42 § 9, supra note 1. 50 Hollingsworth v. Perry, 570 U.S. 693 (2013) (holding that private proponents lack standing in federal court to defend a State law when State officials refuse to do so). 51 Id.

D. Single Subject Rule Article VIII, § 3(a) of Proposition 42 defines the property covered under the measure to include pensions and retirement accounts.52 This includes “all personal property, whether tangible, or intangible, including but not limited to financial assts, investment accounts, business interests, digital assts, intellectual property, personal belongings, and other assts used to produce or collect income or savings for retirement or financial planning.”53 Notably, the “including but not limited to” language could be extended beyond retirement savings, as courts often treat “include” as language of enlargement rather than limitation. When an enumerated list is introduced with this language, courts often read the definition of the phrase to mean any item that fits within the general category, rather than being exclusively listed items.54 Applying this precedent, a court may broadly read “all personal property” to incorporate business interests, intellectual property, and personal belongings, without having a direct or obvious connection to retirement security. A broad reading poses two potential risks. Primarily, it invites the argument that title, which speaks exclusively to retirement and personal savings, and purpose of the initiative, prohibiting taxation of any personal property, are mismatched. Thus, a court might question whether the provisions of the measure are “reasonably germane to a common theme, purpose, or subject,” as is required to comply with California’s single-subject and separate-vote doctrines.55 Ultimately, a reviewing court could plausibly find that “protecting personal property from new taxation” is a sufficiently unified theme. A second risk posed by a broad reading is recharacterization of Proposition 42’s effect on Proposition 40, as blocking or voiding the countermeasure. If both Propositions 42 and 40 pass, there may be legal challenges brought regarding the recharacterization of the interaction of the measures, prompting the court either to accept it or look to the substance of what each measure actually taxes.56 Ultimately, while the accuracy of the ballot summary and title may be in question, the time to challenge such assertion has passed.57 V.

PUBLIC POLICY ISSUES (PROPONENTS/OPPONENTS ARGUMENTS) A. Proponents

Proposition 42 has generated numerous public policy issues, including potential language issues, that may affect California’s taxing authority in the future, as well as its attempt to nullify Proposition 40 if that measure passes with the necessary affirmative votes. The following are the Proponents of Proposition 42: Reform California, Building a Better California, Google co-founder Sergey Brin, Peace Officers Research Association of California, California Professional Firefighters, and State Building and Construction Trades Council of 52

Cal. Proposition 42 § 3(a), supra note 1. Cal. Proposition 42 § 9, supra note 1. 54 Rea v. Blue Shield of Cal., 226 Cal. App. 4th 1209, 1227 (2014). 55 Californians for an Open Primary v. McPhearson, 38 Cal. 4th 735, 763 (2006). 56 Interview with Professor David Gamage, drafter of Proposition 40, (September 3, 2026) [Gamage Interview] (notes on file with the California Initiative Review). 57 Cal. Elec. Code §§ 9060–9069 (2025). 53

California.58 Proponents of Proposition 42 argue that California should not tax individuals for owning or controlling assets, including retirement accounts, financial portfolios, and personal property, and frame Proposition 40 as a measure that would tax people merely for owning or controlling those assets, including valuable personal possessions like art. They warn that, if a measure like Proposition 40 passes, pensions and retirement accounts could one day be taxed on their future.59 Finally, the proponents have suggested that the social programs receiving funding from Proposition 40 do not get enough revenue under California’s existing high taxes, and that “the State auditor should assess whether the programs that would benefit from special taxes are spending money wisely.”60 As a layered approach to Proposition 42’s focus on saving Californians money, proponents have requested that special taxes count toward the State spending limit, increasing the likelihood that Californians receive tax rebates.61 Proponents characterize Proposition 42 as protecting ordinary Californians' retirement security and personal savings.62 It is also one of two countermeasures that could block Proposition 40, the proposed billionaire tax intended to offset federal funding cuts to healthcare resulting from HR 1, the One Big Beautiful Bill Act, passed by the U.S. Congress this year.63 Ahmad Thomas, CEO of the Silicon Valley Leadership Group, has advocated for Proposition 42 as a countermeasure to Proposition 40. He argues that the proposed wealth tax would tax the estimated value of businesses and ideas before they are “sold or make any money.”64 He offers the example that “a biotech company might spend 10 years creating a new medicine, or a cleanenergy startup might need years of funding before it ever turns a profit” and asserts that under Proposition 40 “founders could end up with a massive tax bill for value that only exists on paper, without having the actual cash to pay it.”65 Thomas argues the “measure would not prevent California from taxing income or realized gains” and frames Proposition 42 as a measure that would “preserve a sensible distinction between taxing economic gains and taxing ownership itself, while giving founders and CEOs predictable rules before deciding where to grow a company and hire workers.”66 B. Opponents Opponents of Proposition 42 include SEIU-United Healthcare Workers West, the California Democratic Party, and the California Federation of Labor Unions.67 U.S. Senator Bernie Sanders, who has been steadfast in his support for Proposition 40, opposes Proposition 42.68 Notably, Sanders has attended rallies in San Francisco and Los Angeles, urging voters to 58

CA Voter Guide to Proposition 42: Property Taxes, CALMATTERS, https://perma.cc/J3NV-8TGZ. Id. 60 CA Voter Guide to Proposition 41: Tax Audits, CALMATTERS, https://perma.cc/A23L-PUSB. 61 Id. 62 CA Voter Guide to Proposition 42: Property Taxes, CALMATTERS, https://perma.cc/J3NV-8TGZ. 63 Queenie Wong, Your guide to Proposition 42: Tax ban on retirement, personal savings, LA TIMES (Oct. 1, 2026), https://perma.cc/5LSL-YVCX. 64 Ahmad Thomas, California’s Billionaire Tax Measure Risks Long-Term Growth for a Sugar-High Solution, CAL MATTERS (July 2026), https://perma.cc/2EMG-PV5L. 65 Id. 66 Id. 67 2026 California Voter Guide: Proposition 42, KQED, https://perma.cc/8U5X-4WGJ. 68 Cal. Sec’y of State, Official Voter Information Guide: California Primary Election, Tuesday November 3rd, 2026, at 62, available at https://perma.cc/G6JU-JCBJ [“November 2026 Voter Guide”]. 59

consider how extreme wealth concentration affects democracy and the economy.69 Opponents of Proposition 42 argue that the measure is an intentionally deceptive attempt to obscure voters’ ability to adopt a wealth tax on billionaires. For example, Erica Olivio Reynoso, a vocational nurse and SEIU-UHW member, noted in a CalMatters piece that the measure is funded by Sergey Brin, who just surpassed Jeff Bezos to become the third-richest person in the world.70 Opponents are particularly about the proposed prohibition on two categories of new State taxes, which would substantially reduce State revenue and impair healthcare and education programs.71 SEIU-United Healthcare Workers West Chief of Staff Suzanne Jimenez has shared that “Prop. 42 was put on the ballot for one reason—because billionaires don’t want to pay their fair share. This initiative was created to trick voters like you into making a billionaire tax impossible to enforce.”72 Jimenez has emphasized that Proposition 42 is crafted to appear as though it supports California families. According to Jimenez Proposition 42 is strictly about blocking Proposition 40 and allowing billionaires to avoid paying the one-time tax.73 Additionally, the drafters of Proposition 40 have raised concerns regarding the broad nature of Proposition 42. They suggest that judicial interpretation could expand the measure into an area that exceeds Proposition 40. For example, the court could interpret a future measure that taxes unrealized or market-to-market gains on financial assets, outside a wealth tax framework.74 It could reform or rework the Vehicle License Fee, a tax on the ownership of personal property.75 Similarly, the taxation of stock option appreciation under California Code of Regulations Title 18 Section 17951-5(b) could be recharacterized as a tax on ownership or control of a financial asset instead of realized income.76 Likewise, future adjustments to business personal property tax assessments methods could be impacted. The drafters of Proposition 40 have also raised concerns about Proposition 42 presenting a single-subject rule violation. C. Campaign Finance 1. Reported Contributions in Support For the January 1, 2026, to September 19, 2026, reporting period, the official support committee, Yes on 42 – Protect Retirement & Life Savings, A Coalition of Retirees, Blue-Color

Samantha Kennedy, Bernie Sanders Makes the Case in San Francisco for Statewide Billionaire Tax, KQED (Oct. 5, 2026), https://perma.cc/ZGY6-Y2FM. 70 Erica Olivio Reynoso, Healthcare Costs Are Surging, Taxing Billionaires Will Help Californians Keep Their Coverage, CAL MATTERS (July 29, 2026), https://perma.cc/V9AA-KXLS; Mary Roeloffs, Sergey Brin Rises to 4th Richest, Overtaking Michael Dell, FORBES (July 24, 2026), https://perma.cc/W8XP-UCGR. 71 Id. 72 Cal. Sec’y of State, Official Voter Information Guide: California Primary Election, Tuesday November 3rd, 2026, at 62, available at https://perma.cc/G6JU-JCBJ [“November 2026 Voter Guide”]. 73 Id. 74 Brian Galle, et al., Analysis of the Impacts of Propositions 41 and 42 on California’s Public Finance (Aug. 20, 2026). https://perma.cc/FAB3-CGRM. 75 Id. 76 Cal. Code Regs. tit. 18 § 17951-5(b).

Workers, Seniors, Veterans, Small Businesses & Taxpayers, has reported $60,827,037.26 in total contributions and $76,528,637.41 in total expenditures.77 An unofficial support group for Proposition 42 is Building a Better California, a nonprofit nonpartisan 501(c)(4) organization supporting thoughtful and forward-looking public policies that advance the California Dream.78 Building a Better California, a quiet but relatively major player in the support for Proposition 42, has received $3.5 million in funding from Google’s cofounder Sergey Brin.79 2. Reported Contributions in Opposition For the January 1, 2026, to September 19, 2026, reporting period, the official opposition committee, Tax the Ultra-Rich Now, Yes on 3 & 40, No on 41 & 42, has reported $340,225.00 in total contributions and $57,239.00 in total expenditures.80 VI.

CONCLUSION

A YES vote on this measure means California can neither establish new taxes on the ownership of financial assets or other personal property nor apply new retroactive taxes. A NO vote on this measure means no change to existing California tax law.

Yes on 42 – Protect Retirement & Life Savings, A Coalition of Retirees, Blue-Color Workers, Seniors, Veterans, Small Businesses & Taxpayers, Cal. Sec’y of State, Cal-Access Campaign Finance Detail, Committee ID No. 1488418, https://perma.cc/8X9E-T9CZ. 78 Building a Better California, https://perma.cc/Y7L3-ZJL5. 79 California Proposition 42, Prohibit New Taxes on Retirement Holdings, Personal Assets, and Savings and Limit Retroactive Taxes Initiative (2026), BALLOTPEDIA, https://perma.cc/MKC2-JDEX. 80 Id.

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Proposition 43: Two-Thirds Vote Requirement for Local Special Tax Initiatives and Property Tax Initiative Prohibition Amendment Initiative Constitutional Amendment Copyright © 2026 by the University of the Pacific, McGeorge School of Law By

Sabrina Agaiby J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2027 B.A., Politics, Saint Mary’s College of California, Moraga, 2023 &

Grace Cimpan J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.S., Economics, University of California, Davis, 2023

EXECUTIVE SUMMARY

Proposition 43 is an amendment to the California Constitution that requires local tax increases proposed by a citizen initiative to pass by the same vote threshold (two-thirds of voters) as those proposed by the State Legislature. Proposition 43 also bars local governments from imposing ad valorem taxes on real property. Currently, local special taxes proposed through citizen-initiatives require a simple majority to pass. However, California Cannabis Coalition v. City of Upland1 did not expressly hold that tax initiatives may pass by a simple majority. Rather, lower courts have interpreted a footnote in Upland as permitting tax initiatives to be approved by a simple majority.2 Special tax initiatives in Fresno in 2018, San Francisco in 2018, and Los Angeles in 2022 have passed by simple majority due to the lower courts’ interpretation of Upland.3 Assemblymember Buffy Wicks authored and proposed Proposition 43 to prevent a different ballot initiative, the Local Taxpayer Protection Act (“LTPA”), from being on the 2026 ballot. The LTPA would have imposed additional restrictions on local taxation, including invalidating previously approved taxes that did not meet the two-thirds vote requirement. In exchange for withdrawing that initiative, its proponents agreed to support Proposition 43, a narrower constitutional amendment that achieves the same goal. A “YES” vote on this measure means: ballot measures that propose, extend, or increase local special taxes would require two-thirds voter approval. A “NO” vote on this measure means: ballot measures that propose, extend, or increase local special taxes may continue to be approved by voters with a majority vote.

Cal. Cannabis Coal. v. City of Upland, 3 Cal. 5th 924 (2017). Id. 3 Id. 2

II.

THE LAW A. Legal Background 1. California’s Local Governments

The state of California has over 5,000 local governments.4 Local governments are composed of cities, counties, school districts, community college districts, and special districts that have a local governing body making the operative decisions concerning the regulation of services and programs in their respective areas.5 Cities provide services such as infrastructure maintenance, parks and recreation programs, and police and fire protection services.6 Counties provide health and social services across their jurisdictions.7 School districts and college districts organize programs and activities to promote education “of every kind and class.”8 Special districts provide specific services in their specified areas, including water, sewer, or fire service.9 All of these various local governments are supported by some form of local taxation.10 For cities, revenue is generated through sales and use taxes, property taxes, business license taxes, hotel taxes, and utility user taxes.11 Counties generate revenue from state and federal funds most commonly, though they may fund programs through local sales and use taxes, including property tax, should the program not be funded by state or federal government.12 For statemandated programs, counties often use local tax revenue.13 School and college districts are funded by state revenues and local property taxes.14 Special districts generate revenue through user fees and, in certain special districts, property tax.15 2. Voter-Approved Local Taxes Imposed by Local Governments Under the California Constitution, as amended by Proposition 13 (1978), local governments may raise property taxes by only one percent per year.16 A local government’s ability to raise taxes is limited for two purposes: (1) for the payment of debt as approved by voters prior to July 1, 1978, and (2) to finance bonds for infrastructure projects.17 Otherwise, local governments must obtain local voters’ approval before raising property taxes.18

Brian Uhler, A Look at Voter-Approval Requirements for Local Taxes, LEGISLATIVE ANALYST’S OFFICE, https://perma.cc/MN3G-48FK. 5 Id. 6 State and Local Finances, LEAGUE OF WOMEN VOTERS OF CALIFORNIA, https://perma.cc/7GFX-HHKG. 7 Id. 8 CAL. CONST. art. IX, § 14. 9 State and Local Finances, supra note 6. 10 Uhler, supra note 4. 11 State and Local Finances, supra note 6. 12 Id. 13 Id. 14 CAL. CONST. art. XVI, § 8(b)(2). 15 State and Local Finances, supra note 6. 16 Uhler, supra note 4. 17 Id. 18 Id. 4

Under the California Constitution, Article XII C, Section 1(e), a tax includes “any levy, charge, or exaction of any kind imposed by a local government….”19 Exceptions to this definition are enumerated under this subsection as charges related to specific benefits or services, regulatory activities, government property, legal penalties, property development, and propertyrelated assessments and fees.20 The taxes significant to local governments are defined as follows: •

• •

Ad valorem real property taxes are “taxes levied on real property as a percentage of the assessed valuation of that property…[and] are collected by counties and are allocated to the county and to cities, special districts, and school districts within the county.” 21 The California Constitution generally limits ad valorem taxes on real property to one percent of the property’s full cash value, subject to specified exceptions.22 General taxes are “any tax imposed for general governmental purposes.”23 General taxes are passed by a simple majority vote.24 Special taxes are “any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund.”25 Special taxes proposed by governing bodies are passed by a two-thirds vote.26 3. The Evolution of Voter-Approved Local Taxes in California a. Proposition 13

For almost one hundred years, local governments were permitted to raise or lower taxes by a two-thirds local vote.27 Proposition 13 (1978) amended the California Constitution, requiring the supermajority vote for all state taxes, establishing a supermajority vote for local special taxes, and lowering the aggregate property tax rate in every county to a maximum of one percent per year.28 This reduced local government property tax revenues by over sixty percent.29 A few years later, the California Supreme court defined the special taxes limited under Proposition 13 (1978) as “taxes which are levied for a specific purpose rather than, as in the present case, a levy placed in the general fund to be utilized for general governmental purposes.”30 Under this interpretation, taxes levied for specific purposes were subject to Proposition 13 (1978)’s supermajority vote requirement, while taxes imposed for general governmental purposes were not.31

CAL. CONST. art. XII C, §1(e). Id. 21 1.4.3 Ad Valorem Real Property Taxes, CALIFORNIA DEBT FINANCING GUIDE, https://perma.cc/C7HF-CYX4. 22 Id. 23 CAL. CONST. art. XII C, § 1(a). 24 Id. art. XII C, § 2(b). 25 Id. art. XII C, § 1(d). 26 Id. art. XII C, § 2(d). 27 Uhler, supra note 4. 28 Id. 29 Id. 30 City & Cnty. of San Francisco v. Farrell, 32 Cal. 3d 47, 57 (1982). 31 Uhler, supra note 4. 20

b. Further Legislation Affecting Local Taxes (1978-2017) In 1986, two more local tax-related propositions passed.32 Proposition 46 (1986) allowed the property tax rate to finance infrastructure bonds if such a scheme receives a two-thirds local vote.33 Proposition 62 (1986) required that general taxes be approved by a simple majority vote and excluded only charter cities from this requirement.34 Voters passed Proposition 218 (1996), reinforcing the provisions of Proposition 62 (1986), but also extending the simple majority vote requirement to charter cities.35 The measure defined special taxes to include all taxes levied by special districts, schools, and community college districts used for specific purposes.36 Parcel taxes were also included as a form of special taxes.37 Proposition 26 (2010) broadened the definition of “tax” to include certain charges, such as regulatory fees like oil recycling fees and fees on alcohol retailers, that local governments had formerly imposed without voter approval.38 The charges exempted under the California Constitution, Article XIII C §1(e), such as charges for government property and legal penalties, were not affected by this.39 c. California Cannabis Coalition v. City of Upland In California Cannabis Coalition v. City of Upland 40, the California Supreme Court addressed a local tax initiative and ruled that a ballot measure initiated by citizens is not an act of local government.41 In doing so, the court indirectly raised the issue of whether the language that “[n]o local government may impose, extend, or increase any general tax unless . . . approved by a majority vote at a general election” leaves an implication that a simple majority may be sufficient to amend a special tax when the measure is proposed through a citizen-led initiative42 The California Constitution states: No local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote. A special tax shall not be deemed to have been increased if it is imposed at a rate not higher than the maximum rate so approved.43 The dissent addressed this implication, saying that the decision “contains language that could be read to suggest” that special taxes under section 2(d) should be interpreted differently

Id. Id. 34 Id. 35 Id. 36 Uhler, supra note 4. 37 Id. 38 Julia C. Devos & Amber Simmons, Proposition 26: Vote requirement for state fees and levies. Initiative Constitutional Amendment, 2010 CAL. INIT. REV. 113 (Fall 2010), https://perma.cc/9GXK-SJ4F. 39 Id. 40 Cal. Cannabis Coal. v. City of Upland, 3 Cal. 5th 924 (2017). 41 Id. 42 David A. Carrillo & Darien Shanske, Opinion & Analysis: California Cannabis Coalition v. City of Upland, U.C. DAVIS SCH. L. FACULTY BLOG (Oct. 15, 2017), https://perma.cc/XP93-7AX9. 43 CAL. CONST. art. XIII C, § 2(d). 33

from section 2(b).44 The case does not discuss whether citizen-initiative tax amendments could pass via simple majority. d. Subsequent Legislation Shortly after Upland, members of the San Francisco County Board of Supervisors placed Proposition C: San Francisco Commercial Rent Tax for Childcare and Early Education on the ballot in June 2018.45 This proposition authorized an added tax on commercial property with annual receipts of over one million dollars.46 The proposition passed with fifty-one percent approval. Similarly, Measure ULA, a real property transfer tax in Los Angeles, was approved with a simple majority of 57.77 percent of the votes.47 Upland has allowed special taxes that would otherwise not meet the supermajority requirement to be enacted.48 Courts in both San Francisco and Los Angeles have read Upland to mean that citizen-initiated special tax increases did not require the two-thirds vote that would normally be required if a local government body placed the tax on the ballot.49 4. Local Voter-Approved Taxes in Other States Currently, fourteen states require a supermajority vote by the Legislature when raising local taxes by a constitutional amendment.50 Four states currently require that such amendments receive a three-fifths supermajority Legislative vote to pass, three states require a three-fourths supermajority vote, and eight states a two-thirds vote. 51 This November, both North and South require a three-fifths supermajority vote by the Legislature for constitutional amendments.52 For citizen-initiated amendments proposing local taxes, however, no states currently require a supermajority vote. This November, however, two states will be voting on imposing a supermajority vote for citizen-initiated, constitutional amendments concerning special taxes.53 B. Existing Law California’s Constitution currently requires different voter-approval metrics for local taxes, depending on the type of tax and how it is proposed. General taxes, or taxes imposed for general governmental purposes, can pass with a simple majority vote.54 Article XIII A, Section 4 of the California Constitution incorporates the tax limitations established by Proposition 13 44

Carrillo, supra note 42. Interview with Susan Shelley, Vice President of Communications for the Howard Jarvis Taxpayers Association (Sept. 19, 2026)(notes on file with California Initiative Review). 46 Id. 47 BALLOTPEDIA, Los Angeles, California, Proposition ULA, Tax on $5 Million House Sales Initiative (November 2022), https://perma.cc/5Y58-6E4K. 48 BALLOTPEDIA, California Proposition 43, Two-Thirds Vote Requirement for Local Special Tax Initiatives and Property Tax Initiative Prohibition Amendment (2026), https://perma.cc/P43L-KB88. 49 Id. 50 MULTISTATE ELECTIONS, Supermajorities, https://perma.cc/96PX-55YR. 51 Id. 52 H.J. RES. 5003, 100th Sess. (S.D. 2025); H.C.R. 3003, 69th Leg., Reg. Sess. (N.D. 2026). 53 Cal. Proposition 43 (2026), https://perma.cc/DE59-PT8T; UTAH S.J.R. 2, 65th Leg., Gen. Sess. (2025) (Utah bill proposing a 3/5 supermajority by voters for all citizen-initiated ballot measures that create/increase taxes and for property taxes generally). 54 CAL. CONST. art. XIII C, § 2(b). 45

(1978), which required special taxes to be approved by a two-thirds vote.55 This was the standard procedure for amending special taxes up until 2017. However, after Upland, the lower courts interpreted § 2(d) allowing special tax changes through citizen-initiated ballot propositions with a simple majority vote.56 Moreover, agencies are allowed to assess ad valorem taxes, and special taxes approved by a supermajority vote for real property.57 This means that under existing law, local agencies may impose certain property-related taxes when the taxes satisfy constitutional requirements. C. Proposed Law 1. Path to The Ballot In 2025, the Howard Jarvis Taxpayers Association submitted the “Local Taxpayer Protection Act.”58 This act, in effect, would have mandated that all special tax initiatives pass via supermajority, with no exception for citizen-led initiatives, and would apply retroactively.59 The act also would have capped real estate transfer taxes.60 The Howard Jarvis Taxpayers Association and California Business Roundtable qualified their ballot initiative for the 2026 cycle.61 On June 25, 2026, the day of the deadline to withdraw measures from the election, Assemblymember Buffy Wicks proposed Assembly Constitutional Amendment (“ACA”) 22, which then became Proposition 43.62 ACA 22 achieves the same goals as the Local Taxpayer Protection Act by mandating a two-thirds vote for special taxes but removes the restraint on real estate transfer taxes.63 Assemblymember Wicks stated that she authored ACA 22 to “get the dangerous initiative off the ballot,” referring to the Local Taxpayer Protection Act.64 Assemblymember Wicks and opponents feared that the Local Taxpayer Protection Act would “[devastate] revenues for local governments,” as it applied retroactively and would further restrict local governments’ ability to raise revenue through transfer taxes.65 2. Proposition 43 Proposition 43 requires all new, increased, or extended local special taxes proposed by voters to be passed by a two-thirds vote, and restricts local governments from imposing an ad valorem tax on real property. 66 If passed, these provisions will take effect on January 1, 2027.67

Id. art. XIII A, § 4. Carrillo, supra note 42. 57 CAL. CONST. art. XIII D, §3(a)(1). 58 CAL. ASSEMB. COMM. ON ELECTIONS, Bill Analysis, ACA 22, 2025–2026 Reg. Sess. (July 8, 2026). 59 Katheryn Palmer, A Bay Area Lawmaker‘s Plea: Don‘t Vote for the State Ballot Measure She Wrote, SAN FRANSICO CHRONICLE, https://perma.cc/ML4V-NCYF. 60 Id. 61 Id. 62 Id. 63 Id. 64 Palmer, supra note 60. 65 Dakota Smith, Your guide to Proposition 43: Voting thresholds for local special taxes, LOS ANGELES TIMES, https://perma.cc/EW3U-EDTG. 66 Cal. Proposition 43, supra note 53. 67 Id. at § 4.5(a). 56

a. Constitutional Provisions not Superseded by Proposition 43 If Proposition 43 should pass, the requirements for a supermajority vote on special taxes would remain subject to the following constitutional provisions:68 •

•

California Constitution, Article XII A, Section 4 establishes that “Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district.”69 California Constitution, Article XII C, Section 2(d) establishes that “[n]o local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote. A special tax shall not be deemed to have been increased if it is imposed at a rate not higher than the maximum rate so approved.”70 California Constitution, Article XII D, Section 3(a)(2) establishes that “[n]o tax, assessment, fee, or charge shall be assessed by any agency upon any parcel or property or upon any person as an incident of property ownership except…Any special tax receiving a two-thirds vote pursuant to Section 4 of Article XIII A.”71

The restriction against local governments imposing ad valorem taxes does not supersede any provisions in Article II (“Voting, Initiative, Referendum, and Recall”) or Article XI (“Local Government”) of the California Constitution.72 The measure is also subject to Article XIII D, Section 3(a)(1), which creates an exception for ad valorem taxes to be assessed as parcel or property or incident of property ownership.73 b. Proposition 43 applies Prospectively not Retroactively The measure applies to voter-proposed local special taxes approved after January 1, 2027, rather than altering previously approved tax measures.74 As such, Proposition 43 applies prospectively, avoiding the retroactive concerns that the Local Taxpayer Protection Act raised. II.

CONSTITUTIONAL ISSUES A. Amendment or Revision?

While Proposition 43 is labeled as a constitutional amendment, an argument may be made that it operates more like a revision. Ballot initiatives are required to go through different processes for enactment depending on whether they are amendments or revisions.75 An amendment crosses into a revision when it changes enough existing provisions or otherwise

Id. CAL. CONST. art. XIII A, § 4. 70 Id. art. XIII C, § 2(d). 71 Id. art. XIII D, § 3(a)(2). 72 Cal. Proposition 43, supra note 53 at § 4.5(b). 73 Id. 74 Cal. Proposition 43, supra note 53 at § 4.5(a). 75 CAL. CONST. art. XVIII, § 4. 69

alters the structure of California’s government.76 An amendment encapsulates all other changes made. In Amador Valley Joint Union High School District v. State Board of Equalization,77 the court developed a test to help categorize what a constitutional enactment is: [O]ur analysis in determining whether a particular constitutional enactment is a revision or an amendment must be both quantitative and qualitative in nature. For example, an enactment which is so extensive in its provisions as to change directly the “substantial entirety” of the Constitution by the deletion or alteration of numerous existing provisions may well constitute a revision thereof. However, even a relatively simple enactment may accomplish such far reaching changes in the nature of our basic governmental plan as to amount to a revision also.”78 Quantitatively, Proposition 43 is relatively short. Qualitatively, however, the proposition carefully outlines how it adheres to the pre-existing relevant provisions of the California Constitution. The proposition adds language to ensure that any special tax changes may not be enacted unless it is approved by a two-thirds vote.79 As such, the measure is a Constitutional amendment rather than a revision. B. Does Proposition 43 Pass the Simple Vote Requirement? Because Proposition 43 contains two distinct restrictions on local taxation, its compliance with California’s separate vote requirement must be considered.80 Although Proposition 43 was submitted by the Legislature as a constitutional amendment, the California Supreme Court evaluates the separate-vote requirement, the standard under which Legislative constitutional amendments are evaluated, under the same “reasonably germane” single-subject standard that governs amendments proposed by the citizen-initiative process.81 In Californians for an Open Primary82 the California Supreme Court determined that a ballot proposition complies with the single-subject rule as long as all of its provisions are reasonably germane to a single, common theme, purpose, or general object.83 Here, both of Proposition 43’s provisions constitutionally limit when local taxes may be imposed.84 Subsection (a) of the proposition establishes a twothirds vote to create or change local special taxes.85 Subsection (b) prohibits local governments from imposing ad valorem taxes on real property.86 Although the provisions regulate different types of taxes, both concern constitutional limitations on the imposition of local taxes and are therefore likely “reasonably germane” under McPherson.

Chris Micheli, Amending Versus Revising the California Constitution, CAPITOL WEEKLY (Aug. 2, 2024), https://perma.cc/3EHW-3MM7. 77 Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, 22 Cal. 3d 208 (1978). 78 Id. at 223. 79 Cal. Proposition 43, supra note 53 at § 4.5(a). 80 CAL. CONST. art. XVIII, § 1 (establishing that “[e]ach amendment shall be so prepared and submitted that it can be voted on separately”). 81 Californians for an Open Primary et al. v. McPherson, 38 Cal.4th 735, 763 (2006). 82 Id. 83 Id. 84 Cal. Proposition 43, supra note 53. 85 Id. at § 4.5(a). 86 Id at § 4.5(b).

III.

PUBLIC POLICY CONSIDERATIONS A. Proponents

Yes on 43, a project of the Howard Jarvis Taxpayers Association, has led the campaign supporting Proposition 43. Yes on 43 argues that the major public policy consideration at play is that the loophole created by Upland is improperly increasing taxes without meeting the statutory and constitutional requirements to do so.87 Howard Jarvis Taxpayers Association, a major advocate and funder of Proposition 43, argues that the current method of passing special taxes through a fifty percent + one margin is a loophole to bypass Proposition 13 (1978) and Proposition 218 (1996).88 With this loophole, proponents argue that any tax measure could be passed with a fifty percent + one margin, and that “no part of Proposition 13 is safe from being interpreted away.”89 The aim with this proposition is to ensure that the law be interpreted in a way consistent with Propositions 13 (1978) and 218 (1996) and the California Constitution.90 B. Opponents Opposition to Proposition 43 centers on two principal concerns: its effect on local democratic decision-making and its potential fiscal consequences for local governments. First, opponents argue that Proposition 43 would undermine majority rule by allowing a minority of voters to block special tax initiatives supported by most voters.91 Opponents contend that Proposition 43 makes it more difficult for local governments to fund essential services.92 They specifically highlight services like fire departments, wildfire prevention programs, road repairs, and public schools.93 Second, opponents argue that Proposition 43 gives corporations more power.94 Opponents say that big players, like the Realtors’ Association, the Chamber of Commerce, and other entities, would use Proposition 43 to “avoid paying their fair share.”95 Opponents explain that corporations would use their influence, access to financial resources, and authority to block potential special taxes which would impact them.96 1. Determined Minority versus the Majority Opponents argue that Proposition 43 undercuts democracy by allowing a “determined minority” to veto the will of the majority.97 Because Proposition 43 would require two-thirds of voters to approve certain local special taxes, opponents contend that slightly more than one-third of voters could prevent a tax measure supported by a majority of voters from passing.98 They argue that this shifts the balance of the initiative process by giving a small portion of voters the 87

YES ON PROPOSITION 43, https://perma.cc/X6FN-8GQV. Interview with Susan Shelley, supra note 45. 89 Id. 90 Id. 91 NO ON PROP. 43, https://perma.cc/8BCT-Y98Z. 92 Id. 93 Id. 94 Id. 95 NO ON PROP. 43, supra note 91. 96 Smith, supra note 65. 97 NO ON PROP. 43, supra note 91. 98 Id. 88

ability to circumvent the majority and effectively reduce revenues for local services and projects.99 In their view, the two-thirds requirement would make it substantially more difficult for local communities to use the initiative process to address their revenue needs.100 Opponents further argue that this change would disproportionately benefit well-funded organizations, making it easier for “giant corporate interests like the Realtors’ Association, the Chamber of Commerce, fossil fuel companies” to “wreck funding for the things we all need” by using their financial resources and political influence to campaign against proposed tax measures.101 2. Uncertainty in Fiscal Impact Proposition 43 raises the threshold to pass local special taxes. Local governments utilize taxes to raise revenues for services like schools, public transit, police and fire departments, hospitals, and other public works.102 There is no reliable way to predict the fiscal impact that Proposition 43 would have. Opponents are concerned that local governments’ tax revenues could be lower in the future because Proposition 43 would make it more difficult for special tax initiatives to pass.103 The organized opposition, No on Prop 43, Stop the Local Taxpayer Deception Act, claims that communities “would have lost nearly $3 billion a year in funding.”104 However, the opponents do not provide any information on how they reached their estimate. IV.

CAMPAIGN FINANCE

As of October 16, 2026, supporters of Proposition 43 contributed $13,993,217.78. 105 The largest contributor is the California Business Roundtable Issues PAC, contributing $9,870,000.106 Other contributors include the California Business Roundtable Issues PAC and Protect Prop. 13, a Project of the Howard Jarvis Taxpayers Association. Opponents of Prop. 43 contributed a total of $5,251,379.01 against the proposition, with the largest contributor being the No on Prop 43 Stop the Local Taxpayer Deception Act.107 The largest contributor to the No on Prop 43 Stop the Local Taxpayer Deception Act is the SEIU California State Council for Working People, contributing $1,500,000. 108 V.

CONCLUSION

Proposition 43 would amend the California Constitution to require citizen-initiated tax increases to pass the same vote threshold as those proposed by a governmental body. Proposition 43 would also bar local governments from imposing ad valorem taxes on real property.

Id. Id. 101 Fred Glass, No on Propositions 41, 42, 43, CAL. DEMOCRATIC SOCIALISTS OF AMERICA, https://perma.cc/PAD5ZS96. 102 CAL. BUDGET & POLICY CENTER, Should California Voters Approve Proposition 43?, https://perma.cc/CXZ74AM6. 103 Id. 104 NO ON PROP 43, supra note 91. 105 CAL. FAIR POL. PRACS. COMM’N, Top 10 Contributors List: November 2026 General Election, https://perma.cc/S6UZ-CL7W. 106 Id. 107 Id. 108 Id. 100

Ultimately, this initiative aims to restore Proposition 13 (1978)’s requirement that all changes to special taxes pass only by a supermajority. A “YES” vote on this measure means that ballot measures that propose, extend, or increase local special taxes would require two-thirds approval by voters. A “NO” vote on this measure means that ballot measures that propose, extend, or increase local special taxes may continue to be approved by voters with a majority vote.

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Bryce Divine J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2027 B.S., Political Science, Utah State University, 2022

Marco Sumarriva J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.S., Global Health, University of Southern California, 2013

EXECUTIVE SUMMARY

Proposition 44 is an initiative statute sponsored and funded by Service Employees International Union-United Healthcare Workers West (“SEIU-UHW”) that would require nonprofit Federally Qualified Health Centers (“FQHCs”), including FQHC Look-Alikes, to spend at least ninety percent of their annual revenue on “program services” advancing their charitable purpose.1 The measure establishes a Mission Spend Ratio (“the ratio”), which is calculated by dividing an FQHC’s program-service expenses, as reported on its federal Form 990, by its total revenue.2 Both figures are subject to adjustment pursuant to guidance issued by the AG (“AG”).3 FQHCs that fall below the threshold would pay a penalty to the State equal to the dollar shortfall.4 The penalty would be refunded if the clinic complies within five years and adopts a state-approved plan to spend the refund on mission-directed expenses; otherwise, the funds would go to clinic-workforce programs.5 The measure also creates annual reporting duties to the AG’s Registry of Charities and Fundraisers, a new private cause of action for breach of charitable trust, and a new criminal offense.6 Proposition 44 divides responsibility between two state agencies.7 First, the Attorney General oversees the reporting and calculation process by receiving annual filings, issuing guidance defining qualifying expenditures, calculating each clinic’s ratio, publishing results, setting the registration fee schedule, and auditing clinics, contractors, and related parties.8 Second, the California Department of Public Health (“CDPH”) administers the enforcement and penalty process by assessing and levying penalties, administering the ratio Penalty Account where the penalty monies will be deposited, granting or denying waivers, approving plans for spending refunding penalties, and recouping funds from clinics that do not follow those plans.9 A clinic that disputes its ratio calculation or penalty may appeal to both the Attorney General and CDPH, but it must file its requests with both agencies at the same time, within thirty days of

Cal. Proposition 44 § 3 (2026), https://perma.cc/Q9V9-M687; Ben Paviour, Proposition 44 Pits California Clinics Against Union Known for Ballot Battles, SACRAMENTO BEE, (Sept. 17, 2026) https://perma.cc/WA9C-9W38. 2 Cal. Proposition 44, supra note 1, at § 3. 3 Id. 4 Id. at § 4. 5 Id. 6 Id. at §§ 3, 5. 7 Cal. Proposition 44, supra note 1, at §§ 3, 5. 8 Id. at § 3. 9 Id. at § 4.

receiving its notice of penalty. A hearing is then held under CDPH’s existing administrative hearing procedures, although the measure does not explain how the two agencies coordinate that proceeding.10 Proponents frame Proposition 44 as a nonprofit-accountability and transparency measure directed at executive compensation and overhead at publicly funded clinics.11 On the other hand, opponents, including the California Primary Care Association (“CPCA”), the California Medical Association (“CMA”), the American Academy of Pediatrics, California Chapter (“AAP-CA”), Planned Parenthood Affiliates of California, and the California Democratic Party, counter that the measure is intended to give SEIU-UHW leverage over clinics in labor negotiations.12 They also argue that its provisions are preempted by federal law and mathematically unworkable.13 A “YES” vote supports this initiative to require nonprofit FQHCs to spend at least ninety percent of their annual total revenue on expenses that advance the health center’s mission. A “NO” vote opposes this initiative to require nonprofit FHQCs to spend at least ninety percent of their annual total revenue on expenses that advance the health center's mission. The status quo would be preserved, as nonprofit FQHCs would remain subject to existing federal and state rules governing how they use their funds, including federal health Center Program requirements and the Attorney General’s general oversight of charities, but would face no minimum spending ratio. II.

THE LAW

In general terms, nonprofit community clinics that qualify as FQHCs are paid largely through Medi-Cal, and are overseen by federal health center rules, their own patient-majority governing boards, and the Attorney General’s general supervision of charities14. No current law, however, requires these clinics to spend a minimum share of their revenue on patient care.15 Proposition 44 would require nonprofit FQHCs to spend at least ninety percent of their annual revenue on program services.16 Program services are expenditures based on IRS filings which clinics have stated advance their charitable purpose, but do not necessarily include all expenses 10

Id. at § 3; see CAL. HEALTH & SAFETY CODE § 131071 (permitting CDPH to have the Department of Health Care Services’ hearing office conduct its hearings under an interagency agreement). 11 CAL. SEC’Y OF STATE, OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION, TUESDAY NOVEMBER 3, 2026, at 74–75, https://perma.cc/4U8E-4ZAW [“NOVEMBER 2026 VOTER GUIDE”] (argument in favor of Proposition 44 and rebuttal to argument against Proposition 44). 12 Id. (argument against Proposition 44 and rebuttal to argument in favor of Proposition 44); Paviour, supra note 1. 13 Kristen Hwang, Should a California Union Dictate How Clinics Spend Money? Employers Sue to Block Ballot Measure, CALMATTERS (Apr. 30, 2026), https://perma.cc/77H5-4ASJ; Mandy Asgeirsson et al., BERKELEY RSCH. GRP., STUDY OF POTENTIAL IMPACTS FROM THE AG INITIATIVE 25-0008A1, at 3 (Nov. 2025), https://perma.cc/WA5K-ZJJH [“BRG STUDY”]. 14 November 2026 Voter Guide, supra note 11, at 70 (analysis of the Legislative Analyst); 42 U.S.C. § 254b(k)(3)(H); Cal. Gov’t Code §§ 12580, 12584–12586. 15 November 2026 Voter Guide, supra note 11, at 70 16 Cal. Proposition 44, supra note 1, at §§ 3–4.

that directly or indirectly contribute to medical service.17 Proposition 44 would direct the Attorney General to enforce the ninety percent spending ratio through financial penalties, lawsuits brought by patients, and criminal penalties for noncompliant clinics.18 A. Federally Qualified Healthcare Centers, Look-Alikes Proposition 44 applies to a specific group of nonprofit community clinics, and FQHCs, including FQHC Look-Alikes.19 FQHCs are community-based clinics that provide primary and preventive health care in rural and urban areas, and to populations the federal government has designated as medically underserved.20 The FQHC model grew out of federal antipoverty policy.21 In 1965, the federal Office of Economic Opportunity funded the nation’s first “neighborhood health centers” as a demonstration program.22 Congress made the program permanent under Section 330 of the Public Health Service Act, and between 1987 and 1992 it created the FQHC designation under Medicare and Medicaid, which guaranteed health centers cost-based payment for treating patients covered by those programs.23 In 2000, Congress replaced cost-based Medicaid payment with a “prospective payment system,” under which each state Medicaid program, including Medi-Cal, pays an FQHC a set rate for each patient visit that is based on the center’s past reasonable costs and adjusted each year for inflation.24 To qualify, a health center generally must serve a high-need community, provide comprehensive primary care services, offer a sliding fee scale based on a patient’s ability to pay, serve all patients regardless of their ability to pay, and be governed by a community board, a majority of whose members must be patients of the health center.25 Health centers that receive grant funding from the federal Health Resources and Services Administration (“HRSA”) under Section 330 of the Public Health Service Act are known as HRSA-funded health centers.26 According to the Legislative Analys’s Office (“LAO”), the Legislature’s nonpartisan fiscal advisor, California has roughly 2,000 safety-net clinics, most of which are private nonprofit organizations, and more than 1,000 FQHCs.27 The number of patients served by California FQHCs grew from 4.7 million in 2017 to 5.8 million in 2024.28 In 2024, 72 percent of 17 Id. at §§ 3–6.

18 November 2026 Voter Guide, supra note 11, at 70–71 (analysis of the Legislative Analyst). 19

Cal. Proposition 44, supra note 1, at § 3. Federally Qualified Health Centers and Rural Health Clinics, CAL. DEP’T OF HEALTHCARE SERVS., https://perma.cc/HGG6-ULUH. 21 Health Centers Then & Now, CHRONICLES, https://perma.cc/W9R8-72JP. 22 Id. 23 Id. 24 42 U.S.C. § 1396a(bb)(2)–(3); CAL. WELF. & INST. CODE § 14132.100. 25 42 U.S.C. § 254b(a)(1), (b)(1), (k)(3)(G)–(H). 26 42 U.S.C. § 254b(e)(1); About the Health Center Program, HEALTH RES. & SERVS. ADMIN., https://perma.cc/9YRD-M22C [“HRSA PROGRAM OVERVIEW”]. 27 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 70 (analysis of the Legislative Analyst); CAL. LEGIS. ANALYST’S OFF., A.G. FILE NO. 25-0008, AMENDMENT #1 (Sept. 22, 2025), https://perma.cc/5UGL-B96J [“LAO INITIATIVE LETTER”]. 28 Matthew Newman & James Paci, California’s Community Clinics Edition, CAL. HEALTH CARE (May 28, 2026), https://perma.cc/58SS-RPR4 [“CHCF ALMANAC”]. 20

FQHC patients were covered by Medi-Cal, and 40 percent were treated in a language other than English.29 That year, payments for patient care, known as net patient revenue, made up 81 percent of FQHC’s total revenue.30 These payments come mainly from Medi-Cal, which the state and federal governments fund jointly, as well as from Medicare, private insurers, and patients who pay sliding-scale fees.31 By contrast, federal grants, which HRSA awards directly to health centers under Section 330 to support their operations rather than to pay for individual patient visits, made up only 8 percent of total revenue. 32 Most nonprofit FQHC must file IRS Form 990, the annual information return that taxexempt organizations submit to the Internal Revenue Service and must make those returns available to the public.33 IRS Form 990 reports each organization’s “total program service expenses,” which Proposition 44 uses as the starting point for calculating a clinic’s Ratio.34 Form 990 does not, however, contain a “mission-directed” or “mission-related” expense category, so studies estimating how many clinics currently meet the measure’s standards are subject to error.35 B. Existing Oversight and Reporting Program Service Expenses

Nonprofit FQHCs are subject to several layers of financial oversight, although no existing state or federal law requires them to spend a minimum share of their revenue on patient care.36 At the federal level, a health center’s governing board must approve its annual budget, and organizations that spend $1 million or more in federal awards in a year must undergo an independent “single audit.37 At the state level, the Attorney General’s Registry of Charities and Fundraisers oversees charitable organizations under the Supervision of Trustees and Fundraisers for Charitable Purposes Act, which requires them to register and file annual financial reports.38 Clinics with a gross revenue exceeding $2 million must annually prepare audited financial statements, and according to the LAO, nonprofit safety-net clinics currently report spending an average of about 80 percent of their revenue on health care services.39 IRS Form 990 requires an organization to sort its expenses into three functional categories: program services, management and general, and fundraising.40 Program services are the activities that further the organization’s exempt purpose, and the organization reports its total program service expenses on line 4e of Part III of the form.41 A study commissioned by the 29

Id. Id. 31 Id. (Medi-Cal coverage); 42 U.S.C. § 254b(k)(3)(G) (sliding fee scale); CAL. WELF. & INST. CODE § 14132.100 (Medi-Cal payments to FQHCs). 32 CHCF ALMANAC, supra note 23; HRSA PROGRAM OVERVIEW, supra note 21. 33 BRG STUDY, supra note 13, at 5. 34 Cal. Proposition 44, supra note 1, at § 3. 35 BRG STUDY, supra note 13, at 5. 36 42 U.S.C. § 254b(k)(3)(H); 2 C.F.R. § 200.501(a). 37 Id. 38 CAL. GOV’T CODE §§ 12580, 12584–12586. 39 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 70 (analysis of the Legislative Analyst). 40 Form 990 INSTRUCTIONS, supra note 27 (instructions for Part IX). 41 Id. (instructions for Part III, line 4e, and Part IX, column (B)). 30

California Primary Care Association (“CPCA”), which opposes Proposition 44, concluded that line 4e does not expressly capture every expense that clinics need to deliver care, citing items such as community outreach and education, medical devices, and state licensing fees.42 Each organization classifies and allocates its own expenses among these categories by applying the IRS instructions; the form does not contain a complete list of the expenditures that qualify as program services.43 C. Proposed Law Proposition 44 requires FQHC and FQHC Look-Alikes to spend at least ninety percent of their total annual revenue on “program services,” a subset of services which tax-exempt organizations report as advancing their charitable purpose.44 The ratio between total revenue and program-service expenses establishes the organization’s ratio.45 FQHCs falling below the threshold would incur a penalty equal to the monetary difference between their ratio and a ninety percent ratio, which they could obtain by meeting future conditions in addition to ratio compliance.46 Proposition 44 would add four sections to California law: Government Code section 12586.3, which creates the Ratio and its reporting requirements; Health and Safety Code section 1234.5, which creates the penalty, refund, appeal, and waiver process; and Corporations Code sections 5142.1 and 6814.1, which create a new private right of action and a new crime.47 1. Covered Clinics Proposition 44 applies to any nonprofit clinic corporation that is an FQHC under federal Medicaid law, including any clinic that HRSA has designated as an FQHC Look-Alikes.48 It does not apply to clinics operated by counties or other public entities.49 The measure also expressly excludes federally recognized Indian tribes, tribal organizations, and urban Indian organizations, even though those entities can qualify as FQHCs under federal law.50 2.

Mission Spend Ratio and Reporting

The Ratio is the total amount spent on activities that accomplish each clinic’s exempt purpose, known as program services, divided by that clinic’s total revenue.51 The Attorney General may guide adjustment of how organizations report total sums spent on that clinic’s exempt purposes and total organizational revenue.52 Tax exempt organizations self-report which expenses fall into the category of program services as instructed by IRS Form 990, Part III, Line 42

BRG STUDY, supra note 13, at 5. Id. (instructions for Part IX). 44 Cal. Proposition 44, supra note 1, at § 3. 45 Id. 46 Id. 47 Id. 48 Id. 49 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 70 (explaining that the measure applies to private nonprofit safety-net clinics). 50 Cal. Proposition 44, supra note 1, at § 3; 42 U.S.C. § 1396d(l)(2)(B)(iii)–(iv). 51 Id. 52 Id. 43

4e.53 A clinic’s total revenue reflects the amount the clinic indicated on line 12 of Part I of each clinic’s Internal Revenue Service Form 990. 54 Each clinic shall annually file with the Registry of Charities and Fundraisers data sufficient for the Attorney General to calculate a “Mission Spend Ratio.”55 3.

Penalties and Mission Spend Ratio Penalty Account

Noncompliant clinics would pay these penalties into the Mission Spend Ratio Penalty Account, a newly created Special Deposit Fund, and the funds would remain in escrow, available to the clinic for five years following the fine payment.56 Clinics could recoup those funds within the next five years if they achieve a compliant Ratio and adopt a state-approved plan to spend revenue at the mandated Ratio.57 Penalties which clinics do not recover within five years would go to clinic-workforce programs including worker training, recruitment, and retention, with the Legislature determining the specific allocation of those funds.58 Proposition 44 would add section 1234.5 to the Health and Safety Code, to read: 1234.5. (a) (1) There is hereby created in the Special Deposit Fund, established pursuant to Section 16370 of the Government Code, the Mission Spend Ratio Penalty Account.59 4.

Private Right of Action and Criminal Penalties

Proposition 44 also creates two new enforcement tools.60 First, it authorizes “any patient” of a covered clinic to bring an action “to enjoin, correct, or otherwise remedy a breach of a charitable trust” if the clinic fails to report the required data or has a Ratio below ninety percent without a waiver.61 Second, the measure makes it a crime for a clinic director, officer, or agent to knowingly misreport the clinic’s expenditures or revenues, or to knowingly participate in a scheme to route them through related parties, with the intent to artificially increase the clinic’s Ratio.62 The offense could result in punishment as either as a felony or as a misdemeanor carrying a maximum sentence of one year in county jail.63 5.

Fees and Reporting Fines

Each covered clinic must pay an additional annual registration fee to fund the Attorney General’s and CDPH’s work under the measure.64 The Attorney General sets the fee schedule with CDPH, must adjust it each year to reflect actual costs, and may not set fees higher than the 53

Id. Id. 55 Cal. Proposition 44, supra note 1, at § 3. 56 Id. 57 Id. 58 Id. 59 Id. 60 Cal. Proposition 44, supra note 1, at § 3. 61 Id. 62 Id. at § 5. 63 Id. (providing for imprisonment under Penal Code Section 1170(h) or in county jail for up to one year). 64 Id. at 155 (proposed CAL. GOV’T CODE § 12586.3(c). 54

reasonable regulatory costs of administering the measure.65 The sanctions for failure to comply with the reporting provisions of this section consist of an administrative fine of five thousand dollars ($5,000) for a first violation and ten thousand dollars ($10,000) for each subsequent month that a clinic fails to submit the required annual reports.66 6. Severability, Amendment, and Conflicting Measures Proposition 44 contains a severability clause, so that if a court invalidates one of its provisions, the remaining provisions would stay in effect.67 The Legislature may amend the measure without a vote of the people, but only through a bill, signed by the Governor, that furthers the measure’s purposes; because the measure does not require a supermajority, such a bill would only need a majority vote in each house.68 If another measure on the same statewide ballot also governs mission spend ratios at covered clinics and Proposition 44 receives more “yes” votes, Proposition 44 would prevail in its entirety and the other measure would be void.69 D. Similar Previous Efforts Previous and ongoing ballot initiatives have proposed spending limits, including spending limits on FQHCs and spending limits based on a mission spend ratio. Proposition 8 (2018) and Proposition 23 (2020) were sponsored by SEIU-UHW, the same union that sponsors Proposition 44.70 1. AB 1113 AB 1113, introduced by Mark González in the 2025–2026 session, began as a bill amending Health & Safety Code section 131021 (health emergencies).71 AB 1113 was amended into "Federally qualified health centers: mission spend ratio," adding Article 4.15 (commencing with section 14138.35) to the Welfare and Institutions Code.72 Similar to Proposition 44, AB 1113 sought to impose a ninety percent mission spend ratio on clinics including FQHCs.73 As with Proposition 44, AB 1113 would have applied $5,000 fines for first offenses and $10,000 for subsequent offenses.74 AB 1113 would have vested methodology in CDPH with a January 1, 2027 implementation goal and would have expressly authorized implementation by information notice without rulemaking; Prop 44 vests definitional authority in the Attorney General instead, adds the charitable trust cause of action, and adds criminal penalties.75 AB 1113 never passed the

Id. NOVEMBER 2026 VOTER GUIDE, supra note 11, at 155 (proposed CAL. GOV’T CODE § 12586.3(d)). 67 Id. 68 Id. at 156 (Proposition 44, § 9); CAL. CONST. art. IV, § 8(b)(3) (requiring a majority of the membership of each house to pass a bill). 69 Cal. Proposition 44, supra note 1, at § 10. 70 Id. 71 AB 1113, 2025 Leg., 202–2026 Reg. Sess. (Cal. 2026). 72 Current Bill Text of AB 1113, https://perma.cc/4XER-YESG. 73 Id. 74 Id. 75 Cal. Proposition 44, supra note 1, at § 3. 66

Assembly.76 After it was last amended in January 2026, it was filed with the Chief Clerk under Joint Rule 56 on February 2, 2026, and it did not move again before the 2025–26 legislative session ended.77 2. Proposition 34 (2024) Proposition 34, which passed narrowly in the November 2024 election, requires qualifying health care entities to spend ninety-eight percent of their net revenue earned in California on health care services provided directly to patients.78 Health care entities must comply with this requirement based on their participation in the federal drug discount program, having a California license to render health care services, expenditures over $100 million on services other than direct patient care, and ownership of multifamily housing units exceeding 500 violations.79 Prop. 34’s eligibility criteria were drawn so narrowly that the Aids Healthcare Foundation appeared to be the principal entity meeting all of them.80 That contrasts sharply with Proposition 44, whose coverage is defined by a broad category of nonprofit safety-net clinics.81 3. Proposition 8 (2018) Proposition 8, which was unsuccessful in the 2018 election, proposed a system providing rebates to paying patients when their Chronic Dialysis Clinics (CDCs) exceeded a revenue cap, where exceeding the revenue cap would also impose penalties on noncompliant CDCs.82 Similar to Proposition 44, Proposition 8 imposed penalties based on expenditures and services employed by health care entities.83 Unlike Proposition 44 which addresses FQHCs and FQHC Look-Alikes, Proposition 8 specifically addressed dialysis clinics.84 4. Proposition 23 (2020) The 2020 successor to Proposition 8, Proposition 23 also sought to impose state requirements on kidney dialysis clinics.85 These requirements involving doctor staffing and infectious diseases reporting, and procedure prior to reducing or refusing service were backed by

AB 1113, CALMATTERS DIGITAL DEMOCRACY, https://perma.cc/HE9P-EFUS (reporting that the bill was filed with the Chief Clerk under Joint Rule 56 on Feb. 2, 2026, and that it failed). 77 Id. 78 Restricts Spending of Prescription Drug Revenues by Certain Health Care Providers. Initiative Statute., CAL. LEGISLATIVE ANALYSTS OFFICE (Nov 5, 2024), https://perma.cc/39E7-8NAG. 79 Id. 80 Proposition 34. Restricts Spending of Prescription Drug Revenues by Certain Health Care Providers. Initiative Statute, CAL. LEGIS. ANALYST’S OFF. (Nov 5, 2024), https://perma.cc/Y2T7-U9GL. 81 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 70 (argument in favor of Proposition 44 and rebuttal to argument against Proposition 44). 82 Proposition 8. Authorizes State Regulation of Kidney Dialysis Clinics. Limits Charges for Patient Care. Initiative Statute. Initiative Statute., CAL. LEGISLATIVE ANALYST’S OFFICE. (Nov. 6, 2018) https://perma.cc/YN27-CYLP. 83 Id. 84 Id. 85 Proposition 23. Establishes State Requirements for Kidney Dialysis Clinics. Requires On-Site Medical Professional. Initiative Statute., CAL. LEGISLATIVE ANALYST’S OFFICE. (Nov. 3, 2020), https://perma.cc/Z6YV3JBB.

penalties on non-compliant dialysis clinics.86 Proposition 23 was unsuccessful in the November 2020 election.87 III.

DRAFTING ISSUES

Proposition 44 contains several drafting issues that could require judicial or administrative clarification. These issues include an apparent typographical error, inconsistent terminology, questions regarding the scope of the Attorney General’s authority, and provisions that may produce uncertainty in applying the measure to individual clinics. A. Scrivener’s Error The measure contains an apparent scrivener’s error in Proposed Government Code Section 12586.3(b)(1)(B), which states that total revenue “may will be based” on the totalrevenue figure reported on line 12 of Part I of a clinic’s Form 990.88 The provision does not explain whether “may” or “will” is intended.89 Because the provision otherwise directs the Attorney General to calculate each clinic’s Ratio using these figures, the error could create uncertainty regarding the required methodology and whether the Attorney General has discretion in choosing a figure. B. Inconsistent Use of Terms Proposition 44 uses several terms inconsistently. Section 12586.3(a)(2) defines the Ratio using the amount spent on activities that “accomplish each clinic’s exempt purpose.”90 However, at other points in the measure, it seems to substitute the term “exempt purpose” with “missiondirected expenses”91 or “mission-directed spending.”92 The measure does not define any of these phrases, as the only terms it expressly defines are “clinic,” “Mission Spend Ratio,” and “related party.” Instead, it appears to use the three phrases above interchangeably.93 This ambiguity matters because the Ratio is calculated from spending on a clinic’s “exempt purpose,” while the penalty is calculated from the amount the clinic spends on “mission-directed expenses.”94 Because California courts generally presume that materially different words used in related provisions have different meanings, a court could be required to determine whether these phrases refer to the same category of expenditures or to distinct categories.95

Id. Id. 88 Cal. Proposition 44, supra note 1, at § 3. 89 Id. 90 Id. 91 Id. at § 4. 92 Id. at § 3. 93 Cal. Proposition 44, supra note 1, at § 3. 94 Id. 95 People v. Trevino, 26 Cal.4th 237, 242 (2001) (“When the Legislature uses materially different language in statutory provisions addressing the same subject or related subjects, the normal inference is that the Legislature intended a difference in meaning”). 87

C. Unintended Consequences The measure’s Ratio formula may produce results that do not correspond neatly with the proportion of a clinic’s expenditures devoted to its charitable mission. The numerator is based principally on program-service expenses, while the denominator is the organization’s total revenue.96 Because the formula compares qualifying expenses with revenue rather than total expenses, a clinic’s Ratio depends not only on how it spends its money but also on how its total expenses compare with its revenue. Consider three clinics that each receive $100 in revenue but have different expense levels. The first clinic incurs ninety-five dollars in total expenses. To meet the ninety percent ratio threshold, it must spend at least ninety million dollars on qualifying program services, meaning approximately 94.7 percent of its total expenditures must qualify. The second clinic incurs $105 in total expenses, running a five-dollar deficit. It likewise needs ninety dollars in qualifying program-service expenses to meet the threshold, but those expenses represent only 85.7 percent of its total spending. The third clinic spends only eighty-five dollars, retaining the remaining fifteen dollars in reserves. Even if every dollar it spends qualifies, its ratio would be only eighty-five percent, leaving it five dollars short of the threshold and subject to a five-dollar penalty. This disparity persists even when all three clinics devote the same proportion of their expenditures to qualifying services. If each spends ninety percent of its total expenses on qualifying services, the second clinic would meet the requirement with a Ratio of 94.5 percent. The first clinic, however, would have a Ratio of 85.5 percent and owe a $4.50 penalty, while the third would have a Ratio of 76.5 percent and owe a $13.50 penalty.97 Thus, clinics that devote the same share of their expenditures to mission-related activities may face different outcomes because of differences in their revenue and expense structures. In effect, the formula can favor clinics that spend more than they receive while penalizing clinics that retain part of their revenue as reserves. The formula’s treatment of capital spending illustrates the same problem. When a clinic uses revenue to purchase long-term equipment, such as an X-ray machine, it generally cannot count the machine’s full purchase price as a qualifying expense in the year of purchase.98 Instead, it may count only a portion of that cost.99 However, the revenue used to purchase the machine still counts in full toward the Ratio denominator.100 As a result, the formula may penalize clinics for investing in equipment needed to provide patient care. The California Dental Association, a member of the coalition opposing the measure, has highlighted this effect, arguing

Cal. Proposition 44, supra note 1, at § 3. These figures apply the ratio formula in proposed Government Code Section 12586.3(a)(2) and (b)(1) and the penalty formula in proposed Health and Safety Code Section 1234.5(b)(1). See id. 98 Internal Revenue Serv., Instructions for Form 990 Return of Organization Exempt From Income Tax (2025) (instructions for Part IX, line 22 (depreciation) and Part X, line 10 (land, buildings, and equipment)), https://perma.cc/8X6D-HQGA. 99 Id. 100 42 U.S.C. § 254b(b)(1)(A)(i)(II), (III)(hh). 97

that Proposition 44 “restricts clinics from funding mammogram, X-ray and CT machines.”101 That concern is significant for clinic dental programs, because dentists rely on X-rays to diagnose damage and disease that cannot be seen during a regular examination.102 D. Internal Tension Regarding Good Faith Proposition 44’s elimination of the good-faith defense primarily affects its new civil enforcement mechanism. Proposed Corporations Code Section 5142.1(a) would allow “any patient” of a clinic to bring an action to remedy a breach of charitable trust if the clinic either fails to report the data required to calculate its Ratio or falls below the ninety percent threshold without a waiver.103 Proposed Section 6814.1, by contrast, would criminalize knowing misreporting of expenditures or revenues and knowing participation in schemes to artificially inflate a clinic’s Ratio.104 Because the measure addresses good faith expressly in Section 5142.1, its principal effect is to remove a potential defense in civil actions alleging violations of the charitable trust requirements. The elimination of that defense creates tension with existing protections for nonprofit directors. Corporations Code Section 5231 shields a nonprofit director who acts in good faith and with reasonable care from liability, including for actions or omissions that “exceed or defeat a public or charitable purpose” to which the corporation’s assets are dedicated.105 Proposed Corporations Code Section 5142.1(b), however, provides, notwithstanding Section 5231, that good faith is not a defense to an action brought under the section, and that the business judgment rule does not apply, “except as provided under Section 5239.”106 The measure thus displaces the ordinary protections afforded by Section 5231 for actions brought under Section 5142.1, while expressly preserving an exception for Section 5239. The scope of this exception remains uncertain. Section 5239 of the Corporations Code, protects certain volunteer nonprofit directors and officers from personal liability for negligent acts or omissions only when, among other conditions, the conduct was performed in good faith.107 Because Section 5239 addresses a narrower category of liability than Section 5231, its preservation does not necessarily shield volunteer directors from every claim brought under Section 5142.1. In particular, Section 5142.1 authorizes injunctive, corrective, and other remedies for breaches of charitable trust, whereas Section 5239 expressly addresses personal liability for monetary damages. A court may therefore need to determine whether a particular claim and the relief sought fall within Section 5239’s limited protection. The distinction is important, as a volunteer director might retain protection against monetary damages while

101

NOVEMBER 2026 VOTER GUIDE, supra note 11, at 73 (argument against Proposition 44); Get the Facts, NO ON PROP 44, https://perma.cc/E9YY-5FWZ (listing mammogram, CT, and X-ray machines among the medical technologies clinics could be forced to cut). 102 CDA opposes Propositions 44 and 40, CAL. DENT. ASS’N (Sept. 9,2026), https://perma.cc/S4MC-6RJM. 103 Cal. Proposition 44, supra note 1, at § 5. 104 Id. at § 6; CAL. PENAL CODE § 17(a)–(b). 105 CAL. CORP. CODE § 5231(a), (c). 106 Cal. Proposition 44, supra note 1, at § 5. 107 CAL. CORP. CODE § 5239.

remaining subject to other remedies, even though good faith alone would not defeat the underlying claim.108 IV.

CONSTITUTIONAL ISSUES

As with all laws in California, initiatives are subject to constitutional limitations.109 Indeed, the California Supreme Court has explained that “[a] statutory initiative is subject to the same state and federal constitutional limitations as are the Legislature and the statutes which it enacts.”110 As a result, conflicts with the federal and state constitutions are among the principal limits on California initiatives.111 Notably, in April 2026, the California Primary Care Association (“CPCA”) and Open Door Community Health Centers sued in federal court to keep the measure off the ballot. They argued that Proposition 44 would interfere with federal laws governing how health centers spend their funds and would create an unlawful auditing scheme run exclusively by the State.112 The court dismissed the suit in August 2026 without reaching those arguments.113 It held that the claims were not ripe because the measure had not yet passed, and the Attorney General had not yet issued guidance on which expenditures count toward the ninety percent requirement.114 It also held that the Ex parte Young exception to state sovereign immunity did not permit the suit against the Secretary of State, because the plaintiffs had not shown an ongoing violation of federal law.115 The court noted, however, that the claims could be reviewed after the election if the measure passes.116 This Section examines the two preemption theories opponents are likely to raise, as well as the intergovernmental-immunity question raised by the measure’s reliance on federal status. A. Obstacle Preemption Under the Health Center Program The Supremacy Clause, contained in Article VI, Clause 2 of the U.S. Constitution, provides that the Constitution, and federal laws made pursuant thereto, are “the supreme Law of the Land.”117 Accordingly, when valid federal and state laws conflict, federal law prevails and 108

See id. (limiting its protection to volunteer directors and executive officers and leaving the corporation’s own liability intact). 109 Legislature v. Deukmejian, 34 Cal. 3d 658, 674–75 (1983). 110 Id. 111 See David A. Carrillo et al., California Constitutional Law: Direct Democracy, 92 S. CAL. L. REV. 557, 614–615 (2019) (describing constitutional limitations as the “the principal limitation” on California initiatives). 112 Cal. Primary Care Ass’n v. Weber, No. 26-cv-03837-AGT, slip op. at 13 (N.D. Cal. Aug. 7, 2026); Hwang, supra note 13. 113 Cal. Primary Care Ass’n, slip op. at 13. 114 Id. at 6–7, 13. 115 Carly Nairn, Health Clinic Transparency Initiative to Remain on Upcoming California Ballot, COURTHOUSE NEWS SERV. (Aug. 10, 2026), https://perma.cc/NGF2-K9GV. 116 Cal. Primary Care Ass’n, slip op. at 10. 117 See The Federalist No. 33 (Alexander Hamilton) (“[T]he Constitution and the laws of the United States made in pursuance thereof . . . shall be the SUPREME LAW of the land, any thing in the constitution or laws of any State to the contrary notwithstanding”).

the conflicting state law is preempted.118 This is referred to as conflict preemption. One form of conflict preemption is obstacle preemption, which applies when a state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”119 Section 330 of the Public Health Service Act requires each FQHC to have a governing board, a majority of whose members are patients, that approves the center’s annual budget.120 It also governs how a center uses its nongrant funds: state and local support, fees, premiums, and third-party reimbursements, including any such funds “in excess of those originally expected.”121 Those funds must be used as the statute permits or for other purposes that further the objectives of the project.122 The Health Resources and Services Administration (“HRSA”) applies these requirements to Look-Alikes as well as grantees. It requires each health center to submit an annual total budget, covering federal and nonfederal revenue, for approval through the award or designation process. HRSA also requires centers to document that non-grant funds exceeding the approved budget were used to benefit patients.123 Federal regulations similarly list permissible uses of project funds, including acquiring and modernizing buildings, obtaining management technical assistance, and maintaining a reserve fund where state law requires one for prepaid health plans.124 Look-Alikes are bound by these requirements even though they receive no Section 330 funding. The HSRA designates a clinic a Look-Alike only if it meets all Health Center Program requirements, and the clinic must report annually and periodically renew the designation to keep it.125 Clinics seek the designation because it carries significant payments, namely for payment for Medicare and Medicaid patients under the FQHC prospective payment system, eligibility for discounted drugs on the federal 340B Drug Pricing Program, and access to the National Health Service Corps clinicians and free vacancies for uninsured and underinsured children.126 LookAlikes do not, however, receive the federally funded malpractice coverage that grantees can obtain under the Federal Tort Claims Act.127 Because federal Medicare and Medicaid law treats both grantees and Look-Alikes as FQHCs, both are paid under Medi-Cal’s FQHC payment system, and Proposition 44 relies on those same federal definitions to identify the clinics it covers.128

118

Arizona v. United States, 567 U.S. 387, 399 (2012). Id. 120 42 U.S.C. § 254b(k)(3)(H); HEALTH RES. & SERVS. ADMIN., HEALTH CENTER PROGRAM COMPLIANCE MANUAL, ch. 19, https://perma.cc/N2ZE-FLBP [“HRSA COMPLIANCE MANUAL”]. 121 42 U.S.C. § § 254b(e)(5)(D). 122 Id. 123 HRSA COMPLIANCE MANUAL, supra note 112, at Introduction and Chs. 15, 17. 124 42 C.F.R. § 51c.107(b)(1)–(2), (8). 125 What Is a Health Center Program Look-Alike (LAL)?, HEALTH RES. & SERVS., https://perma.cc/W36S-29QU [“HRSA LOOK-ALIKE OVERVIEW”]; HRSA COMPLIANCE MANUAL, supra note 112, at Introduction. 126 HRSA LOOK-ALIKE OVERVIEW, supra note 117, at Introduction; 42 U.S.C. §§ 256b(a)(4)(B), 1396d(l)(2)(B)(iii). 127 HRSA LOOK-ALIKE OVERVIEW supra note 117, at Introduction. 128 42 U.S.C. §§ 1395x(aa)(4)(B), 1396d(l)(2)(B); CAL. WELF. & INST. CODE § 14132.100; CAL. PROPOSITION 44, supra note 1, at § 3. 119

Opponents have already argued that Proposition 44 penalizes clinics for spending money in ways that federal law allows, and is therefore preempted.129 Their argument rests on the fact that Proposition 44 compares a clinic’s program expenses with its total revenue.130 If a clinic spends a significant amount of its revenue on equipment, opening or renovating a site, or building reserves, that spending could push its ratio below ninety percent.131 The clinic could then owe a penalty for that year, even though federal rules allow those expenditures. Proponents could respond that federal permission to spend money in a particular way does not ordinarily immunize that spending from state regulation.132 A court would likely be reluctant to find Proposition 44 preempted on this ground. Courts set a high bar for obstacle preemption.133 In addition, federal permission to spend money in a particular way does not usually shield that spending from state rules, and federal health center rules require clinic boards to ensure that the center complies with state law.134 No court has decided whether Proposition 44 conflicts with federal law. As discussed above, the federal court that heard the CPCA’s pre-election challenge dismissed it as premature without reaching the merits, and SEIU-UHW maintains that the measure is “legally sound.”135 B. Obstacle Preemption Under the Medicaid Act A second theory relies on the same principle of obstacle preemption, but with respect to a different federal statute: the Medicaid Act. The Medicaid Act requires States to pay FQHCs a set rate for each visit by a Medicaid patient.136 The rate is based on each health center’s past reasonable costs of providing care and is adjusted each year for inflation.137 A state may use a different payment method only if the health center agrees and the payment is at least as much.138 A federal appeals court has explained that Congress created this payment guarantee so that health centers would not have to use their federal grant money to cover the cost of treating Medicaid patients.139 Under the federal rules used to calculate these costs, reasonable costs include necessary administrative expenses, not just the cost of direct patient care.140 In 2024, 72 percent of patients at California’s FQHCs were covered by Medi-Cal, California's Medicaid program, and payments for patient services made up 81 percent of these centers’ total revenue.141 129

Margaret Attridge, Judge Balks at Health Centers' Attempt to Block Ballot Measure, COURTHOUSE NEWS SERV. (July 31, 2026), https://perma.cc/KT6N-FK82. 130 Id. 131 42 C.F.R. § 51c.107(b)(1); HRSA COMPLIANCE MANUAL, supra note 112, at Ch. 15. 132 Williamson v. Mazda Motor of Am., Inc., 562 U.S. 323, 332–37 (2011). 133 Chamber of Com. of U.S. v. Whiting, 563 U.S. 582, 607 (2011) (explaining that a state law must clear a high threshold before it is preempted for conflicting with the purposes of a federal act). 134 See Williamson, 562 U.S. at 332–37; HRSA COMPLIANCE MANUAL, supra note 112, at ch. 19. 135 Hwang, supra note 13. 136 42 U.S.C. § 1396a(bb)(1)–(2). 137 Id. at § 1396a(bb)(2)–(3). 138 Id. at § 1396a(bb)(6). 139 Three Lower Cntys. Cmty. Health Servs., Inc. v. Maryland., 498 F.3d 294, 298 (4th Cir. 2007). 140 42 C.F.R. § 413.9(c)(3); 42 U.S.C. § 1396a(bb)(2). 141 Matt Newman & James Paci, California’s Community Clinics Almanac, CAL. HEALTHCARE FOUND. (May 28, 2026), https://perma.cc/6Y58-MQ5T.

Opponents could argue that Proposition 44 conflicts with this payment guarantee. The measure counts a clinic’s Medicaid payments as part of its total revenue, while penalizing spending, such as administrative costs, that federal rules treat as a reasonable part of providing care.142 Proponents could respond that federal law controls how much the State must pay health centers, not how health centers spend the money they receive, and that California would still pay the full required rate.143 Proponents could also point out that a clinic can avoid the penalty by spending enough on patient care. The penalty would also be refunded if the clinic meets the ninety percent requirement within five years and agrees to a plan for spending the refund. A preemption based on the Medicaid Act argument would likely be difficult to win, because the federal payment guarantee controls how much the State must pay health centers, and Proposition 44 would not reduce those payments. A court would more likely view the measure as a rule about how clinics spend money after they receive it, which the payment guarantee does not address. C. Nondelegation Doctrine Proposition 44 further gives the Attorney General broad authority to determine which expenditures and revenues count toward the Ratio. Proposed Government Code Section 12586.3(b)(2) authorizes the Attorney General to issue “binding guidance” governing how clinics report the figures used to calculate the ratio.144 More specifically, the Attorney General is permitted to establish additional reporting requirements for expenditures that are not classified as program-service expenses on Form 990 but that the Attorney General determines were nevertheless spent on the clinic’s exempt purpose.145 The measure also permits the Attorney General to treat expenditures reported as program-service expenses as not being spent on the clinic’s exempt purpose when the Attorney General makes that determination.146 The measure directs that this guidance be designed to further FQHCs objective of creating “a reasonable minimum standard of mission-directed spending” and prioritizing patient services and workforce stability over management and overhead spending.147 The Attorney General must also issue findings explaining the reasons for its determinations.148 Nevertheless, Proposition 44 expressly permits the Attorney General to implement this guidance through “bulletins, notices, or other similar instructions” without taking further regulatory action, notwithstanding the Administrative Procedure Act.149 The nondelegation doctrine is a constitutional principle under California’s separation of powers doctrine that bars the state Legislature from handing over its core lawmaking powers to executive agencies, the Governor, or private entities. California courts generally permit the Legislature to delegate quasi-legislative authority when the Legislature has established sufficient 142

Cal. Proposition 44, supra note 1, at § 3; CAL. HEALTH & SAFETY CODE § 1234.5(b)(1)); 42 C.F.R. § 413.9(c)(3). 42 U.S.C. § 1396a(bb)(1)–(3), (6). 144 Cal. Proposition 44, supra note 1, at § 3 145 Id. 146 Id. 147 Id. 148 Id. 149 Cal. Proposition 44, supra note 1, at § 3 143

policy and safeguards. In Gerawan Farming, Inc. v. Agricultural Labor Relations Board150, the California Supreme Court explained that an unconstitutional delegation occurs only when the Legislature leaves fundamental policy questions to another body or fails to provide adequate direction for implementing its policy. In Kugler v. Yocum151, the court similarly described unlawful delegation as requiring a “total abdication” of legislative power. A review of published California decisions identified no voter initiative invalidated specifically on nondelegation grounds. Kugler itself involved a proposed initiative ordinance that would have tied a city’s firefighter salaries to pay levels set by the City and County of Los Angeles, and the court held that the measure did not unlawfully delegate legislative power.152 Courts have likewise rejected delegation challenges to the Coastal Zone Conservation Act, which voters adopted as Proposition 20 (1972), and to Proposition 65 (1986), which relies in part on an outside scientific body to identify carcinogens.153 The closest example of a court invalidating an initiative’s grant of authority is Calfarm Insurance Co. v. Deukmejian154, in which the California Supreme Court invalidated a provision of Proposition 103 (1988) that identified a private nonprofit corporation to advocate for insurance consumers. That holding, however, rested on article II, section 12 of the California Constitution, which bars any statute proposed to the voters from naming or identifying a private corporation to perform any function, rather than on the nondelegation doctrine.155 Because Proposition 44 delegates authority to the Attorney General, a constitutional officer, rather than to a private entity, Calfarm does not directly control.156 Although the delegation may withstand a constitutional challenge, the breadth of the Attorney General’s authority could prompt litigation over whether the measure provides sufficient standards for determining which expenditures count toward the Ratio and whether particular guidance exceeds those standards.157 D. Intergovernmental Immunity The Supremacy Clause also bars state laws that regulate the federal government directly or discriminate against the federal government or those with whom it deals.158 A state law discriminates if it singles out the federal government or its contractors for worse treatment, or treats them unfavorably because of their connection to the federal government.159

150

Gerawan Farming, Inc. v. Agricultural Labor Relations Board, 3 Cal.5th 1118, 1137 (2017). Kugler v. Yocum, 69 Cal. 2d 371, 384 (1968). 152 Id. at 375, 384. 153 CEEED v. Cal. Coastal Zone Conservation Comm’n, 43 Cal. App. 3d 306, 325–27 (1974); Monsanto Co. v. Off. of Env’t Health Hazard Assessment, 22 Cal. App. 5th 534, 548–51 (2018). 154 Calfarm Insurance Co. v. Deukmejian, 48 Cal. 3d 805, 831–35 (1989). 155 Id.; CAL. CONST. Art. II, § 12. 156 Calfarm, 48 Cal. 3d at 835. 157 See CAL. CONST. Art. V, § 13 (designating the AG as the State’s chief law officer); CAL. PROPOSITION 44, supra note 1, at § 3. 158 United States v. Washington, 596 U.S. 832, 838–39 (2022). 159 Id. 151

In United States v. Washington160, the U.S. Supreme Court unanimously struck down a Washington workers’ compensation law that applied only to federal contract workers at one federal site. The law imposed costs on the federal government that state and private employers did not bear.161 In United States v. California162, a federal appeals court applied the same principle to a California law requiring the Attorney General to review detention facilities that held federal immigration detainees. The court declined to block parts of the law that matched inspections California already required of other facilities. It concluded, however, that a part imposing extra review only on facilities holding federal detainees likely discriminated against the federal government.163 Proposition 44 applies only to nonprofit clinics that are FQHCs under federal Medicaid law or that HRSA has designated as Look-Alikes.164 Opponents could argue that, like the laws in those cases, the measure imposes extra oversight and penalties on clinics because of their federal status. Other charities, by comparison, face only the Attorney General’s general registration and reporting rules.165 Proponents could respond that FQHCs also deal with California, which spends a few billion dollars a year on clinic services for Medi-Cal patients. They could add that the measure regulates how nonprofit clinics spend their money rather than regulating the federal government.166 Proponents could also note that Washington involved federal contractors, while Proposition 44 also covers Look-Alikes, which receive no Section 330 grant money.167 The success of opponents’ argument would likely hinge on whether a court treats federally funded health centers like the federal contractors protected in Washington. The argument would be weaker for Look-Alikes, which receive no federal grant money. V.

FISCAL CONSIDERATIONS

The Legislative Analyst’s Office (“LAO”), the Legislature’s nonpartisan fiscal advisor, estimates that Proposition 44 would increase state enforcement costs by the low tens of millions of dollars per year.168 These costs would come from two state agencies, the Department of Justice and the CDPH, reviewing clinics’ financial reports and investigating the clinics.169 The measure directs the State to cover these costs by charging fees to the affected clinics.170 The measure also authorizes the Attorney General to fine clinics that fail to file the required reports:

160

Id. at 835–40. Id. at 838–40. 162 United States v. California, 921 F.3d 865, 882–85 (9th Cir. 2019). 163 Id. 164 Cal. Proposition 44, supra note 1, at § 3. 165 CAL. GOV. CODE §§ 12585–12586 (requiring charities generally to register with and report to the AG). 166 LAO INITIATIVE LETTER, supra note 22, at 3. 167 HRSA COMPLIANCE MANUAL, supra note 112, at Introduction. 168 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 70–71 (analysis of Legislative Analyst). 169 Id. at 71 (explaining that enforcement “includes reviewing financial reports and investigating affected entities”); LAO INITIATIVE LETTER, supra note 22, at 2 (noting that “two state entities would incur costs” to enforce the measure). 170 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 70–71. 161

$5,000 for a first violation and $10,000 for each subsequent month that a clinic fails to submit its annual report.171 Beyond enforcement costs, the LAO describes the measure’s other fiscal effects as uncertain.172 Those effects depend on how the Attorney General defines qualifying expenses and on whether clinics meet the ninety percent requirement.173 According to the LAO, recent tax filings show that most FQHCs currently spend less than ninety percent of their revenue on mission-related expenses.174 Clinics that fall short would need to change their spending to avoid penalties.175 Clinics that respond by expanding patient services could increase state Medi-Cal spending, because many of their patients are covered by Medi-Cal, California’s Medicaid Program.176 Clinics that cannot adjust might close, which could shift patients to public safety-net providers, such as county-run clinics, and increase state and local costs.177 Opponents add that many displaced patients would end up in hospital emergency rooms, where treatment is significantly more expensive than at nonprofit clinics.178 The LAO states that the net effect of these changes could range from limited to extensive.179 For context, the State spends a few billion dollars a year on clinic services for Medi-Cal patients.180 The 2025–26 state budget provided a record $44.9 billion in state General Fund support for Medi-Cal as a whole.181 Two outside estimates put figures on the penalties, both based on clinics’ current spending. A study prepared at the direction of CPCA estimates that clinics would owe about $1.7 billion in the first year. An independent analysis for The Sacramento Bee estimated about $1.6 billion.182 The CPCA-commissioned study also projects that the measure would increase state General Fund costs by more than $1 billion. It attributes that increase mainly to higher Medi-Cal payment rates for clinics that expand services and to costlier care for patients whose clinics close.183 The study estimates that enforcement would require about 93 new state positions costing about $19 million a year. It also predicts that little penalty money would reach workforce programs, because clinics that can comply are likely to do so rather than pay penalties.184 171

Cal. Proposition 44, supra note 1, at § 3. Id. 173 Id. 174 LAO INITIATIVE LETTER, supra note 22, at 2 (noting that “most FQHCs spend less than 90 percent of their annual revenue on mission-related expenses”). 175 Id. (stating that “[a]ffected clinics would need to adjust their spending to comply with the initiative's requirements”). 176 Id. (explaining that “some clinics might increase patient services, which could increase state Medi-Cal spending”). 177 Id. (explaining that clinics that cannot adjust “might close,” which “could shift patients to publicly operated safety net providers”). 178 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 73 (argument against Proposition 44) (warning that the measure would “[s]end more patients to hospital emergency rooms”); BRG STUDY at 11, 16. 179 LAO INITIATIVE LETTER, supra note 22, at 2 180 Id. at 3. 181 CAL. LEGISLATIVE ANALYST'S OFFICE, THE 2026-27 BUDGET: MEDI-CAL FISCAL OUTLOOK, at 3, https://perma.cc/LWC5-5LMP. 182 BRG STUDY, supra note 13, at 3, 7, 21; Paviour, supra note 1 (reporting an analysis performed at the Sacramento Bee’s request). 183 BRG STUDY, supra note 13, at 15–16. 184 Id. at 4, 14–15. 172

Proponents respond that the measure does not cut clinic funding: clinics that meet the ninety percent standard owe nothing, and clinics that fall short can recover their penalties.185 VI.

PUBLIC POLICY ISSUES

Proposition 44 offers a fixed, statewide spending ratio as a means of ensuring publicly funded nonprofit clinics devote their resources to patient care. Supporters claim the measure will guarantee transparency and accountability reform that would protect public dollars at a time of federal health care cuts. Opponents argue that the Ratio formula penalizes spending which is in fact essential to providing medical services to low-income Californians, while simultaneously acting as negotiation leverage for the sponsoring union leverage in unrelated labor disputes. SEIU-UHW represents more than 120,000 health care workers and is the measure’s sponsor and primary funder, along with labor union SEIU Local 721.186 The California Federation of Labor Unions has also endorsed the measure.187 Opposition to the proposition includes many medical groups,188 the California Democratic Party and the California Republican Party both oppose the measure, as do the California Chamber of Commerce, the Howard Jarvis Taxpayers Association, and the League of Women Voters of California.189 A September 2026 survey by the Public Policy Institute of California reported that 34 percent of likely voters said they would vote yes on Proposition 44 and 61 percent said they would vote no.190 A. Proponents’ Arguments Proponents’ main argument is that when taxpayers provide community clinics with billions of dollars, those clinics should be required to spend those funds on patients rather than on executives and overhead. In the official argument in favor, initiative proponents Shawna Brown and Brisa Barrera assert that some clinics spend “less than half of their funding on patient care,” with the rest going to “bloated CEO salaries” and other waste while patients for appointments at clinics with outdated equipment.191 Proponents also rely on the measure’s findings, which state that some clinics report administrative expenses as high as 30 to 40 percent of total revenue and annual surpluses of as much as 20 percent, while clinic workers face understaffing and high turnover.192 Proponents argue the ninety percent Ratio standard and measure “[don’t] take a dollar away from community clinics” but instead redirect wasted

185

NOVEMBER 2026 VOTER GUIDE, supra note 11, at 71 (arguments in favor). Clinic Funding Accountability and Transparency Act, YES ON PROP 44, https://perma.cc/C529-Z5VH [“YES ON 44 WEBSITE”] 187 Proposition Ballot Endorsement Table: November 3, 2026, INST. OF GOV. STUD., https://perma.cc/7VYL-3V7U [“IGS ENDORSEMENT TABLE”]. 188 California Medical Association; the California Hospital Association; Planned Parenthood Affiliates of California; the American Academy of Pediatrics, California; the California Academy of Family Physicians; the California Dental Association; the California School Nurses Organization; and the California Chapter of the American College of Emergency Physicians. IGS ENDORSEMENT TABLE, supra note 181. 189 Id. 190 MARK BALDASSARE ET AL., PUB. POL’Y INST. OF CAL., PPIC STATEWIDE SURVEY: CALIFORNIANS AND THEIR GOVERNMENT (Sept. 2026), https://perma.cc/F3QL-XTCK. 191 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 72. 192 Id. 186

resources to vital patient services.193 Proponents argue that the measure would increase transparency by requiring each clinic’s Ratio to be calculated and published, allowing patients and taxpayers to see how clinics spend their money.194 Proponents additionally dispute opponents’ claims about which expenses would count toward the ninety percent requirement because clinics have self-reported these expenses which include medical equipment and preventive care while excluding executive pay and expensive consultants.195 Proponents characterize the risk to clinics as minimal because clinics already meeting the standard would owe nothing and noncompliant clinics would be able to recover any penalties they paid if they came into compliance within five years of their violation.196 According to proponents, funds which clinics do not recover within that period would still serve patients because under the proposition, these funds would go to recruiting and training health care workers.197 Finally, proponents argue that recent federal health care cuts make the measure’s sole purpose of increasing health care coverage more urgent.198 They specifically address H.R. 1, a federal act Congress passed in 2025, which proponents expect to reduce federal Medicaid funding, increasing the number of uninsured Californians.199 San Diego social worker and proponent Sandra Carranza predicts Californians could lose $30 billion a year in federal healthcare funding, further reducing coverage.200 Proponents also reject the allegation that the measure is a bargaining tactic.201 SEIU-UHW addressed CPCA’s federal racketeering lawsuit against SEIU-UHW, labeling it an attempt to “bully” the union.202 The union further explained that the judge who dismissed CPCA’s previous suit against the same proposition “chastis[ed] the CPCA for attempting to prevent SEIU-UHW members from using the democratic process by filing ballot measures.”203 B. Opponents’ Arguments Opponents argue that Proposition 44 would impose a strict formula on clinics whose expenses are not accurately reflected in the calculus, with widespread clinic closures a likely outcome.204 In the official argument against the measure, the presidents of the American Academy of Pediatrics, California, the California School Nurses Organization, and the California Medical Association, assert that the measure would cut funds from clinics in schools as well as 193

Sandra Carranza, Proposition 44 Ensures California’s Community Clinics Prioritize Patients over Executives, CALMATTERS (Aug. 21, 2026), https://perma.cc/RM95-4F6G. 194 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 72. 195 Id. at 73. 196 Id. at 72; YES ON 44 WEBSITE, supra note 180. 197 Id. 198 Proposition 44: Require More Clinic Spending on Patient Care, CALMATTERS, https://perma.cc/BNM6-Z7LH. 199 Id. 200 Carranza, supra note 187. 201 Id. 202 Id. 203 Id. 204 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 73.

independent clinics.205 The CPCA commissioned a Berkeley Research Group study which estimated that 183 of 202 clinic organizations currently fall below the ninety percent threshold and would owe a combined $1.7 billion in first-year penalties should voters pass the measure.206 Opponents also argue that the measure would penalize spending that is necessary to deliver care but may not count as a program service.207 The official argument against the measure lists nurse managers, translation services, X-ray machines, and information technology as examples of expenses which the measure does not deem mission-related.208 Opponents further argue that because the Ratio compares spending to annual revenue rather than to total expenses, clinics would incur penalties for frugally building reserves for disasters or future investments.209 Opponents also contend that the measure is unnecessary because clinics are already strictly regulated nonprofit organizations, subject to mandatory public audits and overseen by governing boards that include patients.210 They object to the Attorney General, an elected official without health care expertise, having the authority to decide which clinic expenses count as patient care.211 Finally, opponents argue that Proposition 44 is primarily a tool to pressure clinics in labor and political disputes, and not in fact designed or likely to help patients.212 The official rebuttal to the argument in favor states that the measure’s sponsor has spent $140 million on dozens of ballot measures targeting hospitals, clinics, and physicians, including three dialysis initiatives that voters rejected.213 According to CalMatters, SEIU-UHW has used ballot initiatives to win deals in Sacramento, most notably a 2023 law establishing a twenty-five dollars per hour minimum wage for health care workers.214 VII.

CAMPAIGN FINANCE

Committees formed to support or oppose a ballot measure must publicly identify every donor who gives $100 or more.215 One committee has formed to support Proposition 44, and one has formed to oppose it.216 As of August 2, 2026, the opposition committee had raised about twice as much as the support committee.217 205

Id. BRG STUDY, supra note 13, at 3, 7–9, 21. 207 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 73. 208 Id. 209 Brent Sugimoto, Proposition 44 Wrongly Squeezes Politics Between California Patients and Their Healthcare, CALMATTERS (Aug. 21, 2026), https://perma.cc/4WXL-8LQ7. 210 BRG STUDY, supra note 13, at 3, 15–17. 211 Sugimoto, supra note 203. 212 NOVEMBER 2026 VOTER GUIDE, supra note 11, at 72. 213 Id. 214 Kristen Hwang, California Unions, Hospitals Strike Deal — But Billionaire Tax Heads to Ballot, CALMATTERS (Jun. 25, 2026), https://perma.cc/P54A-C2EB. 215 Proposition 44: Require more clinic spending on patient care, supra note 192. 216 November 2026 General Election: Top 10 Contributors List, CAL. FAIR POL. PRACS. COMM'N (Sept. 21, 2026), https://perma.cc/LJ85-FJW5 [“FPPC TOP CONTRIBUTORS”]. 217 FPPC TOP CONTRIBUTORS, supra note 210. 206

A. Proponents Yes on Prop 44, sponsored by “SEIU-UHW”, reported $16,929,634 in total contributions through August 2, 2026.218 Its sole top contributor, SEIU-UHW's Political Issues Committee, gave $16,929,633.88, effectively the committee's entire total.219 That committee was also formed to support a second proposed SEIU-UHW initiative, which would have limited pay for health care executives and is not on the November 2026 ballot.220 For that reason, the Fair Political Practices Commission notes that the amount spent specifically on Proposition 44 cannot be determined.221 SEIU-UHW and its affiliated committees are also the top contributors, at about $31.8 million, to the committee supporting Proposition 40 and opposing Propositions 41 and 42.222 B. Opponents No on Prop 44 – Stop the Attack on Patients and Community Health Clinics, the opponents, sponsored by California Primary Care Association Advocates, reported $34,937,072 in total contributions through August 2, 2026.223 Its ten largest contributors, each a community health center or a health center association, have given $16,721,632.25.224 AltaMed Health Services Corporation is the top contributor, having provided $5,467,867.69 to the cause.225 The ten largest contributors are as follows226:

218

Id. Id. 220 Id. 221 Id. 222 FPPC TOP CONTRIBUTORS, supra note 210. 223 Proposition 44: Require more clinic spending on patient care, supra note 192. 224 Id. 225 Id. 226 Id. 219

Contributor

Amount

Altamed Health Services Corporation

$5,467,867.69

California Primary Association Advocates (and affiliated entities)

$1,550,000

Family Health Centers of San Diego

$1,511,285

North East Medical Services

$1,500,000

Wellspace Health

$1,500,000

Innercare

$1,000,000

San Ysidro Health

$1,000,000

Neighborhood Healthcare

$920,550

Community Health Center Network

$776,870

Sac Health

$766,668

Total Contributions Overall

$37.5 Million227

VIII.

CONCLUSION

Proposition 44 is an initiative statute that would require FQHCs to spend at least ninety percent of their annual revenue on “program services” that advance their charitable purpose, including patient health care services. The measure would impose penalties on FQHCs that fail to meet the ninety percent requirement and authorize the Attorney General to define which expenditures qualify as program services. If approved, the state would incur increased enforcement costs in the low tens of millions of dollars annually, which would be covered by fees charged to affected FQHCs. A “YES” vote on Proposition 44 requires certain nonprofit FQHCs to spend at least ninety percent of their annual revenue on qualifying program services. A “NO” vote on Proposition 44 does not impose the new ninety percent spending requirement. Instead, FQHCs would remain subject to existing federal and state rules governing how they use their funds.

227

Id.

PROPOSITION/MEASURE: I PLAN TO VOTE:

YES NO

2026 California Initiative Review | McGeorge School of Law

Madison Datus J.D., University of the Pacific, McGeorge School of Law, to be Conferred December 2027 B.S., Business Administration, University of Denver, 2021 &

Bryce Divine J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2027 B.S., Political Science, Utah State University, 2022

Brandi Waschau J.D., University of the Pacific, McGeorge School of Law, to be Conferred May 2028 B.A., Government with an Emphasis in Legal Studies, Grand Canyon University, 2025

EXECUTIVE SUMMARY

Proposition 45 is an initiative statute that would amend the California Environmental Quality Act (“CEQA”)1 to create an expedited review process for projects the measure defines as “essential.”2 The measure would add a new chapter to CEQA’s provisions in the Public Resources Code, titled the “Building an Affordable California Act.”3 The measure defines nine categories of essential projects eligible for the expedited review process: (1) housing; (2) water systems; (3) clean energy; (4) health facilities, including hospitals, clinics, and medical office buildings; (5) fire, police, and sheriff’s stations; (6) wildfire risk reduction projects; (7) broadband internet access; (8) education facilities; and (9) transportation.4 The measure expressly excludes certain projects from these categories, including Delta conveyance facilities, nuclear power generation, high-speed rail, jails and other detention facilities, and new oil or natural gas production facilities.5 The measure states that it does not exempt any project from environmental review or reduce an agency’s authority to approve or deny a project.6 Instead, it sets deadlines and procedures for reviewing eligible projects.7 Applicants may use all, some, or none of those procedures, alone or alongside other streamlining laws.8 Projects that use them must follow the measure’s tribal consultation process and meet specified labor standards.9 The Legislative Analyst’s Office (“LAO”) estimates that Proposition 45 would initially raise state and local government costs, attributable to developing new guidelines and standards for reviewing eligible projects’ environmental impacts, complying with tighter environmental review deadlines, and addressing court challenges to project approvals.10 These costs are expected to be in the “high tens of millions of dollars” each year, and potentially more than one hundred million dollars annually, partly offset by fees paid by project applicants and litigants.11 The LAO notes that over the long-term, the net fiscal effect is uncertain, but potentially larger than these initial costs, and it could be either positive or negative. On the positive side, faster construction of public projects could lower their costs, and additional development could increase tax revenue.12 On the negative side, approving projects with harmful environmental

For a complete history of CEQA, see Legislative History of the California Environmental Quality Act, LAWRENCE LIVERMORE LABORATORY (Dec. 26, 1976), https://perma.cc/YB6Q-QKQH. 2 CAL. SEC’Y OF STATE, OFFICIAL VOTER INFORMATION GUIDE: CALIFORNIA GENERAL ELECTION, TUESDAY NOVEMBER 3, 2026, at 74–75, https://perma.cc/4U8E-4ZAW [“NOVEMBER 2026 VOTER GUIDE”]. 3 Cal. Proposition 45 § 1 (2026), https://perma.cc/4M3C-3V3Y. 4 NOVEMBER 2026 VOTER GUIDE at supra note 2, at 75 fig. 1; CAL. PROPOSITION 45, supra note 3, at § 1. 5 Cal. Proposition 45, supra note 3, at § 1. 6 Id. 7 Id. 8 Id. 9 Id. 10 Cal. Proposition 45, supra note 3, at § 1. 11 NOVEMBER 2026 VOTER GUIDE at supra note 2, at 76. 12 Id. at 76–77.

impacts that otherwise would not have been approved could raise public costs for clean up and other forms of mitigation.13 A “YES” vote supports this initiative to make changes to CEQA to: (1) establish new deadlines for public agencies to complete environmental review and take required actions for projects deemed essential under the law; (2) limit public agencies’ existing requirement to consider a range of project alternatives to reduce environmental impacts; and (3) change the court review process for project approvals by setting deadlines for filing and resolving lawsuits and limiting the evidence and relief the court can consider and order.14 A “NO” vote opposes this initiative to make changes to CEQA, which governs state and local government agencies’ review process for determining potential environmental impacts and mitigation solutions of proposed construction projects.15 II.

THE LAW A. Background

CEQA “requires that state and local agencies disclose and evaluate the significant environmental impacts of proposed projects and adopt all feasible mitigation measures to reduce or eliminate those impacts.”16 CEQA applies to a broad range of public and private projects, including housing, transportation, schools, and infrastructure.17 There are different levels of environmental review under CEQA.18 A negative declaration applies when the government has determined after reviewing a project that it does not expect it to have significant environmental impacts.19 When a project may have significant environmental impacts, the lead agency may be required to prepare an Environmental Impact Report (“EIR”), which evaluates the project's environmental effects and considers alternatives that could reduce those effects.20 After the agency completes its environmental review and approves a project, opponents may challenge the agency’s compliance with CEQA in court.21 A court determines whether a CEQA violation occurred and may require the agency to correct the deficient environmental review and, in some circumstances, halt the project while the violation is remedied.22

Id. at 77. Id. at 74. 15 Id. 16 California Environmental Quality Act (CEQA), CAL. DEPT. OF JUST., https://perma.cc/UCR5-G55D 17 Id. 18 Id. 19 Id. 20 Id. 21 CAL. DEPT. OF JUST., supra note 16. 22 Id. 14

In addition to CEQA review, development projects often require permits and approvals from state and local agencies.23 The California Permit Streamlining Act (“PSA”), passed by the California Legislature in 1977, sets strict maximum time limits for local public agencies to review, approve, or disapprove development and housing permit applications.24 Historically, however, the PSA generally did not apply to ministerial approvals. Ministerial approvals are those that “involve little or no discretion and merely apply a checklist or clear requirements to the facts as presented, often issued over-the-counter by county staff,” while discretionary approvals “allow a county to use discretion to decide whether to issue the approvals and how best to shape or condition those approvals to avoid environmental issues and are often issued by an appointed or elected decision-making body.”25 This limited PSA’s ability to impose uniform processing deadlines across different types of development projects.26 California has previously attempted to reduce delays caused by CEQA litigation. In 2021, the Legislature enacted Senate Bill 7 (“SB 7”) and Senate Bill 44 (“SB 44”), which expanded expedited judicial-review procedures for certain qualifying projects.27 Under these procedures, CEQA lawsuits involving qualifying projects are subject to an expedited process designed to require courts to resolve challenges within approximately 270 days.28 The reforms reflected a legislative effort to prevent CEQA litigation from causing lengthy delays after a project had completed the environmental-review process.29 More recently, the Legislature made additional changes to CEQA and the permitting process through bills passed as part of the 2025 state budget.30 These bills included Assembly Bill 130 (“AB 130”) and Senate Bill 131 (“SB 131”).31 The PSA historically did not apply to ministerial projects.32 AB 130 expanded the PSA to cover housing projects whether they required discretionary or ministerial approval.33 It also created a 60-day deadline for local agencies to approve or deny certain ministerial housing projects and created a faster approval process for certain residential projects in commercial areas.34 SB 131 made several changes to CEQA that reduced environmental review requirements for certain projects.35 For example, when a housing project meets all but one of the requirements for a CEQA exemption, the agency generally only 23

S.B. 489, 2025–2026 Leg., Reg. Sess. (Cal. 2025). CAL. GOV. CODE § 65920 et seq.; S.B. 489, 2025–2026, supra note 23. 25 California Supreme Court Clarifies Ministerial vs. Discretionary Actions Under CEQA for Well Construction Permits, Best Best & Krieger (Sept. 1, 2020), https://perma.cc/MT5A-4K4S 26 S.B. 489, 2025–2026, supra note 23. 27 Jennifer L. Hernandez, et. al., SB 7 Creates Expedited CEQA Litigation Schedule for Qualifying Projects, HOLLAND & KNIGHT (May 28, 2021), https://perma.cc/Q7Z5-F67U; SB 44: California Environmental Quality Act, CLIMATE CTR., https://perma.cc/B6ZC-UABQ 28 Hernandez, supra note 26. 29 Id. 30 Hina Gupta, CA Governor Signs Bills Enacting Major CEQA Reforms to Accelerate Development and Boost Affordability, BURKE, WILLIAMS & SORENSEN, LLP, https://perma.cc/RZH4-UNGD 31 Id. 32 Id. 33 Id. 34 Id. 35 Gupta, supra note 29. 24

has to review the one requirement the project does not meet.36 SB 131 also created new CEQA exemptions for certain types of housing and other development projects, including farmworker housing, health clinics, day care centers, and wildfire-risk-reduction projects.37 Senate Bill 607 (“SB 607”), introduced in 2025 as the “Fast and Focused CEQA Act,” which would have reformed CEQA to speed up development and infrastructure projects.38 SB 607 would have imposed additional deadlines on environmental review, modified publiccomment and administrative-record procedures, and narrowed certain aspects of judicial review for qualifying projects.39 SB 607 failed largely because it sparked intense environmental group backlash.40 Although SB 607 did not become law, portions of its proposed reforms were subsequently enacted through AB 130 and SB 131.41 B. Proposed Changes Proposition 45 would amend CEQA and modify related environmental review, permitting, and judicial-review procedures.42 The measure would add a new chapter to CEQA’s provisions in the Public Resources Code, titled the “Building an Affordable California Act.”43 Proposition 45 expands expedited review procedures to a broader range of projects than those currently eligible under existing CEQA streamlining laws for projects defined as “essential.”44 The chapter identifies nine categories of essential projects eligible for the expedited review process: (1) housing; (2) water systems; (3) clean energy; (4) health facilities, including hospitals, clinics, and medical office buildings; (5) fire, police, and sheriff’s stations; (6) wildfire risk reduction projects; (7) broadband Internet access; (8) education facilities; and (9) transportation.45 The measure expressly excludes certain projects from these categories, including Delta conveyance facilities, nuclear power projects, and high-speed rail.46 This builds on existing California efforts to streamline CEQA review and judicial review for certain projects, but makes the streamlined process available to substantially more project categories.47 Proposition 45 clarifies that it neither exempts projects from environmental review nor limits an agency’s authority to approve or deny them.48 Although the measure does not expressly include or exclude data centers from the list of projects eligible for streamlining, it establishes 36

Id. Id. 38 Dan Walters, Why Did the California Senate Shunt a Cost-Cutting Housing Bill?, CALMATTERS (May 28, 2025), https://perma.cc/SW6S-553V 39 Id. 40 Walters, supra note 37; Douglas P. Carstens & Grecia Orozco, How SB 607 Threatens California's Environmental Protection: The Dangers of Gutting CEQA, DAILY J. (May 20, 2025), https://perma.cc/TJ8G-VRYT 41 See Infra. notes 20–26; Carstens & Orozco, supra note 39. 42 Cal. Proposition 45, supra note 3 at § 1. 43 Id. 44 Id. 45 Id. 46 Id. 47 Judicial Streamlining, GOV.’S OFF. LAND USE & CLIMATE INNOVATION, https://perma.cc/2BLN-EVFL 48 Id. 37

deadlines and procedures for reviewing eligible projects.49 Applicants may use all or some of these procedures, forgo them entirely, or combine them with other streamlining laws.50 Projects that use Proposition 45’s procedures must comply with its tribal consultation process and specified labor standards.51 The measure makes three principal changes for projects that use its expedited review process.52 First, it imposes new deadlines on agencies and courts, summarized in Figure 1 below.53 For example, a lead agency would have 365 business days after an application is complete to decide whether to certify an EIR.54 If an agency misses a review deadline, the applicant may request a hearing, which the agency must hold within sixty days and at which the agency must approve or deny the project.55 The applicant may also challenge the agency’s failure to meet the deadline in court.56 The measure also sets a 270-day deadline for courts to resolve challenges to project approvals, with a possible 90-day extension under specified circumstances.57 Additionally, the measure imposes shorter deadlines for determining whether applications are complete and for certain permitting decisions.58 Second, Proposition 45 changes how CEQA review is conducted for projects using its expedited review process.59 Agencies would be required to identify application requirements up front rather than repeatedly requesting additional information.60 Under the measure, environmental impacts of projects generally would be evaluated using the laws and standards that were in effect when the application was submitted.61 If those standards changed while the project was under review, the new standards would not apply.62 Furthermore, Proposition 45 would create an optional early planning process.63 If a project applicant chose to use this process, the environmental review would consider the proposed project, one alternative to the project, and the option of not building the project.64 Under current CEQA provisions, agencies are required to consider a broader range of possible alternatives.65 Finally, the measure would set deadlines for

Cal. Proposition 45, supra note 3 at § 1. Id. 51 Id. (“Three things are not optional even though the rest of the chapter is: the tribal screening and consultation process in Section 21016, the Section 21183.5 labor requirements for every category except housing, and the housing labor rules in subdivision (c)”). 52 Id. 53 See infra Figure 1. Principal Deadlines for Essential Projects Under Proposition 45. 54 Cal. Proposition 45, supra note 3 at § 1. 55 Id. 56 Id. 57 Id. 58 CAL. LEGIS. ANALYST'S OFF., supra note 41. 59 Cal. Proposition 45, supra note 3 at § 1. 60 Id. 61 Id. 62 Id. 63 Id. 64 Cal. Proposition 45, supra note 3 at § 1. 65 Id. 50

public comments at 20 days for negative declarations and 45 days for draft EIRs.66 These deadlines could only be extended by a court.67 Third, the measure narrows judicial review and remedies for essential projects.68 Courts would review CEQA challenges based on a more limited administrative record and claims would be limited to an agency’s failure to comply with the laws in effect when the application was submitted.69 Courts would review whether the approvals are supported by substantial evidence in light of a narrowed administrative record.70 The measure would require courts to resolve challenges within 270 days, subject to a possible extension.71 Finally, Proposition 45 would limit the remedies available when a court finds a CEQA violation.72 If a court finds a CEQA violation, the court would be unable to halt the entire project.73 Instead, it could stop only the portion affected by the violation while the agency corrects the CEQA problem.74

Id. CAL. SEC'Y OF STATE, supra note 2. 68 Cal. Proposition 45, supra note 3 at § 1. 69 Id. 70 Id. (defining the administrative record as only including notices, studies, documents made available to the public, and certain public comments). 71 Id. 72 Id. 73 Cal. Proposition 45, supra note 3 at § 1. 74 CAL. LEGIS. ANALYST'S OFF., supra note 41. 67

Figure 1. Principal Deadlines for Essential Projects Under Proposition 45. Stage

Deadline

Completeness Determination

30 days after the agency receives the application. The application is deemed complete if the agency does not act.

Decision on Type of CEQA Review Required

30 business days after the application is complete.

Exemption or Reliance on Prior Environmental Review

90 business days after the application is complete.

Negative Declaration or Mitigated Negative Declaration

180 business days after the application is complete.

EIR

365 business days after the application is complete.

Lead Agency’s Other Permits and Approvals

Generally, together with the CEQA decision.

Hearing and Decision After a Missed Review Deadline

60 days after the applicant’s written request.

Public Comment Period

20 days for negative declarations, and 45 days for EIRs.

Filing a CEQA Lawsuit

30 days after the notice of the determination or exemption is filed.

Resolving a CEQA Lawsuit, Including Appeals

270 days, though the court may add up to 90 days. Further extensions require all parties’ consent.

III.

DRAFTING ISSUES

Proposition 45 defines each category of an essential project in detail, but several definitions leave room for dispute over which projects qualify. Data centers are one example, as the measure does not mention them, and opponents argue that its definition of broadband projects could give data center developers a pathway to use the new procedures for this type of building. The omission of data centers is particularly noteworthy because the measure expressly excludes other projects, such as Delta conveyance facilities and high-speed rail.75 Supporters

Andrew Graham, Data Centers’ Deep Political Unpopularity Enters Debate over CEQA Reform Measure, SACRAMENTO BEE (Aug. 20, 2026), https://perma.cc/3WL8-DCMW; see also Sofia Williams, Are new data centers included in Prop. 45’s CEQA reforms? That’s debatable, SACRAMENTO BEE (Aug. 28, 2026), https://perma.cc/CX5G-EW67.

respond that Proposition 45 “unequivocally does not include data centers.”76 Because the broadband definition extends to “any capabilities that are incidental to and enable the operation of the communications service,” the answer may depend on how broadly a court reads that phrase.77 Other definitions are similarly broad, as a “wildfire reduction project” is any “activity that reduces wildfire risks to a residential or commercial structure,” including working on roads, and an essential water project includes work on any system “generally described and within the scope of the state’s Water Resilience Portfolio.”78 Because the measure directs that it be interpreted “to afford the fullest possible weight to the interest of, and the approval and realization of, essential projects,” courts may resolve this question in favor of eligibility.79 The measure’s flexibility could also produce disputes, as an applicant “may elect to utilize none, some, or all of the provisions of this chapter,” alone or together with other streamlining laws, so long as the project meets the chapter’s tribal consultation and labor requirements.80 Some provisions require an applicant to opt in or opt out in writing, but the chapter does not require an applicant to declare, at any point, which provisions it has chosen.81 By contrast, a project must be certified by the Governor before it may receive expedited judicial review as an environmental leadership development project.82 Without an election point, it is unclear, for example, whether the measure’s new judicial review rules apply to projects whose applications did not elect them, as the chapter makes its provisions optional, but also states that any lawsuit challenging an essential project’s approval “shall be conducted and completed in accordance” with those rules.83 The measure also fixes the governing law as of two different dates: agencies must evaluate an essential project under “existing laws” in effect when its application was submitted, however, the chapter’s references to other statutes and regulations refer to those laws as “they existed on December 31, 2025, regardless of any subsequent amendment, repeal, sunset, or expiration.”84 This freeze preserves provisions the measure incorporates, such as labor standards and expedited judicial review rules for environmental leadership development projects, which are otherwise scheduled to be repealed on January 1, 2034.85 But, if a cross-referenced law, such as CEQA’s tribal consultation provisions or the CEQA guidelines (the regulations that implement CEQA), is amended after 2025, a project whose application is submitted after the amendment could be subject to the 2025 version through the cross-reference and to the amended

Graham, supra note 74. Cal. Proposition 45, supra note 3, at § 1. 78 Id. 79 Id. (“[t]his act shall be liberally construed to give effect to its intent and purposes”). 80 Id. 81 See id. (requiring a written request to waive certain provisions and written notice to use the preliminary scoping process). 82 CAL. PUB. RES. CODE §§ 21182–21183. 83 Cal. Proposition 45, supra note 3, at § 1. 84 Id. 85 See id.; CAL. PUB. RES. CODE § 21189.3 (providing that the chapter containing sections 21183.5 and 21185 will be repealed on January 1, 2034). 77

version as an existing law, leaving courts to decide which controls.86 The text printed in the voter guide also contains at least one incorrect cross reference, as section 21016(b)(6) refers to a written explanation under “paragraph (5) of subdivision (c),” but that explanation is required by paragraph (5) of subdivision (b).87 This matters, because the Legislature may amend the measure only by a two-thirds vote of each house, and only in ways that further its purposes, so even minor errors could be difficult to correct after enactment.88 IV.

FISCAL CONSIDERATIONS

The LAO estimates that Proposition 45 would impose initial costs on state and local governments likely in the high tens of millions of dollars annually, potentially exceeding $100 million, with some of these costs offset by fees.89 The LAO further concludes that the measure could have uncertain and potentially more significant positive or negative fiscal effects over the longer term.90 The proponents do not contest the LAO’s estimate of the measure’s implementation costs.91 Instead, they argue that those costs must be considered against the existing costs associated with permitting delays.92 In the official ballot argument, proponents contend that delays in infrastructure projects including public roads, schools, hospitals, water systems, and wildfire-prevention projects result in billions of dollars in additional costs to taxpayers.93 They further assert that permitting delays can add as much as $75,000 to the cost of a new home.94 Thus, the proponents frame the measure’s initial government expenditures as an investment intended to reduce the larger costs associated with the existing permitting system.95 The opponents likewise rely on the LAO’s estimate but emphasize the potential costs to taxpayers rather than the potential savings from expedited permitting.96 Their ballot argument invokes the LAO’s discussion of potential environmental impacts under the heading “They pollute. You pay.”97 The argument is that if Proposition 45 reduces the extent to which private developers are required to identify and mitigate environmental impacts, some of the resulting costs could instead fall on state and local governments.98 Opposition commentary has similarly highlighted the LAO’s estimate of initial costs potentially exceeding $100 million yearly, while emphasizing the LAO’s conclusion that the measure could produce more significant positive or 86

See id. (incorporating CEQA’s tribal consultations provision and the CEQA Guidelines and fixing the applicable law as of each date). 87 Id. 88 Cal. Proposition 45, supra note 3, at § 1; CAL. CONST., art. II, §10(c) (permitting the legislature to amend an initiative statute without voter approval only if the initiative so provides.). 89 California Proposition 45, Changes to Environmental Review Process for Certain Projects Initiative (2026), BALLOTPEDIA, https://perma.cc/4QF4-XDQD. 90 Id. 91 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 78. 92 Id. 93 Id. 94 Id. 95 See infra Section VI. 96 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 78. 97 Id. 98 Id.

negative fiscal effects over the longer term.99 Accordingly, the fiscal debate largely turns on how the measure’s substantial upfront governmental costs should be weighed against its uncertain long-term effects. V.

CONSTITUTIONAL AND STATUTORY ISSUES

As with all laws in California, initiatives are subject to constitutional limitations.100 Indeed, the California Supreme Court has explained that “[a] statutory initiative is subject to the same state and federal constitutional limitations as are the Legislature and the statutes which it enacts.”101 The California Constitution thus serves as an important check on the initiative power.102 If voters approve Proposition 45, two constitutional theories appear most likely to be raised against it. The first is that certain judicial review provisions violate the separation of powers. The second is that the measure embraces more than one subject. This Section describes each theory, and the precedent a reviewing court would likely apply A. Separation of Powers One constitutional principle likely implicated by Proposition 45 is the separation of powers, which the California Supreme Court has described as “a basic philosophy of our constitutional system of government.”103 Accordingly, an initiative that runs contrary to that doctrine is subject to constitutional scrutiny.104 The California Constitution sets out the separation of powers doctrine, stating that “[t]he powers of state government are legislative, executive, and judicial. Persons charged with the exercise of one power may not exercise either of the others except as permitted by this Constitution.”105 In essence, the separation of powers doctrine prohibits one branch from taking over the core functions of another, while tolerating actions of one branch that significantly affect another.106 Each branch has a distinct role in the CEQA process. The Legislature wrote the rules for environmental review, and the state and local agencies apply those rules when they review and approve projects. The courts, in which the Constitution vests the judicial power, decide challenges to those approvals and have the authority to manage the cases on their dockets. Authority over court procedure is shared, as the Judicial Council adopts the rules of practice, and procedure for the courts, but those rules may not be

Mabel Tsang, California Needs to Preserve Clean Air and Public Oversight. Why Prop. 45 Must Be Stopped, SMDP (Aug. 3, 2026), https://perma.cc/4BAZ-WVFB. 100 Legislature v. Deukmejian, 34 Cal. 3d 658, 674–75 (1983). 101 Id. 102 See David A. Carrillo et al., California Constitutional Law: Direct Democracy, 92 S. Cal. L. Rev. 557, 614–615 (2019) (describing constitutional checks on the initiative power, including the single-subject rule and the separation of powers). 103 Bixby v. Pierno, 4 Cal. 3d 130, 142 (1971). 104 Deukmejian, 34 Cal. 3d at 674–75. 105 CAL. CONST. art. III, § 3. 106 Carmel Valley Fire Prot. Dist. v. State, 25 Cal. 4th 287, 297–98 (2001).

inconsistent with statute.107 The lawmakers, including voters acting by initiative, may therefore pass reasonable laws that affect how courts operate, but not laws that “defeat” or “materially impair” the courts’ exercise of their constitutional power.108 1. Limits on Judicial Remedies Under existing law, a court that finds a CEQA violation must order one or more of three remedies: (1) void the agency’s decision in whole or in part; (2) suspend specific project activities until the agency complies; or (3) direct specific corrective action.109 Proposition 45 would narrow those remedies for essential projects.110 A court that finds a violation could bar only the flawed part of the project from starting until the agency corrects the error.111 The court could not order the agency to rescind its approval of the project.112 A court could temporarily halt a project component only upon clear and convincing evidence that the component would have a specific, adverse impact on public safety that cannot feasibly be mitigated or avoided.113 Opponents could argue that these restrictions violate the separation of powers by materially impairing a core judicial function.114 Their argument would likely be that deciding cases is a core function of the courts, and a court’s decision has practical force only if it can provide the winning party with meaningful relief.115 Under Proposition 45, a court could determine that an agency had acted unlawfully, but would still be required to leave the unlawful approval in place.116 The opponents could thus argue that such a ruling would have little practical effect because the court would be unable to provide an effective remedy.117 Supporters could respond that CEQA rights come from a statute, not the Constitution, and that because they created a statutory right, they may decide how it is enforced.118 The California Supreme Court has described CEQA as “a legislative act, subject to legislative

107

CAL. CONST. art. IV, § 2 (vesting the legislative power in the Legislature but reserving to the people the powers of initiative and referendum; Cal. Pub. Res. Code §§ 21067, 21100, 21151 (assigning environmental review to lead agencies); CAL. CONST. Art. VI. § 1 (vesting the judicial power in the courts); CAL. PUB RES. CODE §§ 21168, 21168.5 (providing judicial review of agency CEQA decisions); People v. Engram, 50 Cal.4th 1131, 1146–47 (2010) (recognizing courts’ inherent power to control the cases on their dockets); CAL. CONST. Art VI, §6(d) (requiring Judicial Council rules to be consistent with statute). 108 Superior Ct. v. Cnty. of Mendocino, 13 Cal. 4th 45, 58–59 (1996). 109 CAL. PUB RES. CODE § 21168.9(a). 110 Cal. Proposition 45, supra note 3, at § 1. 111 Id. 112 Id. 113 Id. 114 See Superior Ct. v. Cnty. of Mendocino, 13 Cal. 4th 45, 58–59 (1996). 115 See Eric Biber, Is BACA Constitutional?, LEGAL PLANET (May 10, 2026), https://perma.cc/ZJX3-5N7G (suggesting that limits on relief could violate the separation of powers if they “become so burdensome that they effectively foreclose judicial review at all”). 116 Cal. Proposition 45, supra note 3, at § 1. 117 See Biber, supra note 114. 118 See Biber, supra note 114 (explaining that courts have reasoned that “just as the legislature can change nonconstitutional rights, it can likewise change whether those rights can be enforced in court”).

limitation and legislative amendment,”119 and the Legislature may exempt projects from CEQA altogether.120 Furthermore, supporters would still argue that courts will still decide every challenge, and could still bar the flawed part of a project until it is fixed.121 In Saltonstall v. City of Sacramento122, the Third District Court of Appeal relied on this reasoning to uphold a law limiting the courts’ power to halt construction of the Sacramento Kings arena. The court concluded that the law did not dictate the outcome of any case, and that CEQA protects statutory, not constitutional, rights.123 Proposition 45 would go further than the statute upheld in Saltonstall.124 That law restricted only when courts could halt construction, left their power to cancel approvals intact, and applied to a single project.125 Whether Proposition 45 may eliminate cancellation as a remedy is therefore unsettled.126 Still, CEQA rights come from statute and could be repealed altogether, and for that reason, a court would likely view these limits as a permissible regulation of remedies rather than an impairment of judicial power.127 Proposition 45’s separate limits on the scope of judicial review may present a closer question, because California courts have held that the Legislature may not prevent judicial review of an agency’s adjudicatory decisions, such as permitting decisions.128 2. The 270 Day Deadline Proposition 45 would require a lawsuit challenging an essential project’s approval to be filed within thirty days after the agency files its notice of determination or exemption.129 The action “shall be completed within 270 days, inclusive of original and appellate court proceedings.”130 A court may extend that deadline once by up to ninety days.131 Otherwise, the deadline may be extended only with the written consent of the petitioner, the agency, and the

119

Napa Valley Wine Train, Inc. v. Pub. Utils. Comm'n, 50 Cal. 3d 370, 376 (1990). Saltonstall v. City of Sacramento, 231 Cal. App. 4th 837, 858 (2014), as modified (Dec. 18, 2014). 121 Cal. Proposition 45, supra note 3, at § 1. 122 Saltonstall, 231 Cal. App. 4th at 845. 123 Id. 124 Compare id. at 853–54 (describing a statute that limited when courts could stay or enjoin construction or operation of the downtown area), with CAL. PROPOSITION 45, supra note 3, at § 1 (barring courts from ordering an agency to rescind its approval of an essential project). 125 See Saltonstall, 231 Cal. App. 4th at 853–54 (noting that the statute did not “undermine the ability of the trial or appellate courts to issue injunctive relief”). 126 See Biber, supra note 114 (observing that the cases upholding limits on relief, including Saltonstall, did not “completely preclude[] judicial review”). 127 See Saltonstall, 231 Cal. App. 4th at 854–55 (reasoning that because the Legislature could exempt a project from CEQA entirely, it could also specify the interests to be weighed in deciding whether to halt the project); Biber, supra note 114 (suggesting that Proposition 45’s limits on relief “might be on stronger footing” than its limits on judicial review). 128 See Biber, supra note 114 (citing McHugh v. Santa Monica Rent Control Bd., 49 Cal. 3d 348, 371–74 (1989)). 129 Cal. Proposition 45, supra note 3, at § 1. 130 Id. 131 Id. 120

applicant, “[n]otwithstanding any contrary provision in Section 21185 or any rule adopted by the Judicial Council.”132 Existing law applies a similar timeline to a much narrower set of projects.133 Section 21185 directs the Judicial Council to adopt rules requiring challenges to environmental leadership development projects to be resolved within 270 days “to the extent feasible.”134 The Legislature’s use of that qualifier, “to the extent feasible,” traces back to earlier litigation.135 As enacted in 2011, Assembly Bill 900 (“AB 900”) required challenges to leadership projects to be filed directly in the Court of Appeal, which had 175 days to decide them.136 In March 2013, Alameda County Superior Court Judge Frank Roesch held that requirement unconstitutional because it deprived the superior courts and the Supreme Court of the original jurisdiction conferred by Article VI, Section 10.137 The ruling was not appealed.138 Later that year, the Legislature enacted Senate Bill 743 (“SB 743”).139 That bill eliminated the direct-filing requirement and instead directed the Judicial Council to adopt rules for resolving these cases, including appeals, within 270 days.140 According to the Judicial Council, the Legislature has since included “to the extent feasible” language in these expedited review statutes in an effort to avoid constitutional concerns.141 Opponents could argue that Proposition 45 presents a more serious constitutional question than section 21185 because it omits the feasibility qualifier, overrides contrary Judicial Council rules, and would also apply to many more projects.142 In their view, a firm deadline covering both trial and appellate proceedings could materially impair the courts’ core functions of deciding cases and managing their dockets.143 Supporters could respond that statutes setting priorities and time frames for judicial proceedings are common, and that courts have preserved such provisions by construing them flexibly.144 For example, in Briggs v. Brown145, the 132

Id. See CAL. PUB RES. CODE §§ 21183, 21185 (limiting expedited review to environmental leadership development projects certified by the Governor). 134 Id. at § 21185. 135 JUD. COUNCIL OF CAL., CEQA ACTIONS: NEW PROJECTS AND FEES FOR EXPEDITED REVIEW (Mar. 2, 2022), https://perma.cc/G2PN-C7DA [“2022 JUDICIAL COUNCIL REPORT”] (describing the invalidation of the 2011 statute and the Legislature’s later use of “to the extent feasible” language). 136 Bradley B. Brownlow & Kevin J. Ashe, Courthouse Doors Open for Legal Challenges of California Power Plant Siting Approvals, HOLLAND & KNIGHT ALERTS (Dec.10, 2020) https://perma.cc/NQA5-75A9. 137 Id. 138 2022 JUDICIAL COUNCIL REPORT, supra note 135, at 2 (noting that the ruling was not appealed). 139 SB 743, 2013 Leg., 2013–2014 Reg. Sess. (Cal. 2013). 140 2022 JUDICIAL COUNCIL REPORT, supra note 135, at 2. 141 Id. at 3. 142 Compare Cal. Proposition 45 supra note 3, at § 1 (requiring completion within 270 days notwithstanding contrary Judicial Council rules), with CAL. PUB RES. CODE § 21185 (requiring resolution within 270 days “to the extent feasible”). 143 See Briggs v. Brown, 3 Cal. 5th 808, 848–49 (2017) (discussing “the courts’ authority to control the disposition of the cases on their dockets”); Superior Ct. v. Cnty. of Mendocino, 13 Cal. 4th 45, 58–59 (1996) (prohibiting legislation that would “materially impair” a court’s exercise of its constitutional power). 144 See Briggs, 3 Cal. 5th at 848–54 (discussing statutory priorities and time limits for judicial proceedings). 145 Id. 133

California Supreme Court considered Proposition 66 (2016), which required state courts to complete appellate and initial habeas corpus review in capital cases within five years. The court recognized that legislative priorities and directives to proceed expeditiously generally do not impair judicial authority.146 It nonetheless held that, “to avoid serious separation of powers problems,” provisions appearing to impose strict deadlines on judicial proceedings must be treated as directive rather than mandatory.147 Thus, a reviewing court would likely follow Briggs and construe the deadline as a directive rather than invalidate it.148 This approach reflects how protective courts are of their control over their own dockets. In People v. Engram149, for example, the California Supreme Court declined to read a statute giving criminal cases precedence over civil cases as a command, explaining that lawmakers may place reasonable restrictions on the courts’ constitutional functions only if those restrictions do not defeat or materially impair them. Courts have been even less accommodating when a measure reaches the substance of judicial decision making. In Raven v. Deukmejian150, the California Supreme Court struck down a provision of Proposition 115 (1990) that would have required California courts to interpret certain state constitutional rights of criminal defendants consistently with, and no more broadly than, the corresponding federal rights.151 The court held that the provision was a constitutional revision, which voters cannot adopt by initiative, because it would have vested “all judicial interpretive power, as to fundamental criminal defense rights, in the United States Supreme Court” and would “substantially alter the substance and integrity of the state Constitution as a document of independent force and effect.”152 More recently, in Castellanos v. State of California153, the Court of Appeal struck down two provisions of Proposition 22 (2020) that defined which future legislation would count as an amendment of the measure, reasoning that only the judiciary may decide what constitutes an amendment. Proposition 45 is distinguishable from both measures. It is an initiative statute, not a constitutional amendment, so Raven’s revision analysis would not apply directly, and unlike the provisions struck down in Castellanos, Proposition 45 does not tell courts how to interpret the law or decide the merits of a CEQA claim. Its deadline and remedy provisions instead regulate how courts process and enforce a statutory right. Still, these cases show that courts closely guard their authority to decide cases independently. A court that views Proposition 45’s combination of fixed deadlines and narrowed remedies as effectively dictating the outcomes of CEQA challenges, rather than regulating procedure, could be less deferential than Briggs and Saltonstall suggest. 146

Id. at 848–49. Id. 148 Id. at 854 (“Repeatedly, for over 80 years, California courts have held that statutes may not be given mandatory effect, despite mandatory phrasing, when strict enforcement would create constitutional problems”). 149 People v. Engram, 50 Cal. 4th 1131, 1147–50 (2010). 150 Raven v. Deukmejian, 52 Cal. 3d 336, 355–356 (1990). 151 Id. at 352–53; see CAL. CONST. Art. XVIII, §§ 1–4 (permitting constitutional revision to be proposed only by the Legislature or a constitutional convention). 152 Id. at 352–353. 153 Castellanos v. State of Cal., 89 Cal. App. 5th 131 (2023) (invalidating Cal. Bus. & Prof. Code §7456(c)(3)–(4) on separation of powers grounds). 147

B. Single-Subject Rule Article II, Section 8(d) of the California Constitution states that “[a]n initiative measure embracing more than one subject may not be submitted to the electors or have any effect.” This doctrine is referred to as the single subject rule. In order for an initiative to satisfy the singlesubject rule, subjects must be “reasonably germane” to a common theme or purpose.154 For example, in Senate of the State of California v. Jones, the California Supreme Court removed a measure from the ballot because it combined two unrelated subjects: transferring reapportionment authority from the Legislature to the Supreme Court, and changing the compensation of legislators and other state officers. Challengers could argue that Proposition 45 embraces several subjects because, besides revising CEQA procedures for nine categories of projects, the measure: rewrites tribal consultation requirements for those projects; imposes prevailing wage and other labor standards; extends certain Labor Code liability provisions to owners of essential housing projects during construction; limits the Legislature’s power to amend the measure; and directs the Attorney General to appoint independent counsel if the Governor and Attorney General decline to defend the measure in court, funded by a continuous General Fund appropriation.155 A challenger could characterize the labor and wage, Attorney General, and appropriation provisions in particular as having no direct connection to environmental review. Supporters could respond that each provision is reasonably germane to the measure’s stated purpose: making California development more affordable by streamlining and speeding approval of essential projects.156 First, tribal consultation is already part of the CEQA process.157 Second, the labor standards operate as conditions to use the streamlined procedures, much like how existing law conditions streamlined environmental development projects on compliance with labor requirements.158 Provisions governing amendment and legal defense could likewise be viewed as means of implementing and preserving the measure.159 Courts have also declined to require that each provision of an initiative be functionally necessary to the rest.160 Recent precedent tends to favor the measure’s defenders: in Briggs, discussed above, the California Supreme Court rejected a single-subject challenge to Proposition 66 (2016), which combined changes to capital appeals, habeas corpus procedures, and other aspects of death 154

Senate of State of Cal. v. Jones, 21 Cal.4th 1142, 1158 (1999). Cal. Proposition 45 supra note 3, at § 1. 156 Id. 157 CAL. PUB RES. CODE §§ 21080.3.1–21080.3.2. 158 Cal. Proposition 45 supra note 3, at § 1 (incorporating CEQA's existing tribal consultation provisions, as modified, and applying the labor requirements of section 21183.5 to every category of essential project except housing); CAL. PUB RES. CODE § 21183.5 (setting labor requirements for environmental leadership development projects). 159 Castellanos v. State, 89 Cal. App. 5th 131 (2024) (holding that a provision of Proposition 22 restricting the Legislature’s ability to authorize collective bargaining for app-based drivers satisfied the single-subject rule). 160 Briggs v. Brown, 3 Cal. 5th 808, 829 (2017) (“[T]he single-subject provision does not require that each of the provisions of a measure effectively interlock in a functional relationship”). 155

penalty administration.161 In Castellanos v. State of California, the Court of Appeal rejected a single-subject challenge to Proposition 22 (2020), even though the trial court had found a violation. Proposition 22 paired independent-contractor status for app-based drivers with minimum compensation, health care subsidies, insurance, and other requirements.162 Given this deferential approach, a single-subject challenge to Proposition 45 would likely fail. This issue still warrants attention, however, because single-subject challenges are commonly raised against initiatives.164 163

161

Id. at 828–31. Castellanos, 89 Cal. App. 5th (The Court of Appeal separately invalidated and severed, on separation of powers grounds, two provisions of Proposition 22 that defined certain future legislation as amendments of the initiative. The Supreme Court’s review was limited to whether Proposition 22 conflicts with the Legislature's workers' compensation authority under article XIV, section 4). 163 See Jones, 21 Cal.4th at 1156–57 (explaining that “the single-subject requirement should not be interpreted in an unduly narrow or restrictive fashion that would preclude the use of the initiative process to accomplish comprehensive, broad-based reform in a particular area of public concern”). 164 See e.g. Briggs, 3 Cal.5th 828–31 (addressing a single-subject rule challenge to Proposition 66); Jones, 21 Cal.4th at 1146 (addressing a single-subject challenge to Proposition 24). 162

VI.

PUBLIC POLICY ISSUES A. Campaign Financing 1. Proponents

Proponents of Proposition 45 have received about $34.8 million from contributors.165 The ten largest contributors are as follows: Contributor #

Name

Amount

Building a Better California (Top donors: Sergey Brin; L. John Doerr III)

$10,000,000

California Building Industry Association Issues Committee (Top donors: KB Home; Lennar)

$4,305,000

California Building Industry Association

$2,250,000

CalChamber Non‑Donor Funds

$2,000,000

Edison International & Affiliated Entities

$2,000,000

Building Resilient Infrastructure For A Decarbonized Green Economy Issues PAC, funded by PG&E Corporation

$1,800,000

California Association of Realtors

$1,500,000

CA Business PAC (Top donors: CRC Services, LLC (Francisco Leon); PG&E Corporation and Affiliated Entities)

$1,350,000

California Hospitals Committee on Issues (CHCI), sponsored by CAHHS (top donors: Kaiser Foundation Health Plan; Sutter Health)

$500,000

California Resources Corporation and Subsidiaries

$500,000

The largest contributor is Building a Better California, which has received funding from Sergey Brin and L. John Doerr III.166 The same Brin- and Doerr-funded political vehicle is also the top funder of several other 2026 ballot measures and campaigns, including Proposition 41 165

Proposition 45: Speed Up Environmental Reviews for Housing and Infrastructure, CALMATTERS 2026 VOTER GUIDE, https://perma.cc/LY7C-X7KD. 166 Id.

($58.25 million), Proposition 42 ($64.25 million), Proposition 37 ($6 million), the campaigns opposing Proposition 40 ($20.5 million), and Proposition 1 ($1 million).167 Its $10 million contribution to the Proposition 45 campaign therefore places the measure within a broader pattern of significant political spending during the 2026 election cycle.168 Utility interests also represent a significant source of funding for the proponents’ campaign.169 Edison International and affiliated entities contributed $2 million directly, while PG&E Corporation and affiliated entities are identified as top donors to the CA Business PAC, which contributed $1.15 million to the campaign.170 These contributions provide context for the opposition's ballot argument characterizing Proposition 45 as being “financed by gas and electric utilities.”171 Another notable contributor is California Resources Corporation (“CRC”), an oil and gas producer, which contributed $500,000 directly to the campaign. In addition, CRC Services, LLC, identified as a top donor associated with Francisco Leon, is among the top contributors to the CA Business PAC, which contributed another $1.35 million.172 CRC's involvement is notable in light of Proposition 45's exclusion of new oil and gas production facilities under § 21028(m)(2)173. The company's interest may instead relate to other activities covered by the measure, including carbon capture and storage under § 21028(j)(1)(D), as well as transmission and microgrid infrastructure.174 Accordingly, the presence of oil-and-gas-industry funding does not necessarily indicate that the measure would facilitate new oil and gas production.

167

Cf. Cal. Proposition 37 (2026), 40 (2026), 41 (2026), and 42 (2026). CALMATTERS, supra note 164. 169 Id. 170 Id. 171 Id. 172 Id. 173 CALMATTERS, supra note 164. 174 Id. 168

2. Opponents The opponents of Proposition 45 have received approximately $15.9 million from contributors.175 The largest contributors are: Contributor #

Contributor

Amount

Sponsored By Environmental Organizations Clean And Healthy California

$7,112,925

Wendy Schmidt

$5,000,000

State Building Construction Trades Council Of California

$2,006,257

State Building And Construction Trades Council Of California Independent Expenditure PAC

$823,857

Center For Biological Diversity Inc

$613,240

District Council of Iron Workers of the State of California and Vicinity PAC

$500,000

Earth Justice

$310,021

The Wildlands Conservancy

$100,000

Amy J Bricker

$54,144

The largest contributor is Clean and Healthy California, whose mission statement is to hold “Big Oil and corporate polluters accountable . . . for the good of all Californians”.176 The opponents’ contributors are primarily individuals and activist organizations focused on environmental issues.177 A notable individual contributor is Wendy Schmidt, a philanthropist, investor, and co-founder of the Schmidt Ocean Institute.178 Another large contributor to the opponents’ campaign is the District Council of Iron Workers of California and Vicinity, which focuses on building a clean California through major infrastructure projects such as high-speed rail.179 Several trade associations have aligned themselves with the opponents’ campaign much to the chagrin of the proponents, who believed that trade associations would support the measure or at least “stay on the sidelines”.180 However, 175

Id. About, CLEAN AND HEALTHY CALIFORNIA, https://perma.cc/6N9A-KLL8. 177 CALMATTERS, supra note 164. 178 Our Story, SCHMIDT OCEAN INSTITUTE, https://perma.cc/F9TX-46PG. 179 Our History, DCIW OF CALIFORNIA AND VICINITY, https://perma.cc/Z9QA-AQUP. 180 Andrew Graham, Jilted by labor unions, Prop. 45 campaign blames their well-paid law firms, SACRAMENTO BEE, (Oct. 16, 2026) https://perma.cc/C7PJ-EHLD. 176

trade associations have largely sided with the opponents, including the State Building & Construction Trades Council of California, whose president stated that although the council supports infrastructure projects that create good-paying jobs, it must also respect local communities and natural resources.181 Proponents of Proposition 45 contend that the trade unions' opposition to the measure is spurred by a “lucrative relationship [with] law firms that specialize in CEQA”, but the opponents have called this allegation “desperation from a failing campaign.”182 In support of the opposition movement, trade unions have highlighted that their relationship with CEQA is essential for more responsible development because it is a negotiating tool when dealing with powerful developers.183 B. Proponents Main Arguments Proponents of the measure include California Chamber of Commerce, The California Hospital Association, California Hydrogen Coalition, Agricultural Council of California, California Wind Energy Association, California Council for Affordable Housing, California League of United Latin American Citizens (LULAC), California Housing Consortium, California Building Industry Association, and many more.184 Proponents argue that Proposition 45 will help alleviate California’s housing crisis by expediting permitting for housing projects and other infrastructure without major changes to environmental review requirements. 1. California’s Slow and Expensive Permitting Process is Costing Taxpayers Proponents argue that California’s permitting process is too slow and costly because lengthy reviews, bureaucratic delays, and litigation increase project costs and delay construction. They argue that Proposition 45 would address this by imposing timelines and streamlining legal challenges, allowing essential projects to be approved and built faster (and more predictably).185 Jenna Abbott, the executive director of the California Council for Affordable Housing, says “Prop. 45 modernizes California’s project approval process by establishing clear, enforceable timelines and creating a faster, more predictable process for resolving legal challenges.”186 Proponents argue that Proposition 45 would lower housing costs by speeding up housing project approval and permitting. They contend that lengthy permitting delays increase homebuilding costs, adding more than $75,000 to the cost of a typical new home. By imposing faster approval timelines, proponents argue that Proposition 45 would reduce development costs and ultimately lower rents, mortgages, and home purchase costs.187 Proponents argue that Proposition 45 would allow housing, transportation, water, schools, hospitals, wildfire prevention, clean energy, and other infrastructure projects to be completed faster and at lower cost.188 Jenna 181

Id. (“We oppose Prop. 45 because it would gut longstanding protections for public and environmental review, severely limiting the ability of communities and local governments to ensure major projects are built responsibly.”) 182 Id. 183 Id. 184 Our Coalition, YES ON PROP., https://perma.cc/4N9Z-VTL4. 185 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 78. 186 BALLOTPEDIA, supra note 88. 187 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 78. 188 Id.

Abbott, the executive director of the California Council for Affordable Housing, says “Prop. 45 won’t solve every challenge contributing to California’s housing crisis, but it addresses one of the biggest: a broken project approval process that drives up costs, delays essential projects and leaves Californians paying the price.”189 Supporters argue that Proposition 45 makes the approval process more predictable by giving agencies and courts set time limits. Instead of a project potentially being delayed indefinitely by administrative review or litigation, there would be deadlines by which the government must act, and courts must resolve challenges.190 Proponents argue that this measure will reduce delays in project approval and litigation by imposing enforceable deadlines and limiting the scope and duration of court challenges.191 Proponents argue that when a road, school, hospital, water system, or wildfire project takes years longer than expected, construction and financing costs can rise substantially.192 Therefore, they say, shortening the approval process can reduce the amount taxpayers ultimately pay.193 2. Environmental Protections Will Remain Proponents argue that environmental review should not disappear, and that Proposition 45 merely provides guardrails with respect to deadlines (“Prop. 45 does not eliminate a single environmental law or exempt a single project from environmental review.”).194 Importantly, the official voter guide describes the measure as modifying CEQA by expediting environmental review and changing the procedures for court challenges.195 Jenna Abbott, the executive director of the California Council for Affordable Housing, says, “Prop. 45 does not eliminate CEQA. Every project must still comply with the state’s strongest-in-the-nation environmental laws. Cities and counties still decide what gets approved in their communities, and Californians will continue to have a voice in the process.”196 In addition, proponents argue that data centers are not eligible for the streamlined review process; however, the bill does not explicitly exclude them, unlike other major infrastructure projects, such as high-speed rail.197 3. Stimulation of California’s Economy and Job Creation Supporters also frame faster construction as an economic-development policy. Their campaign says Proposition 45 would create tens of thousands of jobs and billions of dollars in economic activity, while allowing infrastructure investments to happen sooner.198 Proponents, like Jennifer Barrera, president and CEO of the California Chamber of Commerce, argue that 189

BALLOTPEDIA, supra note 88. NOVEMBER 2026 VOTER GUIDE, supra note 2, at 78. 191 Id. 192 Id. 193 Id. 194 Id. 195 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 75. 196 BALLOTPEDIA, supra note 88. 197 Rachelle Chong, California’s Proposition 45 does not cover data centers, DAILY JOURNAL, (Aug. 20, 2026) https://perma.cc/4M5G-DYRQ. 198 Id. 190

"Californians have too long paid the price for bureaucratic red tape and delays, and they’re ready for solutions. . . We can protect the environment and good-paying jobs while delivering the essential projects California urgently needs.”199 4. Gives Local Government and Residents a Voice Proponents argue that the measure allows cities and counties to retain authority to approve, deny, or condition projects, while residents retain opportunities for public comment and litigation. The measure establishes a 45-day public-comment period and requires written responses to timely comments.200 C. Opponents Main Arguments Opponents of the measure number in the hundreds, including Communities for a Better Environment, Western Center on Law & Poverty, Sierra Club California, Learning Disabilities Association of California, California Nurses for Environmental Health and Justice, Center for Food Safety, California Democratic Party, California Municipal Utilities Association, Construction Trades Workforce Initiative, Center for Biological Diversity, Pacific Energy Policy Center, and California Council of Land Trusts.201 Opponents argue that Proposition 45 will weaken environmental protections at the expense of public health, significantly burden taxpayers with the cost of cleaning up polluting projects approved under weakened protections, and not improve housing affordability. 1. “They Pollute. You Pay.” The LAO asserts that Proposition 45 could lead to the approval of projects with “unintended negative environmental impacts.”202 Opponents argue that taxpayers will ultimately suffer potential negative environmental impacts through threats to public health and by funding clean-up efforts for polluted land and water.203 The proposed changes under Proposition 45 weaken environmental reviews, leading to “more pollution near homes and schools, more asthma and more emergency-room visits.”204 Furthermore, the measure does not offer any guarantees that taxpayers will not “shoulder the costs” of projects proposed under the new timeline.205 Opponents argue that Proposition 45 will make it harder for the Legislature to correct any potential issues arising from the proposed changes. To amend post-adoption, the Legislature is required to have a two-thirds vote and may only pass an amendment if it “furthers the purposes” of the measure.206 199

Id. NOVEMBER 2026 VOTER GUIDE, supra note 2, at 78. 201 CALMATTERS, supra note 164; How Prop. 45 Hurts Our Communities, NO ON PROP 45, https://perma.cc/JXK67JLZ. 202 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 78. 203 Id. at 78–79. 204 Id. at 78. 205 Tsang, supra note 98. 206 Id. 200

2. Harms Air and Water Quality Along with Public Health Opponents believe Proposition 45 “guts” CEQA, a vital law that protects the environment and public health.207 (“CEQA helps protect communities who live closest to polluting projects by requiring that developers take steps to reduce the harms their projects will inflict on air, water, and nearby communities.”)208 Many opponents of Proposition 45 believe that, by not excluding projects especially harmful to the environment, proponents are making a “purposeful play” to lower safeguards without raising alarms among voters. As Richard Frank, senior fellow at the California Environmental Law & Policy Center at the UC Davis School of Law, and Matthew McKerley, a land use attorney specializing in CEQA, phrased their critique: The drafters of Prop. 45 explicitly excluded a long list of controversial projects. The measure expressly carves out high-speed rail, the Delta Conveyance Project, nuclear generation, jails, immigration detention facilities, prisons, and oil and gas facilities. Data centers are conspicuously absent from this list. Under bedrock principles of statutory interpretation, a California court will read that silence not as an oversight, but rather as deliberate intent to include data centers in Prop. 45’s coverage. As they did for other projects, the proponents could have expressly excluded data centers in the text of the initiative. They didn’t.209 3. Silences Community Voices in Favor of Corporate Polluters Opponents of Proposition 45 contend that shortened timelines for project review will silence public input because decisions will be made on less information and with less time for meaningful comments.210 The proposed changes created by this measure reduce requirements for public agencies to consider public comments, which are valuable because public comments often uncover potential problems such as contamination of air and water.211 In addition, opponents highlight that the proposition gives developers increased rights, including the ability to sue agencies imposing commonsense limitations.212 The increased rights to developers also allow them to usurp the authority of cities and counties, thereby increasing the difficulty of successfully challenging a potentially harmful project under the proposed changes.213 Lastly, opponents argue that CEQA protections are needed now more than ever due to the weakening of federal protections.214 Chris Hannan, President of the State Building and Construction Trades Council of California, says “[u]ndermining the public’s ability to meaningfully participate in project approvals would move our state backward, leaving California facing an unsustainable future of moratoriums, stalled projects, and worsening natural disasters.”215 Another opponent, 207

NO ON PROP 45, supra note 198. Tsang, supra note 98. 209 BALLOTPEDIA, supra note 88. 210 No on Prop 45, supra note 198. 211 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 79. 212 Tsang, supra note 98. 213 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 78. 214 Id. at 79. 215 BALLOTPEDIA, supra note 88. 208

Miguel of Sierra Club California, says on Proposition 45, “[w]e know that what they are really trying to do is eliminate a lot of the environmental safeguards that have existed for a long time. People have to read long technical documents to get a better understanding of whether a project is right or wrong for their community. It takes time for us to do discovery and have conversations with neighbors. Our input needs to be valued. Are developers trying to make it efficient or cut out the true voices of people who have concerns?”216 4. The Change Does Not Help Housing or Affordability Opponents argue that Proposition 45 includes no provision that lowers housing costs or utility bills. Therefore, opponents argue that any affordability argument supporting this measure is inaccurate because taxpayers will pay the true cost of cleaning up after polluters whose projects were fast-tracked by these changes.217 In addition, the LAO estimates that Proposition 45 will cost $100 million every year.218 Opponents also argue that costs will not be lowered for taxpayers but will instead be lowered for corporations and utilities.219 5. Fast-Tracks Costly Polluting Projects Including Data Centers Opponents of Proposition 45 argue that the initiative creates a loophole that lets corporations quickly greenlight projects that could threaten the environment, such as data centers, forest clear-cutting, freeway expansions, and luxury housing in fire areas.220 Although proponents argue that data centers are not eligible for the streamlined review process, opponents have been quick to counter that argument is based on an interpretation of “essential projects” and not explicitly written into the measure when it easily could have been.221 Opponents contend that the courts will interpret the silence in the measure on data centers to mean that the proponents intended data centers to be included in the streamlined process.222 Opponents also allude that proponents’ arguments about data centers are in bad faith because while publicly proclaiming data centers to be excluded, the proponents have taken $2 million from companies actively building them.223 In addition, Proposition 45 is financed by corporations and utility interests that opponents claim will use greater flexibility in environmental requirements to pollute and/or build without input from voters and affected communities.224 As put by Howard Penn, Executive Director of the Planning and Conservation League, “[l]et’s call this measure what it is: a power grab that lets polluters build what they want, where they want, and forces our communities to live with polluted air and water, and hazardous chemicals. It rips away the strongest tool our local communities have to keep toxic projects away from our kids . . . ”225 216

Id. NO ON PROP 45, supra note 198. 218 Id. 219 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 79. 220 NO ON PROP 45, supra note 198. 221 Matthew McKerley, Richard M. Frank, Prop. 45 will speed data center construction, DAILY JOURNAL, (Sept. 16, 2026) https://perma.cc/5MS9-48GR. 222 Id. 223 Id. 224 NO ON PROP 45, supra note 198. 225 BALLOTPEDIA, supra note 88. 217

VII.

CONCLUSION

Proposition 45 would amend CEQA to create an expedited review process for projects the measure defines as “essential.”226 First, it imposes new deadlines on agencies and courts. Second, Proposition 45 changes how CEQA review is conducted for projects using its expedited review process. Third, the measure narrows judicial review and remedies for essential projects. This builds on existing California efforts to streamline CEQA review and judicial review for certain projects, but makes the streamlined process available to substantially more project categories.227 A “YES” vote supports this initiative to make changes to CEQA to: (1) establish deadlines for public agencies to complete environmental review and take required actions for projects deemed essential under the law; (2) limit public agencies' existing requirement to consider a range of project alternatives to reduce environmental impacts; and (3) change the court review process for project approvals by setting deadlines for filing and resolving lawsuits and limiting the evidence and relief the court can consider and order.228 A “NO” vote opposes this initiative to make changes to CEQA, which governs state and local government agencies’ review process for determining potential environmental impacts and mitigation solutions of proposed construction projects.229

226

NOVEMBER 2026 VOTER GUIDE, supra note 2, at 74–75. Judicial Streamlining, CAL. GOVERNOR’S OFFICE OF LAND USE AND CLIMATE INNOVATION, https://perma.cc/PTR4-UGJB. 228 NOVEMBER 2026 VOTER GUIDE, supra note 2, at 74. 229 Id. 227

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