(Bloomberg) -- California will ask voters next week whether it should borrow another $20 billion for schools and climate change programs, the most state bonds they’ve been asked to approve during a single election in almost two decades.
Proposition 2 would authorize $8.5 billion of bonds for K-12 schools and another $1.5 billion for community colleges. Proposition 4 would let California sell $10 billion of bonds for climate change and environmental programs such as clean water projects. The two propositions are in addition to at least $37 billion on local ballots across the state on Nov. 5, according to data from S&P Global Market Intelligence analyzed by Bloomberg.
The measures face an electorate squeamish about allowing the most-indebted US state to take on more taxpayer-financed borrowing amid a $50 billion budget shortfall and as they endure inflated prices on everyday goods. California has about $80 billion of bond debt outstanding and another $32.8 billion already authorized but not yet issued.
“It’s challenging to ask voters at this time for money when the number one issue on their minds is the economy and cost of living,” said Mark Baldassare, statewide survey director at the Public Policy Institute of California, a nonpartisan research organization.
Both propositions were put on the ballot by the legislature and only require approval with a simple majority vote. Additionally, there’s a statewide ballot measure, Proposition 5, which would lower the approval threshold for local affordable housing and public infrastructure bonds to 55% from 66%.
In June, the legislature and Governor Gavin Newsom had to slash spending, suspend some business tax breaks and withdraw cash from reserves to fill a nearly $50 billion deficit for the fiscal year that began on July 1. The state’s Legislative Analyst’s Office is projecting deficits until fiscal year 2027-28.
Before 2020, overwhelming majorities of California voters supported several large borrowing measures. Voters passed a $7.1 billion bond for water storage and drought preparedness with a 35 point margin in 2014. They approved a $9 billion bond for school improvement and construction bond by a 10 point margin in 2016. And voters passed a $1.5 billion bond for children’s hospitals by a 25 point margin in 2018.
But the tide turned with the Covid-19 pandemic. Voters in 2020 rejected a $15 billion education bond that lawmakers had placed on the ballot. And this past March, a $6.4 billion bond for mental health facilities championed by Newsom barely passed. The second-term Democrat has since said the tight election “sobered” conversations about voter willingness to support borrowing.
The legislature worked to balance the budget after a shortfall earlier this year, meaning funding for certain education and climate programs had to be delayed, Baldassare said. “So, spending is on people’s minds,” he added.
While Public Policy Institute of California polling indicates there is majority support for the education and climate bonds, the races are still too close for proponents to be comfortable. Also, a new statewide poll from the PPIC shows that likely voters are divided on whether to lower the approval threshold for certain borrowing, with 48% saying they would vote yes and 50% saying they would vote no. The PPIC poll for statewide bond measures surveyed 1,646 Californians from Oct. 7 to Oct. 15.
“People don’t have strong ties to propositions that they just heard about, and for the voters, the easiest thing to do is to vote no,” Baldassare said.
Proposition 2 would provide $10 billion for modernization, repair and construction of school facilities in K-12 schools and community colleges. About 52% of likely voters say they would vote yes on the measure and 46% said they would vote no, according to a PPIC poll.
Support for the school bond is being weighed down by political sentiments percolating among the electorate like debates over bathroom access and library books, according to Jared Boigon, partner at Team CivX, a consulting firm that works with state and local issuers to market bonds.
“Public education is in the cross hairs right now,” said Boigon.
The $10 billion climate bond would invest in safe drinking water and help communities avoid and recover from wildfires, floods, droughts and extreme heat. It would be the single largest public investment for climate resilience in California’s history. Polling shows 60% of likely voters said they would vote yes on Proposition 4 against 38% that said they’d vote no.
“We go from drought to fire in California so that kind of climate messaging is on people’s minds,” Boigon said.
Proposition 5 is opposed by groups including the Howard Jarvis Taxpayers Association, the California Chamber Of Commerce, the California Republican Party, and Catalyst For Local Control. Through Oct. 22, the opposition groups have collectively spent about $29 million to defeat Prop 5, according to data from the California Secretary of State.
“We have a debt problem in California,” said Jon Coupal, president of Howard Jarvis Taxpayers Association. “We have an executive branch and a legislative branch with a super majority being absolutely hostile to taxpayers.”
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