What Prop. 41 Would Do
Proposition 41 would require the state auditor, working with the Legislative Analyst’s Office, to conduct an independent review of any state-level citizen initiative that aims to create a new special tax once it reaches 25% of the required signature threshold to be placed on the ballot. (Special taxes differ from general taxes in that they dedicate revenue to a specific purpose.) All new state-level special taxes would be audited every four years.
Additionally, any new special taxes passed after January 1, 2026 — whether proposed through legislation or through voter initiatives — would be subject to the Gann Limit, a voter-imposed revenue spending limit explained in the Backstory section below.
The audit of proposed citizen initiatives would examine the individual programs that would receive funding through the special tax and assess whether the programs are sufficiently cost-efficient in their hiring and operating practices. It would recommend how the programs could save 10% of their costs. The audit information would be included in the voter information guide, which would increase printing and mailing costs by a few hundred thousand dollars per initiative, according to the Legislative Analyst’s Office.
If a special tax passes, the state auditor would be required to conduct audits every four years to assess spending, evaluate efficiency, and recommend improvements. The auditor would consider public input when measuring the program’s effectiveness. The revenues generated would cover implementation costs. However, the state would pay the initial audit cost if voters rejected the special tax.
Prop. 41 is a countermeasure to the so-called billionaire tax, Prop. 40. If both measures pass, the one receiving more votes would prevail.
The Backstory
Special taxes are taxes whose revenues are dedicated to a specific purpose rather than contributing to the state’s general fund budget. The State Legislature can levy special taxes with two-thirds voter approval, or an initiative placed on the ballot by voter signatures can do so with a simple majority (50% plus one vote). Currently, special taxes have no audit requirements or spending caps.
Since the late 1970s, California has faced numerous tax limitations through Prop. 13 and other constitutional amendments. The Gann Limit imposes requirements on how the state can spend General Fund revenues. If the state’s revenues exceed the Gann Limit — a dollar amount based on the state’s spending level in 1978–1979, adjusted for population and per capita income — half of revenues over the limit must be allocated to K–14 education and the other half returned to taxpayers.1 Historically, the Gann Limit has rarely affected distribution of the state’s revenues, but if the state experiences strong income gains (including business/corporate/stock gains) over the limit, it could result in decreasing investment in state priorities such as housing, health care, economic development, and infrastructure.
The fiscal impacts of Prop. 41 are unknown. Adding pages to the voter information guide would cost money, but the audits could also create savings. If this measure prevents the state from raising new revenues from future taxes, it could have a significant negative fiscal impact in the longer term.
Prop. 41 is a countermeasure to Prop. 40, a one-time special tax on individuals with more than $1 billion in assets. Prop. 40 is intended to offset federal funding cuts to critical social safety net programs, including Medi-Cal, CalFresh, and the Supplemental Nutrition Assistance Program. The revenues generated from Prop. 40 would be exempt from the Gann Limit.
Prop. 41 was placed on the ballot through a signature-gathering effort led by Building a Better California, which is funded by Google co-founder Sergey Brin and other billionaires. It requires a simple majority (50% plus one vote) to pass. If it passes with more votes than Prop. 40, it would nullify Prop. 40. (Building a Better California has also placed Prop. 42, a separate countermeasure to Prop. 40, on the ballot.)
Equity Impacts
Restricting spending from special taxes could negatively affect efforts to fund health care, food assistance, and other programs that disproportionately benefit lower-income Californians and communities of color.
Pro
- Audits of proposed citizen initiatives could help ensure that the programs they would fund are cost-effective.
Cons
- Prop. 41 was placed on the ballot to prevent a competing measure from succeeding. It could affect the state’s ability to raise revenue from other tax measures in the future.
- Applying spending limits to new revenue measures could constrain local and state governments’ ability to fund urgent priorities amid unprecedented federal and state budget cuts.
