In California, state and local government funding and responsibilities are interrelated. Both levels of government share revenues raised by sales and fuel taxes. Both also share the costs for some programs—such as many health and social services programs. While the state does not receive any property tax revenues, it has authority over the distribution of these revenues among local agencies and schools.
Recently, faced with multibillion-dollar budget gaps, state legislators have turned to cities, counties, special districts and redevelopment agencies for money to help bridge state budget gaps. Mostly this has involved "shifting" property tax funds from local governments to school districts, which reduces the state's obligation to use state funds to meet the minimum school funding level under Proposition 98. State officials have also used gasoline tax money to pay for state transportation bonds, instead of sending the money to local agencies.
In response, California voters have approved measures that limit the state’s authority over local finances. Proposition 1A (2004) removed the state's authority to permanently shift city, county, and special district property tax revenues to schools, or take certain other actions that affect local governments. In addition, Proposition 1A (2006) restricted the state’s ability to borrow state gasoline sales tax revenues. But neither of these provisions remove state authority to temporarily borrow or redirect some city, county, and special district funds in emergency situations, nor do they affect the state’s authority to redirect local redevelopment agency revenues.
Proposition 22 would eliminate that flexibility, by barring the state from borrowing property taxes or reducing the share received by redevelopment agencies. It also would direct fuel taxes into a trust fund.
According to the Legislative Analyst's Office, the state would have about $1 billion less in the current fiscal year to help close the budget deficit. Because the gasoline tax money could not be used to repay transportation bonds, over the next 20 years the state would have about $1 billion less each year to make those payments.
The inability to take or borrow redevelopment funds means that the state would have up to several billion less each year to help balance the budget.
With the state restricted from borrowing or taking their money, local governments would have more money to spend on services.