13 Pros and Cons of Prop 68 for California

Proposition 68 covers a $4.1 billion bond that appeared on the June 5, 2018 ballot in California. The goal of this debt expenditure is to improve access to state and local park systems while improving their infrastructure simultaneously. It also provides funding for water sustainability, habitat restoration, and investments into natural disaster protection. The measure was approved by a 57% to 42% margin, with 3.45 million voters saying yes to the idea.

The measure sets aside $1.3 billion for rehabilitating and creating more state and local parks as well. Proponents see this bond issue as a sound investment in California’s parks, water, and other natural resources. It helps to address environmental concerns while improving access to recreational opportunities, especially to low-income families.

Critics of this proposition rightly worry about the state taking on additional debt when it is already struggling to balance its budget each year. This money could be spent more wisely in other ways.

Here are some additional pros and cons of Proposition 68 to consider.

List of the Pros of Prop 68

1. Prop 68 keeps the spending levels for this debt at a reasonable rate.
Because this proposition initiates a bond sale, there are interest payments which the state must make over several years to fulfill its obligations. California would remain within the guidelines for prudent financing even with this additional debt because the state would continue to spend 6% or less of any general fund on the total interest payments for the bond. That means there are the resources to protect the environment and develop outdoor recreational opportunities which could eventually help to pay for themselves.

2. It creates more access to the parks and natural resources of the state.
There are large portions of California, both urban and rural, which lack access to parks and open spaces. Even in Los Angeles, there are places where residents cannot take a 10-minute walk from their home to reach an open space or a park to enjoy. Because these areas produce important community and social benefits with their presence, the funds from this proposition will work to make neighborhoods more livable and create opportunities for hiking, cycling, and moments with nature.

When there is more access to the outdoor environment, then the quality of life for everyone goes up. Local communities which have access to open spaces, parks, and other areas of green offer more value to every resident.

3. Proposition 68 also fund groundwater cleanup efforts.
Clean drinking water is another benefit to consider with this proposition. Prop 68 supports drought preparedness by protecting urban streams and river parkways while protecting all of the land where water access occurs. Streams, rivers, and lakes all receive funding benefits because of this bond issue.

Proposition 68 also funds ground water cleanup efforts, water sustainability, and better usage efficiency through reclamation and recycling. In Los Angeles, most of the water that falls as rain eventually washes out to the ocean. In a place which is prone to droughts and has a huge water need, it becomes possible to become more self-sustaining in this area.

4. It supports preparation efforts for wildfires and extreme events.
The funds from this proposition can also be dedicated to help local officials better prepare for wildfires during each season. It can also help the state work to manage changing snow pack levels to ensure that there is enough water access throughout the year. Legislators can use these funds to promote forest health, protect sensitive and endangered wildlife, safeguard the water supply, and reduce the risk of damage from a natural disaster.

Proposition 68 even encourages local charitable groups to leverage their support to protect more land for this generation and the next.

5. As a General Obligation bond, it creates a tax refuge for investors.
No one really likes to hand over their hard-earned cash to the government in the form of taxes. If you find yourself in one of the higher tax bracket or you want to create a tax-exempt income stream for your retirement, then a General Obligation bond provides several benefits. This municipal bond can supplement a traditional pension, 401(k) investment, or a Roth IRA offering liquidity and tax efficiency all in one product.

Proposition 68 creates this bond for investors so that they can have the portfolio diversity they need while supporting the environmental causes that these funds pay for over time.

6. Some investors could dodge state and local taxes with this bond.
Municipal bonds are not only exempt from federal taxes in the United States, but some investors can also dodge their state and local taxes as well. In most states, investments into development projects such as this do not have any tax responsibilities. That means anyone can decide to become an investor in California thanks to the presence of this $4.1 billion General Obligation bond.

Not only does the state receive the funds right away to make the improvements to parks and open spaces, but it also shelters the investment account from taxes so that grows can compound more quickly than it would in a taxable account. This form of investing also provides a lower level of volatility than stocks.

7. It supports investments in low-income neighborhoods.
One of the stipulations in this proposition is that up to 20% of the bond funds, depending on the type of project, must be dedicated to projects in communities that have a median household income that is less than 60% of the state wide average. That means a community with an average income level of about $40,000 qualifies for this advantage.

The largest amount of the bond revenue earmarks, a total of $725 million, goes toward neighborhood parks in places where there is a lack of access. This measure also reallocated unissued bonds from other propositions over the years, including 1, 40, and 84, that voters had approved already. Over $100 million was obtained through this process.

8. There were no registered committees in opposition to the proposition.
Although there were individuals and organizations that were against the passage of Prop 68, there were no committees registered to oppose the idea during the campaign season. There were seven committees register to support the proposition, including Save the Redwoods League, Trust for Public Land Action Fund, and The Nature Conservancy who together contributed $6.63 million to its passage.

9. Prop 68 requires annual audits to ensure the money is used as intended.
Proposition 68 is not a blank check that politicians can use for whatever they want. The funds must go towards the natural resources or disaster planning efforts as intended. As part of the language of this legislation, annual audits are necessary to ensure that the government is compliant with its spending habits. This advantage is especially important because Prop 68 requires matching funds from out of state for certain projects.

List of the Cons of Prop 68

1. It can be a confusing conversation since there is more than one proposition.
Proposition 68 is officially called the “Parks, Environment, and Water Bond” in its existence for the 2018 election. There was another proposition which shared this number in 2004 that was called the “Gambling Revenue Act.” Gaming tribes and state governments were required to enter into compacts that regulated the activities on tribal land according to a 1988 federal law.

When Arnold Schwarzenegger came into office as the governor of California, he began to renegotiate these compacts with the tribes. This version of Prop 68 required all 53 gambling tribes to pay 25% of their gross revenues to the state. The refusal of even one tribe to pay would trigger a provision allowing racetracks and card clubs to install slot machines at their sites as well, breaking the monopoly on casino-style gambling.

2. Some investors may not want to get involved with the General Obligation bond.
California benefits with this bond issue because the yields it offers may not always beat the rate of inflation. If investors are not using municipal bonds for current income but want long-term, tax-advantage growth, then it must hold up to inflation. It is a conservative investment that can offer tax advantages, but the yields that California might pay over the years could be less than any other form of debt. Their investments into outdoor opportunities could actually help to pay down the bond over time.

3. California has the option to default on the bond.
Proposition 68 creates an investment product where the state gets the money from the bond immediately while placing all of the risk on those who support the debt. Any investment carries risks, and municipal bonds are no exception to this rule. Although this disadvantage is historically rare, there is always a chance that the state could go to file bankruptcy. If this would occur investors would lose their interest payments and principal, virtually letting the state off the hook for their ongoing payments.

4. It increases the bond repayment costs for the state.
Proposition 68 creates a fiscal impact on state bond repayment costs to the tune of $200 million each year over the next 40 years. Although there are savings to consider for local governments which could average hundreds of millions of dollars annually at the same time, there is no guarantee that this investment will produce another income resource for the state. Because of the amount in repayment that is necessary with this bond, there could be limited opportunities in the future to access financing for essential needs.

Verdict on the Pros and Cons of Prop 68

At the time of writing, this proposition has about one year of investments under its belt. Some of the bond money is already making a positive impact on local communities, helping to establish or revitalize parks so that there are more open spaces to enjoy.

Proposition 68 does not fix the budgeting woes that the state park system in California has experienced in recent years. They have already been caught hiding positive funds while claiming to be in the negative. With an existing $9 billion in unspent borrowed funds for water projects from past propositions, the additional money is viewed by some credits as an unnecessary expense.

The pros and cons of Proposition 68 will continue to receive evaluation over the years as each investment in low-income communities works to make improvements. Some of the funds may help to stop water diversions from the northern parts of the state to the south because it provides better infrastructure options for everyone. It might also be a waste of funds like some other projects in the state’s history. Only time will tell what the true benefits will be.