To: Board of Supervisors
From: Legislation Committee
Report Title: Adopt Support Positions on Propositions 4, 5 and 35
☐Recommendation of the County Administrator ☒ Recommendation of Board Committee
RECOMMENDATIONS:
ADOPT a position of “Support” on Proposition 4, The Safe Drinking Water, Wildfire Prevention, Drought Preparedness, and Clean Air Bond Act of 2024 (the “Climate Bond”).
ADOPT a position of “Support” on Proposition 5, Local government financing: affordable housing and public infrastructure: voter approval.
ADOPT a position of “Support” on Proposition 35, Provides Permanent Funding for Medi-Cal Health Care Services.
FISCAL IMPACT:
Proposition 4: According to the Legislative Analyst’s Office (LAO), the estimated cost to repay the bond would be about $400 million annually over a 40-year period. Payments would be made from the state General Fund. This would be less than one-half of 1 percent of the state’s total General Fund budget. Since the state has to pay interest on the money it borrows, the total cost of the bond would be about 10 percent more (after adjusting for inflation) than if the state paid up front.
The LAO predicts the climate bond would result in reduced local costs for natural resources and climate related activities. This is because local governments could receive funding for some essential facilities locals would otherwise need to fund themselves, such as for wastewater treatment. Alternatively, the LAO theorizes the availability of funding could encourage local governments to spend more money and build larger projects than they otherwise would, such as adding additional amenities to a local park. Additionally, investments made toward completing activities that reduce the risk or amount of damage from disasters could reduce state and local costs for responding to and recovering from those events. Overall, the LAO predicts net savings to local governments.
Proposition 5: According to the LAO, a lower voter approval requirement would make it easier to pass local general obligation bonds for housing assistance and public infrastructure. A lower voter approval requirement also could mean local governments propose more measures. An increase in the approval of local bonds could increase funding available for housing assistance and public infrastructure. The amount of this increase is not clear. Borrowing would be repaid with higher property taxes.
Proposition 35: According to the LAO, in the short term, increased funding for Medi-Cal and other health programs between roughly $2 billion and $5 billion annually (including federal funds). Increased state costs between roughly $1 billion to $2 billion annually to implement funding increases. In the long term, unknown effect on state tax revenue, health program funding, and state costs. Fiscal effects depend on many factors, such as whether the Legislature would continue to approve the tax on health plans in the future if Proposition 35 is not passed by voters.
BACKGROUND:
June 27 marked the final deadline for proponents of citizen-led initiatives to withdraw their ballot measures from appearing on the November ballot. A summary table of the qualified ballot measures, including links to the measures, prepared by the California State Association of Counties (CSAC) is Attachment A.
Note: Assembly Constitutional Amendment (ACA) 13 has been moved to the November 2026 ballot as a result of the passage of Assembly Bill 440. ACA 13 will require any constitutional amendment proposed by initiative, that increases a voter approval threshold for future measures, be approved by the same proportion of votes cast as the measure would require.
At their August 12, 2024 meeting, the Legislation Committee (Chair Burgis/Vice Chair Carlson) considered the 10 measures that have qualified for the November 5, 2024 general election ballot. The Legislation Committee made recommendations to the Board of Supervisors to adopt a position of “Support” on Propositions 4, 5, and 35.
Proposition 4: Safe Drinking Water, Wildfire Prevention, Drought Preparedness, and Clean Air Bond Act of 2024 (the “Climate Bond”)
After much consideration and negotiation by both houses of the Legislature, SB 867 (Allen), the Safe Drinking Water, Wildfire Prevention, Drought Preparedness, and Clean Air Bond Act of 2024, was passed and signed on July 3, 2024, narrowly meeting an extended deadline for the Legislature to place a bill on the ballot. On July 3, the Secretary of State assigned the legislative measure Proposition 4 on the ballot. The measure is referred to as the “Climate Bond.”
This ballot measure would allocate $10 billion in state general obligation bond funding for climate related programs. If the bond passes, broad category amounts would be dedicated as listed below, with key sub-allocations noted.
• $3.8 billion for safe drinking water, drought, flood, and water resilience programs
o $1.88 billion for water supply and water quality
o $1.14 billion for flood risk and stormwater management
o $605 million for watershed restoration and protection
• $1.5 billion for wildfire and forest resilience programs
o $1.2 billion for local fire prevention capacity and improvements to forest health and
resilience
o $135 million for the Wildfire Mitigation Grant Program
• $1.2 billion for coastal resilience programs
o $415 million for coastal resilience projects and programs
o $50 million to implement the Sea Level Rise Adaptation Strategy
• $1.2 billion for biodiversity protection and nature-based climate solution programs
o $870 million for grant programs to protect and enhance fish and wildlife resources
o $320 million toward specified conservancies
• $850 million for clean energy air programs
o $475 million for offshore wind development
o $325 million for clean energy transmission projects
• $700 million for park creation and outdoor access programs
o $200 million for outdoor recreation opportunities - including county parks
o $200 million for the creation, expansion, and renovation of safe neighborhood parks
• $450 million for extreme heat mitigation programs
o $40 million to fairgrounds for modifications/upgrades that provide community resilience
o $60 million for the creation of community resilience centers (includes fairgrounds)
• $300 million for climate-smart, sustainable, and resilient farms, ranches, and working lands programs
o $105 million for improvements in climate resilience of agricultural lands
o $15 million for projects for the protection, restoration, conservation, and enhancement
of farmland and rangeland
Notably, 40% of funding will be required to go toward disadvantaged communities. It is also worth noting that bonds may only be used for capital purposes. Some of the funding that would be made available to local governments through the bonds requires a local cost share or loan repayments. Prop. 4 requires regular public reporting of how the bond money is spent.
The 2024 State Budget Act contained a series of reductions to climate-based programs including funds that were appropriated in previous budget years but had not yet been expended. The Climate Bond was formulated in anticipation of cuts, though it is not a one-to-one restoration of cuts in the final budget.
The last natural resources bond to pass with approval of the voters was in 2018 - Proposition 68 - which allocated funding to parks, natural resources protection, climate adaptation, water quality and supply, and flood protection. In 2014, California voters passed Proposition 1 which allocated $7.1 billion toward funding for water quality, supply, treatment, and storage projects. According to the California Natural Resources Agency’s bond accountability website, approximately $40 million from Prop. 1 and $145.4 million of Prop. 68 remain uncommitted.
The County’s adopted State Legislative Platform for 2023-24 contains the following advocacy priority: Advocate for and support resource/resilience bonds and Contra Costa County specific projects in the bond measure(s).
At their August 28, 2024 meeting, CSAC’s Board of Directors took a position of “Support” on Proposition 4.
Detailed sub-allocations and listed supporters of SB 867 (Allen) are included in Attachment B.
Proposition 5: “Local Government Financing” (ACA 1 and ACA 10)
This constitutional amendment would reduce the voter approval threshold from two-thirds to 55% for general obligation bonds that fund public infrastructure, affordable housing projects, and permanent supportive housing for persons at risk of chronic homelessness-and any associated ad valorem taxes needed to pay the interest and redemption charges on bonded indebtedness.
ACA 1 was passed by the Legislature in 2023 and set for the November 2024 ballot. Since then, the measure has been amended through two separate legislative vehicles, with one needed to make constitutional amendments, ACA 10, and another to make statutory changes, AB 2813.
ACA 10 significantly amended ACA 1 by removing its application of a reduced 55% vote requirement to special taxes used to support affordable housing, permanent supportive housing, and public infrastructure. Instead, due to the passage of ACA 10, ACA 1 would only reduce vote requirements for general obligation bonds used to support affordable housing, permanent supportive housing, and public infrastructure-and any associated ad valorem taxes needed to pay the interest and redemption charges on bonded indebtedness.
AB 2813 made a series of technical amendments to the statutory provisions of ACA 1, including
specifying accountability requirements for ACA 1 bonded indebtedness, clarifying the role of the State Auditor in reviewing ACA 1 audits, clarifying the roles and responsibilities of citizens’ oversight committees on ACA 1 projects, and providing some restrictions on the uses of ACA 1 projects. Notably, those restrictions would clarify that ACA 1 funds cannot be used to acquire or lease real property with one to four dwelling units or to finance the reconstruction or rehabilitation of a sports arena. AB 2813 was passed by the Legislature on July 3, 2024.
The County’s adopted State Legislative Platform for 2023-24 contains the following related policy: SUPPORT a reduction in the 2/3rd vote requirement to 55% voter approval for locally-approved special taxes that fund health, education, economic, stormwater services, library, transportation and/or public safety programs and services. (p. 15)
The County took a “Support” position on ACA 1 (Aguiar Curry) in 2021and 2023. The County also requested an amendment to ACA 1 in 2023 to include stormwater management projects, alongside sewer, water, and refuse collection, as stipulated in SB 231 (Hertzberg). CSAC’s Board of Directors took a position of “Support” on Proposition 5 at their August 29 meeting.
For additional information about this measure, see Attachment C, which includes a summary of the measure from the Secretary of State, along with the list of those supporting and opposing the measure, prepared by CSAC staff.
Proposition 35: “Provides Permanent Funding for Medi-Cal Health Care Services”
The Managed Care Organization (MCO) tax is a tax on managed care organizations based on health insurance enrollment in the Medi-Cal program and in the commercial sector. The 2023 Budget Act, with federal approval, authorized the MCO tax from April 2023 to December 2026. The MCO tax revenues offset General Fund spending in the existing Medi-Cal program and support program augmentations. This initiative would make the MCO tax permanent, subject to federal approval, and would limit the structure of the tax, and would establish specific uses for the tax revenue.
The County’s adopted State Legislative Platform includes the following related policies: SUPPORT state action to increase health care access and affordability. SUPPORT Medi-Cal reimbursement rate increases to incentivize providers to participate in the program. SUPPORT actions that would preserve the nature and quality and continuity of care associated with safety net services historically provided at the local level.
California’s Medi-Cal Program
Medi-Cal is California's Medicaid program. Medicaid is a federal public health insurance program which provides health care services for low-income individuals and families. Medicaid is administered by states (then delegated to counties in California) and funded jointly between the federal government and states. In 2024, there are an estimated 14.5 million Californians enrolled in Medi-Cal. A majority of Medi-Cal beneficiaries are enrolled in managed care plans. “Managed care” is a health care delivery system in which state Medicaid agencies (for California, this is the Department of Health Care Services) contract with managed care organizations (e.g., Kaiser Permanente, Anthem Blue Cross). Managed care organizations
accept capitation payments (per person, per month payments) for delivering health benefits to individuals enrolled in Medi-Cal.
In total, the 2024 Budget Act includes $161 billion ($35 billion state General Fund) for the Medi-Cal program in 2024-25. The 2024 Budget Act also includes nearly $7 billion of MCO tax revenues in 2024-25 to support the Medi-Cal program (i.e., offsetting state General Fund expenditures by $6.9 billion). The balance of the MCO tax revenues are allocated for Medi-Cal provider rate increases (increased reimbursement for, amongst other things, primary care physicians, women’s health services, and ground emergency transport services) and other health care investments. The state and stakeholders are consistently engaged regarding the appropriate use of the MCO tax revenues (level of offsetting existing General Fund cost pressures vs. augmentations for the Medi-Cal program).
History and Structure of the MCO Tax
According to the Department of Health Care Services (DHCS), “the MCO tax is used as a mechanism to generate new state funds that can be used to match with federal funds to bring additional federal Medicaid dollars to California.” California’s MCO tax has existed in various forms for limited durations beginning in 2005. Today, the MCO tax is a tax on managed care organizations based on health insurance enrollment in the Medi-Cal program and in the commercial sector.
PROVISIONS OF PROPOSITION 35
Composed of 43 pages, Proposition 35 considerably diverts from the state’s status quo and makes significant changes to the allowable expenditures of MCO tax revenue, while mostly maintaining the 2023 Budget Act structure of the levied tax. The bulleted information below captures the most significant components and requirements of Proposition 35.
Structure and Implementation of the MCO Tax
• Makes the MCO tax permanent.
• Requires DHCS to employ the models and methodologies used to structure the MCO tax as included in the 2023 Budget Act in perpetuity, to the extent permitted by federal law.
• Places a cap on the per enrollee tax amount assessed on commercial plans and aggregate tax amount - aside from an adjustment every five years for the CPI. Authorizes an increase to the capped amounts - and limits the increase to no more than 10 percent - if necessary to comply with federal law/regulations, secure federal financial participation, or obtain federal approval.
Federal Considerations
• Requires DHCS to seek federal approval necessary to implement Proposition 35.
• Requires DHCS to attempt to maximize the amount of federal matching funds available to California.
• Specifies that Proposition 35 is only operative during periods of federal approval.
• Allows DHCS to modify provisions of Proposition 35 if necessary to obtain federal approval of the MCO tax, within specified limitations.
Appropriation of MCO Tax Revenues
During Calendar Years 2025 and 2026:
• Appropriates $4.7 billion MCO tax revenues each year for 12 specified purposes, including but not limited to: Medi-Cal managed care rates for primary care services, women’s health services, ground emergency transport services, and designated public hospitals.
Beginning January 1, 2027:
• Assumes at least $4.3 billion in MCO tax revenues annually.
• Creates a layered formula for allocation of MCO tax revenues, including creating more than 18 new state subfunds, accounts, or subaccounts.
• Each account and subaccount includes specific, distinct requirements for revenue expenditure.
Oversight and Accountability
• Requires the State Controller’s Office to audit DHCS and programs receiving MCO tax revenues every four years.
• Prohibits borrowing or loan of the MCO tax revenues to the state’s General Fund or any other state account, with limited exceptions.
• Prohibits using MCO tax revenue to supplant any other state revenues.
• Requires DHCS to make every reasonable effort to obligate or expend all MCO tax revenues annually, beginning January 1, 2027.
• Requires DHCS to publish an annual compliance report for use of the MCO tax revenues, which will be independently reviewed by the State Controller’s Office. The State Controller’s Office will publish a separate report evaluating DHCS’ compliance.
• Establishes the Protect Access to Healthcare Act Stakeholder Advisor Committee within DHCS to research and analyze best practices for the development and implementation of Proposition 35 by DHCS.
• Requires DHCS to consult with the Stakeholder Advisory Committee to implement the components of Proposition 35, including the design of payment methodologies.
Administrative and Legislative Considerations
• Excludes MCO tax revenue expenditures from the state’s calculations pursuant to the State Appropriations Limit (also known as the “Gann Limit”).
• Provides that if the Legislature introduces a bill to amend Proposition 35 it must receive a ¾ majority vote.
Public Hospitals
California’s 21 public health care systems (PHS) include county-owned or affiliated systems and the five University of California academic medical centers. Together, these systems operate in 15 counties and play an important role in supporting the state’s health care safety net. It should be noted the vast majority of PHS funding is self-financed across a wide array of Medi-Cal subprograms, and their governmental status enables PHS to contribute the non-federal share of costs in place of the state. Public hospitals have been experiencing financing challenges due to low Medi-Cal base payments, which most public hospitals cannot make up through commercial insurance payors, and supplemental payments have not kept up with the growth in the Medi-Cal program. Both the 2024 Budget Act and Proposition 35 include funding increases for some services/providers that will be received by public hospitals, however, Proposition 35 additionally includes dedicated funding for these designated public hospitals.
Recorded Support
Coalition to Protect Access to Care (Sponsor) which includes but is not limited to the California Medical Association, California Association of Hospitals and Health Systems, Global Medical Response, California Hospital Association, and Planned Parenthood.
Recorded Opposition
At the August 13 joint initiative hearing on Proposition 35 of the Senate and Assembly Health
Committees, the Children’s Partnership spoke in opposition to the measure.
CONSEQUENCE OF NEGATIVE ACTION:
The County will not have an official position on the measures for the November 5, 2024 general election ballot.