The Question

Should all special taxes passed after Jan 1, 2026, be included in California’s mandated spending limits and should voter initiatives proposing new special taxes be audited before they are put before the voters and subject to recurring audits?

The Situation

In 1979 Voters approved Proposition 4, State Spending Limits Article XIII B of the California Constitution . Prop 4 (also known as the Gann Act after a co-author) established a state spending cap, the State Appropriation Limit (SAL), that is adjusted every year on a formula that includes the prior year’s appropriations and factors such as population growth, personal income growth, and inflation. Excess revenue would be rebated to taxpayers. Prop 98 (1988) amended the Gann Act, tying a portion of any excess revenue to school funding. Prop 111 (1990) reset the formula’s baseline and added special taxes to the list of taxes excluded from the spending limit. The exemptions from the state spending limit include several tax-specific carve-outs added later by voters:

•  tobacco tax funds (Prop 10, 1998), 
•  Prop 99/56 tobacco tax funds,
•  Road Repair Act funds (Prop 69, 2018), and the
•  Children and Families Trust Fund (1998). Capital outlay (infrastructure) projects. 
• A slice of the gas tax, related revenue, and emergency spending are also exempt from the SAL.

The Proposal

The measure would require the State Auditor to conduct a financial and performance audit of proposed citizen initiatives that contain a special tax once the Secretary of State is notified that 25% of the necessary voter signatures to qualify the initiative for the ballot have been collected. 

• Would require the State Auditor to produce an executive summary to be included in the Voter Information Guide (VIG) produced by the Secretary of State if the initiative qualifies for the ballot,
• If approved by the voters, the State Auditor will be reimbursed from the revenues generated by the special tax. 

Requires audits every 4 years of programs funded by special taxes created or increased by the Legislature or by voters after January 1, 2026. 

•  The State Auditor would be required to solicit public input while preparing the audits. 
• Recurring audits would be reimbursed from the revenues generated by the special tax.

Prohibits exemptions from the mandated Government Spending Limit 

• No state special tax taking effect after January 1, 2026, could be excluded from Government Spending limits.

CONFLICTING PROPOSITION

Prop 40, The Billionaire Tax Act 2026, would be a special tax held in a reserve fund that is not part of the state spending limit. If Prop 41 passes, with more votes than Prop 40, it could nullify Prop 40.

Fiscal Effects

When a ballot measure contains a special tax, the measure would require the VIG to include the State Auditor’s executive summary. This could increase state printing and mailing costs by a few hundred thousand dollars per qualified initiative. 

If an initiative containing a special tax is approved by voters, the revenues from the special tax would be used for costs incurred for audits required under the measure. 

If such an initiative were rejected by voters or did not ultimately qualify for the ballot, the state General Fund would pay the cost of the one-time audit, totaling in the range of the low millions of dollars for each two-year election cycle. The degree to which this would occur depends on future decisions and are not known. 

The net fiscal effect of Proposition 41 is unknown as it depends on future decisions by voters, the Legislature, and other policymakers.

Supporters Say

Californians deserve better results for our taxes. Billions have flowed into programs like homelessness, with little to show for it. Prop 41 requires the independent State Auditor to conduct public audits of programs funded by new taxes so we get more transparency, more accountability and better outcomes for taxpayers.

Opponents Say

Prop 41 is not really about audits-it’s a billionaire funded trick to undo the California Billionaire Tax. Prop 41 could nullify Prop 40, the 2026 Billionaires Tax Act. Billionaires would rather millions of Californians lose their healthcare than pay a modest tax on their extreme wealth. Don’t fall for billionaires’ lies. Vote no on Prop 41.