Ballot Propositions: A Cheat Sheet

With "direct democracy" exploding, S&P spotlights this year's key initiatives and explains how they will affect states' finances

From Standard & Poor's RatingsDirect

Voters in 37 states will decide a total of 208 statewide ballot propositions on Nov. 7—nearly a third more than in 2004. As always, looked at in aggregate, these ballot items can provide insight into the political climate. However, none of this year's measures pose an immediate credit concern for state or local government ratings.

Of the measures, 79 are initiatives, five are referendums, one was placed on the ballot by a commission, and the rest are legislative in origin. According to the Initiative & Referendum Institute, the 82 initiatives for the year (including three voted on this summer) is the third-largest total since the initiative process was first used in 1902 and shows that the wave set off by California's tax-cutting Proposition 13 in 1978 is still going strong.

Traditional themes, such as taxing and spending, schooling and gambling, continue to dominate. However, several newer issues, including eminent domain and tobacco and smoking, have become hot this year. Six states will address the minimum wage.

Arizona will have the most propositions (19), followed by Colorado (14), California (13), South Dakota (11), and Oregon (10). For the year, Louisiana had the most, with 13 that were voted on in September and eight on the upcoming ballot.

At least 40 measures propose to increase or decrease taxes or restrict or lock in spending. Maine, Montana, Nebraska, and Oregon have measures that attempt to replicate Colorado's Taxpayer's Bill of Rights (TABOR) initiative that passed in 1992. TABOR-style measures restrict spending growth to inflation plus the population growth rate. South Carolina and South Dakota have measures limiting the growth of property tax assessments to approximately 3% annually.

TABOR did not have any immediate credit impact when passed in Colorado in 1992, but it did contribute to credit problems years later, during a statewide recession. Voters in Colorado recently approved a five-year exemption from TABOR.

One of the most popular issues this year is eminent domain. In the wake of the U.S. Supreme Court's 2005 decision that allowed governments to condemn property for use by a private developer, legislatures and citizens in several states are trying to foreclose such takings with constitutional amendments. Thirteen states have measures on the ballot that restrict or ban the use of eminent domain for private purposes.

Tobacco taxation is the focus of 10 measures. Dueling measures sponsored by the health and tobacco industries that ban smoking in public places are on the ballot in Arizona, Nevada, and Ohio. In Arizona, California, Missouri, and South Dakota, voters will decide whether to increase the tax on tobacco products with proceeds dedicated to health and other programs.

Education, a perennial topic, is the subject of 20 measures.

Following is a synopsis of the measures appearing on ballots in selected states on Nov. 7 that could have some effect on state or local government credit quality.

Arizona

Arizona voters will decide on perhaps the longest list of measures including topics such as annual cost of living adjustments for the minimum wage, a $1 million lottery prize for voting, and funding for early childhood education. Of the 19 propositions on the ballot, three stand out as potentially affecting credit quality at the state or local level over time.

Proposition 101 would reset taxing entities' property tax limit to the actual tax levy of 2005. It would also allow increases of up to 2% annually, as is currently the case—plus new construction in subsequent years without a voter override.

This takes away the flexibility that those taxing entities have regarding property tax hikes. These entities had not increased their levy by the 2% maximum rate since the cap became state law in 1980. This proposition does not affect K-12 school districts or secondary property taxes, the latter of which are used for bond repayment.

Proposition 104 would increase the bonding capacity of local governments by increasing the number of purposes for which they can have outstanding debt of up to 20% of market value.