Governor’s Surprisingly Low Estimate of State Savings From Prop. 47 Faces Scrutiny in the Legislature This Week

A distinctive feature of public policymaking in California is the initiative process, through which interest groups, elected officials, and others try to change state law or the state Constitution by going to the ballot. A key early step in this process is the evaluation of a proposal’s likely effect on the state budget. If approved by the voters, would an initiative raise or lower state revenues or costs — and by how much?

The analysis of a proposed initiative’s likely fiscal impact is carried out by two state agencies: the Governor’s Department of Finance (DOF) and the Legislative Analyst’s Office (LAO). For the relatively few initiatives that actually qualify for the ballot, this joint DOF/LAO estimate provides the foundation for the “fiscal impact” analysis that voters see on the ballot as well as in the voter guide prepared by the Secretary of State. All in all, this DOF/LAO estimate is a critical piece of information that many voters take into account when deciding whether or not to support a ballot measure.

This brings us to Proposition 47, the 2014 ballot initiative that reduced penalties for several nonviolent crimes, including drug possession, and thereby reduced incarceration. The fiscal impact statement that appeared in the measure’s official title and summary indicated that “Net state criminal justice system savings … could reach the low hundreds of millions of dollars annually” (emphasis added). At a minimum, this implies state savings in the range of $100 million to $200 million per year. This substantial savings estimate — which was developed jointly by the DOF and the LAO in early 2014 — likely figured into many voters’ decision to support Prop. 47, along with the fact that the initiative directs state savings to mental health and drug treatment programs, K-12 public school programs for at-risk youth, and services for crime victims.

But something unexpected happened this past January when the DOF released an updated estimate of Prop. 47’s fiscal impact. (Under the measure, the DOF alone is charged with developing the annual state savings estimate.) This latest DOF analysis estimates dramatically lower net state savings of just $29 million in 2015-16, topping out at about $57 million in 2017-18. Clearly, there’s a huge gap between the Prop. 47 savings that the DOF projected in 2014 — in partnership with the LAO — and the DOF’s current savings estimate.

What gives? How could the DOF’s estimate of state savings from Prop. 47 swing from “the low hundreds of millions of dollars” to less than $30 million? This discrepancy is particularly puzzling in light of the fact that the LAO has consistently estimated annual savings of over $100 million, including in a report published last month. As we noted in our own analysis, the DOF’s Prop. 47 savings estimate raises questions and thus provides plenty of fodder for lawmakers who will dig into the issue this Wednesday at a hearing convened by Assembly Budget Subcommittee #5 on Public Safety.

While Prop. 47 doesn’t require the DOF to use any specific methodology to calculate state savings, there clearly are more — and less — appropriate ways of getting to this number. (See our analysis as well as the LAO’s report for examples of more appropriate methodological choices.) Adopting a solid methodology right out of the gate is critically important for a couple of reasons. First, this year’s calculation will set a precedent that’s likely to be followed in future years — and by future governors. Second, the calculation will determine how much ongoing state funding is available to invest in a range of services that can end cycles of crime and further reduce California’s over-reliance on incarceration. Getting the state savings calculation “right” from the outset will help to ensure the success of Prop. 47’s sentencing reforms over the long term.

— Scott Graves