key takeaway
Prop. 41 would 1) impose new audit requirements for programs funded with state special taxes and 2) prohibit the collection of new state taxes that are excluded from the state’s spending limit. The primary intent of the measure is to invalidate Prop. 40 — the billionaire tax also appearing on the November ballot — but Prop. 41 could also make it harder for the state to meet the needs of Californians in the future.
What Would Prop. 41 Do?
Prop. 41 would amend the state Constitution to impose new rules related to state taxes. The measure would require “financial and performance audits” of programs receiving revenues from special taxes and would also prevent state taxes from being excluded from California’s spending cap, also known as the “Gann Limit.”
Creates New Audit Requirements for Special Taxes
Prop. 41 would create new pre-election and ongoing audit requirements for programs receiving — or proposed to receive — revenues from state-level special taxes. In contrast to a general tax, which can be used for any purpose, a special tax raises revenue for specific purposes.
- Pre-election audits: The State Auditor would be required to perform an audit of any program that would be funded by a special tax proposed through a statewide voter initiative. The audit would be required while the initiative is being circulated for signatures — before it officially qualifies for the ballot — and a summary of the audit findings would be included in the voter information guide. The full audit would also be made available to the public.
- Ongoing audits: The State Auditor would be required to audit programs receiving revenues from special taxes enacted by the Legislature or approved by voters through a statewide initiative on or after January 1, 2026. These audits would be required every four years.
The audits would assess programs based on specific criteria outlined in Prop. 41, and would require the State Auditor to recommend how programs could reduce costs by at least 10% annually.
The State Auditor would be reimbursed for the costs of these audits with revenues from the relevant special tax. If, however, a special tax initiative fails to qualify for the ballot or is rejected by voters, the audit costs would be absorbed by the state’s General Fund.
Prohibits Taxes That Are Excluded from the State Spending Limit
Prop. 41 would prevent the state from collecting or enforcing any state tax that is 1) enacted on or after January 1, 2026 and 2) excluded from the state spending cap, also known as the Gann Limit. Currently, the measure would apply only to Prop. 40 if both measures pass and Prop. 41 receives more votes, but it could potentially be applied to other tax policy proposals in the future.
California’s spending limit was established by Prop. 4 (1979) and is based on state spending in 1978-79, annually adjusted for population changes and inflation. Under the state Constitution, if state revenues exceed the limit over two consecutive years, the excess must be split equally between refunds to taxpayers and spending on TK-14 education. In effect, the spending limit restricts the ability of state leaders to raise and spend revenue to meet the most pressing needs of Californians.
Conflicts with Other Measures on the Ballot
The California Constitution states that if provisions of multiple measures on the same ballot conflict, the provisions of the measure receiving the higher number of votes will prevail. Prop. 41 broadly specifies that if another measure on the same ballot either 1) imposes different audit rules on special taxes or 2) contains a tax that is exempted from the state spending limit, the entirety of the other measure would be invalidated if Prop. 41 receives more votes.
Prop. 41 is in direct conflict with Prop. 40. This is because Prop. 40 would create a one-time tax on the wealth of billionaires and exclude the revenues from the state spending limit, which Prop. 41 prohibits.
If both measures were to be approved and Prop. 41 received more votes, Prop. 40 could be invalidated. Alternatively, if both measures pass but Prop. 40 receives more votes, the billionaire tax could be collected, but it is possible that audits would be required of Medi-Cal and other programs receiving Prop. 40 dollars. If both measures pass, there may be litigation regarding the application of conflicting provisions, and the final decision would be made by the courts.
How Would Prop. 41 Affect Californians and the State Budget?
The primary intent of Prop. 41 is to invalidate the Prop. 40 billionaire tax, but it would also create new barriers to raising state revenue and effectively meeting the needs of Californians.
Prop. 41 would also increase state costs related to conducting audits for programs that are often already subject to close scrutiny — reducing funding available to support critical state services. This would come at a time when Californians are already dealing with affordability concerns as well as the consequences of the steep federal cuts to health care and food assistance enacted in H.R. 1, signed by President Trump in 2025.
Additionally, the impacts could be more extensive than anticipated if courts were to broadly interpret Prop. 41’s provisions.
Impacts of Audit Requirements
The pre-election audit requirement could dissuade voters from approving special tax initiatives that would raise needed revenue to support and improve state services that help Californians stay healthy, housed, and economically secure. A summary of the audit would appear in the voter guide, and voters could interpret it as evidence that the programs to be funded are inefficient or ineffective. For example, because the State Auditor would be required to recommend options to cut program costs by 10%, voters may assume this means the program is inefficient even if that is not the case.
Additionally, the requirement for cost-cutting recommendations could result in service cuts with real human impacts. While policymakers would be under no obligation to implement these recommendations, if they did it could result in cuts to core services rather than simply “inefficient spending.” For example, if a program receiving special tax revenues is already operating efficiently but the Auditor must identify ways that costs could be reduced by 10%, lawmakers may be under pressure to adopt those recommendations — particularly in difficult budget times. Those cuts could lead to fewer Californians being served, reductions in benefit levels, or decreased service quality.
While it is clearly important for tax dollars to be spent efficiently and effectively, many state programs are already subject to occasional or ongoing audits. The State Auditor currently performs audits as a result of existing state laws, legislative requests, and whistleblower tips. Additionally, the “High-Risk” audit program requires the Auditor to periodically review programs or agencies determined to be at high risk for “waste, fraud, abuse, or mismanagement” or those raising concerns related to efficiency or effectiveness.
Prop. 41’s additional audits would increase state costs, reducing the resources available to directly support services for Californians. Moreover, in the case of program audits related to a proposed special tax, the audit costs would be absorbed by the state’s General Fund if the ballot initiative were not enacted, leaving less funding for critical state services like education, health care, and human services.
Impacts of State Spending Limit Provisions
The primary impact of preventing new revenues from being excluded from the spending limit would be the invalidation of the billionaire tax proposed by Prop. 40 — if both measures pass and Prop. 41 receives more votes.
In the future, voters may be able to exclude the revenues from a statewide tax initiative from the spending cap if the initiative amends the Constitution to do so. In fact, previous initiatives have explicitly excluded new tax revenues from the limit, such as tobacco taxes enacted under Prop. 10 (1998) and Prop. 56 (2016). However, legal challenges are possible and there is no certainty on how courts would rule.
State policymakers already lack the authority to exclude new tax revenues from the spending cap without voter approval because the cap is enshrined in the state Constitution.
There are some existing state revenue streams that could potentially be affected by Prop. 41, but there are many complications and uncertainties and any conflicts would ultimately be decided by the courts. For example, some health care financing sources that must be occasionally reauthorized — such as the Managed Care Organization (MCO) tax and the Hospital Quality Assurance fee, which both allow the state to draw down additional federal funding for Medi-Cal — could potentially be impacted by Prop. 41. This, in turn, would jeopardize billions of dollars in federal funding for Medi-Cal at a time when Californians are already experiencing the harms of the deep federal cuts to health care resulting from H.R. 1.
Who Supports and Opposes Prop. 41?
The top contributor to the Prop. 41 campaign is a group called “Building a Better California,” which is largely funded by Google cofounder Sergey Brin and other billionaires. This same group is also opposing Prop. 40 and supporting Prop. 42. Prop. 41 is also endorsed by the California Republican Party, the California Chamber of Commerce, and the California Taxpayers Association.
There is no official campaign against Prop. 41. However, prominent opponents include the Service Employees International Union – United Health Workers West (SEIU–UHW) — the main proponent of the Prop. 40 billionaire tax measure — as well as other labor groups including the California Federation of Teachers and the California Federation of Labor Unions. The California Democratic Party and the League of Women Voters also oppose Prop. 41.
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