Five Facts About the Governor’s Calculation of State Savings From Proposition 47

Approved by the voters in 2014, Proposition 47 reclassified several nonviolent drug and property crimes from felonies to misdemeanors, with the result that state prison is generally no longer a sentencing option for these offenses. The measure also created a process for individuals who were previously convicted of these offenses to apply for resentencing. By reducing incarceration, Prop. 47 will generate ongoing budgetary savings for the state ─ savings that will be determined each year by the Governor’s Department of Finance (DOF). Prop. 47 directs these state savings to a range of services that can end cycles of crime and further reduce California’s over-reliance on incarceration: mental health and drug treatment, dropout and truancy prevention programs for youth, and services for victims of crime.

While Prop. 47 is clear about how the annual state savings should be allocated, it says nothing about how these savings should be calculated. The question of how to appropriately determine the savings was hotly debated during this year’s state budget deliberations, which wrapped up last month. This post highlights five key facts about the process for calculating Prop. 47 savings. It looks at both the Governor’s role in general and at the DOF’s savings estimate for 2015-16, the state fiscal year that ended on June 30 and the first year for which the Prop. 47 calculation was required.

The Governor determines the annual state savings from Prop. 47.

Prop. 47 gives the Governor the exclusive authority to calculate the state savings each year. Although the Legislature and the Legislative Analyst’s Office (LAO) are free to weigh in on the Governor’s calculation, neither has an official role in helping to determine the savings. In short, when it comes to calculating state savings from Prop. 47, the Governor not only has the last word, he has the only word.

The Governor’s calculation of Prop. 47 savings for 2015-16 ─ $39.4 million ─ is well below prior estimates, which put annual state savings in the “low hundreds of millions.”

By calculating net state savings of less than $40 million in 2015-16, the Governor shocked many lawmakers and members of the public. This is because the Governor’s initial projection from 2014 anticipated state savings in the “low hundreds of millions of dollars annually.” This estimate ─ jointly released with the LAO ─ subsequently appeared on the November 2014 ballot as well as in the official voter information guide. Moreover, the LAO continued to estimate savings of between $100 million and $200 million in reports released in 2015 and 2016. Given these robust savings projections from both the Governor and the LAO, many Californians assumed that Prop. 47 would provide well over $100 million per year to reinvest in community-based services designed to turn lives around and reduce Californians’ involvement with the criminal justice system. Clearly, it hasn’t worked out that way.

The Governor’s savings calculation for 2015-16 is low because ─ unlike previous projections ─ it rests on an unrealistic assumption.

Why is the Governor’s calculation of state savings from Prop. 47 so much lower than prior projections? The primary reason is that the Governor’s calculation is based on an unrealistic assumption, as both we and the LAO pointed out earlier this year. Specifically, the Governor assumes that if voters had rejected Prop. 47, the state would have housed several thousand additional felony offenders in state prisons, rather than in state-contracted facilities, such as private, out-of-state prisons. This is a significant assumption because it’s much less costly to house adults in a state prison than in a contracted facility. The annual marginal cost of adding one person to a state prison is $9,253 ─ about two-thirds less than the cost of contracting for a bed ($28,726), according to DOF estimates. By assuming that Prop. 47 has primarily reduced the need for state prison beds, rather than for “contract beds,” the Governor’s formula understates the savings that were actually achieved during 2015-16 by more than $100 million.

Why is it unrealistic to assume, as the Governor does, that Prop. 47 has reduced the state prison population by several thousand? Imagine a world in which the voters had rejected Prop. 47. More adults who committed nonviolent drug or property crimes would be convicted of felonies. As a result, many more people would be sentenced to incarceration at the state level. In addition, people already serving time for one of these crimes wouldn’t be eligible for resentencing and early release. Taking both of these factors into account, the number of adults incarcerated by the state in 2015-16 would have been higher by 5,247, according to the Administration. Where would they have been housed? Certainly not in state prisons: The prison population is just below the cap that was imposed a few years ago by a federal three-judge panel as part of a longstanding lawsuit. Accommodating roughly 5,000 more people in state prisons would, by definition, push the total prison population well above the cap, thus violating the federal court order. Rather than risking the wrath of federal judges, state officials faced with housing an additional 5,000 offenders would expand the use of contracted facilities, which aren’t subject to the court-imposed population cap. Even with Prop. 47 in place, California currently contracts for over 10,500 beds. Had voters rejected Prop. 47, this number surely would exceed 15,000 today.

To sum up: The Governor’s budget analysts assume that Prop. 47 has primarily reduced the need for state prison beds, rather than for more expensive contract beds, despite the fact that federal judges have essentially posted “no vacancy” signs on the state’s 30-plus prisons. This assumption dramatically lowers the estimated state savings from reduced incarceration under Prop. 47.

The 2016-17 state budget provides an additional $28 million in one-time funds for Prop. 47-related services.

Beyond the $39.4 million state savings allocation provided by the Governor, the 2016-17 budget includes an additional $18 million for K-12 dropout and truancy prevention programs and an additional $10 million to support mental health services, substance abuse disorder treatment, and other community-based services that aim to reduce recidivism. These one-time funds bring total state support for Prop. 47-related services to about $67 million in 2016-17.

Future governors can use a different formula to calculate the state savings from Prop. 47.

State savings from Prop. 47 must be calculated annually. The DOF’s formula for determining these savings could set a precedent that future governors will feel inclined to follow. Yet, the current methodology isn’t binding, and subsequent governors will be free to adopt whatever formula they think is most appropriate in calculating the annual state savings from Prop. 47.

─ Scott Graves