How California Ballot Propositions Work

I mentioned in my blog post last week, Mailbox Full of Politics, that most of the political advertising I've gotten this election cycle concerns California ballot propositions. Ah, California's notorious system of ballot propositions, our often maligned experiment in direct democracy.

"Isn't there anything else on the ballot to talk about?" some might ask.

Indeed there is! One of our US Senate seats and all of our statewide elected offices (governor, lieutenant governor, attorney general, etc.) are up for election this year. All of them, though, are lopsided races. There's not much spending there as the results are considered foregone conclusions at this point. That leaves a variety of local races, many of which like those statewide races are uncompetitive... and the ballot propositions.

Three Types of Ballot Props

Ballot propositions, or "props", have been part of California's political process since its founding as a state in 1865. At first they were very limited, though. Their scope was expanded in 1911, as part of the Progressive Era movement to reform the excesses of the Gilded Age in the US. Props would give the people a more direct form of democracy, to vote directly on laws instead of having to rely on their elected representatives to do the right thing— or to do anything at all.

There are three basic types of propositions that can be placed on the California statewide ballot:

 ❖ Initiative: This broad category encompasses additions and changes to California law or the California constitution. Within this type are subtypes depending on whether the change affects statute (law) or the constitution, and whether a constitutional amendment has already passed a vote in the legislature. Constitutional amendments must go through a popular vote.

 ❖ Referendum: A referendum is a vote on a law already passed by the California legislature and signed by the governor. "Yes" is a vote to uphold the already-enacted law; a "No" is a vote to repeal it.

 ❖ Bond: It's a requirement in the California constitution that all new borrowing via bonds must be approved by a majority of the popular vote— after being approved by a super-majority in the legislature.

It's worth understanding these differences whether you're a California voter or just an armchair observer of politics. Ballot props are not created equal. For example, a common criticism of the process is that "anybody can propose anything"— meaning that props should be regard with skepticism. That is somewhat true for Initiatives but factually false (and misleading) for the other types.

I Buy I Bonds, We Buy I Bonds

Six months ago I wrote about buying US savings bonds. It was the first time I'd ever bought some. This past week Hawk bought some, too.

Yes, savings bonds, the tool my grandparents used for saving money decades ago, are still around. The classic types of bond introduced in the 1930s and 40s were joined by Series I Savings Bonds in 1998. I-bonds are different in that instead of doubling over a fixed period of years they earn a variable interest rate based on the government's consumer price index (CPI). With inflation driving up the CPI and recession fears making equities investment really risky right now, I-bonds are having a moment in the sun.

The rate for I-bonds is set every 6 months, effective May 1 and November 1. While the rate isn't officially announced until a few days before the target, it's fairly predictable from government CPI data published a few weeks ahead. Based on those data we expect the rate to go down significantly, from 9.62% currently to just 6.48%. Thus Hawk bought her bonds this month, locking in the current 9.62% rate for 6 months. After that it will drop to 6.48% (or whatever's announced in a few days' time) for the next 6 months, and so on.

Laddering

We're alternating who buys the bonds and spacing our purchases 6 months apart in a technique called laddering. It's common in buying certificates of deposit (CDs). With CDs you lock up your cash, say for 1 year at a time. The way to make sure you've always got spendable cash coming available soon in case you need it is to buy smaller 1-year CDs every 3 months instead of one big one every year.

I-bonds are a bit more complex than CDs. First, there's only one place to buy them, the US Treasury, and their website is difficult to use. (It was designed 20+ years ago and has not been updated.) CDs are a snap to buy online from numerous banks. Second, your money in an I-bond is locked up for 1 year (with narrow exceptions), and if you sell before 5 years you pay a small penalty in forfeited interest.

So why buy I-bonds instead of CDs? The rate on an I-bond bought today is 9.62% for 6 months, dropping to 6.48% in months 7-12. Today's rate on a 1-year CD at my favorite online bank is 3.25%.