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Western U.S. Ballot Measures Give Voters Chance to Leverage Recent Economic Growth

Higher Tax Revenues May Make Bond, Tax Measures An Easier Sell

The Mountain and Pacific states continue to add employment and attract new residents, with coastal metropolitan areas experiencing strong upward pressure on housing prices. Inland areas, with more room to build, nevertheless are seeing upward home price movement while their economies are diversifying from natural resources and mining.

Consecutive years of real estate appreciation and growth in consumer spending have attracted the attention of public officials and advocacy groups, who this year have given voters opportunities to leverage growth in property tax bases and taxable activity to make long-term commitments to fund capital improvements and services. We think that accumulated economic growth likely also has accelerated the capital needs of school districts and municipalities in growing metropolitan areas, who tend to be a major source of general obligation (GO) authorization requests throughout the economic cycle.

Overview

  • This year's slate of ballot measures appears to have generally neutral-to-positive credit implications for states and localities, with many proposing to increase revenue for operations or boosting resources for already identified capital needs.
  • Colorado voters will consider the largest tax increase in the region, which would fund a single-payer healthcare system.
  • Recreational marijuana legalization could expand to more than half of the western U.S. states and could add to state revenues at the margin, but local revenue effects will depend on the statutory environment and local policy choices regarding the establishment and taxation of retail outlets.

Three States Consider Major Tax Structure Changes

Colorado, Oregon, and Washington voters will consider perhaps the most consequential tax structure changes. Colorado's tax increase is the largest, at the equivalent of about 1.5x the state's general fund expenditures, to fund a single-payer health care system using employer and employee taxes. Oregon voters will consider changing the corporate tax code to add revenues equivalent of about one-third of state general fund expenditures, which we think could have positive implications for local school districts, but the measure gives the Oregon legislature discretion as to how to use the proceeds. And Washington voters will consider the establishment of a carbon tax that would be partially – but not completely, according to the state's projections – offset by a decreased state sales tax rate.

Marijuana Could Be Legal in More States (And Taxed In More Places)

If voters in Arizona, California, and Nevada all say "yes" to marijuana legalization measures, a majority of the western U.S. states and the region's population will have the product available for recreational use, although it remains illegal at the federal level. This year's measures each propose regulatory regimes that we understand took lessons from Colorado and Washington, including limits on the location and number of retail outlets but with significantly lower tax burdens than in those states. Based on Colorado's experience, we see some potential for additional tax revenues at the state and local levels but anticipate that the effects will be modest. We see potential for local governments to treat marijuana as a source of "sin tax" revenue, with many Oregon municipalities exercising a recent statutory change to request authorization from voters for a 3% local tax, while many California local governments have ballot measures that request authorization to tax recreational marijuana in anticipation of statewide legalization. Concurrently California and Colorado voters will consider significant increases in taxes on tobacco.

Potential New Funding To Address Transportation Woes

Voters in the Seattle, San Francisco, and Los Angeles metropolitan areas, all of which tend to place highly on the Texas A&M Transportation Institute's annual congestion surveys, will consider measures that would generate billions of dollars in revenues for transportation improvements, including major light and commuter rail investments. These generally would rely on sales tax revenues, although in one case an agency will request GO authorization.

Alaska (AA+/Negative)

Alaska has two ballot measures that we believe have modest implications for the state's credit profile, which is currently under strain, in our view, due to the lack of a permanent solution to an unrestricted general fund deficit and, more recently, a pending change to its debt profile from the proposed issuance of pension obligation bonds.

Ballot Measure 1
This measure would add what the state estimates would be about $1 million in start-up and $300,000 in ongoing costs to allow voter registration when applying for the state's annual "dividend" from its oil-funded Permanent Fund. We consider the costs to be modest relative to the size of the state's operations.

Ballot Measure 2
The second measure would allow a state-affiliated student-loan conduit to issue bonds supported by student loan payments but secured by the state's GO. As the measure doesn't require the state to issue such debt, we anticipate that Alaska would likely structure such debt in a way to minimize credit risk to itself. Should the state propose such debt, we would evaluate the extent to which student loan payment shortfalls could expose it to material financial stress.

Arizona (AA/Stable)

Proposition 205
Arizona voters will consider joining four other western states that have legalized recreational marijuana and establish a 15% sales tax on the product, which remains illegal at the federal level. The state estimates fiscal 2020 revenue distributions at $12 million for administration and local pass-throughs and $70 million (0.3 % of the state's fiscal 2015 expenditures) for state-funded education and public health. We understand that Proposition 205 would subject the industry to significant regulatory oversight, similar to what's used in Colorado and Washington, and place an initial cap on the number of retail establishments. The state analyst anticipates that the gross revenue effects from legalized recreational marijuana sales will likely be lower than in Colorado, which has the most experience regulating the sale of recreational marijuana, due to a lower proposed tax rate and data suggesting lower per-capita consumption in Arizona. We think that additional revenues from a new "sin tax" directed at core state budget functions could help make state budgeting easier at the margin but that its influence will be modest. For local governments, we think that the effects will be muted, unless clusters of high-volume retailers form and future state legislation creates incentives to impose industry-specific taxes that would flow to local governments. The state estimates local distributions of revenues from marijuana sales in fiscal 2020 at $7 million, which would be allocated by the same formula that applies to other goods.

Proposition 206
This proposition is similar to those in other western states that would phase in minimum wage increases and link them to the consumer price index (CPI) thereafter. In Arizona's case, the minimum wage would rise to $12 per hour in 2020 from $8.05 currently in increments of $1.95 at first, then by 50 cents per year. The state government is exempt from its minimum wage but at the margin could experience what we expect would be nonmaterial higher costs from lack of competitiveness in the labor market if its wages for certain positions are below the new minimum. Likewise, its contractors would be subject to the minimum wage and the state could experience higher goods and service costs to the degree that it passes on higher labor costs in the form of higher bids.

Local measures
Similar to prior years, school district ballot measures are common in 2016, primarily consisting of requests for property tax overrides and GO bond authorization requests. We have not identified any measures that are likely to significantly affect credit quality but will evaluate on a district-by-district basis the extent to which new operating revenues (or the loss thereof if measures fail) would affect financial operations or how new GO authorizations might affect a district's debt burden and/or address capital constraints or capital renewal needs.

California (AA-/Stable)

Proposition 51
This measure would authorize the state to issue $9 billion in GO bonds for education facilities, with $7 billion for K-12 education and $2 billion for community colleges. California estimates annual carrying charges of about $500 million per year (0.5% of fiscal 2015 general fund expenditures) for 35 years should it fully exercise the authorization. In most cases, local contributions would be a condition of receiving state capital grant funding. We anticipate that any call for applications under the measure would be fully subscribed, as californiacityfinance.com (a public research service of Coleman Advisory Services) reports that on this November's ballot, there are 184 local bond measures for K-12 school districts and community college facilities totaling $25.3 billion. We also anticipate that districts with previously authorized but unexercised GO authorization would pursue state matching grants under Proposition 51. We think a similar dynamic would play out for charter schools, which would be allocated $1 billion of the $7 billion available for K-12 education.

We don't anticipate that Proposition 51, by itself, would have a significant effect on the state's GO debt burden; the outstanding amount that it issued for governmental activities stood at $76.9 billion at the end of fiscal 2015. However, we would evaluate issuances under the authorization in the context of any concurrent or likely future state GO issuances. Likewise, we don't anticipate material positive or negative effects on K-12 school and community college districts' credit quality, as those districts positioned to apply for state matching grants are likely to expand their capital plans over time rather than refrain from fully exercising their GO authorizations and could even accelerate GO issuance in the medium term to maximize their slates of qualifying projects.

Proposition 53
This measure would require statewide voter approval for revenue bonds -- which typically are structured to be self-supporting by user fees -- when such debt supports projects that are funded, owned, or managed by the state. (A ballot measure is necessary to authorize a state GO bond issuance but it does not typically authorize taxes to fund debt service.) The California Legislative Analyst's Office (LAO) didn't estimate the measure's fiscal effects on state and local governments but doubts that there would be very many projects large enough to be affected by the measure's requirement for voter approval, with high-speed rail and a water tunnel in the Sacramento-San Joaquin River Delta potentially qualifying depending on how the term "project" is defined in practice and litigation. In our view, the passage of Proposition 53 is unlikely to materially affect the state's credit quality but by adding an additional hurdle for financing large infrastructure projects using revenue bonds, it could eventually make such projects less likely, with difficult-to-predict long-term effects on aggregate state debt issuance and economic capacity.

Proposition 55
This measure would extend the income tax provisions of Proposition 30, which voters approved in 2012 in the context of a legislative budget compromise at the end of the Great Recession, to 2030 from 2018. Proposition 55 would not extend the 2012 measure's temporary increase in the state's sales and use tax rate, which sunsets in 2016. The LAO estimates that Proposition 55 would generate $4 billion to $9 billion in revenue each year (compared to $117 billion in aggregate general fund revenues in fiscal 2015) and notes that such revenues will be sensitive to economic and investment market conditions. According to Department of Finance estimates, the additional revenue would erase the fiscal gaps projected to emerge in fiscal 2019 and thereafter. The additional revenue also would translate to larger deposits in the state's Budget Stabilization Account, which is governed by constitutional formula. However, because the measure specifies that half of any excess revenue above the amount necessary to support fiscal 2016 program levels be allocated to the state's Medi-Cal program (up to $2 billion per year), this and any other programmatic enhancements—including those for education required under Proposition 98—could elevate the state's expenditure baseline. Therefore, while the additional revenue solves the projected deficit problem assuming economic growth persists, it could also result in larger fiscal gaps in a recession scenario.

Although it's difficult to quantify and is subject to economic performance assumptions, because the measure maintains the current income tax structure beyond the 2018 sunset, significant increases above current target levels under the Local Control Funding Formula for K-12 school districts aren't necessarily a given. Therefore, we see limited potential for K-12 school district credit quality to improve from the measure's passage. Rather, the measure's failure absent a future tax structure change likely would lead to sizable decreases in state funding for K-12 school districts and community college services. As such, we believe the measure's failure could potentially weaken credit quality for these entities starting in fiscal 2019, to the degree that local districts struggle to anticipate and adjust their budgets in response to the change, particularly if a recession compounds the revenue effects of the expiration.

In addition, while Proposition 55 is difficult to quantify, we think that its approval also creates longer-term risks for K-12 and community college districts to the degree that it leads to budgetary decisions based on the expectation that state funding formula revenues will at worst stagnate for the foreseeable future. After the passage of Proposition 30, local district management teams generally represented to us that they and their boards were cautious in adding to ongoing expenditures, often using increases in state funding to catch up on one-time costs and only recently increasing compensation, the levels of which tend to be negotiated as a percentage of a prior year's level and rarely are lowered. To the extent that local districts ratchet up ongoing costs, they increasingly will be exposed to budgetary or liquidity stress if the state lowers funding formula revenues or delays payments. We think that the potential scale of such funding swings would be heightened with the measure's passage because by increasing the progressivity of its revenue structure, California will have increased its exposure to the portion of the population that tends to experience the largest percentage fluctuations in their incomes during economic cycles. At the same time, the state's newly institutionalized rainy day mechanism, which has not yet been tested during a recession, could lead the state to moderate the pace of funding formula changes stemming from a sharp decline in state revenues.

Proposition 56
If California voters pass this measure, the state excise tax on cigarettes would increase by $2, to $2.87 per pack, with similar increases on other tobacco products. State excise tax revenues also would apply to electronic cigarettes. The LAO estimates the measure would increase net state revenue by $1.0 billion to $1.4 billion in fiscal 2018, with potentially lower annual revenues over time to the degree that higher taxes lead to lower consumption or tax evasion. Its analysis also notes that while this measure would reduce state and local healthcare spending, savings would likely be offset by increases in service costs as a result of individuals who avoid tobacco-related diseases living longer. Revenue from these higher taxes would be used for many purposes, but primarily to augment spending on health care for low-income Californians. Given the restricted nature of the revenues and minimal potential for cost reductions, we do not believe Proposition 56's passage would immediately affect the credit quality of the state or local governments.

Propositions 57, 62, 66
These measures follow several state-level changes designed to reduce state prison overcrowding and to reduce growth in the state's criminal justice expenditures. Legislation in 2011 provided for people convicted of non-violent and certain other qualifying offenses or who are found to have committed parole violations to serve time in county jails or otherwise under county supervision, with accompanying funding from the state. Voters in 2012 then approved a ballot measure narrowing the scope of the state's "three strikes" law and in 2014 approved a ballot measure that reduced penalties for certain property and drug offenses.

These measures approach such costs from different angles and two are in opposition to each other. Proposition 57 could potentially reduce California's prison population further by increasing the number of inmates eligible for parole and allowing greater use of "sentencing credits". The LAO believes that implementation of the measure, should it be approved, is subject to significant uncertainty surrounding interpretation but anticipates state-level savings of "tens of millions" and higher costs for counties, at least in the short term, due to higher parole caseloads. Proposition 62 would repeal the death penalty for new and existing sentences and retain the existing penalty of life in prison without the possibility of parole. The LAO estimates that foregone costs are difficult to estimate but could eventually total $150 million from simplifying court proceedings, reducing appeals, and converting "death row" housing to conventional prison housing. Proposition 66 takes a different tack by streamlining the trial and appeal processes and setting deadlines to expedite the timeline for carrying out death sentences. The LAO believes that Proposition 66 would likely increase court costs overall by "tens of millions" due in part to the need to assemble more resources to meet the measure's timelines. At the same time, it could reduce the state's prison costs, also by "tens of millions," by providing more flexibility in where inmates are housed and the time that they're in prison by accelerating executions.

We think that these measures, collectively or by themselves, are unlikely to materially affect credit quality for the state or counties but as part of a sustained pattern of state efforts to reduce its criminal justice costs via reduced penalties and greater discretion in administering penalties post-conviction, they would help to slow the pace of cost growth that has been a long-term source of strain on California's operating budget.

Proposition 58
This measure would retain a previous voter-approved measure's requirement that K-12 school districts ensure that students learn English but provides districts with additional flexibility to establish bilingual programs. As the measure doesn't appear to mandate additional activities that would materially add to districts' costs, we don't anticipate material credit effects should it pass.

Proposition 64
Passage of this measure would allow adults 21 years of age or older to legally grow, possess, and use marijuana for nonmedical purposes, with certain restrictions. The measure would also authorize the state and local governments to regulate recreational marijuana businesses and impose new per-ounce taxes on the growing of marijuana that would be indexed for inflation starting in 2020. The selling of recreational and medical marijuana would be subject to a 15% excise tax, and recreational but not medical marijuana would be subject to state and local sales taxes. The LAO considers the fiscal effects to be highly uncertain, but estimates that state and local governments could eventually net additional revenues from the "high hundreds of millions" of dollars to over $1 billion annually. The measure requires most of the state's excise tax revenue to fund various youth, environmental, and law enforcement programs linked to the negative effects of marijuana production and consumption.

Given the restricted nature of how California could use excise tax revenues, we don't believe the passage of this measure would materially affect the state's credit quality, although at the margin the state likely would realize additional unrestricted revenues from its share of sales tax revenues on the product depending on how the measure affects prices and consumption levels in the state.

Local measures
Consistent with Proposition 64, which would authorize local governments to impose sales taxes specific to recreational marijuana, subject to separate laws governing voter approval requirements for a tax increase, local governments are already looking to supplement the sales tax increases they would receive from removal of marijuana prohibition in the state. According to californiacityfinance.com, 37 local cities and counties have placed such measures on local ballots this year. Because local governments have discretion to use the proceeds from such taxes as they see fit unless restrictions are included in the authorizing ballot measures, we think that the passage of such measures could improve credit quality for the city or county governments that are able to attract marijuana retailers who achieve high sales, such as in cases where retailers' trade areas include neighboring high-population jurisdictions that prohibit such retailers. But we also see a risk for economic bases in coastal far Northern California, which we understand are home to large marijuana farms operating quasi legally or illegally under state law. While difficult to quantify, further easing of state restrictions on the product in combination with lower prices and geographic diffusion of production could have negative economic effects in such communities, potentially leading to weakening credit quality to the degree that such changes affect activity that is already taxed.

Transportation measures are prominent in the state's urban centers. Los Angeles County voters will consider Measure M, which would extend an existing 0.5% sales tax indefinitely and add another 0.5% sales tax primarily to fund road and transit infrastructure. Sacramento voters similarly will consider a 30-year 0.5% sales tax for transportation projects and services. Voters in the Bay Area Rapid Transit district will consider authorizing $3.5 million in GO bonds and Alameda County voters will concurrently consider an $8-per-parcel tax for bus services.

The cost of housing in coastal areas is receiving attention from policymakers, who have requested GO authorizations in some communities to fund the development of income-qualified housing. These include $1.2 billion in Los Angeles focused on homelessness, $950 million in Santa Clara County, and $580 million in Alameda County.

Colorado (AA/Stable)

Amendment 69
Amendment 69, otherwise known as "ColoradoCare", would establish a single-payer state health care system for all adults who have lived in Colorado for at least one year. It's designed to greatly reduce the proportion of uninsured residents and address inefficiencies that fuel health care cost inflation. ColoradoCare funding would be generated by employer payroll taxes, employee payroll income, and non-payroll income, with oversight, including tax rates, being set by an initially appointed then elected board. The Colorado Legislative Council estimates that tax revenue necessary to support the program in the first year of full operation (fiscal 2020) at $25 billion (equivalent to 150% of fiscal 2015 general fund expenditures).

We believe the measure has significant but difficult to quantify implications for the Colorado economy due to the effect of creating the country's highest income tax burden while reducing or eliminating employers' need to manage a highly inflationary benefit. (Employers could continue to provide private insurance but it would be largely redundant to ColoradoCare coverage.) Tax collections under ColoradoCare would be limited to about $2 billion during the start-up period in fiscal years 2017-2018. As a result, we think the initial effect on the state's economy would likely be muted but with no obvious parallels in other states, the creation of such a state agency suggests the project would absorb significant administrative and legislative attention -- and potentially resources -- at the state level. Likewise, the creation of a new health care system presents uncertainties for local governments, who we think may in some cases find it difficult to negotiate the cessation of a benefit that has traditionally been a major component of employee compensation. Should the measure pass, we likely would focus on the system's probable ongoing revenue requirements as its costs become better understood, its effect on the state economy, and any unforeseen costs that emerge for the state or for local governments.

Amendment 70
Similar to other states, Colorado is considering increasing its minimum wage, in this case to $12 per hour by 2020 from the current $8.31 in an increment of 99 cents initially, then 90 cents per year. The minimum wage would change in response to the Colorado CPI. We understand that the state and some municipalities would face slightly higher costs for non-salary and seasonal employees to comply with the change. But overall, we believe the measure would have minimal impact because we understand that education and certification requirements for government jobs and collective bargaining tend to result in compensation above the minimum wage.

Amendment 72
This measure increases per-pack taxes on cigarettes by $1.75, which the state estimates would translate into an additional $299 million of revenue in the first year of inception (2018). The state would allocate these additional funds to tobacco education, prevention, medical research, health clinics in underserved areas, and veteran programs and services. We don't expect this proposition to significantly affect state or local government credit quality because the proceeds will be earmarked for specific uses.

Amendment U
This constitutional change would exempt property of a de minimis value of $6,000 or less from taxes on possessory interest, which is a situation in which an individual or business financially benefits from government-owned property under an agreement with that government. If passed, the proposition would take effect in property tax collection year 2018 and be indexed to inflation every two years thereafter. With the Colorado Legislative Council calculating a statewide annual revenue loss of $125,000, we believe no material credit implications should occur if this measure passes.

Local measures
Colorado voters also will consider more than $4.2 billion in school district GO bond authorizations according to data assembled by the Colorado School Finance Project. The majority of the proposed authorizations would fund either facility updates or the construction or expansion of new classrooms. Colorado's continued population influx has created capacity concerns for many school districts throughout the state. A few of the largest proposals include Denver Public Schools, Jefferson County Public Schools, and Poudre School District, with requested amounts totaling $572 million, $535 million, and $375 million, respectively. In addition, school districts will ask voters to approve more than $177 million in mill levy overrides in November to increase property tax revenues available for operations.

Hawaii (AA+/Stable)

Senate Bill 2554
Hawaii voters will consider amending a constitutional framework that currently provides for the state to refund or credit taxpayers when its general fund balance exceeds 5% of revenues for two consecutive fiscal years, or to deposit a portion of funds in excess of this threshold in reserves for emergencies or economic downturns. This measure would allow the state to also use such resources to retire GO bonds early or to pre-pay pension and other postemployment benefit liabilities. Because the state's ability to use this flexibility is subject to the same economic and budgetary conditions that affect its capacity to address these liabilities, the burden for which we consider high, we think the measure has positive, if modest credit implications.

Idaho (AA+/Stable)

House Joint Resolution 5
Idaho voters will consider a constitutional amendment that would allow the legislature to review administrative rules adopted by the executive branch for compliance with legislative intent. As we understand that the measure enshrines a 1990 Idaho Supreme Court decision rather than materially changes the state's separation of powers framework, we don't anticipate any medium-term credit implications should it pass.

Montana (AA/Stable)

Initiative 181
With Initiative 181, Montana voters will consider a measure similar to one California voters approved in 2004 that established, via state bond issuance, funding for stem cell research. This measure would establish a biomedical research authority with a board that the governor would appoint. The board would have the powers to cause the issuance of state GO bonds of up to $20 million per year for 10 years for eligible research. We think the measure's $200 million in potential issuance could cause a reversal to what has been a long-term declining trend in the state's GO debt burden, which stood at $135 million at the end of fiscal 2015. We consider the state's debt burden to be low overall and, although Montana's carrying charges could increase with the full exercise of the measure, we think that the debt burden could remain low under our criteria.

Initiative 182
This measure would partially reverse changes to regulations on medical marijuana that the state approved in 2011 and take effect this year. Although we understand the measure would likely loosen rules relative to the current framework, we don't anticipate major changes to the state's enforcement costs or to consumption that would affect tax revenues.

Nevada (AA/Stable)

Question Two
This measure would decriminalize marijuana use and possession and require the state to regulate and administer the operation of facilities that cultivate, produce, and dispense marijuana products. There would be caps on retail licenses by county population size and during an 18-month transition period the state would only allow retailers currently subject to the state's medical marijuana system and distributors operating under the state's liquor regulations. Nevada would impose a 15% excise tax on growers using the wholesale value. It also would collect a one-time $5,000 fee per marijuana establishment license and could impose fees for annual renewal. All retail marijuana products would be subject to state and local sales and use taxes and the state would administer the distribution of such proceeds as it does for other products.

The Department of Taxation and the Fiscal Analysis Division could not estimate a fiscal impact, citing uncertainties regarding demand for the currently illegal product but estimates state equipment and technology costs of about $1.1 million annually, which would be what we consider modest in size relative to the state's operations overall. Proceeds from the excise tax, less costs, would be deposited in the State Distributive School Account, suggesting that, at the margin, the state could realize expenditure flexibility to the degree that new dedicated revenues are available for the state's second-largest expenditure category. There also likely would be variable state and local costs associated with the volume of applicants and changes in enforcement practices, although such costs seem likely to be defrayed by the measure's provisions for a portion of excise tax revenues to fund such expenditures.

Due to Nevada's ability to regulate the industry under the measure and based on experience in the four other western states that have legalized the product, we anticipate that the state and local governments could realize additional revenues under the change but that the effects would likely be modest overall.

New Mexico (AA+/Negative)

Similar to prior years, New Mexico voters will consider ballot measures that would authorize the state to issue GO bonds for a variety of state operating and capital purposes. This year, there are four, which range from $15.4 million for seniors facilities to $142.4 million for educational facilities. As these are of similar size to prior years' measures, we anticipate that the measures, if approved, would not materially affect the state's credit profile.

Oregon (AA+/Stable)

Measure 97
This measure would impose corporate minimum tax changes that the state estimates would generate a net annual $3 billion increase in such revenues and dedicate them for education, healthcare, and services for seniors. Because the measure doesn't precisely allocate the proceeds of the revenue increases, it's difficult to anticipate how the legislature would respond. Nevertheless, we view the scale of revenues as significant, with the increased revenues representing the equivalent of 36% of state general fund expenditures in fiscal 2015, and should the allocation approximate the current breakdown of state spending, we anticipate that local school districts would experience significant revenue infusions that they could use for operations and/or capital.

Measures 96, 98, 99
"Ballot box budgeting" is prominent this year, with three measures requiring state spending for specific purposes, although we think that the credit implications for the state and local governments likely would be modest, as we understand that Oregon could adjust spending on other line items in response. Measure 96 would carve out 1.5% of net lottery revenues for veterans, which would translate into about $9 million annually for the biennium ending 2019. Measure 98 would require the state to appropriate at least $800 per high school student annually for dropout prevention, which would translate into about $147 million annually, or the equivalent of 3% of governmentwide state education spending in fiscal 2015. Finally, Measure 99 would require the state to dedicate the lesser of 4% of lottery revenues or an annualized $22 million annually to outdoor education for fifth and sixth graders and tie that number to the CPI.

Local measures
Oregon voters in many communities will consider local measures about taxation potentially affecting credit quality, including school GO bond authorizations as in prior years. In some cases, larger entities are requesting renewals of local option levies, such as Clackamas County and Metro, and in a handful of cases, such as Tigard and Clackamas County, local governments are proposing fuel taxes for road maintenance. The most prominent trend is a flurry of measures proposing to tax marijuana, the recreational form of which was allowed under a 2014 ballot measure, and local governments in most cases are requesting the full 3% tax enabled in 2015 legislation. Because the state's regulatory framework is so new, it is difficult to predict the scope of potential revenues under such measures but we anticipate they would be modest unless a locality develops a high-volume cluster of such retailers. And many communities may go in the direction of prohibiting such businesses, with at least one – Canby – giving the option of either taxing or prohibiting marijuana retailing.

Utah (AAA/Stable)

Amendments B, C
Utah voters will consider two constitutional changes that we believe will have minimal implications for credit quality. Amendment B would expand the definition of investment returns in the State School Fund, which could make it easier to distribute resources from the fund, but also would add a 4% annual cap on the percentage of its corpus that may be transferred from the fund in a given year. We understand that the changes would be unlikely to materially affect the amount the state could draw each year. Amendment C would allow Utah to exempt personal property leased to the state or a local government from taxation. The state estimates that the loss of this small subset of property from the tax rolls would increase the tax burden of a $250,000 home by just 1 cent.

Local measures
Utah's local ballot measures with potential credit implications consist primarily of GO bond authorization proposals, with a $90 million measure for parks in Salt Lake County perhaps the most prominent. For local governments issuing new GO debt, we will evaluate how such obligations fit into existing debt burdens and how they address capital additions or renewal needs.

Washington (AA+/Stable)

Initiative 732
This measure would impose a carbon emission tax on certain fossil fuels and fossil-fuel-generated electricity, reduce the sales tax by one percentage point and increase a low-income exemption, and reduce certain manufacturing taxes. The Washington State Office of Financial Management (OFM) estimates that net state general fund revenue would decrease in the first full year of the measure's effects (2019) by a net of about $223 million and implementation costs would total about $6 million. This is because, under the OFM's projections, the lower sales tax rate would push revenues down further than the new carbon tax would increase revenue. The net revenue loss of the equivalent to 0.8% of fiscal 2015 state general fund expenditures would arrive in the context of the state's struggle to address the increased K-12 funding requirements associated with a 2012 state Supreme Court order (McCleary, et al. v State of Washington). However, the state has a history of modifying ballot measures after their passage (after a constitutional two-year waiting period) and we believe that the legislature could take adjust one or both rates to make the changes revenue neutral or rescind the measure entirely.

The OFM anticipates the tax change to be a net positive for local governments, who would receive $42 million in additional annual sales tax revenues in the first full year of the measure's effects due to induced spending from the lower sales tax rate. We believe that the passage of this measure is unlikely to materially affect local governments' credit quality due to the likely diffuse nature of such gains.

Initiative 1433
This measure would gradually increase the state minimum wage to $13.50 in 2020 from $9.47 in 2016. It would also require employers to provide paid sick leave. The OFM estimates that the initiative would increase state revenues, mostly through higher unemployment insurance contributions from employers, and increase state expenditures indirectly to the extent that vendors increase their contract bids in response to higher labor costs rather than directly, because most collective bargaining agreements provide for compensation above the proposed increase. We think that a similar dynamic would hold for most local governments in and around Seattle, Vancouver, and Spokane but that some local governments in more rural parts of the state could see direct and indirect costs rise to the degree that the minimum wage has a significant effect on local labor markets. But even in those cases, due to the phased-in nature of the measure that would allow for operational revisions, we don't believe it would materially affect state or local credit quality.

Initiative 1464
The funding component of a public campaign financing mechanism under this measure would consist of removing a retail sales tax exemption that currently applies to visitors from six U.S. states, American Samoa, and four Canadian provinces that have very low or no sales tax rates. The OFM calculates a virtually precise alignment between net new revenues from the state ($31 million) and deposits to the program's operating fund ($30 million) in its first full year (2018) and that the measure would allow the state to recover most of its transition costs, thereby keeping the revenues and costs largely in balance. Local governments would see their local sales tax revenues rise by $12 million in the first full year (2018) according to the OFM's calculations. We anticipate that most of the net increase in local tax receipts would be geographically concentrated in and around Seattle (from visitors flying to the state) and the cities immediately north of Portland, Ore. but we believe the positive credit effects would be immaterial. A potential exception could be Vancouver, which is located immediately north of Oregon and has two freeway crossings and conceivably could capture a significant portion of the statewide net gains, the 2018 projection of which represents 9% of the city's 2015 general fund revenues.

Local measures
This November's ballot includes several GO bond authorization requests for school districts and cities, which have been common in prior years, but also a handful of tax measures that we view as notable for credit quality.

Five municipalities in King County alone are taking a cue from a long-standing practice in Seattle, which has been one of the few cities to request property tax overrides (known as "levy lid lifts" in the state) in recent years to finance capital facilities and services. In our experience, in the 15 years since voters approved a measure that limited property tax revenue increases generally to 1% per year excluding new construction, such requests – and approvals – have been much more common among fire districts than for cities and counties. The purposes of such increases this year include firefighting facilities, transportation infrastructure, and recreation facility improvements but also park and public safety services. To the degree that tax overrides are approved more often, which could depend on local economic conditions, we think that they could support credit quality if they're used to improve budgetary flexibility.

Sound Transit, which encompasses the urbanized core of Snohomish, King, and Pierce counties, is requesting additional property, sales, and motor vehicle excise taxes to expand the scope of its capital plan, which primarily focuses on light rail, commuter rail, and bus infrastructure. Should the measure pass, we anticipate that additional top-line revenues could support annual coverage on Sound Transit's existing debt in the medium term but we would also incorporate into our ratings the likelihood that additional borrowing would add debt service costs that would lower coverage of maximum annual debt service, which is a key ratio in our special tax criteria.

Wyoming (AAA/Negative)

Amendment A
This measure would change the constitution to allow Wyoming to invest the holdings of its permanent funds to include equities, which is already the practice for its pension plans. Should the state exercise this flexibility – a two-thirds legislative supermajority would be required to create enabling statutes – we anticipate that it would use investments policies and practices that would be substantially similar to what it uses for its pension plans. For this reason, we don't believe that the change is likely to lead to a material increase in the state's exposure to investment risk.