SMW Helps Agencies With Proposition 26

 

Legal Update:  Local Government Fees After Proposition 26

By Osa L. Wolff and Jaclyn H. Prange

April 1, 2011

California voters passed Proposition 26 on November 2, 2010.  Because it institutes voter approval requirements for many fees, the measure will change the way local governments fund new environmental, public health, and social programs.  Although Proposition 26 affects both state and local governments, this article summarizes only the key provisions of the measure that affect local governments. 

Background.  Propositions 13 and 218, passed in 1978 and 1996, respectively, limit local governments’ ability to impose new taxes.  These measures require general taxes to be approved by a simple majority of voters and special taxes to be approved by a two-thirds supermajority of voters.  Conversely, under Propositions 13 and 218, most fees need only be approved by a majority of the governing body, not the voters.  As a result, whether a funding measure is a “tax” or a “fee” has been the subject of extensive litigation. 

For example, in Sinclair Paint Co. v. State Board of Equalization, the state imposed a fee on manufacturers and other persons responsible for identifiable sources of lead in order to fund a lead poisoning remediation program for children.  Opponents of the fee argued that the fee was a tax because it did not directly benefit the parties paying the fee.  The California Supreme Court decided that the fee was not a tax because it did not exceed the reasonable cost of the remediation program and was not used for unrelated revenue purposes.          

The Measure.  The proponents of Proposition 26 sought, among other things, to overturn Sinclair Paint’s holding that regulatory fees are not subject to the voter approval requirements of Propositions 13 and 218.  In order to close this perceived “loophole,” Proposition 26 expands the definition of a “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” that does not fall under one of seven exceptions.  Thus, if a local government wishes to “impose, extend, or increase” a charge, it must submit the charge to the voters for approval, unless that charge is covered by one of the following exceptions. 

 

1.      Specific Benefit or Privilege.  The first exception applies to any charge “imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege.”  This exception should cover fees for any benefit or privilege that agencies bestow on those paying the fee, such as rights granted under permits. 

 

2.      Government Service or Product.  The second exception covers any charge “imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.”  Examples likely include park and recreation service fees, transit fees, and utility fees.  However, local governments may not be able to rely on this exception if they provide free services because doing so may run afoul of the requirement that the service not be provided to “those not charged.”    

 

3.      Permit and License Fees.  The third exception applies to any charge “imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof.”  This exception should cover building and planning permit fees, as well as fees for fire, restaurant, and housing inspections, for example. 

 

4.      Entrance to or Use of Government Property.  The fourth exception covers any charge “imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property.”  Examples likely include parks entrance fees and right-of-way use franchise fees.  Unlike the first three exceptions, this exception does not require that the fee be limited to the government’s “reasonable costs.” 

 

5.      Fines and Penalties.  The fifth exception applies to a “fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law.”  Like the fourth exception, this exception does not expressly require that charges be limited to the government’s reasonable costs, but other state statutes do impose limits, including in the area of code enforcement. 

 

6.      Development Fees.  The sixth exception covers any “charge imposed as a condition of property development.”  This likely includes payments required to mitigate a project’s environmental impacts, such as subdivision improvement.  While this exception is fairly broad, these types of charges are subject to existing constitutional and statutory limitations, including the takings clauses of the United States and California Constitutions and the Mitigation Fee Act.

 

7.      Assessments and Property-Related Fees.  The seventh exception applies to “assessments and property-related fees imposed in accordance with the provisions of Article XIII D [Proposition 218].”  This exception ensures that assessments and property-related fees imposed in accordance with Proposition 218 will not be subject to an additional layer of regulation under Proposition 26.       

 

Conclusion.  Proposition 26 will limit the ability of local governments to enact new funding measures for environmental, public health, and social programs without approval by two-thirds of local voters.  The meaning of many of its provisions will undoubtedly be the subject of litigation for years to come.  Local governments should seek legal advice to guide them as they enact and update fees, particularly during the time it will take for the courts to provide additional guidance regarding the new measure.  With careful planning, however, local governments will be able to structure fees to fall under one of the measure’s seven exceptions.

 

This legal update is for informational purposes only and is not legal advice. You should not act on this information without seeking professional legal counsel.