Residents Can Play a Vital Role in Establishing Funding Streams for Local ProgramsJanuary 13, 2022
A tax on commercial rents to fund early child care and education programs. A parcel tax to fund school district teacher salaries, professional development, and technology. A business tax to fund homeless services. A sales tax to fund city parks, recreation, streets, and arts. Each of these measures is in effect today. And each would have been defeated if they had been proposed by the local city council or board of supervisors. These measures are special taxes (the funds are designated for specific purposes) and they did not receive the two-thirds voter approval required by the California Constitution for special taxes imposed by local governments. But because these taxes were proposed by voters via citizen initiatives, they passed by a simple majority vote (50% +1) and went into effect.
The courts have upheld the distinction between special taxes proposed by voter initiatives and those put on the ballot by elected officials, even when there was some involvement by those officials in developing the initiatives.
Voter Initiatives as an Avenue to Pass Special Taxes by Majority Vote
Statewide propositions 13, 218, and 26 amended the California Constitution to make it difficult for local governments to impose fees and taxes. Special taxes imposed by local governments must be approved by two-thirds of the voters. General taxes require majority approval. A “tax” is broadly defined and local governments bear the burden to demonstrate that new or increased fees meet certain substantive requirements in order to avoid being considered a tax. In some cases, local governments have determined it is now easier to obtain voter approval for certain charges than try to qualify them as fees under Prop. 26.
Voter approval of taxes remains a major challenge. Voters are more likely to approve taxes for specific, favored programs, but the two-thirds approval requirement can be an unsurmountable hurdle. One strategy to help pass new taxes is for a local government to place a general tax measure on the ballot, meaning the revenues may be used for any purpose and only a simple majority is required to approve the measure, along with a separate “advisory measure” stating voter preference (but not the requirement) to use the funds for specific purposes. The courts have upheld this approach (See Johnson v. County of Mendocino (2018) 25 Cal.App.5th 1017), but one review of local revenue measures concluded that pairing an advisory measure with a general tax appears to have little effect on the success or failure of the tax measure. See CaliforniaCityFinance.com, An Overview of Local Revenue Measures Since 2001.
Several recent cases have opened a path for approving taxes for specific programs by a majority vote. The roadmap for this approach began with a 2017 opinion by the California Supreme Court. In California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924, the Court held that Prop. 218’s requirement that a general tax be submitted to voters at a general election does not apply to taxes proposed through voter initiatives because that requirement only applies to taxes imposed by a “local government,” which the court ruled did not include the electorate exercising its constitutional initiative power. The question remained, however, whether this would apply to Prop. 218’s two-thirds approval requirement for special taxes.
The First District Court of Appeal addressed that question in City and County of San Francisco v. All Persons Interested in the Matter of Proposition C (2020) 51 Cal.App.5th 703. There, an initiative imposing a special tax on businesses to fund homeless services received 61.34 percent of the vote. The court agreed with the City that because the tax measure was placed on the ballot via voter initiative, it required only a majority vote to pass. The court stated: “we construe the supermajority vote requirements that [Prop. 13 and Prop. 218] added to the state constitution as coexisting with, not displacing, the people’s power to enact initiatives by majority vote.”
The Fifth District Court of Appeal agreed in upholding a Fresno County sales tax measure to fund city parks that received just 52 percent voter approval. See City of Fresno v. Fresno Building Healthy Communities (2020) 58 Cal.App.5th 884. And last year, the First District affirmed its prior holding when it rejected a challenge to a special tax initiative that received 51 percent of the vote. See Howard Jarvis Taxpayers Association v. City and County of San Francisco (2021) 60 Cal.App.5th 227.
The Supreme Court declined to review the San Francisco cases and the Fresno challengers did not seek Supreme Court review. While it may take up this issue if a district split later develops, at this point initiative proponents have three published court of appeal decisions supporting passage of special taxes by majority vote. Some uncertainty remains for sales taxes proposed by voter initiative: a current challenge argues that the Revenue and Taxation Code’s two-thirds voter approval requirement should still apply. The courts may also need to address whether a special tax proposed via voter initiative may avoid voter approval requirements altogether if the legislative body exercises its discretion under the Elections Code to adopt the measure outright, rather than place it on the ballot.
Involvement of Local Officials
Given this new approach to revenue measures, local officials may wish to work with community groups supporting programs that could be funded by those measures. In two recent opinions, the First District Court of Appeal considered and rejected claims that this sort of involvement meant a special tax measure should not be treated as a voter- initiative and still be subject to a two-thirds voter approval requirement. These cases provide insight on the sorts of questions the courts would consider in future challenges of this type.
In HJTA v. City and County of San Francisco, a member of the Board of Supervisors submitted the required notice of intent to circulate an initiative petition for a special tax measure, turned in the signed initiative petitions; signed ballot arguments; and used his Supervisor title and City Hall address in the process. Two ordinances nearly identical to the measure were pending before the Board before it qualified for the ballot. Once it did, the Board member stopped supporting the ordinances. Opponents argued that given these facts, the court should hold that the measure was not in fact a voter-sponsored initiative. The court dismissed this argument, stating, “[W]e fail to see how the sponsorship and involvement of the single official here gives rise to the inference that the City intentionally circumvented Propositions 13 and 218 or effectively controlled the initiative.”
In City and County of San Francisco v. All Persons Interested in the Matter of Proposition G (2021) 66 Cal.App.5th 1058, initiative opponents sought to invalidate a special tax measure based on agency involvement. During negotiations for a new labor contract, the District and its teachers union agreed that teachers deserved a raise and considered funding the increase with a parcel tax measure. A parcel tax planning committee was formed with union representatives, political consultants, and a deputy superintendent of the District. The planning committee reviewed a draft citizens initiative and the deputy superintendent proposed edits. The union then asked three voters to serve as the initiative proponents. One proponent acknowledged that he did so because if the District sponsored the measure it would require a two-thirds vote to pass.
The court held that the measure had satisfied the requirements for a voter initiative, and thus a majority vote threshold applied. The measure had qualified for the ballot through an initiative petition, and three voters had served as sponsors, signing and publishing the notice of intent and submitting the initiative petition to the City. Notwithstanding the evidence of District involvement, the court found “nothing inherently sinister about the fact the District and the Union supported this proposition.”
These cases demonstrate that the courts are willing to accept some involvement by local agency officials in placing voter-sponsored initiatives on the ballot. This area of law is still developing, however. A court might reach a different conclusion on different facts, such as a majority of elected officials being involved in the process of placing a voter initiative on the ballot. Local officials should also be aware that public funds may not be used to campaign for ballot measures. The courts have upheld the use of public funds for informational materials and for some activities related to a measure before it is placed on the ballot, topics for discussion in a future In the Public Interest Newsletter article.
Contact Heather Minner for more information about local revenue measures, voter initiatives, or the use of public funds to provide permissible informational materials on ballot measures.