October 2023 Update Re: Local Governments on High Alert as New Statewide Ballot Measure Seeks to Restrict State and Local RevenueOctober 30, 2023
California Legislature joins local governments to mount a full-court press against the revenue-crushing “Taxpayer Protection” Initiative (aka Initiative # 1935)
On the heels of local opposition to the California Business Roundtable’s statewide Initiative summarized below, the State Legislature has now filed a legal challenge and approved a competing ballot measure in an effort to stop the Initiative’s far-reaching restrictions on state and local revenues from becoming the law.
In September, the Legislature and Governor Newsom filed an emergency petition to the California Supreme Court, seeking to have the Court exercise its original jurisdiction and declare the Initiative invalid before the measure is placed on the ballot. Petitioners argue that the Initiative is fatally flawed for two reasons. First, that its provisions changing how fees and taxes may be imposed under the Constitution are so far-reaching that they amount to a constitutional revision (rather than a mere amendment), which cannot be conducted by initiative. Second, that the Initiative impermissibly interferes with essential governmental functions by constraining the ability of state and local governments to raise revenues, especially during times of emergency.
Petitioners and local government amici argue that preelection review, while unusual, is appropriate here because the Initiative is already creating significant uncertainty for state and local government finances. They cite the measure’s broad and undefined terms and its retroactive application to taxes and fees adopted since January 1, 2022.
Initial briefing on the petition will be completed in early November. If the Court agrees to exercise its jurisdiction, full briefing would follow. Petitioners request a ruling on the merits by June 27, 2024, when the Secretary of State is scheduled place the measure on the November 2024 ballot.
Should the Court allow the Initiative to appear on the ballot, it will be joined by a competing measure approved by the Legislature in September. Assembly Constitutional Amendment 13 would require initiatives that increase voter approval requirements for state or local measures to be approved by the same super-majority vote they propose. If the voters approve ACA 13, its provisions will apply to the Business Roundtable Initiative, meaning that measure would require a two-thirds majority to pass. Given the mounting opposition, that may be a tall order.
Original article, June 2023:
Beginning with Proposition 13 in 1978, California voters have approved a series of statewide initiatives aiming to restrict the ability of state and local governments to raise public funds through fees and taxes. Now the saga continues.
In November 2024, voters will consider a constitutional amendment sponsored by the California Business Roundtable (CBRT), which titled it the Taxpayer Protection and Government Accountability Act. Concerned that Proposition 13 (1978), Proposition 218 (1996), and Proposition 26 (2010) do not go far enough, CBRT seeks to overturn court decisions limiting the reach of those laws and impose new substantive and procedural requirements for adopting, extending, and even collecting fees and taxes. If passed, it would apply retroactively to state and local fees and taxes adopted after January 1, 2022.
This article summarizes a few of the key changes the CBRT initiative would make for local fees and taxes, discusses options for addressing those changes for fees and taxes adopted under its retroactive shadow, and notes the actions local government advocates are taking to oppose the measure before the election.
Making it Harder for Voters to Approve Taxes
The CBRT initiative seeks to remove tools that voters and local governments have successfully used to raise tax dollars for popular government services. Currently, local governments may place an “advisory measure” on the ballot alongside a general tax measure to seek voter direction on how new tax funds should be used. The courts have held that such advisory measures do not turn a general tax (requiring simple majority approval) into a special tax, which requires two-thirds voter approval. See Johnson v. County of Mendocino. If passed, this initiative would prohibit advisory measures, potentially making it harder for local governments to raise needed revenue.
The initiative would also increase the approval threshold for new and increased taxes proposed by voter initiative and dedicated to specific uses. As discussed in a previous In the Public Interest article, the courts have upheld the distinction between such special taxes proposed by voter initiatives and those put on the ballot by elected officials. While special taxes proposed by voters currently require only a simple majority to pass, the CBRT initiative would extend the two-thirds voter approval threshold to voter-sponsored measures as well.
Imposing New Restrictions on Fees and Fines
Currently, as required by Proposition 26, every charge imposed by a local government is considered a tax requiring voter approval unless it falls into one of seven specific exemptions. The CBRT initiative would modify those exemptions in a number of ways, including the following:
- Removes the exemption for a charge imposed for a specific benefit conferred or privilege granted.
- Limits charges for services or products to the “actual costs” of providing the services or products, and defines actual costs as the minimum amount necessary to reimburse the government, less all other sources of revenue.
- Requires fines and penalties, as well as interest for nonpayment, to be imposed and collected by an “administrative enforcement agency pursuant to adjudicatory due process.”
- Prohibits conditions of approval for development projects that require payment of a fee related to vehicle miles traveled.
- Provides that only governing bodies or the electorate can impose an exempt charge (i.e. a fee that is not a tax) and must do so by an ordinance specifying which of the Prop. 26 exemptions applies and the amount or rate of the charge.
- Increases the burden on local governments for showing that a charge falls within an exemption from a “preponderance of the evidence” to “clear and convincing evidence.”
In addition to increasing administrative burdens and eliminating potential fee revenue, these changes would increase the potential for legal challenges on common local government fees and fines.
Options for Addressing the Retroactivity Clause
The proposed initiative states that any tax or exempt charge adopted after January 1, 2022 that does not comply with the new requirements is void within 12 months of the initiative’s effective date. As a result, fees and taxes adopted now are vulnerable if voters approve the initiative in November 2024. Local governments have a few options in the face of this uncertainty.
First, proceed as usual. This is not an unreasonable approach, given that California voters may not approve the CBRT Initiative. And if they do, local governments will have a little over a year to readopt the tax or fee following the new requirements: the tax/fee would not immediately become void or subject to challenge, although it may need to be modified to remain in effect.
Second, consider adopting new taxes and fees following the CBRT initiative requirements. In some instances, this may be possible without drastically changing the supporting evidence, justification, and procedures that a local government would otherwise employ. For instance, a regulatory fee could be adopted by ordinance with findings that adhere to the initiative’s requirements as well as existing law. And new tax measures placed on the ballot could include the additional information that would be required if the initiative passes.
Finally, local governments have the option of waiting to see what happens in the 2024 election before attempting to adopt new fees or taxes. This approach may make sense where adopting the proposed fee or tax would involve considerable expense and effort and it could not easily be readopted if voters pass the initiative. For instance, a local government could wait to propose a general tax measure paired with and advisory measures if it unlikely to be approved by two-thirds of the voters.
The League of California Cities has opposed the CBRT initiative, calling it an “anti-local control measure [that] will decimate vital local and state services to the benefit of the largest and wealthiest corporations in California.” It has released resources for local governments to adopt their own resolutions opposing the measure, and to date over 80 cities have done so.
Local governments who take a position on this initiative should keep in mind the various prohibitions against using public funds to campaign for or against ballot measures. A previous In the Public Interest article provides tips on how to navigate the gray area between permitted informational materials and prohibited campaigning.
Contact Heather Minner for more information on the California Business Roundtable initiative. Heather thanks law clerk Dalton A. Valerio (Berkeley Law ’24) for his assistance in drafting this article.