California’s local governments rush to ask for tax increases before voters get the chance to curb them

November’s ballot is dominated by measures that would alter how California levies taxes, including one that would make it more difficult for local governments to gain voter approval of tax hikes.

Proposition 43 would overturn a state Supreme Court ruling and require that single-purpose taxes placed on local ballots via initiative petitions get two-thirds voter approval, just as they do when proposed by the governments themselves.

The court declared that initiative-based tax measures need only simple majority approval by voters. Its ruling, finalized in 2020, touched off a flurry of local tax measures, often sponsored by local government employee unions.

With Prop. 43 — sponsored by tax limit organizations — on the ballot, backers of local taxes across the state are trying to beat the Nov. 3 electoral deadline by getting their tax increases approved in the same election.

There is, however, another legal hurdle that local sales tax increases must clear: a long-standing state law limiting them to 2 percentage points over the statewide rate of 7.25% on taxable retail sales, or 9.25% in total.

The Legislature routinely approves waivers of the 9.25% cap. Last week, Gov. Gavin Newsom signed Senate Bill 762, which grants 10 cities, two counties and one town permission to exceed the limit, not only for this year’s election but through 2031, including those that placed measures on the ballot via initiative.

They will join a long list of local governments whose sales taxes already exceed the 9.25% cap. Two Southern California cities — Lancaster and Palmdale in Los Angeles County — top out at 11.25%. A staff analysis of SB 762 says “this bill could result in rates nearly as high in other jurisdictions.”

The analysis also notes, “Tax experts generally agree that sales and use taxes are regressive, meaning the tax incidence falls more heavily on low-income individuals than on high-income individuals, because those of lesser means generally spend a greater percentage of their income on taxable sales.”

Opponents of SB 762, such as the California Taxpayers Association, made the same point, arguing that imposing more taxes on low-income families undermines politicians’ pledge to reduce California’s notoriously high living costs.

With so many local tax increases on the ballot, another aspect of their approval chances comes into play — the extent to which local governments can use taxpayer money to campaign for passage.

It’s no secret that local governments often hire campaign consultants to positively frame how measures are presented to voters, even though state law prohibits the use of public funds for campaigns. The line distinguishing mere public information from advocacy is fuzzy, and the Fair Political Practices Commission only occasionally cracks down on those who cross it.

Last week the commission declared that Nevada County improperly spent $34,614 on two mailers urging voters to approve a sales tax increase on the November 2022 ballot. The county was fined $31,500, but that can be paid with more taxpayers’ money. The tax measure lost, garnering just 48.4% of the vote but, had it passed, the fair practices commission action would not have invalidated it.

As this year’s election looms, advocates of a massive sales tax increase in Bay Area counties, to provide about $1 billion a year for transit services, face similar accusations of trying to tilt the outcome.

Some voters critical of how BART and other transit services are managed have filed suit, contending the wording of the regional tax measure extols its virtues rather than just telling voters how much taxes would increase. They are asking the Santa Clara County Superior Court to intervene and order changes to the ballot language, so it does not stress how transit services would be reduced if the measure is rejected.

It’s the newest wrinkle in an old game.