Here we go again: California does the Taxes Two-Step
At this point, it’s practically a California tradition.
First, state judges find a loophole in California’s constitutional bulwark against new, higher taxes. Then conservative legislators and anti-tax activists rush in to patch the hole with a new ballot proposition.
This week, the state Supreme Court made the first move in this familiar two-step by issuing a ruling that both anti-tax crusaders and proponents of more local investment say could make it much easier for city and county governments to raise new taxes. Not everyone agrees with that interpretation, but California conservatives were sufficiently spooked by the ruling that they’ve already counter-punched.
On Wednesday GOP Assembly members Chad Mayes from Yucca Valley, Catharine Baker from Dublin, Jay Obernolte from Hesperia and Devon Mathis from Visalia announced that they will be introducing a new constitutional amendment to counter the court’s decision.
The ruling “isn’t just a small crack in the protections that voters across the state have relied on—it is a sledgehammer,” said Baker at a press conference.
“The court’s decision opens up a loophole for special interests to pass taxes,“ said Mayes. “We’re plugging that hole.”
We’ve been here before.
Proposition 13, which was voted into the state’s constitution by a majority of California voters in 1978, layered the state’s various tax authorities in a series of blanket restrictions—from locking in low property tax rates to boosting the voter threshold for new state and local taxes. Ever since, courts have found ever-more-obscure patches of the fiscal landscape left uncovered by Prop. 13 and advocates have responded by siring a lineage of ever-broader anti-tax amendments.
- In 1982, the California Supreme Court ruled that taxes raised for general government purposes did not require voter approval. Anti-tax crusaders responded two years later with 62.
- In 1992, the court decided that property assessments and other fees weren’t quite the same as taxes, and so shouldn’t be bound by the same constitutional restrictions. The counter came four years later in the form of 218.
- In 1997, the court found that the regulatory payments businesses pay for their environmental waste wasn’t a “tax” in the constitutional sense of the word. After at least one failed attempt, advocates clapped back in 2010 with 26.
Given that history, this week’s ruling should look pretty familiar: the latest shot fired in a four-decades-long arms race of legalese and fine print.
This disagreement starts with a debate about marijuana, but otherwise makes for dry reading. On one side, pot legalization activists contend that a local tax on marijuana they introduced through a voter-sponsored initiative in San Bernardino County should have been placed on the ballot during a special spring election.
The city of Upland refused to put the tax on the ballot, arguing that Prop. 218 (one of the many constitutional amendments in the Prop. 13 family tree) requires new general taxes imposed by any “local government” to be placed on the ballot during general elections, when turnout is higher and interest groups will have a harder time sneaking otherwise unpopular taxes into law.
This week, the Supreme Court took the cannabis coalition’s view: Because the tax came out of a citizen’s initiative, and not Upland’s city council, it wasn’t the product of “local government.” In other words, that portion of Prop. 218 simply didn’t apply.
“A contrary conclusion,” the majority of the court wrote, “would require an unreasonably broad construction of the term ‘local government’ at the expense of the people’s constitutional right to direct democracy.”
So why all the fuss over the timing of an election? Because Prop. 218 has another provision in it requiring any special tax imposed by (again) a local government to receive support from two-thirds of affected voters.
If organized groups of citizens petitioning for new taxes aren’t considered “local government” under Prop. 218 when it comes to the timing of elections, wouldn’t they also be exempt from the two-thirds rule? Did the Supreme Court, as Jon Coupal, president of the anti-tax Howard Jarvis Taxpayers Association suggested on Twitter, rip a huge hole in Prop 13?
Courts don’t tend to answer questions they aren’t asked, so the majority opinion didn’t address the voter threshold question. But it certainly has some people wondering.
Given the nearly identical language in both parts of the proposition, Darien Shanske, a law professor at UC Davis, said that it’s “hard to see why the same reasoning should not apply.”
“Assuming the lower courts agree— and someday I suppose the Supreme Court—this might be a bigger deal,” he said in email. “Though I would take issue with the hole-ripping metaphor.”
Shanske says there will likely be plenty of interested parties eager to test the legal waters with a new lawsuit at the next possible chance.
For cash-starved local agencies and outside business and advocacy groups hoping to fund the next school, jail, transit line, or football stadium, the difference between a simple- and super-majority can make all the difference. Last November, 14 special tax measures across the state failed despite getting a majority of votes. Those include sales tax initiatives to fund road improvements in San Luis Obispo County, mental health facilities in Mendocino County, and anti-gang activities in Lodi. All three of these received more than 66.6 percent of the vote (but were just shy of the requisite 66.7).
“It’s so much easier to get 50 percent than two-thirds,” says Ethan Elkind, a professor of environmental law at UC Berkeley. If the court ruling is eventually interpreted to mean that voter initiated taxes no longer have to meet the supermajority requirement, that “essentially eliminates the whole point of (Prop.) 218, except that you still have the hurdle of citizen petition gathering efforts.”
That has traditional tax advocates like the Howard Jarvis Taxpayers Association howling.
But unlike the legal battles over prior anti-tax propositions, it isn’t just tax revolters who want to retain higher restrictions on special taxes. The League of California Cities, not generally known as a hotbed of fanatical libertarianism, joined the Howard Jarvis Taxpayers Association in supporting Upland.
Special taxes that tie funds to a dedicated purpose “fragment and ossify budgets and put other groups that don’t have guaranteed funding sources more at risk during economic downturns,” says Michael Coleman, a fiscal policy advisor to the League. Under the much-amended California constitution, general taxes, which can be used for anything , only require a simple majority of voters.
The constitutional amendment proposed this week would circumvent what is bound to be a prolonged legal process with a political one.
“We don’t want to wait for lawyers to litigate this one day. We need to act now,” Assemblywoman Baker said.
But there are plenty of reasons to believe that history will not repeat itself this time.
First, constitutional amendments sponsored in the Legislature need the support of two-thirds of both houses before they go to the voters. Yet another brick in the Prop. 13 wall might be a hard sell to Democratic lawmakers who command supermajorities in both chambers.
And no matter how this week’s court decision is finally resolved, it isn’t likely we’ll see many more of these types of decisions, says Elkind at Berkeley. Four decades after the beginning of the California tax revolt, all the obvious weak points in the law have been poked, prodded, and papered over.
“There isn’t a whole lot of ambiguity left in these initiatives,” he said. “It’s going to be up to the voters ultimately if they want to chip away at Prop. 13.”