Court of Appeal Ruling Could Weaken Two-Thirds Majority Requirement for Tax Increases
Latest in line of cases could lead to promotion of citizen initiatives as a way for legislators to avoid the two-thirds majority requirement to raise taxes.
On January 27, 2021, the California Court of Appeal for the First Appellate District held in Howard Jarvis Taxpayers Assoc. v. City and County of San Francisco that a San Francisco voter initiative to raise taxes did not require a two-thirds supermajority pursuant to articles XIII A and XIII C of the California Constitution.
The case was the latest on the issue of voter initiatives and tax increases, following the June 2020 appellate court ruling in City and County of San Francisco v. All Persons Interested in the Matter of Proposition C, which upheld another voter tax initiative that won 61% voter approval to fund programs for the homeless. The California Supreme Court denied review of the All Persons case in September 2020.
Proposition C
In June 2018, voters in San Francisco approved Proposition C, a ballot initiative to raise an additional tax on commercial rents to fund childcare and education. The initiative, entitled “Universal Childcare for San Francisco Families Initiative,” was passed by 51% of the voters. An elected member of the San Francisco Board of Supervisors supported the proposition through the initiative process, and similar ordinances were before the Board before Proposition C qualified for the ballot.
In August 2018, the Howard Jarvis Taxpayers Association filed an action to invalidate Proposition C on the ground that it required a two-thirds majority vote to pass pursuant to Article XIII A of the California Constitution (Proposition 13), Article XIII C of the California Constitution (Proposition 218), and the San Francisco City Charter. The Howard Jarvis Association also argued that this case was distinguishable from All Persons because a local elected official was involved in the furtherance of the Proposition C at issue in Howard Jarvis.
Proposition 13, which added Article XIII A to the state constitution, included property tax limitations along with a supermajority requirement for certain tax increases. Article XIII A, Section 4 states that cities, counties, and special districts must have a “two-thirds vote of the qualified electors” to “impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district.”
Proposition 218, which passed in 1996, limits the ability of local governments to impose new taxes, assessments, and property-related fees. For general taxes, Article XIII C, Section 2(b) of the state constitution states that “[n]o local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote.” Section 2(d) states that “[n]o local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote.”
Ruling
The appeals court adopted the reasoning of the All Persons case and rejected the argument that Proposition 13, Proposition 218 and the San Francisco City Charter require a supermajority vote for passage of the tax increase. The appeals court ruled that tax increases through ballot initiatives could be approved by a simple majority vote because they were actions by voters and not by local governments.
Proposition 13
While Proposition C imposed the type of tax that would require a two-thirds majority if submitted to the voters by the City’s Board of Supervisors, the dispute center over whether a two-thirds majority is required when a tax is presented to the voters by a voter initiative. In applying All Persons, the court stated that neither “section 4 nor any other provision in article XIII A mentions the initiative power, and this silence drives our analysis.”
In that case, the court noted that when the voters approved Proposition 13, the initiative power had long been in in the state’s constitution. The court noted that “[n]owhere does Proposition 13 mention, let alone purport to repeal, the constitutionally-backed requirement in the Elections Code that a local initiative measure take effect when it garners a majority of votes cast.” Additionally, the court in All Persons stated that the initiative is “one of the most precious rights of our democratic process, and that the court must “resolve any reasonable doubts in favor of the exercise of this precious right.”
The Court in All Persons concluded:
Section 4 requires governmental entities to gain the approval of a supermajority of voters before imposing a special tax. It does not repeal or otherwise abridge by implication the people’s power to raise taxes by initiative, and to do so by majority vote. Any such partial repeal by implication is not favored by the law, which imposes a duty on courts to jealously guard, liberally construe and resolve all doubts in favor of the exercise of the initiative power.”
Proposition 218
The Court also applied the reasoning of California Cannabis Coalition v. City of Upland and its interpretation of the phrase “local government” in Proposition 218. Proposition 218 defined “local government” as “any county, city, city and county, including a charter city or county, any special district, or any other local or regional governmental entity.” The California Supreme Court in California Cannabis found that “nothing in the text of article XIII C, or its context, supports the conclusion that the term ‘local government’ was meant to encompass the electorate.”
The Supreme Court in California Cannabis held that ‘article XIII C does not limit the voters’ “power to raise taxes” ’ because a ‘contrary conclusion would require an unreasonably broad construction of the term “local government” at the expense of the people’s constitutional right to direct democracy, undermining our longstanding and consistent view that courts should protect and liberally construe it.”
The Supreme Court in California Cannabis held that the definition of ‘local government’ in article XIII C, section 2 of the Constitution is not ‘broad enough to include the electorate.’ [Citation.] That holding applies here.” (All Persons, supra, 51 Cal.App.5th at p. 723.) The Supreme Court in California Cannabis concluded that applying the procedural restrictions of Proposition 218 to voter initiatives would be “at the expense of the people’s constitutional right to direct democracy, undermining our longstanding and consistent view that courts should protect and liberally construe it.” The absence of a constitutional provision expressly authorizing majority approval of local voter initiatives is immaterial.
Involvement of elected official
The court rejected the argument that the case was distinguishable from All Peoples because an elected official was involved in Proposition C.
Conclusion
The ruling further develops the law around voter initiatives that increase taxes. Nonetheless, the Howard Jarvis Taxpayers Association will likely appeal the ruling to the California Supreme Court. Critics note that this line of cases could lead legislators to promote citizen initiatives as a way to avoid the two-thirds vote requirement to raise taxes.