California Proposition 218 (1996)

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Proposition 218 was an adopted initiative constitutional amendment in the state of California on the November 5, 1996 statewide ballot. Proposition 218 revolutionized local and regional government finance in California. Called the “Right to Vote on Taxes Act,” Proposition 218 was sponsored by the Howard Jarvis Taxpayers Association as a follow-up to the historic Proposition 13 property tax revolt initiative constitutional amendment approved by California voters on June 6, 1978. Proposition 218 was drafted and masterminded by constitutional attorneys Jonathan Coupal and Jack Cohen.^[1]

NOTE: Proposition 218 is very comprehensive in scope. Readers are strongly encouraged to use the Table of Contents to find and review their specific areas or issues of interest under Proposition 218.

Titles

Proposition 218 had an official legal title used primarily for official election purposes and an initiative text title generally used for all other reference purposes.

Official Legal Title

The official legal title of Proposition 218 prepared by the California Attorney General as required by California law was: “Voter Approval for Local Government Taxes. Limitations on Fees, Assessments, and Charges. Initiative Constitutional Amendment.”^[2] The official legal title appeared on the official petitions signed by California voters to qualify Proposition 218 for the election ballot, in the statewide ballot pamphlet sent to voters, on the official ballot used by California voters to cast their votes, and in reporting the official election results. However, other than for ballot qualification and official election purposes, the official legal title is not commonly used to refer to Proposition 218.

Initiative Text Title

The title of Proposition 218, as contained in the text of the initiative measure and the name given by the initiative sponsor, was the “Right to Vote on Taxes Act.”^[3] The foregoing initiative text title is most commonly used to refer to Proposition 218, including in court cases.

Proposition 218 Election Campaign

Proposition 218 was considered a “sleeper” ballot measure by the media as local governments were legally prohibited from using public funds and resources to campaign against it, and because greater media attention had been given to the Proposition 209 ban on affirmative action and the Proposition 215 medical marijuana liberalization measures which appeared on the same statewide election ballot.^[4]

Proposition 218 was initially estimated to cost local governments in California at least $100 million a year with long-term cost estimates being much greater, and Moody's Investors Service warned the measure would cause “significantly declining credit quality.”^[5] The credit ratings issue became so heated during the election campaign that the California State Treasurer, in an effort to calm the municipal bond market, took the extraordinary step of warning opponents against exaggerating the possible negative impacts on local credit ratings and bond issuances when discussing Proposition 218.^[6]

Opposition Similar to Proposition 13

Like Proposition 13 in 1978, Proposition 218 was opposed by the vast majority of major newspapers and the political establishment in California. Opposition to Proposition 218 included public employee unions, local governments, local government interest organizations, environmental interest groups, public education interest groups, and private firms that underwrite municipal bonds.^[7]

Of the total campaign contributions received against Proposition 218, 74% came from public employee unions in California, and those interests contributing $10,000 or more represented 91% of the total amount of contributions received by the Proposition 218 opposition campaign.^[8]

Also similar to Proposition 13, there were dire predictions from the measure opponents, including local government politicians, regarding what would happen if Proposition 218 were to be approved and become law. Some examples included: Expensive landscaping would die and become fodder for devastating fires.^[9] Silicon Valley would be shut down forever.^[10] Parks, senior centers, and other public buildings would shut down.^[11] Neighborhoods would no longer be safe.^[12] The initiative would immediately have a devastating effect on local government finance.^[13] The initiative would force local governments to go back decades and destroy their method of service delivery.^[14] The initiative would be a mortal threat to fire safety.^[15]

Supporting Arguments

The supporters of Proposition 218 focused on the fundamental public policy question presented by the ballot measure: Should voters have the constitutional right to vote on local taxes?^[16] Proposition 218 supporters also urged voters to review their current property tax bill which would confirm the growing list of fees, charges, and assessments imposed by local governments without voter approval.^[17] It was also beneficial to Proposition 218 supporters that homeowners and other property owners received their current year property tax bill during the election campaign period.

Election Results and Summary Statistics

Proposition 218 was adopted by California voters on November 5, 1996. Proposition 218 easily passed with 56.55% support statewide, representing a margin of victory of 13.1 percentage points.^[18]

Proposition 218 passed in 54 (93%) of the 58 counties in California.^[19]

Proposition 218 passed in 405 (86%) of the 469 cities in California in 1996.^[20]

Proposition 218 passed in 66 (83%) of the 80 State Assembly Districts and 33 (83%) of the 40 State Senate Districts in California (based on 1991 Redistricting in effect during the November 1996 statewide election).^[21]

Proposition 218 passed in 67 (84%) of the 80 current State Assembly Districts and 34 (85%) of the 40 current State Senate Districts in California (based on 2011 Redistricting currently in effect).^[22][23] The foregoing means that Proposition 218 passed in the overwhelming majority of current state legislative districts in California without regard to the political party representation in those districts.

Proposition 218 received 62% support in the 26 California counties with a Republican voter registration advantage and 54% support in the 32 California counties with a Democratic voter registration advantage during the November 1996 statewide election.^[24]

Final Polling/Election Results Disparity

What made the Proposition 218 victory so unusual was that it was behind in nearly all the polls, including late polls just before the election. Polling from the Proposition 218 opposition campaign showed the initiative measure was expected to lose by about 15 percentage points.^[25] Proposition 218 was also significantly behind in the final Field Poll with only 36% support.^[26] A significant election defeat was expected. Instead, Proposition 218 won by 13 percentage points. In fact, the sponsors of Proposition 218 had to change their planned media comments after the polls closed from explaining election defeat to celebrating election victory.^[27] The large variation between the final polling numbers and the actual election results was a politically rare event for statewide initiative measures in California.

Profound Impact

Following the November 1996 election, a high level official from the California State Association of Counties wrote that Proposition 218 “profoundly changes the way California is governed” and “may prove to be the most revolutionary act in the history of California.”^[28]

The author of an article in a League of California Cities publication wrote the following about the passage of Proposition 218: “Voters now hold the power to direct or withdraw monetary resources for government functions. Motivated by distrust, the voters’ objective was to replace reliance on elected representatives with direct voter control over local government finances.”^[29]

Joel Fox, the president of the Howard Jarvis Taxpayers Association when Proposition 218 passed, stated that Proposition 218 is “not in the Proposition 13 class, but it’s the next level.” ^[30]

Conditions Leading to the Passage of Proposition 218

The assessment and property-related fee reforms contained in Proposition 218 resulted from local government excesses in the 1980s and 1990s following the passage of Proposition 13.^[31] After Proposition 13 passed in 1978, local government officials looked for ways to raise additional revenues and avoid the two-thirds vote requirement to raise local taxes under Proposition 13.^[32] Statewide, revenues raised from assessments and fees charged property owners had increased greatly and were higher than either property, sales, or personal income taxes.^[33]

Local governments discovered a pernicious way to raise additional revenues and avoid Proposition 13 voter approval requirements by using assessment districts.^[34] Assessments on real property became the vehicle of choice for local politicians looking to avoid making hard decisions regarding general fund expenditures.^[35]

True property assessments go back to ancient Roman roads and English sea walls, when property owners joined together to pay for public improvements that directly benefited their property.^[36] Landowners who wanted public improvements that directly benefited their property, such as sewers, could have the improvements built by the local government and their real property assessed, typically over a period of many years, to pay for the cost of those improvements.^[37] However, after the passage of Proposition 13, local governments greatly expanded their use of assessment districts to generate additional revenues by imposing assessments for purposes that went far beyond their traditional and historical scope.^[38]

The 1992 California Supreme Court Knox Case

The assessment loophole floodgates opened wide following a 1992 California Supreme Court decision (known as the Knox case) holding that Proposition 13 restrictions, particularly the two-thirds voter approval requirement for local taxes, did not apply to “assessments” on real property.^[39]

As a result of the Knox case, local governments could legally impose “assessments” on real property for a wide range of purposes without any vote of the electorate.^[40] Assessments effectively became unrestricted property tax increases appearing on the property tax bills of millions of California homeowners and businesses. There were no limits on how high assessments could go, or how many assessments could be imposed on a parcel of property. One county in northern California even had to redesign its property tax bill to accommodate the growing explosion of property assessments.^[41]

While the California Supreme Court created the assessment loophole in the Knox case, it was the subsequent exploitation of that loophole by local governments that created the problems for property owners. The California Legislature could have reformed the assessment statutes following the Knox case to address many of the abuses by local governments but did not do so. Over the course of nine years, the Howard Jarvis Taxpayers Association sponsored seven bills in the California Legislature to address assessment abuses.^[42] However, local government groups such as the League of California Cities and the Association of California Water Agencies opposed and blocked legislative efforts to reform assessment statutes to limit abuses.^[43] One member of the Los Angeles City Council succinctly explained why Proposition 218 was approved: “The reason this initiative was passed was because local governments were taking advantage of a loophole to get around Proposition 13.”^[44]

Once the assessment loophole following the Knox case was created, one lawyer working with government politicians wrote that property assessments “are now limited only by the limits of human imagination.”^[45] Some of the more “imaginative” assessments included: (1) A “view tax” in Southern California -- the better the view of the ocean the property owner had the more the owner paid; (2) In Northern California, property owners 27 miles away from a park were assessed because their property supposedly "benefited" from that park.^[46]

One of the most controversial assessment proposals involved an attempt by the Los Angeles Community College District to impose an assessment on more than one million parcels of property in Los Angeles County to pay for controversial projects on local community college campuses, including stadium scoreboards and an equestrian complex.^[47] The community college district assessment proposal in Los Angeles County resulted in an angry response from many property owners that helped fuel the passage of Proposition 218 much in the same manner that increased property tax assessment notices sent to many Los Angeles County homeowners before the Proposition 13 election helped fuel the passage of Proposition 13 in 1978.^[48]

Property-Related Fee and Charge Abuses

While not receiving the same level of attention as assessments, improper property-related fees and charges became a significant problem following the passage of Proposition 13, as many local governments labeled taxes as “fees” or “charges” and imposed them without voter approval.^[49] For example, the California Supreme Court ruled that a local municipal utility, such as one providing water service, is entitled to a reasonable “return on investment” (otherwise known as “profit”).^[50] This meant that a local municipal utility could legally overcharge its customers in excess of the cost of providing the utility service, and then transfer the excess cost revenues (profit) to the general fund of the local agency to be spent at the discretion of local politicians. All this could generally be done without voter approval. While local government officials regarded such utility overcharges as a “return on investment,” to the many utility customers who had to pay those overcharges they were considered taxes imposed without voter approval.

What made the foregoing practice even more infuriating for utility customers was that local politicians were typically not legally obligated to spend excess cost revenues (profit) for purposes directly related to the applicable utility, such as providing greater public investment in utility infrastructure or helping to finance “lifeline” utility rates for low income, elderly or disabled ratepayers. The excess cost revenues (profit) typically ended up being transferred to the general fund of the local agency and thereafter spent at the complete discretion of local politicians. The allowable utility overcharges were separate from local government imposed utility user taxes which utility ratepayers also had to pay, with many of those utility user taxes also imposed without voter approval due to loopholes in the law created by court decisions adverse to the interests of taxpayers.

Rescuing Proposition 13

Proposition 218 came to the rescue of Proposition 13.^[51] Section 2 of Proposition 218 contains its findings and declarations:

“The people of the State of California hereby find and declare that Proposition 13 was intended to provide effective tax relief and to require voter approval of tax increases. However, local governments have subjected taxpayers to excessive tax, assessment, fee and charge increases that not only frustrate the purposes of voter approval for tax increases, but also threaten the economic security of all Californians and the California economy itself. This measure protects taxpayers by limiting the methods by which local governments exact revenue from taxpayers without their consent.”^[52]

Proposition 218 effectively achieved what Howard Jarvis and Paul Gann intended to do when Proposition 13 passed in 1978 -- give the final decision on taxes to local voters instead of politicians.^[53]

The primary focus of Proposition 13 was on providing significant real property tax relief, especially to homeowners who were hit hard with significant property tax increases imposed by local governments. However, Proposition 218 focuses more on the ability of local governments to raise revenues, including property-related revenues that are not taxes. Local revenue sources not deemed taxes are generally outside the scope of Proposition 13.

Proposition 218 is also significantly longer and more detailed than Proposition 13. The practical effect of the more detailed language under Proposition 218 is to make it more difficult for the courts to interpret the measure contrary to the purpose and intent of the constitutional language. The more detailed language, particularly as it relates to the various constitutional definitions contained in Proposition 218, has resulted in taxpayers winning court cases that they would have not likely won in the absence of the more detailed constitutional language.

Proposition 218 amended the California Constitution by adding Article XIII C and Article XIII D. Proposition 218 is believed to be the first successful initiative constitutional amendment in California history to add more than one Article to the California Constitution.

Article XIII C – Local Government Taxes

Section 3 of Proposition 218 added Article XIII C to the California Constitution.^[54] Article XIII C relates primarily to local government taxes.

Constitutional Definitions

Section 1 of Article XIII C contains various constitutional definitions applicable to the article.

“Local Government”

Section 1 definitions include the term “local government” setting forth the public entities subject to the requirements of the article. The term “local government” is very broadly defined under Proposition 218 to counter previous narrow interpretations given by California courts under Proposition 13 which created unintended loopholes allowing local agencies to circumvent taxpayer protections, especially those relating to voter approval requirements for tax increases. Government agencies subject to Proposition 218 are local and regional governments, including counties, cities, school districts, community college districts, public authorities, joint powers agencies, and special districts (including water districts).^[55]

Application to Charter Cities

The “local government” definition also expressly states that it includes charter cities having a local charter (similar to a local constitution) as their primary source of power and authority. This is significant because California voters in November of 1986 approved a statutory initiative measure known as Proposition 62.^[56] Proposition 62, which was sponsored by the California Tax Reduction Movement,^[57] also contained voter approval requirements for local government taxes. However, because Proposition 62 was a statutory initiative and not a constitutional amendment like Proposition 218, there were significant legal issues concerning application of the statutory right to vote requirements to charter cities which are not subject to all California state statutes.^[58] The passage of Proposition 218 in 1996 effectively superseded nearly all the statutory provisions of Proposition 62, but Proposition 62 still remains on the statute books and applicable local governments must also comply with its requirements.

Tax Types (General vs. Special)

Section 1 of Article XIII C also defines the types of taxes local governments levy. A “general tax” is any tax imposed for general governmental purposes.^[59] A “special tax” is any tax imposed for specific purposes, including a tax imposed for specific purposes which is placed into a general fund.^[60] The general versus special tax distinction existed in California prior to Proposition 218, but Proposition 218 contains a broader definition of “special tax” as also including taxes imposed for specific purposes that are placed into a general fund.

Special Tax

If a local government tax is legally dedicated for one or more specific purposes it is a special tax.^[61] Proposition 218 also requires that certain taxes relating to real property be levied only as special taxes.^[62] Proposition 218 further specifies that many local governments, including school districts, do not have the power to levy general taxes which means that such local governments (known as special purpose districts or agencies) can only levy special taxes.^[63]

General Tax

To the extent a local government has the power to levy a general tax and that a particular tax is not required to be levied as a special tax, a tax is general only when its revenues are placed into the general fund of the local government and are available for expenditure for any and all governmental purposes.^[64] The courts have yet to interpret under what circumstances tax revenues placed into a general fund are nonetheless a special tax by virtue of being “imposed for specific purposes” under the “special tax” constitutional definition. As a result, the mere lawful placement of local tax proceeds into a general fund does not automatically make the tax a “general tax” under Proposition 218.

Some local governments, particularly cities, in an effort to avoid the two-thirds vote requirement for special taxes may express legally nonbinding intent to spend general tax proceeds for one or more specific governmental purposes. This may be done in several forms such as the formal adoption of intention language before the tax election date, the formation of an advisory committee relating to the expenditure of the tax proceeds in which tax expenditure advice is given to the local government before the tax election date, or by placing a companion advisory measure on the same election ballot. The most frequent type of tax where this occurs is the local sales tax, but it can also occur with other local taxes such as local utility user taxes.

When such controversial (and legally questionable) general tax measures are presented by local governments, often the only practical remedy available is to make the controversial tax measure a political issue during the election campaign, including informing voters about efforts by the local government to circumvent the two-thirds vote requirement for special taxes. Furthermore, such tax measures also have the effect of circumventing California accountability statutes that are intended to protect taxpayers by ensuring that local taxes imposed for specific purposes are spent as specified in the ballot measure.^[65]

Since general taxes are not legally dedicated for specific purposes, they can generally be spent at the complete discretion of the governing body of the local government. As a practical matter, this means that local voters have to trust their local elected officials to spend general tax proceeds in a wise and prudent manner consistent with the policy priorities of the local community. Hence, whether or not local voters trust their local elected officials to make proper spending decisions and not waste taxpayer funds is an important factor to consider in deciding whether to support a general tax.

“Tax” Definition and Proposition 26 (2010)

During the November 2010 General Election, California voters passed Proposition 26 which, in part, added a broad constitutional definition of “tax” for purposes of Article XIII C of the California Constitution.^[66] Proposition 218 did not include a constitutional definition of “tax,” but the courts, prior to the passage of Proposition 26, generally broadly construed that term such as the California Court of Appeal in San Francisco did in Bay Area Cellular Telephone Company v. City of Union City, 162 Cal. App. 4th 686 (April 2008) in concluding that a 911 “fee” was in reality a special tax subject to two-thirds voter approval.^[67] After the passage of Proposition 26 in 2010, whether a local government levy, charge or exaction is a “tax” for purposes of Article XIII C of the California Constitution is now determined by the new constitutional definition.

Voter Approval Requirements for Local Tax Levies

Section 2 of Article XIII C contains the actual voter approval requirements for local government taxes. Under Proposition 218, every local government tax must be either a general tax or a special tax.^[68] Proposition 218 does not allow a local tax to be a hybrid tax.^[69] The type of tax a local government imposes (general tax or special tax) is significant because it determines the applicable voter approval requirement. Special purpose districts or agencies, including school districts, have no power to levy general taxes and can only impose special taxes.^[70] The preceding constitutional restriction is based on judicial interpretations of Proposition 13 prior to the passage of Proposition 218.^[71] As a practical matter, only a city or a county has the power to levy a general tax under the provisions of Proposition 218.

When Voter Approval Required

Under Section 2 of Article XIII C of the California Constitution, the voter approval requirement for taxes under Proposition 218 is triggered when a local government “imposes,” “extends,” or “increases” a tax. What constitutes a tax “increase” under Proposition 218 was broadly construed by the California Court of Appeal in Los Angeles in AB Cellular LA, LLC v. City of Los Angeles, 150 Cal. App. 4th 747 (May 2007).^[72] Local government tax reductions or repeals are not constitutionally required to be submitted for voter approval under Section 2 of Article XIII C.

Some local governments, particularly cities, have combined in the same ballot measure a tax reduction (such as a slight reduction in a tax rate which does not require voter approval under Proposition 218) with a tax base expansion that does require voter approval under Proposition 218 because it is considered a tax increase.^[73] This is typically done with utility user tax “modernization” ballot measures (designed to bring local utility user tax laws up to date with modern technological devices and services) with the tax rate reduction component serving to make the tax proposal more politically attractive to voters. When such a ballot measure is presented to voters, it is important that the full text of the measure be reviewed and studied so that voters will be more fully informed about the specifics of the tax proposal, particularly as it relates to any expansion of the tax base which is the legal reason why the tax proposal has been placed on the ballot for voter approval.

New Taxes

New local government taxes require voter approval under Proposition 218.^[74] The term “imposed” for purposes of triggering the voter approval requirement under Proposition 218 typically refers to the first enactment of a tax.^[75]

Tax “Increase”

When local governments “increase” a local tax, the voter approval requirement under Proposition 218 is triggered.^[76] The California Legislature adopted a statute interpreting the term “increase” for purposes of Proposition 218^[77] although the courts have final say in interpreting the applicable constitutional language.

A tax is “increased” for purposes of Proposition 218 when a local government makes a decision that does any of the following: (1) increases any applicable rate used to calculate the tax; or (2) revises the methodology by which the tax is calculated, if that revision results in an increased amount being levied on any person or parcel of property.^[78] The term “methodology” refers to a mathematical equation for calculating taxes that is officially sanctioned by a local government. In practical terms, a tax is “increased” under Proposition 218 if the math behind it is altered so that either a larger tax rate or a larger tax base is part of the calculation.^[79]

An example application of the foregoing to an unresolved legal issue is when utility rates are increased in local governments having a related utility users tax. A utility rate increase can also result in increased utility user tax payments and revenues for the benefit of the local government. A properly levied utility rate increase can be applied for purposes of generating increased utility revenues, but if those increased utility rates are also applied for purposes of generating increased utility user tax revenues, that would appear to constitute a tax “increase” for purposes of triggering the voter approval requirement under Proposition 218. If that were the case, increased utility rates could be applied to calculate applicable utility charges, but could not be used, in the absence of the constitutionally required voter approval, to calculate the amount of utility users tax owed.

A tax is not “increased” for purposes of Proposition 218 when a local government does either or both of the following: (1) adjusts the amount of a tax in accordance with a schedule of adjustments, including a clearly defined formula for inflation adjustment that was adopted by the local government prior to the effective date of Proposition 218 (November 6, 1996); or (2) implements or collects a previously approved tax so long as the tax rate is not increased beyond the level previously approved by the local government, and the methodology previously approved by the local government is not revised so as to result in an increase in the amount being levied on any person or parcel of property.^[80]

A tax is also not “increased” for purposes of Proposition 218 in the case in which the actual payments from a person or property are higher than would have resulted when the local government approved the tax, if those higher payments are attributable to events other than an increased tax rate or revised methodology, such as a change in the density, intensity, or nature of the use of land.^[81]

Tax “Extension”

When a local government “extends” a local tax, the voter approval requirement under Proposition 218 is triggered.^[82] The California Legislature has adopted a statute interpreting the term “extended” for purposes of the tax provisions of Proposition 218.^[83] However, the courts have final say in interpreting the applicable constitutional language.

A tax is “extended” for purposes of Proposition 218 when, as applied to an existing tax, a local government extends the stated effective period for the tax, including, but not limited to, amendment or removal of a sunset provision or expiration date.^[84] The preceding statute incorporates a temporal component but not a spatial component which the term “extend” is ordinarily interpreted to include. Nevertheless, the term “extend” as applied to a tax has been interpreted not to apply to geographic areas in certain annexation proceedings.^[85] While expanding the geographic area subject to a tax may not constitute an “extension,” it may constitute a tax “increase” and thereby trigger the voter approval requirement under Proposition 218 on that basis.^[86]

Applicable Electorate

The applicable “electorate” for conducting local tax elections constitutionally required under Proposition 218 is generally the registered voters of the local government.^[87] However, the courts have yet to address the constitutionality under Proposition 218 of property owner tax elections in districts (e.g., Mello-Roos special tax districts) that lack sufficient registered voters to conduct an election among the registered voters.^[88]

General Tax Vote Requirement

Under Article XIII C, a local government may not impose, extend, or increase any general tax unless the tax is first submitted to the electorate and approved by a majority vote. In addition, general tax elections are required to be consolidated with a regularly scheduled general election for members of the governing body of the local government except in cases of emergency declared by a unanimous vote of the governing body.^[89]

General taxes imposed, extended, or increased by any local government without voter approval on or after January 1, 1995, and prior to the effective date of Proposition 218 (November 6, 1996), could continue to be levied only if they were approved by a majority vote of the voters in a tax election which election had to be held by November 6, 1998 (two years of the effective date of Proposition 218).^[90] The preceding requirement was intended to mitigate the adverse impacts resulting from local governments, particularly charter cities, approving general taxes without voter approval during the time period before Proposition 218 became law but after local governments had reasonable knowledge that an initiative measure containing a constitutional voter approval requirement for general taxes would be pursued.

Special Tax Vote Requirement

Under Article XIII C, a local government may not impose, extend, or increase any special tax unless the tax is first submitted to the electorate and approved by a two-thirds vote.^[91] Proposition 218 contains an additional requirement that any tax subject to voter approval assessed upon a parcel of real property or upon a person as an incident of real property ownership must be a special tax subject to two-thirds voter approval.^[92] As a practical matter, this means all “parcel” taxes (taxes on real property not based on the assessed value of the property) must be levied as special taxes subject to two-thirds voter approval.

Validity of Voter Approval Requirement

The voter approval requirement under Proposition 218 was upheld by the California Court of Appeal in Los Angeles in Consolidated Fire Protection District v. Howard Jarvis Taxpayers Association, 63 Cal. App. 4th 211 (April 1998).^[93] The local agency argued that the voter approval requirement under Proposition 218 constituted an illegal referendum. The Court of Appeal soundly rejected that argument.

Authority to Impose Local Taxes

Proposition 218 does not legally authorize any local government to levy any tax.^[94] The legal authority to levy a tax (referred to as enabling authority) must come from an independent source such as a statute enacted by the California Legislature, and may be subject to additional statutory restrictions or limitations. The California Supreme Court made it clear in Ventura Group Ventures, Inc. v. Ventura Port District, 24 Cal. 4th 1089 (February 2001) that a local government must comply with any applicable statutory requirements as well as the constitutional requirements under Proposition 218.^[95]

An example of an additional statutory restriction is a supermajority vote requirement of the local governing body to place a local tax measure on the ballot. General taxes proposed by counties and most cities (general law cities but not charter cities) require a two-thirds vote of all members of the legislative body of the local government before they may be presented to voters at an election.^[96] A two-thirds vote of all members of the legislative body of the local government is also generally required before a local sales tax measure, irrespective of whether a general tax or a special tax, may be presented to voters at an election.^[97]

Another example of an additional statutory restriction is that many parcel taxes must be applied uniformly to all taxpayers or real property. With limited exceptions, the preceding is true with respect to parcel taxes levied by school districts in California (known as “qualified special taxes”).^[98]

Temporary vs. Permanent Taxes

Under Proposition 218, taxes proposed by a local government may either be temporary (such as for a specified number of years) or permanent. If a tax is temporary, voter approval is required under Proposition 218 in order to extend a tax beyond its expiration date.^[99] Some ballot questions may not specify the duration of a tax, including if a proposed tax would be permanent. In such situations, either the impartial ballot measure summary and/or the full text of the tax measure will specify the duration of a proposed tax.

Some local governments, in an effort to increase the chances of passing a tax, will propose a temporary tax instead of a permanent tax. The general strategy is once a temporary tax passes, it will be easier for the local government to either extend or increase an already existing tax in the future. Local government officials rarely allow temporary taxes to expire on their own without at least an effort to extend and/or increase the tax. As a result, voters generally have to assume that a proposed temporary tax will not end at the specified expiration date, but will instead either be extended for an additional period of years or be made permanent.

Permanent local government taxes generally continue for an indefinite period of time. However, such taxes can be reduced or repealed by either subsequent action of the local governing body itself (which rarely occurs) or by the voters exercising the local initiative power^[100] under Proposition 218.

Parcel Taxes

Parcel taxes are a type of real property tax imposed by local governments in California without regard to the assessed value of the property. They are typically imposed on a flat tax basis such as an annual tax of $100 per year per parcel, although some parcel taxes can exceed $1,000 per year per parcel. The California Supreme Court has held that parcel taxes do not violate the ad valorem property tax rate limits of Proposition 13.^[101] As a result, parcel taxes have been used by local governments in California to impose additional property taxes for public services and programs, especially for K-12 public education, notwithstanding the strict property tax rate limits of Proposition 13.

Parcel taxes typically fund ongoing services and programs, although they are sometimes used to repay bonds such as in Mello-Roos Community Facilities Districts. It is also not uncommon for a property owner in California, especially in the Bay Area in Northern California, to have many parcel taxes appearing on the annual property tax bill, including multiple parcel taxes being imposed by the same local government. The cumulative total amount of parcel taxes levied on a parcel, especially on modest single-family residences with relatively low assessed valuations, can sometimes be so high as to even exceed the amount of property tax owed under the basic 1% tax rate limit^[102] under Proposition 13.

Two-Thirds Vote Requirement

Even before the passage of Proposition 218 in 1996, simple majority vote parcel taxes were found by California courts to be unconstitutional under the uniformity of property taxation provision of the California Constitution which is separate from the restrictions under Proposition 13.^[103] In addition, to the extent that parcel taxes are legally allowed and authorized, Proposition 218 requires that any parcel tax be levied as a special tax subject to two-thirds voter approval.^[104] California courts have upheld the validity of two-thirds vote parcel taxes as special taxes under Proposition 218.^[105]

Additional Statutory Restrictions

Proposition 218 does not legally authorize any local government to levy a parcel tax.^[106] The legal authority to levy a parcel tax generally comes from state statutes (known as enabling statutes) which often include restrictions and limitations on the ability of a local government to levy a parcel tax that are in addition to any applicable constitutional restrictions such as those contained in Proposition 218.^[107] A local government is obligated to comply with all applicable statutory requirements as well as the constitutional requirements under Proposition 218.^[108]

The requirement that many parcel taxes apply uniformly to all taxpayers or all real property within a taxing district is a result of statutory restrictions imposed by the California Legislature and not as a result of any constitutional requirements under Proposition 13 or Proposition 218. These additional statutory restrictions can be altered at the pleasure of the California Legislature without a vote of the California electorate. However, there has been significant political opposition to relaxing the statutory uniformity requirement for parcel taxes, especially from the business community which would incur a significant increased property tax burden if the uniformity requirement were relaxed.

Major Tax Fairness Issues

As a result of the statutory uniformity requirement for most local government parcel taxes, significant tax equity issues arise. With a uniform parcel tax, each assessed parcel generally pays the same fixed annual amount. This is done without regard to the value of a parcel or the land use associated with the parcel. As an example, under a uniform parcel tax a modest single-family residence would generally pay the same amount of parcel tax each year as a big mansion or a massive commercial office building. Many taxpayers, especially homeowners living in modest homes, believe this to be very unfair.

In addition, since in many California communities the vast majority (often more than 75%) of taxable parcels are single-family residential, including condominiums, the statutory uniformity requirement results in most of the tax burden falling on single-family residential property owners. For example, in Los Angeles County about 79% of the taxable parcels are single-family residential parcels.^[109] It is for this reason that the local business community is often supportive of local parcel taxes since the tax burden on commercial parcels is typically low. Equity issues associated with parcel taxes also arise as to the appropriateness of singling out property owners to bear the full financial burden for some public services and programs, especially those services and programs that provide general benefits to the community at large or benefits to nonresidents of a community.

Local Government “Informational” Campaigns in Tax Elections

Local governments that place new taxes, tax increases, or tax extensions on the ballot almost always support those taxes on the merits. Local governments are prohibited from spending public funds and resources to campaign in support of tax measures required to be submitted to the voters under Proposition 218, but local governments are allowed by law to expend public funds to engage in “informational” campaigns that “educate” voters about such tax measures.^[110]

California courts have generally been lenient in allowing local governments to engage in “informational” campaigns in connection with local tax measures. Some voters may question the appropriateness of local governments spending taxpayer funds on “informational” campaigns in connection with local tax measures, particularly when the intent and practical effect of such “informational” campaigns is to increase the chances of a local tax measure being approved by the voters. When questionable or controversial “informational” campaigns occur by local governments in California, often the only practical remedy available is to make such “informational” campaigns a political issue during the tax measure political campaign which can adversely impact the chances of the local tax measure being approved by voters.

Ballot Questions in Tax Elections

Local governments in California are generally allowed to write the ballot question for tax elections required under Proposition 218. The ballot question is the actual text that appears on the election ballot when voters cast their vote on a tax measure. How the ballot question is written can sometimes affect the outcome of a tax election. Issues often arise concerning the impartiality of ballot questions prepared by local governments that support tax measures they submit to the voters.

California courts have generally allowed local governments significant leeway in preparing Proposition 218 tax election ballot questions. Ballot questions can sometimes be misleading to many voters or may include incomplete information regarding the specifics of a tax measure. Local governments also sometimes “poll test” their ballot questions in an effort to further increase the chances of passing a tax measure. This process involves conducting polling before officially calling an election to determine the specific ballot measure language that yields the highest level of voter support.

When controversial ballot questions are prepared by local governments in California, often the only practical remedy available is to make the controversial ballot question a political issue during the tax measure political campaign, including informing voters about the specifics of the ballot controversy. Such responsive action can decrease the chances of the local tax measure passing and sometimes cause local governments to act more responsibly in future tax elections.

It is also important for voters to read the full text of a tax measure, especially in situations where a controversial ballot question is present. The full text of a tax measure is either included in the ballot pamphlet sent to voters before the election or, if not included, can be obtained directly from the local government. The full text of a tax measure may also be available on the website of the local government, on the website of the local county registrar of voters (if conducting the election), or on the website of public interest organizations that provide impartial information to voters concerning local government ballot measures.

Local Politicians “Letting the Voters Decide”

When voter approval is required for a tax, such approval is a precondition for the imposition of the tax.^[111] The constitutional voter approval requirements for local taxes under Proposition 218 are mandatory. Local politicians place such tax measures on the ballot for voter approval not by a voluntary choice in support of taxpayers, but rather in response to the constitutional mandates of Proposition 218. Furthermore, when local politicians vote to place a tax measure on the ballot, they are also approving that tax on the merits. This is typically done in the form of a local ordinance or resolution. However, the tax approval does not become legally effective unless and until approved by the voters in accordance with the requirements of Proposition 218.

Local politicians sometimes claim they are merely “letting the voters decide” when they vote on a tax proposal. This is done by local politicians in an effort to avoid political accountability for supporting a tax. However, those local politicians are also approving the tax on the merits before the tax appears on the ballot, and they don’t avoid political accountability for supporting a tax by claiming otherwise.

Support for Local Government Tax Levies Often Significant and Well Funded

Local government tax measures subject to voter approval under Proposition 218 typically have well organized and funded support, especially from local public employee unions and often from the area business community. Business interests such as the Bay Area Council, the Silicon Valley Leadership Group, and the Los Angeles Area Chamber of Commerce frequently support local tax measures that disproportionately burden ordinary taxpayers, especially local sales tax measures and local parcel tax measures. This often includes providing significant financial support (campaign contributions) in favor of such tax measures. The foregoing doesn’t mean that local tax measures under Proposition 218 always pass, but it does mean the opponents of such tax measures must be well prepared and organized to confront the expected significant political support.

Since local taxes don’t legally require a relationship between the amount paid and the benefits received or the ability to pay, it is up to local voters in a tax election to carefully weigh and evaluate the merits of tax proposals, especially those proposals that disproportionately burden ordinary taxpayers. When local public employee unions and the local business community support a local tax measure, tax fairness issues as they impact ordinary taxpayers are almost always present and need to be brought to the attention of voters. This is often done in the ballot arguments that appear in the official ballot pamphlet.

Additional Taxes for Public Employee Salaries and Benefits

If a tax is proposed by a local government, voters need to consider the budgetary conditions that led to placing the tax measure on the ballot. In particular, the rising (and in some cases exorbitant) costs associated with public employee salaries and benefits, including pensions. As public employee salary and benefit obligations increase over time, particularly with regard to pensions, the impacts on the local government budget become more significant and can even lead to bankruptcy. Local officials end up having to reduce public services and programs and/or look to raise taxes or other revenues. To the extent that taxes are raised by some local governments, the tax proceeds will either directly or indirectly pay for excessive public employee salary and benefit obligations.

A tactic used by some local governments in California is to claim a lack of sufficient funding for high priority programs and services such as public safety. This is intended to make a tax increase proposal more politically attractive to local voters. When this occurs, voters need to ask why the local government is supposedly unable to adequately fund priority programs. If it turns out the reason is high public employee salaries and benefits, voters need to be wary about any such tax proposals. This is especially the case with majority vote general tax proposals where local government officials will be able to directly spend the tax proceeds to pay for high public employee salaries and benefits.

Initiative Power to Reduce or Repeal Local Government Levies

One of the most sweeping provisions of Proposition 218 is Section 3 of Article XIII C of the California Constitution which constitutionally reserves to local voters the exercise of the initiative power to reduce or repeal any local tax, assessment, fee or charge.^[112] Proposition 218 is believed to be the first successful initiative measure in California history to alter the scope of the constitutional initiative power.

The specific constitutional language applicable to the local initiative power under Proposition 218 (Section 3 of Article XIII C of the California Constitution) provides:

“SEC. 3. Initiative Power for Local Taxes, Assessments, Fees and Charges. Notwithstanding any other provision of this Constitution, including, but not limited to, Sections 8 and 9 of Article II, the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. The power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments and neither the Legislature nor any local government charter shall impose a signature requirement higher than that applicable to statewide statutory initiatives.”^[113]

Concerning the local initiative power, the Impartial Analysis of Proposition 218 prepared by the California Legislative Analyst, as contained in the Official Ballot Pamphlet provided to voters, stated:

“Initiative Powers. The measure states that Californians have the power to repeal or reduce any local tax, assessment, or fee through the initiative process. This provision broadens the existing initiative powers available under the State Constitution and local charters.”^[114]

Shortly after the passage of Proposition 218, the California Legislative Analyst wrote the following about the broad scope of the local initiative power in a publication relating to Proposition 218:

“Proposition 218 eliminates any ambiguity regarding the power of local residents to use the initiative by stating that residents of California shall have the power to repeal or reduce any local tax, assessment, or fee. In addition, the measure forbids the Legislature and local governments from imposing a signature requirement for local initiatives that is higher than that applicable to statewide statutory initiatives. As a consequence of these provisions, the only limits on local residents’ ability to overturn local revenue raising measures appear to be those in the federal constitution, such as the federal debt impairment clause.”^[115]

The local initiative power in general is a reserved power. This means that the local initiative power is not a right granted the people by the State Legislature or by local governments, but rather is a power reserved by the people under the California Constitution.^[116] As a result, legal authority to exercise the local initiative power under Proposition 218 is not required either by a state statute or a local charter provision. Rather, the power to exercise the local initiative power under Proposition 218 comes directly from the constitutional provision itself. Under the express constitutional language, the Proposition 218 local initiative power cannot be prohibited or otherwise limited by either state or local politicians,^[117] and because it is a constitutional provision, it can only be amended by California voters.^[118]

California courts have also stated that the local initiative power in general must be construed liberally in favor of the people’s right to exercise that reserved power. Declaring it the duty of the courts to jealously guard the initiative power, the courts have described the initiative as articulating one of the most precious rights of our democratic process. It has long been the policy of California courts to apply a liberal construction to the initiative power wherever it is challenged in order that the right not be improperly annulled. If doubts can reasonably be resolved in favor of the use of the reserved initiative power, the courts will preserve it.^[119]

Proposition 218 also contains a liberal interpretation provision constitutionally commanding that its provisions be “liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent.”^[120] This provides an additional legal and constitutional basis for liberally construing the local initiative power under Proposition 218.

Assistance From Legal Counsel Usually Needed By Initiative Proponents

Due to the complexity of the procedural requirements applicable to the exercise of the local initiative power in California (which procedures generally vary depending upon the type of local government involved) as well as the substantive legal requirements applicable to the drafting of a local revenue reduction or repeal initiative measure under Proposition 218, the assistance of expert legal counsel is typically needed to draft an initiative measure as well as to properly guide the initiative proponents through the legal process. This is especially the case if federal legal issues are present such as potential constitutional contract impairment violations. Extensive findings and declarations language, with supporting foundations, may also be necessary for certain reduction or repeal initiatives involving local utility fees and charges, especially in situations where California laws may require the local governing body to levy utility fees and charges in sufficient amounts to maintain specified service levels to the community.

A local initiative measure under Proposition 218 can be denied placement on the ballot or subsequently invalidated by the courts if all legal requirements are not completely followed. Local governments have generally been very hostile to voters exercising the local initiative power under Proposition 218 which is an additional reason why it is important for the proponents of any such initiative to comply with all applicable legal requirements.

Application of Political Reform Act

Campaign reporting requirements under the California Political Reform Act of 1974^[121] usually apply to local revenue reduction or repeal initiatives under Proposition 218. This will generally give both the proponents and opponents of such initiative measures an opportunity to find out where the campaign contributions are coming from and the amounts of those campaign contributions.

Initiative Timetable Requires Flexibility

The process of qualifying a local initiative under Proposition 218 typically involves multiple moving elements relating to legal requirements, local government hostility, political considerations, signature gathering, and organizational factors. Some of these elements are outside the control of initiative proponents. Initiative proponents generally need to be flexible in developing their timetable for exercising the local initiative power under Proposition 218. Not all elements applicable to the exercise of the initiative power will necessary go according to schedule and there will often be delays. In addition, if a local government is hostile to a particular initiative proposal, delay tactics on the part of the local government can be expected and need to be factored in by initiative proponents.

The actual language of a local initiative measure itself should also be flexible, particularly as it relates to the effective date of the initiative. Delay tactics by a hostile local government, including legal challenges, can sometimes result in a significant delay in an initiative appearing on the ballot. The language of an initiative needs to be flexible enough to address such scenarios so that if the initiative were to be approved by the voters any resulting delays in ballot qualification will not adversely impact the substantive provisions of the measure.

Local Referendum Power Not Included

Section 3 of Article XIII C only applies to the initiative power and not to the referendum power which is a separate power under California law. The referendum issue becomes more significant with respect to local levies that do not require a mandatory election under Proposition 218 prior to their imposition. This is particularly the case concerning property-related fees and charges that are exempt from a mandatory election.^[122] Such exempt fees and charges include property-related fees and charges for local utility services such as domestic water, sanitary sewer, and refuse collection.

In general, the ability of local voters to exercise the referendum power with respect to a levy approved by the governing body of a local government is severely limited under California law. One exception applicable to the exercise of the referendum power is tax levies imposed by the government.^[123] That exception has generally been broadly defined by the courts to preclude the exercise of the referendum power. Other limitations on the exercise of the local referendum power may also apply, especially if state statutory mandates are present with respect to a local government levy (e.g., requiring local utility fees and charges to be levied at specified service levels).

In order to exercise the referendum power with respect to a local levy approved by a local government, the legal authority to do so must come from a source independent of Proposition 218. This independent source is ordinarily a state statute but may also include a charter provision if a local levy approved by a charter city is involved. In addition, to the extent the referendum power is available, the applicable signature requirement is typically significantly higher and the referendum proponents will have a much shorter period of time to collect the required number of valid signatures compared to a local initiative under Proposition 218.

If the exercise of the referendum power is being contemplated, the proponents of such an effort should consult with legal counsel to address applicable legal issues before starting the referendum process. If a referendum measure with respect to a local levy is either not allowed under the law, or if the required procedures have not been followed, referendum proponents can expect their measure to be denied placement on the ballot even if the required number of valid signatures have been obtained.

Reduced Signature Requirement Local Initiative Power

The local initiative power under Proposition 218 is also subject to a significantly reduced signature requirement which cannot exceed the requirement applicable to statewide statutory initiatives. The specific maximum signature requirement under Proposition 218 is five percent (5%) of the votes for all candidates for Governor at the last gubernatorial election within the territory of the local government.^[124] After the unusually low local voter turnouts during the November 2014 gubernatorial election in California, the signature requirement to exercise the local initiative power under Proposition 218 is significantly lower than usual in many local jurisdictions.

Reduced Signature Requirement Example Calculation

The following is an example of how the reduced signature requirement for a local reduction or repeal initiative measure under Proposition 218 is computed. Local government “X” has 10,000 registered voters. Of those 10,000 voters, the total number of votes for all candidates for Governor at the last gubernatorial election within the boundaries of local government “X” is 4,000 votes. Five (5) percent of the 4,000 vote total is 200. A total of 200 valid signatures would be needed to qualify a local reduction or repeal initiative under Proposition 218. In this example, the 200 signature requirement represents 2% of the number of registered voters in local government “X.”

Total Signatures vs. Valid Signatures

The applicable signature requirement is based on the number of valid signatures. Since many petition signatures end up not being valid, the total number of signatures needed is typically significantly larger than the number of valid signatures required. How many additional signatures are needed generally depends upon the estimated signature validity rate. The higher the validity rate, the fewer number of additional signatures needed. It is not uncommon for the number of additional signatures needed to be 50% or more of the applicable signature requirement under Proposition 218. Because the initiative signature requirement under Proposition 218 is low, securing additional signatures to ensure that the required number of valid signatures is obtained is usually not a barrier to ballot qualification.

Sources of Data to Compute Signature Requirement

Data needed to compute the applicable signature requirement for a local government with respect to the exercise of the local initiative power under Proposition 218 (total number of gubernatorial election votes) is generally available from local county registrars of voters. It is necessary to verify that any obtained data are based on the total votes cast (precinct and absentee) and not just the precinct votes which will significantly understate the correct signature requirement if based only on precinct votes. It may be more difficult to calculate the applicable signature requirement for some local governments (e.g., special districts) because data totals for all local governments may not be readily available from some local county registrars of voters.

The Supplement to the Statement of Vote published by the California Secretary of State also contains data needed to calculate the applicable signature requirement in counties as well as cities. This publication is generally available several months following each statewide election in California, and a copy of the supplement must legally be made available, upon request, to any California voter.^[125] The applicable gubernatorial election data from the Supplement to the Statement of Vote for the November 4, 2014 California General Election has been released by the California Secretary of State.^[126]

Example Uses of Local Initiative Power Under Proposition 218

The local initiative power under Proposition 218 can be used to reduce or repeal local taxes like utility user taxes, sales taxes, business license taxes, parcel taxes, and also to reduce or repeal local government fees and charges such as stormwater fees, groundwater fees, public ambulance/paramedic fees, public park/sports fees, public parking fees, or utility fees and charges for water (including drought fees and surcharges), sewer, or refuse collection services.

Accountability Tool

Exercise of the local initiative power under Proposition 218 gives voters a powerful tool to use such as when local government officials are not responsive to the needs of their constituents, when local voters have not previously voted on a particular levy (including special taxes for services in many Mello-Roos Community Facilities Districts), when there has been significant waste or mismanagement by a local government, when there has been a controversial expenditure of revenue proceeds by a local government, when the amount of a local levy is excessive or unreasonable, or when promises previously made by local politicians about the imposition of a levy are broken.

Sometimes even the mere mention or threat by voters to pursue a local reduction or repeal initiative under Proposition 218 will result in local government officials being more responsive to the concerns of the public regarding a particular local tax, assessment, fee or charge. This is especially the case since the signature requirement to qualify a local reduction or repeal initiative under Proposition 218 is low.

Alternative to Litigation

The local initiative power under Proposition 218 can also be used as an alternative to litigation (such as when cost, time delay, or legal risk issues might not make litigation an attractive option), and has even been successfully used as a legislative remedy to reduce or repeal a local levy following the defeat of a lawsuit challenging the validity of the levy under Proposition 218.^[127] There have also been instances where the local initiative power under Proposition 218 has been used concurrently with pending litigation (typically as a speedier remedy to litigation or as a backup if litigation is unsuccessful or dropped) such as an instance where a local groundwater charge was repealed which resulted in the legal issues in the litigation being rendered moot.^[128]

When Legal Remedy Not Available

The local initiative power under Proposition 218 is also an available legislative remedy in situations where a legal remedy may not be available such as when the applicable statute of limitations has run or when other legal procedural impediments are present (e.g., exhaustion of remedies, standing, or claims requirements).

Targeted Applications of Local Initiative Power Under Proposition 218

The local initiative power under Proposition 218 can also be used to target specific components of a local government levy to better achieve public policy goals as well as to increase the chances of a local initiative being approved by voters. This approach is especially useful in situations where a local levy repeal is politically problematic. Often, a more specifically targeted levy reduction will have a significantly better chance of being approved by local voters and withstanding a legal challenge.

Local Utility User Taxes

An example application involves local utility user taxes. Utility user taxes are levied on the use of utility services with the tax proceeds nearly always spent by local governments on purposes completely unrelated to the particular utility service being taxed. Local utility taxes are generally levied as a percentage of utility service cost, and are imposed in addition to local utility fees and charges. Utility user taxes typically appear as a separate charge on the local utility bill. Utility user taxes are imposed on one or more utility services, including water, electricity, sewer, gas, telephone, cable television, and refuse collection. When local utility rates are increased, the cost of utility service increases which generally also results in an increase in the amount of utility users tax that is paid by the consumer.

Utility user taxes are sometimes a significant revenue source for a local government. This can make the complete repeal of a local utility users tax politically problematic. Rather than providing for a complete repeal of a local utility user tax, a local initiative under Proposition 218 could target tax relief for just the residential utility customers while leaving utility tax rates for commercial customers unchanged. Another application could target a particular utility service for tax relief while leaving the tax rate for other utility services unchanged. For example, reducing just the utility users tax for water service to offset significant water utility fee and charge increases such as those resulting from statewide water conservation mandates, or to offset historical (before Proposition 218) utility fee overcharges where the “profits” were transferred to the general fund of the local government and thereafter spent at the discretion of local politicians.

Local Utility Fees and Charges

The reduction or repeal of local government utility fees and charges represents one of the most frequent uses of the local initiative power under Proposition 218. In particular, local initiatives to reduce or repeal local government utility fees and charges for domestic water or sanitary sewer services which are not subject to a mandatory election under Proposition 218 prior to their imposition. Drafting an initiative to reduce or repeal local utility fees or charges almost always requires the assistance of expert legal counsel because of the multitude of legal issues that must be properly addressed, especially if federal contract impairment issues are present. Furthermore, if state statutes require local utility rates to be set at specified levels, those issues also must be taken into consideration in drafting an initiative.

Local government utility rate repeals are more drastic in their impact, are often more difficult to legally defend, and historically are more difficult to get approved by local voters. Utility rate reductions, especially more modest reduction amounts or reductions spread over time, generally have a better chance of being approved by local voters and withstanding legal scrutiny.

The local initiative power under Proposition 218 only applies to utility fees and charges imposed by local governments. Utility fees and charges imposed by private utilities are outside the scope of the local initiative power under Proposition 218. These private utilities are generally subject to regulation by the California Public Utilities Commission.

Local Stormwater Fees and Charges

New or increased stormwater fees and charges imposed by local governments in California (sometimes referred to as “clean water” fees) are generally subject to a mandatory property-related fee or charge election under Proposition 218.^[129] However, local government imposed stormwater fees and charges existing before Proposition 218 was enacted are not subject to a mandatory ratification election by local voters. This may also include existing local government street cleaning or sweeping fees and charges to fund services intended to help keep storm drains clear and reduce pollutants entering the local storm drain system. A local initiative under Proposition 218 could target for reduction or repeal local government stormwater fees and charges existing before Proposition 218 became law, including existing local street cleaning or sweeping fees and charges.

Local Parcel Taxes

Parcel taxes are property taxes levied by local governments without regard to the assessed value of the property. Most parcel taxes are imposed on a flat tax basis with each taxable parcel paying the same tax amount. There are numerous fairness issues associated with the imposition of parcel taxes. For example, a modest single-family residential parcel typically pays the same amount as a more expensive home or more expensive commercial parcels. Since most parcels in a local government are single-family residential, the vast majority of the tax burden falls on single-family residential parcels. There are also fairness issues associated with singling out property owners to bear the financial burden of some public services and programs, especially those services and programs that benefit the community as a whole.

A local initiative under Proposition 218 can target for reduction or repeal local government parcel taxes, especially in situations where major tax fairness issues are present in a particular community. Many parcel taxes in California are imposed for K-12 public education purposes. A local initiative under Proposition 218 could also be pursued as a tie-in initiative that would tie the continued imposition of a parcel tax with improved student achievement benchmarks.

Since parcel taxes require two-thirds voter approval under Proposition 218^[130] (which corresponds to less than one-third of the voters opposing a parcel tax), the level of community opposition to a parcel tax would have to increase significantly subsequent to its approval in order to secure the necessary majority voter approval to reduce or repeal a parcel tax using the local initiative power under Proposition 218.

Local Mobile Telephony Surcharges

Another example involves targeting local telecommunications services utility tax rates for reduction or repeal, including local utility taxes relating to cell phone (mobile telephony) usage. This matter has received greater attention from taxpayers since the mobile telephony services (MTS) tax surcharge started to be collected in California on January 1, 2016. The local MTS tax surcharge is collected by sellers on each retail transaction involving prepaid mobile telephony services under the provisions of the Local Prepaid Mobile Telephony Services Collection Act.^[131] Also affected by the Local Prepaid Mobile Telephony Services Collection Act are “911” emergency access fees imposed by local governments.^[132] These “911” emergency access “fees” have been found to be taxes and subject to the voter approval requirements under Proposition 218.^[133]

Local Home-Based Business Taxes

Yet another example is with local business license taxes that are intended to provide general revenue for a local government as opposed to the regulation of local businesses. The imposition of local business license taxes on home-based businesses has been controversial in some local governments in California. A local initiative under Proposition 218 could target for reduction or repeal that component of a local business license tax relating to home-based businesses.

Local Mello-Roos Taxes on Services

Special property taxes for services under the Mello-Roos Community Facilities Act of 1982^[134] are sometimes controversial in a community. Mello-Roos taxes for services such as police protection, fire protection and suppression, recreation, libraries, lighting, and flood/storm protection are authorized under California law.^[135] A Mello-Roos tax or other charge levied to finance a service should generally be subject to reduction or repeal using the local initiative power under Proposition 218. This provides local voters with a readily available remedy to address issues of inequity associated with the financing of local public services in a particular community.

In some instances, the successful reduction or repeal of a Mello-Roos tax on services may result in the curtailment or elimination of some public services within the territory of the Mello-Roos tax district. To the extent this may happen and be lawful, it is up to voters within the tax district to decide, as part of an election associated with the exercise of the local initiative power under Proposition 218, whether this is an acceptable policy outcome. This is part of the balancing process voters must consider in deciding whether or not to support a Mello-Roos tax reduction or repeal.

Policy examples where the reduction or repeal of a Mello-Roos tax on services may be appropriate include where voters desire to eliminate or reduce a local public service currently provided by government, where voters believe certain local services currently provided by government can be more cost-effectively delivered by the private sector such as by a local property owners association, and where voters believe they are bearing a disproportionate financial burden compared to others in the community with regard to the financing of one or more general governmental services.

A Mello-Roos tax or other charge levied to repay bonds is a legally more complex situation because federal contract impairment issues may preclude the exercise of the local initiative power under Proposition 218. Advice from legal counsel is typically needed in such situations to determine whether the local initiative power under Proposition 218 is available. A local compensatory initiative under Proposition 218 is a potential option when contract impairment problems are present.

Local General Obligation Bond Taxes

When voters approve a local general obligation bond measure in California, the bonds are paid off by property owners via ad valorem (based on assessed value) property tax increases. Local general obligation bonds in California generally require two-thirds (2/3) voter approval except for some school bonds that only require 55% voter approval.^[136] When voter approval for a local general obligation bond occurs, voters are concurrently approving three separate items: (1) Authorization to incur bonded indebtedness;^[137] (2) Authorization to exceed the 1% ad valorem property tax rate limit under Proposition 13;^[138] and (3) Authorization to impose a special property tax (based on the assessed value of the property) to repay bonds that are subsequently issued pursuant to the debt authorization.^[139]

In some instances, the local initiative power under Proposition 218 may be used to alter the preceding third item relating to the imposition of a special property tax to repay bonds. In particular, using the local initiative power to reduce or repeal such bond tax authorizations. Because significant federal contract impairment issues are typically present which may preclude the exercise of the local initiative power with respect to such bond taxes, advice from legal counsel is almost always needed to determine whether the local initiative power under Proposition 218 is available. In circumstances where bonds have been authorized (via election approval) but not yet actually issued by the local government, voters will generally have their best opportunity to exercise the local initiative power under Proposition 218 to reduce or repeal the bond tax authorization.

To the extent a local initiative under Proposition 218 reduces or repeals a local bond tax authorization, the authorization to incur debt and the authorization to exceed the 1% tax rate limit under Proposition 13 would remain since these items are outside the scope of the local initiative power under Proposition 218. However, as a practical matter, this would make it difficult for the local government to subsequently issue bonds since the bond tax authorization has been reduced or repealed by the local initiative.

Types of Local Initiatives Under Proposition 218

An initiative to reduce or repeal a local levy under Proposition 218 may be as simple as a straight reduction or repeal of the levy, or more complex such as tying the reduction or repeal of the levy to satisfaction of specific performance standards set forth in the initiative. Local initiatives under Proposition 218 generally fall into three broad types.

Traditional Initiatives

The first type is a traditional initiative involving a straight reduction or repeal of a local tax, assessment, fee or charge. Traditional initiatives usually include specific findings and/or declarations describing the policy reasons for pursuing the initiative. However, conditions attached to the reduction or repeal of a levy are not included.

Tie-In Initiatives

The second type is a tie-in initiative. A tie-in initiative ties the magnitude of a levy reduction, or the timing of a levy repeal, to satisfaction of specified objective performance standards or conditions contained in the local initiative.

The California Supreme Court has ruled that the local initiative power under Proposition 218 extends only to the reduction or repeal of local levies.^[140] However, there is significant flexibility in determining the magnitude of a levy reduction or the timing of a levy repeal. That flexibility is manifested with a tie-in initiative. Whether or not specified objective performance standards or conditions are satisfied determines the magnitude of a levy reduction or the timing when a levy is repealed.

A properly drafted tie-in initiative ordinarily requires the assistance of expert legal counsel to ensure compliance with all applicable legal requirements. In addition, technical expertise in the subject area of a tie-in initiative is also usually required. For example, a tie-in initiative involving transportation may also require technical assistance from a transportation professional.

Tie-in initiatives can be applied to existing local revenue sources where voter approval may not have been previously obtained. Tie-in initiatives may also be applied to revenue sources approved by voters in an election required under Proposition 218 but where voters want to hold local government officials accountable for obtaining continued positive results after the election.

Satisfaction of Objective Performance Standards – Examples

An example of a tie-in initiative is the reduction or repeal of a local transportation sales tax if traffic and/or road conditions over time do not significantly improve relative to conditions existing before the imposition of the sales tax. This might include the establishment of traffic improvement benchmarks over time with the continued imposition of the sales tax contingent on satisfaction of traffic improvement benchmarks at specified time intervals. The preceding represents an alternative to the approach used by local governments and transportation interests in which they pursue one or more local transportation sales tax increases offering the possibility that traffic and road conditions may improve if the tax increase(s) were to pass.

The preceding tie-in initiative example involving local transportation sales taxes could also be utilized in the context of improved mass transit usage with the continued imposition of the sales tax contingent on satisfaction of mass transit ridership benchmarks at specified time intervals. Local transportation sales taxes in California are often used to finance mass transit projects. Sometimes questionable mass transit ridership projections are given during the tax election campaign in support of a transportation sales tax measure. A tie-in initiative can serve as a tool to hold transportation sales tax supporters accountable if ridership projections don’t match actual numbers following approval of the tax.

Other examples of tie-in initiatives include tying an education tax to improved student achievement, tying a public safety tax to reduced crime, and tying a utility service fee to completion of specified public improvement projects on schedule and without cost overruns.

Matching Contributions

A tie-in initiative under Proposition 218 can also include specific conditions associated with the continued imposition of a levy. For example, a local initiative could attach an annual matching contribution condition whereby a levy such as a tax would be reduced or repealed if the specified annual matching contribution condition is not satisfied. A matching contribution condition (sometimes referred to as a Joint Venture Investment Partnership) is intended to leverage additional financial support as well as to demonstrate a strong financial commitment to the purposes for which the levy is imposed, especially from those interests who promoted the levy. Matching contributions typically come from either other government sources or from the private sector in the form of voluntary payments such as from the local business community. This approach is particularly appropriate in places like Los Angeles County and the Silicon Valley where the local business community tends to be big supporters of tax increases that disproportionately burden ordinary taxpayers but generally opposes tax increases on the business community for the same purposes.

The following illustrates a matching contribution condition in a local initiative. Suppose various organizations and groups promoted a successful sales tax increase within a local government. After passage of the tax increase, there remained questions concerning the fairness and burden of the tax. A tie-in initiative is pursued containing an annual matching contribution condition in which the sales tax would either by reduced or repealed unless the private sector, particularly the various organizations and groups that promoted the sales tax increase, provides annual matching funds (typically in an amount equal to or greater than the annual revenues received from the sales tax) to make the revenue burden more equitable. An annual matching condition does not create a legal obligation to pay, but if at any time during the life of the sales tax the condition is not satisfied, the tax would either be reduced or repealed in accordance with the terms of the local initiative. In this example, a policy is also advanced whereby if those organizations and groups that promoted the sales tax increase aren’t willing to voluntarily contribute additional funds on an annual basis for their promoted purpose, then taxpayers would not be legally obligated to continue paying for that purpose in the form of higher taxes.

Compensatory Initiatives

The third type is a compensatory initiative. A compensatory initiative targets one or more alternative revenue sources for reduction or repeal to compensate for the inability, such as for legal or political reasons, to reduce or repeal a particular revenue source. Several examples of compensatory initiatives follow.

Countering Contract Impairment Issues Associated With a Local Revenue Source

In some instances, it may not be legally possible to target a particular utility service fee for reduction or repeal because the fee revenues have been pledged to repay bonds, and a violation of the contract impairment clause of the United States Constitution would occur if the pledged revenue source were reduced or repealed using the initiative power under Proposition 218. A compensatory initiative would target an alternative revenue source for reduction or repeal, such as a related utility users tax or a legally permissible component of a related utility service fee, to compensate for the desired utility fee relief not otherwise available due to legal constraints.

Countering Excessive Parking Ticket Fines as a Local Revenue Source

Another example involves a revenue source outside the scope of the local initiative power under Proposition 218. Parking ticket revenues illustrate the foregoing. Some cities in California generate substantial revenues from parking citations, but the initiative power under Proposition 218 may not be available to reduce or repeal high parking fine amounts as a local government revenue source. A compensatory initiative would target an alternative revenue source subject to the initiative power under Proposition 218 to at least offset parking citation revenues and thereby provide a strong incentive for the local government to reduce reliance on high parking fines as a revenue source.

Countering Excessive Local Franchise Fees as a Revenue Source

Yet another example involves franchise fees. Franchise fees are paid for the governmental grant of a relatively long possessory right to use land to provide essential services to the general public.^[141] Especially in cases where the amount of a franchise fee imposed by a local government exceeds the prevailing rate for the area or is otherwise excessive, a compensatory initiative targeting an alternative revenue source for reduction or repeal, such as a related utility users tax, would compensate for and offset excessive franchise fees.

Contents of Compensatory Initiatives

Compensatory initiatives typically contain specific findings and declarations setting forth the compensatory policy reasons for pursuing the local initiative, including reasons why the particular revenue source cannot be pursued and the compensatory nature of the alternative revenue source(s) being reduced or repealed.

“Pure” vs. “Mixed” Local Initiatives Under Proposition 218

Local initiative measures under Proposition 218 can be categorized as either “pure” or “mixed.”

“Pure” Local Initiatives

A “pure” initiative under Proposition 218 contains subject matter exclusively within the scope of the initiative power thereunder. Such initiatives provide for the reduction or repeal of a local tax, assessment, fee or charge, and generally contain no other substantive provisions. With a “pure” initiative, the legal authority to exercise that power is derived from the constitutional provisions of Proposition 218 itself, and the initiative proponents may also take advantage of the significantly lower signature requirement.^[142]

“Mixed” Local Initiatives

A “mixed” initiative under Proposition 218 contains provisions that fall within the scope of the initiative power thereunder (i.e., the reduction or repeal of a local levy) and one or more other substantive provisions that fall outside the scope of the Proposition 218 local initiative power. Mixed initiatives present issues relating to the application of the lower signature requirement under Proposition 218 as well as the need for additional legal authority to pursue a local initiative containing provisions outside the scope of the Proposition 218 local initiative power.

The significantly reduced signature requirement for local initiatives under Proposition 218 only applies to the reduction or repeal of local government levies.^[143] Thus, if a local initiative contains one or more provisions outside the scope of the Proposition 218 initiative power, the lower signature requirement would not apply. Under such circumstances, the signature requirement would be the standard requirement applicable to the exercise of the initiative power in general within the local government. In most instances, the standard signature requirement will be significantly higher than the reduced signature requirement under Proposition 218.

The second issue presented with a mixed initiative is the need for legal authority independent of Proposition 218 to pursue a local initiative containing one or more provisions that are outside the scope of the Proposition 218 local initiative power. If such independent legal authority does not exist, the entire initiative measure can be invalidated. As a result, if a local initiative measure contains one or more provisions outside the scope of the local initiative power under Proposition 218, there must exist independent legal authority for those outside provisions.

The California Supreme Court in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (July 2006) addressed the foregoing issue in connection with a mixed initiative under Proposition 218.^[144] The Bighorn case involved the validity of a local initiative that would have reduced a local public water district’s charges for delivering domestic water to existing customers and that also would have required voter preapproval for any future increase in those charges or for the imposition of any new charge.

The California Supreme Court concluded in Bighorn that the local initiative power provision under Proposition 218 grants local voters the right to use the initiative power to reduce the rate that a public water district charges for domestic water. However, the California Supreme Court also concluded that the local initiative provision under Proposition 218 does not grant local voters a right to impose a voter-approval requirement on all future adjustments of water delivery charges and that no other independent legal authority for such a provision existed. As a result, the California Supreme Court invalidated the local initiative measure on that specific basis.^[145]

Because a mixed initiative presents additional and more complex legal issues compared to a pure initiative, it is usually preferable for local voters to pursue a pure initiative measure under Proposition 218.

Validity of Local Initiative Power Under Proposition 218

Exercise of the local initiative power under Proposition 218 was generally confirmed and upheld by the California Supreme Court in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (July 2006).^[146] Although the California Supreme Court has yet to more precisely define the limits of the local initiative power under Proposition 218, the California Legislative Analyst has opined that, based on the actual constitutional language, the only limits appear to be those under federal law, such as the federal debt impairment clause.^[147]

Opposition to Local Proposition 218 Initiatives Often Significant

Local initiatives under Proposition 218 frequently face well organized and funded opposition, especially from local public employee unions and sometimes from the area business community. The foregoing doesn’t mean that local reduction or repeal initiatives under Proposition 218 never pass, but it does mean the proponents of such initiatives must be well prepared and organized to confront the expected significant political opposition. Historically, local initiatives under Proposition 218 have tended to do better in local governments where voters are angry over a local levy and are in a “taxpayer revolt” mood.

Some of the most heated political battles under Proposition 218 involve the exercise of the local initiative power to reduce or repeal local government levies. This occurs because while the other provisions of Proposition 218 generally involve processes associated with increasing local government revenues yet to be realized, the local initiative power under Proposition 218 involves the reduction or repeal of existing revenue sources which can potentially have a more significant financial impact on a local government and those special interests (such as public employee unions) that may rely on any revenues targeted for reduction or repeal.

Lawsuits Involving Local Proposition 218 Initiatives

Opposition from the governing body of a local government facing a local reduction or repeal initiative under Proposition 218 is almost universal. It is not uncommon for a local government to file a lawsuit to prevent a local initiative under Proposition 218 from appearing on the ballot, especially after the required number of signatures has been obtained and certified. This is particularly the case with respect to local initiatives that propose to reduce or repeal utility fees and charges for water or sanitary sewer services provided by a local government. The local government typically alleges that any such initiative would have a “devastating” financial impact, and in some cases, state statutory law supposedly precludes local voters from exercising the initiative power under Proposition 218 even when the broad authority to do so is derived directly from a reserved power under the California Constitution which also controls over State statutory provisions. The timetable for initiative proponents must also be flexible enough to incorporate any delays which may result from legal action by a hostile local government to thwart the legitimate exercise of the local initiative power under Proposition 218.

Preelection Lawsuits

Of particular concern to initiative proponents and taxpayers is when local government lawsuits are filed before an election relating to a local initiative under Proposition 218. No local government revenue reductions would occur by the mere placement of a local Proposition 218 initiative on the ballot. Similarly, no such revenue reductions would occur if a local Proposition 218 initiative were rejected by the voters in an election since the legal and financial issues associated with any revenue reductions would become moot.^[148] Only if a local Proposition 218 initiative were actually approved by the voters in an election could local government revenue reductions possibly occur as a result of the substantive provisions contained in the initiative measure. Even then, the arguments by the local government are based on the assumption that the local government will do nothing in response to a passing local initiative under Proposition 218 which is rarely the case.

The California Supreme Court has set forth a “power-sharing arrangement” for dealing with the preceding situation where a significant local revenue reduction or repeal initiative under Proposition 218 is approved by local voters.^[149] This “power-sharing arrangement” seeks to balance the constitutional right of local voters under Proposition 218 to reduce or repeal any local government levy via the initiative power against the financial problems a local government may legitimately experience following the passage of a significant revenue reduction or repeal initiative, including setting forth options available to a local government to raise additional revenues. To the extent any additional revenues are raised by a local government, compliance with Proposition 218 and any other applicable legal requirements is necessary.^[150] This may also include a voter approval requirement if a local government proposes to amend or repeal a local revenue or reduction initiative approved by the voters.

Sometimes a local government may refuse to place a local Proposition 218 initiative on the ballot even though the required number of signatures has been obtained and certified. Once a local initiative measure has qualified for the ballot, the responsible local entity or official generally has a mandatory duty to place the initiative on the ballot.^[151] If the responsible local entity or official refuses to place the initiative on the ballot, this can force the initiative proponents to file a lawsuit to require the initiative be placed on the ballot. Initiative proponents have to be prepared for such action, especially if a hostile local government is involved. Even if such a lawsuit by the initiative proponents is successful, it often results in a delay in when the initiative measure eventually appears on the ballot which is often part of the strategy of a hostile local government. Initiative proponents generally need to incorporate this potential scenario in their timetable for pursuing a local initiative under Proposition 218.

Preelection lawsuits by voters may also be filed over other issues related to a local initiative under Proposition 218. Such lawsuits may include matters relating to the impartiality of the ballot label (the language that appears on the ballot itself), the ballot title and summary, the impartial analysis of the measure, or the ballot arguments that appear in the ballot pamphlet sent to voters. Initiative proponents generally need to pay special attention to the ballot label, the ballot title and summary as well as the impartial analysis since these items are generally prepared by the local government where issues relating to impartiality are likely to arise, especially if a hostile local government is involved.

Postelection Lawsuits

A hostile local government is also likely to file a lawsuit against a local Proposition 218 initiative should it be approved by local voters in an election. Postelection lawsuits may also be filed by private special interests such as those that may have opposed the initiative during the election campaign. The initiative proponents have to be prepared for any such lawsuits, particularly if a hostile local government is involved. This also places important emphasis on the need for initiative proponents to ensure that their local initiative under Proposition 218 is drafted in compliance with all applicable legal requirements since violation of any provision of law could result in the invalidation of part or even all of a local revenue reduction or repeal initiative.

A postelection lawsuit by a local government against an approved local initiative under Proposition 218 also raises legal issues associated with the extent to which a local government has a legal duty to defend an initiative measure that has been duly approved by local voters. California courts have yet to clarify the scope of the local government duty to defend as it pertains to a ballot measure approved by voters using the local initiative power under Proposition 218.

Integrated Approach Using the Recall Power

If as a result of the actions of a hostile local government litigation is involved, initiative proponents can pursue an integrated approach to addressing the problem. This includes possible exercise of the local recall power to remove from elective office those local public officials frustrating the legitimate exercise of the local initiative power under Proposition 218.

California Anti-SLAPP Law

Those filing lawsuits on behalf of local initiatives under Proposition 218 also have to be aware of potential liability for attorney fees under the California Anti-SLAPP (Strategic Lawsuit Against Public Participation) Law.^[152] Some local governments have successfully used the California Anti-SLAPP Law to force taxpayers to pay attorney fees incurred by the local government in certain lawsuits.^[153] As a result of this potential liability, those contemplating legal action relating to a local initiative under Proposition 218 should discuss this issue with legal counsel and evaluate the potential risk before filing any lawsuit.

Local Government “Informational” Campaigns in Initiative Elections

Although local governments are prohibited from spending public funds and resources to campaign against local initiatives under Proposition 218, they are allowed under the law to expend public funds to engage in “informational” campaigns that “educate” voters about such initiatives.^[154] Local governments tend to be more aggressive in their “informational” campaigns when local revenue reduction or repeal initiatives are involved. When questionable or controversial “informational” campaigns occur by local governments in connection with a local initiative under Proposition 218, often the only practical remedy available is to make such “informational” campaigns a political issue during the election campaign which can increase the chances of the local revenue reduction or repeal initiative measure being approved by the voters.

Local Recall Power as an Additional Tool

The recall power is the power of the voters to remove an elective officer before the term of that officer expires.^[155] Although Proposition 218 does not directly affect the recall power, local voters can use the local recall power in conjunction with the exercise of the local initiative power under Proposition 218. This is especially the case if one or more members of the local governing body are frustrating the lawful exercise of the local initiative power under Proposition 218 to reduce or repeal a local government levy such as by filing a lawsuit against the levy (before and/or after the election), by refusing to place an initiative on the ballot after having received the required number of signatures (which ordinarily requires the initiative proponents to file a lawsuit to get the initiative placed on the ballot), or by refusing to comply with an initiative after having been approved by local voters. Sometimes even just the credible threat of a recall can result in local elected officials acting more responsively to those exercising the local initiative power under Proposition 218.

The local recall power only applies to elective officers. In addition, even if a recall is successful, the recall process only provides for the removal of elective officers. It does not directly affect the local initiative power process under Proposition 218. However, if one or more recalled officers are replaced by more cooperative elective officers, this can help eliminate local governing body impediments to the lawful exercise of the local initiative power under Proposition 218.

Article XIII D – Assessment and Property-Related Fee Reforms

Section 4 of Proposition 218 added Article XIII D to the California Constitution.^[156] Article XIII D relates primarily to special assessments on real property and property-related fees and charges. Significant and detailed constitutional procedures and requirements for such levies are contained in the article.

Application of Article

Section 1 of Article XIII D specifies that its provisions apply to all special assessments and property-related fees and charges irrespective of whether such levies are imposed pursuant to state statute or local charter authority.^[157] This makes it clear that the provisions of Article XIII D apply to charter cities in California.

Authority to Impose Local Levies

Section 1 of Article XIII D further specifies that nothing in Proposition 218 provides any new authority to any local government to impose any tax, special assessment, or property-related fee or charge.^[158] Under the preceding provision, the legal authority to impose a local tax, special assessment, or property-related fee or charge must come from an independent source such as a state statute or a local city charter provision.

Laws Not Affected by Article

Section 1 also specifies two types of laws that are not affected by the provisions of Article XIII D. First, existing laws relating to the imposition of fees or charges as a condition of property development (developer fees).^[159] Second, existing laws relating to the imposition of timber yield taxes.^[160]

Constitutional Definitions

Section 2 of Article XIII D contains various constitutional definitions applicable to the article. A summary of the more significant constitutional definitions follows.

“Agency”

Section 2 definitions include the term “agency” setting forth the public entities subject to the requirements of the article. The term “agency” in Article XIII D incorporates the same broad definition of “local government” used in Article XIII C.^[161] This means that if a public entity is a “local government” under Article XIII C it is also an “agency” under Article XIII D.

“Assessment”

The term “assessment” is defined in Section 2 as “any levy or charge upon real property by an agency for a special benefit conferred upon the real property.”^[162] If a levy or charge is an “assessment,” it is subject to the procedures and requirements applicable to assessments in Article XIII D.^[163] The detailed procedures and requirements for “assessments” are primarily contained in Section 4 of Article XIII D. The historical rationale behind imposing an assessment, otherwise known as a special assessment, is that the assessed property receives a special benefit over and above that received by the general public.^[164]

Proposition 218 maintains the traditional requirement that the subject of a special assessment, such as a public improvement like a sidewalk, has to specially benefit the assessed property. This distinguishes a special assessment from a tax which is not legally required to specially benefit the taxed property.^[165] However, a key reform under Proposition 218 is that it significantly tightens what constitutes a “special benefit” for purposes of levying a lawful special assessment in California. This is intended to limit the imposition of inappropriate special assessments that are in reality taxes not approved by local voters under Proposition 13.

“Special Benefit”

Under Proposition 218, a “special benefit” means “a particular and distinct benefit over and above general benefits conferred on real property locate in the district or to the public at large. General enhancement of property value does not constitute ‘special benefit.’”^[166] The California Supreme Court confirmed the tighter “special benefit” definition in interpreting it to mean that a special benefit must affect an assessed property in a way that is particular and distinct from its effect on other parcels, and that real property in general and the public at large do not share.^[167]

Property-Related Fee or Charge

Proposition 218 created a new species of fee or charge in California known as a “property-related” fee or charge. Whether or not an agency fee or charge is “property-related” is legally significant because if a fee or charge is “property-related,” it is subject to the procedures and requirements applicable to such levies in Article XIII D.^[168] The detailed procedures and requirements for property-related fees or charges are primarily contained in Section 6 of Article XIII D of the California Constitution.

Definition

Under Proposition 218, a “property-related” fee or charge means “any levy other than an ad valorem tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property-related service.”^[169] A “property-related service” is defined as “a public service having a direct relationship to property ownership.”^[170]

Court Interpretations of Definition

Initially, the California Supreme Court in 2001 narrowly interpreted what constitutes a “property-related” fee or charge under Article XIII D in concluding that a residential rental inspection fee was not “property-related.”^[171] Thereafter, California appellate courts generally gave a more expansive interpretation of the term “property-related” fee or charge under Proposition 218.

In 2002, the California Court of Appeal in Sacramento held that an in-lieu franchise fee for water, sewer, and refuse collection services was a “property-related” fee subject to the requirements of Article XIII D.^[172]

Also in 2002, the California Court of Appeal in San Jose held that a stormwater drainage fee imposed on developed parcels of land was a “property-related” fee subject to the requirements of Article XIII D, including the mandatory election requirement applicable to property-related fees and charges.^[173]

In 2004, the California Supreme Court held that a fire suppression fee imposed as a condition for making a new connection to a water system was not a “property-related” fee subject to Article XIII D because the fee was not imposed by virtue of property ownership, but instead was imposed as an incident of the voluntary act of the property owner in applying for a water service connection.^[174] However, the court also stated that a fee for ongoing water service through an existing connection is “property-related” under Article XIII D because it requires nothing other than normal ownership and use of real property.^[175]

In 2005, the California Court of Appeal in Fresno held that a fee in lieu of property taxes assessed upon municipal utility departments providing water, sewer, and solid waste collection services was a “property-related” fee subject to the requirements of Article XIII D.^[176]

In 2006, the California Supreme Court definitively held that a utility charge imposed by an agency for ongoing water delivery, including a consumption based utility charge, was a “property-related” fee subject to the requirements of Article XIII D.^[177] In reaching the preceding conclusion about consumption based utility charges, the court relied on the “user fee or charge for a property-related service” component of the constitutional definition.^[178] Based on the court’s reasoning, fees and charges for ongoing sewer and refuse collection services are also “property-related” fees and charges subject to the requirements of Article XIII D.^[179]

In 2007, the California Court of Appeal in San Jose held that a fee on the extraction of groundwater was a “property-related” fee subject to the requirements of Article XIII D.^[180] However, in March 2015 the California Court of Appeal in Ventura held that a fee on the extraction of groundwater was not a “property-related” fee subject to the requirements of Article XIII D.^[181] On June 24, 2015, the California Supreme Court accepted the 2015 case from Ventura for review in order to resolve the legal conflict on the groundwater extraction fee issue.^[182] The Ventura case has been fully briefed and is current awaiting oral argument before the California Supreme Court.

In August 2015, the California Court of Appeal in San Jose held in Great Oaks Water Company v. Santa Clara Valley Water District (Case No. H035260, August 2015, Decision on First Rehearing) that a fee on the extraction of groundwater was a “property-related” fee subject to the requirements of Article XIII D. However, on September 10, 2015, the same appellate court granted a second rehearing petition in the Great Oaks Water Company case which vacated the August 2015 decision. On December 8, 2015, the California Court of Appeal in San Jose again held in the Great Oaks Water Company case (Case No. H035260, December 2015, Decision on Second Rehearing) that a fee on the extraction of groundwater was a “property-related” fee subject to the requirements of Article XIII D.^[183] On January 15, 2016, a petition for review was filed before the California Supreme Court in the Great Oaks Water Company case.^[184] The decision in the Great Oaks Water Company case also conflicts with the 2015 California Court of Appeal decision in the Ventura case.

Proposition 218 Levy Limitations

Section 3 of Article XIII D specifies that no tax, assessment, or property-related fee or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (1) constitutionally permitted property taxes based on the assessed value of the property; (2) special taxes receiving a two-thirds vote pursuant to Proposition 13; (3) assessments on real property as provided by Article XIII D; and (4) property-related fees or charges for property-related services as provided by Article XIII D.^[185]

The preceding requirement generally means that all “parcel” taxes (property taxes not based on the assessed value of real property) must be levied as special taxes subject to two-thirds voter approval. The preceding requirement also means that property-related fees or charges may only be imposed for property-related services.

Electrical or Gas Service Exemption Under Article XIII D

Section 3 of Article XIII D also contains an exemption that for purposes of Article XIII D, fees and charges for electrical or gas service are not property-related fees or charges imposed as an incident of property ownership.^[186] This means that electrical or gas service fees and charges imposed by local agencies are not subject to the procedures^[187] and requirements^[188] applicable to property-related fees or charges contained in Article XIII D.

Scope of Exemption

The scope of the exemption for electrical or gas service fees and charges only applies to Article XIII D of the California Constitution.^[189] Depending upon the specific circumstances of imposition by a local agency, electrical or gas service fees and charges could constitute a “tax” subject to voter approval under Article XIII C of the California Constitution, as amended by Proposition 26 (2010).^[190]

Local Initiative Power to Reduce or Repeal Exempt Electrical or Gas Service Fees and Charges

Electrical or gas service fees and charges exempt under Article XIII D and levied by a local agency should also generally be subject to reduction or repeal using the local initiative power under Proposition 218, including the significantly reduced signature requirement thereunder.^[191] For example, the local initiative power under Proposition 218 could be used to reduce electrical service fees and charges in situations where a local agency transfers substantial utility fee or charge revenues to the general fund of the local agency, whether done as legally allowable "profit" (return on investment) or as reimbursement for questionable services rendered to the utility by the local agency. Once transferred to the general fund of a local agency such as a city, the utility revenue proceeds can generally be spent at the discretion of local politicians just like general taxes. The local initiative power under Proposition 218 provides voters with a legislative remedy to address electrical or gas service utility fees and charges that are considered excessive or unreasonable.^[192]

Assessments – Procedures and Requirements

Section 4 of Article XIII D of the California Constitution contains the detailed procedures and requirements applicable to the levying of assessments on real property. The assessment procedures and requirements are designed to ensure that any assessment levied by an agency under Proposition 218 is a legitimate assessment and not a tax imposed without two-thirds voter approval.

Proposition 218 also requires an agency to have a vote of the affected property owners (sometimes referred to as an "assessment ballot proceeding") before any proposed new or increased assessment can be lawfully levied by an agency.^[193] Prior to Proposition 218, an agency was not required to obtain ballot approval from affected property owners before levying special assessments on real property; only approval by the local agency governing body was required, even if there were significant protests from affected property owners.

The assessment process under Proposition 218 is formally initiated by the local agency. For some assessments, other laws (such as a state statute or a local law) may also require a property owner petition in order to initiate the assessment process, but a property owner petition or similar requirement is not constitutionally required under Proposition 218.

Identification of Parcels Subject to Assessment

An agency that proposes to levy an assessment under Proposition 218 must first identify all parcels of property which will have a special benefit conferred upon them and upon which an assessment is proposed for imposition.^[194] The geographic area determined by an agency to contain all parcels of property which will have a special benefit conferred upon them is referred to as an assessment district.^[195]

The proportionate special benefit derived by each identified parcel of property must then be determined by the agency in relationship to the entirety of the capital costs of the public improvement(s) being financed, the maintenance and operation expenses of the public improvement(s), or the cost of the property-related service(s) being provided.^[196]

Proposition 218 does not preclude assessments for services, but it appears under the constitutional language that only “property-related services” are assessable under Proposition 218.^[197] A “property-related service” is “a public service having a direct relationship to property ownership.”^[198]

Engineer’s Report

All assessments under Proposition 218 must be supported by a detailed engineer’s report prepared by a registered professional engineer certified by the State of California.^[199] The required engineering report is ordinarily prepared by a registered civil engineer, although other types of engineers may be involved depending upon the nature of the public improvements being financed.

The engineer’s report is a critical document in the assessment process because it contains the detailed supporting basis for levying the assessment. This includes a detailed supporting basis for compliance with the substantive requirements for assessments such as presence of special benefits, proper apportionment of special benefits between parcels, separability of general benefits from special benefits, proper assessment of parcels owned by public agencies, detailed cost information, and the manner of calculating assessments upon specific parcels. In a legal challenge concerning the validity of an assessment, the courts typically refer to the engineer’s report to determine whether or not the assessment complies with the constitutional requirements of Proposition 218.

Proposition 218 does not require the engineer’s report be mailed to property owners as part of the assessment notification process. However, the engineer’s report is a “public record”^[200] whereby a member of the public, including property owners subject to a proposed assessment, may make a written request and receive a copy of an engineer’s report under the California Public Records Act.^[201] The payment of a fee covering the direct costs of duplicating any requested pages from an engineer’s report may also be required by the agency.^[202]

The engineer’s report is also sometimes available in electronic format where it can be downloaded by the public. However, Proposition 218 does not require an engineer’s report be made available in an electronic format. The California Public Records Act generally requires that public records in an electronic format be made available when requested by a member of the public.^[203]

Electronic Data Files

Electronic data files containing information relating to the calculation and/or amount of a proposed assessment for each parcel within an assessment district may also be available. Some assessment districts may contain many thousands of parcels, and sometimes the assessment calculations for each parcel are only available as an electronic data file. Such data files are generally “public records” subject to disclosure under the California Public Records Act.^[204] The data files must also generally be made available in the electronic format requested by the member of the public if the requested format is one that has been used by the agency to create copies for its own use or for provision to other public agencies.^[205] The foregoing requirement is important to facilitate independent analysis of electronic data files by members of the public for purposes of verifying Proposition 218 compliance.

Geographic Information System (GIS) Data Files

Related electronic data files may also be used to help verify Proposition 218 compliance. In particular, use of geographic information system (GIS) data files. The use of GIS helps to improve the management and analysis of location-based information. GIS data files containing location-based information relating to a proposed assessment for each parcel within an assessment district may also be available. In addition, separate GIS data files may have also been used as part of the assessment calculation process such as GIS data files containing the location and attributes of streetlights and parcels within an assessment district. GIS data files may also be used in connection with the calculation of property-related fees and charges under Proposition 218.

The California Supreme Court has ruled that GIS database files are generally deemed “public records” subject to disclosure under the California Public Records Act.^[206] Many local agency GIS data files can be downloaded via the Internet without charge. The viewing, processing, and analysis of GIS data files ordinarily requires the use of specialized software and user expertise.

Special Benefit and Proportionality Requirements

Under Proposition 218, only special benefits are assessable.^[207] Proposition 218 contains its own constitutional definition of “special benefit”^[208] that significantly tightens the kind of assessments an agency can levy on real property.^[209] What this means is some assessments that may have been permissible prior to Proposition 218 are no longer legally permissible because of a lack of “special benefit” under the tightened constitutional definition.

Separating General Benefits From Special Benefits

Proposition 218 also requires an agency to separate the general benefits from the special benefits conferred on a parcel of property.^[210] Pre-Proposition 218 case law did not invalidate assessments because they also provided general benefits in addition to special benefits, and the courts did not demand a strict separation of general benefits from special benefits.^[211] The benefit separation requirement under Proposition 218 helps to ensure compliance with the requirement that only special benefits are assessable. Since general benefits on real property are not assessable, they must be excluded and financed using one or more revenue sources other than assessments.

The constitutional definition of an “assessment” refers to a levy on real property for a “special benefit” conferred upon the real property.^[212] Since permissible assessments are limited to special benefits conferred upon real property, in addition to separating the general benefits conferred on a parcel, benefits to persons or to personal property must also be excluded from assessment. As a practical matter, this makes it much more difficult to legally justify the imposition of assessments for public improvements or services that primarily benefit people instead of real property.

Proportionality Requirement

Under Proposition 218, no assessment may be imposed on any parcel of property which exceeds the reasonable cost of the proportional special benefit conferred on that parcel.^[213] The proportionality requirement ensures that the aggregate assessment imposed on all parcels is distributed among all assessed parcels in proportion to the special benefits conferred on each parcel.^[214] The proportionality provisions contained in Proposition 218 have been referred to as “fair share” requirements.^[215]

An agency may provide a “discounted” assessment less than the reasonable cost of the proportional special benefit conferred so long as any discounts do not cause the assessments imposed on the remaining parcels in the assessment district to exceed the reasonable cost of the proportional special benefit conferred on those parcels.^[216]

Public Parcels Also Subject to Assessment

Proposition 218 provides that parcels of property within an assessment district that are owned or used by any agency, the State of California, or the United States are not exempt from assessment unless the agency can demonstrate by clear and convincing evidence that those publicly owned parcels in fact receive no special benefit.^[217] What this means is publicly owned parcels have to pay their fair share of assessments just like privately owned parcels.

Historically, publicly owned parcels were exempt from paying assessments on real property. The courts construed an implied exemption for special assessments under the provision of the California Constitution^[218] exempting local governments from property taxation.^[219] The practical effect of the historical exemption was to require private property owners, in addition to paying an assessment share attributable to their own parcel, to also pay the share of assessments that would otherwise be attributable to publicly owned parcels. In assessment districts containing a large number of publicly owned parcels, requiring private property owners to also pay the share attributable to publicly owned parcels significantly increased the amount of the assessment private property owners had to pay.

While elimination of the assessment exemption applies to all levels of government, there may be instances where federally owned property, due to restrictions under federal law, will continue to be exempt from assessments. To the extent any such exemption for federal property exists under federal law, Proposition 218 prohibits an agency from shifting the assessment burden from federally exempt parcels to other parcels within an assessment district.^[220]

Prior to the passage of Proposition 218, California courts construed special assessments to be a tax for purposes of exempting public parcels from assessment but the courts did not construe special assessments to be a tax for purposes of requiring voter approval under Proposition 13. Such detrimental inconsistencies of interpretation by California courts helped fuel the passage of Proposition 218.

Written Notice Requirement

Once an agency has identified the parcels subject to assessment, the agency must then calculate the amount of the proposed assessment for each identified parcel and must give the record owner of each identified parcel written notice by mail of the proposed assessment. The required written notice must state the total assessment amount chargeable to the entire assessment district, the amount chargeable to the record owner’s particular parcel, the duration of the assessment payments, the reason(s) for the assessment and the basis upon which the amount of the proposed assessment was calculated, together with the date, time, and location of a public hearing on the proposed assessment.^[221]

The required notice must also include, in a conspicuous place on the notice, a summary of the procedures applicable to the completion, return, and tabulation of the assessment ballots required under Proposition 218, including a disclosure statement that the assessment will not be imposed if the ballots submitted in opposition to the assessment exceed the ballots submitted in favor of the assessment, with the ballots weighted according to the proportional financial obligation of the each affected property.^[222][223]

Some property owners do not realize the importance of the written notice and assessment ballot and end up throwing away the mailing thinking it is junk mail. To help address this matter, the California Legislature enacted additional legal requirements relating to the envelope containing the assessment notice and ballot. On the face of each envelope mailed to the record owner in which the required notice and assessment ballot are enclosed, there must appear in substantially the following form the phrase “OFFICIAL BALLOT ENCLOSED” in no smaller than 16-point bold type. A local agency may additionally place the phrase “OFFICIAL BALLOT ENCLOSED” on the face of the envelope in a language or languages other than English.^[224]

Inclusion of Assessment Ballot

Every notice mailed to owners of identified parcels within an assessment district must also contain an assessment ballot which includes the agency’s address for receipt of the assessment ballot once completed by any record owner receiving the notice whereby the record owner may indicate his or her name, reasonable identification of the parcel owned, and his or her support or opposition to the proposed assessment.^[225]

The California Legislature has enacted additional legal requirements relating to the completion and delivery of assessment ballots under Proposition 218. While not constitutionally required by Proposition 218, these additional statutory requirements need to be followed in order for an assessment ballot to be counted. An assessment ballot must be signed and either mailed or otherwise delivered to the address indicated on the assessment ballot. Regardless of the method of delivery, all assessment ballots must be received at the address indicated, or the location of the public testimony, in order to be included in the tabulation of a majority protest.^[226] An assessment ballot may be submitted, changed, or withdrawn by the person who submitted the ballot prior to the conclusion of the public testimony on the proposed assessment at the required public hearing.^[227]

Public Hearing Requirement

The agency must conduct at least one public hearing upon the proposed assessment not less than forty-five (45) days after mailing the notice of the proposed assessment to the record owners of each identified parcel subject to the proposed assessment.^[228] At the public hearing, any person is permitted to present written or oral testimony to the agency. The public hearing may also be continued from time to time.^[229]

Assessment Ballot Tabulation; Weighted Ballots

At the public hearing, the agency must consider all protests against the proposed assessment. At the conclusion of the public hearing, an impartial person designated by the agency who does not have a vested interest in the outcome of the proposed assessment must tabulate the assessment ballots.^[230] The governing body of the agency may, if necessary, continue the assessment ballot tabulation at a different time or location accessible to the public, provided the governing body announces the time and location at the public hearing. The impartial person may use technological methods of tabulating the assessment ballots, including, but not limited to, punchcard or optically readable (bar-coded) assessment ballots.^[231]

In tabulating the assessment ballots, the ballots must be weighted according to the proportional financial obligation of the affected parcel.^[232] If more than one of the record owners of an identified parcel submits an assessment ballot, the amount of the proposed assessment to be imposed upon the identified parcel must be allocated to each ballot submitted in proportion to the respective record ownership interests or, if the ownership interests are not shown on the record, as established to the satisfaction of the agency by documentation provided by those record owners.^[233] The assessment ballot process under Proposition 218 is frequently referred to as an “assessment ballot proceeding” and is not technically regarded as an election.^[234]

The weighted assessment ballot requirement under Proposition 218 is not new. Neither is the requirement that the assessment ballot process be limited to property owners. Prior to the passage of Proposition 218, the majority protest process was limited to property owners subject to a proposed assessment. For a small number of assessments, a property owner election with weighted voting was required. The constitutionality of these property owner elections has previously been upheld by the California Supreme Court.^[235]

Secrecy of Assessment Ballots

Proposition 218 does not directly address issues associated with the secrecy of assessment ballots. However, these issues have been addressed by statutes adopted by the California Legislature.

An assessment ballot must be in a form that conceals its contents once it is sealed by the person submitting the assessment ballot, and must remain sealed until the tabulation of assessment ballots starts.^[236] Assessment ballots must be unsealed and tabulated in public view at the conclusion of the required public hearing so as to permit all interested persons to meaningfully monitor the accuracy of the ballot tabulation process.^[237] During and after the ballot tabulation, assessment ballots and the information used to determine the weight of each assessment ballot are disclosable public records under the California Public Records Act, and must be made equally available for inspection by the proponents and the opponents of the proposed assessment.^[238] Assessment ballots must be preserved for a minimum of two years, after which they may be destroyed as provided by law.^[239]

The California Supreme Court has ruled that constitutional voting secrecy protections do not apply to assessment ballot proceedings under Proposition 218.^[240] To the extent any secrecy protections exist for assessment ballots, they come from state statutes. However, these statutes can be later amended, or even repealed, by the California Legislature without a vote of the California electorate.

Prior to Proposition 218, assessment protests by property owners were generally treated as public records subject to disclosure under the California Public Records Act. Proposition 218 did not alter the “public record” status of assessment protests by property owners.

Majority Protest for Assessments

An agency may not impose a proposed assessment if there is a majority protest. A “majority protest” exists if, upon the conclusion of the required public hearing, assessment ballots submitted in opposition to the proposed assessment exceed the assessment ballots submitted in favor of the proposed assessment.^[241] The assessment ballots are weighted by the amount of the proposed assessment to be imposed upon the identified parcel for which each assessment ballot was submitted.^[242]

Historical Background

Proposition 218 continues the concept of a “majority protest” in regard to the imposition of assessments on real property. However, prior to Proposition 218, a majority protest typically required an absolute majority of property owners to protest against a proposed assessment.^[243] No assessment ballot was involved. If a property owner did not affirmatively protest an assessment (i.e., if a property owner did nothing), that effectively counted as a “yes” vote in support of the proposed assessment.

Also prior to Proposition 218, even if an absolute majority of property owners protested an assessment and a majority protest existed, state laws often allowed local agencies to overrule a majority protest by a specified supermajority vote requirement (typically by a four-fifths vote) of the governing body of the local agency. What this meant in practical terms for a typical five-member governing body such as a local city council was that it would take at least three votes to approve an assessment in the absence of a majority protest and at least four votes would be required (one additional vote) to overrule a majority protest. Prior to Proposition 218, sustained majority protests for assessments were rare events.

One of the most significant assessment reforms under Proposition 218 is how a majority protest is determined. Rather than being based on an absolute majority, as was the case prior to Proposition 218, a majority protest is now determined based on the assessment ballots actually received by the local agency. If a property owner does not properly return an assessment ballot, that fact will not count for or against the proposed assessment. Proposition 218 also does not allow an agency to overrule a majority protest. If a majority protest exists under Proposition 218, the agency is constitutionally prohibited from imposing the proposed assessment.^[244]

Validity of Assessment Ballot Process Under Proposition 218

The validity of the assessment ballot process under Proposition 218, particularly as it relates to the weighted vote requirement for assessment ballots, was upheld by the California Court of Appeal in San Francisco in Not About Water Committee v. Solano County Board of Supervisors, 95 Cal. App. 4th 982 (January 2002).^[245]

Property owner elections with weighted voting do not violate the federal constitutional requirement of “one man, one vote” under the limited circumstances of a special-purpose unit of government assigned the performance of functions affecting definable groups of constituents more than others. Such is the case with assessment districts under Proposition 218.^[246] Furthermore, since only special benefits are assessable under Proposition 218, voters residing within the boundaries of an assessment district who do not own property within the assessment district are also not deemed under the California Constitution to have been deprived of the right to vote for any assessment.^[247]

Federal Law Invalidity Provision

Proposition 218 contains a special additional requirement in the event a court determines the assessment ballot process violates the United States Constitution or other federal law. If any such violation were to occur, an assessment may not be levied under Proposition 218 unless approved by a two-thirds vote of the electorate in the assessment district.^[248] The courts to date have upheld the validity of the assessment ballot process under Proposition 218, and no violations of federal law have been found.

The practical effect of the federal law invalidity provision is that if the assessment ballot process were invalidated under federal law, the approval requirements for assessments under Proposition 218 would become even more restrictive than if either no legal challenge under federal law had occurred or if any such legal challenge were unsuccessful. This provides a very strong disincentive, especially for local government officials, to legally challenge the assessment ballot process under Proposition 218.

Shortly following the passage of Proposition 218, the Los Angeles City Council voted to legally challenge the initiative measure.^[249] The basis for the legal challenge involved the constitutionality of the requirement that assessment votes were limited to property owners and that the votes were weighted.^[250] However, the Los Angeles City Attorney’s Office subsequently opined that the City of Los Angeles had no legal authority to challenge Proposition 218 (technically referred to as lack of standing to sue).^[251] That effectively ended the City of Los Angeles legal challenge to Proposition 218 before it even began. Had the City of Los Angeles legal challenge to Proposition 218 been successful, under the federal law invalidity provision a more restrictive two-thirds vote of the electorate in the assessment district would have been required.^[252] In effect, a City legal “victory” would have been a devastating defeat.

Local Agency Burden to Demonstrate Compliance

Prior to Proposition 218, a person challenging an assessment had the burden to prove that the assessment was not legal.^[253] An important assessment reform under Proposition 218 is that it shifted the burden of demonstrating compliance to the local agency in a lawsuit challenging an assessment. In any legal action contesting the validity of an assessment under Proposition 218, the burden is on the local agency to demonstrate that the properties in question receive a special benefit over and above the benefits conferred on the public at large and that the amount of any contested assessment is proportional to, and no greater than, the benefits conferred on the properties in question.^[254] This change makes it significantly easier for taxpayers to win a legal challenge.^[255]

The Landmark 2008 Silicon Valley Taxpayers Supreme Court Case

The detailed and substantive assessment reforms contained in Proposition 218 were confirmed and upheld by the California Supreme Court in Silicon Valley Taxpayers’ Association, Inc. v. Santa Clara County Open Space Authority, 44 Cal. 4th 431 (July 2008).^[256]

The Silicon Valley Taxpayers case is also one of the most important and significant taxpayer protection cases in a generation in large part because of the California Supreme Court holding on the “standard of review” issue. The standard of review issue addresses the level of deference a court will ordinarily give a local agency in reviewing its legislative actions such as the approval of an assessment. The extent of deference given by the courts has a major bearing on the outcome of a lawsuit. The greater the amount of deference given by the courts, the greater the likelihood a local agency will prevail in a lawsuit. On the other hand, if the courts were to use a more rigorous standard of review giving significantly less deference to the actions of a local agency, the greater the likelihood the local agency will lose a lawsuit.

Appellate counsel who represented the interests of taxpayers and Proposition 218 before the California Supreme Court in the landmark Silicon Valley Taxpayers case included Tony Tanke, Jack Cohen, and James Burling.^[257]

Highly Deferential Standard of Review Before Proposition 218

Before Proposition 218 became law, in a legal challenge to an assessment the courts reviewed the actions of the local agency under a highly deferential standard. Under this highly deferential standard, the courts presumed that an assessment was valid and the person challenging the assessment had to show that the record before the local agency clearly did not support the underlying determinations of benefit and proportionality.^[258] Property owners rarely won assessment lawsuits on the merits prior to Proposition 218. Because it was so difficult to win a legal challenge, lawyers were candidly urged not to bother even trying to challenge an assessment in court.^[259]

The underlying legal basis for the historical deferential standard of review applicable to assessments was that the establishment of a special assessment district takes place as a result of a peculiarly legislative process.^[260] As a result, the constitutional separation of powers doctrine demanded a more deferential standard of review by the courts.^[261]

Independent Standard of Review After Proposition 218

The constitutional status of the substantive assessment requirements under Proposition 218 altered the standard of review analysis. The substantive requirements for assessments are contained in constitutional provisions of dignity at least equal to the constitutional separation of powers provision. Prior to Proposition 218, special assessment laws were generally statutory, and the constitutional separation of powers doctrine served as a foundation for a more deferential standard of review by the courts. However, after Proposition 218 passed, an assessment’s validity is now a constitutional question.

Relying on various provisions of Proposition 218, including the burden of demonstration provision applicable to assessments,^[262] as well as language in the Proposition 218 ballot pamphlet, the California Supreme Court concluded that because Proposition 218’s underlying purpose was to limit government’s power to exact revenue and to curtail the deference that had been traditionally accorded legislative enactments on fees, assessments, and charges, a more rigorous standard of review was warranted.^[263] The separation of powers doctrine no longer justified allowing a local agency to usurp the judicial function of interpreting and applying the constitutional provisions that now govern assessments under Proposition 218.^[264]

Under the new standard adopted by the California Supreme Court in the Silicon Valley Taxpayers case, California courts must exercise their independent judgment in reviewing whether an assessment imposed by a local agency violates the constitutional provisions of Proposition 218.^[265] This new standard will make it significantly easier for taxpayers to win lawsuits challenging the validity of assessments under Proposition 218.^[266]

Local Initiative Power to Reduce or Repeal Approved Assessments

After approval of an assessment, the local initiative power under Proposition 218 can generally be used to reduce or repeal the assessment since that power expressly applies to assessments.^[267] This includes the significantly reduced signature requirement thereunder.

An example of where such an initiative may be appropriate involves inequities that occasionally occur from the weighted ballot requirement for assessments, particularly in assessment districts containing a large number of publicly owned parcels. An assessment district consisting of residential parcels paying lower assessments and a significant number of larger parcels paying higher assessments, such as large publicly owned or commercial parcels, can sometimes result in an assessment being approved under weighted voting even though a majority of the residential property owners opposed the assessment. A local initiative to reduce or repeal the assessment is an available remedy to address such an inequity. Should an assessment reduction or repeal initiative qualify for the ballot, the election would be by the registered voters and the ballots would not be weighted.

Article Effective Date; Assessment Exemptions

Section 5 of Article XIII D sets forth the effective date of the article. Section 5 also includes four exemptions from the assessment procedures and approval process contained in Section 4 of Article XIII D.

Effective Date

Section 5 states that Article XIII D becomes effective the day after the election unless otherwise provided.^[268] The day after the Proposition 218 election was November 6, 1996.

Assessment Compliance and Exemptions

Section 5 further states that beginning July 1, 1997, all existing, new, or increased assessments must comply with Article XIII D.^[269] However, Section 5 specifies that four classes of assessments existing on the effective date of Article XIII D (November 6, 1996) are exempt (grandfathered) from the procedures and approval process contained in Section 4 of Article XIII D.

Traditional Purpose Exemption

The first exemption is for any assessment imposed exclusively to finance the capital costs or maintenance and operation expenses for sidewalks, streets, sewers, water, flood control, drainage systems, or vector control.^[270] This exemption is referred to as the “traditional purpose” exemption, and was intended to carve out traditionally appropriate, nonabusive assessments.^[271] Technically, if an existing assessment is not imposed exclusively for an enumerated traditional purpose, it should not qualify for the exemption.

For purposes of the traditional purpose exemption, Proposition 218 expressly defines the terms “capital costs”^[272] and “maintenance and operation expenses.”^[273] In 1999, the California Court of Appeal in Riverside interpreted the traditional purpose exemption to also include streetlighting.^[274] Any subsequent increases in a traditional purpose assessment must comply with the procedures and approval process contained in Section 4 of Article XIII D.^[275]

Petition Exemption

The second exemption is for any assessment imposed pursuant to a petition signed by the person(s) owning all of the parcels subject to the assessment at the time the assessment was initially imposed.^[276] This exemption typically involves circumstances where a developer approves one or more assessments as a condition for developing property. Any subsequent increases in a petition exempt assessment must comply with the procedures and approval process contained in Section 4 of Article XIII D.^[277]

Bonded Indebtedness Exemption

The third exemption is for any assessment the proceeds of which are used to repay bonded indebtedness of which the failure to pay would violate the United States Constitution.^[278] In particular, the exemption applies where the Contract Impairment Clause of the United States Constitution^[279] would be violated. There must be an actual violation of the federal Contract Impairment Clause for this exemption to apply.

Prior Voter Approval Exemption

The fourth exemption is for any assessment which previously received majority voter approval from the voters voting in an election on the issue of the assessment.^[280] Prior to Proposition 218, voter approval of an assessment was generally not required, but a local agency could voluntarily decide to conduct an election on the approval of an assessment. Such elections typically involved the registered voters and not the property owners subject to the assessment.

The prior voter approval exemption also served as an incentive for local agencies to hold an election on approval of an assessment before Proposition 218 became law. Technically, to qualify for the exemption the election had to be legally binding and not advisory in nature. Local assessment elections held on the same date as the Proposition 218 election (November 5, 1996) should be acceptable since the voter approval occurred before Proposition 218 became effective.

Any subsequent increases in a prior voter approval exempt assessment must comply with the procedures and approval process contained in Section 4 of Article XIII D.^[281] The approval process in Section 4 requires an assessment ballot proceeding involving the property owners subject to the assessment instead of a registered voter election.^[282]

When Assessments Deemed “Increased”

When an agency “increases” an assessment, compliance with the assessment process under Proposition 218 is required.^[283] The California Legislature adopted a statute interpreting the term “increase” as applied to assessments.^[284] However, the courts have final say in interpreting when an assessment is “increased” under Proposition 218.

An assessment is “increased” for purposes of Proposition 218 when an agency makes a decision that does any of the following: (1) increases any applicable rate used to calculate the assessment; or (2) revises the methodology by which the assessment is calculated, if that revision results in an increased amount being levied on any parcel of property.^[285]

An assessment is not “increased” for purposes of Proposition 218 in the case in which the actual payments from a parcel of property are higher than would have resulted when the agency approved the assessment, if those higher payments are attributable to events other than an increased assessment rate or revised methodology, such as a change in the density, intensity, or nature of the use of land.^[286]

Local Initiative Power to Reduce or Repeal Exempt Assessments

Although assessments exempt under Section 5 are not subject to the mandatory assessment approval process contained in Section 4 of Article XIII D, the local initiative power under Proposition 218, including the significantly reduced signature requirement thereunder, can generally be used to reduce or repeal an exempt assessment since that power expressly applies to assessments.^[287] The only exception should be for the bonded indebtedness exemption where a violation of the Contract Impairment Clause of the United States Constitution would be implicated if the local initiative power under Proposition 218 were exercised to reduce or repeal an assessment subject to that particular exemption.

Property-Related Fees and Charges – Procedures and Requirements

Section 6 of Article XIII D of the California Constitution contains the detailed procedures and requirements applicable to property-related fees and charges. These procedures and requirements are designed to ensure that any property-related fee or charge levied by a local agency under Proposition 218 is a legitimate fee or charge and not an unlawful tax imposed without voter approval.

The property-related fee and charge provisions only apply if a fee or charge is “property-related” under the constitutional definition contained in Proposition 218.^[288] Some property-related fees or charges are levied upon parcels of property and appear on the annual property tax bill sent to property owners while other property-related fees or charges are levied upon persons and may be paid by a commercial or residential tenant instead of the property owner. Detailed information about the constitutional definition of a “property-related” fee or charge, including California court cases interpreting the constitutional definition, can be found in the Article XIII D “Constitutional Definitions” section of this article.

If a fee or charge is not “property-related” under Proposition 218, it may nonetheless be subject to voter approval as a local “tax” under Proposition 26 which California voters approved during the November 2010 General Election. Proposition 26 (2010) amended Proposition 218 by adding a broad constitutional definition of “tax”^[289] for purposes of determining the scope of levies subject to the voter approval requirement for local taxes under Proposition 218.^[290]

Property-related fees or charges may only be levied for “property-related services.”^[291] A “property-related service” is a public service having a direct relationship to property ownership.^[292] Some of the more common property-related fees or charges levied by local agencies include utility fees for ongoing domestic water, sanitary sewer or refuse collection services, stormwater fees, groundwater extraction fees, and flood control fees.

Triggering Events for Property-Related Fee or Charge Provisions

The type of property-related service involved as well as whether the property-related fee or charge is new, increased, or already existing determines to what extent a levy is subject to the various procedures and requirements contained in Section 6 of Article XIII D, including whether an election is required. Starting July 1, 1997, all property-related fees or charges must comply with Section 6 of Article XIII D.^[293]

When Property-Related Fees or Charges Deemed “Increased”

When an agency “increases” a property-related fee or charge, compliance with the property-related fee or charge process under Proposition 218 is required.^[294] The California Legislature adopted a statute interpreting the term “increase” as applied to property-related fees or charges.^[295] However, the courts have final say in interpreting when a property-related fee or charge is “increased” under Proposition 218.

A property-related fee or charge is “increased” for purposes of Proposition 218 when an agency makes a decision that does any of the following: (1) increases any applicable rate used to calculate the property-related fee or charge; or (2) revises the methodology by which the property-related fee or charge is calculated, if that revision results in an increased amount being levied on any person or parcel of property.^[296]

A property-related fee or charge is not “increased” for purposes of Proposition 218 when an agency does either or both of the following: (1) adjusts the amount of a property-related fee or charge in accordance with a schedule of adjustments, including a clearly defined formula for inflation adjustment that was adopted by the agency prior to the effective date of Proposition 218 (November 6, 1996); or (2) implements or collects a previously approved property-related fee or charge so long as the fee or charge rate is not increased beyond the level previously approved by the agency, and the methodology previously approved by the agency is not revised so as to result in an increase in the amount being levied on any person or parcel of property.^[297]

A property-related fee or charge is not “increased” for purposes of Proposition 218 in the case in which the actual payments from a person or a parcel of property are higher than would have resulted when the agency approved the property-related fee or charge, if those higher payments are attributable to events other than an increased fee or charge rate or revised methodology, such as a change in the density, intensity, or nature of the use of land.^[298]

When Property-Related Fees or Charges Deemed “Extended”

When an agency “extends” a property-related fee or charge, compliance with the property-related fee or charge process under Proposition 218 is required.^[299] The California Legislature adopted a statute interpreting the term “extended” for purposes of the property-related fee or charge provisions of Proposition 218.^[300] However, the courts have final say in interpreting when a property-related fee or charge is “extended” under Proposition 218.

A property-related fee or charge is “extended” for purposes of Proposition 218 when, as applied to an existing property-related fee or charge, an agency extends the stated effective period for the property-related fee or charge, including, but not limited to, amendment or removal of a sunset provision or expiration date.^[301] The statute incorporates a temporal component but not a spatial component which the term “extend” is ordinarily interpreted to include. While expanding the geographic area subject to a property-related fee or charge may not constitute an “extension” under the statutory definition, it may constitute a property-related fee or charge “increase” and thereby subject the levy to the property-related fee or charge process under Proposition 218 on that basis.^[302]

Procedures for New or Increased Property-Related Fees or Charges

Subdivision (a) of Section 6 of Article XIII D sets forth the procedures a local agency must follow for any new or increased property-related fees or charges. These procedures generally require written notice, at least one public hearing, and an opportunity to formally protest the property-related fee or charge.

The property-related fee or charge process under Proposition 218 is initiated by the local agency. A property owner often doesn’t find out about a proposal for a new or increased property-related fee or charge until after receiving the written notice required by Proposition 218. The procedures for a new or increased property-related fee or charge help ensure that a property owner receives appropriate written notice and is given an opportunity to provide input prior to the local agency deciding whether or not to approve a property-related fee or charge proposal.

Written Notice Requirement

The parcels upon which a new or increased property-related fee or charge is proposed for imposition must be identified by the agency. The amount or rate of the property-related fee or charge proposed for imposition upon each identified parcel must also be calculated by the agency. The agency must then provide written notice by mail of the proposed property-related fee or charge to the record owner of each identified parcel upon which the property-related fee or charge is proposed for imposition. The written notice must include the amount or rate of the property-related fee or charge proposed to be imposed upon each parcel, the basis upon which the amount or rate of the proposed property-related fee or charge was calculated, the reason(s) for the property-related fee or charge, together with the date, time and location of at least one public hearing on the proposed property-related fee or charge.^[303]

The required notice may be given by including it in the agency’s regular billing statement for the property-related fee or charge, or by any other mailing by the agency to the address to which the agency customarily mails the billing statement for the property-related fee or charge.^[304] However, if the agency desires to preserve any authority it may have to record or enforce a lien on the parcel to which a property-related service is provided, the agency must also mail notice to the record owner’s address shown on the last equalized assessment roll if that address is different than the billing or service address.^[305]

While allowing local agencies to include a property-related fee or charge notice in the regular billing statement may be cost-effective for the local agency, it places a greater responsibility on the record owner to thoroughly review the billing statement mailing so as not to unintentionally disregard a property-related fee or charge notice required under Proposition 218.

Public Hearing Requirement

The agency must conduct at least one public hearing upon the proposed property-related fee or charge not less than forty-five (45) days after mailing the notice of the proposed property-related fee or charge to the record owners of each identified parcel upon which the property-related fee or charge is proposed for imposition.^[306] An agency may also hold one or more public informational meetings about a proposed property-related fee or charge in addition to the required public hearing.

Majority Protest for Property-Related Fees and Charges

Proposition 218 allows record owners of each identified parcel upon which the property-related fee or charge is proposed for imposition to formally protest the proposed levy. At the required public hearing, the agency must consider all protests against the proposed property-related fee or charge. Only one written protest per parcel, filed by an owner or tenant of the parcel, may be counted in calculating a majority protest to a proposed new or increased property-related fee or charge.^[307] If written protests against the proposed property-related fee or charge are presented by a majority of owners of the identified parcels, the agency is constitutionally prohibited from imposing the property-related fee or charge.^[308]

The majority protest provision for property-related fees and charges requires an absolute majority of the owners of the identified parcels to protest against a proposed property-related fee or charge to preclude imposition of the levy. This is different from the majority protest requirement for assessments under Section 4 of Article XIII D which does not use an absolute majority standard. If a majority protest for a proposed property-related fee or charge is attained, the agency cannot legally override the majority protest.

As a result of the absolute majority requirement, majority protests for proposed property-related fees and charges occasionally occur but not that often. They are most likely to occur in situations where the proposed levy is controversial and the number of identified parcels is small such as in a small community. Where the number of identified parcels is large, a majority protest is very difficult to attain even for controversial levies.

Proposition 218 does not constitutionally require that a protest document for a proposed property-related fee or charge be included with the required written notice. However, some agencies may include a protest document with the required notice as a courtesy. Written protests are often submitted by property owners in letter form. Protest documents are generally treated as “public records”^[309] subject to public disclosure under the California Public Records Act.^[310]

Local Initiative Power to Reduce or Repeal Agency Approved Property-Related Levies

Sometimes a proposed property-related fee or charge may be controversial and have significant opposition but not enough opposition to attain a majority protest, especially in a larger agency where it would be very difficult to attain a majority protest. The lack of a majority protest does not legally obligate an agency to levy a property-related fee or charge as proposed. Occasionally, the governing body of an agency may be responsive to the objections and protests by the public concerning a proposed property-related fee or charge. Responses may take the form of not levying the property-related fee or charge or modifying the property-related fee or charge to make it more acceptable to the public.

However, in situations where the governing body of an agency is not responsive to the objections and protests by the public and votes to approve a controversial property-related fee or charge, the local initiative power under Proposition 218 can generally be used to reduce or repeal the property-related fee or charge.^[311] This includes the significantly reduced signature requirement thereunder.

Reducing or Repealing Drought Fee and Charge Increases By Local Initiative

California has been experiencing a severe drought over the past several years. The California State Water Resources Control Board in Sacramento adopted emergency regulations mandating urban water conservation, including significant reductions in water use.^[312] The resulting reduced water usage by customers in response to conservation mandates has caused a reduction in revenues received by local water agencies. Although water customers have reduced water usage, many local water agencies have not significantly reduced their spending in response to revenue reductions from decreased water usage, especially in the area of employee salaries and benefits. Many local water agencies are responding, or plan to respond, by significantly increasing water utility fees and charges to make up for lost revenues resulting from their customers conserving water during the drought. These utility fee increases are sometimes referred to as drought surcharges.

Some water utility customers may believe it is unfair or unreasonable for local water agencies to significantly increase water fees and charges in response to customers conserving water during a severe drought. This is especially the case where customers believe their local water agency has not made reasonable spending reductions in response to revenue losses resulting from mandated water conservation, particularly in regard to employee salaries and benefits. Such water fee or charge increases may also create a significant financial hardship for many water utility customers. A local initiative under Proposition 218 to reduce or repeal water fee or charge increases, resulting from customers conserving water under drought conditions, is an available remedy.

Applicability to Tenancies of Real Property

For purposes of the property-related fee and charge provisions of Proposition 218, “property ownership” includes tenancies of real property where tenants are directly liable to pay the property-related fee or charge in question.^[313] This means that if a tenant, whether commercial or residential, is directly liable to pay a property-related fee or charge, that tenant is also regarded as a “property owner” for purposes of the procedures and requirements applicable to property-related fees and charges, including entitlement to notice and the right to protest.

Requirements for Existing, New, or Increased Property-Related Fees and Charges

Subdivision (b) of Section 6 of Article XIII D sets forth five requirements that every property-related fee or charge must satisfy. An agency may not extend, impose, or increase any property-related fee or charge unless it meets all five requirements.^[314] The five requirements help ensure that any property-related fee or charge levied by an agency is a legitimate fee or charge and not a tax. All property-related fees and charges are subject to and must comply with the five requirements.^[315] Property-related fees or charges existing when Proposition 218 became effective (November 6, 1996) must be in compliance with the five requirements by July 1, 1997.^[316]

If a property-related fee or charge is constitutionally prohibited under any of the five requirements, Proposition 218 does not prohibit that levy from being imposed as a tax so long as all other legal requirements are satisfied, including the applicable voter approval requirement.^[317]

Total Cost Requirement

The first requirement is that the revenues derived from the property-related fee or charge must not exceed the funds required to provide the property related service.^[318]

This requirement is an aggregate cost requirement applicable to the combined cost from all parcels while the “cost of service” requirement contains a similar requirement at the parcel level.^[319] Use of the term “required” in the constitutional language is intended to preclude local agencies from levying property-related fees or charges for costs that are excessive, unreasonable, or unnecessary. If those assessed a property-related fee or charge believe the levy is excessive, unreasonable or unnecessary, the exercise of the local initiative power under Proposition 218 to reduce or repeal the property-related fee or charge is also an available remedy.

Use Requirement

The second requirement is that revenues derived from the property-related fee or charge must not be used for any purpose other than that for which the property-related fee or charge was imposed.^[320]

Proportional Cost of Service Requirement

The third requirement is that the amount of a property-related fee or charge must not exceed the proportional cost of the property-related service attributable to the parcel.^[321] This requirement is frequently referred to as the “cost of service” requirement under Proposition 218, and generally receives the most attention in court cases.

Unlike with special assessments on real property, Proposition 218 does not expressly require an agency to prepare a detailed report in support of a property-related fee or charge. However, as a practical matter, in order to comply with the constitutional requirements applicable to property-related fees and charges, particularly the “cost of service” requirement, a local agency must prepare a detailed supporting report. This is especially the case since under Proposition 218 in any legal action contesting the validity of a property-related fee or charge, the burden is on the local agency to demonstrate compliance with the procedures and requirements applicable to property-related fees and charges.^[322]

A property-related fee or charge report prepared by a local agency is generally a “public record”^[323] whereby a member of the public, including persons subject to a proposed property-related fee or charge, may make a written request and receive a copy of the report pursuant to the California Public Records Act.^[324] Payment of a fee covering the direct costs of duplicating any requested pages from a property-related fee or charge report may also be required by the local agency.^[325]

Actual Use or Immediate Availability Requirement

The fourth requirement is that no property-related fee or charge may be imposed for a property-related service unless that service is actually used by, or immediately available to, the owner of the property in question. In addition, property-related fees or charges based on potential or future use of a property-related service are not permitted.^[326]

The fourth requirement is intended to add a temporal component to the property-related fee or charge restrictions. Under the plain language of this provision, property owners using an existing property-related service are not supposed to be paying costs associated with future use of that service, including future service to their own property. This is especially the case with respect to paying for the costs of expensive public improvements for which property owners may not receive direct benefits from until years later (if ever at all).

The practical effect of the fourth requirement, if properly interpreted, is to shift the financing of future use public improvements from user based property-related fees or charges to other funding mechanisms, including special assessments which contain stronger protections for property owners such as the requirement of an assessment ballot proceeding. However, California courts to date have generally allowed local agencies greater than intended latitude in charging property owners for potential or future use of a property-related service.^[327][328]

Classification of Standby Charges

A standby charge has historically been considered an assessment levied upon real property according to the availability of water.^[329] Under Proposition 218, a standby charge, regardless of whether characterized as a property-related charge or an assessment, is classified as an assessment and may not be levied by a local agency without compliance with the generally more restrictive procedures and requirements for assessments contained in Section 4 of Article XIII D of the California Constitution.^[330]

General Governmental Services Prohibition

The fifth requirement is that no property-related fee or charge may be levied for general governmental services including, but not limited to, police, fire, ambulance or library services, where the general governmental service is available to the public at large in substantially the same manner as it is to property owners.^[331] The fifth requirement makes it difficult, but not impossible, for local agencies to lawfully impose property-related fees or charges for general governmental services. General governmental services available to the public at large are ordinarily financed from tax revenues.

Tiered (Conservation) Water Rates and the 2015 Capistrano Decision

On April 20, 2015, the California Court of Appeal in Orange County in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal. App. 4th 1493 (April 2015) construed Proposition 218 as prohibiting local governments from charging higher water rates on heavier water users (tiered or "conservation" water rates) without complying with the "cost of service" requirements^[332] under the measure.^[333][334] The Capistrano decision received widespread international coverage in the media because the decision came down during a severe drought in California. The Capistrano decision was also heavily criticized by California Governor Jerry Brown when the decision came down.^[335] On October 9, 2015, California Governor Jerry Brown in a bill signing message further criticized the water conservation pricing aspect of the Capistrano decision.^[336]

Tiered (Conservation) Water Rates Not Prohibited Under Proposition 218

The Court of Appeal in the Capistrano decision did not hold that Proposition 218 invalidated all tiered (conservation) water rates in California. The appellate court merely stated that “tiers must still correspond to the actual cost of providing service at a given level of usage. The water agency here did not try to calculate the cost of actually providing water at its various tier levels. It merely allocated all its costs among the price tier levels, based not on costs, but on predetermined usage budgets.”^[337]

The Court of Appeal in the Capistrano decision further stated that “[t]he way Proposition 218 operates, water rates that exceed the cost of service operate as a tax, similar to the way a ‘carbon tax’ might be imposed on use of energy. But, we should emphasize: Just because such above-cost rates are a tax does not mean they cannot be imposed—they just have to be submitted to the relevant electorate and approved by the people in a vote. . . . However, if a local government body chooses to impose tiered rates unilaterally without a vote, those tiers must be based on cost of service for the incremental level of usage, not predetermined budgets.”^[338]

Furthermore, in subsequently approving the resolution adopting the emergency regulation for mandatory urban water conservation in California, the California State Water Resources Control Board acknowledged that the Capistrano decision “does not foreclose the use of conservation-oriented rate structures.”^[339] Subsequent enforcement and compliance data released by the California State Water Resources Control Board reveal that the vast majority of local agencies in California are meeting their water conservation mandates in the months following the Capistrano decision.^[340]

The gist of the Capistrano decision is that local agencies cannot act in an arbitrary manner and must “show their work” if they want to levy tiered (conservation) water rates as a proper fee or charge under Proposition 218 without approval by the voters in an election.

As a matter of policy, many local agencies want to impose water utility fees and charges in excess of the cost of providing the service to each parcel without voter approval. Prior to the passage of Proposition 218 in 1996, local agencies were generally allowed to do this, and frequently did so spending the “excess” water utility revenues for purposes completely unrelated to the provision of water utility service.

Local government interests argued in the Capistrano case that Proposition 218 should be interpreted to allow the imposition of water utility fees and charges in excess of the cost of providing the service.^[341] The Court of Appeal in the Capistrano case having soundly rejected that argument, many local government interests want to amend the California Constitution to deprive voters of their constitutional right to vote on such water utility levies.

Legislative Response to the Capistrano Decision

Following the Capistrano decision, on June 8, 2015, a California State Senator amended a bill to provide express legal authority allowing a local agency that supplies water for the benefit of persons within the service area or area of jurisdiction of that local agency to impose an excise tax on excessive users of water.^[342] In accordance with the requirements of Proposition 218, the tax would require two-thirds approval of the electors voting on the measure.^[343]

The proposed legislation provided an example of a legislative response to the Capistrano decision that would allow local agencies to impose “conservation” or “penalty” charges that exceed the “cost of service” in a manner consistent with the constitutional requirements of Proposition 218. However, local agencies showed no interest whatsoever in the proposed legislation and the bill went nowhere. This represented a clear indication that local agencies want to impose “conservation” or “penalty” charges that exceed the “cost of service” in a manner that denies local voters the right to vote on such charges.

Depublication Requests

On July 22, 2015, the California Supreme Court denied requests by California Attorney General Kamala Harris (representing the California State Water Resources Control Board) and local government interest organizations (Association of California Water Agencies, League of California Cities, and California State Association of Counties) to “depublish” the Court of Appeal’s Capistrano decision which, if granted, would have precluded the case from being cited as legal precedent in similar lawsuits around the state.^[344] Despite the best efforts by the state’s top lawyers and water experts to depublish the groundbreaking ruling, the California Supreme Court decision to keep it published means the Capistrano decision can continue to be cited as precedent throughout California in other lawsuits involving the legality of tiered water rates charged by other local governments.^[345]

The Capistrano decision is also considered a milestone in the debate over to what extent appellate court decisions in California should be published as precedent.^[346]

Historical Use of Tiered Water Rates in California

The use of increasing block (tiered) water rates in California didn’t become prevalent until after the passage of Proposition 13 in 1978. Prior to the passage of Proposition 13, increasing block (tiered) water rates were rarely used in California, even during the severe California drought of 1976-1977.^[347] At that time, the most common rate structure in California was the declining block rate where the rate for succeeding water blocks actually decreased with each block.^[348]

The Governor of California during the preceding time period was Jerry Brown. This is the same Governor Jerry Brown who on April 20, 2015, heavily criticized the Capistrano decision and its alleged adverse impact on tiered (conservation) water rates^[349] even though when he was California Governor during the severe drought of 1976-1977 tiered (conservation) water rates were rarely imposed by local water agencies in California.^[350]

Lifeline Utility Rates for Low Income Customers

Many local agencies provide financial assistance to low income customers in the form of lifeline utility rates. Some local agencies use existing taxpayer funds to finance lifeline utility rate programs. Other local agencies may use proceeds from a voter approved tax increase to finance lifeline utility rate programs.

Proposition 218 issues arise when a local agency seeks to finance lifeline utility rate programs by increasing utility fees and charges on other ratepayers without voter approval. Local agencies would like to legally overcharge ratepayers to pay for lifeline utility rate programs because no voter approval would be required and because it would free up existing local agency funds that could be spent on other purposes such as employee salaries and benefits. However, since property-related fees and charges are limited to the cost of providing the service to each parcel of property,^[351] Proposition 218 prohibits local agencies from overcharging utility customers for property-related services such as water, sewer, and refuse collection to pay for lifeline utility rate programs. The legal reasoning is similar to the reasoning applied to tiered water rates and the cost of service limitations under Proposition 218.^[352]

As with tiered water rates, Proposition 218 does not prohibit all lifeline utility rate programs by local agencies. What Proposition 218 does impact is how local agency lifeline rate programs are financed. Proposition 218 does not prohibit local agencies from using existing taxpayer funds to pay for lifeline utility rate programs much in the same manner that taxpayer funds are used to finance social and other government programs for those in need. Proposition 218 also does not prohibit local agencies from securing a voter approved tax increase to pay for lifeline utility rate programs. However, when local agencies overcharge other utility customers without voter approval to pay for lifeline utility rate programs, Proposition 218 does not allow this.

Water Conservation Mandates Are Significant Cause of Higher Utility Rates

On October 9, 2015, California Governor Jerry Brown in a bill signing message alleged that Proposition 218 serves as an impediment to public water systems being able to establish low-income rate assistance (“lifeline”) programs.^[353] Proposition 218 serves as an “impediment” only to the extent that local agencies can’t finance lifeline utility rate programs by overcharging other utility ratepayers without voter approval.

California Governor Jerry Brown by Executive Order dated April 1, 2015, ordered the California State Water Resources Control Board to impose restrictions to achieve a statewide 25% reduction in potable urban water usage through February 28, 2016.^[354] The California State Water Resources Control Board was also ordered to direct urban water suppliers to develop rate structures and other pricing mechanisms, including but not limited to surcharges, fees, and penalties, to maximize water conservation consistent with statewide water restrictions.^[355] As a direct result of the conservation mandates ordered by California Governor Jerry Brown, many water utility customers have been hit with, or plan to be hit with, significantly higher water utility fees and charges by local water agencies.

While California Governor Jerry Brown complained in the signing message that too many Californians lack affordable drinking water resulting in a need for low-income water rate assistance programs,^[356] it was his conservation mandates as set forth in Executive Order B-29-15^[357] that have resulted in millions of California water utility customers being hit with (or expected to be hit with in the near future) significantly higher water utility fees and charges, including low-income customers.

On November 13, 2015, California Governor Jerry Brown issued Executive Order B-36-15 that provides for an extension of drought restrictions to urban potable water usage until October 31, 2016, if drought conditions in California persist through January 2016.^[358] On February 2, 2016, the California State Water Resources Control Board adopted an extended emergency water conservation regulation which, despite significant increased rainfall in California associated with El Niño, continued mandatory restrictions on urban water use through October 2016.^[359] The resolution adopting the extended emergency water conservation regulation also expressly stated that the 2015 Capistrano decision^[360] “does not foreclose the use of conservation-oriented rate structures.”^[361] The extended emergency water conservation regulation became effective on February 11, 2016.^[362]

California Governor Jerry Brown opted to impose significant water conservation mandates in 2015, but during the severe California drought in 1976-1977, then California Governor Jerry Brown preferred a significantly less regulatory approach in stating: “I don’t want to send out a piece of paper. I’m confident we’ll work it out instead of just issuing some edict.”^[363]

While lifeline utility rate programs are intended to protect low income individuals, many other utility customers who don’t qualify for lifeline programs are adversely impacted by significant utility fee and charge increases by local water agencies. This is especially the case as many local water agencies are significantly raising water fees and charges to make up for lost revenues resulting from utility customers conserving water during the drought in California, including from California Governor Jerry Brown's water conservation mandates.

Many local utility customers believe it is unfair that they are effectively “penalized” with higher utility fees and charges as a result of utility customers doing their part in conserving water. If a local water agency is not responsive to the needs of these utility customers and raises water utility fees and charges too much, the local initiative power under Proposition 218 provides a legislative remedy that can generally be used to reduce or repeal those utility fee and charge increases.^[364] This includes use of the significantly reduced signature requirement thereunder.

California Governor Jerry Brown 2015 Bill Signing Message Attacking Proposition 218

On October 9, 2015, California Governor Jerry Brown included a signing message when he signed Assembly Bill 401 into law.^[365] AB 401 was a modest bill that directed the California State Water Resources Control Board and the California State Board of Equalization to develop a plan, no later than January 1, 2018, for establishing and funding a low-income water rate assistance program.^[366]

Signing messages by a California Governor are unusual for such modest bills. However, California Governor Jerry Brown used a signing message when he approved AB 401 as a vehicle to attack Proposition 218. ^[367] California Governor Jerry Brown's attack on Proposition 218 was heavily criticized as a threat to the middle class.^[368]

The case example specifically cited in legislative documents in support of AB 401 and the need for a low-income water rate assistance program involved the small community of Lucerne in Lake County, California where local ratepayers (many with low incomes) were hit with very high water rate increases.^[369] However, the community of Lucerne is serviced by a privately owned water company^[370] and is not subject to the property-related fee or charge restrictions under Proposition 218 because the private water company is not a local public agency.^[371] Hence, the “cost of service” restrictions under Proposition 218 did not serve as an “impediment” to establish low-income rate assistance programs in the community of Lucerne.

Furthermore, ratepayers in the community of Lucerne who were hit with very high water rates do not benefit from the “cost of service” fee protections under Proposition 218 that are designed to protect ratepayers from excessive utility fees and charges such as for water service. An alternative policy option to that advocated by California Governor Jerry Brown would be to expand Proposition 218 property-related fee and charge protections to include customers serviced by private water companies such as in the community of Lucerne. In fact, there is a growing trend in California in having water utility service “go public” and provided by a local public agency (instead of by a privately owned water company) in large part because the ratepayers would be subject to Proposition 218 protections applicable to property-related fees and charges.^[372]

California Governor Jerry Brown further attacked Proposition 218 in his AB 401 signing message in claiming that Proposition 218 serves as an “obstacle” to flood and stormwater system improvements even though the AB 401 legislation had nothing to do with the financing of flood and stormwater system improvements. ^[373] The “obstacle” that California Governor Jerry Brown referred to is the constitutionally guaranteed right to vote on property-related fees or charges relating to flood control or stormwater systems.^[374] Removing or bypassing that “obstacle” would result in local agencies being able to impose a myriad of property-related fees and charges without voter approval as is currently required by the California Constitution under Proposition 218.

Voter Approval for New or Increased Property-Related Fees and Charges

Voter approval is required for certain new or increased property-related fees or charges. The voter approval requirement is in addition to the other requirements for a property-related fee or charge. Except for fees or charges for sewer, water, or refuse collection services, no property related fee or charge may be imposed or increased unless and until that property-related fee or charge is submitted and approved by a majority vote of the property owners of the property subject to the property-related fee or charge or, at the option of the agency, by a two-thirds vote of the electorate residing in the affected area.^[375]

A property-related fee or charge election must be conducted not less than forty-five (45) days after the required public hearing. An agency is allowed to adopt procedures similar to those for increases in assessments in the conduct of property-related fee or charge elections.^[376] A property-related fee or charge election cannot be used to validate or override a property-related fee or charge otherwise prohibited under Proposition 218.^[377]

Voter Approval Exemptions

Property-related fees or charges for sewer, water, or refuse collection services are exempt from the voter approval requirement.^[378] Since the exemptions represent exceptions to a voter approval requirement, the election exemptions are strictly construed.^[379] Nevertheless, most property-related fees or charges fall within an election exemption as typical utility fees for water, sewer, or refuse collection services. The California Court of Appeal in San Jose held that groundwater augmentation fees are subject to the election exemption as a charge for “water service.”^[380] Examples of new or increased property-related fees or charges that ordinarily require an election include stormwater fees^[381] or flood control fees.

Property-Related Fee or Charge Election Procedures

If a property-related fee or charge election is required, the local agency decides whether the election will be a property owner election requiring a majority vote or a two-thirds vote registered voter election.^[382] The overwhelming majority of property-related fee or charge elections have been majority vote property owner elections. The California Supreme Court has ruled that property owner elections for property-related fees and charges are not subject to the voting secrecy provision^[383] in the California Constitution.^[384]

The California Legislature has enacted additional legal procedures relating to property-related fee or charge elections under Proposition 218. These procedures are mandatory and are in addition to any other procedures that may be adopted by the local agency, as allowed by Proposition 218.^[385] The new procedural requirements became legally operative on July 1, 2014.^[386]

If the agency submits the proposed property-related fee or charge for approval by a two-thirds vote of the registered voters residing in the affected area, the election must be conducted by the agency’s elections official or his or her designee. If the election is conducted by a county elections official, the agency, if other than the county, must reimburse the county for the actual and reasonable costs incurred by the county elections official in conducting the election.^[387]

Property Owner Election Procedures

If the agency submits the proposed property-related fee or charge for approval by a majority vote of the property owners who will be subject to the fee or charge, then additional procedures apply and must be followed.

On the face of each envelope in which the notice of election and ballot are mailed, there must appear in substantially the following form the phrase “OFFICIAL BALLOT ENCLOSED” in no smaller than 16-point bold type. A local agency may additionally place the phrase “OFFICIAL BALLOT ENCLOSED” on the face of the envelope in a language or languages other than English.^[388] The ballot must include the agency’s address for return of the ballot, the date and location where the ballots will be tabulated, and a place where the person returning it may indicate his or her name, a reasonable identification of the parcel, and his or her support or opposition to the proposed property-related fee or charge. The ballots must be tabulated in a location accessible to the public. The ballot must be in a form that conceals its content once it is sealed by the person submitting it. The ballot must remain sealed until the ballot tabulation starts.^[389]

An impartial person designated by the agency who does not have a vested interest in the outcome of the proposed property-related fee or charge must tabulate the ballots.^[390] An impartial person includes, but is not limited to, the clerk of the agency. If the agency uses agency personnel for the ballot tabulation, or if the agency contracts with a vendor for the ballot tabulation and the vendor or its affiliates participated in the research, design, engineering, public education, or promotion of the property-related fee or charge, the ballots must be unsealed and tabulated in public view to permit all interested persons to meaningfully monitor the accuracy of the ballot tabulation process.^[391]

The ballot tabulation may be continued to a different time or different location accessible to the public, provided that the time and location are announced at the location at which the tabulation started and is posted by the agency in a location accessible to the public. The impartial person may use technological methods to tabulate the ballots, including, but not limited to, punchcard or optically readable (bar-coded) ballots.^[392] During and after the tabulation, the ballots are be treated as public records subject to public disclosure under the California Public Records Act, and must be made available for inspection by any interested person. The ballots must be preserved for a minimum of two years, after which they may be destroyed as provided by law.^[393]

Historically, including prior to Proposition 218, the constitutional right to vote in secret did not apply to property owner elections.^[394] This was not altered by the passage of Proposition 218.

Stormwater Fees and Charges

One of the most significant issues under the Proposition 218 election requirement for property-related fees and charges is whether stormwater fees and charges are exempt from the election requirement as either a fee for water or sewer service. In order to comply with costly California and federal clean water environmental mandates, local agencies must reduce or eliminate stormwater pollutants, and that requires significant funding. However, politicians from the state and federal governments provide little funding to local agencies to comply with their expensive clean water environmental mandates.

Many local agencies use existing revenues from their general fund to help finance such efforts. Some local agencies use existing revenues from stormwater fees and charges imposed without voter approval before Proposition 218 became law. Local agencies can also finance clean water efforts through voter approved tax increases or bond measures. For example, when California Governor Jerry Brown was the Mayor of Oakland, local voters passed a significant general obligation bond measure in November of 2002 that included funding to improve water quality.^[395] However, legal issues arise under Proposition 218 when local agencies seek to raise stormwater revenues in the form of a new or increased fee or charge, particularly if voter approval is not first obtained.

The California Court of Appeal in San Jose held in 2002 that a stormwater drainage fee imposed on developed parcels of land was not only a “property-related” fee subject to the requirements of Article XIII D, but also that a property-related fee or charge election was constitutionally required.^[396] In addressing the issue of whether the sewer or water election exemptions applied, the court formulated the rule that the property-related fee or charge election exemptions under Proposition 218 must be strictly construed.^[397]

In applying the strict construction rule to the sewer service exemption, the court construed that exemption to include only its narrower and more common meaning applicable to sanitary sewerage. Using similar reasoning, the court also concluded that the stormwater drainage fee did not qualify under the water service exemption. The court noted that the “average voter would envision ‘water service’ as the supply of water for personal, household, and commercial use, not a system or program that monitors storm water for pollutants, carries it away, and discharges it into the nearby creeks, river, and ocean.”^[398]

Stormwater Service as a “Traditional Utility Service” to Avoid Voter Approval

The election exemptions for property-related fees and charges under Proposition 218 apply only to “traditional utility services” for domestic water, sanitary sewer, and refuse collection. Many local agencies and politicians want stormwater services to also be regarded as a “traditional utility service” in the same class as domestic water, sanitary sewer, and refuse collection services. If stormwater services were regarded as a “traditional utility service,” local agencies would no longer need voter approval under Proposition 218 to impose new or increased stormwater fees and charges. This not only would result in local agencies imposing new or increased stormwater fees and charges, but also in significantly higher amounts than would have otherwise been imposed had voter approval been required. Property owners would also likely be hit with multiple stormwater fees and charges, including stormwater fees and charges imposed by multiple local agencies (such as a local charge and a separate regional charge).

The foregoing can’t be done under current law but would require an amendment to the California Constitution that will result in voters losing their constitutionally guaranteed right to vote on property-related fees and charges for stormwater services.

Local Initiative Power to Reduce or Repeal Existing Stormwater Fees and Charges

The property-related fee or charge election requirement for stormwater fees and charges only applies to new or increased levies.^[399] Already existing stormwater fees and charges are not subject to the mandatory election requirement under Proposition 218. However, existing stormwater fees and charges can generally be reduced or repealed using the local initiative power under Proposition 218, including the significantly reduced signature requirement thereunder.^[400] This also includes street cleaning or sweeping fees and charges to pay for public services that help keep storm drains clear and also help to reduce pollutants from entering storm drain systems.

Local Agency Burden to Demonstrate Compliance

Prior to Proposition 218, the courts allowed local agencies significant flexibility in determining property-related fee or charge amounts. In lawsuits challenging property-related fees or charges, the challenger had the burden to show that they were not legal.^[401] Proposition 218 shifted the burden of demonstrating compliance to the local agency in any lawsuit challenging a property-related fee or charge. In any legal action contesting the validity of a property-related fee or charge, the burden is on the local agency to demonstrate compliance with the procedures and requirements applicable to property-related fees and charges.^[402] This change in the law makes it significantly easier for taxpayers to win a legal challenge involving a property-related fee or charge under Proposition 218.

Independent Standard of Review For Property-Related Fees and Charges

The independent standard of review for assessments adopted by the California Supreme Court in the Silicon Valley Taxpayers case^[403] also applies to legal challenges involving property-related fees and charges.^[404] As a result, California courts now exercise their independent judgment in determining whether a property-related fee or charge violates the provisions of Proposition 218. The independent standard of review makes it significantly easier for taxpayers to win legal challenges involving property-related fees or charges.

Local Initiative Power to Reduce or Repeal Voter Approved Property-Related Fees and Charges

After voter approval of a property-related fee or charge, the local initiative power under Proposition 218 can generally be used to reduce or repeal that property-related fee or charge.^[405] This includes the significantly reduced signature requirement thereunder.

An example of where such an initiative may be appropriate involves election issues or controversies that may occur in a property owner election, particularly where the local agency adopted controversial election procedures. Should a property-related fee or charge reduction or repeal initiative qualify for the ballot, the election would be by the registered voters.

Application to State Levies

Levies imposed by the State of California are generally not subject to the provisions of Proposition 218 because the state is not a “local government” for purposes of Article XIII C of the California Constitution^[406] or an “agency” for purposes of Article XIII D of the California Constitution.^[407]

While statewide taxes are not subject to the voter approval requirements under Proposition 218, including the general versus special tax distinction applicable to local governments, such taxes are generally subject to approval by two-thirds of all members of the California Legislature.^[408] The preceding requirement for State taxes was adopted when Proposition 13 was approved by California voters in 1978. Proposition 26, approved by California voters in 2010, added a broad constitutional definition of “tax” applicable to the State with the resulting effect of expanding the scope of State levies subject to two-thirds approval by the California Legislature.^[409]

Special assessments on real property as well as property-related fees and charges, the types of levies ordinarily subject to the provisions of Article XIII D of the California Constitution, are generally not levied on a statewide basis by the State of California. To the extent such levies may be imposed by the State of California on a statewide basis, whether two-thirds approval for a “tax” is required by the California Legislature is determined by the constitutional provisions of Proposition 26 approved in 2010 and not by the provisions of Proposition 218.

State Levies Imposed Within Limited Geographic Boundaries

There may exist limited instances in which levies imposed by the State of California might be subject to the provisions of Proposition 218. In particular, when a State levy is imposed within limited geographic boundaries. California courts have yet to rule on this Proposition 218 issue.

Under Proposition 218, the constitutional definition of a “special district” refers to “an agency of the State, formed pursuant to general law or a special act, for the local performance of governmental or proprietary functions with limited geographic boundaries.”^[410] As a result, some State agencies are expressly subject to the requirements of Proposition 218 when they are a “special district.” While a State agency imposing a levy at the State level does not meet the constitutional definition of a “special district,” such an agency may be deemed a “local or regional governmental entity” under the broad constitutional definition of a “local government,”^[411] and thereby be subject to the provisions of Proposition 218 if the levy is imposed within limited geographic boundaries as opposed be being imposed on a statewide basis.

An example of the foregoing is a State levy imposed solely within the Central Valley region of California. Another example is a State levy imposed solely within the boundaries of a local government in situations where the State has taken partial or complete control over the local government and is exercising powers ordinarily exercised by the local government.

Article XIII D Applications to the State

Under Proposition 218, real property within an assessment district that is owned or used by the State of California is generally not exempt from assessment.^[412] As a result, the State of California must pay its fair share of any special assessments on real property levied pursuant to Proposition 218 just like other property owners, including private property owners. The State of California is also entitled to vote in assessment ballot proceedings required by Proposition 218.^[413]

The State of California is also entitled to Proposition 218 protections applicable to property-related fees and charges. This includes rights to receive written notice and protest a property-related fee or charge,^[414] the five requirement safeguards applicable to property-related fees and charges (including “cost of service” protections),^[415] and the right to vote if a property owner election is held for a property-related fee or charge.^[416]

The California Department of General Services is required to develop compliance standards in the State Administrative Manual to inform owners of state property in California of their duties and responsibilities under Proposition 218.^[417]

Liberal Interpretation Provision

Section 5 of Proposition 218 contains a liberal interpretation provision constitutionally commanding that its provisions be “liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent.”^[418] The liberal interpretation provision is legally binding on all California courts in interpreting Proposition 218, and has positively affected the outcome of numerous Proposition 218 lawsuits. The liberal interpretation provision is an important part of Proposition 218 because California courts have historically been hostile in the interpretation of taxpayer protections contained in the California Constitution. The liberal interpretation provision is also legally binding on all California local governments in their interpretation and application of Proposition 218 provisions.

Judicial Interpretation Before Proposition 218

The importance of the liberal interpretation provision under Proposition 218 can be traced to prior judicial interpretations of Proposition 13 strictly construing key provisions of that initiative measure. In two cases in 1982, the California Supreme Court formulated and applied a special rule of interpretation applicable to Proposition 13 that strictly construed the circumstances in which local governments must get two-thirds voter approval to approve local tax increases.^[419]

The court majority reasoned that due to the “fundamentally undemocratic nature” of a two-thirds vote supermajority requirement, the applicable voter approval requirement for local taxes under Proposition 13 must be strictly construed.^[420] The preceding rule of interpretation was not consistent with the interpretation of initiative measures, and has not been applied in circumstances other than Proposition 13 where a supermajority vote is required. A vigorous dissenting opinion was filed in the 1982 Richmond case which was the first California Supreme Court case establishing the special rule of strict interpretation applicable to Proposition 13.^[421]

As a result of the two-thirds voter approval requirement for local taxes under Proposition 13 being strictly construed, local governments were able to enact many local tax increases with either majority voter approval or no voter approval at all. The resulting impact frustrated the effective tax relief provisions of Proposition 13 to the significant detriment of California taxpayers. The strict construction standard also provided a legal basis for narrowly interpreting the circumstances in which nontax levies such as property assessments, fees, and charges were in reality taxes subject to two-thirds voter approval under Proposition 13. The strict construction standard applicable to Proposition 13 served as a catalyst that ultimately led to the subsequent qualification and passage of Proposition 218.

Local Government Interests Hostile to Proposition 218

Proposition 218 significantly limits the ability of local governments to raise revenues without voter approval, including taxes and many fees and charges. As a result, the vast majority of local governments in California have been hostile to and opposed Proposition 218, including in many local jurisdictions where their constituents actually voted in favor of Proposition 218.

In nearly every Proposition 218 court case of significance, local government interests, including the League of California Cities, the California State Association of Counties, and the Association of California Water Agencies have sought to limit the scope and application of Proposition 218 restrictions, including the constitutional voter approval requirements thereunder, by arguing in favor of narrow or strict interpretations of the constitutional taxpayer protections. This despite the fact that Proposition 218 constitutionally commands that its provisions be “liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent”^[422] and that public officials take an oath of office to support and defend the California Constitution.^[423]

The actions by local government interests to limit the scope and application of Proposition 218 are not limited to the courts. Through the legislative process, particularly in the California Legislature but also via the initiative process, local government special interests have also supported legislative proposals that limit or otherwise erode Proposition 218 constitutional taxpayer protections, including the constitutional right to vote. California law allows local governments to spend taxpayer funds to lobby in support of such legislative proposals in the California Legislature either directly^[424] or indirectly through local government interest associations such as the League of California Cities, the California State Association of Counties, and the Association of California Water Agencies.^[425] These taxpayer funds could otherwise be spent for purposes that local governments claim lack sufficient funding such as stormwater, flood control, and water-related services and infrastructure.

Many voters/taxpayers are not fully aware that the actions of their local governments in Proposition 218 matters are almost always not in their best interests. This results from the fact that, with respect to Proposition 218 matters, actions in the best interests of local governments are rarely aligned with the best interests of constituents served by local governments. This often results in significant political friction between voters and their elected representatives in some local governments. It also places a greater emphasis on voters raising Proposition 218 compliance and support issues in local governing body election campaigns so as to increase the likelihood of electing supportive candidates who will take actions in Proposition 218 matters that will be more aligned with the best interests of voters and taxpayers.

Local Government Interests File Initiative Measure Circumventing Proposition 218

On December 14, 2015, local government special interests (the Executive Directors of the League of California Cities, the California State Association of Counties, and the Association of California Water Agencies) filed a proposed ballot initiative measure with the California Attorney General that would circumvent various constitutional taxpayer protection provisions under Proposition 218.^[426] On January 19, 2016, the local government special interest proponents filed an amended version of their proposed ballot initiative.^[427]

The proposed ballot initiative measure would create an alternate funding method (other than the procedures, protections, and election requirements under Proposition 218) for local governments to impose fees and charges for “water service,” “sewer service,” “stormwater service,” and “flood control service.”^[428]

Article X Amendment Circumvents Proposition 218

The proposed ballot initiative measure was drafted in a particularly stealthy and deceptive manner in that the local government special interests are not directly amending Proposition 218 but are instead indirectly depriving voters of their constitutional right to vote by proposing and authorizing an “alternative” funding method that does not require voter approval. This “alternative” funding method involves amending Article X of the California Constitution (relating to Water) by adding Section 8 to that Article.^[429]

Local government interests often refer to their proposal as an “Article X Amendment” without making any reference to the fact that their proposal would allow local governments to levy a myriad of property-related fees and charges without having to comply with the constitutional protections and safeguards under Proposition 218, including the right to vote on stormwater and flood control fees and charges.

Voters Would Be Deprived of Their Constitutional Right to Vote on Property-Related Fees

The practical effect of the alternate funding method contained in the proposed ballot initiative would be to allow local governments in California to impose various property-related fees and charges without voter approval as is currently required under Proposition 218. For example, local governments could impose stormwater and/or flood control fees and charges without voter approval and thereby deprive voters of their existing constitutional right to vote under Proposition 218.

One specific example involves a potential stormwater (clean water) fee on more than 2 million parcels in Los Angeles County. In 2013, the Los Angeles County Flood Control District had proposed a stormwater parcel fee which would have raised an estimated $290 million annually but decided, due to significant opposition from the public, not to conduct an election on the proposed parcel fee because the proposed measure would have almost certainly been rejected. This killed the parcel fee proposal at that time, but Los Angeles County elected officials want to revisit the stormwater parcel fee proposal.^[430] Under Proposition 218, an election on the stormwater parcel fee proposal is constitutionally required and the parcel fee must be approved by voters.^[431] However, under the “alternate” funding method contained in the proposed ballot initiative, Los Angeles County officials would be able to impose the proposed stormwater parcel fee without first securing voter approval in an election.^[432]

Another specific example involves a controversial stormwater (clean water) parcel fee in Contra Costa County. In 2012, Contra Costa County property owners overwhelmingly rejected a proposed stormwater parcel fee in a Proposition 218 required election.^[433] Property owners raised serious policy concerns about the merits of the parcel fee proposal which were reflected in the election results. Under the “alternate” funding method contained in the proposed ballot initiative, Contra Costa County officials would be able to impose a stormwater parcel fee without conducting an election as is currently constitutionally required under Proposition 218.^[434]

Local Governments Could Levy Fees In Excess of Cost of Service Without Voter Approval

The ballot initiative would also allow local governments to impose various property-related fees and charges in excess of the cost of providing the service in certain instances such as for “conservation” purposes and to pay for “lifeline” programs without voter approval.^[435] This is also a circumvention of Proposition 218 which constitutionally prohibits local governments from imposing property-related fees and charges in excess of the cost of service without voter approval.^[436] However, it is not a violation of Proposition 218 to impose a levy in excess of the cost of service, such as for conservation or "lifeline" programs, if that levy is imposed as a tax subject to voter approval.^[437] The “alternate” funding method under the ballot initiative would allow local governments to bypass the preceding voter approval requirement under Proposition 218.

Higher and More Property-Related Fees and Charges Expected

Rather than relying on existing constitutional right to vote protections, voters would instead have to trust their local government politicians to act responsibly and in the best interests of the people since elections for such property-related fees and charges would no longer be constitutionally required under the ballot initiative. Property owners and renters can be expected to be hit with significantly higher and a greater number of property-related fees and charges imposed by local governments in the absence of the constitutional voter approval requirement and the cost of service protections under Proposition 218. These fee and charge increases will likely hit homeowners and the middle class particularly hard.

This would all be in addition to the often substantial water fee and charge increases currently being imposed by many local governments in California to offset revenue losses resulting from water conservation mandates ordered by California Governor Jerry Brown. Many property owners and renters believe it is unfair that they are being hit with (or are expected to be hit with in the near future) higher water utility fees and charges for doing their part to conserve water.

The conservation mandates ordered by California Governor Jerry Brown did not require local governments to reduce their costs in an effort to mitigate water fee and charge increases. The fact that so many local governments in California are instead significantly raising water fees and charges in response to property owners and renters doing a good job in conserving water provides a strong indication how local governments will respond if they could raise other property-related fees and charges without voter approval as would be allowed under the alternate funding method in the ballot initiative.

The voter approval requirements under Proposition 218 require local government officials to make their case to the voters. This was clearly stated by the proponents of Proposition 218 in the Ballot Argument in Favor of Proposition 218: “If politicians want to raise taxes they need only convince local voters that new taxes are really needed.”^[438] If the merits of a revenue increase proposal are strong, then there is little reason for local government officials to fear either a voter approval requirement or the voters. However, if a revenue increase proposal is of questionable merit, then voters are more likely to reject a revenue raising proposal which should cause local officials to develop and return with a more meritorious proposal that is acceptable to the voters. On the other hand, if voter approval were no longer required, as would be the case under the alternate funding method in the ballot initiative, local politicians will be able to impose more and higher property-related fee and charge increases of questionable merit that would otherwise not pass voter scrutiny if an election were required.

Legislative Analyst Analysis of Initiative Confirms Adverse Proposition 218 Impacts

On February 2, 2016, the California Legislative Analyst and the California Department of Finance jointly issued a fiscal impact analysis of the proposed ballot initiative in accordance with California law.^[439]

The Analysis noted that local governments in California currently have multiple revenue sources at their disposal to pay for water-related projects and services, including water service, sewer service, flood control, and stormwater.^[440] These local revenue sources include property-related fees and charges which are subject to strict constitutional cost of service protections under Proposition 218 as well as a voter approval requirement for fees and charges for stormwater or flood control services;^[441] benefit assessments on real property which are subject to stringent constitutional proportionality requirements under Proposition 218 as well as property owner approval in an assessment ballot proceeding;^[442] and special taxes which are subject to two-thirds voter approval under Proposition 218.^[443]

Loss of Constitutional Voter Approval Protections Confirmed

The Analysis confirms that the alternate funding method contained in the proposed ballot initiative would allow fees and charges for stormwater or flood control purposes to be imposed by local governments without voter approval as is currently constitutionally required for property-related fees and charges under Proposition 218.^[444] The practical effect of this is that taxpayers/ratepayers would lose their constitutionally guaranteed right to vote on property-related fees and charges for stormwater or flood control purposes.

Loss of Constitutional Cost of Service Protections Confirmed

The Analysis also confirms that by using the alternate funding method contained in the proposed ballot initiative, local governments would be able to avoid the constitutional cost of service protections under Proposition 218 applicable to property-related fees and charges.^[445] A significantly less stringent “fair or reasonable” standard would apply.^[446] The practical effect of this is that it will be significantly more difficult for taxpayers/ratepayers to legally challenge questionable fees and charges imposed by local governments using the alternate funding method contained in the proposed ballot initiative. This also means that fees and charges that exceed the cost of providing the service will be much more likely to be upheld by the courts in a legal challenge.

Tiered Rates that Exceed the Cost of Service Would be Allowed Without Voter Approval

The alternate funding method contained in the proposed ballot initiative would also expressly allow local governments to impose tiered rates for water-related services that exceed the cost of providing the service without voter approval.^[447] Under Proposition 218, tiered rates for water-related services are not constitutionally prohibited but cannot exceed the cost of providing the service if they are levied as property-related fees or charges.^[448]

Tiered rates for water-related services are not just imposed on very heavy water users. In many instances, even moderate water users are subject to tiered water rates imposed by local governments. Such tiered rates could exceed the cost of providing the service which would result in even higher utility bills. Furthermore, local governments can be expected to receive a revenue windfall as they would receive fee proceeds that exceed the cost of providing the service (windfall profits) which are generally regarded as taxes subject to voter approval under current law.

Lifeline Program Charges that Exceed the Cost of Service Would be Allowed Without Voter Approval

The alternate funding method contained in the proposed ballot initiative would also expressly allow local governments to impose lifeline program charges for water-related services that exceed the cost of providing the service without voter approval.^[449] The practical effect of this provision is that the vast majority of local government utility customers will be charged with even higher fees in order to provide modest utility rate relief to a relatively small percentage of lower-income ratepayers. Under the proposed ballot initiative, this can be done without voter approval. Currently, under Proposition 218, this can also be done but the levy must be imposed as a tax subject to voter approval.

Major Financial Hit to Service Ratepayers Confirmed

The Analysis also confirmed the significant estimated financial impact on ratepayers from the proposed ballot initiative. Costs to ratepayers of more than $1 BILLION annually compared with what otherwise would have occurred had Proposition 218 constitutional protections applied, including the right to vote.^[450] These increased revenues would primarily be used to financial additional flood control and stormwater services and programs.^[451]

The financial impact is highly likely to be even greater on ratepayers and taxpayers given that the estimated annual statewide need for flood control and stormwater management projects is significantly higher. In addition, local governments will get away with imposing even higher fees and charges than they would have been able to impose if voter approval had been legally required, as is currently the case under Proposition 218. For example, in 2012 the Los Angeles County Flood Control District proposed a stormwater (clean water) parcel fee that would have raised about $290 million per year and would have required voter approval under Proposition 218.^[452] Had a Proposition 218 election not been required, as would be the case using the alternate funding method contained in the proposed ballot initiative, the total amount raised per year would almost certainly be significantly higher given that local politicians would have been able to impose the parcel fee without voter approval.

See also

• Property tax

References

External links

• Understanding Proposition 218 from the California Legislative Analyst's Office
• Howard Jarvis Taxpayers Association analysis
• California League of Women Voters analysis