Vote Threshold for California Tax Measures Unclear

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By Laura Mahoney

Uncertainty about whether a 2017 California Supreme Court ruling makes it easier for voters to pass local tax increases is prompting legislation, ballot measures, and most likely more litigation to nail down an answer.

The ruling appears to mean that citizen-backed ballot measures to increase taxes require a majority vote, rather than the two-thirds vote required for government-backed tax measures, tax attorneys told a California legislative panel March 7.

With differing opinions about how far the ruling goes, panelists said more litigation will test its reach if lawmakers don’t step in sooner with their own ballot measures or statutes to clarify the meaning.

“I don’t see an end to this litigation,” Kelly J. Salt, an attorney with Best Best & Krieger LLP in San Diego, told the panel.

More Measures Coming

An attorney who represents many California cities said he is already seeing an uptick in local groups drafting measures to place on the ballot with a 50 percent approval threshold.

“I’m telling my clients if you want money to deliver services, get a two-thirds vote, but if you want to litigate get 50 percent,” said Michael G. Colantuono, an attorney with Colantuono, Highsmith & Whatley PC, in Grass Valley, Calif.

The ruling in California Cannabis Coalition v. City of Upland upheld an appellate court decision that said the two-thirds majority vote requirements for tax increase ballot measures, established by Propositions 13, 218, and 26, were intended to restrain the ability of local governments to impose taxes, not citizens using the ballot initiative process.

High Voter Approval

A lower vote threshold could increase the rate at which local taxes are approved, Carolyn Chu, with the nonpartisan Legislative Analyst’s Office, told a joint hearing of the Senate Governance and Finance Committee, Assembly Local Government Committee, and Assembly Revenue and Taxation Committee.

Californians already approve tax increases at a high rate, she said. In 2016, 129 of 154 general tax increases proposed by cities and counties passed at the ballot box. Thirty of 62 special taxes passed, and 39 of 63 special district or school district taxes passed.

Three measures are pending in the 2018 legislative session aimed at the Upland decision. A.C.A. 19 by Assemblyman Chad Mayes (R) and S.C.A. 15 by Sen. Janet Nguyen (R) would undo the ruling by specifying that electorates exercising their initiative power are considered local government agencies and, therefore, need a two-thirds vote for tax increase ballot measures.

Because they are proposed constitutional amendments, the bills would need voter approval if they pass the Legislature.

School Districts

S.B. 958 by Sen. Bill Dodd (D) could expand the application of the Upland ruling to measures placed on the ballot by school district boards, so those measures need only a majority vote at the ballot.

A ballot measure backed by the California Business Roundtable could qualify for the November 2018 statewide ballot. The measure would impose a two-thirds vote requirement on citizen initiatives and invalidate any taxes imposed in 2018 without a two-thirds vote. The group has until July 25 to get 585,407 signatures to qualify.

Senate Governance and Finance Committee Chair Mike McGuire (D) told Bloomberg Tax after the hearing that whether it’s ballot measures, legislation, or more litigation, the vote threshold questions arising from the Upland case must be addressed.

“The decision is clear as mud,” he said.

Cannabis Fee

The case stemmed from a measure the California Cannabis Coalition (CCC) placed on Upland’s ballot to impose an annual licensing and inspection fee of $75,000 on medical marijuana dispensaries in the city. City officials deemed $50,000 of the fee to be a tax.

Taxpayer groups and cities argued the case was about the right of citizens to vote on taxes. The CCC argued it was a case about timing and when a ballot initiative to allow Upland-based medical marijuana dispensaries would go before voters.

Voters ultimately rejected the measure.

The case is California Cannabis Coal. v. City of Upland , Cal., No. S234148, 8/28/17 .

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at lmahoney@bloomberglaw.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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