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Appellate Court Rules Simple Majority May Adopt Special Taxes Through Initiative Process

The California Court of Appeal recently issued a decision holding that local special taxes placed on the ballot through the initiative process only require a simple majority to pass. The case did not involve special taxes that are proposed by a local agency’s legislative body, which still require two-thirds voter approval. The June 30 decision in City and County of San Francisco v. All Persons Interested in the Matter of Proposition C answers, for now, a question left open by the California Supreme Court’s August 28, 2017 decision in California Cannabis Coalition v. City of Upland (which is explained here). It is likely that the Proposition C decision will be appealed to the California Supreme Court for a final decision.

What is Proposition C?

Proposition C was a voter initiative in San Francisco proposing a business tax to fund housing programs, homeless services and other related programs. Approximately 61% of voters voted in favor of Proposition C at the November 2018 election. San Francisco subsequently filed an action to validate that Proposition C had been adopted even though it was supported by less than two-thirds of the voters.

Special or General Tax?

The California Constitution—as amended by Propositions 13, 218 and 26—differentiates between special and general taxes. If the proceeds of a tax are dedicated for a specific purpose, it is a special tax. Taxes that can be used for any purpose are general taxes. Relatedly, the California Constitution provides that “Cities, Counties and special districts” may impose special taxes by a two-thirds vote of the electorate. Further, a “local government” may not impose a special tax without a two-thirds affirmative vote of the electorate.

Electorate or Local Agency Action?

In the Proposition C case, the Court of Appeal explained that the phrases “Cities, Counties and special districts” and “local government,” as used in the relevant portions of the Constitution, refer to the local public entity and do not include the electorate exercising its constitutional initiative power. As noted by the court, “a defining characteristic of the initiative is the people’s power to adopt laws by majority vote.” Therefore, requiring special taxes proposed through initiative to be approved by two-thirds of the electorate would limit the people’s initiative power.

Limits on Initiative Process?

After reviewing the California Supreme Court’s prior precedents, including the 2017 City of Upland case, the Court of Appeal held that Propositions 13, 218, and 26 had not expressly enacted such a two-thirds approval requirement which would effectively limit the people’s initiative power. The Court explained that when the initiative power is restricted, it must be done explicitly and not by implication, with any doubts resolved in favor of the exercise of the initiative power. Accordingly, the two-thirds approval requirement for special taxes only applies to taxes proposed by local legislative bodies, and not taxes proposed by the electorate through the initiative process.

Impact of Decision?
The decision potentially makes it possible for local communities to use the initiative process to approve special taxes to fund local priorities by a simple majority vote—if the local community has voters interested in qualifying initiatives for the ballot. The ramifications of the decision and the relationship to City of Upland make review by the California Supreme Court likely.