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 election ballot.^[1] Proposition 218 revolutionized local and regional government finance in California.^[2] Called the “Right to Vote on Taxes Act,”^[3] Proposition 218 was sponsored by the Howard Jarvis Taxpayers Association as a constitutional follow-up to the historic Proposition 13 property tax revolt initiative constitutional amendment approved by California voters on June 6, 1978.^[4] Proposition 218 was drafted and masterminded by constitutional attorneys Jonathan Coupal and Jack Cohen.^[5]

Proposition 218 amended the California Constitution by adding Article XIII C and Article XIII D.^[6] Article XIII C relates to voter approval requirements for local government taxes.^[7] This includes a major provision relating to use of the local initiative power by voters to reduce or repeal any local government tax, assessment, fee or charge.^[8] Article XIII D relates to assessment and property-related fee reforms applicable to local governments.^[9] This includes numerous requirements for special assessments on real property as well as numerous requirements for property-related fees and charges such as utility fees and charges imposed by local governments.^[10]

Proposition 218 was the first successful initiative constitutional amendment in California history to add more than one article to the California Constitution.^[11] Proposition 218 has been part of the California Constitution for 20 years and 1 month.

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.

The official legal title prepared by the California Attorney General was: “Voter Approval for Local Government Taxes. Limitations on Fees, Assessments, and Charges. Initiative Constitutional Amendment.”^[12] The official legal title appeared on the petitions signed by voters to qualify Proposition 218 for the 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.

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.”^[13] The initiative text title is most commonly used to refer to Proposition 218.

Proposition 218 Election Campaign

Proposition 218 was considered a “sleeper” measure by the media as local governments were 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 measures which appeared on the same election ballot.^[14]

Proposition 218 was initially estimated to cost local governments in California at least $100 million per year with long-term cost estimates being much greater in the billions of dollars per year, and Moody's Investors Service warned the initiative measure would cause “significantly declining credit quality.”^[15] The credit ratings issue became so heated during the Proposition 218 election campaign that the California State Treasurer, in an effort to calm the municipal bond market, took the extraordinary step of warning measure opponents against exaggerating the possible negative impacts on local government credit ratings and bond issuances when discussing Proposition 218.^[16]

Campaign Opposition and Support

Like Proposition 13 in 1978, Proposition 218 was opposed by the vast majority of major newspapers and the political establishment. Opposition to Proposition 218 included public employee unions, local governments, local government interest organizations, environmental interest groups, public education interest groups, and private business firms that underwrite municipal bonds.^[17]

Of the total campaign contributions received against Proposition 218, 74% came from public employee unions, and those interests contributing $10,000 or more represented 91% of the total contributions received by the Proposition 218 opposition campaign.^[18]

Also similar to Proposition 13, there were dire predictions from the measure opponents, including many local government officials, regarding what would happen if Proposition 218 were to be approved by the voters. Some examples included: Expensive landscaping would die and become fodder for devastating fires.^[19] Silicon Valley would be shut down forever.^[20] Parks, senior centers, and other public buildings would shut down.^[21] Neighborhoods would no longer be safe.^[22] The initiative would immediately have a devastating effect on local government finance.^[23] The initiative would force local governments to go back decades and destroy their method of service delivery.^[24] The initiative would be a mortal threat to fire safety.^[25]

The supporters of Proposition 218 focused on the fundamental policy question presented by the ballot measure: Should voters have the constitutional right to vote on local government taxes?^[26] Proposition 218 supporters also urged voters to review their property tax bill which would confirm the growing list of property-related fees, charges and assessments imposed by local governments without voter approval.^[27]

Election Results and Summary Statistics

Proposition 218 passed with 56.55% support statewide, representing a margin of victory of 13.1 percentage points.^[28]

Proposition 218 passed in 54 (93%) of the 58 counties in California.^[29]

Proposition 218 passed in 405 (86%) of the 469 cities in California in 1996.^[30]

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).^[31]

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).^[32][33] This means that Proposition 218 passed in the overwhelming majority of current state legislative districts in California without regard to the political party representation (Democrat or Republican) 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.^[34]

What made the Proposition 218 victory so unusual was that it was behind in nearly all the polls, including late polls before the election. Polling from the Proposition 218 opposition campaign revealed the measure was expected to lose by about 15 percentage points.^[35] Proposition 218 was also significantly behind in the final Field Poll with only 36% support from likely voters.^[36] Proposition 218 ended up winning by 13 percentage points. The large variation between the final polling numbers and the election results was a politically rare event for statewide initiative measures in California.

Profound Impact on California Governance

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.”^[37]

Proposition 218 is also listed as one of the most significant laws of the 20th Century in California.^[38]

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.”^[39]

Joel Fox, 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.”^[40]

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.^[41] After Proposition 13 passed in 1978, local governments looked for ways to raise additional revenues and avoid the two-thirds voter approval requirement for taxes under Proposition 13.^[42] Statewide, revenues raised from assessments, fees, and charges imposed upon property owners had increased greatly and were higher than either property, sales, or personal income taxes.^[43]

Local governments discovered a particularly pernicious way to raise additional revenues and avoid the Proposition 13 two-thirds voter approval requirement by using assessment districts.^[44] Assessments on real property became the vehicle of choice for local politicians looking to avoid making hard decisions regarding general fund expenditures.^[45]

True assessments on real property 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.^[46] 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 to pay for the cost of those improvements.^[47] However, after the passage of Proposition 13, local governments greatly expanded their use of assessment districts to generate additional revenues by imposing assessments on real property for purposes that went far beyond their traditional and historical scope.^[48]

The 1992 California Supreme Court Knox Case

The property 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.^[49]

As a result of the Knox decision, local governments could legally impose assessments on real property for a wide range of purposes without voter approval.^[50] Assessments effectively became unrestricted property tax increases appearing on the property tax bills of millions of California property owners. There were no legal 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 imposed by local governments.^[51]

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 California property owners. The California Legislature could have reformed the property 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 in an effort to address assessment abuses by local governments.^[52] However, local government interest 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 following the Knox decision.^[53]

Once the assessment loophole following the Knox case was created, one lawyer working with local government politicians wrote that property assessments in California “are now limited only by the limits of human imagination.”^[54] Some of the more imaginative assessments imposed by local governments 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.^[55]

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 in Los Angeles County to pay for controversial projects on local community college campuses, including stadium scoreboards and an equestrian complex.^[56] The community college district assessment proposal in Los Angeles County resulted in an angry response from many homeowners 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.^[57]

Property-Related Fee and Charge Abuses By Local Governments

While not receiving the same level of media attention as assessments on real property, controversial 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.^[58] For example, the California Supreme Court ruled that a local municipal utility, such as a city providing water service, is entitled to a reasonable “return on investment” (otherwise known as “profit”).^[59] 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 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.

What made the foregoing practice even more infuriating for many utility customers was that local governments were typically not legally obligated to spend excess cost revenues for purposes directly related to the applicable utility, such as providing greater public investment in utility infrastructure or helping finance “lifeline” utility rates for low income ratepayers. The excess cost revenues ended up being transferred to the general fund of the local agency and thereafter spent at the discretion of local politicians, including on public employee salaries and benefits. The allowable utility overcharges were separate from local government imposed utility taxes which utility ratepayers also had to pay, with many of those utility taxes also imposed without voter approval.

Rescuing Proposition 13

Proposition 218 came to the rescue of Proposition 13.^[60] 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.”^[61]

Proposition 218 effectively achieved what Howard Jarvis and Paul Gann intended when Proposition 13 passed in June 1978 -- give the final decision on taxes to local voters instead of local politicians.^[62]

Article XIII C – Local Government Taxes

Section 3 of Proposition 218 added Article XIII C to the California Constitution.^[63] Article XIII C relates primarily to local government taxes, including applicable voter approval requirements.

Constitutional Definitions

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

“Local Government”

Section 1 definitions include the term “local government” setting forth the public entities subject to the article. The term “local government” is very broadly defined to counter previous narrow interpretations given by California courts under Proposition 13 which created loopholes allowing local agencies to circumvent taxpayer protections. Government entities 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 such as water districts.^[64] 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.

Local Tax Types

Section 1 also defines the types of taxes local governments levy. A “general tax” is any tax imposed for general governmental purposes.^[65] A “special tax” is any tax imposed for specific purposes, including a tax imposed for specific purposes which is placed into a general fund.^[66] 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.^[67] Proposition 218 also requires certain taxes relating to real property be levied as special taxes.^[68] 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.^[69]

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.^[70] The courts have yet to interpret under what circumstances tax revenues placed into a general fund are a special tax by virtue of being “imposed for specific purposes” under the broad “special tax” definition. As a result, the mere placement of local tax proceeds into a general fund does not automatically make the tax a “general tax” under Proposition 218.

“Tax” Definition and Proposition 26 (2010)

During the November 2010 General Election, California voters passed Proposition 26 which, in part, added a broad definition of “tax” under Proposition 218.^[71] Proposition 218 did not include a specific definition of “tax,” but California courts, prior to Proposition 26 in 2010, generally broadly construed that term such as a California appellate court did in concluding that a 911 “fee” was a special tax subject to two-thirds voter approval.^[72]

If a local government levy, charge or exaction is a “tax” under Proposition 26, then voter approval is required under Proposition 218 if that tax is a new tax, an increased tax, or a tax extension.^[73] A local government levy that is not a tax under Article XIII C may nonetheless be subject to Proposition 218 protections under Article XIII D if the levy is either a special assessment on real property^[74] or a property-related fee or charge.^[75]

Local Initiative Power to Reduce or Repeal Nontax Fees and Charges

Local government fees and charges that are neither taxes under Article XIII C nor subject to Article XIII D are generally subject to reduction or repeal using the local initiative power under Proposition 218, including the significantly reduced signature requirement thereunder.^[76] This gives local voters a political remedy to hold an election concerning a nontax levy approved by a local government where an election is not required by Proposition 218.

Voter Approval Requirements and Related Provisions for Local Taxes

Section 2 of Article XIII C contains the voter approval requirements for local government taxes. Under Proposition 218, every local government tax is either a general tax or a special tax.^[77] Proposition 218 does not allow a local tax to be a hybrid tax.^[78] The type of tax a local government imposes (general or special) is legally 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.^[79] This restriction is based on prior judicial interpretations of Proposition 13.^[80] As a practical matter, only a city or a county has the power to levy a general tax under Proposition 218. The voter approval requirement under Proposition 218 was upheld by a California appellate court.^[81]

When Voter Approval Required

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 a California appellate court.^[82] Local tax reductions or repeals are not subject to voter approval under Section 2 of Article XIII C.

The applicable electorate for conducting local tax election is generally the registered voters of the local government.^[83] However, the courts have yet to address the constitutionality under Proposition 218 of property owner tax elections in districts (e.g., Mello-Roos tax districts) that lack sufficient voters to conduct an election among the registered voters.^[84]

New Taxes

New local government taxes require voter approval under Proposition 218.^[85] The term “imposed” for purposes of triggering the voter approval requirement under Proposition 218 typically refers to the first enactment of a tax.^[86]

Tax “Increase”

When local governments “increase” a local tax, voter approval is required under Proposition 218.^[87] The California Legislature adopted a statute interpreting the term “increase” for purposes of Proposition 218^[88] 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.^[89] 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.^[90]

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 be a tax “increase” for purposes of triggering the voter approval requirement under Proposition 218.

A tax is not “increased” under 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.^[91] A tax is also not “increased” under 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.^[92]

Tax “Extension”

When a local government “extends” a local tax, voter approval is required under Proposition 218.^[93] The California Legislature adopted a statute interpreting the term “extended” for purposes of the tax provisions of Proposition 218.^[94] 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.^[95] The term “extend” as applied to a tax has been interpreted not to apply to geographic areas in certain annexation proceedings.^[96] 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.^[97]

Tax “Modernization”

Some local governments have combined in the same ballot measure a minor tax reduction (which does not require voter approval) with a tax base expansion that does require voter approval under Proposition 218 because it is considered a tax increase.^[98] This is typically done with utility user tax “modernization” measures with the nominal tax rate reduction component serving to make the tax more politically attractive to voters. When such a ballot measure is presented to voters, the full text of the measure should be reviewed 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 appears on the ballot for voter approval.

Controversy also exists whether utility user tax “modernization” measures permit local governments to impose taxes on online video streaming services.^[99] With regard to previously approved “modernization” measures, voters may have unknowingly authorized the imposition of taxes on online video streaming services. This places greater emphasis on the need for voters to carefully review the text of any tax “modernization” measure to determine whether taxes on online video streaming services would be authorized. To the extent that previously approved tax “modernization” measures are interpreted to include taxes on online video streaming services, voters/taxpayers have an available legislative remedy using the local initiative power under Proposition 218 to reduce or repeal any tax on online video streaming services.

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. 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 had to be held by November 6, 1998 (two years of the effective date of Proposition 218).^[100]

Proposition 218 requires that general tax elections be consolidated with a regularly scheduled general election for members of the governing body of the local government except in cases of an emergency declared by a unanimous vote of the governing body.^[101] In counties, where the governing body of the local government is the board of supervisors, the election consolidation requirement was broadly construed by one California appellate court to include statewide general and primary elections, including where no board of supervisor election is actually held.^[102]

Some local governments, in an effort to accelerate the election date for a general tax measure, have invoked the emergency exception applicable to the election consolidation requirement under questionable circumstances. When this occurs, often the only practical remedy available to voters is to make the emergency exception controversy a political issue during the election campaign, especially since significant additional election costs are usually incurred as a result of invoking the emergency exception.

Since general taxes are not legally dedicated for specific purposes, they can generally be spent at the complete discretion of local politicians, including on public employee salaries and benefits. This means that local voters have to trust their local politicians to spend general tax proceeds in a wise and prudent manner. Whether or not local voters can trust their local elected officials to make wise and proper spending decisions is an important factor to consider in deciding whether to support or oppose a general tax measure.

General Tax Abuses By Local Governments

Some local governments in an effort to evade the two-thirds voter approval requirement for special taxes under Proposition 218 may express legally nonbinding intent to spend general tax proceeds for one or more specific purposes. This may be done in several forms such as the adoption of intention language before the tax election date, the formation of an advisory committee relating to the expenditure of the tax proceeds, 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.

Controversial general tax measures intended for one or more specific purposes also have the effect of circumventing California accountability laws that protect taxpayers by ensuring that local government taxes imposed for specific purposes are spent as set forth in the ballot measure.^[103] The fact that a local government proposes a controversial tax measure, whether by the local governing body itself or by a local initiative measure, raises trust issues and should be a red flag to voters. Furthermore, the circumvention of state accountability laws that protect taxpayers is another matter that should be a political issue during the election campaign.

Local governments also sometimes refer to a general tax as a “vital services” tax in order to make the tax more politically attractive to voters. A true general tax under Proposition 218 can generally be spent on public services or programs that are not deemed “vital” by a local government. This can include controversial purposes such as financing high public employee salaries and benefits or paying for excessive public employee pension obligations. The fact that supporters of a local government tax may refer to a purported general tax as a “vital services” tax raises trust and credibility issues and should be a red flag to voters in evaluating the merits of a general tax measure.

When controversial general tax measures are presented by local governments, often the only practical remedy available to voters is to make the controversial tax measure a major political issue during the election campaign, including informing voters about efforts by the local government to circumvent the constitutional two-thirds vote protection for special taxes under Propositions 13 and 218.

The Howard Jarvis Taxpayers Association has published various “taxpayer tools” to assist taxpayers in situations such as when controversial general tax measures are placed on the ballot by a local government.^[104]

Special Tax Vote Requirement

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.^[105] 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.^[106] 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.

Authority to Impose Local Taxes

Proposition 218 does not legally authorize any local government to impose any tax.^[107] The legal authority to levy a local government tax must come from an independent source such as a statute enacted by the California Legislature, and may be subject to additional statutory restrictions. The California Supreme Court has held that a local government must comply with any applicable statutory requirements as well as the constitutional requirements under Proposition 218.^[108]

An example of an additional statutory restriction is a supermajority vote requirement of the governing body of the local government to place a local tax measure on the ballot. General taxes proposed by counties and most cities (general law cities but generally 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.^[109] 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 may be presented to voters at an election.^[110] With a typical local governing body of five members, this generally means that four affirmative votes (instead of the usual three affirmative votes) are needed to place a local tax on the ballot when a two-thirds supermajority vote is required. Another example of an additional statutory restriction is that many parcel taxes must be applied uniformly to all taxpayers or real property.

Temporary vs. Permanent Taxes

Under Proposition 218, taxes proposed by a local government may either be temporary or permanent. If a tax is temporary, voter approval is required to extend a tax beyond its expiration date.^[111] Permanent local government taxes 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 under Proposition 218.^[112]

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. Generally, if no tax duration is specified in the ballot question, the proposed tax is almost always permanent.^[113]

The Howard Jarvis Taxpayers Association states that 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. Based on historical election statistics, once local government voters pass a “temporary” tax, it is generally easier to obtain subsequent voter approval for a tax extension or a tax increase.^[114] The Howard Jarvis Taxpayers Association also states that local governments rarely allow temporary taxes to expire on their own without at least an effort to extend and/or increase the tax, and that voters should assume that any 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.^[115]

Parcel Taxes

Parcel taxes are a type of real property tax levied by local governments in California without regard to the assessed value of the property. They are typically imposed on a flat tax basis. This includes Mello-Roos parcel taxes levied under the Mello-Roos Community Facilities Act of 1982.^[116] The California Supreme Court has held that parcel taxes do not violate the ad valorem property tax rate limits of Proposition 13.^[117] As a result, parcel taxes have been used by local governments to impose additional property taxes for public services and programs, especially for K-12 public education, notwithstanding the property tax rate limits of Proposition 13. It is also not uncommon for a property owner in California to have many parcel taxes appearing on the annual property tax bill, including multiple parcel taxes levied by the same local government.

Proposition 218 requires two-thirds voter approval for any parcel tax.^[118] The legal authority to levy a parcel tax generally comes from state statutes which usually include additional restrictions on the ability of a local government to levy a parcel tax.^[119] 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.

As a result of the statutory uniformity requirement for most parcel taxes, significant tax equity issues arise. With a uniform parcel tax, each assessed parcel generally pays the same fixed annual amount without regard to the value of a parcel or the land use associated with the parcel. For example, under a uniform parcel tax a modest single-family residence pays the same tax amount each year as a big mansion or a massive commercial office building. Many taxpayers believe this to be unfair and a regressive form of taxation.

In addition, since in many California communities the vast majority of taxable parcels are single-family residential, the statutory uniformity requirement results in most of the parcel 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.^[120] Equity issues associated with parcel taxes also arise as to the appropriateness of singling out property owners to bear the financial burden for additional public services and programs, especially those services and programs providing general benefits to the community at large or benefits to nonresidents of a community.

The Howard Jarvis Taxpayers Association has released a publication to assist taxpayers in defeating parcel tax measures placed on the ballot by a local government.^[121]

Local Government Issues Related to Proposition 218 Elections

Local government issues related to Proposition 218 elections can impact the integrity and fairness of the election process.

Opinion Polling Before Placing a Tax Measure on the Ballot

Local governments frequently conduct opinion polling of their voters before deciding whether to place a local tax measure on the ballot. Such polls are typically designed to determine voter support for a tax proposal, the appropriate duration of a tax (i.e., whether permanent or for some specified period of years), the amount/rate of a proposed tax, and how the tax proceeds will be spent if a tax for specific purposes (a special tax) is being proposed.

Opinion polls may also be conducted in connection with other revenue sources requiring an election under Proposition 218 such as for a property-related fee or charge^[122] or an assessment on real property.^[123] It is also not unusual for a local government opinion poll to test voter support levels for different types of tax proposals such as a parcel tax, a utility users tax, or a sales tax.

The expenditure of public funds to conduct opinion polls is generally permissible under California law. The use of public funds to conduct opinion polling concerning a local tax proposal becomes more controversial when the poll also includes questions of a political nature ordinarily utilized in a subsequent election campaign (e.g., testing support and/or opposition arguments for use in a subsequent tax election campaign) as opposed to merely providing sufficient information to local government officials for purposes of determining whether to place a tax measure on the ballot.

An opinion poll prepared by a local government is generally a “public record”^[124] whereby a member of the public may make a written request and receive a copy of the opinion poll under the California Public Records Act.^[125] Payment of a fee covering the direct costs of duplicating any requested pages from an opinion poll may also be required by the local government.^[126]

Controversy can sometimes arise concerning the “public record” status of an opinion poll prepared and paid by a private entity but used by a local government in deciding whether to place a tax proposal on the ballot. However, the definition of a “public record” under the California Public Records Act includes any “writing containing information relating to the conduct of the public’s business prepared, owned, used, or retained” by a local government.^[127] If a local government uses the results from an opinion poll prepared or funded by a private entity to influence the governing body of the local government to place a tax measure on the ballot the opinion poll would be a “public record” under the California Public Records Act.^[128]

California courts have generally been lenient in allowing local governments to spend public funds in connection with activities (such as conducting opinion polling) before a tax proposal is placed on the ballot.^[129] Some voters may question the appropriateness of local governments spending public funds on opinion polling in connection with a local tax measure, especially if the polling results are subsequently used for political purposes during the election campaign to increase the chances of a local tax being approved by the voters. If this occurs, often the only practical remedy available to voters is to make the matter a political issue during the tax measure election campaign which can adversely impact the chances of the local tax measure being approved by the voters.

Local Government “Informational” Campaigns in Local Tax Elections

Local governments are legally 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 to expend public funds to engage in “informational” campaigns that “educate” voters about such tax measures.^[130] 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, 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.

The Howard Jarvis Taxpayers Association has released a document to assist taxpayers in stopping illegal campaign spending by a local government.^[131]

Ballot Questions in Local 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 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 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, often the only practical remedy available to voters 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.

When controversial ballot questions are present, it is also appropriate for voters to read the full text of a tax measure. 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.

Local Politicians “Letting the Voters Decide”

The voter approval requirements for local taxes under Proposition 218 are mandatory. Local politicians place tax measures on the ballot for voter approval not by a voluntary choice in support of protecting local taxpayers, but rather in response to the mandates of Proposition 218.

Furthermore, when local politicians vote to place a local tax measure on the ballot, they are also approving that tax on the merits. This includes applicable parameters relating to the tax including the type of tax (e.g., a sales tax or a utility users tax), how the tax proceeds will be spent (if a special tax), the magnitude of the tax amount or rate, the duration of the tax, the date of the tax election, and the specific language of the ballot question. This is typically done in the form of a local ordinance or resolution approving the tax. However, the tax approval does not become effective unless and until approved by the voters.

Before voting to place a tax measure on the ballot, local politicians, as part of their responsibilities and obligations as members of the governing body of a local government, are supposed to evaluate the merits of a tax proposal. At least one public hearing is also typically held before the governing body of a local government decides whether or not to place a tax proposal on the ballot.

Local politicians sometimes claim they are merely “letting the voters decide” when they vote on a tax proposal that would levy a new tax, a tax increase, or a tax extension. This is generally done by local politicians in an effort to avoid political accountability for supporting the tax on the merits. Local politicians engaging in such practices raise significant trust issues related to the expenditure of tax proceeds which is particularly significant for general tax proposals where local politicians have complete discretion regarding the expenditure of tax proceeds.

Voter/Taxpayer Issues Related to Proposition 218 Elections

Voter/taxpayer issues related to Proposition 218 elections can impact the individual voter decision-making process as well as election outcomes.

Voter Considerations in Local Proposition 218 Elections

If a tax is proposed by a local government, it is important to consider the budgetary conditions that led to placing the tax measure on the ballot.

Tax Increases and Public Employee Costs

As public employee salary and benefit obligations increase over time, particularly with regard to pensions and public employee retiree healthcare, the impacts on the local government budget become more significant and can even lead to bankruptcy. Local politicians end up having to reduce public services and/or raise taxes or other revenues such as fees and charges. To the extent that taxes are raised, the tax proceeds will generally either directly or indirectly pay for public employee salary and benefit obligations. Research has shown that many local tax increases are concentrated in California communities that have the largest public employee pension problems.^[132]

Tax Increases and Public Safety

Some local governments may also claim a lack of sufficient funding for priority programs and services such as public safety. This is intended to make a tax proposal more politically attractive. When this occurs, local politicians need to explain to voters what government services are more important than public safety so as to result in inadequate funding for public safety services using existing taxes. If it turns out the reason is high public employee salaries and benefits, this is a major red flag. The California Constitution mandates that the “protection of the public safety is the first responsibility of local government and local officials have an obligation to give priority to the provision of adequate public safety services.”^[133] This constitutional obligation exists regardless of whether a local tax measure is approved by voters. Thus, even if a tax measure is rejected, the local government still has an obligation using its already existing revenues to give priority to public safety services.

Cumulative Tax Burdens and Precedent

Some local government tax proposals may be relatively modest in amount, but when added to other taxes currently paid would result in a cumulative tax burden that may be unacceptably high. This is especially the case concerning regressive parcel taxes that disproportionately burden single-family homeowners. Before voting on any local government property tax measure (including any local general obligation bond measure that increases local property taxes to repay the bonds), it is considered a good practice by property owners to review their current property tax bill to get a better picture of the cumulative impact of any property tax measure. Cumulative tax burden issues also arise with respect to regressive sales taxes. Since many local governments in California have the authority to levy their own sales tax, the combined sales tax rate currently approaches or has reached 10% in numerous local governments.

It is also not unusual for multiple tax proposals to appear on the same election ballot. This not only includes tax proposals from other local governments but sometimes even multiple tax proposals from the same local government. Multiple tax measures on the same ballot can sometimes lead to overwhelming tax burdens to the point where voters end up voting against all tax measures.

To avoid significantly higher levels of taxation than expected, voters also need to consider local tax proposals that are likely to appear on the ballot in the near future. Local governments frequently coordinate the scheduling of their tax elections to increase the chances of multiple tax measures passing over a short time window. For example, local tax measures may be placed on the ballot during a statewide primary election in coordination with other local governments placing their tax measures on a statewide general election occurring several months later. More patient local governments are also willing to wait another election cycle for a more favorable election date to increase the chances of passing a local tax. This is especially the case for presidential general elections where voters tend to be more inclined to support taxes.

Passage of a local government tax measure also establishes political precedent that often leads to additional and sometimes more expensive tax measures in the future by the same or other local governments in the area. Many local governments and other tax supporters frequently regard voter approval of a local tax measure as a signal that voters will be more responsive to additional tax proposals in the future.

Availability of Taxpayer Tools

The Howard Jarvis Taxpayers Association has published various “taxpayer tools” to assist taxpayers in situations where a tax measure has been placed on the ballot by a local government.^[134] These taxpayer tools include publications/documents relating to defeating local parcel taxes,^[135] defeating local sales taxes,^[136] defeating school bonds/bond taxes,^[137] repealing an existing city tax,^[138] stopping illegal government spending,^[139] forming a local taxpayer group,^[140] and requesting public records from a local government in California.^[141]

Availability of Local Government Data for Use by Voters in Tax Elections

In Proposition 218 tax elections, it is often of significant value to voters to have financial data regarding the local government proposing the tax so that voters can make a more informed voting decision concerning the merits and need for the tax. This includes the availability of comparative financial data with other local governments, including other local governments similar in population as well as geographical proximity.

Much of the financial data about a local government, including detailed budgetary data, can be obtained directly from the local government itself. In some instances, it may be necessary to make written requests under the California Public Records Act. It may also be advisable to obtain data in electronic format to facilitate further study and analysis. Additional information that is generally of value to voters includes public employee salary data, public employee benefits data (including pensions), annual audited financial reports, historical (prior years) budgetary data within the local government, and budgetary projections in future years. Budgetary spending decisions, which typically reflect the spending priorities of a local government, can be particularly helpful in general tax elections where local politicians decide how to spend the tax proceeds.

Large amounts of financial data concerning local governments in California are also available in digital format from state agencies, including the California State Controller, the California State Board of Equalization, the California Secretary of State, and the California Department of Education.

Local government finance and budgetary data can also be of significant value to voters in connection with the exercise of the local initiative power under Proposition 218 to reduce or repeal local government levies. This includes for purposes of properly designing a tie-in initiative and for targeting alternative revenue sources for reduction or repeal utilizing a compensatory initiative. Such data can also be utilized to bolster findings and declarations in a local initiative under Proposition 218, especially in connection with local government utility fee reductions or repeals that may be subject to statutory utility rate restrictions under California law.

Extensive Data Sources Available

The California State Controller makes extensive and detailed local government financial data available on its Government Financial Reports Data website.^[142] The website has many years of detailed financial data in an open data format from all California counties, most California cities, thousands of special districts, and pension-related information for state and local government pension plans. Detailed financial data provided about local governments include revenues, expenditures, liabilities, assets, and fund balances. The data are compiled from reports submitted by local governments to the California State Controller as required by law. The financial data are generally unaudited.

The California State Controller also provides various local government annual financial reports in Portable Document Format.^[143] These reports include the Cities Annual Reports,^[144] Counties Annual Reports,^[145] Special Districts Annual Reports,^[146] Top 250 Special Districts,^[147] Transportation Planning Agencies Annual Reports,^[148] Transit Operators and Non-Transit Claimants Annual Reports,^[149] Streets and Roads Annual Reports,^[150] and Public Retirement Systems Annual Reports.^[151]

The California State Controller also makes extensive and detailed salary and other compensation (e.g., retirement and health costs) data for local government public employees in California on its Government Compensation in California website.^[152] Extensive tools are provided for data analysis and comparison purposes. Extensive and detailed California local government public employee salary (including benefits) and pension data are also available on the Transparent California website.^[153] The data are obtained from local governments pursuant to public record requests under the California Public Records Act.

The California State Board of Equalization provides sales tax rates for local governments on its website.^[154] Current and historical tax rate data are provided. Tax rate data are also available for downloading to facilitate further study and analysis. The sales tax rate data are particularly useful to taxpayers and voters in local sales tax elections. Sales tax rate increases are being used more and more by local governments in California, especially cities, to fund government services, programs, infrastructure, and often high public employee salaries and benefits (including pension obligations). As a result, there exists significant variation in sales tax rates in local jurisdictions throughout California with sales tax rates approaching or equal to 10% in many local jurisdictions.

The California Department of Education provides detailed California K-12 public education data on the Ed-Data website.^[155] Student and staff data are available at the state, county, school district, and school levels. Local revenue election data are available at the state, county, and school district levels. Financial data are available at the state and school district levels. Comparison tools at the school district and school levels are also available. The K-12 public education data can be helpful to taxpayers and voters in school parcel tax and school general obligation bond election campaigns.

Local government data relating to matters other than budgetary or financial may also be helpful to voters in Proposition 218 tax elections. This includes local government performance data which can give taxpayers/voters a better sense if they are getting good value for the government services or programs to be financed from a Proposition 218 tax measure or their existing tax dollars. Examples include crime data in connection with public safety taxes, student performance data in connection with education taxes (or bonds), traffic data in connection with transportation taxes, public safety response times in connection with a public safety tax, and park usage and maintenance in connection with a parks and recreation tax. Most of the performance data about a local government can be obtained directly from the local government itself. In some instances, it may be necessary to make a written request for performance data under the California Public Records Act. It is generally preferable to obtain the performance data in electronic format to facilitate further study and analysis.

The California Secretary of State provides governing body and ballot measure election results for many local governments in California.^[156] The data are from the California Elections Data Archive. Statistics and general information about ballot measures, including local Proposition 218 tax elections, are also provided.

The California Secretary of State also provides a tool (known as Power Search) for searching campaign contribution data reported to the Secretary of State under the California Political Reform Act.^[157] Only electronically reported, state-level campaign data are generally provided. However, some contributions in local government elections, including tax elections under Proposition 218, are also included. Persons or entities that make campaign contributions at the local level, including in Proposition 218 tax elections, may also make campaign contributions at the state level that are politically relevant in a local tax election campaign. If such state level campaign contributions were made, the search tool will facilitate the identification of those campaign contributions.

The California Secretary of State also provides detailed lobbying activity data on the Cal-Access website.^[158] This includes detailed data by lobbyist employers such as local governments.^[159] Information that is available includes the amount spent on lobbying activities, the names of the lobbyists, and the specific legislation/agencies lobbied. Comparative lobbying data with other lobbyist employers, including other local governments, can also be obtained.

California law allows local governments to use public funds to lobby for or against legislation at the state and federal government levels.^[160] Such lobbying using public funds can also be done indirectly through associations such as the League of California Cities, the California State Association of Counties, and the Association of the California Water Agencies.^[161] Funding in support of these associations generally comes from annual dues payments (using public funds) made by the member local governments. It is not unusual for local governments to spend significant amounts of public funds to lobby for or against proposed legislation that is contrary to the best interests of taxpayers, including supporting legislation that would erode taxpayer protections such as Propositions 13 and 218. Local governments seeking voter approval for a tax frequently claim a lack of public funding as a basis for proposing the tax. To the extent a local government spends significant public funds on lobbying activities in support of legislation that would erode or otherwise weaken taxpayer protections, this can become a significant campaign issue in a Proposition 218 local tax election.

Campaigns For and Against Local Government Taxes

Local tax measures typically have well organized and funded support, especially from local public employee unions and frequently from the area business community. Business groups 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 taxes and local parcel taxes. Business interests that stand to financially benefit from the passage of a local tax measure also frequently make significant campaign contributions in support of such measures.

To the extent that organized opposition to a local tax measure occurs, it is usually in the form of volunteer grassroots efforts by local taxpayers. Well-funded opposition to local government tax measures typically occurs when business interests provide significant opposition funding to a tax proposal that disproportionately burdens the business community. More commonly, business interests are able to effectively lobby the governing body of a local government against placing tax measures on the ballot that disproportionately burden the business community.

The ballot arguments contained in the official ballot pamphlet sent to voters are usually the only opportunity for the opponents of a local government tax levy to reach all voters. There is a specified word limit for arguments which is generally set by statute. Arguments must also be accurate and not misleading to avoid a successful legal challenge. Any procedures applicable to the filing of arguments must also be followed. Ballot arguments must generally be filed early in the election process. As a result, it is important for interested voters to find out about the applicable deadlines for filing ballot arguments shortly following the decision by a local government to place a tax measure on the ballot. Ballot argument filing deadlines and requirements can generally be obtained from the local elections official conducting the tax election.

Initiative Power to Reduce or Repeal Local Government Levies

One of the most significant provisions of Proposition 218 constitutionally reserves to local voters the exercise of the initiative power to reduce or repeal any local tax, assessment, fee or charge.^[162] Proposition 218 was the first successful initiative constitutional amendment in California history to alter the scope of the constitutional initiative power.^[163]

The local initiative power under Proposition 218 is a powerful tool available to voters, particularly when local government elected officials are not responsive to their constituents in matters relating to local taxes, assessments, fees and charges. The specific constitutional language applicable to the local initiative power under Proposition 218 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.”^[164]

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.^[165]

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 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.

Article XIII D – Assessment and Property-Related Fee Reforms

Section 4 of Proposition 218 added Article XIII D to the California Constitution.^[166] Article XIII D relates primarily to special assessments on real property and property-related fees and charges.

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.^[167] This makes it clear that Article XIII D applies to charter cities in California.

Section 1 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.^[168] This means that 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. Section 1 also specifies two types of laws that are not affected by Article XIII D. First, existing laws relating to the imposition of fees or charges as a condition of property development (developer fees).^[169] Second, existing laws relating to the imposition of timber yield taxes.^[170]

Constitutional Definitions

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

“Agency”

The term “agency” sets forth the public entities subject to the article. The term “agency” in Article XIII D incorporates the same broad definition of “local government” used in Article XIII C.^[171] 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 as “any levy or charge upon real property by an agency for a special benefit conferred upon the real property.”^[172] If a levy or charge is an “assessment,” it is subject to the procedures and requirements applicable to assessments in Article XIII D.^[173] The detailed procedures and requirements for “assessments” are contained in Section 4 of Article XIII D. Proposition 218 maintains the traditional requirement that a special assessment must specially benefit the assessed property. This distinguishes a special assessment from a tax which is not legally required to specially benefit the taxed property.^[174] However, a key reform under Proposition 218 is that it significantly tightens what constitutes a “special benefit” for purposes of levying a special assessment.

“Special Benefit”

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.’”^[175] 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.^[176]

Property-Related Fee or Charge

Proposition 218 created a new type of fee or charge in California known as a property-related fee or charge. Whether or not a 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.^[177] The detailed procedures and requirements for property-related fees or charges are contained in Section 6 of Article XIII D.

A “property-related” fee or charge is “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.”^[178] A “property-related service” is defined as “a public service having a direct relationship to property ownership.”^[179]

Initially, the California Supreme Court in 2001 narrowly interpreted what constitutes a “property-related” fee or charge in concluding that a residential rental inspection fee was not “property-related.”^[180] Thereafter, California appellate courts have given a more expansive interpretation of the term “property-related” fee or charge.

In 2002, a California appellate court held that an in-lieu franchise fee for water, sewer, and refuse collection services was a “property-related” fee subject to Article XIII D.^[181] Also in 2002, another California appellate court held that a stormwater drainage fee imposed on developed parcels was a “property-related” fee subject Article XIII D, including the voter approval requirement.^[182]

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 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.^[183] However, the court also stated that a fee for ongoing water service through an existing connection is “property-related” because it requires nothing other than normal ownership and use of real property.^[184]

In 2005, a California appellate court 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.^[185]

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.^[186] 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.^[187] Based on the court’s reasoning, fees and charges for ongoing sewer and refuse collection services are also “property-related” fees and charges.^[188]

In 2007, a California appellate court held that a fee on the extraction of groundwater was a “property-related” fee.^[189] However, in 2015 another California appellate court held that a fee on the extraction of groundwater was not a “property-related” fee.^[190] On June 24, 2015, the California Supreme Court accepted the 2015 case for review to resolve the legal conflict on the groundwater extraction fee issue.^[191]

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 under 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.^[192]

The preceding requirement generally means that all parcel taxes 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.^[193] This means that electrical or gas service fees and charges imposed by local agencies are not subject to the procedures^[194] and requirements^[195] applicable to property-related fees or charges.

The scope of the exemption for electrical or gas service fees and charges only applies to Article XIII D.^[196] Depending upon the specific circumstances, electrical or gas service fees and charges levied by an agency could constitute a “tax” subject to voter approval under Article XIII C, as amended by Proposition 26 in 2010.^[197]

Local Initiative Power to Reduce or Repeal Exempt Electrical or Gas Service Levies

Electrical or gas service fees and charges exempt under Article XIII D and levied by a local agency should generally be subject to reduction or repeal using the local initiative power under Proposition 218, including the significantly reduced signature requirement thereunder.^[198] This provides voters with a legislative remedy to address electrical or gas service utility fees and charges that are considered excessive or unreasonable.

As an 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" 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 complete discretion of local politicians.

Assessments – Procedures and Requirements

Section 4 of Article XIII D contains detailed procedures and requirements applicable to assessments on real property. The assessment procedures and requirements are designed to ensure that any assessment levied by an agency is a legitimate assessment.

Proposition 218 also requires an agency to have a vote of the affected property owners before any proposed new or increased assessment can be levied by an agency.^[199] Prior to Proposition 218, an agency was not required to obtain ballot approval from affected property owners before levying assessments on real property.

The assessment process 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 to initiate the assessment process, but a property owner petition or similar requirement is not 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 which will have a special benefit conferred upon them and upon which an assessment is proposed for imposition.^[200] 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.^[201]

The proportionate special benefit derived by each identified parcel must 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.^[202] Proposition 218 does not preclude assessments for services, but under the constitutional language only “property-related services” are assessable.^[203] A “property-related service” is “a public service having a direct relationship to property ownership.”^[204]

Engineer’s Report

All assessments must be supported by a detailed engineer’s report prepared by a registered professional engineer certified by the State of California.^[205] The required engineering report is ordinarily prepared by a registered civil engineer.

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 the assessment complies with 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”^[206] 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.^[207] 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.^[208]

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.^[209]

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.^[210] The data files must also generally be made available in the electronic format requested by 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.^[211] The foregoing requirement is important to facilitate independent analysis of electronic data files by the public for purposes of verifying Proposition 218 compliance.

Related electronic data files may also be used to help verify Proposition 218 compliance. In particular, use of geographic information system (GIS) data files. 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 such as utility or stormwater fees. The California Supreme Court has ruled that GIS database files are generally deemed “public records” subject to disclosure under the California Public Records Act.^[212]

Special Benefit and Proportionality Requirements

Under Proposition 218, only special benefits are assessable.^[213] Proposition 218 contains its own definition of “special benefit”^[214] that significantly tightens the kind of assessments an agency can levy on real property.^[215] 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 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.^[216] 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.^[217] The benefit separation requirement helps ensure compliance with the requirement that only special benefits are assessable. Since general benefits are not assessable, they must be excluded and financed using revenue sources other than assessments.

The “assessment” definition refers to a levy on real property for a “special benefit” conferred upon the real property.^[218] 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 which exceeds the reasonable cost of the proportional special benefit conferred on that parcel.^[219] 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.^[220] 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.^[221]

Public Parcels Also Subject to Assessment

Proposition 218 provides that parcels 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 the publicly owned parcels receive no special benefit.^[222]

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^[223] exempting local governments from property taxation.^[224] 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 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.^[225]

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.^[226]

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.^[227][228]

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 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.^[229]

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.^[230]

The California Legislature has enacted additional requirements relating to the completion and delivery of assessment ballots. While not required by Proposition 218, these additional statutory requirements must be followed 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.^[231] 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.^[232]

Public Hearing Requirement

The agency must conduct at least one public hearing upon the proposed assessment not less than 45 days after mailing the notice of the proposed assessment to the record owners of each identified parcel subject to the proposed assessment.^[233] 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.^[234]

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.^[235] 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.^[236]

In tabulating the assessment ballots, the ballots must be weighted according to the proportional financial obligation of the affected parcel.^[237] 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.^[238] The assessment ballot process under Proposition 218 is frequently referred to as an “assessment ballot proceeding” and is not technically regarded as an election.^[239]

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 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.^[240]

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.^[241] 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.^[242] 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.^[243] Assessment ballots must be preserved for a minimum of two years, after which they may be destroyed as provided by law.^[244]

The California Supreme Court has ruled that constitutional voting secrecy protections do not apply to assessment ballot proceedings under Proposition 218.^[245] To the extent any secrecy protections exist for assessment ballots, they come from state statutes. 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.^[246] 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.^[247]

Proposition 218 continues the concept of a majority protest for assessments. However, prior to Proposition 218, a majority protest typically required an absolute majority of property owners to protest against a proposed assessment.^[248] 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 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 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 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 prohibited from imposing the proposed assessment.^[249]

Validity of Assessment Ballot Process Under Proposition 218

The validity of the assessment ballot process under Proposition 218 was upheld by a California appellate court in 2002.^[250] 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.^[251] 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.^[252]

Federal Law Invalidity Provision

Proposition 218 contains a special additional requirement in the event a court determines the assessment ballot process violates 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.^[253]

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 strong disincentive to legally challenge the assessment ballot process under Proposition 218.

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.^[254] An important 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, 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.^[255] This change makes it significantly easier for taxpayers to win a legal challenge.^[256]

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).^[257]

The Silicon Valley Taxpayers case is also one of the most important and significant taxpayer protection cases in a generation (and is listed as one of the most important and influential decisions in the history of the California Supreme Court) 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.

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] The underlying legal basis for the historical deferential standard of review was that the establishment of an assessment district takes place as a result of a peculiarly legislative process.^[259] As a result, the constitutional separation of powers doctrine demanded a more deferential standard of review by the courts.^[260] 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.^[261]

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 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 makes it significantly easier for taxpayers to win lawsuits challenging the validity of assessments under Proposition 218.^[266]

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.^[267] The equal dignity argument applicable to the standard of review issue in the Silicon Valley Taxpayers case was developed by constitutional attorney Jack Cohen.^[268]

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 that assessment.^[269] 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.

Section 5 states that Article XIII D was effective the day after the election unless otherwise provided.^[270] The day after the Proposition 218 election was November 6, 1996. Section 5 further states that beginning July 1, 1997, all existing, new, or increased assessments must comply with Article XIII D.^[271] However, Section 5 specifies that four classes of assessments existing on the effective date of Article XIII D (November 6, 1996) are exempt from the procedures and approval process contained in that article.

Assessment Exemptions

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.^[272] This exemption is referred to as the “traditional purpose” exemption, and was intended to carve out traditionally appropriate, nonabusive assessments.^[273] 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”^[274] and “maintenance and operation expenses.”^[275] In 1999, a California appellate court interpreted the traditional purpose exemption to also include streetlighting.^[276] Any subsequent increases in a traditional purpose assessment must comply with the procedures and approval process contained in Section 4 of Article XIII D.^[277]

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.^[278] 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.^[279]

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.^[280] In particular, the exemption applies where the Contract Impairment Clause of the United States Constitution^[281] is violated.

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.^[282] 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. 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. 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.^[283]

When Assessments Deemed “Increased”

When an agency “increases” an assessment, compliance with the assessment process under Proposition 218 is required and the exemptions generally do not apply to the increased assessment.^[284] The California Legislature adopted a statute interpreting the term “increase” as applied to assessments.^[285] 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.^[286] An assessment is not “increased” in the case in which the actual payments from a parcel 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.^[287]

Local Initiative Power to Reduce or Repeal Exempt Assessments

Although assessments exempt under Section 5 are not subject to the assessment approval process contained in 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.^[288] The only exception should be for the bonded indebtedness exemption where a violation of the Contract Impairment Clause of the United States Constitution would occur if the local initiative power under Proposition 218 were exercised to reduce or repeal an assessment subject to that exemption.

Property-Related Fees and Charges – Procedures and Requirements

Section 6 of Article XIII D 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 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 definition contained in Proposition 218.^[289] Some property-related fees or charges are levied upon parcels 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 tenant instead of the property owner. Detailed information about the definition of a “property-related” fee or charge 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 be subject to voter approval as a “tax” under Proposition 26 which California voters approved in 2010. Proposition 26 amended Proposition 218 by adding a broad definition of “tax”^[290] for purposes of determining the scope of levies subject to the voter approval requirement for local taxes under Proposition 218.^[291]

Property-related fees or charges may only be levied for “property-related services.”^[292] A “property-related service” is a public service having a direct relationship to property ownership.^[293] Some of the more common property-related fees or charges levied by local agencies include utility fees for ongoing domestic water, sanitary sewer, 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.^[294]

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.^[295] The California Legislature adopted a statute interpreting the term “increase” as applied to property-related fees or charges.^[296] 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.^[297]

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 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.^[298]

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.^[299]

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.^[300] The California Legislature adopted a statute interpreting the term “extended” for purposes of the property-related fee or charge provisions of Proposition 218.^[301] 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.^[302] 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.^[303]

Procedures for New or Increased Property-Related Fees or Charges

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

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 proposed property-related fee or charge.

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 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 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.^[304]

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.^[305] 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.^[306] 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 overlook a property-related fee or charge notice.

Public Hearing Requirement

The agency must conduct at least one public hearing upon the proposed property-related fee or charge not less than 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.^[307]

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 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.^[308] 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 prohibited from imposing the property-related fee or charge.^[309] Failure to comply with any legal requirement can result in the invalidation of the protest document for purposes of determining whether a majority protest exists.

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 legally preclude imposition of the levy. 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 affected parcels is small. Where the number of affected parcels is large, a majority protest is very difficult to attain even for controversial levies.

Proposition 218 does not 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”^[310] subject to public disclosure under the California Public Records Act.^[311] Effective January 1, 2017, written protests must be preserved by the agency for a minimum of two years following the date of the public hearing to consider written protests.^[312]

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

Sometimes a proposed property-related fee or charge may be controversial and/or have significant opposition but not enough opposition to attain a majority protest. The lack of a majority protest does not legally obligate an agency to levy the property-related fee or charge. 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 approves 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.^[313] This includes the significantly reduced signature requirement thereunder. An example application is an initiative to reduce or repeal water fee or charge increases resulting from customers conserving water under drought conditions.

Political Accountability For Approving Controversial Property-Related Levies

The approval of any property-related fee or charge under Proposition 218 is a political decision generally made by locally elected officials. As a result, any approval, especially if there is significant public controversy concerning the approval, is a political matter for which those locally elected officials approving the property-related fee or charge can be held politically accountable during the next election for members of the governing body of the local agency.

It is also important for voters of a local agency to make Proposition 218 compliance a campaign issue in local governing body elections. Having more sympathetic members on the governing body of a local agency will generally lead to fewer Proposition 218 compliance issues. Furthermore, such governing body members are likely to be more receptive to any concerns and objections raised by members of the local community in matters relating to property-related fees and charges under Proposition 218.

In extraordinary circumstances, especially when there is great hostility by local politicians in any matter relating to the approval of a property-related fee or charge, exercise of the local recall power is also generally an available option to local voters.

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.^[314] This means that if a tenant 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

Proposition 218 includes 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.^[315] The five requirements help ensure that any property-related fee or charge 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.^[316] Property-related fees or charges existing when Proposition 218 became effective must be in compliance by July 1, 1997.^[317]

If a property-related fee or charge is 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 requirements are satisfied, including voter approval.^[318]

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.^[319] This 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.^[320] 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 voters believe a property-related fee or charge is excessive, unreasonable or unnecessary, exercise of the local initiative power under Proposition 218 to reduce or repeal the levy is also an available option.

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.^[321]

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.^[322] This requirement is frequently referred to as the “cost of service” requirement.

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 requirements applicable to property-related fees and charges, a local agency must generally 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 law.^[323]

A property-related fee or charge report prepared by a local agency is generally a “public record”^[324] whereby a member of the public may make a written request and receive a copy of the report under the California Public Records Act.^[325] 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.^[326]

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.^[327]

The fourth requirement is intended to add a temporal component to the property-related fee or charge restrictions. 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). However, California courts have generally allowed local agencies greater latitude in charging property owners for potential or future use of a property-related service.^[328][329]

Classification of Standby Charges

A standby charge has historically been considered an assessment levied upon real property according to the availability of water.^[330] 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 more restrictive procedures and requirements applicable to assessments.^[331]

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.^[332] The fifth requirement makes it difficult 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

In 2015, a California appellate court 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^[333] under the measure.^[334][335] 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 criticized by California Governor Jerry Brown when the decision came down.^[336]

The Capistrano decision did not hold that Proposition 218 invalidated all tiered 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 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]

The California Supreme Court subsequently 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 Capistrano decision.^[339] 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.^[340] 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.^[341]

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 Proposition 13, increasing block (tiered) water rates were rarely used in California, even during the severe California drought of 1976-1977.^[342] 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.^[343]

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 voluntary donations or 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. However, since property-related fees and charges are limited to the cost of providing the service to each parcel of property,^[344] 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.^[345]

As with tiered water rates, Proposition 218 does not prohibit all lifeline utility rate programs by local agencies. 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 using voluntary donations or 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.

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 California drought. 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 conserving water. If a local water agency is not responsive to the needs of its customers and raises water utility fees and charges too much, the local initiative power under Proposition 218 provides a remedy that can generally be used to reduce or repeal those utility fee and charge increases.^[346]

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

Voter approval is also required for certain new or increased property-related fees or charges. 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.^[347]

A property-related fee or charge election must be conducted not less than 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.^[348] 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.^[349]

Voter Approval Exemptions

Property-related fees or charges for sewer, water, or refuse collection services are exempt from the voter approval requirement.^[350] Since the exemptions represent exceptions to a voter approval requirement, the election exemptions are strictly construed.^[351] Nevertheless, most property-related fees or charges fall within an election exemption as typical utility fees for water, sewer, or refuse collection services. Examples of new or increased property-related fees or charges that ordinarily require an election include stormwater fees^[352] 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.^[353] The California Supreme Court has ruled that property owner elections for property-related fees and charges are not subject to the voting secrecy provision^[354] in the California Constitution.^[355]

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.^[356] The new procedural requirements became legally operative on July 1, 2014.^[357]

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.^[358]

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.^[359] 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.^[360]

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.^[361] 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.^[362]

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.^[363] During and after the tabulation, the ballots are 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.^[364]

Historically, the constitutional right to vote in secret did not apply to property owner elections.^[365] 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 costly clean water 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 that included funding to improve water quality.^[366] 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 without voter approval.

A California appellate court held in 2002 that a stormwater drainage fee imposed on developed parcels of land was a “property-related” fee subject to voter approval under Proposition 218.^[367] In addressing the issue of whether the sewer or water service election exemptions applied, the court held that the property-related fee or charge election exemptions under Proposition 218 must be strictly construed.^[368]

In applying the strict construction rule to the sewer service exemption, the court construed the 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.”^[369]

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 classified as a traditional utility service in the same class as domestic water, sanitary sewer, and refuse collection services. If stormwater services were classified as a traditional utility service, local agencies would not need voter approval under Proposition 218 to impose new or increased stormwater fees and charges. This not only would result in local agencies imposing many new or increased stormwater fees and charges, but also in significantly higher amounts than would have otherwise been imposed had voter approval been required.

Local Initiative Power to Reduce or Repeal Stormwater Fees and Charges

The property-related fee or charge election requirement for stormwater fees and charges only applies to new or increased levies.^[370] Stormwater fees and charges existing before Proposition 218 became law are not subject to the election requirement. 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.^[371]

In addition, after voter approval of a property-related fee or charge, the local initiative power under Proposition 218 can also generally be used to reduce or repeal a stormwater levy.^[372] 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.

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.^[373] 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.^[374] 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.

The independent standard of review for property assessments adopted by the California Supreme Court in the landmark Silicon Valley Taxpayers case^[375] also applies to legal challenges involving property-related fees and charges.^[376] As a result, California courts now exercise their independent judgment in determining whether a property-related fee or charge violates Proposition 218. The independent standard of review makes it significantly easier for taxpayers to win legal challenges involving property-related fees and charges.

Application to Regional Levies

Proposition 218 expressly applies to regional governments in California under its broad “local government” constitutional definition.^[377][378] This means that regional governments must comply with the voter approval requirements for taxes^[379] as well as the procedures and requirements applicable to assessments and property-related fees and charges.^[380]

Given the current governmental structure of cities and counties in California, including the broad powers exercised by these general purpose agencies, a regional government agency exercising more limited powers should be a “special purpose district or agency” lacking the power to levy general taxes.^[381] This means that any tax imposed, increased or extended by a regional government agency would be a special tax subject to two-thirds voter approval under Proposition 218.^[382]

Regional government can also take the form of delivering government services and programs from the state level down to the regional level. An example would be a state administered water program limited to the Central Valley region of California. If a separate regional governmental agency is involved, the agency will generally be subject to Proposition 218. However, when a separate regional governmental agency is not involved, it is less certain whether Proposition 218 compliance is required.

Regional Levies and Accountability Issues

There is a growing trend in California to address public policy issues on a regional basis. From the perspective of taxpayers and voters voting on a regional governmental levy (such as a regional tax or a regional property-related fee or charge), significant accountability concerns can arise. Depending upon the laws creating a regional governmental agency, the governing body may or may not be directly elected by the voters of the region. In most instances, the governing body members of a regional governmental agency are appointed.

If the governing body of a regional governmental agency is not directly elected by voters of the region, political accountability issues often arise regarding the expenditure of public funds derived from a regional governmental levy. This is because there is no provision for directly electing members of the governing body. In addition, if the governing body members of a regional governmental agency are not directly elected, the recall power is also not available to remove those members from the regional governing body. In the foregoing situation, if any expenditure problems were to occur after approval of a regional governmental levy, voters will not be able to vote any problem governing body members out of office as a political accountability mechanism. Voters need to take such political accountability factors into consideration in deciding whether or not to support a regional governmental levy that appears on an election ballot.

As an accountability mechanism, a regional governmental levy can generally be reduced or repealed using the local initiative power under Proposition 218, including the significantly reduced signature requirement thereunder.^[383] However, even with the reduced signature requirement, qualifying an initiative for a regional levy will generally be more difficult because of the large number of voters involved.

Application to State Levies

Levies imposed by the State of California are generally not subject to Proposition 218 because the state is not a “local government” under Article XIII C^[384] or an “agency” under Article XIII D.^[385]

While state taxes are not subject to Proposition 218, such taxes are generally subject to approval by two-thirds of all members of the California Legislature.^[386] 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.^[387]

Special assessments on real property as well as property-related fees and charges, the types of levies ordinarily subject to Proposition 218, are generally not levied on a statewide basis. To the extent such levies may be imposed by the State of California on a statewide basis, whether two-thirds legislative approval is required is determined by the provisions of Proposition 26 approved in 2010.^[388]

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 Proposition 218. Under Proposition 218, the 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.”^[389] Accordingly, some state agencies are subject to Proposition 218 when they are a “special district.” While a state agency imposing a levy at the state level is not a “special district,” such an agency may be a “local or regional governmental entity” under the broad definition of a “local government,”^[390] and thereby be subject to Proposition 218 if the levy is imposed within limited geographic boundaries as opposed to being imposed on a statewide basis.

An example 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 Application 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.^[391] As a result, the State of California must pay its fair share of any special assessment on real property levied pursuant to Proposition 218. The State of California is also entitled to vote in assessment ballot proceedings required by Proposition 218.^[392]

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,^[393] the five requirement safeguards applicable to property-related fees and charges (including “cost of service” protections),^[394] and the right to vote if a property owner election is held for a property-related fee or charge.^[395] 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.^[396]

Liberal Interpretation Constitutional 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.”^[397] The liberal interpretation provision is legally binding on all California courts, local governments, and local government officials in their interpretation and application of Proposition 218. The liberal interpretation provision has positively affected the outcome of numerous Proposition 218 lawsuits when it has been applied by the courts.

Judicial Interpretation Before Proposition 218

The importance and significance of the liberal interpretation provision under Proposition 218 can be traced to prior adverse judicial interpretations of Proposition 13 strictly construing important provisions of that initiative measure. In two leading cases in 1982, the California Supreme Court, headed by controversial Chief Justice Rose Bird, formulated and applied a special rule of interpretation applicable only to Proposition 13 that strictly construed the circumstances in which local governments must get two-thirds voter approval to approve local tax increases.^[398] This had the practical effect of the courts limiting the scope of Proposition 13.

The California Supreme 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.^[399] This special rule of interpretation was not consistent with the usual interpretation of initiative measures, and has not been applied by the California Supreme Court in circumstances other than Proposition 13 where a supermajority vote is required in an initiative measure.

As a result of the two-thirds voter approval requirement for local taxes under Proposition 13 being strictly construed, local governments in California were able to impose many local tax increases with either simple majority voter approval or no voter approval at all. The resulting adverse impact frustrated the effective tax relief provisions of Proposition 13 to the significant detriment of California taxpayers, especially homeowners. The special strict construction rule of interpretation also provided a legal basis for California courts to narrowly and strictly interpret 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.

Local Government Interests Hostile to Proposition 218

Proposition 218 significantly limits the ability of local governments to raise revenues without voter approval. As a result, the vast majority of local governments in California have been hostile to and opposed Proposition 218. In nearly every Proposition 218 appellate 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 by arguing in favor of narrow or strict interpretations of the taxpayer protections.^[400]

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 ballot initiative process, local government interests have also supported legislative proposals that limit or otherwise erode Proposition 218 taxpayer protections. California law allows local governments to spend taxpayer funds to lobby in support of such legislative proposals in the California Legislature either directly^[401] 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.^[402] These taxpayer funds could otherwise be spent for public purposes that local governments claim lack sufficient funding.

Many voters/taxpayers are not fully aware that the actions of their local governments in Proposition 218 matters are usually 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 those constituents served by local governments. This often results in significant political friction and hostility 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 2015 Ballot Initiative Measure Circumventing Proposition 218

In December 2015, local government 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 with the California Attorney General that would have circumvented various constitutional protections under Proposition 218, including the right to vote on stormwater and flood control fees.^[403] The initiative measure would have created an alternate funding method (other than under Proposition 218) for local governments to impose fees and charges for water service, sewer service, stormwater service, and flood control service without voter approval.^[404] The proponents of the initiative measure declined to move forward after polling research revealed little support for California voters giving up Proposition 218 constitutional protections, including the right to vote on stormwater and flood control fees.^[405]

See also

• Property tax
• Sales and use taxes in California

References

External links

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