Everybody talks about tax reform, but don’t forget about one of the few recent successes: voter approval of Proposition 26 in November of 2010.
Proposition 26 clarified the distinction between a “fee” and a “tax,” which was no small achievement since legitimate fees can be approved by a simple majority vote of the governing body (including the state Legislature), while taxes require a two-thirds legislative vote or approval by local voters. A legitimate fee must either provide a service or benefit to the fee payer, or be incidental to a reasonable regulatory program, such as rulemaking and enforcement. Otherwise, it’s a tax.
Proposition 26 prohibited dressing up tax increases as fees, which had become increasingly popular in recent years due to budget shortfalls, partisan gridlock, and ambiguity created by the Sinclair Paint decision, which further blurred the boundary between certain types of taxes and fees.
Environmental activists were surprised and apparently stung by their defeat in 2010. So naturally, a proposal to repeal Prop 26 was drafted, and an environmental consultant with long experience in managing ballot measures submitted two similar versions late last year. The Attorney General recently issued circulating titles and summaries, which means the clock is running to collect signatures – about 808,000 by mid-June. (Proponents would only circulate one of the initiative proposals for signatures.)
The Legislative Analyst has stated for the record that these measures would potentially “increase state revenues, likely ranging in the tens of millions of dollars to the low hundreds of millions of dollars annually, depending on future actions of the Legislature.”
Politically, these measures are indistinguishable from the higher profile income or oil severance tax measures potentially competing for the same ballot as the Governor’s proposal. Should a proposal to repeal Prop 26 qualify for the ballot, a vigorous debate would ensue over state government taxing and spending. Such a debate would inevitably attenuate the Governor’s budget discipline message, and increase his already daunting challenge.