More Local Tax Initiatives on the Horizon

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Many government officials have detested the initiative process, but maybe a non-action by the California Supreme Court will change that attitude. The Court decided not to take up a case challenging a tax increase for a specific purpose that garnered a majority vote but not the two-thirds that was thought to be required for earmarked taxes. A lower court declared the two-thirds requirement only applies to local governments raising taxes. If the tax increase comes via direct democracy, then the restriction doesn’t apply.

By the Supreme Court refusing to take up a challenge to the lower court ruling, for now the door has been opened for initiative generated earmarked special taxes to be passed with a majority vote. In this instance, the City of San Francisco raised gross receipts taxes on certain businesses to fund homeless services.

With the constant clamoring for more revenue for all sorts of government functions, you can bet that many local initiatives will be launched to raise revenues. Earmarked taxes usually have stronger pull with voters because arguments can be made specifically on how the revenue will be used. Rarely discussed is the downside of requiring taxes to be spent only for specific purposes. This binds the governing bodies of jurisdictions and can tie local budgets into knots.

As reported here before, the issue of whether initiative tax increases had to follow the same rules as local governments as constitutionally established by Proposition 218 in 1996 came out of a marijuana case in Upland. 

The issue before the court in California Cannabis Coalition vs. City of Upland was whether a measure dealing with fees and taxes related to medical marijuana dispensaries could appear on a special election ballot when Proposition 218 expressly calls for tax measures to be voted on in general elections. However, in making its decision, the court potentially allowed for much more than changes in the timing of votes. It broadly declared that Proposition 218’s restrictions on taxation only applied to local governments. 

Immediately speculation arose that the ruling would allow local tax measures placed on the ballot by initiative could pass with a majority vote. It was unclear if that was the court’s intention. The matter is not totally closed with the Supreme Court’s decision not to hear an appeal in the San Francisco case because other cases involving special taxes proposed by initiative but unable to secure a two-thirds vote are still being contested. If a different District Court comes up with a ruling that declares the two-thirds mandate must be followed, then the Supreme Court will get another opportunity to rule specifically on the issue.

However, by refusing to take up the San Francisco tax case, the Supreme Court has given a good indication where it might come down on a direct challenge to Proposition 218’s effect on initiatives.

The opportunity now exists for advocates of more government spending that have financial power—think public employee unions—to go the initiative route to raise taxes with lower standards to prevent the tax increase. This becomes more likely as local budgets are squeezed even tighter by pension and other benefit obligations owed public workers.

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