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The State Supreme Court Just Changed Everything We Knew About Local Tax Hikes

Many of the local tax increases people have talked about in San Diego just got a lot easier to pass if they’re proposed by a citizens’ group instead of local government.

If a group of citizens in California gathers signatures for a tax increase and gets it onto the ballot, it now will require only a simple majority to pass, not two-thirds.

A bombshell ruling from the California Supreme Court Monday will have enormous consequences up and down the state but particularly here in San Diego, where leaders are considering a bevy of tax increases.

If government leaders let citizens’ groups take the lead with private funding, they could make those taxes much, much easier to pass.

Until Monday, any local tax increase needed support from two-thirds of voters if the money was going to pay for something specific. So, for example, if the city wanted to raise the hotel-room tax to pay for a new football stadium, the measure would need two-thirds support.

If a local government only wanted more money and declined to say what the money would be used for specifically, the measure only needed a simple majority – the support of 50 percent of voters plus one.

That was the law that applied to citizens’ initiatives as well.

But the state Supreme Court on Monday agreed with the Fourth District Court of Appeal, which determined that the California Constitution’s restrictions on tax increases applied to local governments, not to citizens.

Thus, if the San Diego City Council wants to raise taxes for a stadium, it still needs two-thirds of the vote. But if a citizens’ group wanted to do it, it would only need a simple majority.

The two-thirds restriction is one of the most significant factors in all of local California government. Several major tax increases locally have gotten well more than 50 percent of support from voters but short of two-thirds.

Just last year, the San Diego Association of Governments put a half-cent sales tax increase on the November ballot. It got 58 percent of the vote, not the two-thirds required.

Such a measure would still need two-thirds were SANDAG itself to try again. But if a private coalition pursued it instead, apart from SANDAG but mandating the same terms, it would now only need 50 percent of the vote. A tax increase in 2008 to fund fire protection services after devastating wildfires the year before similarly got 64 percent of the vote but not the two-thirds needed.

Even a parcel tax San Diego Unified School District tried to pass in 2010 got more than 50 percent of the vote but failed with less than two-thirds.

The ruling will impact many local discussions.

San Diego Mayor Kevin Faulconer was deeply frustrated that the City Council in June rejected his push for a special election to increase hotel taxes to pay for a new Convention Center expansion. But it turns out, the Council improbably gave expansion boosters a huge gift – now they can pursue an expansion and tax with a citizens’ initiative that will only need a simple majority vote, not the two-thirds of support Faulconer would have had to rally.

Various housing advocates will also be eyeing the ballot in 2018 for an initiative.

The ruling further enhances the status of signature-gatherers and the people who pay them as a veritable branch of local government. They’ve already proved remarkably adept at getting past environmental restrictions and in vetoing major plans.

Now they’ll be able to more easily raise taxes.

“The case could open floodgates for various interest groups to pursue tax increases through citizen initiatives, and have the proceeds earmarked for specific projects. For example, health advocates will likely pursue soda tax increases and have proceeds earmarked for health education and recreation programs,” said Jim Sutton, a prominent election attorney, in a statement.

The Fourth District, which came to the same conclusion last year, and pointed to Article 13C of the California Constitution, which lays out the simple requirement for special taxes (i.e., taxes that fund specific purposes, like a stadium or convention center). Here’s how I described that reasoning at the time:

“No local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote. A special tax shall not be deemed to have been increased if it is imposed at a rate not higher than the maximum rate so approved,” the Constitution says.

The court ruling says that should be read specifically as the government imposing the tax.

The case, involving the city of Upland, had to do with a new fee on marijuana collectives. A collective wanted to put an initiative to voters that would legalize some dispensaries, and let the city charge them a $75,000 permit to open. There was a dispute about whether the city’s $75,000 permit for such facilities was a fee or a tax subject to the voting requirements of the Constitution.

“We need not reach the issue of whether the fee is a tax under Article 13C because, regardless, Article 13, section 2 does not apply to the Initiative. This is because Article 13C, section 2 is limited to taxes imposed by local government and is silent as to imposing a tax by initiative,” the court ruled.

This is what people seized on. The California Constitution only constrains local government’s ability to raise taxes, not citizens themselves.

Local attorney Cory Briggs, who was at that time was arranging an initiative to raise hotel room taxes, first predicted years ago that courts would find citizens initiatives did not fall into that part of the constitution and didn’t need two-thirds approval.

“I hate to say I told you so, but …” he tweeted Monday with the ruling.

“It’s pretty devastating,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association. “It will incentivize collusion between local governments and special interest groups to create special tax increases.”

He also said he worried the ruling would mean conservative local governments will have to accept tax increases they don’t want.

“When voters exercise the initiative power, they do so subject to precious few limits on that power,” the Supreme Court majority wrote. The court explained that the argument that “local government” includes citizens who might put up an initiative was just too hard to accept. If the Constitution was meant to include voters and the electorate in the law, it would say so.

That part of the state Constitution was put in place by voters themselves as part of Proposition 218. It was called The Right to Vote on Taxes Act, and voters approved it in 1996.

The Supreme Court justices said they could not find anything to suggest Prop. 218 was meant to constrain citizens as well as local government agencies.

“The crux of the concern repeatedly reflected in the ballot materials is with local governments and politicians –– not the electorate –– imposing taxes. Nowhere in the materials is there any suggestion that Proposition 218 would rescue voters from measures they might, through a majority vote, impose on themselves,” the ruling states.

“We’re going to have to amend the Constitution with a follow-up to the Proposition 218,” Coupal told me. He said he would begin working on a ballot measure to do that.

Perhaps most embittered by the ruling are Chargers fans. The Chargers stood ready to wait for this decision if their own Proposition C reached the 50 percent threshold in November. But it only reached 43 percent, and the team chose to move.

Knowing an initiative only needed 50 percent, however, might have completely changed the discussion about the challenge of building a stadium. Most other publicly funded stadiums and related taxes in this country were approved by a simple majority of voters, not two-thirds.

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