Despite decades of understanding that special tax increases in California need supermajority voter approval, a new legal theory proposed by San Francisco city attorneys and upheld by a lower court will stand for now. Last week, the California Supreme Court declined to review a lower court case upholding the validity of Proposition C, a San Francisco business tax increase that was approved by 61% of voters—more than a majority but less than two-thirds—in the November 2018 election.
California’s Proposition 13 (1978) and Proposition 218 (1996) amended the California Constitution to add restrictions on government’s power to tax. Proposition 13, among other things, required any local special tax be approved by two-thirds of the electorate. Proposition 218 states that “no local government may impose, extend, or increase any general tax” without majority voter approval or any special tax without two-thirds voter approval. For decades, California observers have understood the two-thirds requirement, and initiatives were crafted to get supermajority support.
It began to unravel in 2017, when the California Supreme Court decided California Cannabis Coalition v. City of Upland, an election scheduling dispute that opened the door to more serious consequences. The Upland case dealt with a voter initiative to put a new marijuana inspection charge on the local ballot. Upland officials placed the initiative on the next general election ballot. Supporters of the initiative sued, wanting instead a special election to be called. The initiative eventually failed at the ballot, but the California Supreme Court ruled on the case anyway, and surprisingly held that Propositions 13 and 218 were meant to limit politicians, not voters. The court concluded that the constitutional language, “no local government may impose, extend, or increase” a tax, was not a limitation on voter-initiated tax proposals but only those directly imposed by government. Therefore, Upland needed to comply with the requirement that the tax go on the general election ballot. Two justices dissented, warning that the next step of that line of reasoning was that special taxes could be enacted by a simple majority, at odds with the language and intent of Propositions 13 and 218.
That is exactly what happened next. Two attorneys working for San Francisco authored a memo pointing out that “it seems very likely that voters may now propose special taxes by initiative subject to a majority vote.” Proposition C, a $300 million gross receipts tax on large businesses to fund homelessness services, was put on the ballot by initiative and declared approved by election officials despite garnering only a 61% yes vote. A judge upheld it, as did an appeals court in June. (Across the bay, Oakland’s similar effort to declare a parcel tax valid despite getting only 62% of the vote was rejected by a judge, since election materials said it would require two-thirds to be adopted.)
The California Supreme Court may think it sidestepped sorting out the implications of its 2017 decision, but more cases are coming. In Fresno, a judge invalidated a local sales tax increase for failing to get a two-thirds vote, and that appeal is working its way up. In November 2018, eight local tax increase initiatives obtained a majority but fell short of two-thirds, and 176 local tax measures will be on the November 2020 ballot.
The case was First District Court of Appeal in City and County of San Francisco v. All Persons Interested in the Matter of Proposition C, No. S263753.