Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
CC SR 20240604 03 - ACLAD KCLAD Prop Assessment
CITY COUNCIL MEETING DATE: 06/04/2024 AGENDA REPORT AGENDA HEADING: Regular Business AGENDA TITLE: Consideration and possible action to determine whether to take a protest position regarding proposed increases to the tax assessments for Fiscal Year (FY) 2024-25 and to accept the terms of a financial assistance package for the Klondike Canyon Landslide Abatement District (KCLAD) and Abalone Cove Landslide Abatement District (ACLAD). RECOMMENDED COUNCIL ACTION: (1) Review the proposed increase to the FY 2024-25 assessments by ACLAD and KCLAD based on each entities assessment formula established at formation as outlined in their respective engineer’s report; (2) Provide Staff direction on whether the City, as a property owner within ACLAD, should cast a protest vote on the proposed $378,252 property assessments for FY 2024-25 at its June 10, 2024 elections; (3) Provide Staff direction on whether the City, as a property owner within KCLAD, should cast a protest vote on the proposed $335,826 property assessment for FY 2024-25 at its June 17, 2024 elections; (4) If the proposed property assessments are acceptable, approve an increase of $488,000 in the FY 2024-25 Draft Budget using prior year’s unallocated fund balance; (5) Review the proposed terms and conditions of the financial assistance package for each ACLAD and KCLAD, which include a 12-year term and a 2.5% interest rate; (6) If deemed acceptable, approve an additional appropriation of $1,917,500 (KCLAD) and $1,500,000 (ACLAD) from the Capital Infrastructure Program (CIP) Fund, and, (7) Authorize the Mayor and City Clerk to sign each financial assistance agreement pursuant to a form approved by the City Attorney’s Office. FISCAL IMPACT: If the recommended Council actions are approved, an additional appropriation of $3,417,500 is required from the Capital Infrastructure Program (CIP) Fund for the financial assistance loans. Additionally, if the proposed assessments are approved, an additional budget amount of $488,000 would be added into the FY 2024-25 Draft Budget in General Fund during the budget hearing scheduled for June 18, 2024. At the end of FY 2023-24, the CIP Fund is estimated to have an unallocated fund balance of $29.4 million. The projected unallocated fund balance for the General Fund in FY 2023 - 24 is $14.4 million. 1 If approved, over a period of 12 years, the loan of $3.4 million is projected to have a financial impact of approximately $5.5 million. This is based on the loan amounts, potential interest earnings loss, and as one of the land owners, the City would also have to pay a portion (approximately 58%-59%) of the loan repayments if they become part of the annual tax assessments determined by the District’s annual budget. Amount Budgeted: $0 Additional Appropriation: $3,417,500 Account Number(s): 330-400-0000-7201 (CIP Fund – Debt Service) ORIGINATED BY: Vina Ramos, Director of Finance VR Anita Luck, Special Counsel REVIEWED BY: Elena Q. Gerli, City Attorney Ramzi Awwad, Director of Public Works APPROVED BY: Ara Mihranian, AICP, City Manager ATTACHED SUPPORTING DOCUMENTS: A. Draft Loan Agreement between City and ACLAD (page A-1) – pending and to be transmitted as late correspondence B. Draft Loan Agreement between City and KCLAD (page B-1) – pending and to be transmitted as late correspondence C. Sample Amortization Schedules – 12 Years @ 2.5% for ACLAD and KCLAD (page C-1) D. ACLAD Public Notice to Consider Increasing Assessments in FY 2024-25 (page D-1) E. KCLAD Public Notice to Consider Increasing Assessments in FY 2024-25 (page E-1) F. Summary of Assessments from ACLAD and KCLAD with accompanying Parcel Maps (page F-1) G. Senate Bill No. 1195 – forming Geologic Hazard Abatement Districts (page G-1) H. Resolution No. 1981-004 forming ACLAD (page H-1) I. Resolution No. 82-17 forming KCLAD (page I-1) J. Cal Cities Prop 218 Guidelines (page J-1) K. ACLAD’s Engineer’s Report (page K-1) L. KCLAD’s Engineer’s Report (page L-1) BACKGROUND: On October 3, 2023, the City Council discussed the conditions of the Greater Portuguese Bend Landslide Complex (Landslide Complex) which consists of five sub -slides four of which are in Rancho Palos Verdes (Abalone Cove, Portuguese Bend, Klondike Canyon and Beach Landslides) and one in Rolling Hills (Flying Triangle). After considering 2 information presented that evening, including public testimony, the City Council unanimously adopted Resolution No. 2023 -47 declaring the existence of a local emergency within the geographic boundaries of the Landslide Complex. The City Council also requested Staff return in a few weeks with an update on immediate measures being taken to address the accelerated land movement. At subsequent meetings, the City Council received updates on conditions in the Landslide Complex as well as measures underway by the City, the two Geologic Hazard Abatement Districts (GHADs), and the Portuguese Bend Community Association, and extended the local emergency on multiple occasions. Since October 3, 2023, the City Council has extended the local emergency declaration at least every 60 days, most recently on May 7, 2024 through Resolution No. 2024-20. On March 19, 2024, the City Council approved moving forward with emergency work in the Portuguese Bend Landslide consisting of installing two emergency hydrauger systems with five drain arrays each and associated work. Also on March 19, 2024, the City Council directed Staff to explore assisting the ACLAD and the KCLAD (collectively referred to as Districts herein) with in-kind services and financial assistance in the form of a loan for landslide mitigation measures prepared by a licensed geotechnical engineering company and return to the City Council for consideration. The City’s role here is as a government entity. Based on the accelerating efforts to slow down the land movement, on April 25, 2024, ACLAD and KCLAD (the two GHADs in the City), in addition to requesting financial and in-kind assistance from the City, are proposing significant increases in their property assessments. Each District will conduct a protest hearing on June 10, 2024 (ACLAD), and June 17, 2024 (KCLAD). As the City is a significant landowner in both districts, the City Council is being asked to provide direction to staff regarding the Districts’ protest hearings that are being conducted pursuant to Proposition 218. The City’s function in this context is as a landowner, not as a government entity. Tonight, the City Council is being asked to consider and determine whether to take a protest position regarding proposed increases to the tax assessments for FY 2024 -25 and to consider accepting the terms of a financial assistance package for the ACLAD and KCLAD. DISCUSSION: 1. FY 2024-25 Proposed Tax Assessment Geologic Hazard Abatement District Background In September 1978, the Rancho Palos Verdes City Council was presented with information regarding movement along Palos Verdes Drive South and Narcissa Drive that indicated a reactivation of the ancient Portuguese Bend Landslide Complex. The City Council immediately established a building moratorium in the area and authorized a series of geological investigations to ascertain the problem and identify potential solutions. The City Council hired Robert Stone and Associates (RSA) to perform a 3 comprehensive hydrogeologic investigation to determine how to remediate land movement that was accelerating at the time. In summary, the RSA studies concluded that to remediate land movement, water needed to be managed at and below the surface. At the same time, state law makers passed SB 1195 in 1979 authorizing the formation of GHADs in the state of California (Attachment G). SB 1195 was authored by then-state Senator Robert Beverly and then-Assemblymember Marilyn Ryan who collaborated with then-City Councilmember Ken Dyda, to form an entity that would be self -governed as a public agency with sole intent to abate and mitigate landslide impacts. GHADs are governmental districts governed by 5 elected Directors who serve 4-year terms and are elected from among the property owners within the GHAD boundary limits. One of the requirements to form a GHADs is to adopt a Plan of Control that essentially outlines the charter/intent of the GHAD. Funding to implement the Plan of Control primarily comes from tax assessments levied on properties pursuant to Proposition 218 and based on a Benefits Assessment Formula that was adopted at the time the GHADs were each formed, as summarized in the discussion below. Authority/Applicable Law As local public entities, ACLAD and KCLAD are subject to Proposition 218 upon any increase in assessments. Article XIIIC (proposition 218) requires an assessment ballot procedure for any increase in an assessment. In assessing properties, the public entity must identify special benefits (which are assessable) and general benefits (which are not assessable) and the respective proportional benefit derived from a specific parcel determined in connection with the cost of the improvement or expense. No assessment may be imposed on any parcel which exceeds the reasonable cost of the proportional special benefit conferred on that parcel. The property owners must receive 45 days’ notice of an assessment protest hearing, and a ballot to fill out with respect to an increase in assessment, which notice must identify the items related to the assessment. The assessment must be based on an Engineer’s Report. The Engineer’s Report is based on the long-term assessment formula used by the respective districts approved by the voters during its formation, rather than changing any particular benefit received by the parcels subject to the assessments. The City’s assessment, as landowners, is 58% (ACLAD) and 59% (KCLAD) of all the assessments. This is based on the City owning 859.03 units out of 1,471.66 total units in ACLAD (58%), and 279.42 units out of 474.50 total units in KCLAD (59%). Attached to this report is a summary of the parcel information along with a map showing the City owned properties (Attachment F) All assessments shall be supported by a detailed Engineer's Report prepared by a registered professional engineer certified by the State of California (Prop 218 requirement). The Implementation Act of Proposition 218 provides that a “registered professional engineer” “refers to a person engaged in the professional practice of rendering service or 4 creative work requiring education, training and experience in engineering sciences and the application of special knowledge of the mathematical, physical and engineering sciences in such professional or creative work as consultation, investigation, evaluat ion, planning or design of public or private utilities, structures, machines, processes, circuits, buildings, equipment or projects, and supervision of construction for the purpose of securing compliance with specifications and design for any such work.” Bus. & Prof. Code § 6701. In its consideration of the Districts’ proposed assessments, the City is acting as landowner only, and the Council should not treat the proposed assessment and the loans requested interchangeably. Proposed Tax Assessment In April 2024, ACLAD and KCLAD each separately notified landowners within their respective boundary limits, including the City, that protest public hearings for each District will be conducted to consider potentially increasing assessments in FY 2024-25 (Attachments D and E) based on their projected budgets. For the City, its assessments as a landowner would increase from $175,074 to $378,252 for ACLAD, and from $50,877 to $335,826 for KCLAD. The Districts’ assessments are funded each year from the City’s General Fund under the Public Works budget. Engineers Report On May 24, 2024, the City received the required Engineer’s Reports for the proposed assessments (Attachments K and L). The Engineer’s Reports include financial information along with the assessment formula as shown on the next page. Table 1 shows the ACLAD and KCLAD Proposed Tax Assessments for the City and Table 2 shows a similar overall Benefit Assessment Formula from the Public Notice dated April 25, 2024 (Attachments D and E): Table 1: ACLAD and KCLAD Proposed Tax Assessments (City) ACLAD KCLAD Total Units 1,471.66 Total Units 474.75 Total City's Units 859 Total City's Units 279.42 Percentage 58%Percentage 59% Proposed Budget 648,000$ Proposed Budget 570,570$ Cost per unit 440.32$ Cost per unit 1,201.85$ Total Assessment 378,252$ Total Assessment 335,826$ 5 Table 2: Benefit Assessment Formula Table 3 on the next page are ACLAD and KCLAD proposed budgets for FY 2024-25 that is used to calculate the proposed tax assessments based on the above Benefits Assessment Formula. CONTINUED ON THE NEXT PAGE 6 Table 3: FY 2024-25 ACLAD and KCLAD Proposed Budget Abalone Cove Landslide Abatement District Klondike Canyon Geologic Hazard Abatement District Proposed FY 2024-25 Budget Proposed FY 2024-25 Budget Contract Administrative Services Contract Administrative Services 010 Support Staff 16,800 110 Executive - Administrative 12,000 011 Legal 2,000 111 Consulting Geologist/Legal 10,000 012 Board Related Expenses 600 113 Board Related Expenses 500 013 Election Related Expenses 500 114 Election Related Expenses 1,200 014 Office Expenses 1,200 116 Administration Consultation 500 015 Bank Charges 50 Total Administrative 21,150 Total Administrative 24,200 Maintenance & Operations 201 Purchased Consulting Services 20,000 202 Insurance 7,500 202 Utilities 36,000 203 Office Expenses 1,000 203 Insurance 7,500 207 Replacement Reserves 80,000 204 Easement Payments 3,500 208 Well Drilling Costs 200,000 205 Purchased Maintenance Service/Parts 130,000 209 Well & Pipeline Maintenance Services 65,000 206 Surface Drainage Expense 50,000 210 Extraordinary Repairs 25,000 207 Replacement Reserve 100,000 211 Electricity 6,000 208 Well Drilling Costs 250,000 212 Channel Maintenance Project 100,000 209 Contingency Funds 29,850 213 Sub Slide Consulting - Beach Club Slide 10,000 410 Contingency 51,870 Total Maintenance & Operations 626,850 Total Maintenance & Operations 546,370 Sources of Funds - Income Sources of Funds - Income Funds Requested by Assessment $648,000 Funds Requested by Assessment $570,570 RPV Reimb Well Monitoring Expense 2,400 LAIF Interest Income 700 Total Source of Funds $651,100 Total Source of Funds $570,570 7 Fiscal Impact If the proposed assessments are approved, the fiscal impact is $488,000 to the General Fund, as shown in Table 4 below. As reported at the General Fund budget workshop on April 18, revenues for FY 2023-24 are anticipated to exceed expenditures by $1.4 million. Therefore, to minimize the impact to the General Fund’s operating budget, Staff proposes using a portion of the $1.4 million from FY 2023-24 to fund the increase of $488,000 in tax payments for FY 2024-25. This amount will be added to the FY 2024-25 Draft Budget to be presented during the budget hearing on June 18, 2024 if deemed acceptable by the City Council. Table 4: FY 2024-25 Fiscal Impact ACLAD KCLAD TOTAL FY 2023-24 Assessments $175,074 $50,877 $225,951 FY 2024-25 Proposed Assessments $378,252 $335,826 $714,078 Total Increase $203,178 $284,949 $488,127 Total Increase by % 116% 560% 216% If approved, Chart 1 on the following page illustrates how the 10-year Financial Model and the estimated expenditures, including the proposed assessments, would result in slightly exceeding revenues by FY 2026-27. The assumptions included in the financial model is approximately $300,000 in property tax assessments with a 5% year-over-year rate increase. To refine these figures, if the City Council approves financial assistance to the Districts, one of the conditions is for the Districts to work with the Director of Finance to develop a more accurate 10-year forecast of the Districts’ budget needs. The financial model tool shall assist in upholding Districts repayment obligations to the City and in identifying financial challenges early, if any, allowing for appropriate measures to be taken. Based on this analysis, Staff would carefully reassess future budgeting to ensure that the City’s operating expenditures do not exceed operating revenues. When available, the City could also consider funding the tax assessments with a one-time surplus in order to lower the impact in the General Fund’s budget. CONTINUED ON THE NEXT PAGE 8 Chart 1 General Fund 10-Year Financial Model with ACLAD & KCLAD Assessment Increase (Including Transfers) Based on the information presented above, Staff seeks direction from the City Council on the following: • Whether the City, as a property owner within ACLAD, should cast a protest vote on the proposed $378,252 property assessments for FY 2024-25 at its June 10, 2024 elections; • Whether the City, as a property owner within KCLAD, should cast a protest vote on the proposed $335,826 property assessment for FY 2024 -25 at its June 17, 2024 elections; and • If the City Council chooses not to protest the proposed assessments, direct Staff to include $488,000 in the FY 2024-25 Draft Budget using prior year’s unallocated fund balance. 2. Financial Assistance Authority The City Attorney’s office has found nothing in state or federal law that prevents the City from providing low- or no-cost loans. Local, state, and the federal government periodically loan money to private persons, such as student loans, housing loans, and business loans. A recent example of a loan program that a number of cities have provided is a small business loan program during the pandemic, where cities provided loans of varying amounts to local businesses to tie them over during the worst of the pandemic shut downs. 9 The only limitation with respect to loans by the City is the California Constitution, Cal. Const. art. XVI, § 6, which prohibits the gift or loan of public funds “in aid of or to any person, association, or corporation, whether municipal or otherwise, or t o pledge the credit thereof, in any manner whatever, for the payment of the liabilities of any individual, association, municipal or other corporation whatever….” To comply with the constitutional prohibition, any transfer of funds must have as its purpose promotion of the interests of the City. (Edgemont Community Service Dist. v. City of Moreno Valley (1995) 36 Cal.App.4th 1157.) Abating the landslide promotes the interests of the City, its residents, and visitors by slowing or stopping the progress of the land movement, property values will be preserved, homes will be protected, a threat to the public health and safety will be abated, and stabilization of Palos Ve rdes Drive South will ensure that a major thoroughfare into and out of the Peninsula is safeguarded. Additionally, slowing or stopping the land movement will support habitat and wildlife preservation, consistent with the City’s Natural Community Conservation Plan/Habitat Conservation Plan, and retain and preserve public trails. In addition, the following sections of the Public Resources Code from the Geological Hazard Abatement Law allow for financial assistance: “A district may accept financial or other assistance from any public or private source and may expend any funds so accepted for any of the purposes of this division.”; “Contributions by a local agency, the state, or any instrumentality or political subdivision thereof, are hereby declared to be for a public purpose.”; and “A district may borrow money from or otherwise incur an indebtedness to a local agency, the state, any instrumentality or political subdivision thereof, the federal government, or any private source, and may comply with any conditions imposed upon the incurring of that indebtedness.” Pub. Res. Code §§ 26591, 26592, 26593. KCLAD and ACLAD Assistance Package As previously noted, ACLAD and KCLAD are GHADs created with the authority and responsibility to address land movement in the Abalone Cove and Klondike Canyon Landslides, respectively. ACLAD and KCLAD are governmental districts, independent of the City, formed for the prevention, mitigation, abatement, or control of a “geologic hazard”, which is defined as an actual or threatened landslide, land subsidence, soil erosion, earthquake, fault movement, or any other natural or unnatural movement of land or earth. ACLAD and KCLAD have the ability to assess properties within their districts to fund their activities. To date, the City has been coordinating very closely with ACLAD and KCLAD on their various mitigation activities by providing support services and funding four dewatering wells in ACLAD, south of Palos Verdes Drive South. ACLAD and KCLAD representatives recently indicated that their fund reserves are depleted, and additional funding is needed before they can proceed with further landslide mitigation measures. 10 Pursuant to the Council’s March 19, 2024 directive to explore assisting the Districts with in-kind services and financial assistance, the City received information from both Districts on their financial needs to implement certain abatement and mitigation work, as described below. KCLAD submitted to the City a five-step landslide mitigation plan, prepared by WSP Global Inc. (WSP) Senior Associate Engineering Geologist Scott Kerwin, a Certified Engineering Geologist. The five-step plan includes the following: 1) Install water removal channel/pipe for Klondike Canyon from Palos Verdes Drive South to the head of the KCL. 2) Add three new water extraction wells at the beach in the KCL and one observation well at the head of the KCL. 3) Fill fissures at the head of the KCL and remove dirt at the PBL – KCL interface 4) Create storm drain at the head of the Beach Club Sub-Slide to channel water to Klondike Canyon. 5) Add 4 tactical drain items. Based on discussions with staff, KCLAD is requesting a loan from the City in the amount of $1,917,500. The loan would fund installation of a temporary 16” flex pipe for step one of the plan, with the permanent channel to be installed at a future date; two of the three water extraction wells and the observation well for step two of the plan, and all of step three of the plan. On April 25, 2024, ACLAD outlined a proposed project for potential loan consideration totaling up to approximately $1,500,000 as a draw-down loan to complete the following: 1) $1,250,000 for four additional wells and system repairs and optimization. 2) $660,000 for fissure filling, surface drainage, and Altamira Canyon preliminary engineering. Proposed Loans and Terms – ACLAD and KCLAD In accordance with the March 19 Council directive to work with the Districts, the City team, consisting of the City Manager, City Attorney, Special Counsel, Public Works Director, and Director of Finance, has met several times with the representatives from each of the Districts to discuss potential financial assistance the City may offer. These discussions explored various forms of financial assistance, including interest -free loans for $1.9 million (KCLAD) and $1.5 million (ACLAD) with terms ranging from 10 to 30 years and annual payments ranging from $73,000 to $285,000. Both Districts initially requested interest- free loans with a minimum term of 12 to a maximum term of 30 years. Since March 19, there has been significant progress in landslide mitigation that materially impacts the City’s financials. While the City continues to pursue grants and emergency funding opportunities, the use of current funds to start the projects immediately is necessary. With the sudden use of capital resources for the landslide mitigation efforts, 11 the CIP fund balance is estimated to decrease from $35 million in FY 2022-23 to $25 million, a decrease of approximately 28% by FY 2024-25. In considering offering a loan to the Districts, the City Council is recommended to take the following into account: • $10.5 million for the emergency hydraugers project . • $717,200 of previously approved funding to reactivate four City-owned dewatering wells and repair a section of a drainage culvert under Palos Verdes Drive South for Altamira Canyon within ACLAD. • $488,000 additional in assessments, which constitutes a 216% increase from the prior year in potential tax assessments from the Districts. • $18,000 to $51,500 of potential interest earnings loss per $1 million annually by not having cash on hand. In accordance with the City’s Investment Guidelines and the California’s Local Agency Investment Guidelines, the City regularly invests its idle funds to earn interest earnings. Over the past five years, the City ’s average interest rate of return is 1.8%. However, the current Treasury investments offers an interest rate of approximately 4.5% for five years. If the City invests $3.4 million in Treasuries for five years at this rate, followed by a conservative 1.8% rate for seven years, the average interest rate over 12 years would be around 2.5% to 3%. This could result in potential earnings of up to $1.4 million for investing $3.4 million in 12 years. • As landowners, the City is presumed to contribute approximately 58%-59% of the loan payments. These loan payments are factored into the Districts' budgets when calculating annual assessments. Hence, when factoring the loan payments that Districts must pay the City, it inherently increases (i.e. due to higher interest rate) the City's contribution as well. Essentially, the City could potentially pay approximately $0.60 for every $1 expense. • The two funding measures proposed by the Districts, tax assessment and loan, are complementary and do not overlap. Based on the above, if the Council desires to proceed with the financial assistance, staff believes it is most prudent for the City to offer a loan at a 2.5% interest over a 12 -year period. In that regard, the terms and conditions to fund the Districts’ proposed projects are summarized in Tables 5, 6, and 7. Attached are the draft amortization schedules with detailed information such as principal and interest payments (Attachment C). CONTINUED ON THE NEXT PAGE 12 Table 5: City’s Proposed Loan Terms Financial Assistance KCLAD ACLAD* TOTAL Loan $1,917,500 $1,000,000 $2,917,500 Interest Charge @ 2.5% @ 12 years $325,700 $169,800 $495,600 TOTAL $2,243,300 $1,169,800 $3,413,100 Proposed Funding CIP Fund CIP Fund First Payment Dec. 1, 2025 Dec. 1, 2025 Annual Payments due to City* $186,932 $97,487 $284,419 *ACLAD's first draw down amount is $1M with not-to-exceed $1.5 million loan* *As land owners, the City would also have to contribute to the annual payments if the loans become part of the annual tax assessments budget supported by an engineer's report. Table 6: Districts’ Proposed Projects for the Loans KCLAD ACLAD $1.9 million for Steps 1-3 of the Stabilization Project: 1) $1,250,000 for four additional wells and system repairs and optimization. 2) $660,000 for fissure filling, surface drainage, Altamira Canyon preliminary engineering. 1) $153K Step 1 - install the temp 16" flex pipe first & hold off on the permanent HDPE V - Ditch. 2) $765K Step 2 - install 2 of the 3 deep water pumps and the 1 observation well. 3) $1M Step 3 - fissure filling and earth removal at the Portugues Bend/Klondike Canyon slide interface) The total project cost $5.4 million. As previously mentioned, the Staff continues to work with the City Attorney’s Office and the Districts on the specific terms of a loan agreement including provisions for financial oversight, financial audits, and default terms with KCLAD and ACLAD. Table 7 on the following page is a summary of potential loan conditions, which Staff are actively working with the Districts. Staff anticipates having the final draft loan terms and agreement completed as late correspondence on or before the June 4 City Council meeting (Attachments A and B) 13 Table 7: Examples of Loan Conditions Fiscal Impact Based on the latest data, Table 8 on the next page outlines the projected fiscal impact of $5.5 million for the City, both in terms of providing a loan and as a property owner responsible for paying assessment taxes. This includes the $3.4 million financial assistance and potential City contributions through loans if they become part of the annual tax assessments budget supported by an engineer's report. Wet-stamped Engineers Report showing and verifying work to be done for Project. The City retains the right to forgo the physical payment made to the Districts for its Annual Assessment and instead treat the City’s total Annual Assessment as a credit toward the required loan payments from the Districts. Draw Down on Loan made upon Application for Disbursements with certain certifications verifying work (contract, invoices). To comply with Proposition 218 in the increase of Assessments. Repayment period not to exceed 12 years. Terms will start with the first draw down. No prepayment penalty. Funds shall be solely designated for the Project. Operational expenditures including administrative costs, legal and or litigation costs, and ongoing maintenance are not permitted uses of these funds. ACLAD/KCLAD shall work with the City to develop a 10-Year Model outlining estimated Sources of Revenues and Expenditures. The financial model tool shall assist in upholding ACLAD’s repayment obligations to the City and in identifying financial challenges early, if any, allowing for appropriate measures to be taken. Must be completed by December 1, 2024. Resolution Approving Loan Agreement by ACLAD/KCLAD Board. The City shall have unfettered and unrestricted access to quarterly financial reports including Balance Sheets, Statement of Revenues and Expenditures, Detailed Accounting Reports of Expenditures and Revenues. Failure to give access within 30 days of the City’s request is considered a material default of the loan agreement. Default Rate of 5%. In the event ACLAD/KCLAD defaults on a payment, the City shall have the right to use any default amount plus default rate fees as credit towards the City’s total Annual Assessment payment. ACLAD/KCLAD to submit an annual financial audit report to the City. 14 Due to the infrastructure nature of the projects proposed by ACLAD and KCLAD, Staff recommends the use of CIP Funds for the loans instead of General Fund which is mainly used for operational activities and not capital projects. The impact on the CIP Fund is shown in Chart 2 on the next page which includes assumptions of the loans and future incoming payments starting in FY 2025. As previously noted, due to the recent sudden increase in landslide mitigation efforts, the CIP’s fund balance is estimated to dec rease from $35 million in FY 2022-23 to $25 million or decrease of 28% by FY 2024-25. Overall, based on the City’s spend rate of 70% from the FY 2024-25 Preliminary Five Year Capital Improvement Program, proposed loans to the Districts, and incoming payments, the CIP Fund is estimated to have a balance of $8.1 million by FY 2028 -29. For FY 2024-25, if the Districts’ proposed tax assessments are approved, the General Fund budget would see an approximate increase in expenditures in the amount of $488,000. As reported at the General Fund budget workshop on April 18, revenues for FY 2023-24 revenues are anticipated to exceed expenditures by $1.4 million. Therefore, to minimize the impact in General Fund’s operating budget, Staff would propose using a portion of the $1.4 million to fund the increase of $488,000 in tax payments. Table 8: Estimated Fiscal Impact of $3.4 million Loan (12 years) City (Estimated) Fund KCLAD ACLAD TOTAL City % through assessments 59% 58% Loan CIP 1,917,500 1,500,000 $3,417,500 Total City’s portion through Assessment (12 yrs.) General Fund $1,320,900 $1,015,700 $2,336,600 Average interest earnings loss (12 yrs.) @ 3% CIP & General Fund $816,400 $630,000 $1,446,400 District's portion of the loan through Assessment (12 yrs.) General Fund -$917,800 -$735,500 -$1,653,300 Fiscal Impact (12 years) * CIP & General Fund $3,137,001 $2,410,201 $5,547,200 *These estimates are provided for the purpose of illustrating potential impacts and are based solely on a set of assumptions. CONTINUED ON THE NEXT PAGE 15 Chart 2 CIP Fund Five-Year Forecast with $3.4 Million Loan *Expenditures are estimated at a spend rate of 70% On May 29, 2024, KCLAD communicated with Staff that they find the proposed loan terms acceptable for presentation to the City Council which includes a 12 -year loan term with a 2.5% interest rate. Staff continues to work with ACLAD and provides additional information, and once all terms and conditions are confirmed, will be incorporated in the loan agreements to be transmitted as late correspondence. It should be noted that the Districts will need to take formal action approving the loan terms and conditions at a duly notice public hearing before formally accepting the City’s offer. Based on the information presented above, Staff seeks direction from the City Council on the following: • Financial assistance to KCLAD in a form of a loan of up to $1,917,500, with a minimum term not exceeding 12 years, an interest rate of 2.5%, and terms and conditions as approved by the City Attorney; • Financial assistance to ACLAD in a form of a loan of up to $1,500,000 as a drawn-down loan, with a minimum term not exceeding 12 years, an interest rate of 2.5%, and terms and conditions as approved by the City Attorney; or • If deemed acceptable, approve an additional appropriation of $3,417,500 from the Capital Infrastructure Program (CIP) Fund; and, • Authorize the Mayor and City Clerk to sign each agreement pursuant to a form approved by the City Attorney’s Office. 16 ADDITIONAL INFORMATION: Congressional Grants Earlier this year, the City received notification from each of its federal representatives offices (Senator Padilla, Senator Butler, and Representative Lieu), that their respective representatives will be accepting applications for congressional grant funding for local projects. Knowing that each of the City’s GHADs are considered governmental agencies combined with the financial hardship each GHAD is facing due to unprecedented cos ts being borne to remediate land movement impacts, City Staff immediately notified both GHADs of this grant funding opportunity. It should be noted that since 2023, the City has been encouraging the two GHADs to seek funding opportunities to supplement the ir budgets through potential county, state and federal grant opportunities including FEMA’s various grant programs. Both GHADs timely submitted grant applications to each of its federal representatives offices. As of writing this report, ACLAD and KCLAD were both notified on May 28 from Rep. Lieu’s office that their grant applications have been selected within the top 1 5 applications to advance to the next phase. Specifically, the following message excerpt was sent to ACLAD and KCLAD with the City copied: I am pleased to confirm that Congressman Lieu has submitted this project for funding as one of his 15 finalists for the FY25 cycle. It is important to note that we still have a long process ahead of us and this funding is by no means guaranteed. The project will have to be further reviewed and vetted by the Appropriations Subcommittee. If it passes that process, it will need to survive Committee markup and votes in the House and Senate, as well as a potential Conference Committee before heading to the President’s desk for his signature. Staff will continue to monitor the progress of these two grant opportunities. It should be noted that if approved, funding will not become available until 2025. Portuguese Bend Community Associations Financial Assistance Request On April 24, 2024, the City received a request for a $494,018 loan to the Portuguese Bend Community Association (PBCA) to fund unforeseen road repairs due to recent and continuing land movement in their community. The request is based on the following assumptions: 1. The amount requested will cover the actual past expenditures through April of this fiscal year over and above the annual $70,000 budgeted amount, plus the amount projected to be needed for the remaining two months of this fiscal year, plus the 17 amount projected for the next fiscal year for road repairs over the annual budget (Past 10 months plus next 14 months). 2. Next year’s road repair expenses are projected to be the same as this fiscal year’s. 3. This fiscal year’s (7/1/23 to 6/30/24) road repair expenditures are the total of all past fiscal year expenditures through April plus a projected cost for May and June 2024 equal to the spending rate of the first ten months of the fiscal year. 4. Calculations assume the PBCA board will impose a 20% increase in regular member fees in June for the next fiscal year which will be used to reduce the amount needed for this loan. 5. Any road repair deficits after 7/1/25 will be addressed using any needed increase in regular fees (limited to <20% per year) and/or a special assessment on its members. According to the City Attorney, financial assistance to the PBCA would not constitute a gift of public funds if it can be determined that there is a substantial public benefit. According to the PBCA, not only are their roads necessary for vehicular access, they are also the major part of the surface drainage system to keep surface water out of fissures. Narcissa and Peppertree Drives, as the only two roads in and out of the community, are particularly important to maintain access for fire, police, other eme rgency services, and resident evacuation in case of a wildfire. They also provide City access to the Preserve and may provide access to planned hydraugers. Based on Council directive at the May 7 meeting, Staff will begin working with the PBCA in the coming weeks to obtain the requested information to present to the Council in the near future. ALTERNATIVES: In addition to the Staff recommendation, the following alternative actions are available for the City Council’s consideration: 1. Direct staff to cast a protest vote for one or both GHADS thereby opposing the increase to the annual assessments. 2. Direct staff not to proceed with a financial assistance package for one or both GHADS 3. Discuss and take other action related to this item. 18 Loan Amortization Schedule Loan Summary (ACLAD) Loan amount $1,000,000 Scheduled payment Annual interest rate 2.50%Scheduled number of payments Loan period in years 12 Actual number of payments Number of payments per year 1 Total early payments Start date of loan 12/1/2025 Total interest Payment Number Payment Date Beginning Balance Scheduled Payment Extra Payment Total Payment Principal Interest Ending balance Cumulative interest 1 12/1/2025 $1,000,000 $97,487 $97,487 $72,487 $25,000 $927,513 $25,000 2 12/1/2026 $927,513 $97,487 $97,487 $74,299 $23,188 $853,214 $48,188 3 12/1/2027 $853,214 $97,487 $97,487 $76,157 $21,330 $777,057 $69,518 4 12/1/2028 $777,057 $97,487 $97,487 $78,061 $19,426 $698,996 $88,945 5 12/1/2029 $698,996 $97,487 $97,487 $80,012 $17,475 $618,984 $106,419 6 12/1/2030 $618,984 $97,487 $97,487 $82,013 $15,475 $536,971 $121,894 7 12/1/2031 $536,971 $97,487 $97,487 $84,063 $13,424 $452,908 $135,318 8 12/1/2032 $452,908 $97,487 $97,487 $86,164 $11,323 $366,744 $146,641 9 12/1/2033 $366,744 $97,487 $97,487 $88,319 $9,169 $278,426 $155,810 10 12/1/2034 $278,426 $97,487 $97,487 $90,526 $6,961 $187,899 $162,770 11 12/1/2035 $187,899 $97,487 $97,487 $92,790 $4,697 $95,109 $167,468 12 12/1/2036 $95,109 $97,487 $95,109 $92,732 $2,378 $0 $169,846 $97,487 12 1 $169,846 C-1 Loan Amortization Schedule Loan Summary (KCLAD) Loan amount $1,917,500 Scheduled payment Annual interest rate 2.50%Scheduled number of payments Loan period in years 12 Actual number of payments Number of payments per year 1 Total early payments Start date of loan 12/1/2025 Total interest Payment Number Payment Date Beginning Balance Scheduled Payment Extra Payment Total Payment Principal Interest Ending balance Cumulative interest 1 12/1/2025 $1,917,500 $186,932 $186,932 $138,994 $47,938 $1,778,506 $47,938 2 12/1/2026 $1,778,506 $186,932 $186,932 $142,469 $44,463 $1,636,037 $92,400 3 12/1/2027 $1,636,037 $186,932 $186,932 $146,031 $40,901 $1,490,006 $133,301 4 12/1/2028 $1,490,006 $186,932 $186,932 $149,681 $37,250 $1,340,325 $170,551 5 12/1/2029 $1,340,325 $186,932 $186,932 $153,423 $33,508 $1,186,902 $204,059 6 12/1/2030 $1,186,902 $186,932 $186,932 $157,259 $29,673 $1,029,642 $233,732 7 12/1/2031 $1,029,642 $186,932 $186,932 $161,191 $25,741 $868,452 $259,473 8 12/1/2032 $868,452 $186,932 $186,932 $165,220 $21,711 $703,232 $281,184 9 12/1/2033 $703,232 $186,932 $186,932 $169,351 $17,581 $533,881 $298,765 10 12/1/2034 $533,881 $186,932 $186,932 $173,585 $13,347 $360,296 $312,112 11 12/1/2035 $360,296 $186,932 $186,932 $177,924 $9,007 $182,372 $321,119 12 12/1/2036 $182,372 $186,932 $182,372 $177,813 $4,559 $0 $325,679 $186,932 12 1 $325,679 C-2 D-1 D-2 D-3 D-4 D-5 D-6 D-7 D-8 D-9 D-10 D-11 SECRET BALLOT ABALONE COVE LANDSLIDE ABATEMENT DISTRICT 2024-2025 BUDGET VOTE Monday June 10, 2024 California law requires that increases in the budget of a State District, with some exceptions, conduct a vote of their members approving or disapproving the proposed budget. The law further states that the ballots must be weighted according to the proportional financial obligation of each property. The financial obligation is the amount of each property that will be assessed against that property if the budget is approved. If the ballots opposing the proposed assessment exceed the ballots submitted in favor of the assessment, the assessment may not be imposed. This ballot indicates the amount of the proposed assessment against the property. PLEASE MARK YOUR BALLOT WITH EITHER "IN FAVOR OF BUDGET' or "OPPOSED TO BUDGET' PLEASE RETURN YOUR BALLOT BY 4:00 PM Monday, June 10, 2024 IN FAVOR OF BUDGET -----OPPOSED TO BUDGET ____ _ Please place your completed ballot in the secret ballot envelope and place it in the return envelope. Please fill in your name and Assessor Parcel Number in the return address portion of your return envelope and mail it to the ABALONE COVE LANDSLIDE ABATEMENT DISTRICT P.O. Box 4351 Palos Verdes Peninsula, CA 90274. Proposed Assessment $30,197.08 Units 68.579 D-12 D-13 D-14 D-15 D-16 D-17 D-18 D-19 E-1 E-2 E-3 E-4 E-5 E-6 E-7 E-8 E-9 E-10 E-11 E-12 ACLAD Total Units 1,471.66 Proposed Budget 648,000$ Cost per unit 440.32$ Map Book Page Parcel No.Lot Size Units Proposed Assessment 7572 001 004 193.48 85,193 7572 012 028 37.975 16,722 7581 023 902 382.259 168,316 7581 023 035 68.579 30,197 7572 019 900 39.19 17,256 7572 018 900 1,594,941 36.614 16,122 7572 001 003 100.94 44,446 TOTAL 859.037 378,252 F-1 C i n n a m o n L n Sch o o n e r Dr Narci s s a D r H i g h ri d g e R d S a t t e s Dr Vi a Baro n B a r k en t i n e Rd Sea C o v e D r S e a h i l l D r A d m ir a b l e D r C h a rtres D r Daunt l e s s Dr Pi rat e Dr S pi n d r iftD r Gin ger Ro otLn Pal o s V er d es D r S Palos V erdesDr S O c ea naireDr E x u lt a n t D r Va l o r Pl P e p pertre e Rd S e a bree z e A v e Cherry H i l l Ln S e a R i d g e C ir CoveviewDr For r e sta l D r C a n a l A v e S a nt a C a t a li na Dr P h a ntom D r Falcon h e ad Dr C h e r e t P l Burrell Ln C o o l h e i ghts D r Fru i t Tre e Rd L i m e tre e L n Tarra gon Rd Cl i p p e r R d Oc e a n T e rra c e D rSailview A v e BendigoDr P a cif i c a Dr EP o m egra n ateRd C liffsite D r Mai n S a i l Dr S eaRav e n Dr A m be r S ky Dr A rrowroo tLn Stalwart Dr Figtr ee R d G a n ado Dr CrestwindDr P a ck e t R d W Pom e g ran ate R d Crest Rd Hig htideDr Va nderlipDr Sweetbay R d Abalone Cove Landslide Abatement District (ACLAD) City Owned Properties Source: City of Rancho Palos Verdes City of Rancho Palos Verdes 0 1,000 2,000 FeetK Legend Abalone Cove Landslide Abatement District (ACLAD) Parcel - City Owned Parcel Countour Line City Limit Boundary S:\Infinity\Planning\Landslide\Abatement_District_City_Parcels\Abatement_District_City_Parcels_ACLAD.aprx JS 5/21/2024F-2 KCLAD Total Units - Proposed Budget 570,570$ Cost per unit 1,202$ Map Book Page Parcel No.Lot Size Units Proposed Assessment 7564 001 915 4.96 5,961 7564 005 900 3.439 4,134 7572 001 007 215.44 258,926 Public Street Right-of-Ways 55.585 66,805 TOTAL 279.42 335,826 F-3 N a r c i s s a D r Sch o o n e r D r A d m i r a b l e D r He l m Pl Dauntl ess Dr Co n querorDr Pirate Dr Sp in d r i f t D r Thyme Pl Pa losVerdes Dr S Ex u l tant D r Va lor Pl Sch o o n e r Dr P e p p ertre e Rd Cherr y HillLn Cinnamon Ln Forrestal Dr P h a nto m Dr Falc o n head Dr C i n n a m o nL n Narci s s a D r L i m e tr e e L n YachtHarbor Dr EP o m egran a teRd S e a gle n Dr Mai n S a i l D r Fi g tree R d V a n d erlipDr Stalwart Dr Hig ht id e Dr S e a R aven Dr P a l o s V e r d e s D r S C o o l h e i g h t s D r WP o m eg r an ate R d Swee t b a y R d Klondike Canyon Landslide Abatement District (KCLAD) City Owned Properties Source: City of Rancho Palos Verdes City of Rancho Palos Verdes 0 650 1,300 FeetK Legend Klondike Canyon Landslide Abatement District (KCLAD) Parcel - City Owned Parcel Countour Line City Limit Boundary S:\Infinity\Planning\Landslide\Abatement_District_City_Parcels\Abatement_District_City_Parcels_KCLAD.aprx JS 5/21/2024F-4 ,) t.,,� "· �-t\_ (. (_ £ ii.....__, tr �""- I i \ SENATE BILL -:.:_h,J. ;:�J t?i . -!-�:ii ( No. 1195,· . . · : ;�1 ·.. _. . y • � � ;; u 'r' t'�Introduced by. S�nator BevtHtl� � C. � � Ii: U-.,,.1 ( Coauthors: Asse·mblymen Felando and Ryan) ·. : · . -· . ·_ -· ,\i;j - · . · MAY . .-· 9 1979. : '. .. ' "·-<{Ji.�_®. ·: April.:��J 1979_:_:)�) CITY OF RP.NCHO PALOS VERDES . , --�,-ittl An act to ;dd Division 17 ( co�mencing ·with Section 26500) to the Public Resources Code;�_"iielating to geologic hazards. '• _,;;� - .:��JLEGISLATIVE COUNSEL'S DIGEST SB 1195, as introduced, ··i;�Beverly. Geologic hazardabatement districts. --,� ( 1) Existing law does not 1uthorize the formation ofgeologic hazard abatement districts. ·This bill would authorize the formation of such districts, asspecified, and prescribe their p{)\vers and duties.The bill would specifically: '� ( a)Define "geologic hazar?" to mean an ac;tual orthreatened landslide, land subsidence, soil erosion, yr other natural or unnatural ·movementl of land or earth. ·\ . (b)Provide that the district1 is a politlcal subdivision ofstate. A ( c)Authorize the legisiatiJe, body of the local agencywithin which the district is form,ed to appoint itself to act as the initial board of directors for·� term not to exceed 4 years. ( d)Authorize the district to '.�cquire real property or anyinterest therein by eminent domain. ( e)Authorize the district to� acquire, construct, operate,manage, or mainta in improvem_�nts, as defined, on public orprivate 1ands. ?; ( f) Authorize the district to �se the Improvement Act of1911 to pay the costs of an_ improvement. ( 2)Under existing law, Sections 2231 . and 2234 of theRevenue and Taxation Code require the state to reimburse ·local agencies and school districts for certain costs mandatedby the state. Other provisions require the Department of 99 40 �-·. �..-.-.-� ... -...... -. �· •. ;;' i :.: -�::_� :1 \a fly, t Ai-�� �-: .: t :-5�\�:"-,���t . 1 \ ! , !:;. ... ..:..J'�lJ]• � ;. t l I·':'.'X�· ·�H rr:�--- � _1 •• ra�·1-·frI, j r; :-,;:-,,; �-��-J (t .\! .,:;.:_ .. � i .\ !·' !• ;,,J··! ;. e i ". ' .1 '.l • � .ii1«��-· ' .: i '} � !.A -f/t�lJ ' .. ·�· � '>· �¾'i\1 �·.;:. •:��;J. -�--,L G-1 G-2 G-3 G-4 G-5 G-6 G-7 G-8 G-9 G-10 G-11 RESOLUTION NO. 81-4 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES ORDERING THE FORMATION OF THE ABALONE COVE LANDSLIDE ABATEMENT DISTRICT The City Council of the City of Rancho Palos Verdes hereby resolves as follows: Section 1: The City Council of the City of Rancho Palos Verdes passed Resolution No. 80-76 on December 2, 1980, initiating proceedings for the forma- tion of a landslide abatement district. Said resolution established January 6, III1981 as the date for a public hearing on formation of the landslide abatement district. The City Council finds and determines that notice of said hearing was properly sent out to all property owners in compliance with Section 26561, et seq. , of the Public Resources Code. Section 2: The City Council of the City of Rancho Palos Verdes held a public hearing on the formation of the landslide abatement district on January 6, 1981 and received objections to the proposed formation from all owners of real property within the proposed district wishing to make objections. After reviewing all said objections the City Council hereby finds and determines that objections were re- ceived from owners of less than 50% of the assessed valuation of property within the proposed district. Since such objections were received from owners of less than 50% of the assessed valuation, the City Council may proceed with the formation of a landslide abatement district. Section 3: The City Council hereby orders the formation of the Abalone Cove landslide abatement district pursuant with boundaries as shown on Exhibit "A" attached hereto, to the provisions of Division 17 of the Public Resources Code of the State of California. Section 4: The following five owners of real property within the. proposed district are hereby named to the initial Board of Directors of the Abalone Cove landslide abatement district for the terms indicated: 1. James Stewart 2 years 2. John Tretheway 2 years 3. Harriet Medve 4 years 4. Ken Dyda 4 years 5. Seymour Warner 4 years After the initial term, each term will be for a four (4) year period. PASSED, APPROVED AND ADOPTED this 6th day of January, 1981. c.- c=lzf3srutitaiL)t.d MAYOR aRlk__ ___ III ATTEST: DONALD F. GULUZZY, CITY CLERK & EX OFFICIO CLERK OF THE COUNCIL dIL IF.; . . 7" L. . 1:' . 0( / TY CL I HEREBY CERTIFY that the foregoing is a true and correct copy of Resolution No. 81-4 approved and adopted by the City Council of the City of Rancho Palos Verdes at a meeting thereof held on the 6th day of January, 1981. All,t• / Ty C' RK H-1 cligitillikWa 4 Eir.e.-...V.: N4,,A,.. 4-' s--"`" r—,"7""\-. 4.. ' — 7*---47; 4 .-- i-11.i,14.- ..--Cr -.7,-D.P.— b..:--••••77- 11111k: Ck : 1.• C. •'`) to II lajis... v. ...-it..-..,.., . r°'''. A- 4.'',49 aq---Z,, ....... i 0... e >")': s'''' t s. 40 48 6 Duo „ r rL 42 K, V/9 a s 2` l \./ 27 1 oar 62 too 7 n ••ost t,i• f I R o' 1 3 9 • 1 '• - i r M, ! j i^ + T - cs.... j• I .\ if= 4t. V-(/ ', y.• 1.; R Nq y • -.) a'' 7, s' `.• 3 q r o v• r 0 8 62• 2 2-2S - "----......_ :c.t ,,, ... a: r.,c). -% pir- iT74 5, „ --.4,„ V-B Q.1\TR N24.71 "... LI+, .:: IV, i lr 7 c' 3 g i1:, M B...•,-4,, f tic ii a ? 6•6 o,,, _ ' •. t•••t', A. 4.. 16)1::101..‘ 4 i6.9 \ P co-,, _) X ., . if. . 0 , :::!,:., i: : .." ,. `..4`104.!... * .: 1 /-, 1 . ,s. \ x-4''"do, . v, *-. 1% .- s' t• , Q tig, ..„...efr ,...),":;°))... C 7..1;Z; .: c 4. ...,. 1, : ., N f ''' 31" --# r 4;,-",.- 2 s.•....: , -___=._ ....- ---...-.....:tfi NI. i4.1.11,..4 r, 3. 4i.. a:- s 44-.....:\ .,‘r„,,Z. \...„./Iir. t 17. 4... s 1 N S TR P-- 8 7 2 C w c 6 4s- Tom- A. . Si,1'LY.a•.;t Y LOT 115 L A_C.A ...o.S N S `• 2 C8Z ti • •, 4 s`w<1 TRACT N°- 32!10 J - w i R 632'' • a.•.'Sys?.5t 0 6 i T e1 1 i 4 Yi LY vwJ tit LY •J•.11t`r r.... ti c.:..\_,. i-'7 j ' i ,.. \........47.7_...,---) 00. 3/4".•-• Ze: h-• l''.-' --- \ .' 4 „„„...,,,,V. T Y LDT I!S. z:'----.-_--,. ,._ d., MlY.butt I 8 l ,- <<3:"' i••t..A.CA.NO.St 4 N: 6 3" j . I. 0 if 3? .A.--"4- 23 34 o o": • ! e t i1• a a - 10 I- IlI. 4e to 1teRGiL NON*DGS G.3R• Nti 0". 1k,c,s ir t. Lb , PA OS,a LY coa protc.cL 2 a Ks.sal,4r•:es,r.•s 713.- at Z h s 2 0.:„.,*: i L.O e f. t 1 1... 7. O r- '-'-•-... _•-•.,.'--",,-.:..-.....• • • Prr--------- a.:,,>:'''- --':', ...1.. i.;,:.:,..,„ 7:.,.•.,?.. a...,...\. As. Vg's PORTUGUESE POINT S F r. tii' e f ' y V., INSP4PAYION POINT S......ic• 1% 1200'c) ABALONE COVE SLIDE ABATEmEKT DISTRICT . roa: CITY of RLtvC40 PALOS VEQ Jc5 i2:51 37T-05•10 6Y' SOJT'N bAt' S.NGIN-ii.R.NC• CO (213) 375-255+. J.W.K-12,15-2 SCA C. t'. GCiv JA.J. G•11-.51 6Y:E WO RA v .rhM. I.Si t9Q1 H-2 I-1 Propositions 26 and 218 IMPLEMENTATION GUIDE | AUGUST 2021 Copyright ©2021 League of California Cities All rights reserved. This publication, or parts thereof, may not be reproduced in any form without the permission of the League of California Cities.J-1 ii LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Municipal Finance Committee Adam W. Hoffman, Chair Hanson Bridgett, LLP John D. Bakker Meyers Nave City Attorney, Cities of Dublin and Cotati Ryan T. Dunn Colantuono, Highsmith & Whatley, PC Benjamin P. Fay Jarvis, Fay & Gibson, LLP Daniel S. Hentschke Assistant City Attorney, City of Santa Barbara Lutfi Kharuf Best Best & Krieger Gabriel McWhirter Jarvis, Fay, Doporto & Gibson, LLP Michael Mutalipassi Assistant City Attorney, City of Salinas Trisha Ortiz Richards, Watson & Gershon Assistant City Attorney, Cities of Davis and Fairfield Scott M. Reiber Chief Tax Attorney, City and County of San Francisco Betsy Strauss Special Counsel, League of California Cities Sergio A. Rudin Burke, Williams & Sorensen City Attorney, City of Monte Sereno Assistant City Attorney, City of Rohnert Park City Attorneys Department Officer Liaison Dave Fleishman, 1st Vice President City Attorney, Cities of Pismo Beach and Solvang Richards, Watson & Gershon Cal Cities Staff Corrie Manning, General Counsel Harveen Gill, Assistant General Counsel Alison Leary, Deputy General Counsel Janet Leonard, Legal Services Manager This publication is provided for general information only and is not offered or intended as legal advice. Readers should seek the advice of an attorney when confronted with legal issues and attorneys should perform an independent evaluation of the issues raised in these materials. ACKNOWLEDGEMENTS Copyright © 2021 by the League of California Cities, Sacramento, California All rights reserved. This publication, or parts thereof, may not be reproduced in any form without Cal Cities’ permission. For information, contact the League of California Cities, 1400 K Street, 4th Floor, Sacramento, CA 95814; (916) 658-8200. The League of California Cities (Cal Cities) gratefully acknowledges the contributions of the Municipal Finance Committee of the Cal Cities City Attorneys Department for their hard work and dedication in drafting this guide: J-2 1LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Contents Chapter 1 – Introduction .....................................................................................................................7 I. THE POWER TO TAX GENERALLY ..............................................................................................................................7 A. Property Taxes and Article XIII .........................................................................................................................8 B. Referendum/Initiative .........................................................................................................................................8 II. 1978’S PROPOSITION 13: PROPERTY TAX LIMITATION AND APPROPRIATIONS LIMIT ......................................9 A. The History of Proposition 13 ............................................................................................................................9 B. Property Tax Limitation ......................................................................................................................................9 C. Proposition 4 — The Gann Appropriation Limit .............................................................................................9 1. Appropriation Limitation ............................................................................................................................................10 2. Unfunded Mandates ..................................................................................................................................................10 D. Special Taxes ......................................................................................................................................................10 E. Judicial Interpretation of the New Limitations .............................................................................................11 1. Pre-Proposition 13 “Indebtedness” ...........................................................................................................................11 2. Assessments ..............................................................................................................................................................11 3 Special vs. General Taxes ............................................................................................................................................11 F. Common Revenue Sources After Proposition 13 ..........................................................................................12 1. Assessments ..............................................................................................................................................................12 2. Mello-Roos .................................................................................................................................................................12 3. Parcel Taxes ...............................................................................................................................................................12 4. Police Power Fees......................................................................................................................................................13 5. “User” Fees for Governmental Services ....................................................................................................................14 6. Burden of Proof for Challenges to Regulatory and User fees ...................................................................................14 G. Knox v. Orland ....................................................................................................................................................15 III. PROPOSITION 218 (1996) ........................................................................................................................................16 A. Purpose & Intent ................................................................................................................................................16 B. Voter Approval of Taxes ...................................................................................................................................17 1. General Taxes .............................................................................................................................................................17 2. Special Taxes ..............................................................................................................................................................17 C. Assessments .......................................................................................................................................................17 D. Property Related Fees and Charges...............................................................................................................17 E. Power to Reduce Revenues Through Initiative .............................................................................................18 IV. PROPOSITION 26 (2010) .........................................................................................................................................18 J-3 2 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Chapter 2 – Taxes ......................................................................................................................................19 I. WHAT IS A TAX? .........................................................................................................................................................19 II. GENERAL TAXES AND SPECIAL TAXES ..................................................................................................................20 III. VOTING REQUIREMENTS FOR SPECIAL AND GENERAL TAXES ........................................................................21 A. Impose .................................................................................................................................................................21 B. Extend ..................................................................................................................................................................22 C. Increase ................................................................................................................................................................22 IV. THE ELECTORATE.....................................................................................................................................................23 V. ADVISORY MEASURES ACCOMPANYING GENERAL TAXES .................................................................................23 VI. PROCEDURES FOR ENACTING AND IMPOSING TAXES ......................................................................................24 A. Proposition 62’s Special Procedural Requirements ....................................................................................24 B. Proposition 218’s Special Procedural Requirements ...................................................................................24 VII. OTHER LIMITATIONS ON THE POWER TO TAX ...................................................................................................25 Chapter 3 – Assessments ................................................................................................................27 I. DISTINGUISHING ASSESSMENTS FROM FEES AND TAXES ...................................................................................27 II. AUTHORITY TO LEVY PROPERTY-BASED ASSESSMENTS ...................................................................................28 III. PROPOSITION 218’S CHANGES TO PREVIOUS ASSESSMENT METHODS ..........................................................28 IV. PROPOSITION 218’S PROCEDURAL REQUIREMENTS FOR ASSESSMENTS .......................................................29 A. Introduction ........................................................................................................................................................29 B. Proposition 218’s Requirements Overlap those of Statutes and Charters ..............................................30 C. Overview of the Proposition 218’s Procedural Requirements for Assessments .....................................30 D. Preparation and Mailing Notice .......................................................................................................................30 1. Notice and ballot ........................................................................................................................................................30 2. Who gets notice? .......................................................................................................................................................31 3. Contents of notice .....................................................................................................................................................31 4. Content of ballot ........................................................................................................................................................34 5. Form of ballot .............................................................................................................................................................35 E. Handling of Ballots ............................................................................................................................................35 F. Public Hearing .....................................................................................................................................................36 G. Tabulation Procedure ........................................................................................................................................36 H. Determination of Protest ..................................................................................................................................37 I. Recordkeeping .....................................................................................................................................................37 TABLE OF CONTENTS J-4 3LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE II. PROPOSITION 218’S SUBSTANTIVE REQUIREMENTS FOR ASSESSMENTS ........................................................37 A. The Four Basic Requirements of Proposition 218 for an Assessment......................................................37 B. Special and General Benefits ...........................................................................................................................39 1. Constitutional definition of “special benefit” .............................................................................................................39 2. Constitutional definition of “general benefit” ............................................................................................................39 3. Identifying benefits ....................................................................................................................................................39 4. Leading Proposition 218 assessment cases ..............................................................................................................40 5. Assessments not imposed on real property .............................................................................................................44 III. THE ASSESSING AGENCY BEARS THE BURDEN TO PROVE COMPLIANCE WITH PROPOSITION 218 ...........45 A. Generally .............................................................................................................................................................45 B. The Crucial Evidentiary Role of an Engineer’s Report ................................................................................45 C. Exclusion of Public Parcels Requires Clear and Convincing Evidence of No Special Benefit .............46 1. Burden of proof: clear and convincing evidence .......................................................................................................46 2. Property owned by state and local governments .....................................................................................................46 3. Assessing federal property ........................................................................................................................................48 IV. MANAGING EXISTING ASSESSMENTS....................................................................................................................49 A. Article XIII D, Section 5 Exempts Many Pre-Proposition 218 Assessments ............................................49 B. Changes Trigger Proposition 218’s Assessment Approval Requirements ...............................................50 C. Adjustments to Assessments Established Pursuant to Proposition 218 ..................................................50 Chapter 4 – Fees ........................................................................................................................................53 I. ARTICLE XIII C AND OTHER FEES AND CHARGES .................................................................................................53 A. Introduction and Overview ..............................................................................................................................53 1. Proposition 26: A new definition of “tax” ..................................................................................................................53 2. A framework for applying Proposition 26 ..................................................................................................................54 3. Is Proposition 26 retroactive? ....................................................................................................................................54 4. Does Proposition 26 apply to pre-Proposition 26 fees or charges when they are increased or extended?............55 5. What does “levy, charge or exaction of any kind” mean? .........................................................................................56 6. How do Proposition 26’s provisions regarding state revenue measures affect interpretation of its provisions regarding local government revenues? ...................................................................................................56 B. Is the Fee “Imposed” by a Local Government? ............................................................................................57 C. Exceptions No. 1 & 2: Fees and Charges for Benefits Conferred and Privileges Granted, Services and Products Provided .......................................................................................................................................59 1. What is a “specific benefit?” ......................................................................................................................................59 2. What is a “specific government service?” .................................................................................................................60 3. What does “directly to the payor” mean? .................................................................................................................60 4. What are the “reasonable costs?” .............................................................................................................................61 5. Specific applications ..................................................................................................................................................62 J-5 4 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE D. Exception No. 3: Regulatory Fees and Charges ...........................................................................................67 1. Introduction ................................................................................................................................................................67 2. What types of fees and charges are exempt as “regulatory fees?” ..........................................................................68 3. What did Proposition 26 leave unchanged? ..............................................................................................................68 4. What are reasonable regulatory costs? .....................................................................................................................69 5. Do reasonable regulatory costs include the costs of rule-making? ..........................................................................69 6. How does Proposition 26 affect regulatory fees and charges designated to protect the environment, public health, and quality of life? ...............................................................................................................................70 E. Exception No. 4: Use of Government Property ............................................................................................72 1. What type of fees are implicated? .............................................................................................................................72 2. How does this exception affect franchise fees? .......................................................................................................72 F. Exception No. 5: Fines and Penalties ..............................................................................................................73 G. Exception No. 6: Fees and Charges Imposed as a Condition of Development ......................................74 H. Exception No. 7: Property Related Fees and Charges and Assessments ................................................75 1. Are assessments exempted from Proposition 218 by article XIII D, section 5 also exempt from Proposition 26? ..........................................................................................................................................................75 I. Burden of Proof Provision of Final, Unnumbered Paragraph of Article XIII C, Section 1, Subdivision (e) ...................................................................................................................................76 II. ARTICLE XIII D AND PROPERTY RELATED FEES AND CHARGES .......................................................................77 A. Introduction and Overview ..............................................................................................................................77 1. What fees are excluded from Proposition 218? ........................................................................................................77 2. Who is a property owner?..........................................................................................................................................78 3. What is an “incident of property ownership?” ..........................................................................................................78 4. What is a property-related service?...........................................................................................................................79 5. Property-related fees and regulatory fees ................................................................................................................79 6. Refuse fees.................................................................................................................................................................80 7. When is a fee or charge “increased?” .......................................................................................................................81 8. Application of property-related fees to annexed properties .....................................................................................82 B. Procedural Requirements of Article XIII D, Section 6 .................................................................................82 1. Identifying the parcels ...............................................................................................................................................82 2. Calculating the amount of the fee .............................................................................................................................83 3. Determining the record owner and providing notice ................................................................................................83 4. Conducting the public hearing...................................................................................................................................85 5. The majority protest procedure .................................................................................................................................85 C. Substantive Provisions of Article XIII D, Section 6, Subdivision (b) ........................................................87 1. Revenues shall not exceed the funds required to provide the service ....................................................................87 2. Revenues derived from the fee must not be used for any purpose other than that for which the fee is imposed ............................................................................................................................................................89 3. The amount of a fee or charge must not exceed the proportional cost of the service attributable to the parcel ...............................................................................................................................................................89 TABLE OF CONTENTS J-6 5LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE 4. A fee or charge may not be imposed for a service unless the service is actually used by, or immediately available to, the owner of the property subject to the fee or charge .......................................................................92 5. No fee or charge may be imposed for general governmental services where the service is available to the public in substantially the same manner as it is to property owners ................................................................94 D. Voter Approval Requirements .........................................................................................................................95 1. Introduction ................................................................................................................................................................95 2. Exemption for sewer, water and refuse collection services .....................................................................................95 3. Procedures for elections ............................................................................................................................................95 Chapter 5 – Fiscal Initiatives .......................................................................................................97 I. PROPOSITION 218 PROVISIONS RELATED TO INITIATIVES ..................................................................................97 II. PRE-PROPOSITION 218 HISTORY OF FISCAL INITIATIVES ..................................................................................98 III. PROPOSITION 218 DID NOT EXPAND THE INITIATIVE POWER ..........................................................................99 IV. LIMITATIONS ON PROPOSITION 218 INITIATIVES ................................................................................................99 A. Restrictions on Local Legislative Action also Limit Fiscal Initiatives ....................................................100 V. SCOPE OF PROPOSITION 218 INITIATIVE POWER ..............................................................................................101 A. Which Levies May be the Subject of an Initiative? ....................................................................................101 B. Which Changes to Levies can be Accomplished by Initiative? ...............................................................101 C. Post-Proposition 218 Challenges to Local Fiscal Initiatives: Bighorn and Mission Springs ...............101 VI. IMPLEMENTATION OF SUCCESSFUL FISCAL INITIATIVES ................................................................................103 VII. PROPOSITION 218’S PETITION SIGNATURE THRESHOLD ...............................................................................103 VIII. WHO VOTES ON PROPOSITION 218 INITIATIVES? ..........................................................................................104 A. Equal Protection Challenges by Non-Voters Who Pay a Levy ................................................................104 Chapter 6 – Litigating Cases Under Propositions 26 and 218 .......107 I. STATUTES OF LIMITATIONS.....................................................................................................................................107 A. The Default Statutes of Limitations .............................................................................................................107 B. Special Statutes of Limitations .....................................................................................................................108 1. The Validation Statutes ............................................................................................................................................108 2. Special Taxes ............................................................................................................................................................109 3. Government Code section 66022 ............................................................................................................................109 4. Public Utilities Code § 10004.5 and electric rates ...................................................................................................110 5. Local Ordinances......................................................................................................................................................110 6. Validating Acts ..........................................................................................................................................................111 C. Assessment Statutes of Limitations .............................................................................................................111 D. Statutes Applying the Property Tax Refund Statute .................................................................................112 J-7 6 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE II. CLAIMING REQUIREMENTS & STANDING .............................................................................................................112 A. Government Claims Act ..................................................................................................................................112 1. Exceptions to the claims presentation requirement ...............................................................................................114 B. Class Actions .....................................................................................................................................................114 C. Pay First, Litigate Later Rule .........................................................................................................................115 III. STANDARDS OF REVIEW ......................................................................................................................................115 A. Review in the Trial Court ................................................................................................................................115 B. Separation of Powers and Burden of Proof ................................................................................................116 C. Review in the Court of Appeal ......................................................................................................................117 IV. REMEDIES ................................................................................................................................................................117 A. Prospective Relief ............................................................................................................................................117 B. Refunds and Class Actions .............................................................................................................................118 C. Attorneys’ Fees ................................................................................................................................................118 D. Validation Actions ............................................................................................................................................119 E. Proposition 62 Penalty Remedy ....................................................................................................................119 Attachments ..................................................................................................................................................121 TABLE OF CONTENTS J-8 7 7LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Chapter 1 Introduction This guide is intended to provide city attorneys and other local government lawyers with access to basic information about the constitutional limitations applicable to taxes and other sources of revenue for local governments. It focuses on the limitations imposed by a series of initiatives starting with Proposition 13 in 1978, continuing with Proposition 218 in 1996, and concluding with Proposition 26 in 2010. In addition to this introductory chapter, the guide includes the following chapters: Taxes Assessments Fees Initiatives & Referenda Litigation Issues The introduction provides an overview of Propositions 13, 218, and 26, as well as the historical context from which these initiatives arose. More detailed discussions can be found in the following chapters. I. The Power to Tax Generally Local governments derive their power to tax from the Constitution or by statute. The Legislature may not impose taxes for local purposes but may authorize local governments to do so. (Cal. Const. art. XIII, § 24; Santa Clara County Local Transportation Authority v. Guardino (1995) 11 Cal.4th 220, 247–49.) Charter cities derive their power to tax from the Constitution, limited by the provisions of their respective charters. (Cal. Const. art. XI, § 5; West Coast Advertising Company v. City and County of San Francisco (1939) 14 Cal.2d 516.) General law cities derive their power to tax primarily from Government Code section 37100.5, which authorizes them to impose any tax that a charter city may impose. Counties derive their power to tax from a number of different statutes. (E.g., Rev. & Tax Code § 11911 [documentary transfer tax]; Rev. & Tax Code. § 7284.2 [utility user tax].) J-9 8 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE INTRODUCTION Special districts also derive their power to tax from various sources. It should not be assumed that a special district has the power to tax without consulting its principal act and any other statutes which empower it, particularly since the general authorization to levy special taxes found in Government Code sections 50075 et seq. was abrogated by Proposition 62. (Gov. Code § 53727, subd. (a); Borikas v. Alameda Unified School District (2014) 214 Cal.App.4th 135, 144.) A. Property Taxes and Article XIII Before the adoption of Proposition 13 in 1978, property taxation in California was governed by article XIII of the Constitution and state legislation. Each year, cities, counties, and those special districts that were authorized to impose property taxes would adopt local property tax rates. Unless otherwise limited by statute, the sole limitation on local property taxes was that they be imposed on an ad valorem basis (in proportion to value) rather than in flat dollar amounts. (Cal. Const. art. XIII, § 1.) B. Referendum/Initiative The Constitution guarantees to electors the power to propose local referendum and initiative measures. (Cal. Const. art. II, §§ 8, 9, 11.) The referendum is the power of electors to approve or reject legislation. (Cal. Const. art. II, § 9, subd. (a).) The initiative is the power of electors to propose legislation. (Cal. Const. art. II, § 8, subd. (a).) The rules governing referendum and initiative measures are established by the Constitution and by statute. However, charter cities may expand local initiative and referendum powers beyond what is otherwise permitted by state law. (Rossi v. Brown (1995) 9 Cal.4th 688, 698.) The referendum power does not extend to local taxes and other, similar revenue measures. (Geiger v. Board of Supervisors of Butte County (1957) 48 Cal.2d 832 [no referendum allowed on county sales and use tax ordinance]; Hunt v. Mayor and Council of the City of Riverside (1948) 31 Cal.2d 619 [same as to charter city sales tax ordinance]; Wilde v. City of Dunsmuir (2020) 9 Cal.5th 1105 [referendum does not apply to local water rates and utility charges].) The initiative power, in contrast, does apply to local taxes and other revenue measures. (Rossi, supra, 9 Cal.4th at 699-711.)1 Indeed, the voters’ authority to affect taxes and other revenue measures by initiative has been fiercely protected since the initiative power was added to the Constitution in 1911. For example, in 1917, a measure was proposed to prohibit the use of the initiative for tax and assessment legislation. (Sen. Const. Amend. No. 12 (1917 Reg. Sess.).) A group opposing the measure stated: [It] takes away from the people the most important right of self-government which they possess, namely: the power of control over taxation. This strikes at the very root of popular self-government. Practically all historic struggles for liberty, including the English Revolution and our own American Revolution, have centered about the question of the people’s control over taxation. (Hichborn, Story of the Session of the California Legislature of 1921 (1922), p. 189.) Likewise, in 1919, Senate Constitutional Amendment No. 5 sought to limit initiative tax measures by increasing the number of signatures required to qualify an initiative for the ballot. Opponents argued: “Again, if they can destroy the people’s use of the initiative in the most important function, taxation, it will be the beginning of efforts which will lead to the destruction of the entire initiative power of the people.” (Id. at p. 190.) 1 Before the Supreme Court’s decision in Rossi, some courts had held that initiatives could not be used to repeal local taxes and other revenue measures. (E.g., Dare v. Lakeport City Council (1970) 12 Cal.App.3d 864 [barring from ballot an initiative to cap sewer rates of special district].) To the extent that this issue was not fully resolved by Rossi, it was put to rest by Proposition 218, which states that “the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” (Cal. Const. art. XIII C, § 3.) J-10 9LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE II. 1978’s Proposition 13: Property Tax Limitation and Appropriations Limit A. The History of Proposition 13 Following the OPEC oil embargo in 1974, America experienced very rapid inflation and economic stagnation — so called “stagflation.” Residential property prices rose rapidly, as did assessed valuations of real property, for property tax purposes. Although the state was accumulating a huge surplus, the burden on taxpayers kept increasing, and property tax bills began to outstrip mortgage payments. The Legislature failed to craft a response, and local governments did not lower property tax rates quickly enough to address the issue. This was the climate in which Los Angeles apartment investor Howard Jarvis and Sacramento conservative activist Paul Gann persuaded California voters to approve Proposition 13, “the People’s Initiative to Limit Taxation,” in June 1978, by a 65 percent affirmative vote. Proposition 13’s purpose was to ensure effective real property tax relief through an “interlocking ‘package’” consisting of a real property tax rate limitation (Cal. Const. art. XIII A, § 1), a real property assessment limitation (Cal. Const. art. XIII A, § 2), a restriction on state taxes (Cal. Const. art. XIII A, § 3), and a restriction on local taxes (Cal. Const. art. XIII A, § 4). (Amador Valley Joint Union High School District v. State Board of Equalization (1978) 22 Cal.3d 208, 231.) The reduction of the property tax rate was the heart of Proposition 13. After its adoption, a broad attack on Proposition 13’s constitutionality was promptly filed. In Amador Valley Joint Union High School District v. State Board of Equalization (1978) 22 Cal.3d 208, the California Supreme Court upheld the measure.2 B. Property Tax Limitation Proposition 13 converted hundreds of locally imposed property tax rates of differing amounts into a single statewide rate of 1 percent of a property’s full cash value, “to be collected by the counties and apportioned according to law to the districts within the counties.” (Cal. Const. art. XIIIA, § 1, subd. (a).) Two immediate consequences occurred: property tax revenues were reduced by half statewide, and the state Legislature gained control over the allocation of the property tax among local governments. (California Redevelopment Ass’n v. Matosantos (2011) 53 Cal.4th 231, 244 [Proposition 13 “convert[ed] the property tax from a nominally local tax to a de facto state-administered tax subject to a complex system of intergovernmental grants”]; County of Los Angeles v. Sasaki (1994) 23 Cal.App.4th 1442, 1457.) The state responded to the first consequence by appropriating several billion dollars in surplus funds to bail out local agencies. It responded to the second consequence in 1979, by adopting a formula for reallocating the 1 percent property tax in each county in proportion to the allocation of property taxes in the three fiscal years before the adoption of Proposition 13 (AB 8). Despite many refinements and complications since, the AB 8 formula remains the essential basis of property tax allocations today. C. Proposition 4 — The Gann Appropriation Limit In November 1979, voters approved Proposition 4, a “Government Spending Limitation.” Proposition 4 added article XIII B to the Constitution. As described by one court: Article XIII B was adopted less than 18 months after the addition of article XIII A to the state Constitution, and was billed as “the next logical step to Proposition 13,” (art. XIII A). Article XIII A was generally aimed at controlling ad valorem property taxes and the imposition of new “special taxes.” [Citations omitted.] The thrust of article XIII B, however, was toward placing certain limitations on the growth of appropriations at both the state and local governmental level; in particular, article XIII B places limits on the authorization to expend the “proceeds of taxes.” (City Council of the City of San Jose v. South (1983) 146 Cal.App.3d 320, 333.) 2 The United States Supreme Court rejected a challenge to Proposition 13 on federal equal protection and right to travel grounds in Nordlinger v. Hahn (1992) 505 U.S. 1. J-11 10 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE INTRODUCTION 1. Appropriation Limitation Proposition 4’s primary purpose was to limit the appropriation of “proceeds of taxes” by state and local governments. (Cal. Const. art. XIII B, §§ 1, 8, subd. (a)-(b).) “Proceeds of taxes” include revenues from taxes and revenues from “regulatory licenses, user charges, and user fees to the extent that those proceeds exceed the costs reasonably borne by [the government entity] in providing the regulation, product, or service ....” (Cal. Const. art. XIII B, § 8, subd. (c).) The appropriations limit (also known as the “Gann limit”) is defined by reference to the “proceeds of taxes” received by a local government in the 1978–1979 fiscal year (Cal. Const. art. XIII B, § 8, subd. (h)), before Proposition 13’s significant property tax cuts went into effect, and it is adjusted annually for changes in population and inflation (Cal. Const. art. XIII B, § 1). If a local government receives tax proceeds in excess of its Gann limit, the excess must be returned to taxpayers. (Cal. Const. art. XIII B, § 2, subd. (c).) However, voters may authorize a temporary override of the Gann limit, not to exceed a period of four years. (Cal. Const. art. XIII B, § 4.)3 Because most local governments receive far less property tax revenue as a result of Proposition 13, the Gann Limit was set too high to be meaningful for most agencies, most of the time. A few agencies, such as those that converted volunteer fire departments into tax-supported, professional departments, require periodic approval of a Gann limit override. Most agencies merely perform the Gann Limit calculation annually and are otherwise unaffected by it. 2. Unfunded Mandates Proposition 4 also requires the state to provide a subvention to a local government whenever it mandates a new program or higher level of service on that local government. (Cal. Const. art. XIII B, § 6.) Certain mandates are excluded from this requirement. (Ibid.) An elaborate body of administrative, statutory, and case law has grown up around the subvention provision. (See California Continuing Education of the Bar, Municipal Law Handbook §§ 5.12, 5.283–5.290.) D. Special Taxes In addition to limiting property taxes, Proposition 13 introduced a new concept into the rules governing local government taxes: “special taxes.” Section 4 of article XIII A of the Constitution provides: Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district. Proposition 13, however, did not define the term “special tax.” In 1979, the Legislature added article 3.5 to title 5, division 1, part 1 of the Government Code, commencing with section 50075. Article 3.5 was intended to provide all cities, counties, and districts with the authority to impose special taxes, although 1986’s Proposition 62 eventually rescinded this authorization. (Cal. Gov. Code, § 53727, subd. (a).) But it too, like Proposition 13, did not define the term “special tax.” Government Code section 50076 did state that a special tax “shall not include any fee which does not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged and which is not levied for general revenue purposes.” The implication of this language, and of the definition of “proceeds of taxes” in Proposition 4 (Cal. Const. art. XIII B, § 8, subd. (c)), was that fees that exceed the “reasonable cost of providing the service” or that are “levied for general revenue purposes” are taxes. In evaluating whether fees met the reasonable cost of service standard, courts generally applied a deferential “reasonableness” standard of review. (Hansen v. City of San Buenaventura (1986) 42 Cal.3d 1172 [fees charged by city for water service could provide reasonable rate of return to city’s general fund].)4 As explained in more detail below, the term “special tax” was eventually defined as a tax imposed for a specific purpose, as opposed to one whose proceeds may be used by the levying agency for any purpose. 3 Article XIII B of the Constitution is implemented by Government Code section 7900 et seq. 4 Hansen is no longer good authority with respect to “property related” fees that are governed by article XIII D, section 6 of the Constitution, adopted as part of Proposition 218. J-12 11LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE E. Judicial Interpretation of the New Limitations Litigation following the adoption of Proposition 13 primarily involved three subjects — (1) levies to fund pre-Proposition 13 “indebtedness”; (2) special assessments; and (3) special versus general taxes. 1. Pre-Proposition 13 “Indebtedness” The first subject is beyond the scope of this Guide. In brief, however, Proposition 13’s one-percent limitation on property taxes does not apply to taxes that are used to pay the interest and redemption charges on any indebtedness approved by the voters before July 1, 1978. (Cal. Const. art. XIIIA, § 1, subd. (b)(1).) Kern County Water Agency v. Board of Supervisors of Kern County (1979) 96 Cal.App.3d 874, for example, applied this exemption to provisions of a state water project contract that required a water agency to levy taxes in any year that it “fails or is unable to raise sufficient funds by other means” to meet its contractual obligations. Thus, property taxes may be levied to support “take or pay” obligations of state water project contactors, even if the taxpayer’s overall tax rate exceeds article XIII A’s one-percent limit. Property taxes used to pay pension obligations and other pre-Proposition 13 obligations are subject to similar treatment. (E.g., Carman v. Alvord (1984) 31 Cal.3d 318.) 2. Assessments Shortly after the approval of Proposition 13, a number of courts held that special assessments—levies assessed on property that are based on a special benefit provided to the property by the project the assessment funds—are not property taxes subject to the one-percent limitation of article XIII A, section 1 of the Constitution, and that they do not require voter approval as “special taxes” under article XIII A, section 4 of the Constitution. (E.g., County of Fresno v. Malmstrom (1979) 94 Cal.App.3d 974 [assessment levied under the Improvement Act of 1911 and Municipal Improvement Act of 1913]; Solvang Municipal Improvement District v. Board of Supervisors of the County of Santa Barbara (1980) 112 Cal.App.3d 545 [ad valorem parking district special assessment5]; American River Flood Control District v. Sayre (1982) 136 Cal.App.3d 347 [assessment to fund the maintenance of flood control facilities]; City Council of the City of San Jose v. South (1983) 146 Cal.App.3d 320 [assessment to fund landscape maintenance].) 3 Special vs. General Taxes The California Supreme Court issued two opinions addressing the “special tax” provisions of Proposition 13 in 1982. First, in Los Angeles County Transportation Comm’n v. Richmond (1982) 31 Cal.3d 197, the Court held that a sales tax imposed by the Los Angeles County Transportation Commission was not a “special tax” because the Commission, created two years before Proposition 13, was not a “special district” within the meaning of article XIII A, section 4 of the Constitution. It reasoned that Proposition 13 was not intended to apply to local agencies, like the Commission, that never had power to levy property taxes.6 Then, in City and County of San Francisco v. Farrell (1982) 32 Cal.3d 47, 57, the Court construed the term “special taxes,” as used in article XIII A, section 4, to mean “taxes which are levied for a specific purpose rather than … a levy placed in the general fund to be utilized for general governmental purposes.” 5 The Court in Solvang suggested that “[o]rdinarily, levies to meet general expenses of the taxing entity and to construct facilities to serve the general public, such as fire stations, police stations, and schools, may not be transformed from general ad valorem taxes to special assessments by a mere change in the name of the levy.” (Solvang Municipal Improvement District v. Board of Supervisors of the County of Santa Barbara (1980) 112 Cal.App.3d 545, 557.) This statement was later rejected as dicta in City of San Diego v. Holodnak (1984) 157 Cal.App.3d 759, 763, which approved an assessment that funded fire stations on the grounds that “fire stations do specially benefit the properties within their area of service and such special benefit exceeds the benefit the city at large gains by having additional fire stations within its limits.” (See also, e.g., J.W. Jones Cos. v. City of San Diego (1984) 157 Cal.App.3d 745 [upholding charter city assessment for infrastructure serving new developments, including fire and police stations and schools].) 6 Richmond was later limited by Rider v. County of San Diego (1991) 1 Cal.4th 1, which concluded that the San Diego County Regional Justice Facility Financing Agency was a “special district” and, thus, that a sales tax levied by the Agency was a “special tax” requiring two-thirds voter approval. The Court held that “any local taxing agency created to raise funds for city or county purposes to replace revenues lost by reason of the restrictions of Proposition 13” qualifies as a “special district” for purposes of article XIII A, section 4 of the Constitution. (Id. at 11.) J-13 12 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE INTRODUCTION This “special purpose” test for special taxes was reaffirmed by Proposition 62, an initiative statute, in 1986. (Gov. Code § 53721 [“Special taxes are taxes imposed for specific purposes.”].) And Proposition 218, adopted in 1996, further solidified the meaning of “special tax” by adding article XIII C, § 1, subdivision (d) to the Constitution, which defines “special tax” as “any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund.” Under Farrell, a tax that was not dedicated to specific purposes, and which instead could be used for “general revenue purposes,” was not subject to the two-third vote requirement applicable to “special taxes.” (Farrell, supra, 32 Cal.3d at 56- 57.) This changed with the adoption of Proposition 62 in 1986. Proposition 62 declared that all taxes are “either general or special”; defined a “general tax” as any tax that is imposed for “general governmental purposes”; and, most importantly, required that local governments secure majority voter approval to impose any general tax. (Gov. Code §§ 53721, 53722.) In Santa Clara County Local Transportation Authority v. Guardino (1995) 11 Cal.4th 220, the California Supreme Court held that Proposition 62’s requirement that voter approval be provided before a local government levies a tax does not impose a referendum requirement for local taxes in violation of article II, section 9 of the Constitution, which prohibits referenda for tax measures. The Court reasoned that article XIII, section 24 of the Constitution, which permits the Legislature to authorize local governments to impose taxes for local purposes, also gives the Legislature the authority to impose conditions on the exercise of that power, including the condition that voter approval be obtained before imposing any new tax. Because Proposition 62 was a statutory initiative, its applicability to charter cities was uncertain. Starting in 1993, however, a series of court decisions found that various provisions of Proposition 62 were inapplicable to charter cities. (E.g., Fielder v. City of Los Angeles (1993) 14 Cal.App.4th 137 [Proposition 62’s ban on real property transfer taxes not applicable to charter cities]; Fisher v. County of Alameda (1993) 20 Cal.App.4th 120 [same]; Trader Sports, Inc. v. City of San Leandro (2001) 93 Cal.App.4th 37 [Proposition 62’s requirement that tax ordinances also be approved by a two-thirds vote of the levying agency’s governing body not applicable to charter cities].) Proposition 62’s inapplicability to charter cities was one of the issues that ultimately gave rise to the adoption of Proposition 218 in 1996. F. Common Revenue Sources After Proposition 13 Public agencies in California continued to rely on many different revenue sources after the adoption of Proposition 13, including the following: 1. Assessments As explained above, after Proposition 13, courts quickly held that assessments are not taxes subject to the restrictions of article XIII A of the Constitution. Accordingly, public agencies could continue to levy assessments under pre-Proposition 13 statutory authority, such as the Landscaping and Lighting Act of 1972 (Sts. & Hy. Code § 22500 et seq.), or under new authority, such as the Benefit Assessment Act of 1982 (Gov. Code § 54703 et seq.). 2. Mello-Roos Additional authority for financing local improvements and services, particularly to accommodate new development, was provided by the Mello-Roos Community Facilities Act of 1982 (Gov. Code § 53311 et seq.), which authorized the imposition of special parcel taxes with a two-thirds vote of voters (for inhabited districts) or a two-thirds vote of landowners (for uninhabited districts). 3. Parcel Taxes A parcel tax is a tax collected on the property tax roll that is based on either a flat, per-parcel rate or a rate that varies based on other factors, such as parcel size, use, or other physical attributes. (Heckendorn v. City of San Marino (1986) 42 Cal.3d 481.) Parcel taxes based upon the value of the property are prohibited because they violate Proposition 13’s limits on ad valorem property taxes. (Cal. Const. art. XIII A, § 1; City of Oakland v. Digre (1988) 205 Cal.App.3d 99.) J-14 13LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Proposition 218 eventually limited the types of taxes that local governments can impose upon a parcel of property to the ad valorem property tax and any special tax that receives a two-thirds vote, as required by article XIII A, section 4 of the Constitution. Accordingly, local governments may only impose a parcel tax as a special tax. (Nielson v. City of California City (2006) 133 Cal.App.4th 1296, 1307-08.) 4. Police Power Fees The authority of local governments to impose regulatory fees was well established when California voters adopted Proposition 13 in 1978. It derives from the “police power”—the inherent power of government to subject individual rights to reasonable regulations for the promotion of the public health, safety, morals, and general welfare of the community. (Community Memorial Hospital of San Buena Ventura v. County of Ventura (1996) 50 Cal.App.4th 199, 206; e.g., County of Plumas v. Wheeler (1906) 149 Cal. 758 [license fee]; Associated Home Builders of the Greater East Bay, Inc. v. City of Walnut Creek (1971) 4 Cal.3d 633 [fee to fund recreational facilities to serve new development].) Cities and counties derive their police power from the Constitution, subject only to preemption by state law. (Cal. Const. art. XI, § 7.) The rules governing regulatory fees were tightened considerably in 2010, with the adoption of Proposition 26. Proposition 26’s impact on regulatory fees is discussed in Chapter 4 of this Guide. Prior to the adoption of Proposition 26, regulatory fees needed to be fair, reasonable, and apportioned amongst those who pay them in a manner that was reasonably proportional to the cost of the benefits provided to the payor or the cost of addressing the burdens imposed on the agency by the payor. (E.g., Sinclair Paint Co. v. State Board of Equalization (1997) 15 Cal.4th 866, 875-81 [fee on contributors to environmental lead contamination, used to fund health care services made necessary by environmental lead exposure); Pennell v. City of San Jose (1986) 42 Cal.3d 365, 374 [rent control fees].) After Proposition 13, local governments sought to recover costs previously paid using property taxes from a variety of regulatory fees instead, such as fees for processing land use and building permits. These fees were generally held to be legitimate regulatory fees, not special taxes, so long as they were reasonably related to the cost of the regulatory activity and did not generate revenue for unrelated purposes. (Mills v. County of Trinity (1980) 108 Cal.App.3d 656, 663.) For example, courts considered fees imposed as a condition of developing property to be regulatory fees, since these “impact fees” were used to defray the cost of public facilities related to development projects. The validity of such fees depended on the existence of a nexus between the burdens a project imposed on government, the amount of the fee, and the purposes for which the fee was used. (Gov. Code §§ 66000(b), 66001 [Mitigation Fee Act or “AB 1600”].) The following general principles applied to regulatory fees under the law as it existed prior to the adoption of Proposition 26 in 2010: Regulatory fees were not special taxes if: (1) they did not exceed the reasonable cost of providing services or engaging in activities that were necessary to further the purpose for which the fee was charged; and (2) they were not levied for unrelated revenue purposes. (Sinclair Paint, supra, 15 Cal.4th at 876.) A regulatory fee could be imposed under the police power in an amount necessary to achieve the purposes of the regulation. (San Diego Gas & Electric Co. v. San Diego County Air Pollution Control District (1988) 203 Cal.App.3d 1132, 1146, fn. 18 [fee for air pollutant emission permit properly based on volume of emissions permitted].) Costs that could be recovered through the imposition of regulatory fees included the cost of issuing licenses or permits, of undertaking investigations, inspections, and other enforcement activities, and of maintaining and administering a system of supervision. (United Business Commission v. City of San Diego (1979) 91 Cal.App.3d 156, 165-66.) Regulatory fees could be valid even in the absence of any perceived benefit accruing to the fee payer. (Pennell, supra, 42 Cal.3d at 375, fn. 11.) J-15 14 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE INTRODUCTION The legislative body of a local agency that imposed a regulatory fee needed only “apply sound judgment and consider ‘probabilities according to the best honest viewpoint of informed officials’ in determining the amount of the ... fee.” (United Business Commission, supra, 91 Cal.App.3d at 166.) 5. “User” Fees for Governmental Services Local governments’ authority to impose “user” fees for governmental services was also well established in 1978. Although sometimes grounded in the “police power,” the ability to charge user fees for governmental services was often treated as arising from the power to provide the service. (Carlton Santee Corp. v. Padre Dam Municipal Water District (1981) 120 Cal.App.3d 14, 24-26; Durant v. City of Beverly Hills (1940) 39 Cal.App.2d 133, 137; see also Cal. Const. art. XI, § 9.) The principle that fees must reasonably relate to the cost of the governmental activity funded by the fee also applied in these user fee cases. (English Manor Corp. v. Vallejo Sanitation & Flood Control District (1974) 42 Cal.App.3d 996, 1004; Boynton v. City of Lakeport Municipal Sewer District No. 1 (1972) 28 Cal.App.3d 91, 95-96.) However, even after Proposition 13, courts continued to evaluate user fees under an overall reasonableness standard, holding that a local agencies could earn some profit from their utility enterprises. (Hansen v. City of San Buenaventura (1986) 42 Cal.3d 1172, 1181-83 [city could set water service rates sufficient to recoup a reasonable return on its investment in its water utility].)7 6. Burden of Proof for Challenges to Regulatory and User fees Before Proposition 218, litigants challenging regulatory fees and user fees generally argued that their challenges should be reviewed under the standard articulated in Beaumont Investors v. Beaumont-Cherry Valley Water District (1985) 165 Cal. App.3d 227, which involved a review of water connection fees challenged as special taxes under Proposition 13. Beaumont Investors involved a challenge to a “facilities fee” due with applications to connect to a local water district’s water system. The sole issue on appeal was “whether the record demonstrates that the facilities fee ... does or does not ‘exceed the reasonable cost’ of constructing the water system improvements contemplated by the District.” If it did, the fee would be a “special tax” that must be approved by a two-thirds vote. (Id. at 234-35.) Noting that the water district claimed an exemption from the voting requirements established by article XIII A, section 4 of the Constitution, as reflected in Government Code section 50076, the court held that a “local agency which seeks to avoid the general rule should have the burden of establishing that it fits the exception.” (Id. at 235.) The court then compared the scant record of the agency’s actions in setting the facilities fee with the detailed record a city prepared to justify a facilities special benefit assessment in J.W. Jones Companies v. City of San Diego (1984) 157 Cal.App.3d 745. Because the district failed to produce any evidence from its record supporting the fee calculation, the court concluded, unsurprisingly, that it had failed to meet its burden. Subsequent cases, like Beaumont Investors, looked to local agencies’ legislative records when evaluating whether a particular levy was a valid fee or a special tax. For example, in Russ Building Partnership v. City and County of San Francisco (1987) 199 Cal.App.3d 1496, aff’d in part and rev’d in part, 44 Cal.3d 839 (1988), the court, when reviewing the validity of a transit development charge, relied on numerous studies, as well the record of public hearings at which the legislative body discussed and ultimately adopted the charge. Based on this review, the court concluded that “the charge levied is directly related and limited to the cost of increased municipal transportation services engendered by the particular development ....” (Id. at 1506.)8 In Bixel Associates v. City of Los Angeles (1989) 216 Cal.App.3d 1208, the court compared an imprecise basis for the challenged fire hydrant fee on new development with the detailed methodology used to establish the transit fee 7 As noted above, Hansen is no longer good law for property-related fees governed by article XIII D, section 6 of the Constitution. (E.g., Howard Jarvis Taxpayers Ass’n v. City of Fresno (2005) 127 Cal.App.4th 914, 922-23 [Proposition 218 “changed” the rule that cities could “make a profit” on their utility operations]; but see Capistrano Taxpayers Ass’n v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493, 1515 [noting in dicta that local governments may still be able to profit from property-related fees after Proposition 218, if local voters authorize them to do so].) 8 This case is not, of course, citable authority, but it does help illuminate the historical development of this area of public finance law. (California Rules of Court, rule 8.1115(e).) J-16 15LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE challenged in Russ Building Partnership and the facilities benefit assessment challenged in J.W. Jones Companies. It noted that “the public agencies [in those earlier cases] met their burden of showing that a valid method had been used for arriving at the fees in question, one which established a reasonable relationship between the fee charged and the burden posed by the development.” (Id. at 1219.) In Shapell Industries, Inc. v. Governing Board of the Milpitas Unified School Dist (1991) 1 Cal.App.4th 218, the court addressed whether fee cases were subject to the relatively deferential “substantial evidence” standard of review or, instead, some other standard. In addressing whether a school impact fee was a valid fee or a special tax, the court reaffirmed that the local agency was required to show that the challenged fee had a reasonable relationship to the benefit provided to the fee payor. Judicial review was limited to the legislative record and tested whether the agency’s action was “arbitrary, capricious or entirely lacking in evidentiary support”— the usual, deferential standard for reviewing legislation. (Id. at 231.) The court went on to explain its approach as follows: We cannot agree that local legislation, particularly that which results in the imposition of substantial fees on property owners as a condition of improving their property, should be virtually immune from effective judicial review. If courts shun evidentiary review as beyond their province, the reasonableness of the agency’s action is relegated to the agencies themselves, whose primary interest is in financing their own projects. On the other hand, we do not advocate an approach which renders the two standards interchangeable, since there are sound policy reasons for the courts to exercise considerable deference to agencies acting under legislative mandate. The appropriate degree of judicial scrutiny in any particular case is perhaps not susceptible of precise formulation, but lies somewhere along a continuum with nonreviewability at one end and independent judgment at the other. [Citation omitted.] Since the ultimate question is whether the agency has abused its discretion, the answer is one of degree. In each case the court must satisfy itself that the order was supported by the evidence, although what constitutes reasonable evidentiary support may vary depending upon the nature of the action. [Citations omitted.] A proceeding which has determined individual rights in a factual context will warrant more exacting judicial review of the evidence. Otherwise courts will tend to defer to the presumed expertise of the agency acting within its scope of authority. Our case lies towards that end of the continuum, where the focus is on the reasonableness of the agency’s action as a whole. For our purposes we find useful the test articulated by our Supreme Court in California Hotel & Motel Assn. v. Industrial Welfare Comm., supra, 25 Cal.3d 200: “A court will uphold the agency action unless the action is arbitrary, capricious, or lacking in evidentiary support. A court must ensure that an agency has adequately considered all relevant factors, and has demonstrated a rational connection between those factors, the choice made, and the purposes of the enabling statute.” [Citation omitted.] (Shapell Industries, supra, 1 Cal.App.4th at 232; see also Garrick Development Co. v. Hayward Unified School District (1992) 3 Cal.App.4th 320, 327-28 [applying same standard to review of school facilities fee].) G. Knox v. Orland One of the most important cases to address Proposition 13 in the years leading up to the adoption of Proposition 218 was Knox v. City of Orland. Knox involved a challenge to a citywide benefit assessment for park maintenance imposed under the Landscaping and Lighting Act of 1972 (Streets & Highways Code section 22500 et seq.). The plaintiffs contended that assessments for park maintenance constituted an “end run” around article XIII A, section 4 of the Constitution, and that special assessments were never appropriate to finance park maintenance because a park is not a type of improvement that confers a special benefit upon real property. (Knox v. City of Orland (1992) 4 Cal.4th 132, 143.) J-17 16 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE INTRODUCTION In rejecting these arguments, the California Supreme Court distinguished special taxes from assessments: [W]hile a special assessment may, like a special tax, be viewed in a sense as having been levied for a specific purpose, a critical distinction between the two public financing mechanisms is that a special assessment must confer a special benefit upon the property assessed beyond that conferred generally. Accordingly, if an assessment for park maintenance improvements provides a special benefit to the assessed properties, then the assessed property owners should pay for the benefit they receive. If it does not, the assessment effectively amounts to a special tax upon the assessed property owners for the benefit of the general public. (Id. at 142–43, footnote omitted.) The Court also rejected the application of the Beaumont Investors’ burden-shifting rule in lawsuits challenging the validity of special assessments. Instead, it applied an earlier test outlined in Dawson v. Town of Los Altos Hills (1976) 16 Cal.3d 676, which it described as follows: A special assessment finally confirmed by a local legislative body in accordance with applicable law will not be set aside by the courts unless it clearly appears on the face of the record before that body, or from facts which may be judicially noticed, that the assessment as finally confirmed is not proportional to the benefits to be bestowed to the properties to be assessed or that no benefits will accrue to such properties. (Knox, supra, 4 Cal.4th at 145-46.). The Court explained that Beaumont Investors did not apply because an assessment was “not presumptively a special tax” under article XIII A, section 4 of the Constitution, such that it was “not necessary that the assessment fit into [a] statutory exception for the city to prevail.” (Id. at 147.) However, the Court also stated, in dicta, that it doubted whether a special assessment would be valid under the Dawson test “if there exists evidence in the record which contradicts the local legislative body’s benefit determination and indicates that such determination was arbitrary, capricious, or entirely lacking in evidentiary support.” (Id. at 149, fn.26.) One of Proposition 218’s stated goals was to overturn Knox and other cases applying a relatively deferential standard of review in cases challenging the validity of special assessments. III. Proposition 218 (1996) A. Purpose & Intent Proposition 218 is best understood as a response to the judiciary’s implementation of Proposition 13. As discussed above, the primary purpose of Proposition 13 was to cut property taxes. However, when called on to interpret Proposition 13, courts did not extend Proposition 13’s limitations to other types of levies that impact property ownership, holding that special assessments are not special taxes and deferring to legislative determinations in upholding assessments, regulatory fees, and user fees. In November 1996, in part to override these precedents, California voters adopted Proposition 218, the “Right to Vote on Taxes Act.” (Prop. 218, § 1, reprinted at Historical Notes, 2b West’s Ann. Const. (2103) foll. art. XIII C, § 1, p. 363.) Proposition 218’s uncodified section 2 read: 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. Section 5 of Proposition 218 further stated that the proposition should be “liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent.” (See Howard Jarvis Taxpayers Assn. v. City of Riverside (1999) 73 Cal. App.4th 679, 683.) J-18 17LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Proposition 218 added articles XIII C (“Voter Approval for Local Levies”) and XIII D (“Assessment and Property Related Fee Reform”) to the Constitution. Article XIII C focuses on local taxes, reaffirming and expanding the provisions of Proposition 13 and Proposition 62 that required voter approval for local taxes. Article XIII D focuses “on exactions, whether they are called taxes, fees, or charges, that are directly associated with property ownership.” (Apartment Ass’n of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th 830, 839.) In particular, article XIII D states that the only taxes, assessments, fees, or charges that local government may impose upon a parcel or upon a person “as an incident of property ownership” are ad valorem property taxes, special taxes approved by a two-thirds vote, assessments that comply with the requirements of article XIII D, section 4, and fees or charges for property-related services that comply with the requirements of article XIII D, section 6. (Cal. Const. art. XIII D, § 3, subd. (a).) Proposition 218 provides no new authority to any local agency to impose taxes, assessments, fees, or charges. (Id. art. XIII D, § 1, subd. (a).) B. Voter Approval of Taxes Proposition 218 states that all taxes imposed by a local government are either general taxes or special taxes, and that both types of taxes must be approved by the local electorate. General taxes must be approved by a majority vote of registered voters, except that in the case of an emergency declared by a unanimous vote of the legislative body’s members present, the election must be consolidated with a “regularly scheduled general election for members of the governing body of the local government ....” (Cal. Const. art. XIII C, § 2, subd. (b).) Special taxes must be approved by a two-thirds vote. (Cal. Const. art. XIII C, § 2, subd. (d).) 1. General Taxes General taxes are taxes “imposed for general governmental purposes.” (Cal. Const. art. XIII C, § 1, subd. (a).) “Special purpose districts or agencies” have no power to impose general taxes. (Cal. Const. art. XIII C, § 2, subd. (a).) 2. Special Taxes Special taxes are taxes “imposed for specific purposes, including a tax imposed for a specific purpose, which is placed into a general fund.” (Cal. Const. art. XIII C, § 1, subd. (d).) C. Assessments Proposition 218 established a number of substantive and procedural requirements for assessments, found in article XIII D, section 4 of the Constitution.9 These requirements will be discussed in more detail in the “Assessments” chapter of this Guide. Proposition 218 also shifted to the local agency the burden of demonstrating that assessed properties receive a special benefit and that the amount of an assessment is proportional to and no greater than the special benefit conferred. (Cal. Const. art. XIII D, § 4, subd. (f).) D. Property Related Fees and Charges Proposition 218, through article XIIID of the Constitution, also introduced new rules governing “fees” or “charges” that relate to the ownership of property (sometimes called “property-related fees”).10 A fee subject to article XIII D is one that is imposed “upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service.” (Cal. Const. art. XIII D, § 2, subd. (e).) A property related service is one “having a direct relationship to property ownership.” (Id. art. XIII D, § 1, subd. (h).) Fees or charges are subject to a number of procedural and substantive requirements outlined in article XIII D, section 6. These requirements will be discussed in the “Fees” chapter of this Guide. The local agency bears the burden of showing compliance with article XIII D. (Cal. Const. art. XIII D, § 6, subd. (b)(5).) 9 “Assessment” is defined as “any levy or charge upon real property for a special benefit conferred upon the real property[,] ... including, but not limited to, [a] ‘special assessment,’ ‘benefit assessment,’ ‘maintenance assessment,’ and ‘special assessment tax.’” (Cal. Const. art. XIII D, § 2, subd. (b).) 10 Proposition 218 provides a single definition of both “fee” and “charge,” and the two terms appear to be synonymous for purposes of Proposition 218. (Cal. Const. art. XIII D, § 2, subd. (e); Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 214, fn. 4.) J-19 18 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE INTRODUCTION E. Power to Reduce Revenues Through Initiative Finally, Proposition 218 added a new provision to the Constitution—article XIII C, section 3—guaranteeing the right of voters to affect local taxes, assessments, fees, and charges by initiative. Section 3 states that, “[n]otwithstanding any other provision of this Constitution, ... the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” IV. Proposition 26 (2010) Much as Proposition 218 was, in part, a response to the judiciary’s interpretation of Proposition 13, Proposition 26 was largely a response to the California Supreme Court’s decision in Sinclair Paint Co. v. State Board of Equalization (1997) 15 Cal.4th 866. Sinclair Paint involved a state fee imposed on makers of lead-containing consumer products. The fee was used to mitigate the environmental and public health consequences of lead exposure and required manufacturers to bear a fair share of the cost of addressing the adverse health impacts resulting from the use of their products. Fee proceeds funded evaluation, screening, and medically necessary follow-up services for children exposed to environmental lead. The plaintiff, a paint manufacturer, claimed that the fee was a tax because it “neither reimburse[d] the state for special benefits conferred on manufacturers of lead-based products nor compensate[d] the state for governmental privileges granted to those manufacturers.” (Id. at 875.) The trial court and the Court of Appeal both agreed, noting that proceeds from the fee were not used “to regulate Sinclair.” (Id. at 877.) However, the Supreme Court ultimately held that fee was a bona fide “regulatory fee” and that the use of fee proceeds need not confer benefits or privileges on the fee payor, so long as the fee bears a reasonable relationship to the burden the fee payor imposes on society.11 (Id. at 881.) Although the plaintiff disputed the state’s authority to impose “remediation fees” to compensate for the adverse societal effects generated by an industry’s products, the Court emphasized that the fees were imposed under the state’s police power, which is “broad enough to include mandatory remedial measures to mitigate the past, present, or future adverse impact of the fee payer’s operations, at least where ... the measure requires a causal connection or nexus between the product and its adverse effects.” (Id. at 877-78.)12 Regulatory fees that require fee payors to mitigate the adverse impacts of their activities were the primary targets of Proposition 26. The “Findings and Declarations of Purpose” stated that the drafter’s intent was to reclassify as “taxes” many fees that are imposed to mitigate the adverse health, environmental, and other societal effects of regulated activities. Proposition 26 accomplished this result by amending article XIII A, section 3 of the Constitution (adopted by Proposition 13) and article XIII C, section 1 of the Constitution (adopted by Proposition 218) to provide a definition of the term “tax” in both provisions. State taxes, which must be approved by a two-third vote of the Legislature, now include all governmental levies, with five exceptions. (Cal. Const. art. XIII A, § 3, subd. (b).) Local taxes, which must be approved by the electorate, also include all governmental levies, with seven exceptions. (Cal. Const. art. XIII C, § 1, subd. (e).) Thus, nearly forty years of legal developments since the adoption of Proposition 13 in 1978 have transformed the law of local government revenues from one of presumed legislative authority and deferential review to a presumption that voter approval is required to fund local governmental activities. Exceptions to this rule are policed under a non-deferential standard of judicial review, with the burden of proof to establish the applicability of the exception placed on the local government. 11 Development impact fees are a common example of this type of “regulatory fee,” since they are imposed both to defray regulatory costs incurred by an agency and to mitigate the impacts of a development project on a community. Development impact fees are exempt from both article XIII D (Cal. Const. art. XIII D, § 1, subd. (b)) and from article XIII C’s definition of “tax” (Cal. Const. art. XIII C, § 1, subd. (e)(6)). 12 Other cases had similarly defined a regulatory fee to include levies that distribute the collective cost of a regulation, even when the levy is “enacted for purposes broader than the privilege to use a service or to obtain a permit[,]” such as “the protection of the health and safety of the public.” (California Ass’n of Professional Scientists v. Department of Fish and Game (2000) 79 Cal.App.4th 935, 952.) J-20 19 19LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Chapter 2 Taxes I. What is a Tax? As explained above, the primary purpose of article XIII C of the Constitution, added by Proposition 218, was to require that all local taxes imposed by a local government be approved by a vote of the local electorate. (Cal. Const. art. XIII C, § 2, subd. (b), (d).) Likewise, article XIII A of the Constitution, added by Proposition 13, has long required that all state taxes proposed by the Legislature be approved by a two-thirds vote of the Legislature. (Cal. Const. art. XIII A, § 3.) However, before the adoption of Proposition 26 in 2010, the term “tax,” as used in both article XIII C and article XIII A, had no fixed meaning. In general, “taxes” were understood to include revenue-raising devices adopted pursuant to an exercise of a local agency’s taxing power, which “resembles the power of eminent domain in that there is a taking of private property for a public purpose.” (9 Witkin, Summary of Cal. Law (10th ed. 2005) Taxation § 1.) Unlike the police power, which authorizes a local agency to impose a charge for a benefit conferred or privilege granted to the payor, the taxing power allows local governments to impose exactions even when there is no specific and direct benefit to the payor. (See Sinclair Paint Co. v. State Board of Equalization (1997) 15 Cal.4th 866, 874; 9 Witkin, Summary of Cal. Law (10th ed. 2005) Taxation § 1; see California Chamber of Commerce v. State Air Resources Board (2017) 10 Cal.App.5th 604, 640 [“[G]enerally speaking, a tax has two hallmarks: (1) it is compulsory, and (2) it does not grant any special benefit to the payor.”].) Whether a particular revenue-generating device was imposed as an exercise of a local agency’s taxing power or pursuant to its police power was determined by the purpose of the device, rather than its label. (E.g., Weekes v. City of Oakland (1978) 21 Cal.3d 386, 392.) California voters enacted Proposition 26 in 2010 to define the term “tax” for purposes of article XIII C and XIII A. Under Proposition 26, all levies, charges, and exactions “imposed” by local governments are considered taxes, unless they fit into one of the seven stated exceptions for local government: 1. A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. 2. A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product. J-21 20 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 2: TAXES 3. A charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. 4. A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property. 5. A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law. 6. A charge imposed as a condition of property development. 7. Assessments and property-related fees imposed in accordance with the provisions of Article XIII D. (Cal. Const., art. XIII C, § 1, subd. (e).) Five exceptions, similar to exceptions (1) through (5), above, apply to the definition of state taxes found in article XIII A, section 3, subdivision (b) of the Constitution.13 A detailed analysis of these exceptions appears in Chapter 4 of this Guide. II. General Taxes and Special Taxes Under Proposition 218, “[a]ll taxes imposed by any local government shall be deemed to be either general taxes or special taxes.” (Cal. Const. art. XIII C, § 2, subd. (a).) The distinction between special and general taxes hinges on whether the revenues from the tax are committed to a specific purpose or can be used for any governmental purpose. “‘Special tax’ means any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund.” (Cal. Const. art. XIII C, § 1, subd. (d).) “‘General tax’ means any tax imposed for general governmental purposes.” (Cal. Const.. art. XIII C, § 1, subd. (a).) For a tax to be a special tax, the use of its proceeds must be legally restricted in some way. (Neilson v. City of California City (2005) 133 Cal.App.4th 1296, 1310; see Coleman v. County of Santa Clara (1998) 64 Cal.App.4th 662, 670-71 [general tax did not become special tax because of separate non-binding advisory measure stating voters’ preference that proceeds be used for transportation projects].) However, a special tax can have multiple purposes, and those purposes can be for broad government functions, such as police, fire, parks and recreation, and libraries. (Neilson, supra, 133 Cal.App.4th at 1310.) Cities may impose non-ad valorem property taxes (parcel taxes) as special taxes, even though Proposition 13 prevents them from levying ad valorem property taxes (i.e., taxes based on the assessed value of property) that exceed the one-percent limit established by article XIII A, section 1 of the Constitution. (Id. at 1308.) “Special purpose districts or agencies” may only levy special taxes. This rule was first announced by the California Supreme Court in Rider v. County of San Diego (1991) 1 Cal.4th 1, which held that because “a ‘special tax’ is one levied to fund a specific governmental project or program … every tax levied by a ‘special purpose’ district or agency would be deemed a ‘special tax.’” (Id. at 15, emphasis in original.) Proposition 218 codified the rule in article XIII C, section 2, subdivision (a), by providing: “Special purpose districts or agencies, including school districts, shall have no power to levy general taxes.”14 13 There are some minor differences in the wording of the overlapping exceptions in article XIII A, section 3, subdivision (b) of the Constitution and article XIII C, section 1, subdivision (e) of the Constitution. These differences warrant consideration and may potentially be significant. 14 There is some uncertainty as to which local agencies qualify as a “special purpose district”—a point noted by the Sixth District Court of Appeal in Pajaro Valley Water Management Agency v. Amrhein (2007) 150 Cal.App.4th 1364, 1378 fn. 10. In particular, while Proposition 218 defines the term “special district” as “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 including, but not limited to, school districts and redevelopment agencies[,]” it does not define the term “special purpose district.” (Cal. Const., art. XIII C, § 1, subd. (c).) There is therefore a question as to whether a special district with multiple purposes is a “special purpose district” that can only levy a special tax. Given the logic of Rider, a strong argument can be made that a multi-purpose agency may impose a general tax without violating Proposition 218. J-22 21LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE X PRACTICE TIP: When a court determines that a challenged fee is unlawful, the fee is generally considered a tax. (See Cal. Const. art. XIII C, § 1, subd. (e); Bay Area Cellular Telephone Co. v. City of Union City (2008) 162 Cal. App.4th 686 [911 services fee was unlawful tax].) If so, it is important to clarify whether it is a general or special tax. A court may assume that a failed fee is a special tax, when in fact it would be general tax because its proceeds are placed in the general fund and used for general governmental purposes. This could occur with an invalidated transfer from a utility enterprise fund to a general fund or with an invalidated franchise fee dedicated to a general fund. It is important to clarify this issue with the court, in case the agency wants to adopt the failed fee as a tax and would prefer the majority voting requirement of a general tax to the supermajority voting requirement of a special tax. III. Voting Requirements for Special and General Taxes Article XIII C, section 2 of the Constitution provides, in subdivision (b), that local agencies cannot “impose, extend, or increase” any general tax unless and until that tax is submitted to the electorate and approved by a majority vote, and in subdivision (d), that local agencies cannot “impose, extend, or increase” any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote. These voting requirements track similar requirements found in sections 53722 and 53723 of the Government Code, which were enacted in 1986 by Proposition 62, a statutory initiative inapplicable to charter cities.15 (E.g., Trader Sports, Inc. v. City of San Leandro (2001) 93 Cal.App.4th 37, 49.) The voter approval requirement for special taxes dates back to Proposition 13; article XIII A, section 4 of the Constitution, like article XIII C, section 2, requires two-thirds voter approval for any city, county, or special district to “impose” any special tax. As will be discussed in greater detail in the “Initiatives & Referenda” chapter of this Guide, the two-thirds voter approval requirements of article XIII C, section 2, subdivision (d) of the Constitution and article XIIIA, section 4 of the Constitution do not apply to special tax measures proposed by voters through the initiative process. (City and County of San Francisco v. All Persons Interested in the Matter of Proposition C (2020) 51 Cal.App.5th 703; City of Fresno v. Fresno Building Healthy Communities (2020) 59 Cal.App.5th 220; Howard Jarvis Taxpayers Ass’n v. City and County of San Francisco (2021) 60 Cal.App.5th 227.) Special taxes proposed by initiative may be imposed, extended, or increased if approved by a majority vote.16 (Cal. Const. art. II, § 10, subd. (a); Elec. Code §§ 9122, 9217.) Since California voters approved Proposition 218 in 1996, the courts, and the Proposition 218 Omnibus Implementation Act (Gov. Code §§ 53750–53758), have supplied guidance on what it means to “impose, extend, or increase” a tax within the meaning of article XIII C, section 2 of the Constitution. A. Impose “Impose,” for purposes of Proposition 218, means a local agency’s initial enactment of a tax. (California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924, 944 [impose means “to establish”].) A local agency does not “impose” a tax when it applies an existing tax to newly annexed territory, within which the tax did not previously apply. (See Citizens Ass’n of Sunset Beach v. Orange County Local Agency Formation Commission (2012) 209 Cal.App.4th 1182, 1194 [following similar ruling in Metropolitan 15 Sections 53722 and 53723 of the Government Code require voter approval to “impose” any tax. 16 The application of this rule to parcel taxes is currently being litigated in two cases: City and County of San Francisco v. All Persons Interested in the Matter of Proposition G, First District Court of Appeal, Case No. A160659, and Jobs & Housing Coalition et al. v. City of Oakland, First District Court of Appeal, Case No. A158977. J-23 22 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 2: TAXES Water District v. Dorff (1979) 98 Cal.App.3d 109, which interpreted Proposition 18].) In contrast, a local agency does “impose” a tax when it makes the decision to apply an existing tax to a new category of taxpayers who the local agency previously did not tax.17 B. Extend Government Code section 53750, subdivision (e) states that a tax is extended if there is “a decision by an agency to extend the stated effective period of the tax …, including, but not limited to, amendment or removal of a sunset provision or expiration date.” Extending a sunset date or effective period for a tax therefore requires voter approval under article XIII C, section 2. (White v. State of California (2001) 88 Cal.App.4th 298, 316 [“[T]he prohibition against extending taxes without a vote means a prohibition against extending the imposition of a tax for a continued time period.”].) However, the application of taxes to newly annexed territory does not “extend” those taxes within the meaning of Proposition 218. (Citizens Ass’n of Sunset Beach v. Orange County Local Agency Formation Commission (2012) 209 Cal.App.4th 1182, 1195 [“‘[E]xtend’ is normally thought of in terms of time, not geographic areas, particularly in the context of taxation.”].) C. Increase Government Code section 53750, subdivision (h)(1) states that a local government “increases” a tax when it does either of the following: (1) “[i]ncreases any applicable rate used to calculate the tax”; or (2) “[r]evises the methodology by which the tax … is calculated, if that revision results in an increased amount being levied on any person or parcel.” The term “methodology,” as used in section 53750, “refers to a mathematical equation for calculating taxes that is officially sanctioned by a local taxing entity.” Accordingly, “[a] tax is increased if the math behind it is altered so that either a larger tax rate or a larger tax base is part of the calculation.” (AB Cellular LA, LLC v City of Los Angeles (2007) 150 Cal.App.4th 747, 763.) This is true even when a local government revises its methodology due to external factors, such as a change in federal law. (See ibid. [federal statute eliminating Commerce Clause prohibition on taxing all cellular services did not authorize the city to tax cellular services not previously taxed without voter approval]; but see Gonzalez v. City of Norwalk (2018) 17 Cal.App.5th 1295 [revision of local tax ordinance to address changed interpretation of federal tax law that was incorporated into the ordinance was not a tax “increase” and did not require voter approval, where the revision was consistent with the intent of the voters who had approved the local tax and the local agency’s tax collection practices did not change].) A tax is not increased “if it is imposed at a rate not higher than the maximum rate” approved by voters. (Cal. Const., art XIII C, § 2, subd. (b), (d).) Similarly, a tax is not “increased” if a local agency does either of the following: (A) “[a]djusts 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 agency prior to November 6, 1996”; or (B) “[i]mplements or collects a previously approved tax … so long as the 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.” (Gov. Code § 53750, subd. (h)(2).) Accordingly, a local agency may submit a tax measure to the voters to approve a range of rates or amounts and to approve a clearly identified formula for inflation adjustments to a tax. (Id. § 53739.) However, when a tax is measured using a percentage calculation — such as a percentage of a utility charge (like most utility users taxes) or of a hotel room rent (like most transient occupancy taxes) — it cannot include an inflation adjustment.18 (Id. § 53739, subd. (c).) Subsequent increases in a tax that are implemented in accordance with a voter-approved measure do not require further voter approval. (Id. § 53739, subd. (a).) In addition, a local agency “can enforce less of a local tax than is due under a voter approved methodology, or a grandfathered methodology, and later enforce the full amount of the local tax due under that methodology without transgressing Proposition 218.” (AB Cellular LA, supra, 150 Cal App. 4th at 764.) 17 For purposes of applying the statute of limitations in Code of Civil Procedure section 338, subdivision (a) [three years for liability arising from statute], “impose” also means “continue to impose” or the continued collection of a tax. (Howard Jarvis Taxpayers v. La Habra (2001) 25 Cal.4th 809, 823-24.) Chapter 6 of this Guide discusses statute of limitations issues that can arise in cases brought under Propositions 218 and 26. 18 Because the tax base for taxes that use a percentage calculation will typically rise as prices themselves rise with inflation, there is no need to inflate the tax rate too. J-24 23LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE X PRACTICE TIP: If a local agency decides to collect a previously approved tax at a rate lower than was authorized by the voters, the documentation lowering the tax should be very clear that the reduction is temporary and that there is no “increase,” which requires voter approval, when the higher rate is restored. This can be accomplished by adopting the tax reduction by a resolution that has a stated expiration date. The reduction can then expire without any further legislative action that can be characterized as a tax “increase.” The expiration date can later be extended while still preserving this defense to a claim that the end of the tax reduction is an increase. Finally, a local agency does not increase a tax if “higher payments are attributable to events other than an increased rate or revised methodology, such as a change in the density, intensity, or nature of the use of land” (Gov. Code § 53750, subd. (h)(3)), or when it applies an existing tax to newly annexed territory (Citizens Ass’n of Sunset Beach v. Orange County Local Agency Formation Commission (2012) 209 Cal.App.4th 1182, 1195). IV. The Electorate Proposition 218 requires that all taxes imposed by a local government be “submitted to the electorate” and approved by a majority vote (for general taxes) or a two-thirds vote (for special taxes). (Cal. Const. art. XIII C, § 2, subd. (b), (d).) In City of San Diego v. Shapiro (2014) 228 Cal.App.4th 756, the Fourth District Court of Appeal interpreted the term “electorate” to mean registered voters who voted in the election. For purposes of applying the two-thirds vote requirement for special taxes found in article XIII A, section 4 of the Constitution, the court interpreted the phrase “qualified electors of such district” to mean the same thing. (See also Neilson v. City of California City (2005) 133 Cal.App.4th 1296, 1313 [“We conclude the phrase ‘qualified electors of such district’ (art. XIIIA, § 4) means the registered voters of the City who voted in the election.”].) At issue in Shapiro was a special tax imposed by San Diego on hotels, the proceeds of which would be used to fund the expansion of the San Diego Convention Center. The city adopted the tax using a procedure outlined in a local ordinance that was comparable to the Mello-Roos Community Facilities District Act ( (Gov. Code § 53311 et seq.). It defined the qualified voters, for purposes of securing voter approval, as hotel property owners and lessees, because only hotels would be subject to the tax. Over 92% of hotel owners and lessees approved the tax, and the city filed suit to validate it. (Shapiro, supra, 228 Cal.App.4th at 762-64.) The Court of Appeal ultimately invalidated the special tax, holding that San Diego could not limit the qualified voters to landowners and lessees that would be subject to the tax because article XIII A, section 4 of the Constitution and article XIII C, section 2, subdivision (d) of the Constitution required that the tax be approved by registered voters. However, the Court declined to consider whether landowner voting to impose special taxes under the Mello-Roos Act in territory that lacks registered voters to conduct an election among registered voters. (Id. at 786, fn. 32; but see Gov. Code § 53326, subd. (b) [allowing Mello-Roos Community Facilities District special tax to be imposed by vote of landowners if district includes fewer than 12 voters].) V. Advisory Measures Accompanying General Taxes A general tax measure can be paired with a non-binding advisory measure asking voters to express a preference as to how the revenues from the general tax, if passed, should be spent. So long as the advisory measure is not binding on the local agency— i.e., so long as it does not commit the agency to spending tax revenues in a particular way — it does not transform the companion general tax into a special tax, and both measures need only simple majorities to pass. (E.g., Coleman v. County of Santa Clara (1998) 64 Cal.App.4th 662, 670–71; Johnson v. County of Mendocino (2018) 25 Cal.App.5th 1017.) J-25 24 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 2: TAXES X PRACTICE TIP: The wording of the advisory measure should be very clear that: (i) the measure is advisory only (as required by Elections Code section 9603), (ii) the measure is separate and distinct from the general tax measure, and (iii) the measure does not bind the local agency in making decisions about how to spend the proceeds of the general tax. X PRACTICE TIP: As to the tax measure of such a pair (sometimes called a “Measure A /Measure B” proposal), counsel should review the ballot label (i.e., the question printed on ballots), the resolution placing the matter before voters, the ordinance imposing the tax, and the impartial analysis to ensure all are consistent with the idea that the legislative body has discretion as to how to spend the proceeds of the tax. VI. Procedures for Enacting and Imposing Taxes A. Proposition 62’s Special Procedural Requirements Although Proposition 62 has been largely superseded by Proposition 218, it contains some procedural requirements that are not found in Proposition 218 and which remain in effect as to general law cities. Government Code section 53724, subdivision (a), states that any new tax “shall be proposed by an ordinance or resolution of the legislative body of the local government or district.” If a general tax is proposed, the ordinance or resolution must be approved by “a two-thirds vote of all members of the legislative body of the local government or district.”19 (Gov. Code § 53724, subd. (b).) An ordinance or resolution proposing a tax must state the type of tax, the tax rate, the method of collection, and the election date. (Gov. Code § 53724, subd. (a).) If a special tax is proposed, the ordinance or resolution must state “the purpose or service for which its imposition is sought.” (Gov. Code § 53724(a).) Additional procedural requirements for special taxes appear at Government Code sections 50075.1–50075.3 and 50077. The provision stating that a two-thirds vote of the legislative body of the local agency is needed to put a general tax on the ballot does not apply to charter cities. (Traders Sports, Inc. v. City of San Leandro (2001) 93 Cal.App.4th 37, 49.) Proposition 62’s other procedural requirements for the adoption of local taxes likely do not apply to charter cities either, but no case has yet addressed these requirements. B. Proposition 218’s Special Procedural Requirements Proposition 218 states that an election on a proposed general tax must “be consolidated with a regularly scheduled general election for members of the governing body of the local government ....” (Cal. Const. art. XIII C, § 2, subd. (b).) This requirement does not apply to general tax elections where the tax is proposed by voter initiative. (California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924.) In counties and cities that use primary-general election format, a “general election for members of the governing body” includes a general election where no legislative seat remains unresolved after the primary. (Silicon Valley Taxpayers’ Association v. Garner (2013) 216 Cal.App.4th 402.) 19 Because general taxes must be proposed by “a two-thirds vote of all members of the legislative body,” it may require a two-thirds vote of the entire legislative body, not just a two-thirds vote of the members present at the meeting where the tax is proposed. (Compare Hopkins v. MacCulloch (1939) 35 Cal.App.2d 442, 453 [requirement of a “full affirmative vote of all members” of the city council not satisfied by a unanimous vote with one member absent] with Tidewater Southern Railway Co. v. Jordan (1912) 163 Cal. 105, 106 [requirement of a “unanimous vote of [the] board of directors or trustees” satisfied by unanimous vote of board members present].) J-26 25LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE A general tax can be placed on the ballot at a special election “in cases of emergency declared by a unanimous vote of the governing body” of the local government.20 (Cal. Const. art. XIII C, § 2, subd. (b).) Although no published decisions address what constitutes an “emergency,” cases involving challenges to urgency ordinances explain that so long as an ordinance recites facts that could reasonably be held to constitute an emergency, “‘the courts will not interfere, and they will not undertake to determine the truth of the recited facts.’” (Crown Motors v. City of Redding (1991) 232 Cal.App.3d 173, 179; Northgate Partnership v. City of Sacramento (1984) 155 Cal.App.3d 65, 69, citations omitted; compare Sonoma County Organization of Public/Private Employees, Local 707, SEIU, ALF-CIO v. County of Sonoma (1991) 1 Cal.App.4th 267, 275-76 [court must ensure that an agency’s factual declaration supporting the existence of an emergency is sufficient].) Because Proposition 218 provides no standards by which courts can establish the existence of an “emergency,” substantial deference to the legislative body’s determination is appropriate. However, it does seem reasonable to interpret “emergency,” as used in Proposition 218, in light of the fact that an agency might need to wait more than two years to place a measure before voters in the absence of an “emergency.” (Cal. Const. art. XIII C, §2, subd. (b) [general taxes must appear on general election ballots; Elec. Code § 324 [general elections occur every two years].) Thus, an emergency ought to be a state of affairs that could cause meaningful harm to the public in that period of time.21 VII. Other Limitations on the Power to Tax Although Proposition 218 establishes a baseline rule requiring voter approval of all taxes imposed by a local government, such taxes are subject to many other requirements as well. First and foremost, a local agency must have the authority to levy the tax at issue. As explained in the introductory chapter, charter cities have broad constitutional power to tax, and general law cities have been given comparable power by statute. (West Coast Advertising Co. v. City and County of San Francisco (1939) 14 Cal.2d 516, 524 [charter cities derive the power to tax from article XI, section 5 of the Constitution]; Gov. Code § 37100.5 [general law cities can impose any tax a charter city can impose].) Counties and special districts require further statutory authority to impose a tax. Shortly after the adoption of Proposition 13 in 1978, the Legislature granted all local governments the power to impose special taxes by adopting Government Code section 50077. However, California voters repealed this authority in 1986 by adopting Proposition 62, which provides: Neither this Article, nor Article XIII A of the California Constitution, nor Article 3.5 of Division 1 of Title 5 of the Government Code (commencing with Section 50075) shall be construed to authorize any local government or district to impose any general or special tax which it is not otherwise authorized to impose; provided, however, that any special tax imposed pursuant to Article 3.5 of Division 1 of Title 5 of the Government Code prior to August 1, 1985 shall not be affected by this section. (Gov. Code § 53727.) Local authority to levy a tax may be entirely or partly preempted by state or federal law. For example, the state has preempted the field of sales and use taxes, which can only be imposed pursuant to the Bradley-Burns Uniform Local Sales and Use Tax Law. (Rev. & Tax Code §§ 7200-7226.) Cities, counties, and special districts are prohibited from levying income taxes. (Rev. & Tax Code § 17041.5; but see Coblentz, Patch, Duffy & Bass, LLP v. City and County of San Francisco (2014) 233 Cal.App.4th 691, 706 [payroll tax was not a preempted income tax, even as applied to partnership distributions].) Access to the Internet cannot be taxed under the federal Internet Tax Freedom Act. (Pub.L. No. 105-277 (Oct. 21, 1998) 112 Stat. 2681, §§ 1100–1206; J2 Global Communications, 20 Because this provision requires the unanimous vote “of the governing body” and not the unanimous vote “of all members of the governing body,” the unanimous vote of the council members present is likely sufficient. (See fn. 28, supra, discussing Tidewater Southern Railroad Co. v. Jordan (1912) 163 Cal. 105, 106 and Hopkins v. MacCulloch (1939) 35 Cal.App.2d 442, 453.) 21 For instance, Proposition 218 should probably demand less than an emergency that justifies calling a Brown Act meeting without notice, since a special meeting can be called under the Brown Act on 24 hours’ notice. (Gov. Code §§ 54956, subd. (a) [special meeting called on 24 hours’ notice], 54956.5 [defining “emergency situation” under Brown Act].) J-27 26 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 2: TAXES Inc. v. City of Los Angeles (2013) 218 Cal.App.4th 328, 331 [service converting faxes to email was taxable because it did not tax internet access per se].) Statutes may also constrain the formulation of a tax. For example, a library tax levied under Government Code section 53717 must “apply uniformly to all taxpayers or all real property within the city, county, city and county, or library district.” (Cf. Borikas v. Alameda Unified School District (2013) 214 Cal.App.4th 135, 151 [school parcel tax under Government Code section 50079 must be uniform to all taxpayers and property, except for limited exceptions listed in the statute].) In contrast, a Mello-Roos Community Facilities District special parcel tax may “be on or based on a benefit received by parcels of real property, the cost of making facilities or authorized services available to each parcel, or some other reasonable basis as determined by the legislative body.” (Gov. Code § 53325.3) And a special tax used to fund police or fire services, levied under Government Code section 53978, can be applied in zones and can vary based on the class of improvement on property or the use of property. (Rev. & Tax Code § 53978.) These restrictions, however, are primarily of interest to special districts and should not apply to cities, since cities have independent taxing power, as noted above. (West Coast Advertising, supra, 14 Cal.2d at 524; Gov. Code § 37100.5.) There are also many statutory procedures that must be followed for certain taxes. (See, e.g., Mello-Roos Taxes, Gov. Code § 53311 et seq.) A discussion of these various procedures is beyond the scope of this Guide. For more information, see California Municipal Law Handbook §§ 5.16–5.106. J-28 27 27LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Chapter 3 Assessments I. Distinguishing Assessments from Fees and Taxes Proposition 218 defines an assessment as “any levy or charge upon real property by an agency for a special benefit conferred upon the real property.” (Cal. Const., art. XIII D, § 2, subd. (b).)22 Thus, “special benefit to property” is essential to any assessment against real property. In contrast with a tax — which can be calculated on most any rational basis — or a property-related fee — which is calculated based on the proportional cost of providing a service to a parcel and other factors specified in article XIII D, section 6, subdivision (b) of the California Constitution — an assessment can be levied against a parcel only for the “the reasonable cost of the proportional special benefit conferred on that parcel.” (Cal. Const., art. XIIID, § 2(b).) [A] special assessment, sometimes described as a local assessment, is a charge imposed on particular real property for a local public improvement of direct benefit to that property, as for example a street improvement, lighting improvement, irrigation improvement, sewer connection, drainage improvement, or flood control improvement. The rationale of special assessment is that the assessed property has received a special benefit over and above that received by the general public. The general public should not be required to pay for special benefits for the few, and the few specially benefited should not be subsidized by the general public. (Solvang Mun. Improvement Dist. v. Board of Supervisors (1980) 112 Cal.App.3d 545.)23 22 An assessment under Proposition 218 encompasses levies that are sometimes referred to as “special benefits” or “special assessments.” Legal analysis turns not on the label, but the substance of a levy. (E.g., California Taxpayers’ Assn. v. Franchise Tax Bd. (2010) 190 Cal.App.4th 667, 673 [labels not irrelevant in finance disputes, but not determinative either].) 23 While it is generally wise to cite pre-Proposition 218 assessment law with care, this language succinctly describes the historical (and continuing) rationale for assessments. Without identifying a special benefit, there can be no assessment. (Richmond v. Shasta Community Services Dist. (2004) 32 Cal.4th 409, 420; Ventura Group Ventures, Inc. v. Ventura Port Dist. (2001) 24 Cal.4th 1089, 1106.) Although assessments are an exercise of the taxing power, “a special assessment is not, in the constitutional sense, a tax at all.” (Spring Street Co. v. City of Los Angeles (1915) 170 Cal. 24, 29.) Again, special benefit distinguishes assessments from taxes. (City Council v. South (1983) 146 Cal.App.3d 320, 332; Solvang Mun. Improvement Dist. v. Board of Supervisors (1980)112 Cal. App. 3d 545, 552–553; County of Fresno v. Malmstrom (1979) 94 Cal.App.3d 974, 984.) In general, taxes are imposed for revenue purposes, rather than for a specific benefit conferred or privilege granted. (Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal.4th 866, 874.) J-29 28 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS Only assessments on real property are subject to Proposition 218. Assessments imposed on businesses pursuant to the Parking and Business Improvement Law of 1989 are not. (Howard Jarvis Taxpayers Assn. v. City of San Diego (1999) 72 Cal.App.4th 230.) Benefit assessments subject to Proposition 218 must also be distinguished from assessments that are in the nature of a charge for service imposed, for example, in nuisance or weed abatement proceedings. Assessments imposed under (or exempt from) Proposition 218 are exempt from the definition of taxes added by Proposition 26. (Cal. Const. art. XIII C, § 1, subd. (e)(7).) II. Authority to Levy Property-Based Assessments A number of statutes authorize local agencies to assess real property. These include the Municipal Improvement Act of 1913 (Sts. & Hy. Code § 10000 et. seq.) and the Landscaping and Lighting Act of 1972 (Sts. & Hy. Code § 22500 et. seq.). These statutes specify the agencies authorized to invoke them. Additionally, the principal acts of most special districts authorize them to use all or some assessment statutes. (See, e.g., Gov. Code § 61122 [Community Services District Law authorizes assessments].)24 Unless prohibited from doing so by their charters, charter cities may adopt local procedural ordinances that grant and govern the authority to levy assessments as supplements to or substitutes for statutory authority to assess. (Redwood City v. Moore (1965) 231 Cal.App.2d 563, 582.) Such ordinances frequently incorporate state statutes, but revise some of their provisions to suit local needs. A charter city may also act under a state statute. Regardless of the source of its authority, a charter city must comply with Proposition 218. (Cal. Const., art. XIII D, § 2, subd. (b) [“Notwithstanding any other provision of law, the provisions of this article shall apply to all assessments, fees and charges, whether imposed pursuant to state statute or local government charter authority.”].) The statute or charter city ordinance authorizing assessments typically limits the improvements or services that may be funded and specifies the resolutions and ordinances that must be adopted to levy an assessment. III. Proposition 218’s Changes to Previous Assessment Methods Many of the assessment statutes are quite old and many pre-date Propositions 13, 218, and 26. The statutes permit an agency to construct and/or maintain a local improvement, such as a street, sewer, or parkway at the cost of those who benefit. Rather than fund the work with taxes collected from all of the agency’s taxpayers, the specific properties “benefitting” from the improvement would fund them via an assessment. For example, the cost of a sewer extension might be assessed against parcels served by the extension or the cost of streetlights might be assessed against parcels on the street to be lit. Each procedural statute contained its own requirements for how an assessment could be spread among benefitting parcels, how that information was to be presented to assessees, and what level of property-owner approval (or right of protest) was required. In general, the statutes commonly provided that: The entirety of the cost of an improvement or service could be assessed against “benefiting” private parcels; The calculation of the assessment must be presented in an engineer’s report; and An assessment could be imposed unless a majority of affected property owners provided timely, written protests to the agency. Following the 1978 adoption of Proposition 13, which limited property taxes and required two-thirds voter approval to increase a special tax, agencies began to levy assessments to fund facilities and services previously funded by taxes. (See, e.g. Knox v. City of Orland (1992) 4 Cal.4th 132.) 24 These authorizations are generally contained in principal acts under the heading “Alternative Revenues” meaning alternative to property taxes. J-30 29LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Proposition 218 was adopted, in part, as a direct response to this growing use of assessment financing, which it sought to curb by overlaying a number of new requirements upon the existing statutory requirements: Procedural Requirements: Proposition 218 provided for a uniform method of notice, protest and hearing for assessments. (Cal. Const., art. XIII D, § 4, subds. (a), (c)–(e).) Substantive Requirements: Proposition 218 added several substantive requirements, limiting assessments to the “special benefit” received by the assessed properties and requiring exclusion of the “general benefit” arising from an assessment-funded program, requiring non-assessment funds for that portion of a project. Thus, Proposition 218 specifies that an assessment against any parcel may not exceed the reasonable cost of the proportional special benefit conferred on that parcel. (Cal. Const., art. XIII D, § 4, subd. (a).) Engineer’s Report and Burden of Proof: Proposition 218 requires an assessment to be supported by a detailed engineer’s report prepared by a registered professional engineer certified by the State of California. (Cal. Const. art. XIII D, § 4, subd. (b).) Furthermore, it reduced judicial deference to agency benefit findings and provided that publicly owned parcels may not be exempt from assessment unless the agency demonstrates by clear and convincing evidence those parcels in fact receive no special benefit. (Id., subds. (a), (f).) Each of these topics is detailed below. IV. Proposition 218’s Procedural Requirements for Assessments A. Introduction Proposition 218 does not confer any authority to impose assessments. (Cal. Const., art. XIII D, § 1, subd. (a).) Instead, it limits assessment authority granted by statutes such as the Municipal Improvement Act of 1913 (Sts. & Hy. Code § 10000) or municipal charters. These sources of authority generally contain specific requirements for the levy of an assessment. For example, most assessment statutes require a local government adopt a resolution of intention before giving notice of a proposed assessment, and many statutes specify the contents of an engineer’s report. In general, a levying agency must comply with both the statutory (or charter) requirements to levy an assessment and with the requirements of Proposition 218’s article XIII D, section 4 of the Constitution, as supplemented by the Proposition 218 Omnibus Implementation Act of 1997. (Gov. Code, § 53750 et seq.) Agencies commonly adopt local procedures to supplement those of section 4 of article XIII D and the Proposition 218 Omnibus Implementation Act. Such local procedures cover matters such as: How ballots may be withdrawn; How duplicate ballots may be issued when a ballot is lost, spoiled or withdrawn; How proportional ballots may be cast, as when joint owners of a parcel wish to cast separate ballots; and The treatment of unsigned or incomplete ballots. Such local procedures fill gaps in Proposition 218 and state law, so that the “rules of the road” for a ballot proceeding are established at the outset and there is no need to make rule determinations during proceedings as questions arise. The adoption of such procedures has been authorized by the Constitution and endorsed by the courts for property-related fee proceedings, though there is no specific grant of authority with respect to assessments. (Cf. Cal. Const., art. XIIID, § 6(c) (authorizing the adoption of local procedures for consideration of property-related fees); see also Greene v. Marin County Flood Control and Water Conservation Dist. (2010) 49 Cal.4th 277, 286 (local procedures may be adopted for property-related fees).) A model of such local procedures appears as Attachment C to this Guide. J-31 30 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS B. Proposition 218’s Requirements Overlap those of Statutes and Charters To harmonize the new requirements of Proposition 218 with the preexisting requirements of assessment statutes and charter city ordinances, Government Code section 53753, subdivision (a) superseded statutory notice, protest, and hearing requirements existing on July 1, 1997.25 X PRACTICE TIP: Most of these superseded requirements have since been removed from the statutes by the Legislature. However, it is always wise to confirm the requirements of both Proposition 218 and the applicable authorizing ordinance or statute when advising a client on an assessment. Government Code section 54954.6, a provision of the Ralph M. Brown Act which requires a “public meeting” in addition to a “public hearing” and requires a mailed “joint notice,” is also preempted by Government Code section 53753, subdivision (a). It is also made inapplicable as to an assessment subject to Proposition 218 by Government Code section 54954.6, subdivision (h), which exempts from its notice and hearing requirements any assessment imposed consistently with Proposition 218’s requirements. X PRACTICE TIP: Division 4.5 of the Streets & Highways Code (section 3100 et seq.), governing recorded notices of assessments, recorded boundary maps, and related issues, is not superseded by the Proposition 218 Omnibus Implementation Act. (Gov. Code § 53753(a).) Thus compliance with this statute is required, too. C. Overview of the Proposition 218’s Procedural Requirements for Assessments Section 4 of article XIII D and the Proposition 218 Omnibus Implementation Act (Gov. Code § 53750 et seq.) set forth Proposition 218’s procedural requirements.26 The principal requirements are: An agency must provide 45 days’ written notice of a public hearing, and mail ballots, to the owners of the parcels to be assessed; The notice must include specified information, including information regarding the assessments, the public hearing, and owners’ right to cast votes weighted by each owner’s assessment amount; An agency must hold a noticed public hearing and tally the results of the majority protest vote; and If a majority of the weighted votes does not oppose the assessments, the agency may vote to levy the assessment. D. Preparation and Mailing Notice 1. Notice and ballot The agency must provide mailed notice of a proposed assessment to the record owner of each parcel identified as being subject to the assessment. (Cal. Const., art. XIIID, § 4(c); Gov. Code § 53753(b).) The notice must be mailed at least 45 days before the public hearing on the assessment. An assessment ballot must be included. (Cal. Const., art. XIIID, § 4(d); Gov. Code § 53753(c).) 25 Furthermore, Proposition 218 renders unconstitutional contradictory “procedures or process leading to the adoption or levy of an assessment falling within its ambit.” (See Barratt American, Inc. v. City of San Diego (2004) 117 Cal.App.4th 809, 818.) 26 The Proposition 218 Omnibus Implementation Act restates and supplements the procedural requirements of Article XIIID, section 4. (See Gov. Code § 53753; Cal. Const., art. XIII D, § 4.) J-32 31LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE The envelope (or, less commonly, self-mailer) containing the notice and ballot and addressed to the record owner must include on its face, in at least 16-point bold font and in substantially the following form, the statement: “OFFICIAL BALLOT ENCLOSED.” (Gov. Code § 53753(b).)27 It is common for this outer envelope to be a window envelope, so that each record owner’s mailing address (as printed on the ballot) is revealed to avoid the need to label the outer envelope. 2. Who gets notice? Notices must be mailed to the owners of record of the parcels to be assessed as reflected in the last equalized assessment roll, or in the case of a public agency, to the public agency’s known representative. (Gov. Code § 53750(j) [“‘Record owner’ means the owner of a parcel whose name and address appears on the last equalized secured property tax assessment roll, or in the case of any public entity, the State of California, or the United States, means the representative of that public entity at the address of that entity known to the agency.”].) The consensus of public lawyers is that separate notice need not be provided to tenants.28 Because the assessment roll is often updated only annually, it is commonly out of date. Moreover no data set is perfect. Nevertheless, notice must be mailed to the addresses on the roll and doing so satisfies the statute. (Cf. Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586, disapproved of by City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191 [notice of property related fee under art. XIII D, § 6 could be given to record owners even when Agency knew tenants paid the fee].) 3. Contents of notice The required elements of the notice (which are sometimes actually printed on the ballot, rather than the notice) are as follows: Total proposed assessment for the entire district. The notice must state “the total amount [of the proposed assessment] chargeable to the entire district.” (Cal. Const., art. XIII D, § 4, subd. (c).) X PRACTICE TIP: This is typically stated in a sentence such as “The total amount of the assessment against all parcels in the District is $________.” If the assessment is an annual assessment, it is a good practice to state that the amount is “$________ per year.” If it is a lump-sum assessment payable in installments, it is a good practice to list both the lump-sum and the annual installments, if possible. If the assessment will adjust over time, it is a good practice to state the tax year for which the dollar amount applies, and the basis on which it will adjust in the future. The proposed assessment for the owner’s parcel. The notice must state “the amount chargeable to the owner’s particular parcel.” (Cal. Const., art. XIII D, § 4, subd. (c).) The stated amount is the maximum amount that can be charged without holding an additional ballot proceeding. X PRACTICE TIP: As with the total proposed assessment, it is a good practice to clearly state if the amount is per year and to specify the basis for any automatic adjustments. 27 This Section also explicitly authorizes states that “An agency may additionally place the phrase ‘OFFICIAL BALLOT ENCLOSED’ … in a language or languages other than English.” Presumably, even if the phrase is printed in some language other than English, it must also be included in English. 28 Section 2 of Article XIIID defines “‘property ownership’ … to include tenancies of real property where tenants are directly liable to pay the assessment, fee, or charge in question.” (Cal. Const., art. XIIID, § 2(g).) However, Section 4(c) specifically provides that assessment notices be sent to the “record owner” of a parcel and Gov. Code § 53750(j) provides a definition of “Record Owner” that is based on the ownership information appearing on the property tax roll. J-33 32 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS Assessment Duration. The notice must state “the duration of the assessment.” (Cal. Const., art. XIII D, § 4, subd. (c).) X PRACTICE TIP: This is typically done with a sentence such as: “If approved, this assessment will be collected annually, on the property tax roll, for a period of twenty years.” For a maintenance or service assessment that continues indefinitely, this is typically stated in a form such as: “If approved, the assessment will be collected annually, until the City Council determines that the assessment is no longer necessary.” Reason. The notice must state the “reason for the assessment.” (Cal. Const., art. XIII D, § 4, subd. (c).) X PRACTICE TIP: This is typically done by briefly identifying the improvements to be built or maintained or the services to be provided. The description should be broad enough to include all planned or possible uses for the assessment proceeds. Some agencies also explain why the improvements or services have been proposed (e.g., to replace failing infrastructure, to address deferred maintenance, to comply with new environmental standards, etc.) or why assessment funding is proposed (e.g., budget shortfalls, need for special infrastructure in one neighborhood, etc.). Basis. The notice must state “the basis upon which the amount of the proposed assessment was calculated.” (Cal. Const., art. XIII D, § 4, subd. (c).) No court has specifically interpreted this “basis” disclosure requirement in the context of assessments. However, an unpublished (and therefore unciteable)29 opinion on a property related fee noted: the manifest intent of requiring the agency to disclose the “basis” for the charge is to include in the notice the method of calculation, meaning the unit by which, and the rate at which, the charge is determined. Thus a notice might state that the rate is $2 per foot of street frontage, that the addressee’s parcel has 50 feet of street frontage, and that the amount of the charge on that parcel is thus $100 … . This enables the owner to ascertain, among other things, that the relevant characteristics of the parcel have been accurately measured by the agency. (Great Oaks Water Co. v. Santa Clara County Water Dist. (2015) 242 Cal.App.4th 1187, 1221, review granted and opinion superseded (Cal. 2016) 200 Cal.Rptr.3d 6.) X PRACTICE TIP: Agencies typically comply with this requirement by stating: (i) the formula used to calculate the assessment on each parcel (e.g., a rate table, if rates differ based on the use of land (residential, commercial, etc.), or a rate per acre or linear frontage foot) and (ii) the data specific to parcel use to calculate its assessment (i.e., the parcel’s usage classification, square footage, or linear frontage, etc.). Public Hearing Date, Time, and Location. The notice must state “the date, time, and location of a public hearing on the proposed assessment.” (Cal. Const., art. XIII D, § 4, subd. (c).) 29 California Rules of Court, rule 8.1115(a). J-34 33LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Procedures Summary. The notice must include “a summary of the procedures applicable to the completion, return, and tabulation of the ballots.” (Cal. Const., art. XIII D, § 4, subd. (c).) This information must be “in a conspicuous place” on the notice. (Gov. Code, § 53753, subd. (b).) X PRACTICE TIP: It is not clear what must be included in this “summary,” but the address to which ballots may be returned should be included, as well as a statement that ballots may be submitted until the close of the public testimony at the public hearing. It is common practice to include a prominent statement such as, “Only ballots that are received at the address indicated prior to [date and time] or are hand-delivered at the public hearing will be tabulated. Ballots received after those deadlines, even if postmarked earlier, cannot be counted or accepted.” It is also common practice to include information about how to replace a lost or spoiled ballot, and an instruction that the ballot must be signed and dated, and that either the “support” or “opposed” space on the ballot must be marked. A sample notice of proposed assessment is attached to this guide as Attachment D. Protest Statement. The notice must include a “disclosure statement that the existence of a majority protest, as defined in subdivision (e) [of Cal. Const., art. XIIID, § 4], will result in the assessment not being imposed.” (Cal. Const., art. XIII D, § 4, subd. (c).) X PRACTICE TIP: Most agencies include a statement such as: “The assessment shall not be imposed if the ballots submitted, and not withdrawn, in opposition to the assessment exceed the ballots submitted, and not withdrawn, in favor of the assessment, with ballots weighted according to the proportional financial obligation of the affected property.”30 Other information often provided in a notice includes: Reference to engineer’s report. It is common to state how a property owner can obtain a copy of the engineer’s report for the assessment, e.g.: “Reference is made to the engineer’s report, which is incorporated herein by reference, for a complete description of the improvements and the calculation of the assessment.” Incorporation of Ballot. Often, some of the information required to be included in the notice is printed on the ballot instead. Proposition 218 refers to the notice as “containing” the ballot, implying that the ballot is part of the notice. (Cal. Const., art. XIIID, § 4(c).) Nonetheless, some agencies include a statement in the notice such as: “Enclosed you will find a ballot, which is incorporated into this notice by reference, on which you may indicate your support for or opposition to the proposed assessment.” Procedures. If the agency has adopted local procedures for the completion, tabulation and return of ballots, it is common to reference how these procedures may be obtained. Some agencies mail the local procedures with the notice and ballot. Historical Information. Some agencies include information about hearings, community forums, or other outreach efforts preceding an assessment proposal. It is also common to include a statement like: “On [date], by its adoption of Resolution No. [the Resolution of Intention], the City Council of the City of _____ proposed to establish [name of assessment district] pursuant to [procedural statute or ordinance] and to levy an assessment in connection with that district to fund [description of use of assessment].” 30 This language is based on Government Code section 53753, subdivision (e)(4). J-35 34 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS Participation. It is common to include a statement like: “You are invited, but not required, to attend the public hearing and to present oral or written testimony to the City Council. If you wish to challenge the City’s action on these matters in court, you may be limited to raising only those issues you or someone else raised at the public hearing described in this notice, or in written correspondence delivered to the City at or prior to the public hearing.31 At the public hearing, the City will consider all objections or protests, if any, to the proposed assessment. The public hearing may be continued from time to time.”32 Public Record. It is common to state ballots will not be opened or tabulated before the close of the public input portion of the public hearing, but that ballots will be public records during and after tabulation. Government Code section 53755, subdivision (e)(2) states: During and after the tabulation, the assessment ballots and the information used to determine the weight of each ballot shall be treated as disclosable public records, as defined in [Gov. Code] Section 6252, and equally available for inspection by the proponents and the opponents of the proposed assessment. The ballots shall be preserved for a minimum of two years, after which they may be destroyed as provided in [Gov. Code] Sections 26202, 34090, and 60201. Recipient Information. It is typical to include a statement that notice is provided to the recipient because he or she is the record owner of a parcel that will be subject to the assessment, if approved. Contacts and References. Notices commonly include a contact person or department that can answer questions about the assessment and an internet address at which the Resolution of Intention, engineer’s report, and other relevant documents can be found. 4. Content of ballot Proposition 218 provides that: Each notice … shall contain a ballot which includes the agency’s address for receipt of the ballot once completed by any owner receiving the notice whereby the owner may indicate his or her name, reasonable identification of the parcel, and his or her support or opposition to the proposed assessment. (Cal. Const., art. XIII D, § 4, subd. (d).) As a practical matter, agencies almost always print parcel identification (i.e., street address and/or Assessor’s Parcel Number) on ballots before mailing them, along with the name of the record owner and the amount of the proposed assessment against the parcel. Therefore, the items typically left for the property owner to complete the signature and date,33 as well as spaces to be marked to indicate support or opposition to the assessment. No specific language for support or opposition is indicated in the text of Proposition 218, and the Election Code does not apply to assessment ballot proceedings. (Gov. Code, § 53753, subd. (e)(6).) The “yes” and “no” boxes often appear beside text like: “Yes, I support the proposed assessment against my property to fund [describe services and facilities to be funded]” and “No, I oppose the proposed assessment … .” If 31 In Hill RHF Housing Partners, L.P. v. City of Los Angeles (2020) 51 Cal.App.5th 621, 627 review granted September 16, 2020, Cal. S. Ct. Case No. S263734, the Court of Appeal determined that a property owner wishing to challenge an assessment levied under the Property and Business Improvement District Law must exhaust all administrative remedies by creating a record of the reasons for their objection to a proposed assessment. This case is currently pending before the California Supreme Court. 32 This language tracks the hearing requirements of Government Code, section 53753, subdivision (d). 33 The signature is required by Government Code section 53753, subdivision (c). Greene v. Marin County Flood Control and Water Conservation Dist. (2010) 49 Cal.4th 277, 286 recognizes this statute requires ballots to be signed. Because these protest proceedings are called “elections,” many expect the anonymity afforded voters at the polls and assessment procedures under Proposition 218 are commonly controversial. It is therefore helpful for agency officials to be able to identify the constitutional provision or statute requiring each. J-36 35LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE a consultant has been engaged to tabulate the ballots, he or she will generally include a bar code (or other identifier) to facilitate tabulation.34 5. Form of ballot The Proposition 218 Omnibus Implementation Act requires: Each assessment ballot shall be in a form that conceals its contents once it is sealed by the person submitting the assessment ballot. … An agency may provide an envelope for the return of the assessment ballot, provided that if the return envelope is opened by the agency prior to the tabulation of ballots … the enclosed assessment ballot shall remain sealed … . (Gov. Code § 53753, subd. (c).) X PRACTICE TIP: Agencies commonly comply with this requirement by either: (i) designing ballots as a folding self-mailer, folded and sealed so the voting information is concealed, while the return address is visible or (ii) providing a pre-addressed return envelope. Typically, agencies pre-pay the postage on return envelopes or self-mailing ballots. It is a good idea, though not legally required, to state on the return envelope or self-mailing ballot: (i) a phrase such as “Assessment Ballot Enclosed,” (ii) the name of the assessment district, and (iii) a statement such as “Do not open until close of public testimony portion of Public Hearing scheduled for [Date].” This allows agency staff to separate assessment ballots from other mail and to avoid inadvertently opening ballots before the hearing. E. Handling of Ballots The property owner ballot proceeding is not an election governed by the Elections Code. (Gov. Code § 53753, subd. (e)(6) [“The majority protest proceedings described in this subdivision shall not constitute an election or voting for purposes of Article II of the California Constitution or of the Elections Code”]; Green, supra, 49 Cal.4th at 293, 295, and fn. 7.) Thus, how the agency handles ballots, and whether they are secret, is governed by Proposition 218 and the Proposition 218 Omnibus Implementation Act, not elections law. The Proposition 218 Omnibus Implementation Act requires that: “Assessment ballots shall remain sealed until the tabulation of ballots … commences, provided that an assessment ballot may be submitted, or changed, or withdrawn by the person who submitted the ballot prior to the conclusion of the public testimony on the proposed assessment at the hearing.” (Gov. Code, § 53753, subd. (c).) 34 The Proposition 218 Omnibus Implementation Act provides a ballot tabulator “may use technological methods of tabulating the assessment ballots, including, but not limited to, punchcard or optically readable (bar-coded) assessment ballots.” (Gov. Code § 53753, subd. (e)(2).) J-37 36 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS X PRACTICE TIP: Before mailing notices, it is advisable to determine: (i) how ballots will be separated from other incoming mail; and (ii) where received ballots will be stored until the hearing. Since ballots can be delivered by hand, the office (often the City Clerk’s office) that accepts ballots should be equipped with some sort of receptacle in which to deposit ballots. It is important to make sure that any persons who might handle ballots or staff the counter where they are returned be aware of the need to keep the ballots sealed and secure.35 This can reduce controversy about the integrity of the protest proceeding, which residents perceive as an “election.” The number of returned ballots may be very large, possibly more than all other mail an agency receives during the protest period. If so, it may be wise to use a dedicated Post Office box or mailing address for returned ballots, so ballot handling does not interfere with processing of other mail or invite controversy as to the integrity of the protest tally. F. Public Hearing The Proposition 218 Omnibus Implementation Act provides that: At the time, date, and place stated in the notice …, the agency shall conduct a public hearing upon the proposed assessment. At the public hearing, the agency shall consider all objections or protests, if any, to the proposed assessment. At the public hearing, any person shall be permitted to present written or oral testimony. The public hearing may be continued from time to time. (Gov. Code, § 53753, subd. (d).) X PRACTICE TIP: Before closing public testimony, the officer presiding at the hearing should announce that once public testimony is closed, ballots will no longer be accepted. He or she should also announce a last opportunity to submit ballots. G. Tabulation Procedure The Proposition 218 Omnibus Implementation Act provides that, “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 shall tabulate the assessment ballots … .” (Gov. Code, § 53753, subd. (e)(1).) The statute designates the clerk of the agency as “impartial.” (Ibid.) However, others may be, too. 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 shall tabulate the assessment ballots … . (Gov. Code, § 53753, subd. (e)(1).) The statute designates the clerk of the agency as “impartial.” (Ibid.) However, others may be, too. 35 Ballots must remain sealed until the protest hearing. (Gov. Code, § 53753, subd. (c).) Once tallied, ballots are public records. (Id., subd. (e)(2).) However, sealed envelopes containing ballots or self-mailing ballots are arguably public records even before tabulation. These often bear the address for the property owner and that information ca aid proponents and opponents of an assessment in measuring participation and determining whom to lobby for a “yes” or a “no” vote. Many property owners assume whether they have voted will be confidential. However, no provision of the Public Records Act or other law exempts the outside of the sealed ballots from disclosure. And while the Elections Code does not apply, it allows inspection of voter rosters while voting is in progress, even though how a person votes is confidential. Thus, since a property owner’s vote on an assessment is ultimately public, it would seem that the fact that a property owner submitted a vote on an assessment may also be public. However, one could argue that disclosure would constitute an unwarranted invasion of privacy. An agency would do well to address this issue in any local policy governing assessment protest procedures. J-38 37LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE If the ballots are tabulated by agency staff or by a vendor (or its “affiliates”) who have “participated in the research, design, engineering, public education, or promotion of the assessment” then “the ballots shall be unsealed and tabulated in public view at the conclusion of the hearing so as to permit all interested persons to meaningfully monitor the accuracy of the tabulation process.” (Ibid.) “During and after the tabulation, the assessment ballots and the information used to determine the weight of each ballot must be treated as a disclosable public record, and equally available for inspection by the proponents and the opponents of the proposed assessment.” (Ibid.) The governing body of the agency may, if necessary, continue the tabulation to a different time or location accessible to the public, provided the governing body announces the time and location at the hearing. (Ibid.) X PRACTICE TIP: Although the law does not require it in all circumstances, it is always wise to tally protests in public view and to do so within the agency’s boundaries. A vector control district in suburban Sacramento allowed its assessment consultant to tally protests in Southern California, causing substantial controversy addressed by the legislation summarized here. H. Determination of Protest The ballots must be tabulated according to the proportional financial obligation of the affected properties. (Cal. Const., art. XIII D, § 4, subd. (e).) For example, the vote of a property owner assessed $100 will have 20 times the weight of the vote of a property owner assessed $5. If more than one record owner submits a ballot for a parcel, the agency must apportion the votes according to their respective ownership interests, as reflected in the public record or as the owners demonstrate to the satisfaction of the agency. (Gov. Code § 53753, subd. (e)(3).) A majority protest exists if the assessment ballots submitted, and not withdrawn, in opposition to the proposed assessment exceed the assessment ballots submitted, and not withdrawn, in its favor, weighting those assessment ballots as described above. (Gov. Code § 53753(e)(4).) If there is a majority protest, the assessment cannot be imposed. If there is no majority protest, the city council (or agency board) may impose the assessment, but can also choose to not impose the assessment. I. Recordkeeping The ballots must be retained for at least two years after the vote. They may be destroyed thereafter. (Gov. Code § 53753(e)(2).) II. Proposition 218’s Substantive Requirements for Assessments A. The Four Basic Requirements of Proposition 218 for an Assessment Proposition 218 imposes these substantive requirements on assessments: Identify all benefitted parcels. All parcels that will have a special benefit conferred upon them and upon which an assessment will be imposed must be identified in the engineer’s report and included in the assessment district. Parcels owned by the government cannot be excluded unless clear and convincing evidence demonstrates such a parcel receives no special benefit. Distinguish general from special benefit. The general benefits must be distinguished from the special benefits conferred on the parcels. J-39 38 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS Proportionality. The proportionate special benefit derived by each parcel must be determined in relationship to the entirety of the capital cost of a public improvement, the maintenance and operation expenses of a public improvement, or the cost of the property related service being provided. Reasonable cost. The assessment must be apportioned so that the amount assessed to a parcel does not exceed the reasonable cost of the proportional special benefit conferred on that parcel and does not include any costs attributable to general benefits. (Ibid.) Thus, the portion of a project cost associated with general benefit must be funded from non- assessment revenues, and an agency which lacks other funds will not be able to use assessment financing, as few cases sustain a conclusion a project has no general benefit. (Cal. Const., art. XIII D, § 4, subd. (a).) Several published opinions construe these requirements. Unfortunately, these opinions are highly fact specific, and it is difficult to usefully analyze these four substantive requirements through the lens of the case law. Indeed, the requirements are best understood as interrelated, and not as separate requirements. (Beutz v. County of Riverside (2010) 185 Cal.App.4th 1516, 1522.) Thus, the bulk of the discussion below summarizes the cases rather than summarizing the provisions of Proposition 218 they apply — those provisions, even augmented by the Omnibus Proposition 218 Implementation Act are terse but portentous. Special and general benefit must be quantified and justified by an engineer’s report for an assessment. (Golden Hill Neighborhood Assn, Inc. v. City of San Diego (2011) 199 Cal.App.4th 416, 438–439 [invalidating a landscape and open space maintenance district for failure to quantify and distinguish general from special benefit]; Beutz v. County of Riverside (2010) 185 Cal.App.4th 1516, 1533, 1537 [invalidating park assessment in part because engineer’s report failed to adequately account for general public’s use of parks].) Thus, a defensible assessment largely depends on a credible engineer’s report. Ideally, an engineer’s report should explain how each of the requirements has been met, and should include all information required by the statute or ordinance that is being utilized for the levy of the assessment. X PRACTICE TIP: Assessing agencies benefit when engineer’s reports reflect legal review. Thus, agencies should include in an engineer’s scope of services time to provide a draft to counsel and to respond to counsel’s comments. Counsel should ensure that draft reports satisfy the four substantive requirements of Proposition 218 discussed here and also keep abreast of developing case law. Until the law becomes more stable, legal review of assessment engineer’s report is highly advisable. The following checklist will aid that review: 1. Is it clear what parcels are included in the district and assessed? Is it clear why these parcels specially benefit from the funded facilities or services while parcels outside the district do not? 2. Does the report identify the special benefits to property from the facilities or services to be funded? Is each identified special benefit actually a special benefit to property rather than a benefit to the general public? 3. Are general benefits identified? Are the costs of the general benefits quantified and excluded from the total budget to be raised by the assessment? Is the allocation of project costs between general and special benefits credible? Some services (e.g., fire facilities) have obvious, significant general benefit components. Others (sewer line extensions) have less or, perhaps, none. 4. Is there a clear allocation of budget to assessed parcels individually or by class (e.g., residential, commercial, industrial, etc.)? Are the relative shares (often referred to as “equivalent benefit units”) related to each of the identified special benefits? Is there a need to spread some costs by one method (because they relate to one special benefit) while J-40 39LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE spreading other costs by a different method (because they relate to a different special benefit)? For example, might park landscaping improvements more substantially relate to a parcel’s view of or distance from a park and might park programming more substantially relate to the number of residents per dwelling? B. Special and General Benefits 1. Constitutional definition of “special benefit” Article XIII D, § 2, subdivision (b) defines an “assessment” as “any levy or charge upon real property by an agency for a special benefit conferred upon the real property.” That subdivision defines “special benefit” as “a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large. General enhancement of property value does not constitute ‘special benefit.’” (Id., subd. (i).) These definitions suggest several important characteristics of “special benefits:” 1. Special benefits are “particular and distinct” and “over and above” general benefits. 2. Special benefits exclude mere “general enhancement of property value.” 3. Special benefits are “conferred on real property.” 2. Constitutional definition of “general benefit” Article XIII D does not directly define “general benefit.” However, in interpreting Article XIII D, § 2, subdivision (b), the California Supreme Court noted: “general benefits are not restricted to benefits conferred only on persons and property outside the assessment district, but can include benefits both ‘conferred on real property located in the district or to the public at large.’” (Silicon Valley Taxpayer’s Ass’n, Inc. v. Santa Clara County Open Space Authority. (2008) 44 Cal.4th 431, 455, citing Art. XIII D, § 2, subd. (i).) Furthermore, the Court found “public at large” means “all members of the public — including those who live, work, and shop within the district — and not simply transient visitors.” (Ibid.) These findings suggest at least two kinds of general benefits: 1. Those that accrue to individuals (i.e., members of the general public), rather than to real property; and 2. Those that accrue to property inside and outside of the district. 3. Identifying benefits Before Proposition 218, assessment engineers commonly identified a long list of purported special benefits of a facility or service to be funded by assessment. This is no longer the best approach for two reasons: 1. Long lists often include benefits more appropriately classified as general benefits; and 2. It can be very difficult to quantify the relative benefit of many special benefits. Often, the best approach is the simplest. For example, the special benefit to property of a sewer or water main extension is that such an extension gives each connected parcel access to sewer or water services. In such a case, there is likely no general benefits from the sewer or water main extension (unless, of course, an extension has been oversized for future service to other parcels or improves overall system reliability by looping services that previously terminated in cul-de- sacs). Benefits such as public health benefits or service reliability might best be seen as secondary or collateral benefits that derive from the primary special benefit to property of providing access to water or sewer service. (Cf. Gov. Code, § 53758, subd. (a) [defining “specific benefit” to exclude “incidental benefit” under Proposition 26].) J-41 40 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS 4. Leading Proposition 218 assessment cases Silicon Valley Taxpayers Ass’n, Inc. v. Santa Clara County Open Space Authority Silicon Valley Taxpayers Ass’n, Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431 (Silicon Valley) involved a proposed assessment district to fund unspecified, future open space acquisitions throughout Santa Clara County. The engineer’s report claimed properties subject to the assessment would receive these benefits: 1. Enhanced recreational activities and expanded access to recreational areas; 2. Protection of views, scenery, and other resources; 3. Increased economic activity; 4. Expanded employment opportunity; 5. Reduced costs of law enforcement, health care, fire prevention, and natural disaster response; 6. Enhanced quality of life and desirability of the area; and 7. Improved water quality, pollution reduction, and flood prevention. (Id. at 453.) The court grouped these into three categories, concluding that each — at least as described in the engineer’s report — was a general benefit, not a special benefit, and therefore could not be funded by an assessment. First, the court noted some benefits were of benefit to all property in the assessment district, which result in “all properties receiving a derivative, indirect benefit.” (Silicon Valley, supra, 44 Cal.4th at p. 453 (original emphasis).) Those benefits included enhancement of recreational opportunities and access to recreational areas; protection of views, scenery, and other resources; and enhancement of quality of life and the desirability of the area. (Id. at pp. 453–454.) The Court did not view such an indirect, derivate benefit to all properties in a district as a special benefit which could justify an assessment. Second, the court considered other benefits to accrue to all properties within the assessment district equally and concluded the engineer’s report had not made the required direct connection of special benefit to the assessed properties. Among those were protection of views, scenery, and other resources; increased economic activity; and expanded employment opportunity. (Silicon Valley, supra, 44 Cal.4th at pp. 453–454.) Although the described benefits might result from the acquisition and improvement of open space, because they were not shown to directly and specially benefit assessed properties, these benefits could not justify the assessment, either. Finally, according to the engineer’s report, each of the remaining benefits would reduce the costs of providing other services. Promoting good health and reducing crime and vandalism would reduce health care and law enforcement costs, respectively. On the theory that open space helps protect water quality and reduce flooding, the engineer’s report concluded that public utility costs would be reduced. The Court did not view any of those as constituting the special benefit Proposition 218 demands. (Silicon Valley, supra, 44 Cal.4th at p. 454.) The decision includes a noteworthy footnote as to when a benefit provided equally to all assessed properties can be a special benefit. It acknowledges that in “a well-drawn district — limited to only parcels receiving special benefits from the improvement — every parcel within that district receives a shared special benefit.” (Silicon Valley, supra, 44 Cal.4th at p. 452, fn. 8.) It notes such benefits are arguably not special because they are not “‘particular and distinct’ and ‘over and above’ the benefits received by other properties ‘located in the district.’” (Ibid.) However, the Court concluded that as long as the district is “narrowly drawn to include only properties directly benefitting from an improvement,” the equal distribution of benefit does not necessarily make the benefits general, rather than special. (Ibid.) “In that circumstance, the characterization of a benefit may depend on whether the parcel receives a direct advantage from the improvement (e.g., proximity to a park) or receives an indirect, derivative advantage resulting from the overall public benefits of the improvement (e.g., general enhancement of the district’s property values).” (Ibid.) Thus, although the court invalidated the J-42 41LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE assessment in part because the benefits identified in the engineer’s report would accrue to all properties in the district, a benefit received by all parcels within a district can be special under appropriate circumstances. Town of Tiburon v. Bonander Town of Tiburon v. Bonander (2009) 180 Cal.App.4th 1057 (Bonander) involved a utility undergrounding district. The challengers contended the engineer’s report was flawed because it ignored the general benefit the court determined the undergrounding project would yield. Under article XIII D, section 2, subdivision (i) the general enhancement of property value is defined not to be a special benefit, but an increase in property value attributable to a project that provides a direct advantage to a property — instead of an indirect or derivative benefit — is special rather than general. If an assessment district is narrowly drawn to include only properties directly benefitting from a project, the fact that a benefit is generally uniform throughout the district does not mean the benefit is not special. Thus, it is important that an engineer’s report discuss whether a parcel receives a direct advantage from a project or receives an indirect, derivative advantage resulting from the project’s overall public benefits.36 Courts apply independent judgment review to assessment determinations of special benefit and proportional allocation among parcels and an engineer’s conclusions on each point must be express, well supported logically, and consistent with evidence in the record on which the agency levies an assessment. As to apportionment of identified special benefit, Bonander stated the amount to be apportioned is generally the whole cost of the project less any amounts attributable to general benefits, if any. (Cf. Cal. Const., art. XIII D, § 4, subd. (a) [“The proportionate special benefit derived by each identified parcel shall be determined in relationship to the entirety of the capital cost of a public improvement, the maintenance and operation expenses of a public improvement, or the cost of the property related service being provided.”].) Bonander also stated that the cost of the assessment program may be allocated in proportion to relative special benefit to each assessed parcel rather than a precise amount of special benefit calculated individually for each parcel. (Bonander, supra, 180 Cal.App.4th at 1081.) However, Bonander invalidated the assessment because the engineer’s report, rather than determining special benefit based on the total project cost, apportioned based on differing construction costs in subzones the court found poorly drawn. Bonander emphasized that properties receiving the same proportionate special benefit must pay the same assessment, without regard to variations in the cost of construction among the properties. (Id. at pp. 1082–1083.) Finally, Bonander found some properties received special benefit but had been improperly excluded from the undergrounding district, which meant that the other properties in the district were effectively subsidizing the special benefit to the wrongly excluded properties. (Id. at pp. 1085–1086.) This court used the independent judgment review required by Proposition 218 (Cal. Const., art. XIII D, § 4, subd. (f)) to make a very searching review of the fundamental architecture of the assessment district and to reject it. With such searching review, it is clear that engineer’s reports must explain every choice made in framing the district and should be reviewed by an attorney before being made final. Dahms v. Downtown Pomona Property Dahms v. Downtown Pomona Property (2010) 174 Cal.App.4th 708 (Dahms) involved an assessment to fund security, streetscape maintenance, marketing, promotion, and special events. The engineer’s report used three factors to determine the assessment for each property: street frontage, lot size, and building size. The report also discounted assessments of nonprofit organizations. The plaintiff alleged the nonprofit discount violated the requirement that assessments not exceed the proportional cost of the special benefit conferred, arguing most parcels were over-assessed so nonprofits could be under assessed — a so-called “cross-subsidy.” (Cf. Green Valley Landowners Association v. City of Vallejo (2015) 241 Cal.App.4th 425, 439–440 36 General and special benefit are concepts used to apportion the cost of public improvements, facilities, and services through special assessments and do necessarily translate to other contexts. Thus, for example, City of Saratoga v. Hinz (2004) 115 Cal.App.4th 1202 found a determination in an engineer’s report that a project to convert a private cul-de-sac into a public through-street lacked any general benefit did not negate a determination of public necessity in a resolution of necessity for purposes of eminent domain. This is one of the few cases to uphold a finding that an assessment-funded improvement had no general benefit. J-43 42 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS [water rate challenged under art. XIII D, § 6 need not blend costs for low-cost urban system and higher-cost exurban system].) Dahms rejected this claim, noting that section 4, subdivision (a) only requires an assessment not exceed the reasonable cost of the proportional special benefit conferred on the assessed parcel. Thus, a local agency may reduce the assessments imposed on some parcels so long as those discounts do not cause the assessments imposed on the remaining parcels to exceed the reasonable cost of the proportional special benefit conferred on those parcels. (Dahms, supra, 174 Cal.App.4th at 716.) This analysis seems to assume the revenue foregone by discounts was covered by non- assessment revenues. A well drafted engineer’s report will make that point clear. Like Bonander, Dahms upheld a determination that all of the benefit of the services would accrue as a special benefit to the assessed properties: the services provided by the PBID (security services, streetscape maintenance, and marketing, promotion, and special events) are all special benefits conferred on the parcels within the PBID — they “affect the assessed property in a way that is particular and distinct from [their] effect on other parcels and that real property in general and the public at large do not share.” (SVTA, supra, 44 Cal.4th at p. 452.) Under article XIII D, therefore, the cap on the assessment for each parcel is the reasonable cost of the proportional special benefit conferred on that parcel. If the special benefits themselves produce certain general benefits, the value of those general benefits need not be deducted before the (caps on the) assessments are calculated. (Dahms, supra, 174 Cal.App.4th at p. 723, citations omitted.) Few cases uphold assessments that treat all of the cost of an assessment program as attributable to special benefit; most assessments have at least some general benefit. In Dahms’ view, the special benefits found insufficient in Silicon Valley Taxpayers Association were “effects” of the services to be funded by an assessment: In contrast, the special benefits conferred by the PBID are not mere effects of the services funded by the assessments. Rather, the PBID’s services themselves constitute special benefits to all of the assessed parcels. The assessments directly fund security services, streetscape maintenance services, and marketing and promotion services for the assessed parcels. SVTA in no way suggests that those services are not special benefits. (Id. at 725, original emphasis.) This is comparable to Government Code section 53758’s discussion of “specific” benefit under Proposition 26’s exception for some fees. (Cal. Const., art. XIII C, § 1, subd. (e)(1)–(2).) Beutz v. County of Riverside Beutz v. County of Riverside (2010) 184 Cal.App.4th 1516 (Beutz) was a challenge to a park maintenance assessment. The county defended the assessment, arguing that any general benefits the public received from the parks were indirect results of the special benefits provided directly to owners of assessed property, and that no deduction of the value of general benefits was therefore required. The Beutz court disagreed, holding it was: not a case in which services specifically intended for assessed parcels concomitantly confer collateral general benefits to surrounding properties. Rather, this case involves the failure to separate and quantify the general and special benefits that will accrue, respectively, to members of the general public and occupants of … residential properties [in the district] from their common use and enjoyment of the … parks. J-44 43LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE (Id. at p. 1537.)37 The Beutz court apparently concluded that people throughout a community use public parks (id. at 1533) and was particularly critical of the engineer’s report, which it characterized as “fail[ing] to explain the nature and extent of the general and special benefits of the parks or quantify both in relation to each other based on credible, solid evidence.” (Id. at p. 1534.) Beutz illustrates two principles regarding special and general benefit. First, an engineer’s report must analyze the quantity or extent of the reasonably expected use by or benefit from the improvements, facilities, or services to the general public and to occupants of assessed property. This is to say, it must identify and distinguish general from special benefit. Second, the report must allocate that special benefit among the parcels which receive it in some reasonable manner. It is by no means clear from the Report that occupants of Wildomar residential properties will use or benefit from the parks in a different manner, or more intensively, than persons from other communities. Nor does the Report address whether Wildomar residents who live in close proximity to one or more of the parks may reasonably be expected to use those parks just as often, over time, as Wildomar residents who live several miles away from the same parks. (Beutz, supra, 184 Cal.App.4th at p. 1533.) The Court continued: These deficiencies in the Report are of constitutional proportions. The Report does not satisfy the County’s two-part constitutional burden of demonstrating that (1) the parks will confer special benefits on all Wildomar residential properties, and (2) the amount of the assessment on each Wildomar residential parcel is “proportional to, and no greater than,” the special benefits conferred on that parcel. (Art. XIII D, § 4, subd. (f).) (Id. at pp. 1533–1534.) X PRACTICE TIP: Park assessments have often been litigated as Beutz and Knox v. City of Orland (1992) 4 Cal.4th 132 [upholding park assessment against Prop. 13 challenge] demonstrate. Accordingly, engineers’ reports for park assessments are especially worthy of legal review and should recognize significant general benefit in most cases, as parks are typically widely used by society in general, not just by owners of neighboring property. Golden Hill Neighborhood Assn, Inc. v. City of San Diego Golden Hill Neighborhood Assn, Inc. v. City of San Diego (2011) 199 Cal.App.4th 416 (Golden Hill), applied Beutz’s analysis to a charter city’s municipal improvement assessment district to fund maintenance services for street furniture, public spaces, etc. Golden Hill reiterated that general and special benefits must be identified and used to apportion the cost of a service or improvement between assessment funding and funding from non-assessment sources. It found the engineer’s report had failed to include an adequate apportionment, but instead contained general statements such as: The proceeds from the District will be used to fund the installation, maintenance and servicing of improvements within the District that, in the absence of the District, otherwise would not be provided. Properties in the District directly and specifically benefit from the Services, while properties outside the District do not receive the benefit of the Services funded by the District. Therefore, the assessments provide special benefit to property in the various Districts over and above the general benefits conferred by the 37 Helpfully, Beutz clarified that the county’s capital contribution toward park land acquisition could be treated as payment for the general benefits arising from the parks, allowing all maintenance costs to be funded by assessment. (Beutz, supra, 184 Cal.App.4th at pp. 1531–1532.) It nevertheless held the county had not adequately apportioned special benefits among assessed parcels because the flat assessment applied throughout the district and failed to distinguish parcels adjacent to parks from those distant from them. J-45 44 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS general facilities of the City, and the Services funded by the District are determined to be exclusively of distinct and special benefit to properties in the District. (Id. at pp. 438–439.) Golden Hill found such a general statement does not satisfy Proposition 218 because it “does not establish that the assessments would not also provide general benefit in addition to special benefit.” (Id. at p. 439.) Thus, Bonander and Dahms involved assessment districts “narrowly drawn” to include only properties that “directly benefit” from a service or facility and thus “every parcel within the district receives a shared special benefit.” (Silicon Valley, supra, 44 Cal.4th at p. 452, fn. 8.) Beutz and Golden Hill, on the other hand, represent a more typical scenario in which a public improvement, facility, or service benefits more than assessed property and therefore contains a general benefit component to be funded by non-assessment revenues. It is notable that only Dahms upheld a challenged assessment. This poor success rate in the published cases may reflect only that the initial Proposition 218 disputes arose on older engineer’s reports not informed by these cases and not reflecting the careful legal review recommended here. It is hoped that further cases will provide more guidance about how defensible assessments are to be crafted. In the meantime, caution is the order of the day, as is legal review of draft engineers’ reports. 5. Assessments not imposed on real property Article XIII C, section 1, subdivision (e)(7), excludes from the Proposition 26’s definition of taxes requiring voter approval: “Assessments and property-related fees imposed in accordance with the provisions of article XIII D.” However, some assessments, such as those imposed on businesses or other activities rather than on property ownership are not exempt from Proposition 26 under article XIII C, section 1, subdivision (e)(7). (See, e.g., Evans v. City of San Jose (1992) 3 Cal. App.4th 728 [assessments on business without respect to land tenure in a business improvement district are not special taxes].) To escape the requirement for voter approval, such assessments must be justified under another Proposition 26 exception, such as that for a “charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege.” (Cal. Const., art. XIII C, § 1(e)(1).) Government Code section 53758 defines “specific benefit” to exclude non-property assessments for this purpose: to clarify that business improvement district and tourism marketing district assessments are not taxes within the meaning of Article XIII C of the California Constitution merely because they might generate indirect, secondary benefits for nonpayors, provided that those indirect, secondary benefits occur incidentally and without cost to the payors of the assessment. (Ch. 552, Stats. 2013, § 1, sub. (c).) The statute defines, “specific benefit” for purposes of Proposition 26 as: a benefit that is provided directly to a payor and is not provided to those not charged. A specific benefit is not excluded from classification as a “specific benefit” merely because an indirect benefit to a nonpayor occurs incidentally and without cost to the payor as a consequence of providing the specific benefit to the payor. J-46 45LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE III. The Assessing Agency Bears the Burden to Prove Compliance with Proposition 218 A. Generally Proposition 218 states: In any legal action contesting the validity of any assessment, the burden shall be on the agency to demonstrate that the property or 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 property or properties in question. (Cal. Const., art. XIII D, § 4, subd. (f).) This reverses the earlier standard governing judicial review of assessments. Before Proposition 218, courts reviewed the formation of an assessment district and the imposition of an assessment, like other quasi-legislative decisions, under a “deferential abuse of discretion standard.” (Silicon Valley Taxpayers Ass’n, Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 434.) Under that earlier standard: A special assessment finally confirmed by a local legislative body in accordance with applicable law [would] not be set aside by the courts unless it clearly appear[ed] on the face of the record before that body, or from facts which may be judicially noticed, that the assessment as finally confirmed [was] not proportional to the benefits to be bestowed on the properties to be assessed or that no benefits [would] accrue to such properties. (Dawson v. Town of Los Altos Hills (1976) 16 Cal.3d 676, 685; see also Knox v. City of Orland (1992) 4 Cal.4th 132, 147.)38 As the California Supreme Court explained in Silicon Valley decision, “[t]he drafters of Proposition 218 specifically targeted this deferential standard of review for change.” (Silicon Valley, supra, 44 Cal.4th at p. 444.) Now, the administrative record must “contain affirmative evidence of the two substantive bases for the assessment”—the existence of a special benefit, and proportionality between the amount of the assessment and the special benefit received by the assessed property. (Id. at p. 446, citations and internal quotation omitted; Cal. Const. art. XIII D, § 4, subd. (a).) Moreover, rather than deferring to an assessing agency’s findings by reviewing the record for substantial evidence, courts must “exercise their independent judgment in reviewing local agency decisions that have determined whether benefits are special and whether assessments are proportional to special benefits within the meaning of Proposition 218.” (Silicon Valley, supra, 44 Cal.4th at 448.) This more searching review reflects that: a local agency acting in a legislative capacity has no authority to exercise its discretion in a way that violates constitutional provisions or undermines their effect[,]” and furthers Proposition 218’s purposes of “limit[ing] government’s power to exact revenue and … curtail[ing] the deference that had been traditionally accorded legislative enactments on … assessments … .” (Id. at pp. 445, 448–449 [discussing ballot materials regarding Proposition 218].) B. The Crucial Evidentiary Role of an Engineer’s Report Article XIII D, section 4, subdivision (b) of the California Constitution requires that “[a]ll assessments shall be supported by a detailed engineer’s report prepared by a registered professional engineer certified by the State of California.”39 An engineer’s report is the most important element of the record of the formation of an assessment district and the imposition of an assessment. It is the primary document courts review to determine whether the agency separated general from special benefits and assessed solely for special benefits; whether assessments exceed the reasonable cost of the proportional special 38 Even under the traditional standard of review governing quasi-legislative decisions, courts had power to overturn quasi-legislative decisions of agencies that “failed to follow the procedure and give the notices required by law.” (See, e.g., San Francisco Fire Fighters Local 798 v. City and County of San Francisco (2006) 38 Cal.4th 653, 657–668, citations and internal quotation omitted.) 39 The certification and registration of professional engineers, including civil engineers, is currently governed by the Professional Engineers Act, Business and Professions Code sections 6700 et seq. J-47 46 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS benefit conferred on parcels; and whether parcels are properly excluded because they receive no special benefit from the service or improvement to be funded by the assessment. Although courts will examine the entire administrative record to determine compliance with Proposition 218, the engineer’s report is the heart of the matter. (See, e.g., Silicon Valley Taxpayers Ass’n, Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 457 [invalidating assessment where engineer’s report “fail[ed] to identify with sufficient specificity the ‘permanent public improvement’ that the assessment will finance, fail[ed] to estimate or calculate the cost of any such improvement, and fail[ed] to directly connect any proportionate costs of and benefits received from the ‘permanent public improvement’ to the specific assessed properties”]; Golden Hill Neighborhood Ass’n, Inc. v. City of San Diego (2011) 199 Cal.App.4th 416, 438 [invalidating assessment because “the engineer’s report … did not attempt to separate and quantify the general and special benefits that the proposed services and improvements would confer.”].) Most assessment statutes require an engineer’s report (perhaps under another name, such as “district management plan”) for formation of an assessment district or imposition of an assessment, and some of these statutes contain specific requirements for such reports. For instance, the Landscaping and Lighting Act of 1972 requires an engineer’s report to be prepared each fiscal year and to contain, among other things, plans and specifications of existing and proposed improvements; the costs of proposed improvements, the amount of assessment funds carried over from the previous year, and contributions from non-assessment revenues; and a diagram of the district, including any zones within it. (Sts. & Hy. Code, §§ 22565–22574.) X PRACTICE TIP: It is important that the assessing agency review the authorizing assessment statute or charter city ordinance before finalizing an engineer’s report to ensure the report complies with statutory requirements as well as those of Proposition 218. C. Exclusion of Public Parcels Requires Clear and Convincing Evidence of No Special Benefit Article XIIID, section 4, subdivision (a) states: Parcels within a district that are owned or used by any agency, the State of California or the United States shall not be exempt from assessment unless the agency can demonstrate by clear and convincing evidence that those publicly owned parcels in fact receive no special benefit. 1. Burden of proof: clear and convincing evidence The burden of proof is the obligation of a litigant to “establish by evidence a requisite degree of belief concerning a fact in the mind of the trier of fact or the court.” (Evid. Code § 115.) Generally, the burden of proof requires proof by a “preponderance of the evidence,” which means enough proof to convince the trier of fact “that the existence of a fact is more probable than its nonexistence … .” (In re Angelica P. (1981) 28 Cal.3d 908, 918, citations and internal quotation omitted.) In contrast, the “clear and convincing evidence” standard requires a party to produce evidence sufficient to convince the trier of fact there is a “high probability” the fact exists. (Id. at 919.)40 2. Property owned by state and local governments Before Proposition 218, the California Supreme Court held: While publicly owned and used property is not exempt from special assessments under the Constitution or statutory law of this state, there is an implied exemption of such property from burdens of that nature. (City of Inglewood v. Los Angeles County (1929) 207 Cal. 697, 703–704.) This exemption applied only when “the property of the governmental agency [was] devoted to a public use … .” (Reclamation District No. 684 v. East Bay Municipal Utility 40 Although some older cases describe the clear and convincing evidence standard as requiring evidence that is “‘so clear as to leave no substantial doubt’” or “‘sufficiently strong as to command the unhesitating assent of every reasonable mind[,]’” others caution that this language overstates the burden, making it more akin to the “beyond a reasonable doubt” standard of criminal law. (See Nevarrez v. San Marino Skilled Nursing and Wellness Centre (2013) 221 Cal.App.4th 102, 113–114.) J-48 47LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE District (1928) 91 Cal.App. 143, 148.) The stated rationale for this implied exemption was “to prevent one tax-supported entity from siphoning tax money from another such entity; the end result of such a process could be unnecessary administrative costs and no actual gain in tax revenues.” (San Marcos Water District v. San Marcos Unified School District (1986) 42 Cal.3d 154, 161.) Because the exemption for publicly-owned property was implied, it could be overridden by “positive legislative authority” — i.e., a statutory or constitutional provision authorizing the assessment of public property. (Inglewood, supra, 207 Cal. at pp. 703–704.) A number of statutes authorize assessment of public property, overriding the implied exemption. For instance, the Municipal Improvement Acts of 1911 and 1913 state that, with certain exceptions, “[a]ll real property acquired by the State of California or any department thereof is property subject to assessment” under the Act. (Sts. & Hy. § 5321; see also, e.g., Water Code, § 51200 [Reclamation District Act].) Article XIII D, section 4, subdivision (a) apparently revokes the implied exemption, except when clear and convincing evidence shows a public parcel “in fact receive[s] no special benefit.” This view is supported by the Legislative Analyst Office’s 1996 “Understanding Proposition 218” report, which states “[p]roperties owned by schools and other governmental agencies — previously exempt from some assessment charges — now must pay assessments.” (See also Golden Hill Neighborhood Ass’n, Inc. v. City of San Diego (2011) 199 Cal.App.4th 416, 434 n.17, emphasis omitted [“governmental real property is properly assessed for services and improvements that provide special benefit to the property regardless of the property’s use or function.”].) Some argue that Proposition 218 does not create power to assess government property, but merely prevents an assessing agency from recouping from assessed private property the cost to confer benefit on benefited public property. On April 7, 2017, the Third District Court of Appeal rejected that argument in Manteca Unified School District v. Reclamation District No. 17 (2017) 10 Cal.App.5th 730. The Court found article XIII D, section 4, subdivision (a)’s provision forbidding the exclusion of public property from assessment absent clear and convincing evidence the property receives no benefit from the assessment district controls over article XIII D, section 1’s statement that Proposition 218 confers no additional authority to levy taxes or impose assessments. Thus, the Court found a provision of the Water Code forbidding a reclamation district to assess schools and highways was vitiated by article XIII D, section 4, subdivision (a). It reversed a trial court judgment awarding a refund to the plaintiff school district. This case indicates that the law favors the power of assessing agencies to assess public property benefited by an assessment district. This ruling, of course, is founded only on State law and will not overcome the federal government’s immunity from state and local levies. Thus, post offices and other federal assets remain outside the reach of a local government’s assessment power. In San Marcos Water District, supra, 42 Cal.3d 154, the California Supreme Court held that a public utility’s one-time capacity charge to fund capital improvements was substantively an assessment barred by inter-governmental property tax immunity, and that school districts were therefore not required to pay such charges. In response, the Legislature adopted the San Marcos legislation, Gov. Code §§ 54999 et seq., authorizing public utilities to impose capital facilities fees, including capacity charges, on other public agencies, subject to limitations. (See Gov. Code, §§ 54999.2, 54999.3, 54999.35.) In the wake of Proposition 218, the limitations on this provision allowing the assessment of capital facilities fees on public schools and state agencies may no longer be valid, and public schools and state agencies may now be required to pay generally-applicable capital facilities fees. Again, the alternative reading maintains the limitation on assessment power, but requires an assessing agency to find other means to fund the portion of an assessment program attributed to immune property. As a pre-Proposition 218 decision explained: Excluding public property simply because it is public property is strictly a policy decision and shifts to the remaining taxpayers within the assessment district the burden of paying the share of taxes which otherwise would have been charged against the city. J-49 48 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS (Todd v. City of Visalia (1967) 254 Cal.App.2d 679, 687.) Proposition 218, of course, forbids such cost-shifting. (Cal. Const., art. XIII D, § 4, subd. (a).) This concern, however, is absent if a public parcel’s share of the assessment is not passed on to assessees. Moreover, this interpretation would also prevent the implied repeal of existing statutory limitations on assessing public property while respecting Proposition 218’s requirements. Some assessment statutes authorizing exemption of public parcels require an assessing agency to include cost of public parcels’ unpaid assessments in the amounts charged other parcels. (See Sts. & Hy. Code § 18014 [“If the lots or parcels of land, or any of them, are omitted from the assessment by the resolution, the total cost and expense of all work done shall be assessed on the remaining lots lying within the limits of the assessment district, without regard to the omitted lots or parcels of land.”].) These statutes violate Proposition 218’s proportionality requirement and are therefore unconstitutional. Finally, statutes sometimes place significant limits on how assessments may be satisfied. Thus, the Landscape and Lighting Act of 1972 allows the assessment of public property if the “resolution of intention expressly provides” that such property must be assessed, but “the local agency conducting the [assessment] proceedings shall be liable for payment of all amounts so assessed.” (Sts. & Hy. Code § 22663; see also id. §§ 5303, 10206.) General sovereign immunity rules also limit enforcement of assessments against public property. For instance, liens typically do not attach to public property used for a public purpose. (Witter v. Mission School District (1898) 121 Cal. 350, 351–352; but see Gov. Code § 53938.5 [pre-acquisition liens remain on property acquired by public agency].) These provisions and immunity rules do not appear to have been impacted by Proposition 218. This is but a specific application of our general advice: assessment analysis turns not only on the requirements of Proposition 218, but also on the authorizing statute or charter city ordinance and close review of these requirements is necessary. 3. Assessing federal property Under the doctrine of intergovernmental tax immunity, first established in M’Culloch v. State of Maryland (1819) 17 U.S. 316, the federal government enjoys “absolute … immunity from state taxation[,]” and state taxes may not be enforced against “the United States itself,” or against “an agency or instrumentality so closely connected to the [g]overnment that the two cannot be realistically viewed as separate entities … .” (United States v. New Mexico (1982) 455 U.S. 720, 734–735; see also Novato Fire Protection District v. United States (9th Cir. 1999) 181 F.3d 1135, 1138–1139.) Assessments, which are considered an exercise of the power to tax (see Community Facilities District No. 88-8 v. Harvill (1999) 74 Cal. App.4th 876, 881), are subject to this immunity. Moreover, the Act of Congress admitting the State of California into the United States provides that “the people of said State, through their legislature or otherwise … [,] shall never lay any tax or assessment of any description whatsoever upon the public domain of the United States ….” (See Palm Springs Spa, Inc. v. County of Riverside (1971) 18 Cal.App.3d 372, 376, citing Act for the Admission of the State of California into the Union, 9 U.S. Stat. 452, ch. 50 (Sept. 9, 1850).) Thus, notwithstanding Proposition 218’s statement that “[p]arcels within a district that are owned or used by … the United States shall not be exempt from assessment unless the agency can demonstrate … that those … parcels in fact receive no special benefit[,]” neither the State nor any local government can authorize the assessment of federally-owned property. X PRACTICE TIP: Federal agencies rarely consent to be assessed, but some will contract for services which they value, such as business improvement district-funded supplemental sanitation and security. It doesn’t hurt to ask and it may not hurt to engage your Congressional delegation in the discussion. J-50 49LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE IV. Managing Existing Assessments A. Article XIII D, Section 5 Exempts Many Pre-Proposition 218 Assessments Article XIII D, section 5 set July 1, 1997 as the compliance date for all existing, new, or increased assessments. However, assessments “existing” on November 6, 1996, the effective date of Proposition 218, which fall in one of the four exceptions identified in section 5 are exempt from “the procedures and approval process set forth in section 4.” This means all of the requirements of section 4 including the requirement to separate general and special benefit and to assess publicly owned parcels. (Gov. Code, § 53753.5, subd. (c)(2).) Proposition 26 excludes assessments imposed in accordance with article XIII D from its definition of taxes. (Cal. Const. art. XIII C, § 1, subd. (e)(7).) Whether or not grandfathered assessments fall within this exclusion, pre-Proposition 218 assessments are nevertheless excluded from Proposition 26’s definition of taxes because Proposition 26 is not retroactive. (Brookfields Township Community Services District v. Board of Supervisors of Mendocino County (2013) 218 CalApp.4th195 [Prop. 26 not retroactive as to local governments].) Section 5’s four “exceptions” are: 1. 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. (Cal. Const., art. XIII D, § 5, subd. (a).) 2. Any assessment imposed pursuant to a petition signed by the persons owning all of the parcels subject to the assessment at the time the assessment is initially imposed. (Cal. Const., art. XIIID, § 5, subd. (b).) 3. Any assessment the proceeds of which are exclusively used to repay bonded indebtedness of which the failure to pay would violate the Contract Impairment Clause of the Constitution of the United States of America. (Cal. Const., art. XIII D, § 5, subd. (c).) 4. Any assessment which previously received a majority vote approval from the voters voting in an election on the issue of the assessment. (Cal. Const., art. XIII D, § 5, subd. (d).) X PRACTICE TIP: Some public lawyers conclude an assessment agreed to by a property owner pursuant to a development agreement satisfies the petition exemption above. Even if it does not, such agreements can be enforced as knowing waivers of constitutional and statutory rights at least as to those in privity of contract with the parties to the agreement. Howard Jarvis Taxpayers Association v. City of Riverside (1999) 73 Cal.App.4th 679 concluded streetlights are within the definition of “streets” for purposes of the grand-fathering exception of article XIII D, section 5, subdivision (a) for assessments imposed for “street” purposes. Proposition 218 treats standby charges as assessments. (Cal. Const. art. XIII D § 6, subd. (b)(4); Keller v. Chowchilla Water District (2000) 80 Cal.App.4th 1006.) Keller found a water standby charge imposed before Proposition 218 exempted by section 5, subdivision (a) as an assessment imposed exclusively to finance the “capital costs or maintenance and operation expenses for … water” and that payments for the purchase of water constituted a “replacement” within the scope of the definition of “maintenance and operation expenses” found in section 2, subdivision (f). J-51 50 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS X PRACTICE TIP: Post-Proposition 218 many agencies have routinely imposed standby charges, without increase, based on the section 5, subdivision (a) exemption. In 2007, the Legislature amended the Uniform Standby Charge Procedures Act to simplify the annual process. As amended, Government Code section 54984.7 allows an agency to adopt a resolution continuing a standby charge in successive years at the same rate, but new or increased charges must be imposed in accordance with Proposition 218’s assessment notice, protest, and hearing procedures specified by section 53753. B. Changes Trigger Proposition 218’s Assessment Approval Requirements Article XIII D, section 5’s exemptions apply only to assessments existing on the effective date of Proposition 218 in 1996. Except for assessments levied to pay debt protected by the contracts clauses of the state and federal Constitutions, increases in any exempt assessment are subject to article XIII D, section 4. In 1999, the Attorney General opined a water district must comply with Proposition 218 when it imposes an increase in its standby charge, even though the increase was specified in an engineer’s report adopted before Proposition 218. (82 Ops.Cal.Atty.Gen. 35 (1999).) This opinion is consistent with Government Code section 53753, subdivision (h)(2)(A), a provision of the Proposition 218 Omnibus Implementation Act defining the “increases” that trigger Proposition 218. That section, applicable to taxes and fees, but not assessments provides that an adjustment pursuant to an inflation adjustment formula adopted by the agency before the November 6, 1996 effective date of Proposition 218 is not an “increase” in the tax or fee sufficient to trigger the measure. X PRACTICE TIP: If additional improvements or new funds are required in an area subject to an exempt assessment, consider leaving the existing district in place and creating a new district overlying the grandfathered district. C. Adjustments to Assessments Established Pursuant to Proposition 218 In addition to assessments to pay the capital cost of public improvements, article XIII D anticipates assessments to pay “maintenance and operation expenses” of public improvements, and “the cost of property-related services.” (Cal. Const., art. XIIID, § 4, subd. (a).) The Constitution defines maintenance and operation expenses as “the cost of rent, repair, replacement, rehabilitation, fuel, power, electrical current, care, and supervision necessary to properly operate and maintain a permanent public improvement.”(Cal. Const., art. XIII D, § 2, subd. (f). Property-related service means a “public service having a direct relationship to property ownership.” Because section 4’s requirements apply to new or increased assessments, it is necessary to determine the meaning of “increased” and whether inflationary or other automatic adjustments to assessments are authorized, particularly for maintenance and service assessment districts. Government Code section 53750, subdivision (h)(1), a provision of the Proposition 218 Omnibus Implementation Act defines “increased” as a “decision by an agency” that does either of the following: Increases any applicable rate used to calculate the assessment; or Revises the methodology by which the assessment is calculated, if that revision results in an increased amount being levied on any person or parcel. J-52 51LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE This definition also applies to taxes and property-related fees and charges. Section 53750, subdivision (h)(2) also provides that a tax, fee, or charge will not be deemed “increased” if a change results from agency action pursuant to an adopted adjustment schedule or formula, but this exclusion does not specifically mention assessments. Assessments imposed to pay debt service may adjust according to a schedule corresponding to the debt service requirements. These adjustments are not “increases” that trigger a requirement for a new assessment proceeding. Despite the confusion caused by the negative implication of section 53750, subdivision (h)(2), most practitioners conclude an assessment formula may include automatic adjustments for inflation provided the adjustment method is clearly identified and justified in the engineer’s report and included in the notice and ballot submitted to the property owners for the approval of the assessments. X PRACTICE TIP: Section 4 limits each property’s assessment to proportional special benefit. It also requires, among other things, that the notice to property owners of the protest hearing include the total amount to be assessed to the whole district, the amount to be assessed to the owner’s parcel, the duration of the assessments, and the basis upon which the amount of the proposed assessment was calculated. Therefore, an engineer’s report should justify any proposed automatic adjustment formula in relationship to the costs and expenses of the district and demonstrate that adjustments will maintain the proportionality of special benefit. X PRACTICE TIP: Using a CPI or other similar formula may not correlate to actual costs. Consider establishing a fixed schedule of adjustments with flexibility to adjust assessments up to the cap established by the schedule based upon actual costs in a given year. Consider allowing reductions in assessments and carry-over of reserve funds from year-to-year so long as the maximum cumulative adjustment authorized by the approved schedule is not exceeded. J-53 52 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 3: ASSESSMENTS J-54 53 53LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Chapter 4 Fees Two sections of the Constitution apply to fees and charges: Subdivision (e) of section 1 of article XIII C (added by Proposition 26 and defining “tax”) and section 6 of article XIII D (added by Proposition 218). This chapter covers both. Since Proposition 26 applies more broadly to all fees and charges, this chapter discusses it first before turning to the “property-related” fees and charges subject to Proposition 218. I. Article XIII C and Other Fees and Charges A. Introduction and Overview 1. Proposition 26: A new definition of “tax”41 Proposition 26 added the following definition of “tax” to the Constitution, which expands the types of local government levies that require voter approval under article XIII C. Proposition 26 holds that all levies, charges, or exactions of any kind imposed by a local government are taxes unless they meet one of seven enumerated exceptions: 1. A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. 2. A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product. 3. A charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. 4. A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property. 41 This section discusses Proposition 26’s new definition of “tax” applicable to local government levies, article XIII C, section 1 subdivision (e). The measure’s new definition of “tax” applicable to state levies, article XIII A, section 3, subdivision (b) is substantively the same as the first five exemptions quoted above, with some minor language differences that may be meaningful in some cases. When determining the meaning of the first five exceptions it may be useful to consider any differences in the state and local versions of these rules. J-55 54 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES 5. A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law. 6. A charge imposed as a condition of property development. 7. Assessments and property-related fees imposed in accordance with the provisions of art. XIIID. The local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. (Art. XIII C, § 1, subd. (e).) The earlier requirements of 1978’s Proposition 13 (article XIII A, § 4) and 1996’s Proposition 218 (article XIII C, § 2, subds. (b) & (d)) that voters approve “general taxes” and “special taxes” did not define “tax.” Rather the Constitution and statutes described what type of levy was not a tax. For example, Government Code section 50076 provides that a fee that does not exceed the reasonable cost of providing a service and is not levied for general revenue purposes is not a “tax.”42 As of November 3, 2010, Proposition 26’s effective date, a local government may not enact, increase, or extend any levy, charge, or exaction of any kind without voter approval unless one of seven enumerated exceptions (quoted above).43 2. A framework for applying Proposition 26 Questions under Proposition 26 can be analyzed as follows: 1. Was the levy in question imposed before the effective date of Proposition 26 — November 3, 2010 for local government and January 1, 2010 for state government? If so, the levy may be implemented without voter approval until it is “increased” or “extended” within the meaning of Government Code § 53750(h). See below on the non- retroactivity of Proposition 26 as to local governments. 2. As to post-Proposition 26 levies, was the levy “imposed” so as to bring it within the reach of Proposition 26 because some local government force or authority obliges the payor to pay it? If not, Proposition 26 may not apply. See below, as to the meaning of “impose.” 3. If a post-Proposition 26 levy is “imposed,” does an exception apply? See below, discussing the seven express exceptions. 4. Does the levy fund government? If not, it is outside the reach of Proposition 26 under the second implicit exception recognized in Schmeer v. County of Los Angeles (2013) 213 Cal.App.4th 1310, in which the court held that a plastic-bag-ban ordinance requiring retailers to impose a $0.10 fee on paper bags was not a tax because retailers retained the fee and it did not fund government. 5. If a post-Proposition 26 fee is “imposed” and does not fall within one of the seven stated exceptions, it is a “tax” requiring voter approval. 3. Is Proposition 26 retroactive? An initiative measure will not be given retroactive effect unless it has an expressly retroactive provision or “it is very clear from extrinsic sources that the Legislature or the voters must have intended retroactive application.” (See Strauss v. Horton (2009) 46 Cal. 4th 364, 470 [citing Evangelatos v. Superior Ct. (1988) 44 Cal.3d 1188, 1209].) Proposition 26 is expressly retroactive as to state measures adopted between January 1, 2010 and the measure’s November 3, 2010 effective date. (See Cal. Const. art. XIIIA, § 3, subd. (c).) No similar provision exists as to local levies. Thus, in Brooktrails Township Community Services District v. Board of Supervisors (2013) 218 Cal.App.4th 195, the Court of Appeal concluded that Proposition 26 does not apply retroactively to local government levies. Thus, even if a fee enacted before November 42 The Gann Initiative defines “proceeds of taxes” as proceeds from “regulatory licenses, user charges, and user fees to the extent that those proceeds exceed the costs reasonably borne by [the government] in providing the regulation, product or service.” (Art. XIII B, § 8, subd. (c).) 43 Most of this Guide is devoted to a discussion of levies included in those exceptions and, therefore, not taxes. J-56 55LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE 3, 2010 is not within any of Proposition 26’s exceptions, it will remain valid provided that the legislation authorizing it is not amended so as to extend or increase the fee. The effect of Proposition 26 on extensions and increases of pre-Proposition 26 fees is discussed in the next section. 4. Does Proposition 26 apply to pre-Proposition 26 fees or charges when they are increased or extended? The authors of this guide conclude Proposition 26 does not require voter approval for adjustments of local levies for inflation if the formula or schedule for changes was approved before the measure’s effective date.44 This conclusion is supported by the definition of “increased” in the Proposition 218 Omnibus Implementation Act, which excludes adjustments to taxes that are made in accordance with a schedule of adjustments. (Gov. Code § 53750, subd. (h)(2)(A); see also Gov. Code § 53756 [authorizing Prop. 218 fees to be increased for inflation for up to five years].) Proposition 26 amends article XIII C, originally adopted by Proposition 218 in 1996 and clarified by the Omnibus Act.45 The Omnibus Act includes definitions, which apply by their terms to art. XIII C (see Gov. Code § 53750) and the Supreme Court has found that statute to be good authority to construe the measure. (Greene v. Marin County Flood Control and Water Conservation Dist. (2010) 49 Cal.4th 277, 290–291.) Thus, absent indicia of contrary intent, the Omnibus Act’s definitions, which existed at the time of Proposition 26’s enactment, inform the guide’s authors interpretation of the provisions of Proposition 26 under the rule of statutory construction identified by its Latin label “in pari materia.” (In re Wright’s Estate, (1929) 98 Cal.App. 633, 635, [“[I]t is a settled rule that all statutes which relate to the same general subject- matter — briefly called statutes in pari materia — must be read and construed together, as one act, each referring to and supplementing the other, though they were passed at different times”]; see also Kahn v. Kahn (1977) 68 Cal.App.3d 372.) Thus, the Omnibus Act’s pre-existing definitions govern construction of Proposition 26. Specifically, the Omnibus Act states a tax “is not deemed to be ‘increased’ by an agency action that” only adjusts “the amount of a tax … in accordance with a schedule of adjustments,46 including a clearly defined formula for inflation adjustment that was adopted by the agency prior to November 6, 1996.” (Gov. Code § 53750, subd. (h)(2)(A).) Thus, increasing a tax (or a fee made a tax by Proposition 26) according to a “schedule of adjustments” included in the levy before the effective date of Proposition 26 should not constitute an increase requiring voter approval.47 The strength of this argument is uncertain due to the phrase “including a clearly defined formula for inflation adjustment that was adopted by the agency prior to November 6, 1996.” The mention of this specific date could limit the validity of existing inflationary adjustments to those in effect before the November 6, 1996 effective date of Proposition 218. On the other hand, this phrase begins with “including” and this illustrates, but does not limit the phrase which precedes it, suggesting a broader interpretation is appropriate. 44 The authors of this Guide use “adjustment” to include any method of increasing (or decreasing) the amount of a levy approved before Proposition 26’s effective date. It encompasses, but is not limited to, automatic changes to account for inflation, a prescribed schedule of increases, adjustments under a maximum approved amount, and formulas to account for changes in population. 45 Since the 1996 adoption of Proposition 218, courts have provided guidance on the application of Articles XIII C and XIII D and this case law informs interpretation of Proposition 26. (See Fields v. Eu, (1976) 18 Cal.3d 322 (“It is a cardinal rule of construction that words or phrases are not to be viewed in isolation; instead, each is to be read in the context of the other provisions of the constitution bearing on the same subject. The goal, of course is to harmonize all related provisions if it is reasonably possible to do so without distorting their apparent meaning, and in so doing to give effect to the scheme as a whole.”).) 46 “Schedule of adjustments” is a broad phrase and readily encompasses a range of changes, including a series of increasing, specified amounts and an adjustment for inflation at regular intervals, such as at the beginning of each fiscal or calendar year. 47 The Omnibus Act’s definition of “increase” is limited to “a tax, assessment, or property-related fee or charge.” (Gov. Code § 53750, subd. (h)(1).) Thus, it would not apply to a non-property-related “fee” or “charge.” This is of little practical importance, however, since a fee or charge that fits within one of the exemptions is not a tax and a fee that does not fit within one of the exemptions is a tax. Therefore, the fundamental question is whether a tax that includes a schedule of increases is “increased.” J-57 56 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES The Omnibus Act also provides that a tax is “increased” when a decision by an agency “revises the methodology by which the tax…is calculated, if that revision results in an increased amount being levied on any person or parcel.” A “methodology” is a “mathematical equation for calculating taxes that is officially sanctioned by a local taxing entity. There is a tax increase via revised methodology when the “math behind it is altered so that either a larger tax rate or a larger tax base is part of the calculation” Webb v. City of Riverside (2018) 23 Cal.App.5th 244, 259. The authors of this Guide conclude the better reading disfavors any retroactive application of either Proposition 218 or Proposition 26 as to such earlier-authorized adjustment mechanisms. Further, the last clause of the definition — “including a clearly defined formula for inflation adjustment that was adopted by the agency prior to November 6, 1996” — is an example of the types of permitted “schedules of adjustments,” but does not limit the definition. That interpretation is consistent with the grammatical construction of the sentence. 5. What does “levy, charge or exaction of any kind” mean? Proposition 26 defines any “levy, charge or exaction of any kind” as a tax unless it meets one of the seven exceptions. There are no meaningful distinctions among the terms “levy, charge or exaction of any kind.” The first six of the seven exceptions that follow this introductory language use only the word “charge” (although the fifth refers to a “fine, penalty or other charge”) and the seventh exception uses terms that do not appear in the introductory phrase: “assessments and property-related fees.” Article XIIIC does not define these terms, while article XIIID, adopted along with art. XIIIC by Proposition 218 in 1996, defines “fee or charge” but does not define “levy” or “exaction.” The Proposition 218 Omnibus Implementation Act is similarly silent as the meaning of these terms. (See Gov. Code § 53750 [definitions section of Omnibus Act].) The authors of this Guide conclude the phrase “levy, charge or exaction of any kind” is merely intended to expansively include all revenue sources “imposed by a local government” (Cal. Const. art. XIIIC, § 1(e)) or the state (art. XIIIA, § 3(b)). In this regard, Proposition 26 is akin to Proposition 218, which uses the phrase “fee or charge” without intending any distinction between the two terms. As the California Supreme Court explained: Because article XIII D provides a single definition that includes both ‘fee’ and ‘charge,’ those terms appear to be synonymous in both article XIII D and article XIII C. This is an exception to the normal rule of construction that each word in a constitutional or statutory provision is assumed to have independent significance. (citation.) We use the terms interchangeably in this opinion. (Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 214, fn. 4.) 6. How do Proposition 26’s provisions regarding state revenue measures affect interpretation of its provisions regarding local government revenues? Three parts of Proposition 26 are relevant to this question: The amendment of Article XIIIA, § 3(a) to state that “[a]ny change in state statute which results in any taxpayer paying a higher tax” requires a two-thirds vote of each house of the Legislature. [Former law: “Any changes in state taxes enacted for the purpose of increasing revenues collected pursuant thereto” required such a two-thirds vote]. Addition of § 3(b) to Article XIIIA to define state “tax.” Addition of § 1(e) to Article XIIIC to define local government “tax.” The second and third amendments are identical with the following exceptions: Article XIIIA, § 3(b)(3) compared to Article XIIIC, § 1(e)(3). Article XIIIA, § 3(b)(3) states an exception to the definition of state tax for: J-58 57LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE A charge imposed for the reasonable regulatory costs to the State incident to issuing license and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. (Emphasis added.) Article XIIIC, § 1(e)(3) uses this same language for local fees, except that “incident to” is replaced with “for.” These provisions are the exceptions for “reasonable regulatory costs.” For purposes of Proposition 218, a property-related fee is one imposed as “an incident of property ownership” or for a “property-related service.” (Art. XIIID, § 2(e).) The California Supreme Court has interpreted “an incident of” to mean “by virtue of.” (Apartment Ass’n of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th 830, 842.) Under this construction, the exception for state charges in this category could be read more broadly than the exception for local charges. The use of the word “for” implies a more direct connection between the charge and the activity: issuing licenses and permits, etc. However, the balance of the text and legislative history of Proposition 26 indicates no intent to distinguish state and local government regulatory fees. Consequently, the courts are likely to conclude that the difference in language, “incident to” and “for” is immaterial. Article XIIIA, § 3(b)(4) compared to Article XIIIC, § 1(e)(4). Article XIIIA, § 3(b)(4) excludes from the definition of state taxes: A charge imposed for entrance to or use of state property, or the purchase, rental, or lease of state property, except charges governed by Section 15 of Article XI [i.e., the vehicle license fee]. (Emphasis added.) Article XIII C, § 1(e)(4) uses this same language, except that the trailing phrase emphasized above is omitted. Vehicle license fees (VLF) are a tax paid upon vehicle registration. VLF, although labeled a “fee,” is a tax and is not a charge imposed for entrance to or use of state property, nor for the purchase, rental or lease of state property. This clause appears to reinforce this understanding and forestalls an argument the VLF is a charge for use of state highways. Article XIIIC, §§ 1(e)(6) and (7). Article XIII C, section 1, subdivisions (e)(6) and (7) state exceptions to Proposition 26’s definition of “tax” applicable to local government but not the State: 6. A charge imposed as a condition of property development. 7. Assessments and property-related fees imposed in accordance with the provisions of Article XIII D [added to the Constitution by Proposition 218]. These exceptions apply only to local governments because there are no similar charges imposed by the State — the State does not directly engage in land use regulation and Proposition 218 does not apply to the State. B. Is the Fee “Imposed” by a Local Government? By its terms, Proposition 26 applies only to fees that are “imposed” by a government. Fees imposed by private parties (like telephone charges and many solid waste collection fees) are not subject to Proposition 26. Moreover, local governments collect many fees they do not “impose” as where a local government collects a fee imposed by the state or a fee is paid voluntarily. Courts can be expected to rely, as they have in similar contexts, on the dictionary meaning of “impose,” which is to establish or apply by authority or force. (Ponderosa Homes, Inc. v. City of San Ramon (1994) 23 Cal.App.4th 1761, 1770 [citing Webster’s Third Internat. Dict. (1970) to construe “impose” as used in the Mitigation Fee Act.]; City of Madera v. Black (1919) 181 Cal. 306, 314–315 [sewer rates are “imposed” because adopted without consent of payors and payment is compulsory]; Citizen Ass’n of Sunset Beach v. Orange County Local Agency Formation Com. (2012) 209 Cal.App.4th 1182, 1194, fn. 15 [citing Black’s Law Dictionary and J-59 58 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES Oxford English Dictionary to construe Prop. 218].) In Schmeer v. County of Los Angeles (2013) 213 Cal.App.4th 131, 1326–1327, for instance, the court noted that in ordinary usage, “tax” refers to a “compulsory payment” to a government. The case involved a challenge to a county ordinance barring plastic bags at retail and requiring retailers to charge $0.10 for paper bags. The Court concluded the ten-cent fee was not subject to Proposition 26 because it was not paid to the government, and therefore was not a “levy, charge, or exaction of any kind imposed by a local government.” (Id., at p. 1329.) Determining whether a charge is “imposed” will likely turn not only on the particular nature of the service, but also on such factors as: Whether the charge is in connection with a service that the agency is statutorily obligated to provide; Whether the charge is in connection with a service for which the local government is the exclusive provider within its service territory; Whether the charge is in connection with a service, product, or opportunity the local government provides in competition with others, particularly private enterprises; or Whether the charge is established by arm’s-length, voluntary negotiations. Thus, there likely is a class of payments to local governments that are not “imposed” and therefore are not taxes, despite not fitting within one of the seven enumerated exceptions. The following briefly discusses some potential candidates for inclusion in this class: Cable television public access fees. Before 2007, cities and counties in California held the authority to award cable franchises. Local governments typically negotiated the terms of each franchise, including the required financial support for public access programming, with the prospective cable operator. In 2006, the Legislature passed the Digital Infrastructure and Video Competition Act (“DIVCA”) to transfer franchising authority from local agencies to the state. DIVCA requires a franchise applicant to affirm it will pay a public access fee to local agencies and, in turn, authorizes local agencies to establish such fees by ordinance. The Attorney General concluded that, when a local government establishes such a fee, it does not “impose” the fee (for purposes of Proposition 26). Rather, the local government is making explicit the cable franchisee’s obligation under DIVCA to fund public access programming. Put differently, the local government is simply enforcing a franchise obligation imposed by state — not local — law and therefore does not “impose” the fee. (99 Ops.Cal. Atty.Gen. 1 (2016).) Wholesale electricity charges. Some local governments generate surplus electricity in the operation of water or electric utilities. Traditionally, they have sold surplus electricity to other retail electric providers at whatever price the market will bear. (E.g., City of Oakland v. Burns (1956) 46 Cal.2d 401, 407 [“When a governmental entity is authorized to exercise a power purely proprietary, the law leans to the theory that it has full power to perform it in the same efficient manner as a private person.”].) In most cases, such transactions will lack the coercive element connoted by “impose.” They are typically provided in competition with the same or similar services provided by others, and the buyers have meaningful choice. In some cases, such sales benefit utility ratepayers, a class Proposition 218 and Proposition 26 are intended to protect. For instance, a water purveyor might have electricity to sell because it operates a reservoir suitable for a hydroelectric generation. Any revenues generated from electricity sales can be used to offset costs of the water utility. If Proposition 26 were interpreted to apply to wholesale charges in such contexts, it would have the perverse result of increasing fees and charges by preventing such a cost offset, undermining Proposition 26’s stated intent. Wholesale water charges. Wholesale water sales can be similar to electricity wholesale sales where buyers have market power and alternative sources of supply. However, courts are likely to carefully evaluate whether the particular transaction has characteristics reflective of coercion, such as whether the buyer has meaningful alternatives, whether the seller offers the supply pursuant to a statutory purpose for which it is organized, or whether the seller is the exclusive J-60 59LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE provider of wholesale water in a relevant area. Newhall County Water Dist. v. Castaic Lake Water Agency (2016) 243 Cal. App.4th 1430 applied Proposition 26 to invalidate a wholesale water charge as lacking the proportionality required by article XIII C, section 1, subdivision (e)(2), although it appears that the wholesaler conceded application of Proposition 26. Recycled water charges. Wastewater treatment can generate recycled water sold for landscape and agricultural irrigation. In some cases, the costs associated with recycled water are blended into water rates, either because the recycled water is used for groundwater recharge or because it offsets more costly potable water usage. (Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493, 1502 [finding no Prop. 218 violation in this practice].) In other cases, however, recycled water is provided to a marketplace of customers that have other options for irrigation, such as potable water or groundwater. In those circumstances, a recycled water purveyor may be able to persuasively argue its lack of monopoly power, the existence of other options, the voluntariness of the transactions, and the fact that recycled water sales benefit sewer rate payers (much like wholesale electricity sales benefit ratepayers) makes the recycled water rates lack the coercive element necessary for the rates to be “imposed” so as to trigger Proposition 26. C. Exceptions No. 1 & 2: Fees and Charges for Benefits Conferred and Privileges Granted, Services and Products Provided Exception No. 1 from the Constitution’s definition of “tax” is for: A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. (Emphasis added). Exception No. 2 from the Constitution’s definition of “tax” is for: A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or the product. (Emphasis added). Under both exceptions, the specific benefit conferred, privilege granted, or government service or product provided must: Be granted or provided directly to the payor; Not be provided to those not charged (i.e., no “free-riders”); and Not exceed the reasonable costs of providing the benefit, privilege, service or product.48 Therefore, although it is difficult to distinguish between a benefit conferred, privilege granted, and a service or product provided, there is no practical consequence of doing so as the Constitutional test is the same under the first two exceptions. 1. What is a “specific benefit?” The first exception requires that the fee be imposed for a “specific benefit.” A “specific benefit” means a benefit that is provided directly to a payor and is not provided to those not charged. A specific benefit is not excluded from classification as a “specific benefit” merely because an indirect benefit to a non-payor occurs incidentally and without cost to the payor as a consequence of providing the specific benefit to the payor.” (Gov. Code 53758(a).) Government Code section 53758, subdivision (a) recognizes that providing an indirect benefit to a non-payor does not convert a fee into a tax. For example, the existence of potable water service obviously contributes to public health for all who visit the place serviced, “benefiting” them. Yet, it is clear that Proposition 26 is not intended to make water fees taxes. “Specific benefit” does not mean “sole benefit.” It does seem clear that “specific benefit” under article XIII C, section 1, subdivision (e)(1) is not the “special benefit” required of an assessment under Proposition 218’s article XIII D, section 4. First, different language is 48 This limit applies in toto to the service fees collected from all customers. As to apportionment of fees among customers, the final, unnumbered paragraph of article XIII C, section 1, subdivision (e) controls. It is discussed further below. J-61 60 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES used (“specific” vs. “special”). Second, Proposition 26 exempts assessments imposed under Proposition 218. (Cal. Const., art. XIII C, 1, subd. (e)(7).) This suggests these constitutional provisions address different matters. 2. What is a “specific government service?” The second exception applies to a fee imposed for a “specific government service.” A “specific government service” means a service that is provided by a local government directly to the payor and is not provided to those not charged. A specific government service is not excluded from classification as a “specific government service” merely because an indirect benefit to a nonpayor occurs incidentally and without cost to the payor as a consequence of providing the specific government service to the payor. “A ‘specific government service’ may include, but is not limited to, maintenance, landscaping, marketing, events, and promotions.” (Gov. Code § 53758(b).) Government Code § 53758(b) was enacted to recognize that providing a non payor of a government service with an indirect benefit does not convert a fee into a tax. The most significant impact of the “specific service” requirement may be to require government to articulate the facilities or services that the fee will fund. Only if the government states what a fee is to fund can it demonstrate the fee does not do more than fund those activities, as Proposition 26 requires. 3. What does “directly to the payor” mean? The first two exceptions require a charge to be imposed for a benefit, privilege, service, or product granted or provided “directly to the payor” and not “to those not charged.” The phrase “directly to the payor” did not appear in revenue law before Proposition 26. The following sources are helpful in attempting a definition of this new phrase: A charge that is paid by a “discrete group that receives a benefit or a service or a permanent public improvement which inures to the benefit of that discrete group” is not a tax. The public may be incidentally benefitted, but the discrete group is specifically benefitted by the expenditure of the revenues from the fees. (Evans v. City of San Jose (1992) 3 Cal.App.4th 728, 738; see also Gov. Code § 53758 [defining “specific benefit” for purposes of Prop. 26].) User fees are “those which are charged only to the person actually using the service … . [A] user fee is a payment for a specific commodity purchased.” (Isaac v. City of Los Angeles (1998) 66 Cal.App.4th 586, 597.) The Legislative Analyst’s Impartial Analysis of Proposition 26 states: “The change in the definition of taxes would not affect most user fees…. This is because these fees and charges generally comply with Proposition 26’s requirements already,” because they are paid by users of a service or a program that does not benefit the public broadly. (2010 Ballot Pamphlet at p. 58.) By contrast, a charge that does not inure to the benefit of any particular group, but benefits the public as a whole is a tax. (Bay Area Cellular Telephone Co. v. City of Union City (2008) 162 Cal.App.4th 686, 696 [a charge based not on actual or estimated use of emergency services, but on presence of a telephone line which could be used to call the City’s emergency communication system, is a tax]; see also Newhall County Water District v. Castaic Lake Water Agency (2016) 243 Cal.App.4th 1430.) A water agency violated the “directly to the payor” requirement when it included in its charge to its retail water purveyor customers a cost component that reflected customers’ use of groundwater because the agency did not provide groundwater to those customers. (Newhall County Water District v. Castaic Lake Water Agency (2016) 243 Cal. App.4th 1430.) From this summary, the authors of this Guide conclude “directly to the payor” means a specific and identifiable benefit, privilege, service, or product provided to a person who is charged, which has only incidental benefit to the public. (See also Schmeer v. County of Los Angeles (2013) 213 Cal.App.4th 1310, 1327 fn. 5 [Prop. 26 concerned with funding services provided “directly” by government, not via its regulation of private retailers].) J-62 61LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE 4. What are the “reasonable costs?” The phrase “does not exceed the reasonable costs” reflects the apparent intention to maintain the Proposition 13 standard for service and regulatory fees established before Proposition 26 was drafted. The language is identical to statutory language distinguishing fees from the special taxes for which Proposition 13 requires two-thirds voter approval49 and from the burden of proof provision of the unnumbered, final paragraph of article XIII C, section 1, subdivision (e) (discussed below). That provision imposes on local government the burden to prove, among other things, “that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.” This language restates law first articulated in Beaumont Investors v. Beaumont Cherry Valley Water District (1985) 165 Cal.App.3d 227 [water fee must be shown not to exceed service cost, else it is a special tax requiring voter approval under Prop. 13], and cited in later “special tax” cases including Sinclair Paint. (Sinclair Paint Co. v. State Board of Equalization (1997) 15 Cal.4th 866, 878; San Diego Gas & Electric Co. v. San Diego County Air Pollution Control Dist. (1988) 203 Cal.App.3d 1132, 1146.)50 Two courts have noted the language of the final paragraph of Article XIIIC, section 1, subdivision (e) tracks the language of Proposition 13 “special tax” cases “nearly verbatim.” (Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 982, 996; Southern California Edison Company v. Public Utilities Com. (2014) 272 Cal.App.4th 172, 199.) They therefore freely cite pre-Proposition 26 “reasonable costs” cases to construe the more recent measure. Numerous cases consider assertions that the state and local government’s fees are taxes. Summarizing them, the California Supreme Court recently noted that regulatory fees “need not be finely calibrated to the precise benefit each individual fee payor might derive.” (California Farm Bureau Federation v. State Water Resources Control Bd. (2011) 51 Cal.4th 421, 438.) Proportionality is “measured collectively,” not individually, “considering all ratepayers.” (Ibid.; 616 Croft Ave., LLC v. City of West Hollywood (2016) 3 Cal.App.5th 621, 207 Cal.Rptr.3d 729, 738–739.) Thus, a fee is not a tax merely because some ratepayers pay a disproportionate amount. (Ibid.) Nonetheless, California Farm Bureau concluded by directing the trial court to determine the costs of the regulatory activity “keeping in mind that a government agency should be accorded some flexibility in calculating the amount and distribution of a regulatory fee” while ultimately determining whether the fee program “provide[s] a fair, reasonable, and substantially proportionate assessment of all costs related to the regulation of affected payors.” (Id. at 442.) Thus, while it seems clear that individual precision is not required, some reasonable level of apportionment is required. Proposition 26 cases have generally upheld fees against this standard. A fee for residential rental unit inspections of $45 per property plus $20 per unit was upheld based on evidence suggesting the revenue generated would be equal to or less than that necessary to provide the inspections, and based on the reasonable relationship between the fee and the work required. (See Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 982, 997 [noting that larger fees are imposed on those requiring more work].) Similarly, a California Public Utilities Commission surcharge collected from electric utility rate payers to fund public goods programs was upheld. (Southern California Edison Company v. Public Utilities Com. (2014) 272 Cal.App.4th 172.) However, one recent case indicates that more precision is required when the payor group is smaller. In Newhall County Water District v. Castaic Lake Water Agency (2016) 243 Cal.App.4th 1430, the court found that, for a wholesale water agency with only four customers, the only rational method of evaluating their burdens on, or benefits received from, the governmental activity, is individually, payor by payor. And that is particularly appropriate considering the nature of the Proposition 26 exemption in question: charges for a product or service that is (and is required to be) provided ‘directly to 49 Gov. Code § 50076 added in 1979 stating that fees are not special taxes if they do “not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged.” 50 As Schmeer v. County of Los Angeles (2013) 213 Cal.App.4th 1310, 1322, Proposition 26 “was largely a response to Sinclair Paint.” J-63 62 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES the payor.’ Under these circumstances, allocation of costs ‘collectively,’ when the product is provided directly to each of the four payors, cannot be, and is not, a “fair or reasonable” allocation method.” (Art. XIII C, § 1, subd. (e), final par.).”51 (Id. at pp. 1443-44.) X PRACTICE TIP: The apportionment language of Proposition 26’s article XIII C, section 1, subdivision (e) [final par.] (“fair or reasonable relationship”) differs from the apportionment language of Proposition 218’s article XIII D, section 6, subdivision (b)(3) (“proportional cost of the service attributable to the parcel”). Therefore, Proposition 218 authorities should be used cautiously as analogous authority for these issues under Proposition 26, and vice versa. This point is discussed further below. 5. Specific applications a. Gas and electric utility rates Gas and electricity service charges are exempt from Proposition 218 (Article XIII D, § 3(b)), but not from Proposition 26. Accordingly, gas and electric service fees imposed by public utilities constitute taxes under Proposition 26 unless they: Are imposed pursuant to legislation which predates its adoption in 2010; or Comply with one of its exceptions, such as the exception of § 1(e)(2) for “[a] charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.” Transferring funds from a gas or electric utility to a local government’s general fund without a cost justification is evidence the fee exceeds the reasonable cost of providing the service and therefore constitutes a tax under Proposition 26. Accordingly, agencies that benefit from transfers from gas and electric utilities must rely on the fact that Proposition 26 is not retroactive, as discussed above, or demonstrate that those transfers are justified by costs borne by the general fund for the benefit of the utility. These issues were addressed by the California Supreme Court in Citizens for Fair REU Rates, et al. v. City of Redding, et al. (2018) 6 Cal.5th 1 which held: A PILOT (payment in lieu of taxes) transferred from a city utility to the city general fund is not a tax subject to article XIII C’s limitations;52 The PILOT (and other expenses of providing electrical service not satisfied by electric rates) were satisfied by non- ratepayer sources of revenue; The rate imposed on ratepayers did not exceed the reasonable costs of the electric service and therefore was not a tax. Some local agencies may defend their General Fund transfers because they were approved by the voters. Many city charters authorize transfers to general funds on various theories (in-lieu of property taxes, in-lieu of franchises, return on investment, profit). Since the charter provision requires voter approval, the city may argue that the levy complies with Proposition 26 because it received voter approval. 51 The court of appeal distinguishes Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 982, p. 997, which had cited California Farm Bureau Federation v. State Water Resources Control Bd. (2011) 51 Cal.4th 421, p. 438. In both those cases, sufficiently large numbers of payors were involved to justify the administrative convenience of class-by-class (rather than customer-by-customer) rate-making. 52 Webb v. City of Riverside (2018) 23 Cal.App.5th 244, 248 J-64 63LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE To prevail on such an argument, a local government would have to distinguish Howard Jarvis Taxpayers Ass’n v. City of Fresno (2005) 127 Cal.App.4th 914, or persuade an appellate court to decline to follow it. Such a distinction was made by the Court of Appeal in Wyatt v. City of Sacramento (2021) 60 Cal.App.5th 373 which upheld the City of Sacramento’s utility service fees and charges at rates sufficient to fund the payment of the voter-approved tax on utility revenues: “Of course, what it costs to provide such services includes all the required costs of providing service, short-term and long- term, including operation, maintenance, financial and capital expenditures.” One “cost to provide the service” was the payment of the 11% tax on utility revenues approved by the voters. The Court analyzed the in-lieu payment in Fresno as a component of the property-related fee and determined that the City of Fresno failed to demonstrate that the payment “approximates the cost of city services to the utility departments and divisions.” The Court in Wyatt analyzed the payment of the 11% tax on utility revenues as a “cost” to the utility of doing business rather than the cost of the city service itself, comparing the voter-approved revenue tax to other taxes utilities pay, such as federal income taxes. b. Tipping Fees at local government-owned landfills A tipping fee (sometimes referred to as a gate fee) is a charge levied upon waste received at a landfill or transfer station. In 1988, the Legislature adopted the Waste Management Act to reduce solid waste. Local agencies responsible for waste disposal in their boundaries were obliged to enact comprehensive waste management plans to eventually divert half of their trash from landfills to preserve landfill capacity in California. (City of Alhambra v. P.J.B. Disposal Co. (1998) 61 Cal. App.4th 136, 138; Valley Vista Services, Inc. v. City of Monterey Park (2004) 118 Cal.App.4th 881; Public Resources Code § 40000(e).)53 The act allows local agencies to determine aspects of solid waste handling of local concern, including charges and fees. (Public Resources Code § 40059.) Local agencies typically charge “tipping fees” to fund waste diversion programs and other service costs. For example, Alameda County adopted a Recycling Plan that included: A countywide source reduction program to minimize the generation of refuse, including residential and commercial recycling programs; and Recycled product market development and purchase preference programs. (City of Dublin v. County of Alameda (1993) 14 Cal.App.4th 264.) A $6 per ton “tipping fee” at county landfills funded the plan. The City of Dublin challenged the fee as a special tax. In upholding the fee, the court analyzed whether the charges “bear a fair or reasonable relationship to the payor’s burdens on or benefits from the activity at issue.”54 The court noted the plan’s goal was: reduction of the refuse landfilled in the county. Whether or not that goal is accomplished will have effects on the maintenance, operation, and longevity of the existing landfills, as well as on the need to develop new sites. The surcharge is directly related to the burdens imposed by the payors on the landfills; it is imposed on waste haulers based on tonnage, and will be passed on to those who generate the waste in the form of increased garbage collection rates. Thus the surcharge is intended to distribute the financial burden of source reduction in proportion to the contribution of each waste generator to the problem, and at the same time it provides incentives for the control and reduction of waste generation. (City of Dublin v. County of Alameda, supra, 14 Cal.App.4th at p. 285 (citing San Diego Gas & Electric Co. v. San Diego County Air Pollution Control District (1988) 203 Cal.App.3d 1132.) The authors of this Guide conclude that the tipping fee described in City of Dublin is outside Proposition 26’s definition of “tax” for three reasons: 53 Other reasons cited for the reduction, recycling, or reuse requirement were conservation of water, energy, and other natural resources. 54 Proposition 26 adopts this standard of review. J-65 64 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES 1. Article XIII C, section 1, subdivision (e)(1) excepts “a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege.” Lawfully operated landfill services provide a specific benefit to the payor of the tipping fee that is not provided to those not charged. A local government defending a tipping fee must demonstrate the amount is no more than necessary to cover the reasonable costs of operating the landfill lawfully. 2. Art. XIII C, section 1, subdivision (e)(4) excepts a charge imposed for entrance to or use of local government property. To the extent that the landfill is owned and operated by the local government, the “tipping fee” is a charge imposed to enter and use the property. 3. To the extent that a “tipping fee” is passed on to the customer who places refuse at the curb, the “tipping fee” is part of the refuse collection rate. To the extent they are imposed by a public agency, refuse collection rates may be property-related fees subject to Proposition 218 and would thus fall under the exception in Article XIIIC, section 1, subdivision (e)(7).55 c. Non-property-based business improvement districts State law authorizes two kinds of business improvement district (BID) assessments — assessments on real property and assessments on businesses without respect to land ownership. Real property assessments must comply with Proposition 218 and, therefore, fall under the Proposition 26 exception in Article XIII C, section 1, subdivision (e)(7). BID assessments against businesses, by contrast, are not levies or charges “upon real property … for a special benefit conferred upon the real property.” (Cal. Const. art. XIII D, § 2, subd. (b)). Consequently, they are not subject to Proposition 218. (Howard Jarvis Taxpayers Ass’n v. City of San Diego (1999) 72 Cal.App.4th 230.) Assessments against businesses are most often levied under the Parking & Business Improvement Area Law of 1989 (Streets & Highways Code § 36500 et seq.) (“the 1989 Act”) or comparable charter city ordinances. These assessments fund a variety of services, including security programs, street and sidewalk cleaning, installation and maintenance of landscaping, banners and street furniture, street fairs, concerts and events, and advertising and marketing services. Under the 1989 Act, assessments must be levied on the basis of the estimated benefit to the businesses and property in a district. (Streets & Highways Code § 36536.) Under article XIII C, section 1, subdivision (e)(1), a BID assessment is not a tax if it is “a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit. …” Non-property assessments against business are based on the benefit to those businesses of activities funded by the assessments. Therefore, at least some assessments against businesses could fall within this exception. But the exception applies only if the “specific benefit” is conferred “directly” to the business being assessed and the benefit is “not provided to those not charged.” It is not clear how these requirements will be applied to an assessment on a business. An argument can be made that security patrols in the vicinity of assessed businesses are provided directly to the businesses and are only provided to those businesses being assessed. At least one appellate court accepted this reasoning in the property assessment context. (Dahms v. Downtown Pomona Property Ass’n (2009) 174 Cal.App.4th 708, 722.) That case did not apply Proposition 26’s “specific benefit” standard, but rather applied Proposition 218’s requirement that a “special benefit” must “affect the 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.” (Id. (internal quotation omitted).) 55 See discussion in Part II.A.6 of this Guide below regarding whether refuse collection rates are property-related fees subject to Proposition 218. J-66 65LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE A contrary argument can also be made that a service or program, such as street furniture or concerts, provided to an area, rather than directly to a business, is also “provided” to the general public. Therefore, the service or program is “provided” to those not charged and the assessment falls outside the protection of Proposition 26’s first exception. Another area of uncertainty concerns hotel and tourism BID assessments. These levy assessments against hotels (usually based on gross revenue or on occupied room nights) to fund marketing and similar services. Arguably, the benefits of marketing a community may extend beyond those hotels assessed, and therefore, those businesses not assessed may realize a benefit from the services funded. A “specific benefit” is not excluded from classification as such merely because an indirect benefit to a nonpayor occurs “incidentally and without cost to the payor as a consequence of providing the specific benefit to the payor.” (Gov. Code § 53758(a).) An argument might also be made that business assessments actually are service charges despite being cast in BID law, and in many local ordinances, as benefit assessments. Under this argument, the applicable exception would be that of article XIII C, section 1, subdivision (e)(2), which excepts charges “imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.” This argument could deflect a claim that while BID services are provided “directly” to business, they “benefit” the public. But it would also invite a new question — whether the services “are provided those not charged.” The Property and Business Improvement District Act of 1994 (Streets and Highways Code § 36600 et seq.) also permits business-based assessments, but is more commonly used for property-based assessments. Nevertheless, the 1994 Act was amended in 2014 to provide: Assessments for the purpose of conferring special benefit upon real property or businesses in a business district are not taxes even if property or persons not assessed receive incidental or collateral effects that benefit them (Sts. & Hy. Code § 36601(d)); and Activities undertaken for the purpose of conferring special benefits inherently produce incidental or collateral effects that should not be considered when determining whether only “specific benefits” are provided to the payor (Sts. & Hy. Code § 36601(h)(2).). Business assessments have been litigated under Proposition 26 but, to date, no published appellate ruling has reached the merits of the issue. (Inland Oversight Committee v. City of Ontario (2015) 240 Cal.App.4th 1140, 1145 & fn. 4 [trial court rejected claim for lack of standing; Court of Appeal dismissed for untimely notice of appeal but noted in footnote it agreed with the trial court’s standing ruling].) d. Municipal bus, trolley, or other transportation services There may be a reasonable argument that bus, trolley, or similar transportation fares are not “imposed” and thus outside the scope of Proposition 26 given there are competing sources of transportation service. However, in many jurisdictions, transportation services that meaningfully compete with public transit do not exist. Nevertheless, the authors of this Guide conclude such charges are not “imposed” as no one is compelled to use transit and, if they were, these charges are also exempt under article XIII C, section 1, subdivision (e)(2), which is subject to the reasonable cost-of-service test. It is also possible to argue transit charges are exempt under article XIII C, section 1, subdivision (e)(4) as charges imposed for use of government property (which exemption does not appear to be subject to a cost-of-service test, notwithstanding the Court of Appeal’s decision in Zolly v. City of Oakland (2020) 47 Cal.App.5th 73, review granted August 12, 2020, S262634, discussed below). However, it may be difficult to persuasively argue a fee payor is meaningfully “using” property when they have no control over it. It seems more plausible that they are receiving a service: the distinction here is analogous to that between renting a car (use of property) and hailing a cab (a service). These issues may require further clarification by the courts. In any event, most transit fees are very heavily subsidized, making it unlikely that a plausible Proposition 26 challenge to such fees can be made. J-67 66 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES e. Park and recreation service fees For purposes of Proposition 26, park and recreation fees can be divided into two general categories — those best analyzed under article XIII C, section 1, subdivision (e)(2)’s exception for service fees, and those best analyzed under its section 1, subdivision (e)(4) exception for fees for the use of government property. The service fee category includes those for lessons, transportation, child care, etc. This exception limits such fees to “the reasonable costs to the local government of providing the service” if they are “imposed” and fund government, which may rarely be the case. Most such fees are voluntary and some fund private concessionaires, not government. The use-of-property category includes fees imposed for admission to parks, rental of government tangible property (like bikes, boats, and recreation equipment) and real property (like sport fields and meeting rooms) are best analyzed under § 1(e)(4). As of the 2021 update of this Guide, the California Supreme Court has accepted for review Zolly v. City of Oakland (2020) 47 Cal.App.5th, 73, review granted August 12, 2020, S262634 (“Zolly”), and Howard Jarvis Taxpayers Association v. Bay Area Toll Authority (2020) 51 Cal. App.5th 435, review granted October 14, 2020, S263835 (“BATA”). The Court of Appeal in Zolly held that subdivision (e)’s statement regarding the government’s burden of proof applied to a fee that comes within the exception in subdivision (e)(4): Is the amount of the fee no more than that which is necessary to cover the reasonable costs of the governmental activity, and the manner in which those costs are allocated bear a fair or reasonable relationship to the payor’s burden on or benefit from the governmental activity? The Court of Appeal in BATA held that it did not. The Supreme Court is holding BATA behind Zolly. Are charges for services offered in connection with recreational, cultural, educational, or other similar programs subject to Proposition 26? Many local governments own and operate a wide variety of park, recreation, and cultural facilities. These may include tennis courts, golf courses, fitness centers, swimming pools, museums, interpretive centers, and other similar civic facilities. Agencies frequently provide classes, lessons, and other recreational, cultural, and educational programs at those facilities — often in competition with private enterprise. Additionally, agencies may sponsor running, cycling, or similar athletic events for which a participation fee is charged. Although admission charges are covered by article XIIIC, section 1, subdivision (e)(4)’s exception for charges “imposed for entrance to or use of local government property,” there is a question whether charges for lessons, classes, or programs fall within the exception as a “use” of property, or whether the charges are “imposed” at all and, if not, excluded from the reach of Proposition 26’s definition of “tax” for that reason. There is a reasonable argument that charges for a lesson, class, program, and other participation are not “imposed” within the meaning of Proposition 26 because the participants have meaningful private market options and participation is meaningfully voluntary. If such charges are “imposed” (which may rarely if ever be the case) and fund government (as Schmeer v. County of Los Angeles requires to trigger Proposition 26), Proposition 26’s exceptions for conferring a benefit or privilege (article XIII C, § 1, subd. (e)(1)) or providing a service or product (article XIII C, § 1, subd. (e)(2)) would appear to apply as long as the cost- of-service test is met. f. Booking fees: city and special district arrestees into county jails A county may impose a fee upon a city, special district, school district, community college district, college, or university for reimbursement of county expenses incurred with respect to the booking or other processing of persons arrested by an employee of the entity paying the fee. (Gov. Code § 29550.) Such a fee may not exceed the actual administrative costs incurred in booking or otherwise processing arrested persons. (Id., subd. (a)(1).) Booking fees may be exempt from the definition of “tax” under article XIII C, section 1, subdivision (e)(2) as imposed for a “specific government service” (booking or other processing of persons who have been arrested) if they do not exceed the actual administrative costs incurred in booking or otherwise processing arrestees. However, booking fees might not J-68 67LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE fall into the exception since they are charges for a service that is in fact provided to those not charged. For example, the California Highway Patrol is not charged to book or otherwise process those it arrests. Before concluding that a booking fee is a “tax” under Proposition 26, consideration should be given to the following: What incidence is there, if any, of CHP bookings into county jails? Are there agencies other than the CHP that are not charged a booking fee but book arrested persons into the county jail? For example, does a warden of the State Fish and Game Department with the power to arrest and book persons into the county jail? Does sovereign immunity prevent imposing a fee on the state (CHP or Fish and Game Department), thereby negating the exception for providing a service for those not charged? Are these bookings funded by other funds such that the booking fees paid by local governments do not subsidize those services? Proposition 26 does not seem animated by a fear that government is charging some service recipients too little. Rather it reflects a concern that others not subsidize “free riders.” Even if a persuasive argument can be made that booking fees are taxes, Proposition 26 is not retroactive and counties may therefore maintain booking fees in place under local legislation that existed before November 3, 2010. g. Low-income discounts and cross-subsidies Under well-settled law predating Proposition 26, fees that exceed cost of service to fund discounts to other fee payors are taxes.56 A Proposition 218 case renews the point. (Green Valley Landowners Association v. City of Vallejo (2015) 241 Cal.App.4th 425, 439 [City had no duty to blend costs of two water service systems to benefit those served by the more expensive system].) The “Findings and Declarations of Purpose” of Proposition 26 do not support a different interpretation. They focus on local governments having “disguised new taxes as ‘fees’ in order to extract even more revenue from California taxpayers without having to abide by these constitutional voting requirements.” Proposition 26 does not permit a local agency to fund a low-income discount with revenue from fees charged to other customers since doing so would mean that the local agency would be requiring higher-income rate payers to subsidize lower-income customers. This would mean that the local agency was imposing fees that exceed the cost of providing the service to those customers. D. Exception No. 3: Regulatory Fees and Charges 1. Introduction In 1991, the Legislature enacted the Childhood Lead Poisoning Prevention Act of 1991. The new law provided evaluation, screening, and medically necessary follow-up services for children who had suffered lead poisoning. These services were entirely supported by fees imposed on manufacturers or other persons contributing to environmental lead contamination. Sinclair Paint Company argued the new fee was a “tax” because the revenues do not reimburse the State for special benefits conferred on manufacturers of lead-based products nor compensate it for government privileges or services to those manufacturers. The California Supreme Court rejected Sinclair Paint’s argument, holding the challenged fee fell within a “third recognized category” of fee that did not depend on government conferred benefits or privileges: a regulatory fee. Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal.4th 866. A regulatory fee requires the fee payor to bear a fair share of the cost of mitigating the adverse effects their products created in the community.57 56 For example, Government Code section 50076 provides that a “special tax [subject to two-thirds voter approval requirement of Proposition 13, Art. XIII A § 4] shall not include any fee which does not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged and which is not levied for general revenue purposes,” And Article XIII B, § 8, subd. (c) of the California Constitution defines “proceeds of taxes” subject to the Gann limit to “include, but not be restricted to, all tax revenues and the proceeds to an entity of government, from … regulatory licenses, user charges, and user fees to the extent that those proceeds exceed the costs reasonably borne by that entity in providing the regulation, product, or service ….” 57 A development impact fee imposed pursuant to Government Code section 66000 et seq. is a “regulatory fee” specifically excepted from the definition of “tax” added by Proposition 26 (Cal. Const., art. XIII C, § 1, subd. (e)(6)). J-69 68 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES Proposition 26 was enacted in response to Sinclair Paint. The Legislative Analyst’s Impartial Analysis of the 2010 measure explained that local governments imposed two types of regulatory fees: fees to recover the cost of regulating a fee payor (such as fees on restaurants for health inspections); and fees to recover the cost of programs to achieve particular public goals or to offset the public or environmental impact of a fee payor’s activities (such as an oil recycling fee, hazardous materials fee, and fees on alcohol retailers). Proposition 26 makes the second category a tax. Exception No. 3 from Proposition 26’s definition of “tax” is: A charge imposed for the reasonable regulatory costs to a local government for58 issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders,59 and the administrative enforcement and adjudication thereof.60 2. What types of fees and charges are exempt as “regulatory fees?” This exception will cover a wide range of local government fees that are imposed to pay for regulatory activity, such as: issuing building permits; conducting fire inspections; abating weeds on private property when the property owner fails to do so; performing sales tax audits; and conducting inspections of rental housing. The exception is for a charge imposed to pay for a program that regulates the activity or business of the fee payor. Regulatory fees are valid despite the absence of any perceived “benefit” accruing to the fee payer. (California Farm Bureau Federation v. State Water Resources Control Board (2011) 51 Cal.4th 421, 438.) The exception does not cover a levy imposed to pay to mitigate or offset the impacts of a fee payor’s activities. Such a levy is a “tax” unless it is imposed as a condition of property development or falls within another exception to Proposition 26. 3. What did Proposition 26 leave unchanged? Aside from converting some regulatory fees to taxes, Proposition 26 did not otherwise make significant changes to prior law: In 1988, the Court of Appeal held a “special tax” does not include fees charged in connection with regulatory activities that do not exceed the reasonable cost of providing services necessary to the activity for which the fee is charged, which are not levied for unrelated revenue purposes. “[T]o show a fee is a regulatory fee and not a special tax, the government should prove (1) the estimated costs of the service or regulatory activity, and (2) the basis for determining the manner in which the costs are apportioned, so that charges allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on or benefits from the regulatory activity.” (San Diego Gas & Electric Co. v. San Diego County Air Pollution Control Dist. (1988) 203 Cal.App.3d 1132, 1145–1146.) The second prong of this test is repeated verbatim in the final, unnumbered paragraph of article XIII C, section 1, subdivision (e) and the first prong is paraphrased there. Plainly, Proposition 26 was intended to maintain this earlier standard. Courts have so concluded: “This language repeats nearly verbatim the language of prior cases assessing whether a purported regulatory fee was indeed a fee or a special tax.” (Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 982, 996; see also Southern California Edison Company v. Public Utilities Commission (2014) 227 Cal.App.4th 172, 199 [citing Griffith].) 58 The version of this exception applicable to the State uses the phrase “incident to” rather than “for.” (Compare Cal. Const. art. XIII A, § 3, subd. (b)(3) with art. XIII C, § 1, subd. (e)(3)This distinction is discussed above at section I.A.6 of this guide. 59 “Enforcing agricultural marketing orders” is found in the exception applicable to the State as well. See art. XIIIA, §3(b)(3). Including “enforcing agricultural marketing orders” in the local government provision of Proposition 26 appears to be in error, as local governments neither issue nor enforce agricultural marketing orders. Marketing Orders and Marketing Agreements are authorized by the California Marketing Act of 1937 (Division 21 of the California Food and Agricultural Code). 60 It is not entirely clear what “thereof” modifies, but the history of Proposition 26 suggests it should be read expansively to allow enforcement and adjudication of all of the other regulatory activities listed here – licensing, inspections, etc., an interpretation which is supported by ballot materials as discussed below. J-70 69LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE In 2001, the California Supreme Court upheld an inspection fee on private landlords against a challenge that the fee was a property-related fee under Proposition 218. The Court found the fee to be imposed “not because a person owns property but because the property is being rented.” The fee is imposed only on those landowners who chose to engage in the residential rental business and only while they are operating the business. (Apartment Association of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th 830 (Apartment Association).) In 2011, the Supreme Court was asked to determine the validity of a fee the State Water Resources Control Board imposed on water appropriators. The Court analyzed the language quoted above from San Diego Gas & Electric and restated in Proposition 26. The Court concluded a fee charged in connection with regulatory activities that does not exceed the reasonable cost of providing services necessary for the activity for which the fee is charged and that is not levied for unrelated revenue purposes is not a tax. (California Farm Bureau Federation v State Water Resources Control Board (2011) 51 Cal.4th 421.) The relevant question was whether the State had produced evidence to show the estimated costs of the regulatory activity and the basis for determining the manner in which the costs are apportioned so that charges allocated to a payor bear a fair or reasonable relationship to the payor’s burdens or benefits from the regulatory activity. In light of this history, the first post-Proposition 26 regulatory fee case was not surprising in its conclusion to uphold a rent registration fee on landlords.61 A residential landlord in the City of Santa Cruz challenged the city’s fee for annual inspections of residential rental properties. The petitioner acknowledged Apartment Association but argued Proposition 26 was enacted to undermine that Proposition 218 ruling. The Court of Appeal noted the fee was imposed to cover the cost of inspections and is, therefore, expressly exempt from the Proposition 26 definition of “tax.” (Cal. Const., art. XIII C, § 1, subd. (e)(3).) The city also offered evidence the amount collected is no more than necessary to cover the reasonable costs of the program, and that the manner in which those costs are allocated to the payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits from the governmental activity. (Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 982.) Notably, this evidence was not a comprehensive cost-of-service analysis prepared by an independent consultant, but rather a declaration of the department head responsible for the inspection program reciting the estimated costs, the predicted number of inspections, and the resulting average cost per inspection. (Griffith, supra, 207 Cal.App.4th at p. 997.) The case thus suggests that Proposition 26’s cost of service requirement is no more demanding than earlier law. 4. What are reasonable regulatory costs? The following principles guide how to measure “reasonable costs” and how to allocate those costs to the payor to demonstrate that the costs bear a fair or reasonable relationship to the payor’s burden on, or benefits from the program: Costs need not be “finely calibrated to the precise benefit each individual fee payor might derive.” (Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 982, 997.) An “inherent component of reasonableness in this context is flexibility.” (California Building Industry Assn. v. State Water Resources Control Bd. (2018) 4 Cal.5th 1032, 1052.) The payor’s burden or benefit from the program is not measured on an individual basis. Rather, it is measured collectively, considering all fee payors. (Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 982 but see Newhall County Water District v. Castaic Lake Water Agency (2016) 243 Cal.App.4th 1430, pp. 1443–1444 [agency with just four customers had no administrative need to make rates by customer class and therefore must make rates customer-by- customer].) A local government can only impose regulatory fees if it has the power to regulate. (Newhall County Water District v. Castaic Lake Water Agency (2016) 243 Cal.App.4th 1430, 1449 [water importer could not base fees on customer’s use of its groundwater rights, as the importer had no statutory power to regulate groundwater use].) 61 All parties in California Farm Bureau agreed the fee was not challenged based upon Proposition 26. (51 Cal.4th at p. 428 fn. 2.) J-71 70 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES Demonstrating that the amount collected is no more than is necessary to cover the reasonable costs of the program is satisfied by estimating the approximate cost of the activity and demonstrating that this cost is equal to or greater than the fee revenue to be received. (Griffith, supra, 207 Cal.App.4th at p. 997.) 5. Do reasonable regulatory costs include the costs of rule-making? The authors of this Guide conclude that, under Proposition 26, a fee can be used to pay for rule making for a regulatory program, rather than being restricted only to regulation per se — i.e., the implementation of such rules. Section 1(e)(3)’s exception covers the range of activities that an agency would perform in order to regulate a business or activity. The enactment of regulations or rules is a necessary aspect of these activities. “[A]dministrative enforcement and adjudication thereof” implies the existence of rules to be applied or adjudicated. Moreover, the ballot arguments in favor of Proposition 26 make it clear that the proposition was not intended to bar the use of fees to create regulations: PROPOSITION 26 PROTECTS ENVIRONMENTAL AND CONSUMER REGULATIONS AND FEES Don’t be misled by opponents of Proposition 26. California has some of the strongest environmental and consumer protection laws in the country. Proposition 26 preserves those laws and PROTECTS LEGITIMATE FEES SUCH AS THOSE TO … FUND NECESSARY CONSUMER REGULATIONS. This supports a conclusion that Proposition 26 was not intended to prohibit the use of a fee to fund regulatory rulemaking. This conclusion is also consistent with the “Findings and Declarations of Purpose” in the uncodified § 1 of Proposition 26, which explains the purpose of Proposition 26 is to prohibit fees that “are not part of any licensing or permitting program.” (Proposition 26, § 1, subd. (e).) Proposition 26’s proponents sought to prohibit fees imposed on an industry to fund mitigation of conditions caused by that industry — such as levying a fee on paint manufacturers to pay for lead testing in children — but not to directly regulate that industry. This prohibition would not apply to the preparation of regulations that would be applied to that industry. Moreover, cases construing Propositions 218 and 26 to date have allowed recovery of all the costs of a service or regulatory program from stranded debt, to general administration and overhead, to planning for future service delivery. (E.g., Howard Jarvis Taxpayers Ass’n v. City of Fresno (2005) 127 Cal.App.4th 914, 927 [under Proposition 218, City could recover cost of utility impacts on streets and public safety services only if cost justification provided]; Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586, 598 [Proposition 218 fee could recover debt service costs]; Moore v. City of Lemon Grove (2015) 237 Cal.App.4th 363, 369 [“Respondents may appropriately spend these [Prop. 218 sewer] fees on anything related to the maintenance and management of the sewer system. We consider ‘all the required costs of providing service, short-term and long-term, including operation, maintenance, financial, and capital expenditures.’”] (citing Howard Jarvis Taxpayers Ass’n v. City of Roseville (2002) 97 Cal.App.4th 637, 648); Griffith v. City of Santa Cruz (2012) 207 Cal.App.4th 987, 997 [upholding cost justification of housing inspection fee under Prop. 26].) As it is not possible to regulate without regulations, preparing regulations is an appropriate cost of regulation and, in the judgment of the authors of this guide, within the exemption of article XIII C, section 1, subdivision (e)(3). 6. How does Proposition 26 affect regulatory fees and charges designated to protect the environment, public health, and quality of life? Under Proposition 26’s third exception for regulatory fees, a fee may be imposed to recover the reasonable regulatory costs of “issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof.” Because the history of this measure involves the proponents’ dissatisfaction with Sinclair Paint Co. v. State Board of Equalization,62 and because the ballot arguments support “legitimate fees such as those to … fund necessary consumer 62 See discussion of case above. J-72 71LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE regulations,” it may be helpful to review the difference between the Court of Appeal and Supreme Court opinions in Sinclair. The Court of Appeal opinion stated: [T]here is nothing on the face of the [Childhood Lead Poisoning Prevention] Act to show the fees collected are used to regulate Sinclair … . The Act does not require Sinclair to comply with any other conditions; it merely requires Sinclair to pay what the Department determines to be its share of the program cost. (Sinclair Paint Co. v. State Bd. of Equalization (1996) 52 Cal.Rptr.2d 572, 578 depublished by grant of review.) The Supreme Court viewed it differently. That the fee was not part of the “regulatory program” did not mean the state could not require the mitigation of Sinclair’s impacts on childhood health. (Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal.4th 866, 877–878.) A local agency, therefore, should ask the following questions when determining whether its fee comes within this exception: Is the fee payor regulated? If so, what is the regulatory program? Does the program involve the issuance of a license or permit or authorize or require an investigation, inspection or audit? The following hypothetical regulatory fees demonstrate the types of regulatory fees affected by article XIII C, section 1, subdivision (e)(3): A city imposes a business license fee on businesses that sell alcoholic beverages. The fee funds a program to address public nuisances associated with those sales that do not arise on or adjacent to the site of the beverage sales. Such a fee does not reflect a direct connection between the fee payer and the program that the fee funds. A city establishes regulations requiring businesses that operate surface parking lots to comply with best management practices to prevent storm water run-off. The city imposes an annual inspection fee on such businesses to ensure compliance with the regulations and to mitigate the adverse impacts of uncontained storm water runoff on groundwater. A portion of the fee is used to fund a storm water pollution education program in local schools. A city adopts a fee to be imposed on all persons who use grocery store carryout plastic and paper bags. The fee is imposed to mitigate the adverse impact of the fee payer’s use of such materials on the district’s landfill. In each of these instances, at least some portion of the fee could be deemed to be a tax because it is imposed to recover costs other than the reasonable regulatory costs to the local agency for issuing licenses and permits, performing investigations, inspections, and audits, and the administrative enforcement of the regulations. Moreover, in each instance, because the local fee would be imposed for a specific purpose, it would be deemed to be a special tax requiring a 2/3 voter approval under art. XIII C, section 2, subdivision (d). More carefully drafted fees could likely fund most of what these agencies intend, however. (Korean Am. Legal Advocacy Found. v. City of Los Angeles (1994) 23 Cal.App.4th 376 [rejecting challenge to nuisance abatement program imposed on liquor outlets]; California Building Industry Association v. State Water Resources Control Board, Cal. S. Ct. Case No. S226753 (fully briefed as of Dec. 30, 2015) [Prop. 13 challenge to water quality inspection fees imposed under SWRCB’s general construction permit]; Schmeer v. County of Los Angeles (2013) 213 Cal.App.4th 1310 [plastic-bag-ban ordinance imposing $0.10 fee on paper bags upheld against Prop. 26 challenge because fee did not fund government].) An example follows of a regulatory fee within the exception of article XIII c, section 1, subdivision (e)(3), but designed to enforce a regulation established to mitigate the adverse impacts of a regulated activity: All restaurants and other food establishments must obtain a license from the county to operate. The county prohibits restaurants and other food establishments from using polystyrene (Styrofoam®) products in the distribution and sale of food products. The purpose of the regulation is to mitigate the adverse impacts that polystyrene has on the county’s landfill. The county imposes a fee on all restaurants and other food establishments for the reasonable costs of issuing the license, performing investigations and inspections, and enforcement of the regulation. J-73 72 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES In this instance, the purpose of the regulation is to mitigate the adverse impact of the fee payor’s operations on the community. The fee, however, funds only those activities authorized by section 1, subdivision (e)(3). Accordingly, this hypothetical regulatory fee is not a tax under Proposition 26. To fully understand the scope of the new definition of “tax” added by Proposition 26, the courts may need to reconcile the “Findings and Declaration of Purpose” with the proponents’ ballot arguments in which they state: Proposition 26 protects environmental and consumer regulations and fees … . Proposition 26 … protects legitimate fees as those to clean up environmental or ocean damage … . Proposition 26 … won’t eliminate or phase out any of California’s environmental or consumer protection laws including Oil Spill Prevention and Response Act; Hazardous Substance Control Laws; California Clean Air Act; and California Water Quality Control Act. Ballot arguments are, of course, extrinsic aids courts consider to determine the intent of an initiative. (Calif. for Political Reform Foundation v. Fair Political Practices Com. (1998) 61 Cal.App.4th 472.) E. Exception No. 4: Use of Government Property Article XIII C, section 1, subdivision (e)(4) excludes from the definition of “tax:” A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property.63 1. What type of fees are implicated? Among the fees that can be analyzed through this exception are: Franchise fees for which rights to use rights-of-way or other government property are provided, like cable, gas, electric, and pipeline franchises; Park and recreation entrance fees and equipment rental fees (but not necessarily fees for park and recreation services, like classes and programs, which are analyzed above;64 and Leases of government property, such as a museum operated by a nonprofit organization. The exception might be used to defend trench-cut fees imposed on those who cut pavement to maintain subsurface utilities and thereby protect such fees from the cost-recovery limit of the first three exceptions discussed above. Notably, the language of this exception does not include the “reasonable costs” limitation found in the first three exceptions. However, in Zolly v. City of Oakland (2020) 47 Cal.App.5th 73, review granted August 12, 2020, S262634, the Court of Appeal—relying on the applicability of the burden of proof clause in subdivision (e)—held that, even though a franchise fee is covered by the exception in subdivision (e)(4), it may constitute a tax subject to Proposition 26 to the extent it is more than that which is necessary to cover the reasonable costs of the governmental activity, or the costs allocated do not bear a fair or reasonable relationship to the payor’s burden on or benefit from the governmental On the other hand, in Howard Jarvis Taxpayers Association v. Bay Area Toll Authority (2020) 51 Cal.App.5th 435, review granted October 14, 2020, S263835, the Court of Appeal held that the reasonable cost limitation does not apply to charges imposed for entrance to or use of state property or the purchase, rental, or lease of state property. The California Supreme Court has granted review of both cases. 63 Vehicle Code section 9400.8 prohibits any local agency from imposing “a tax, permit fee, or other charge for the privilege of using its streets or highways, other than a permit fee for extra loads, after December 31, 1990, unless the local agency had imposed the fee prior to June 1, 1989.” However, this section does not prevent an agency from recouping via a service or regulatory fee the cost of maintain roads in light of demands on those roads arising from the service or regulatory program. (Howard Jarvis Taxpayers Association v. City of Roseville (2002) 97 Cal.App.4th 637, 648 [under Prop. 218, utilities fees could not be used for street maintenance absent cost justification].) 64 Government Code section 50402 limits fees general law cities may charge for park entry to “the cost of the service provided. To the extent feasible, charges for similar uses or services imposed by a governing body pursuant to this section shall be uniform throughout its area of jurisdiction.” J-74 73LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Moreover, this exception is not limited to real property. If a local government makes personal property available for purchase or rental (such as recreation equipment), it can, it seems charge what the market will bear. (City of Oakland v. Burns (1956) 46 Cal.2d 401, 407 [power of the Port of Oakland to grant franchise for use of non-public road on airport at market rates]. 2. How does this exception affect franchise fees?65 A “franchise fee” is: “[P]aid as compensation for the grant of a right of way, not for a license or tax nor for a regulatory program of supervision or inspection;” or “[P]aid for the governmental grant of a relatively long possessory right to use land, similar to an easement or a leasehold, to provide essential services to the general public. (Santa Barbara County Taxpayers Ass’n (1989) 209 Cal.App.3d at 949.) Howard Jarvis Taxpayers Ass’n v. City of Roseville (2002) 97 Cal.App.4th 637 noted that “private utilities pay public authorities franchise fees to use government land such as streets, or for rights-of-way to provide utility services.” This characterization supports the exception found in article XIII C, section 1, subdivision (e)(4) for fees imposed for “entrance to or use of local government property.” Roseville stated the City of Roseville was free to impose franchise fees on private utilities on the basis of contractual negotiation rather than costs. Similarly, Santa Barbara County Taxpayer Ass’n v. Board of Supervisors, supra, 209 Cal.App.3d 94066 described a “franchise agreement” as granted by a governmental agency to enable an entity to provide vital public services with some degree of permanence and stability. A “franchise” is: “[A] grant of a possessory interest in public real property, similar to an easement;” and “[A] negotiated contract between a private enterprise and a governmental entity for the long term possession of land.” (Santa Barbara County Taxpayers Ass’n, supra, 209 Cal.App.3d at 949.) In Jacks v. City of Santa Barbara, the Supreme Court upheld a one percent surcharge on electric utility bills collected by an electric utility pursuant to a franchise agreement and remitted to the city for general revenue purposes against a challenge brought under Proposition 218. The Court cautioned that in order for a franchise fee to come within this exception, it must “be based on the value of the franchise conveyed;” and the amount of the franchise fee must bear a reasonable relationship to the value of property interests transferred.”67 The value of the franchise may be based on bona fide negotiations concerning the property’s value as well as other indicia of worth. In Zolly v. City of Oakland (2020) 47 Cal.App.5th 73, review granted August 12, 2020, S262634, the Court of Appeal—relying on the applicability of the burden of proof clause in subdivision (e)—held that, even though a franchise fee is covered by the exception in subdivision (e)(4), it may constitute a tax subject to Proposition 26 to the extent it is more than that which is necessary to cover the reasonable costs of the governmental activity, or the costs allocated do not bear a fair or reasonable relationship to the payor’s burden on or benefit from the governmental activity. On the contrary, the Court of Appeal in Howard Jarvis Taxpayers Association v. Bay Area Toll Authority (2020) 51 Cal.App.5th 435, review granted October 14, 2020, S263835, held that the burden of proof clause did not apply to charges imposed for entrance to or use of state property, or the purchase, rental, or lease of state property.68 65 A number of statutes govern particular franchises, including: Pub. Util. Code §§ 5800 et seq. (cable television franchises), 6001 et seq. (telephone and electricity franchises), 6231.5 (oil and pipeline franchises), 49200 (solid waste franchises); Veh. Code § 22671 (towing franchises). 66 The case considered whether franchise fees are “proceeds of taxes” under the Gann Appropriation limit of California Constitution article XIII B. 67 Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248, 270 68 As of the date of this publication, both cases are still pending before the California Supreme Court. J-75 74 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES F. Exception No. 5: Fines and Penalties Article XIII C, section 1(e)(5) excludes from Proposition 26’s definition of “tax” “[a] fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law.” To date, no case analyzes this exception, but Cal. Taxpayers Assn. v. Franchise Tax Bd. (2010) 190 Cal. App. 4th 1139, a Proposition 13 case, provides guidance. There, the Third District Court of Appeal determined a penalty on corporations that understated their tax liability was not a tax requiring a two-thirds vote of the Legislature. As the court explained, penalties are distinguished from taxes in that they seek to regulate conduct rather than to generate revenue. (See id. at p. 1148.) The court also noted that a “tax raises revenue if it is obeyed,” while “a penalty raises revenue only if some legal obligation is disobeyed.” (Ibid.) It thus appears likely that, for purposes of Proposition 26, penalties will be those government charges that are imposed for a violation of a law that seeks to regulate conduct. In addition to state statutes, penalties for the violation of local laws will also fall within this exception. The power to enact laws is granted to the Legislature pursuant to article IV, section 1. The Legislature may make no law except by statute. (Cal. Const., art. IV, § 8, subd. (b).) Cities are authorized to make and enforce within their limits local, police, sanitary, and other ordinances and regulations not in conflict with the general laws of the state. (Cal. Const., art. XI, § 7.) “An ordinance in its primary and usual sense means a local law. It prescribes a rule of conduct prospective in operation, applicable generally to persons and things subject to the jurisdiction of the city. ‘Resolution’ denotes something less formal. It is the mere expression of the opinion of the legislative body concerning some administrative matter for the disposition of which it provides … .” (Central Mfg. Dist., Inc. v. Bd. of Supervisors (1960) 176 Cal.App.2d 850, 860.) A duly enacted local ordinance has the same binding force within its corporate limits as a statute of the Legislature. (See Empire Fire & Marine Ins. Co. v. Bell (1997) 55 Cal.App.4th 1410, 1419, 1422; Evola v. Wendt Construction Co. (1959) 170 Cal.App.2d 21, 24.) Further, “law” generally has a broad and encompassing meaning and the framers of Proposition 26 could easily have used narrower terms like “statute,” “ordinance,” and “regulation,” if they had intended this exception to apply more narrowly. Such more specific terms are used elsewhere in article XIII C.69 Consequently, for purposes of article XIII C, section 1, subdivision (e) (5), violation of “law” includes violation of a city ordinance, such as parking fines, administrative penalties imposed in the code enforcement context, late payment fees, interest charges, and any “other monetary charge imposed by” a city “as a result of a violation of law,” defining the last term broadly. Nor is this exception limited to cost recovery, as are the first three exceptions to Proposition 26. For example, the exceptions for public services and benefits are limited to those fees that are limited to “the reasonable costs to the local government of conferring the benefit. …” The penalty exception includes no such cost-restricted language, and the exclusion of that language should be construed to demonstrate voter intent.70 (See Arbuckle-College City Fire Protection Dist. v. County of Colusa (2003) 105 Cal.App.4th 1155, 1167 [applying canons of construction].) X PRACTICE TIP: Due process requires either a pre- or post-deprivation opportunity to contest penalties. (E.g., McKesson Corp. v. Division of Alcoholic Beverages and Tobacco, Dept. of Business Regulation of Florida (1990) 496 U.S. 18, 36–39 [due process requires meaningful opportunity to challenge tax after payment].) In circumstances where the impact of the penalty is especially burdensome (such as interfering with one’s livelihood), it will be wise to allow that opportunity pre-deprivation rather than after the fact. 69 For example, article XIII C, section 1, subdivision (c) defines “special district” as “an agency of the state, formed pursuant to general law or a special act” and article XIII C, section 3 refers to “any local government charter.” 70 Some may respond that the unnumbered paragraph of Section 1(e), discussed further below, establishes a cost restriction for all Proposition 26’s exceptions. J-76 75LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE G. Exception No. 6: Fees and Charges Imposed as a Condition of Development Article XIII C, section 1, subdivision (e)(6) excludes from the new definition of “tax:” A charge imposed as a condition of property development. This language is substantially the same as Proposition 218’s exception to its provisions for assessments and property-related fees. Article XIII D, section 1, subdivision (b) excludes from the reach of both articles XIII C and XIII D (apparently including Proposition 26, which amends article XIII C), “the imposition of fees or charges as a condition of property development.” This broad language encompasses more than development impact fees under the Mitigation Fee Act (Gov. Code §§ 66000 et seq.) and extends to any fee or charge imposed “as a condition of property development,” including permit and inspection fees, and fees to recover the cost of advance planning services such as a building permit surcharge to recover the cost of general and specific plans applicable to the project for which the building permit issues. While the exception does not limit fees to cost, other law does. For example, the Mitigation Fee Act limits fees to the cost of providing the service for which the fees were collected. (Gov. Code, § 66005, subd. (a).) The U.S. Constitution also limits the power of government to exact money and property from those who develop property. (E.g., Nollan v. California Coastal Commission (1987) 483 U.S. 825 [there must be a “logical nexus” between the impacts of development and the use of land or money exacted from the developer to mitigate those impacts]; Dolan v. City of Tigard (1994) 512 U.S. 374 [exaction must be at least roughly proportionate to impacts of the development]. For a fuller discussion of these, consult The California Municipal Law Handbook (Cont.Ed.Bar 2016), §§10.223–10.227, 10.400–10.406.) In general, most fees currently imposed by local planning and building departments will be exempt from Proposition 26 under this sixth exception or the second and third exemptions for service and regulatory fees discussed above. H. Exception No. 7: Property Related Fees and Charges and Assessments The last enumerated exception, article XIII C, section 1, subdivision (e)(7), excludes from the definition of “tax” “[a]ssessments and property-related fees imposed in accordance with the provisions of art. XIIID.” This exception includes property-based assessments and property-related fees including retail fees for water, sewer, and trash services. Those are discussed in Chapter 3 of this guide above and part II of this chapter below. 1. Are assessments exempted from Proposition 218 by article XIII D, section 5 also exempt from Proposition 26? Proposition 218 applies to, but exempts, assessments existing on the 1996 effective date of Article XIII D imposed exclusively to finance the capital costs or maintenance and operation expenses for sidewalks and streets (i.e., street landscaping and lighting assessments). Subsequent increases in exempt assessments are subject to Article XIII D. Some of those exempted, existing assessments must be annually imposed, and so long as a grandfathered assessment is not increased above the amount existing on Proposition 218’s 1996 effective date, Proposition 218’s procedures do not apply. Are these grandfathered assessments “imposed in accordance with the provisions of article XIIID” even though they have never been subjected to a Proposition 218 assessment ballot? Proposition 26 does not specify that the article XIII C, section 1, subdivision (e)(7) exception is only available for assessments imposed in accordance with the procedural and substantive requirements of article XIII D’s section 4. Therefore, the authors of this Guide conclude assessments imposed in accordance with article XIII D, section 5 are imposed “in accordance with the provisions of article XIII D” within the meaning of the seventh exception to Proposition 26. This interpretation is consistent with the intent of Proposition 26. In Howard Jarvis Taxpayers Assn. v. City of Riverside (1999) 73 Cal.App.4th 679, the Court of Appeal determined Proposition 218 was enacted to close a loophole in Proposition 13 whereby local governments imposed assessments to general governmental services. The Court J-77 76 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES concluded the exception of article XIII D, section 5 was intended to carve out traditionally appropriate, non-abusive, special assessments and that special assessments for street lighting are among these. Proposition 26’s Findings and Declarations of Purpose states the purpose of Proposition 26 is to address the “recent phenomenon whereby … local governments have disguised new taxes as ‘fees’ in order to extract even more revenue from California taxpayers without having to abide by [Proposition 13’s and Proposition 218’s] constitutional voting requirements.” Since grandfathered assessments are not new, and since, under Proposition 218, they cannot be increased without a mailed ballot, Proposition 26’s purpose does not seem to be advanced by making taxes requiring voter approval of assessments grandfathered by article XIII D, section 5. I. Burden of Proof Provision of Final, Unnumbered Paragraph of Article XIII C, Section 1, Subdivision (e) The final, unnumbered paragraph of article XIII C, section 1, subdivision (e) provides: The local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is not more than necessary to cover the reasonable costs of governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from the governmental activity. The language of this paragraph is confusing, and its interaction with the seven exceptions presents a difficult interpretative challenge. The issue of whether this paragraph applies to the exception in subdivision (e)(4) is pending before the California Supreme Court as of June 2021.71 While this provision is a change in the law, it may not be a significant change in how courts actually review such cases. First, in litigation, a local government will bear the burden to justify its fees. The government has long had some duty to justify its revenue measures. (E.g. Beaumont Investors, LLC v. Beaumont-Cherry Valley Water District (1985) 165 Cal.App.3d 227 (water district bore burden to produce a record on which to justify connection charge under Prop. 13); Home Builders Assn. of Tulare/Kings Counties, Inc. v. City of Lemoore (2010) 185 Cal.App.4th 554, 560-563 (discussing burden of production and persuasion in challenge to development impact fee under Prop. 13); California Farm Bureau Federation v. State Water Resources Bd. (2011) 51 Cal.4th 421, 436–437 (same in context of fees imposed by state under Prop. 13).) Second, the lowest standard of evidence is required — a mere preponderance of evidence, as opposed to such higher standards as proof by “clear and convincing evidence” or “beyond a reasonable doubt.” Pending court construction, there is debate as to the implications of this final paragraph for the requirements of the seven exceptions that precede it. The trailing paragraph states a local government bears the burden of proving by a preponderance of the evidence: That a levy is not a tax; That the amount is not more than necessary to cover the reasonable costs of the governmental activity; and That the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from the governmental activity. Three of the seven exceptions contain a “reasonable cost” requirement (article XIII C, § 1, subdivisions (e) (1)–(3)), while the other four exceptions do not. (Id., subds. (e)(4)-(7).) Does the final, unnumbered paragraph import a cost limitation into the four exceptions which do not state it? The authors of this Guide conclude that the cost-limitation principle applies only to the three exceptions that mention it. Were the rule otherwise, the language of these three exceptions stating the cost limitation principle would be surplusage, violating a basic canon of statutory construction. First as demonstrated above, except as to fees to mitigate the impacts of economic activity like 71 See Zolly v. City of Oakland (2020) 47 Cal.App.5th 73, review granted August 12, 2020, S262634; Howard Jarvis Taxpayers Association v. Bay Area Toll Authority (2020) 51 Cal.App.5th 435, review granted October 14, 2020, S263835. J-78 77LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE that in Sinclair Paint, Proposition 26 was intended merely to constitutionalize earlier “special tax” case law. Griffith, supra, 207 Cal.App.4th 982, 996 and So. Cal. Edison, supra, 272 Cal.App.4th 172, 199, both viewed the language of Proposition 26’s trailing paragraph this way. The fact that much of its language was taken verbatim from earlier cases strongly suggests the trailing paragraph assigns the burden of proof of cost only when another rule (such as those of Proposition 26’s first three exceptions) imposes a cost limit. In short, the final paragraph of article XII C, section 1, subdivision (e) is a procedural rule for litigation, not a substantive requirement for fees. Second, the trailing paragraph’s phrasing —“bears the burden of proving” rather than “must prove all of the following”— supports the view that it merely assigns the burden of proof without changing Proposition 26’s substantive requirements for fees. This allows it to be reconciled with the fact that only some of the exceptions contain a “reasonable cost” requirement. As a matter of statutory construction, this gives significance to the presence and absence of the reasonable cost language in the seven exceptions.72 Thus, while a respondent local government always bears the burden to prove a measure is not a tax, only fees within the first three exceptions (benefit, service and regulatory fees) are subject to a cost-of-service limitation. And, logically, there is no need to justify a fee’s cost allocation if the fee is not limited to cost at all. Third, and perhaps most persuasively, it defies logical analysis to apply a reasonable cost standard to some levies Proposition 26 exempts from the definition of taxes, violating another canon of statutory construction that avoids constructions that make absurd policy. For example, would the State be limited to selling property it acquired at statehood at cost? (Cal. Const., art. XIII A, § 3, subd. (b)(4).) And, would fines and penalties (§ 1(e)(5)) be limited to costs, rather than to non-confiscatory amounts deemed necessary to deter unlawful conduct? (See, e.g., Calif. Taxpayers Ass’n. v. Franchise Tax Bd. (2010) 190 Cal.App.4th 1139, 1148.) Moreover, what costs does a fine or penalty recover? How would one demonstrate the cost allocation of a fine or penalty? II. Article XIII D and Property Related Fees and Charges A. Introduction and Overview 1996’s Proposition 218 created a new category of fees and charges commonly referred to as “property related fees.” It defines the fees or charges subject to article XIII D, section 6 as: “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.” (Cal. Const., art. XIII D, § 2, subd. (e).) The substantive and procedural requirements of article XIII D, section 6 apply to such property-related fees and charges. 1. What fees are excluded from Proposition 218? Proposition 218 excludes two kinds of fees: Land use fees (“Nothing in this article or article XIIIC shall be construed to … [a]ffect existing laws relating to the imposition of fees or charges as a condition of property development”) (Cal. Const., art. XIIID, § 1(b)); and Fees for the provision of electrical and gas service are excluded from the category of “charges or fees imposed as an incident of property ownership.” (3 Cal. Const., art. XIIID, § 3(b).) Such fees are, however, subject to Proposition 26, discussed above as there is no comparable exception in that measure. (Citizens for Fair REU Rates v. City of Redding (2018) 6 Cal.5th 1, 15–16.) In addition, fees that bear no relationship to property ownership, such as facility user fees (for example, park admission, boat launching, and ambulance transport fees), are not subject to Proposition 218, though most are subject to Proposition 72 Using words in one part of a law but leaving them out of another part is generally treated as having significance under the doctrine of expressio unius est exclusio alterius. (E.g., Arden Carmichael, Inc. v. County of Sacramento (2001) 93 Cal.App.4th 507.) In this case, inclusion in some exceptions of a requirement that fees not exceed costs, coupled with the exclusion of that requirement from some other exceptions, suggests the requirement does not apply to those exceptions from which it was omitted. Additionally, the rules of statutory construction require every word in a statute or constitutional provision to be given meaning. If the trailing paragraph of art. XIIIC, § 1, subd. (e) imports a cost limitation on the seven exceptions, what meaning is left to the cost limitation language in the first three exceptions? Does it not become surplusage, violating this rule of statutory construction as well? J-79 78 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES 26, as discussed above. Finally, a fee imposed on a voluntary use of property not inextricably intertwined with property ownership alone is not “property related.” This exclusion is discussed further below.73 2. Who is a property owner? Section 2(g) of article XIIID defines “property ownership” to include tenancies if the tenant is directly liable for the payment of the fee. The purpose, in part, of the definition of “property ownership” seems to be to clarify that a fee or charge otherwise subject to article XIII D remains subject to the measure even if a tenant pays it. To understand what fees are subject to Proposition 218, one must understand the meaning of “incident of property ownership” and “property-related service.” 3. What is an “incident of property ownership?” Local governments impose fees for a variety of types of facilities and services. Not all are subject to Proposition 218. A “fee or charge” is subject to Article XIII D only if it is “a 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.” For example, a capacity charge imposed on persons who apply for a new water connection is not a “fee or charge” within the meaning of section 2, subdivision (e) because it is triggered by voluntary action of property owner to undertake development that triggers a need for a new connection. (Richmond v. Shasta Community Services District (2004) 32 Cal.4th 409, 424.) Case law has shed some light on the meaning of “as an incident of property ownership”: 1. If a property owner incurs a fee as a result of a voluntary decision regarding the property’s use, rather than mere ownership or activities inextricably intertwined with property ownership, the fee is not imposed as an incident of property ownership. (Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th 830.) Similarly, in-lieu housing fees, which cities assess as a condition of property development, are not an incident of property ownership because developers choose to pay them. (616 Croft Ave., LLC v. City of West Hollywood (2016) 3 Cal.App.5th 621, 630–631.) 2. A fee is imposed as an “incident of property ownership” if it “requires nothing more than the normal ownership and use of property.” (Richmond v. Shasta Community Services District, supra.) 3. A fee is imposed as an “incident of property ownership” even if the fee is imposed for a service used by a tenant rather than the owner of the property. (Howard Jarvis Taxpayers Association v. City of Roseville (2002) 97 Cal.App.4th 637, 645.) 4. Article XIII D, section 3, subdivision (b) provides that “fees for the provision of electrical or gas service shall not be deemed charges or fees imposed as an incident of property ownership.” Article XIII D, section 6, subdivision (c) exempts from the election (but not the majority protest) requirements of Proposition 218 “fees or charges for sewer, water and refuse collection services.” This partial exemption implies partial inclusion and, therefore, the Supreme Court has ruled that ordinary metered water service charges are subject to Proposition 218. (Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 214.) 5. A storm drainage fee imposed on the basis of impervious coverage of improved property was found to be on an “incident of property ownership” because it “burden[s] landowners as landowners.” (Howard Jarvis Taxpayers Association v. City of Salinas (2002) 98 Cal.App.4th 1351, 1356.) 6. A fee collected on the property tax roll to fund a program to accept household hazardous waste at County landfills and transfer stations was a property related fee because the waste-handling service was deemed “incident to property ownership.” (Crawley v. Alameda County Waste Management Authority (2015) 243 Cal.Ap.4th 396, 196 Cal. Rptr.3d 365, 371–374.) 73 For example, a fee imposed upon property owners in their capacity as business owners (landlords) is not property related because it is incident to a voluntary decision to put property to a particular use, not property ownership alone. (Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th 830.) J-80 79LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE 7. Another factor to consider in deciding whether a fee is subject to article XIIID is whether the fee is imposed in such a way that the agency can “identify the parcels” upon which the fee is imposed. (Richmond v. Shasta Community Services District, supra, at 126 [water connection charge not property related because water district could not identify properties that might later develop so as to trigger the fee]; City of San Buenaventura v. United Water Conservation Dist., supra, at 1208 [groundwater pumping charge not property related because it is “not directed at any particular parcel or set of parcels in the same manner as, for example, water delivery or refuse collection services”].) 4. What is a property-related service? Proposition 218 defines “property-related service” as “a public service having a direct relationship to property ownership.” (Cal. Const., art. XIII D, § 2, subd. (h).) Case law sheds light on the meaning of this phrase, too: Services specifically mentioned in section 6, subdivision (c) (i.e., water, sewer, and refuse collection services) are most often property-related services if provided by a local agency. (Richmond v. Shasta Community Services District, supra at 428; Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205.) Domestic water supply via a permanent connection is a property-related service because it is: (a) specifically referenced in Article XIIID, section 6, subdivision (c); (b) indispensable to most uses of real property; (c) provided through pipes that are physically connected to the property; and because (d) the water provider may, by recording a certificate, obtain a lien on the property for the amount of any delinquent service charges. (Bighorn, supra, 39 Cal.4th at 214–215; see also Richmond v. Shasta Community Services District, supra, 34 Cal.4th at 426–427.) Domestic water supply via a permanent connection is a property-related service because it is: (a) specifically referenced in Article XIIID, section 6, subdivision (c); (b) indispensable to most uses of real property; (c) provided through pipes that are physically connected to the property; and because (d) the water provider may, by recording a certificate, obtain a lien on the property for the amount of any delinquent service charges. (Bighorn, supra, 39 Cal.4th at 214–215; see also Richmond v. Shasta Community Services District, supra, 34 Cal.4th at 426–427.) A groundwater pumping charge imposed by a groundwater management agency on a city to fund groundwater conservation, remediation, and management was not a charge for a property related service because it benefited the entire public, not just those who received water service. (City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1207–1208.) Defining a “property-related service” means looking at the “service” provided by the agency imposing the fee (water), rather than the activity being undertaken by the property owner paying the fee. The Proposition 218 Omnibus Implementation Act defines “water” as “any system of public improvements intended to provide for the production, storage, supply, treatment, or distribution of water from any source.” (Gov. Code, § 53750, subd. (m).) It may also require determining whether the fee is imposed as an incident of property ownership, as defined above, or is intended to benefit all residents and businesses, whether or not they receive water service. (City of San Buenaventura v. United Water Conservation Dist., supra, at 1207–1208.The Legislature has also defined “fire service” as a property related service, finding that the provision of water to hydrants to aid in extinguishing fires is property-related because it has a direct relationship to property ownership and the service is not available to the public in a substantially similar manner. (Gov. Code, § 53750.5, subd. (a).) Thus, the costs to provide water service may include costs to provide fire service and need not be funded separately or approved by voters. (Gov. Code, § 53750.5, subd. (b).) Whether Government Code section 53750.5 conflicts with Proposition 218, and thus whether water agencies may include expenses for “fire service” in their costs of service covered by rates, is being litigated as this guide goes to press. 5. Property-related fees and regulatory fees Apartment Association of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th 830, distinguished regulatory from property-related fees. The California Supreme Court ruled a fee imposed on landlords to fund housing code enforcement was not imposed as an “incident of property ownership” but on voluntary decisions to be in the rental J-81 80 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES housing business. The fee funded a housing inspection program that was required by the voluntary leasing of real property as multi-family dwellings. The fee was imposed to mitigate impacts of the rental housing business. Similarly, a city’s fee to fund affordable housing is not property-related because it is not compulsory; the fee ordinance applied only to certain types of new development — meaning it was not compulsory — and gave developers the choice to pay the fee or set aside a portion of their development for affordable housing. (616 Croft Ave., LLC v. City of West Hollywood (2016) 3 Cal. App.5th 621, 630–631.) 6. Refuse fees The application of Proposition 218 to fees for refuse collection and related services is uncertain. Fees a local government charges to provide refuse collection services with its own forces are subject to Proposition 218. (Crawley v. Alameda County Waste Management Authority (2015) 243 Cal.App.4th 396.) However, it is not clear that fees charged by private refuse haulers that benefit from franchise agreements with local governments are within the reach of article XIII D, section 6. Refuse service likely meets two of the tests for a property-related service articulated by the courts: It is often indispensable for most uses of property, in the sense that refuse collection is often made mandatory. And, local agency refuse collection services, like water and sewer services, are excluded from the voter approval requirements, but not from any other requirement of article XIII D by section 6, subdivision (c) of that article. (Richmond v. Shasta Community Services District, supra, 32 Cal.4th 409; Bighorn-Desert View Water Agency v. Verjil, supra, 39 Cal.4th 205.) In addition, the Legislative Analyst’s impartial analysis of Proposition 218, cited by the Bighorn court, stated “refuse” was “probably” a property-related fee. (Ballot Pamp., Gen. Elec. (Nov. 5, 1996), analysis of Proposition 218 by Legis. Analyst, p. 73 cited by Bighorn-Desert View Water Agency v. Verjil, supra, 39 Cal.4th at p. 214.) Refuse service is likely property-related, at least in some circumstances (e.g. where service is compelled without an opt-out provision). But this leaves the question whether the fee for such service is “imposed” by an “agency.” No case has resolved this issue but courts may look to these factors: Who provides the service, a private party or a government? Who sets the fee, the hauler or the franchising agency? Does the agency regulate rates or set them? Who bills and collects the fee, the agency or the hauler? The conservative approach will be to comply with Proposition 218 for mandatory trash services even if provided by a franchised hauler, especially as statute forbids an agency to require a hauler to indemnify it for the risk of non-compliance with Proposition 218. (Pub. Res. Code, § 40059.2.) However, if an agency is only a franchisor and does not provide the service, set rates (as opposed to regulate them to protect consumers from the monopoly power of the franchisee), or collect the rates, a convincing argument may be made that the rates are not those of an “agency” and are, therefore, not subject to article XIII D, section 6. Moreover, even if refuse service is property-related, associated fees may not be. For example, the trash franchise may empower the hauler to charge for refuse service but also compel it to collect from customers and remit to the franchising agency additional sums to fund a regulatory program (e.g. recycling programs under 1989’s AB 939) or a franchise fee for the use of government property in the private, for-profit business of the hauler (subject to Proposition 26’s article XIII C, section 1, subdivision (e)(4)).74 Thus, the fee for refuse service is arguably subject to article XIIID. (See, e.g., City of Dublin v. County of Alameda, supra, 14 Cal.App.4th 264.) 74 The Supreme Court will consider the validity of a refuse franchise fee under Proposition 26 in Zolly v. City of Oakland, review granted Aug. 12, 2020, S262634. The Zolly trial court found persuasive the city’s argument that it did not impose the refuse rates and associated franchise fee under article XIII D, section 6, and sustained the city’s demurrer on that basis. After amending their complaint, the plaintiffs pursued only claims challenging the refuse franchise fee under Proposition 26, which the Supreme Court will review. (Zolly v. City of Oakland (2020) 47 Cal.App.5th 73, 79–81, review granted August 12, 2020, S262634.) J-82 81LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE X PRACTICE TIP: Each refuse franchise is unique. Before concluding whether a refuse fee collected by a franchisee is subject to Proposition 218, it is essential to review the franchise agreement and the local government’s ordinance regulating refuse collection. X PRACTICE TIP: Public Resources Code section 40059.2 limits a local government’s authority to require a franchised hauler to defend and indemnify the franchising agency against a Proposition 218 challenge to a refuse fee. Accordingly, while such clauses were once common in franchise agreements, haulers frequently refuse to consent to them unless the agency complies with Proposition 218 with respect to refuse rates. X PRACTICE TIP: A local government may wish to allow customers to “opt out” of franchised trash service to support an argument the fees are voluntary rather than “imposed” so as to trigger Proposition 218. For example, a mandatory refuse ordinance can permit a customer to self-haul and to decline service. (See also City of Glendale v. Trondsen (1957) 48 Cal.2d 93 [charge on every occupied premise for rubbish collection services, whether or not in fact such services were used, was “valid either as a police power measure or as an excise tax …”].) Such an exemption may have fiscal and accounting consequences, however. Moreover, agencies adopt mandatory service for important public policy reasons. The accumulation or improper disposal of solid waste presents real risks to public health. X PRACTICE TIP: It is best not to retain traditional franchise language that authorizes the governing body to ‘set’ trash rates, as this undermines any claim that the rates are not set by a local government, but are set by a private hauler not subject to Proposition 218. The policy purpose behind such provisions can be retained by authorizing the local agency to regulate rates, as by setting a rate ceiling. Under this language, the local government is arguably exercising its police power in a manner akin to rent control and not setting a government rate to which Proposition 218 might apply. 7. When is a fee or charge “increased?” A fee is “increased” within the meaning of Proposition 218 when a local government acts to increase any applicable rate used to calculate the fee or to revise the methodology by which the fee is calculated (if that revision results in the levy of an increased amount). (Gov. Code, § 53750, subd. (h)(1); see also AB Cellular LA, LLC v. City of Los Angeles (2007) 150 Cal. App.4th 747, 763 [“methodology” as used in section 53750 refers to a formula for calculating taxes officially sanctioned by a local agency].) A fee is not “increased” when a local government adjusts the amount of a fee in accordance with a schedule of adjustments, including a clearly defined formula for inflation adjustment adopted prior to November 6, 1996; or that implements a previously approved fee so long as the rate is not increased beyond the level previously approved. (Gov. Code, § 53750(h)(2).) J-83 82 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES A local government providing water, wastewater, sewer, or refuse collection service may adopt a schedule of fees or charges authorizing automatic adjustments that pass through increases in wholesale charges for water, sewage treatment, or wastewater treatment or adjustments for inflation if it complies with all of the following: It adopts a schedule of fees or charges for a period not to exceed five years; The schedule of fees or charges may include a schedule of adjustments, including a clearly-defined formula for adjusting for inflation; The schedule of fees may provide for automatic adjustments that pass through the adopted increases or decreases in the wholesale charges for water, sewage treatment, or wastewater treatment; and Notice of any adjustment must be given not less than 30 days before its effective date. (Gov. Code §53756.) 8. Application of property-related fees to annexed properties The Cortese-Knox Local Government Reorganization Act of 1985 provides for the establishment of a local agency formation commission (“LAFCO”) in each county to encourage orderly growth and development and the assessment of local community service needs. LAFCOs’ primary function is to review and approve or disapprove with or without amendment, wholly, partially, or conditionally, proposals for changes of organization or reorganization of local governments. (Gov. Code, § 56375, subd. (a)(1).) Unless the LAFCO conditions otherwise, previously approved fees, taxes, and assessments of the annexing city or district apply to annexed territory. (Gov. Code, §§ 57330, 57302.) In Citizens Ass’n of Sunset Beach v. Orange County Local Agency Formation Com’n (2012) 209 Cal.App.4th 1182, the Court of Appeal held Proposition 218 does not require voter approval of an annexation that results in the residents and property owners in the annexed territory paying existing taxes of the annexing city that had not previously applied there. The court’s rationale was that annexation does not result in a tax being “imposed,” “extended,” or “increased” under Article XIII D. It also found compelling the fact that there was no indication in the text or the ballot pamphlet that Proposition 218 was intended to apply to annexations. This holding should apply equally to property-related fees. Assessments, however, are structurally different in that, while they may apply agency-wide, they are imposed only on identified parcels that specially benefit from the services or facilities they fund. Accordingly, assessments are not extended beyond their original district boundaries on annexation to the agency that levies them but must be extended by a new proceeding under the state assessment statute or charter city ordinance under which they were imposed. This will require an election under article XIII D, section 4 as discussed above in Chapter 3 of this Guide. B. Procedural Requirements of Article XIII D, Section 6 Article XIII D, section 6 requires that a local government comply with the following procedures before imposing or increasing property-related fees or charges: Identify the parcels upon which a fee or charge is proposed for imposition; Calculate the amount of the fee proposed to be imposed on each parcel; Provide written notice by mail to the “record owner of each identified parcel”;Conduct a public hearing on the proposed fee not less than 45 days after the mailing; Consider “all protests against the proposed fee or charge”; and If written protests against the fee are presented by a “majority of owners of the identified parcels,” the fee cannot be imposed. Substantive requirements apply to fees for all property-related services under article XIII D, section 6, subdivision (b). An additional election requirement applies to all newly imposed or increased property-related fees except those for sewer, water, and refuse collection services. (Cal. Const., art. XIII D, §6, subd. (c).) J-84 83LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Implementation of these procedural requirements requires consideration of several questions, particularly as to who must receive notice of the hearing, who may protest it, and how are protests counted. 1. Identifying the parcels The first step in establishing a property-related fee under Proposition 218 is identifying the encumbered parcels. (Cal. Const., art. XIII D, § 6, subd. (a)(1).) This critical step informs both noticing and what constitutes a majority protest. It is generally, but not always, uncontroversial. When the fee will be imposed on property owners in their capacity as record owners of encumbered property, the local government can simply determine the area subject to the fee and then identify all record parcels in that area. However, it becomes complicated when the fee is for a property-related service, such as water or garbage; where payors are charged for their use of the funded service as customers, rather than for the bare ownership of property; and when utility service accounts do not match legal parcel boundaries, as where one legal parcel has multiple water meters or one meter serves multiple legal parcels. In many cases, agencies typically lack data to tie customers, accounts, or connections to legal or assessor’s parcels.. The Legislature has defined “identified parcel” for Proposition 218 purposes as “a parcel of real property upon which a proposed property-related fee or charge is proposed to be imposed” (Gov. Code, § 53750, subd. (g)), but courts have yet to clarify how agencies should identify parcels under Proposition 218.75 Proposition 218 provides some support for treating separate, identifiable, fee-paying units as separate parcels for notice and protest rights. As described in Article XIII D, section 2, subdivision (e), a property related “‘[f]ee’ or ‘charge’” is a “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.” (Cal. Const., art. XIII D, § 2, subd. (e), emphasis added.) In turn, Proposition 218 defines “property ownership” “to include tenancies of real property where tenants are directly liable to pay the assessment, fee, or charge in question.” (Cal. Const., art. XIII D, § 2, subd. (g).) Proposition 218 also requires the agency to calculate the amount of the fee to be imposed on each parcel. (Cal. Const., art. XIII D, § 6, subd. (a)(1).) Reading these provisions together, “parcel” may be understood to refer to a unit of property subjected to the fee, and individual units of a larger parcel (i.e., separately metered apartments on one legal parcel) should be identified separately for purposes of Proposition 218 if customers will be individually liable for the fee. However, different rules (detailed below) control who is entitled to notice of a fee and who may submit a valid protest. (See Griffith v. Pajaro Valley Water Management District (2013) 220 Cal.App.4th 586, 596 [notice to record owners only, and not to tenants, permitted by article XIII D, section 6, subd. (a)], disapproved of on other grounds by City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6.) On the other hand, the safest course may be to identify both the recorded parcels by APN and the individual units or tenancies that are expected to incur the fee. (See Crawley v. Alameda County Waste Management Authority (2015) 243 Cal.App.4th 396, 375.) Guidance is also provided by Government Code section 53755 [notice may be given to customers only if agency disclaims right to enforce non-payment by liening property]. 2. Calculating the amount of the fee Next, the agency must calculate the amount of the fee to be imposed. (Cal. Const., art. XIII D, § 6, subd. (a)(1).) Again, this is often a simple matter, such as where a fee is charged on a flat, per-parcel basis. When the fee is established as a rate to be applied to the payor’s consumption, it is sufficient to apprise the payor of the rate. (Pajaro Valley Water Mgmt. Agency v. Amrhein (2007) 150 Cal.App.4th 1364, 1388 fn. 15, disapproved of on other grounds by City of San Buenaventura v. United Water Conservation Dist., supra, at 1209, fn. 6).) An agency must give “notice of the actual amount” of the fee, which likely must include enough information for a recipient to calculate the amount of the fee the recipient would pay. (KCSFV I, LLC v. Florin County Water District (2021) 64 Cal.App.5th 1015.) 75 In City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1208, the Supreme Court supported its conclusion the groundwater pumping charge at issue there was not a property-related fee because the replenished and remediated groundwater did not correspond to parcel boundaries and the groundwater district’s services were thus “not directed at any particular parcel or set of parcels[.]” J-85 84 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES 3. Determining the record owner and providing notice Article XIII D, section 6, subdivision (a) requires local governments to provide notice of a proposed, property-related fee to the “record owners” of parcels subject to the fee. That notice must include: (a) the amount of the fee; (b) the basis upon which it was calculated; (c) the reason for the fee; and (d) the date, time, and location of a public hearing on the charge. (Cal. Const., art. XIII D, § 6, subd. (a)(1).) The “basis” and ”reason” requirements are separate, and agencies must give notice of both. (KCSFV I, supra, 64 Cal.App.5th 1015.) X PRACTICE TIP: It is wise to define the reason for a fee broadly — e.g., water service — rather than to fund a particular set of improvements or costs that generate the need for a rate increase. The notice can explain the need for an increase in other ways. This is because article XIII D, section 6, subdivision (b)(2) limits the use of fee proceeds to the “purpose” for which a fee was imposed. The improvements or costs predicted by a rate study will often vary from the costs an agency actually experiences while a rate is in effect. Rate- making predictions, like others, rarely foresee the future with perfect accuracy. Proposition 218 does not define the phrase “record owner.” The Omnibus Act defines “record owner” as “the owner of a parcel whose name and address appears on the last equalized secured property tax assessment roll, or in the case of any public entity, the State of California, or the United States, means the representative of that public entity at the address of that entity known to the agency.” (Gov. Code, § 53750, subd. (j).) However, if the service for which the fee is imposed or increased is currently being provided, the Omnibus Act authorizes the notice required to be given by including it in the regular billing statement for the fee or any other mailing which customarily includes the billing statement for the fee. (Gov. Code, § 53755.) If an agency desires to retain authority to record or enforce a lien on the parcel for non-payment of the fee, notice must be mailed to the record owner’s address shown on the last equalized assessment roll if that address is different than the billing or service address. (Gov. Code, § 53755, subd. (a)(3).) If the address on the assessment roll differs from the service address, the conservative course is to send the notice to both addresses. As noted above, a local government may provide notice to non-record payors in utility bills. (Gov. Code, § 53755, subd. (a).) The effect of the provision of such notice on the calculation of the protest majority is unsettled. Some argue that by providing notice to payors, the agency increases the total number of identified “parcels” that are used to determine whether a majority of parcel owners have protested the proposed fee. Others argue that payors represent a separate set of parcel owners who are entitled to be treated as a block for purposes of determining a majority protest, even if no majority of record owners protest but this is almost certainly wrong in light of Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892, 905, which concludes that one common protest proceeding was sufficient even though the District imposed rates on multiple classes of customers. Thus, two courses of action appear likely to successfully resist challenge. The first is to provide notice only to property owners at the addresses shown on the property tax roll and provide no notice to payors. (Griffith v. Pajaro Valley Water Management District (2013) 220 Cal.App.4th 586, 596, disapproved of on other grounds by City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6.) The second is to provide notice to both record owners and fee payors and adopt the proposed fee only if no majority of either group protests. (Crawley v. Alameda County Waste Management Authority (2015) 243 Cal.App.4th 396, 378.) In Plantier v. Ramona Municipal Water Dist. (2019) 7 Cal.5th 372, 382, fn. 9, the Supreme Court applied section 53755 and held either an owner or tenant may submit a protest, but an agency may count only one protest from each parcel in determining whether the majority protest threshold is met. Plantier thus confirms judicial acceptance of the Proposition 218 Implementation Act and strengthens the conclusions that a common protest proceeding is required and that agencies may give notice to owners, payors, or both. J-86 85LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE X PRACTICE TIP: Majority protests are rare, but disputes over protest counting procedures are not. It is therefore wise to construe protest rights broadly to avoid a dispute that does not matter: if allowing the protest does not change the outcome, it is not worth the controversy. 4. Conducting the public hearing Article XIII D, section 6 also requires the local government to provide notice at least 45 days before holding a hearing at which the proposed fee or charge will be considered. (Cal. Const., art. XIII D, § 6, subd. (a)(2).) The 45-day period is calculated in the same manner as periods are calculated in civil actions, pursuant to Code of Civil Procedure section 12, such that the date of mailing is excluded, and the day of the hearing is included. (Dahms v. Downtown Pomona (2009) 174 Cal.App.4th 708, 714–715 [notice of assessment ballot proceeding under article XIII D, § 4].) Thus, a hearing on the 45th day is acceptable. (Ibid.) X PRACTICE TIP: Notice is required only when a local government is considering a new fee or charge or when it may “increase” a fee or charge. The Omnibus Implementation Act defines an “increase” to include an increase of “any applicable rate used to calculate the … fee, or charge” or the revision of “the methodology by which the … fee, or charge is calculated, if that revision results in an increased amount being levied on any person or parcel.” (Gov. Code, § 53750, subd. (h)(1).) A fee or charge is not “increased” when it is adjusted pursuant to a schedule of adjustments adopted through a Proposition 218 process or before its November 6, 1996 effective date. (See Gov. Code, §§ 53750, subd. (h)(2)(A), 53756.) A schedule for an inflation adjustment adopted after November 6, 1996 cannot exceed five years. (Gov. Code, § 53756, subd. (a).) X PRACTICE TIP: While the notice must identify the amount of the proposed fee or charge, local governments providing water, sewage, wastewater, or refuse services may provide notice of their intent to adopt a schedule of fees or charges that include automatic adjustments to pass through increases in the wholesale rates they pay for water, sewage treatment, or wastewater treatment. (Gov. Code, § 53756.) 5. The majority protest procedure Unlike assessments, Proposition 218 provides little guidance and few requirements for the protest procedure. There appears to be no requirement that local governments notify prospective rate payers of their right to protest, nor are local governments required to develop formal processes for receiving and tabulating protests. (Compare Cal. Const., art. XIII D, § 4 [requiring local governments to adopt and provide notice of the procedures for the consideration of ballots relating to proposed assessments], with Cal. Const., art. XIII D, § 6, subd. (a)(2) [requiring only that the agency consider any written protests received].) So long as a local government provides adequate notice, as described above, and takes account of all written protests, Proposition 218 is satisfied. J-87 86 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES X PRACTICE TIP: As Proposition 218 and the Omnibus Implementation Act do not address many practical issues that will arise in a protest proceeding (who gets notice, can protests be withdrawn, etc.) it is wise to adopt a resolution of the rate-making agency to establish these rules before notice is given. Otherwise, the agency is in the unenviable position of appearing to make up the rules as it goes. A model of such a procedural resolution is attached here as Attachment E. Some aspects of the protest procedure are prescribed. For example, a protest may be submitted by either a record owner or a tenant directly liable for the proposed fee or charge, but only one protest per parcel is counted. (Gov. Code, § 53755, subd. (b) [“One written protest per parcel, filed by an owner or tenant of the parcel, shall be counted in calculating a majority protest to a proposed new or increased fee or charge. …”]; Plantier v. Ramona Municipal Water Dist. (2019) 7 Cal.5th 372, 382, fn. 9.) X PRACTICE TIP: No case has yet explained how local agencies should calculate majority protests in light of the multiple notices permitted by Section 53755. Agencies may tabulate protests separately for owners and customers allowing a majority protest of either group. (Crawley v. Alameda County Waste Management Authority (2015) 243 Cal.App.4th 396, 401–402.) Agencies may also notify only property owners but must tally protests from tenants obligated to pay the fee, too. (Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586, 596, disapproved of on other grounds by City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6.) It is common to rely on Government Code section 53755 to notify only customers via a bill, but to tally protests from either customers or property owners as required by subdivision (b) of that section. In addition, local governments need not hold separate protest counts when adopting multiple rates. (Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892; see also Gov. Code, § 53755, subd. (b).) In Morgan, an irrigation district set varying retail water rates dependent on customer uses, i.e., agricultural, municipal, industrial, or residential. (Id. at pp. 897–898.) Ratepayers and an agriculture industry group challenged the rates, in part, because the district did not tabulate protests separately for each customer class. (Id. at p. 905.) The court held that a single protest procedure for all rates was sufficient (Id. at p. 910), suggesting that an “omnibus” procedure where all rates are considered in one protest proceeding may be the only workable way to satisfy Proposition 218’s cost of service requirements (Id. at p. 911). The Supreme Court addressed whether those seeking to challenge a method of fee allocation must participate in a Proposition 218 hearing in Plantier v. Ramona Municipal Water Dist. (2019) 7 Cal.5th 372. There, a commercial property owner sought to challenge a district’s allocation of wastewater generation units to its parcel. (Id. at p. 378.) The Supreme Court held the parcel owner need not have exhausted the Proposition 218 protest procedures related to the district’s rates to pursue his allocation claim, as the Proposition 218 rate protest hearing was an inadequate remedy to address as- applied allocation challenges. (Id. at p. 376.) The Supreme Court expressly left open whether exhaustion of remedies was required for other Proposition 218 claims (Id. at p. 388); it may provide further guidance on this issue in deciding Hill RHF Housing Partners v. City of Los Angeles (2020) 51 Cal.App.5th 621, rev. granted Sep. 16, 2020, Sup. Ct. Case No. S263734), where the Court of Appeal held such exhaustion was required in the assessment (art. XIII D, § 4) context. J-88 87LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE C. Substantive Provisions of Article XIII D, Section 6, Subdivision (b) The substantive provisions of Article XIII D appear in section 6, subdivisions (b)(1)–(5), which require a property-related fee to satisfy these standards: Revenues derived from the fee or charge must not exceed the funds required to provide the property-related service; Revenues derived from the fee or charge must not be used for any purpose other than that for which the fee is imposed; The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership must not exceed the proportional cost of the service attributable to the parcel; The fee or charge may not be imposed for a service unless the service is actually used by, or immediately available to, the owner of the property subject to the fee or charge; fees or charges based on potential or future use of a service are not permitted, and stand-by charges must be classified as assessments subject to the ballot protest and proportionality requirements for assessments; and No fee or charge may be imposed for general governmental services, such as police, fire, ambulance, or libraries, where the service is available to the public in substantially the same manner as it is to property owners. (Emphasis added.) 1. Revenues shall not exceed the funds required to provide the service Because rates for property-related fees or charges may not exceed the cost of the service, a local government must first ascertain the cost of service. Howard Jarvis Taxpayers Ass’n v. City of Roseville (2002) 97 Cal.App.4th 637 and Howard Jarvis Taxpayers Ass’n v. City of Fresno (2005) 127 Cal.App.4th 914 addressed what documentation is required to ensure compliance with Article XIII D, section 6, subdivision (b) when adopting fees and charges. In each case, the city had adopted an in-lieu fee imposed upon its enterprise utilities to compensate the city for expenses related to the utilities.76 These amounted to transfers to the cities’ general funds of proceeds of utility rates, which were then used for general fund, rather than utility, purposes, raising question under the second of the five requirements set forth above. In each case, the courts concluded the city could recover general fund costs attributable to its water, wastewater, and solid waste disposal utilities based upon an analysis of actual costs. However, in each case the court determined the fee violated Article XIII D, section 6, subdivision (b) because neither city had analyzed or documented the actual costs to be recovered by the general fund transfer. Roseville articulated the requirement as follows: The theme of these sections is that fee or charge revenues may not exceed what it costs to provide fee or charge services. Of course, what it costs to provide such services includes all the required costs of providing service, short-term and long-term, including operation, maintenance, financial, and capital expenditures. The key is that the revenues derived from the fee or charge are required to provide the service, and may be used only for that service. In short, the section 6(b) fee or charge must reasonably represent the cost of providing service. In line with this theme, Roseville may charge its water, sewer, and refuse utilities for the street, alley and right-of-way costs attributable to the utilities77 and Roseville may transfer those revenues to its general fund to pay for such costs … . Here, however there has been no showing that the in-lieu fee reasonably represents these costs. (Roseville, 97 Cal.App.4th at pp. 647–648 (citations omitted).) 76 In Roseville, the city imposed an “in lieu fee franchise fee” on its municipal utilities. The amount of the fee was based on a flat percentage of the utilities’ annual budgets, regardless of utilities’ varying uses of city rights-of-way. (Roseville, 127 Cal.App.4th at 639, 647–648.) In Fresno, the city imposed a fee on its utilities in lieu of property taxes (PILOT) a private utility enterprise would pay. The amount of the fee was one percent of the assessed value of the fixed assets of the utility. (Fresno, 127 Cal.App.4th at 917.) 77 Public Utilities Code section 10101 grants cities, and other municipal corporations, a “state franchise” over public rights of way. So, Roseville’s suggestion that an agency can charge for “right of way costs” must be reconciled with the fact that the state has granted access to the right of way. J-89 88 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES Fresno articulated the requirement as follows: Cities are entitled to recover all of their costs of utility services through user fees. The manner in which they do so, however, is restricted by another portion of Proposition 218: “The amount of the fee or charge imposed … shall not exceed the proportional cost of the service attributable to the parcel.” Together, subdivision (b)(1) and (3) of article XIII D, section 6, make it necessary — if Fresno wishes to recover all of its utilities’ costs from user fees — that it reasonably determine the unbudgeted costs of utilities enterprises and that those costs be recovered through rates proportional to the cost of providing service to each parcel. Undoubtedly this is a more complex process than the assessment of the in-lieu fee and the blending of that fee into the rate structure. Nevertheless, such a process is now required by the California Constitution. (Fresno, 127 Cal.App.4th at pp. 922–923 (citations omitted).) Voter-approved taxes can be “actual costs” agencies may recover through fees, however. In Wyatt v. City of Sacramento (2021) 60 Cal.App.5th 373, the Court of Appeal distinguished Roseville and Fresno to uphold a similar in-lieu fee, which was structured as a utility revenue tax and approved by voters. Wyatt found the voter-approved revenue tax “created a specific cost obligation being placed on the utility enterprises” the utilities could cover through rates, which distinguished it from the in-lieu fees in Roseville and Fresno. Reserves may also appropriately be included as a component of a property-related fee, so long as such reserves do not exceed the cost to provide service. (KCSFV I, LLC v. Florin County Water District (2021) 64 Cal.App.5th 101). Most often the determination of what it costs to provide water service is determined by a cost of service analysis (COSA) prepared by a rate-making consultant. Local governments and their consultants are well advised to rely on industrywide ratemaking principles such as those developed by the American Water Works Association (“AWWA”). The AWWA’s “Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices M1” (the “M1 Manual”), establishes commonly accepted professional standards for cost of service studies and has been expressly accepted by two Courts of Appeal as sufficient to satisfy Proposition 218’s requirements. (See Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586, 600, disapproved of on other grounds by City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6; Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892, 899–900; but see Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493, 1514 (the M1 Manual cannot trump the plain language of the California constitution).) For sewer services, the most widely used ratemaking principles have been established by the Water Environment Federation through its “Financing and Charges for Wastewater Systems, WEF Manual of Practice No. 27” (“Manual No. 27”) (2005). Other standards include those of the National Association of Regulatory Utility Commissioners (NARUC), the California Public Utilities Commission, and Raftelis, “Water and Wastewater Finance and Pricing: The Changing Landscape” (4th Ed. 2015). There is no industrywide publication used for establishing refuse collection service fees or charges, stormwater service fees or charges, or flood protection service fees or charges. But the approaches of these manuals are instructive for demonstrating a methodology commonly used to determine what the cost of service is for a utility. Whether a local government uses the M1 Manual, Manual No. 27, or an alternative method for determining its rates for property-related fees, the process for complying with the provisions of section 6(b)(1) is a matter of balancing a local government’s total costs of service with its total revenues. (See Capistrano Taxpayers Association, supra, 235 Cal.App.4th 1506.) In calculating the cost of service, there is no requirement that data be perfect. (Morgan, 223 Cal.App.4th at 915.) And in some instances, an informal process may be used, provided the fee or charge “reasonably represents the cost of providing service.” (Moore v. City of Lemon Grove (2015) 237 Cal.App.4th 363, 368, 373; Roseville, 97 Cal.App.4th at 647- 648; but see Capistrano, 235 Cal.App.4th at 380 [the M-1 Manual might show that a working backwards methodology in setting rates is reasonable, but it cannot excuse utilities from ascertaining cost of service].) J-90 89LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE X PRACTICE TIP: Occasionally, disputes arise about whether a particular cost is for providing the “service.” In Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586, 597–598, disapproved of on other grounds by City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6, the plaintiff challenged inclusion in a cost of service analysis of debt service on facilities no longer in use (“stranded debt”). The Court of Appeal soundly rejected this view, noting that the agency’s statutory authority allowed it to charge fees for the purpose of “paying the costs of purchasing, capturing, storing, and distributing supplemental water.” 2. Revenues derived from the fee must not be used for any purpose other than that for which the fee is imposed Article XIII D, section 6, subdivision (b)(2) forbids revenues from property-related fees and charges to be used for any purpose other than that for which they are imposed. In concert with subdivision (b)(1), it ensures the proceeds of property-related fees and charges are not transferred from a utility’s account and used for non-utility purposes, such as general fund purposes of a city. Notwithstanding the forgoing, a general fund may be reimbursed for costs it incurs on behalf of the utility. Such costs might include administrative services and overhead provided to a utility not recovered via general cost allocation plan, police and fire protection of utility property, and wear and tear on public streets attributable to utility operations. Any transfer of revenues from a utility account into a general fund should be supported by a well- documented cost justification. (Moore v. City of Lemon Grove, supra, 237 Cal.App.4th at pp. 368, 373; Roseville, supra, 97 Cal.App.4th at pp. 647–648; Fresno, supra, 127 Cal.App.4th at pp. 922–923.) 3. The amount of a fee or charge must not exceed the proportional cost of the service attributable to the parcel Several recent cases have construed the phrase “the proportional cost of the service attributable to the parcel.”78 The earlier Proposition 218 proportionality cases focused on the transfer of revenues from a utility to a city’s general fund. (Howard Jarvis Taxpayers Assn. v. City of Fresno (2005) 127 Cal.App.4th 914, 922–923.) More recent cases have focused on the proportionality requirement in evaluating water rate designs, including those structured to encourage conservation. The cases reflect a diversity of views of the meaning of “the proportional cost of the service attributable to the parcel”: A water agency that charges differential rates to different customer classes was required to demonstrate the differential costs of providing water service to the customer classes. (City of Palmdale v. Palmdale Water District (2011) 198 Cal.App.4th 925.) City’s tiered water rates must be justified based on the incremental costs of providing service to each tier. (Capistrano Taxpayers Association v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493.) Note, however, that Capistrano disagrees with both Griffith v. Pajaro, supra, and conflicts with the analysis of Moore v. City of Lemon Grove (2015) 237 Cal.App.4th 363 and Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892, allowing argument that courts should follow those other cases as more persuasive. (Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal.2d 450 [Courts of Appeals not bound by Court of Appeal decisions, trial courts may choose among conflicting Court of Appeals decisions without respect to the districts which rendered them].) 78 The proportionality requirement has some obvious similarities to the special tax test under Government Code section 50076 and Proposition 26. (See Cal. Const., art. XIII C, § 1, subd. (e) [stating the local government has the burden of demonstrating “that the manner in which [the] costs [of the governmental activity] are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity”].) However, the tests differ so caution is required when using authorities under Proposition 218’s cost of service requirement to construe Proposition 26’s cost limit and vice versa. The Proposition 26 test is discussed in detail above. J-91 90 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES In Palmdale, the water district adopted allocation-based (also referred to as a “budget based”) water rates.79 The rates allocated to customers a “reasonable” amount of water for efficient water use based on a customer’s needs and customer class. Residential customers received an indoor and outdoor allocation, commercial customers received a three-year average allocation, and irrigation customers received only an outdoor allocation. The court found the district’s administrative record did not justify these differential rates between customer classes — i.e., the district failed to show that its cost of providing water service to irrigation customers was proportionately higher than its cost of providing water service to residential and commercial customers. (Palmdale, supra, 198 Cal.App.4th at p. 936.) “[W]ithout a corresponding showing in the record that such impact is justified,” the court held the rates violated Article XIII D, section 6, subdivision (b)(3). (Id. at 937.) In Griffith, which the Supreme Court later disapproved of in City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6, the plaintiffs challenged the agency’s groundwater augmentation charges, claiming, inter alia, the fees were not proportional to the cost of service because his property did not receive any of the supplemental water piped to coastal farmers. Rejecting this argument, the court stated the plaintiff overlooked the fact that “‘the management of the water resources … for agricultural, municipal, industrial, and other beneficial uses is in the public interest …’ and [the Agency] was created to manage the resources ‘for the common benefit of all water users.’” (Id. at 600.) The Griffith plaintiff acknowledged the Agency apportioned its costs among categories of users (e.g., properties with metered wells, unmetered wells, and wells within the zone served supplemental water) but argued Palmdale compelled the Agency to apportion the costs of service on a parcel-by-parcel, rather than customer class-by-class. (Griffith, supra, 220 Cal.App.4th at pp. 600–601.) The Court of Appeal rejected this argument, too, noting Palmdale did not hold parcel- by-parcel cost allocation is required and finding the Agency’s class method justified on its record. (Id. at 601); see also Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892, 899–900, 915 [“some types of service require extra costs, and therefore the study allocated those costs only to the corresponding more expensive services” “municipal and industrial users create special costs so their charges are higher per acre-foot than agricultural users,” “there is no requirement that the data be perfect”].) Though it was overruled by City of San Buenaventura as to whether groundwater pumping charges fall under Proposition 218, Griffith may still be persuasive on the evidence required to satisfy proportionality. Capistrano Taxpayers Association v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493 expressly disagrees with Griffith on how service costs must be apportioned. There, the City of San Juan Capistrano adopted allocation-based water rates with four tiers. The first two tiers were based on the amount of water the city concluded was required for reasonable indoor and outdoor water usage. The third and fourth tiers were based on what the city concluded to be excessive or overuse of water, respectively. (Capistrano, supra, 235 Cal.App.4th at p. 1499.) The Capistrano Taxpayers Association sued, claiming the city’s rates were not proportional to the cost of providing service in violation of article XIII D, section 6, subdivisions (b)(1) and (3). The Court of Appeal held the city’s rates were not proportional to its cost of service because the city did not calculate the marginal (i.e., incremental) cost of providing water at the level of use represented by each tier. Specifically, the court criticized the city for not correlating its rates within each tier to the prices of water used in each tier. In interpreting article XIII D, section 6, subdivision (b)(3), the court noted “[i]f the phrase ‘proportional cost of service attributable to the parcel’ is to mean anything, it has to be that article XIII D, section 6, subdivision (b)(3) assumes that there really is an ascertainable 79 In 2008 the State Legislature conferred express authorization for allocation-based conservation pricing. Invoking California Constitution article X, section 2, the Legislature found “[t]he use of allocation-based conservation water pricing by entities that sell and distribute water is one effective means by which waste or unreasonable use of water can be prevented and water can be saved in the interest of the people and for the public welfare, within the contemplation of Section 2 of Article X of the California Constitution.” (Water Code §§ 370–374.) J-92 91LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE cost of service that can be attributed to a specific hence that little word ‘the’ parcel.” (Capistrano, supra, 235 Cal.App.4th at p. 1505, original emphasis.) The court stated that, in calculating the rates for each tier, the city had to do more than merely balance its total costs of service with its total revenues — that is already covered in subdivision (b)(1). To comply with subdivision (b)(3), [the city] also had to correlate its tiered prices with the actual cost of providing water at those tiered levels. Since [the city] did not try to calculate the actual costs of service for the various tiers, the trial court’s ruling [against the city] on tiered pricing must be upheld simply on the basis of the constitutional text. (Id. at p. 1506.) Significantly, Capistrano acknowledged repeatedly that tiered water rates are “consonant” with and “not incompatible” with article XIII D, section 6, subdivision (b), provided the rates reasonably reflect the cost of service attributable each parcel. (Id. at pp. 1497–1498, 1499 n. 6, 1510–1511 [“nothing … prevents water agencies from passing on the incrementally higher costs of expensive water to incrementally higher users”], 1516 [“nothing in article XIII D, section 6, subdivision (b)(3) is incompatible with water agencies passing on the true marginal cost water to those consumers whose extra use of water forces water agencies to incur higher costs to supply that extra water”]; see also City of Palmdale v. Palmdale Water Dist. (2011) 198 Cal.App.4th 926, 936–937 [“California Constitution, article X, section 2 is not at odds with article XIII D so long as, for example, conservation is attained in manner that ‘shall not exceed the proportional cost of the service attributable to the parcel.’”].)80 However, Capistrano concluded that the administrative record justifying that city’s rates did not contain any breakdown as to the relative cost of each source of supply81 and therefore did not justify an cost attributable to specific parcels. (Id. at p. 1499.) The authors of this guide conclude that Proposition 218’s requirements are not as strict as Capistrano concluded and note that Griffith, Morgan and Moore hold that a range of rate structures are “proportional to the cost of service attributable to the parcel.” Rate setting is a complex, legislative undertaking that must take into account the various types of costs of operating a system (fixed, customer-based, and variable) and the differential demands that various types of customers and classes of customers place on the systems. (E.g., 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216 [rate-making is a complex legislative task].) Rates must also be designed to ensure they are easy to administer and easily understood by ratepayers. The special tax cases discussed above acknowledge this complexity and recognize that proportionality is to be “measured collectively,” not individually, “considering all ratepayers.” (See Griffith, supra, 220 Cal.App.4th at p. 601.) Accordingly, the authors of this Guide find Griffith, Morgan, and Moore better reasoned in light of the long-standing judicial recognition of the complexity of rate-making and conclude Proposition 218’s proportionality standard is not as strict as Capistrano suggests. 80 Brydon v. East Bay Municipal Utility District (1994) 24 Cal.App.4th 178, a Proposition 13 case, upheld inclining-block conservation rates, citing California Constitution article X, section 2. Brydon recognized that Water Code section 375 permits water conservation programs to achieve article X, section 2’s conservation requirements and authorizes ordinances to encourage water conservation through rate design. (Id. at pp. 193, 195.) The Brydon court deemed it appropriate to shift: the costs of environmental degradation from the general public to those most responsible … . The inclining block rate structure is a reasonable reflection of the fact that it is the profligate usage of water which compels the initiation of regulated conservation measures … . Intuitively, it can be seen that such measures are necessitated predominately by those citizens least inclined toward conservation. In [the court’s] view it is reasonable to allocate costs based on the premise that the more unreasonable the water use, ‘the greater the regulatory job of the district.’ (Id. at 193.) Stated another way, inclining-block rates reasonably reflect the proportionate cost of providing water service attributable to parcels that use the most water and thereby place proportionately greater demands and burdens on a water utility. (Id. at p. 202 [“To the extent that certain customers overutilize the resource, they contribute disproportionately to the necessity for conservation, and the requirement that the District acquire new sources for the supply of domestic water.”] (emphasis added) (citation omitted).) 81 The city obtains its water from five sources of supply, including groundwater recovery plant, five local groundwater wells, imported water, recycled water, and another retail water agency. J-93 92 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES Because of the complexity of attributing utility service costs to individual customers, the authors of this guide conclude myriad rate designs are proportional to the cost of service attributable to the parcel, as Proposition 218 requires, without stating who must do the attribution and under what standard. (Cal. Const. art. XIII D, § 6, subd. (b)(3).) That silence, preserves earlier law which recognizes that rate-making is a complex legislative task. (Citizens Ass’n of Sunset Beach v. Orange County Local Agency Formation Com’n (2012) 209 Cal.App.4th 1182, 1197–1198 [Prop. 218 preserves prior case law that it does not expressly change].) Ultimately, how costs should be attributed to parcels is a subjective determination among competing options to be made by the legislative body. Courts have long held that rate design is both discretionary and legislative. (See Pac. Tel. & Telegraph Co. v. Pub. Util. Com. (1965) 62 Cal.2d 634, 655; Brydon, supra, 24 Cal.App.4th at p. 196; see also Moore v. City of Lemon Grove (2015) 237 Cal.App.4th 363, 368 [“[C]ourts afford agencies a reasonable degree of flexibility ‘to apportion costs of … programs in a variety of reasonable financing schemes.”] (citation omitted).) Arguably, when article XIII D, section 6, subdivision (b)(3) requires rates to be proportional to the cost of providing service attributable to a parcel, without specifying who should make that attribution or how, it preserves, at least to some extent, the legislative discretion afforded by earlier law to local governments to determine how to allocate costs of service, provided the allocation is reasonable and not so disproportionate that some customers are unfairly subsidizing others. This in not unlike what the California Supreme Court identified in California Farm Bureau. (See California Farm Bureau Federation, supra, 51 Cal.4th at 442.) X PRACTICE TIP: Because local governments bear the burden of demonstrating compliance with article XIII D, section 6, subdivision (b), a local government should clearly demonstrate through detailed data and computations and articulate through a comprehensive narrative explanation the methodology used and the justification for the allocation of costs among its various customer classes and within each customer class. Ultimately, the cost of service study is at the core of meeting this burden and should be reviewed by counsel before it is complete. But to assist courts in reaching a favorable outcome for a local government in any challenge to its rates, a local government should maintain as part of its administrative record any other relevant data and information used to derive its rates. While rate-making consultants tend to be strong on math and, occasionally, weak on other forms of expression, there are more English than Math majors on the bench. The record must speak in terms judges can understand and this will typically require more than just spreadsheets. 4. A fee or charge may not be imposed for a service unless the service is actually used by, or immediately available to, the owner of the property subject to the fee or charge a. The “immediately available” requirement focuses on the agency’s conduct, not the property owner’s Under article XIII D, section 6, subdivision (b)(4), a property related fee or charge may be imposed for a service the property owner or customer can, but does not, use. Paland v. Brooktrails Township Community Services District Board of Directors (2009) 179 Cal.App.4th 1358 held local governments may impose a minimum charge on parcels connected to utility systems for the basic cost of providing service, regardless of actual use. In Paland, parcels connected to the district’s water system were charged connection fees upon hookup, and thereafter a fixed monthly charge and a usage-based charge for water service. The plaintiff connected his parcel to the water system and paid the district’s connection fees. In following decades, he periodically discontinued water service to his property, which was a second home in a resort community. Beginning in 2003, after a connection moratorium imposed by health authorities, the district began imposing the fixed monthly charge on parcels with existing connections that were J-94 93LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE inactive because the parcels were unoccupied or because the owners had temporarily discontinued service. The plaintiff challenged the fixed monthly charge on his inactive connection, claiming that water service was not immediately available to him and that the charge was therefore in the nature of a standby fee to be approved as an assessment under article XIII D, section 4 as article XIII D, section 6, subdivision (b)(4) provides. (Paland, supra, 179 Cal.App.4th at pp. 1362–1363.) The court concluded article XIII D, section 6, subdivision (b)(4)’s “immediately available” requirement focuses on the local government’s conduct, not the property owner’s voluntary decision to make use of his service connection: As long as the local government has provided the necessary service connections at the charged parcel and it is only the unilateral act of the property owner (either in requesting termination of service or failing to pay for service) that causes the service not to be actually used, the service is ‘immediately available’ and a charge for the service is a fee rather than an assessment (assuming the other substantive requirements of a fee are satisfied). (Id. at 1370.) b. Property-related fees may be used to plan for future services In Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586, disapproved of on other grounds by City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6, the plaintiffs claimed that the groundwater augmentation charges were being used to fund a service that is not “immediately available” to property owners because the ordinance adopting the fees provided the charge could fund efforts to identify and design future supplemental water projects. The court dismissed this argument and held that identifying and determining the future needs of the agency is part of the agency’s present-day services. The costs of planning for such future needs therefore may be recovered from charges imposed on current users. (Griffith, 220 Cal.App.4th at 602.) As discussed above, City of San Buenaventura found the groundwater augmentation charges at issue there and in Griffith were not charges for a property-related service and thus not subject to Proposition 218, disapproving Griffith for this point. c. Property owners and customers who benefit from a program or services of a utility must share in the cost of the program or services provided The Griffith plaintiffs also argued the groundwater augmentation charges challenged there violated article XIII D, section 6, subdivision (b)(4), because they did not use any of the services for which the groundwater augmentation charges were imposed, namely they did not directly receive supplemental water. Rejecting this argument, the court noted the plaintiffs overlooked that “‘the management of the water resources … for agricultural, municipal, industrial, and other beneficial uses is in the public interest …’ and [the Agency] was created to manage the resources ‘for the common benefit of all water users.’” (Id. at pp. 600, 602.) Citing Griffith, Capistrano Taxpayers Association v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493 came to a similar conclusion as to recycled water funded by potable water rates. There, the city was constructing a recycled water treatment plant, funded in part by potable water charges. (Id. at pp. 1501–1502.) The Capistrano Taxpayers Association claimed that, because some potable water customers could not receive recycled water due to the lack of a delivery system, charging them for the cost of recycled water facilities amounted to charging for a service that is not “immediately available” to them in violation of article XIII D, section 6, subdivision (b)(4). The court, however, found that providing recycled water is not fundamentally different than providing potable water. Referencing the Proposition 218 Omnibus Implementation Act’s definition of “water” (Government Code section 53750, J-95 94 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES subdivision (m) [now subd. (n)]), the court noted the city operates “a holistic distribution system that does not distinguish between potable and non-potable water.” The court explained: Nonpotable water for some customers frees up potable water for others.82 And since water service is already immediately available to all customers of [the city], there is no contravention of subdivision (b)(4) in including charges to construct and provide recycled water to some customers. (Id. at p. 1502.) X PRACTICE TIP: The “immediate availability” language of article XIII D, section 6, subdivision (b)(4) is misleadingly broad. What is in issue here is standby charges — charges on undeveloped property for the value they gain by the availability of utility services to which they could connect, but have not. Once a connection is made, this subdivision is no longer pertinent to the charges a property owner must pay. 5. No fee or charge may be imposed for general governmental services where the service is available to the public in substantially the same manner as it is to property owners Article XIII D, section 6, subdivision (b)(5), is intended to ensure local governments do not impose parcel charges to fund general governmental services available to property owners and others “in substantially the same manner” — these should be funded by taxes and other general fund revenues. This does not mean, however, that if everyone within a local government’s jurisdictional boundaries benefits from services provided by a local government, that a fee or charge for those services is imposed for general governmental services. This largely depends on the nature of the service for which the fee or charge is imposed, and how it is imposed. For example, in Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586, 603, the plaintiffs argued that because the groundwater augmentation charges benefitted everyone in the groundwater basin, the charges were imposed for general governmental services. The court rejected this argument, finding that the charges are imposed for water service. “The key is that the revenues derived from the fee or charge are required to provide the service, and may be used only for that service.” (Id. (quoting Howard Jarvis Taxpayers Association v. City of Roseville (2002) 97 Cal.App.4th 637, 648).) As noted throughout this chapter, City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6, overruled Griffith’s conclusion that groundwater augmentation charges were governed by Proposition 218, because they do not meet the definition of “property related fees.” The Third District Court of Appeal concluded in a since-depublished case that Proposition 218 prohibits any fee assessments for fire suppression services, because they are necessarily provided to the general public. The Supreme Court granted review, depublishing the case, but later dismissed review as moot. (Concerned Citizens for Responsible Government v. West Point Fire Protection District (Case No. S195152) (dismissed Nov. 28, 2012.) In 2020, the Legislature adopted Government Code section 53750.5 to clarify that fire service and associated infrastructure, like hydrants, are a property-related service that may be funded with property-related fees adopted under article XIII D, section 6. The validity of section 53750.5 will likely be tested in court, perhaps in a large class action involving dozens of water agencies pending as this guide goes to press. 82 The court went on to question, however, whether it was appropriate under Article XIII D, section 6(b)(3) for residential customers with lower than average water consumption to pay for recycled water facilities that are necessitated by those customers whose water use is above-average. (Capistrano Taxpayers Association, 235 Cal.App.4th at p. 1503.) Although the court remanded for consideration of that issue (ibid.), the case settled and no further trial occurred. J-96 95LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE D. Voter Approval Requirements 1. Introduction In addition to the majority-protest requirement detailed above, a property-related fee — other than a fee for sewer, water, or refuse collection services provided by local government — cannot be imposed or increased until approved by a majority vote of the “owners of the property subject to the fee” or, at the option of the local government, by a two- thirds vote of the electorate in the affected area. (Cal. Const., art. XIII D, § 6, subd. (c).)83 The election must be conducted not less than 45 days after the public hearing. (Ibid.) Although the Constitution does not specify procedures for elections for property related fees, it does authorize a local government to adopt procedures that are similar to those required for assessments. An all-mail ballot election is authorized by Elections Code section 4000, subdivision (c)(9). The California Supreme Court upheld the result of a mailed ballot election among property owners on a flood control fee conducted by the County of Marin in Greene v. Marin County Flood Control and Water Conservation Dist. (2010) 49 Cal.4th 277. Although the parties there litigated whether the vote must be one vote per parcel, or whether votes might be weighted by the amount to be paid (as is the case for assessments under article XIII D, section 4), the Supreme Court found it unnecessary to decide that issue. 2. Exemption for sewer, water and refuse collection services Sewer, water, and refuse collection fees are exempt from article XIII D, section 6, subdivision (c)’s election requirement. More information about what constitutes sewer, water, and refuse collection services can be found above. Two cases address whether fees other than typical water, sewer, and refuse collection service charges are exempt from the voting requirement of Article XIII D, section 6, subdivision (c). Howard Jarvis Taxpayers Association v. City of Salinas (2002) 98 Cal.App.4th 1351, 1356–1358, determined a stormwater service charge collected on the property tax roll and based on impervious coverage of property (i.e., paving) was neither a “sewer” or “water” service charge within section 6, subdivision (c)’s exemption, but that it was a property-related fee.84 Crawley v. Alameda County Waste Management Authority (2015) 243 Cal.App.4th 396, 409–410, concluded that a fee charged to each household to fund hazardous waste facilities was a fee imposed for “refuse collection” within section 6, subdivision (c)’s exception. 3. Procedures for elections There are two sources for procedures for property-related fee elections: Government Code § 53755.5; and Local procedures adopted pursuant to article XIII D, section 6, subdivision (c). Government Code § 53755.5 requires: If an agency submits the fee or charge for approval by two-thirds of registered voters, then the election must be conducted by the agency’s elections official. If the election is conducted by the county elections official, the local agency must reimburse the county for its actual and reasonable costs. (Gov. Code § 53755.5, subd. (a).) If an agency submits the fee or charge for approval by a majority of the property owners subject to the fee or charge, then several detailed requirements are provided as to the form of the ballot and ballot tabulation (Gov. Code § 53755.5, subd. (b)(1) – (b)(4).) A fee submitted for approval by property owners is not an election for purposes of the Constitution or the Elections Code. (Gov. Code subd. (c).) 83 Fees for the provision of electrical or gas service are not imposed as an incident of property ownership and, therefore, are not subject to voter approval (or any of the procedural or substantive requirements of Article XIII D, section 6). (Cal. Const., art XIII D, § 3, subd. (b).) They are, however, subject to Proposition 26 because it has no comparable exception. (Cal. Const., art. XIII C, § 1, subd. (e)(2).) 84 In 2017, the Legislature amended the Proposition 218 Implementation Act in response to Salinas to expand the definition of “sewer” to include storm water systems. (Gov. Code, § 53750, subd. (k); see Paradise Irrigation Dist. v. Commission on State Mandates (2019) 33 Cal.App.5th 174, 197.) J-97 96 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 4: FEES Article XIII D, section 6, subdivision (c) authorizes an agency to adopt procedures similar to those for increases in assessments under article XIII D, section 4 for elections on property-related fees or charges. Such local procedures will be essential given the paucity of law governing them and their exclusion from the Elections Code. Such rules should cover matters such as the procedure for issuing duplicate ballots (when a ballot is lost or spoiled); proportional ballots (when joint property owners cast separate ballots); and treatment of unsigned or incomplete ballots. The provisions of the California Constitution that provide that “voting shall be secret”85 do not apply to voting in an election on a property related fee during and after the tabulation of the ballots. (Greene v. Marin County Flood Control and Water Conservation District (2010) 49 Cal.4th 277, 294.) Local governments may require property owners to identify themselves and their parcels on the ballot. Ballots must remain secret at least until the time they are tabulated, however, under Government Code section 53755.5, subdivision (b)(2). Although assessment ballots and the information used to weight them are disclosable public records, and assessment ballots must be preserved for two years, neither provision of the Omnibus Act applies to ballots for property-related fees. (Gov. Code, § 53753, subd. (e)(2).) X PRACTICE TIP: Local governments may wish to include escalators and maximum fee amounts in ordinances presented for voter approval. This approach will obviate the need for renewed voter approval until service costs exceed inflation-adjusted amounts. (See Gov. Code, § 53739.) X PRACTICE TIP: Local procedures for property related fee elections may wish to adopt rules for assessment ballots, as these cover many common issues including a requirement to retain ballots for a minimum of two years; and whether ballots are disclosable as public records after tabulation. (Cf. Gov. Code, § 53753, subd. (e)(2).) 85 Cal. Const., art. II, § 7. J-98 97 97LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Chapter 5 Fiscal Initiatives I. Proposition 218 Provisions Related to Initiatives The power to enact statutes and amendments to the Constitution is reserved to the People by article II, section 8 of the California Constitution and is expressly extended to local legislation by article II, section 11. The referendum power is reserved to the People by article II, section 9. Article XIII C, section 3 of Proposition 218 allows initiatives to reduce or repeal any local tax, assessment, fee, or charge and prohibits the Legislature and local governments from imposing a signature requirement higher than that for statewide statutory initiatives. (See Cal. Const., art. II, § 8, subd. (b).) Section 3 states: 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. (Cal Const., art. XIII C, § 3.) The stated intent of section 3 is to allow voters to repeal taxes without offending article II, section 9, which excludes tax measures from the referendum power. The section prohibits limitations on initiatives “reducing and repealing” taxes, assessments, fees, or charges, but the same section speaks of “[t]he power of initiative to affect local taxes, assessments, fees, and charges” (emphasis added), suggesting Proposition 218 must be read to allow initiatives to propose taxes, as well. As discussed more fully in the Introduction to this Guide, this conclusion is also supported by the history of the initiative in California, which began as the broad power of the electorate to propose legislation regarding taxation and which Progressives defended against many challenges, including those in the early 20th Century to prohibit tax initiatives. (E.g., Hichborn, Story of the Session of the California Legislature of 1921 (Barry 1922) pp. 181, 188–189.) For a complete discussion of initiatives, see chapter 3, part VI of the Municipal Law Handbook. J-99 98 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 5: FISCAL INITIATIVES II. Pre-Proposition 218 History of Fiscal Initiatives Proposition 218 does not redefine the initiative power reserved to voters since the initiative was established in 1911, but simply removes an exception to it, which prohibited initiatives to repeal taxes. The exception was created by cases reasoning that what voters could not do directly by referendum they could not do indirectly by initiative. (E.g., Myers v. City Council of City of Pismo Beach (1966) 241 Cal.App.2d 237, 243–244 (Myers) [citing limitation on use of referenda for tax repeals in former article IV, § 1, predecessor to article II, § 9]; Dare v. Lakeport City Council (1970) 12 Cal.App.3d 864, 867 (Dare) [“Although the foregoing authorities deal generally with referendum powers it is also the law that the initiative process does not lie with respect to statutes and ordinances ‘providing for tax levies[,]’” original emphasis, citing Myers].) After November 1986, when voters enacted Proposition 62, a statutory initiative requiring majority voter approval of local general taxes, the Court of Appeal cited Myers and Dare to conclude the new measure required an indirect referendum barred by article II, section 9. (City of Woodlake v. Logan (1991) 230 Cal.App.3d 1058, 1065–1066 (Woodlake).) Rossi v. Brown (1995) 9 Cal.4th 688 (Rossi), overruled this conclusion and —as discussed throughout this guide — Proposition 218 was intended to constitutionalize this holding. Rossi relied on the legislative history of the initiative power and noted the lack of a constitutional prohibition on tax initiatives, as distinguished from the referendum, thus rejecting Myers, Dare and Woodlake. Rossi also distinguished a fiscal referendum, which has the immediate impact of delaying implementation of a fiscal act until the voters approve it or a governing body repeals it, from the prospective effect of an initiative to repeal a tax: An initiative has no immediate impact, however. Passage of an initiative which repeals an existing tax will rarely affect the current budgetary process of a local government… . Moreover, local officials have ample notice of the potential impact of an initiative long before the measure can become effective. An initiative is proposed by petition submitted to the board of supervisors … but notice of an intent to circulate the petition for signature must be published before it may be circulated… . Even those initiatives that qualify for a special election may not actually be voted on for as long as four, and in some cases six, months after the proposed ordinance is presented to the supervisors… . Therefore, the potential for disruption of local government services by qualification of a referendum petition on a newly enacted tax measure is not present in the procedures leading to possible passage of an initiative which prospectively repeals an existing tax. (Id. at pp. 703–704.) Six months later, in Santa Clara County Local Transportation Authority v. Guardino (1995) 11 Cal.4th 220 (Guardino), the Supreme Court addressed Proposition 62 in light of Rossi, upholding its requirement for voter approval of taxes and overruling seven years of contrary appellate decisions. The ballot measure challenged in Guardino, which would have imposed a sales tax to fund Santa Clara County’s transportation needs, had been approved by a majority of voters, but less than the two-thirds required by Propositions 62 and 13. (Id. at p. 227.) Thus, even before the enactment of Proposition 218 in 1996, the Supreme Court held that voters could address taxation issues by initiative, including by prospectively repealing existing taxes. The effects of Rossi as to charter cities and its broader impacts on the initiative power remain contested. Charter city advocates contend they can limit initiatives on taxes and assessments, as Rossi discusses only San Francisco’s charter provisions which did not. (See Rossi, supra, 9 Cal.4th at pp. 711–714.) Those advocating ballot measures to repeal or reduce taxes argue Rossi holds the initiative power has always included the power to repeal taxes and that power may not be limited by city charter. (See id. at pp. 696–697, 700–702.) No case has yet resolved this debate. J-100 99LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE III. Proposition 218 Did Not Expand the Initiative Power Proposition 218 amended the Constitution, but did not expand the initiative power. Were section 3 interpreted to allow fiscal initiatives to avoid other constitutional limitations on the initiative, it arguably would be an unlawful constitutional revision by initiative. (See Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 223 [“an enactment which is so extensive in its provisions as to change directly the ‘substantial entirety’ of the Constitution by the deletion or alteration of numerous existing provisions may well constitute a revision thereof”]; Legislature v. Eu (1991) 54 Cal.3d 492, 510 [“to find such a revision, it must necessarily or inevitably appear from the face of the challenged provision that the measure will substantially alter the basic governmental framework set forth in our Constitution,” original emphasis].) The Proposition 218 voter guide and statements by its drafter, the Howard Jarvis Taxpayers Association (HJTA) are in accord. The Legislative Analyst’s analysis of Proposition 218 states the initiative provision “broadens the existing initiative powers” but does not fundamentally revise them. ([Proposition 218 Voter Guide, Analysis by Legislative Analyst].) The HJTA annotations to Proposition 218, written after the voters approved it, confirm that section 3 “does not greatly expand the initiative power.” ([HJTA Annotations, January 1997].) Section 3 refers to only two constitutional provisions — sections 8 and 9 of article II — and does not affect others, such as the authority of the Legislature under article II, section 11 to determine procedures for local initiatives. This silence as to other relevant constitutional restrictions on the initiative power must be understood to maintain them. Proposition 218 was not a revision of the Constitution — and could not have been, given that constitutional revisions require the Legislature to call a constitutional convention (see Cal. Const., art. XVIII, §§ 1–3) — and thus it should be interpreted as simply extending the initiative power to fiscal matters, thus preserving all other constitutional limitations on the initiative power. IV. Limitations on Proposition 218 Initiatives Because Proposition 218 simply removed a case law exception to the initiative power, the limitations on that initiative power provided by other cases and article II, section 8 continue to apply to initiatives notwithstanding article XIII C, section 3. Case law supports this position, holding that Proposition 218 did not fundamentally alter the initiative power, citing both its text and its proponents’ statements during the initiative campaign. (Mission Springs Water District v. Verjil (2013) 218 Cal.App.4th 892, 920–921 & n.6 (Mission Springs) [section 3 “presupposes an otherwise valid use of ‘the initiative power’”].) Therefore, even though an initiative purports to reduce taxes or fees, it is invalid if it violates any of these rules: Authority delegated specifically to a local legislative body by the Legislature (such as when the Legislature directs the “city council” or “board of supervisors” to take action) may not be exercised by initiative (Committee of Seven Thousand v. Superior Court (1988) 45 Cal.3d 491, 500–505); An initiative must undertake a legislative act, not quasi-judicial or administrative action (DeVita v. County of Napa (1995) 9 Cal.4th 763, 776); An initiative may not direct a local government to take a legislative action, but must itself enact legislation (Marblehead v. City of San Clemente (1991) 226 Cal.App.3d 1504, 1510); and An initiative is subject to constitutional limitations on legislative action by the local government, such as preemption by state or federal statute (DeVita v. County of Napa, supra, 9 Cal.4th at p. 776; Committee of Seven Thousand v. Superior Court, supra, 45 Cal.3d at pp. 510–512; Citizens for Planning Responsibly v. County of San Luis Obispo (2009) 176 Cal. App.4th 357, 371)86 and the requirement of equal protection for minimum rationality and an absence of invidious discrimination (Citizens for Responsible Behavior v. Superior Court (1991) 1 Cal.App.4th 1013, 1025 [discrimination based on sexual orientation affecting fundamental rights]; Arnel Development Co. v. City of Costa Mesa (1981) 126 Cal. 86 In Committee of Seven Thousand, the Supreme Court distinguished preemption of the entire subject matter of a field from preemption by virtue of the State imposing procedural rules on the exercise of the power granted, such as barring local initiative and referendum. (Committee of Seven Thousand v. Superior Court, supra, 45 Cal.3d at p. 511.) For a complete discussion of preemption, see chapter 1, sections I.C. and I.D. of the Municipal Law Handbook. J-101 100 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 5: FISCAL INITIATIVES App.3d 330, 337 [arbitrary and capricious land use measure]; Hawn v. County of Ventura (1977) 73 Cal.App.3d 1009, 1020 [unwarranted distinction between city and unincorporated voters]). The contracts clauses in our state (Cal. Const., art. I, § 9) and federal constitutions (U.S. Const., art. I, § 10) bar initiatives that would violate contracts, but such impairment must be “material.” (County of San Bernardino v. Way (1941) 18 Cal.2d 647, 663.) Successful challenges might arise in the bond or pension contexts, in which long-term contracts and obligations are typical. (See Consolidated Fire Protection Dist. of Los Angeles County v. Howard Jarvis Taxpayers’ Ass’n (1998) 63 Cal. App.4th 211, 219–225.) Courts have also recognized that an initiative may not impair an essential governmental function (Simpson v. Hite (1950) 36 Cal.2d 125, 134; City of Atascadero v. Daly (1982) 135 Cal.App.3d 466, 470), but no subsequent cases have extended this rule. Instead, our Supreme Court has held that ballot measures that can be construed not to impair essential governmental services must be so construed. (Rossi, supra, 9 Cal.4th at p. 703, quoting Geiger v. Board of Supervisors (1957) 48 Cal.2d 832, 839.) No case yet applies this argument to municipal utility rates, however; the provision of water, sewer, and other utility services are likely essential governmental services and thus an initiative to reduce rates to a level that would materially impair the ability of an agency to provide those services could be found to violate this limitation. One case does invalidate an initiative because it fails to comply with a statute requiring a County Water District to set fees sufficient to maintain a safe and adequate water supply. (Mission Springs Water District v. Verjil (2013) 218 Cal.App.4th 892.) A. Restrictions on Local Legislative Action also Limit Fiscal Initiatives The establishment of a new local tax, assessment, fee, or charge is legislative action. (E.g., McHenry v. Downer (1887) 116 Cal. 20, 24–25 [taxation]; Dawson v. Town of Los Altos Hills (1976) 16 Cal.3d 676, 683–684 [assessments]; Brydon v. East Bay Mun. Utility Dist. (1994) 24 Cal.App.4th 178, 196 [water rates]; Garrick Dev. Co. v. Hayward Unified School Dist. (1992) 3 Cal.App.4th 320 [school facilities fees].) The legislative act of establishing these levies, whether by initiative or compliance with Propositions 218 or 26, is subject to limits as is any other local legislation. A general law city’s power to tax is, of course, limited by the general laws. (Santa Clara County Local Transportation Authority v. Guardino (1995) 11 Cal.4th 220, 248.) For charter cities, the taxing power is limited by a city’s charter and the Constitution. (West Coast Advertising Co. v. City and County of San Francisco (1939) 14 Cal.2d 516, 526.) Thus, an initiative cannot avoid substantive limitations that state law imposes on local taxes, assessments, or charges. (E.g., California Bldg. Industry Assn. v. Governing Bd. (1988) 206 Cal.App.3d 212, 233–234 [Gov. Code, § 65995 cap on school development fees invalidated initiative to exceed cap].) Local initiatives that would affect levies are also subject to constitutional limits. Article XIII D, section 4 establishes specific requirements for the levy of assessments, such as capping every parcel’s assessment at the special benefit it receives. Article XIII D, section 6 establishes similar requirements for property related fees and charges. As an example, a local initiative might reduce an assessment to fund a facility or service and be consistent with article XIII C, section 3, but the initiative could not reallocate that assessment among specially benefited parcels; benefits must be allocated as required by article XIII D, section 4. Further, if an initiative measure simply alters the procedures by which the levy is administered, it might be vulnerable as being administrative and not legislative in character. J-102 101LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE V. Scope of Proposition 218 Initiative Power A. Which Levies May be the Subject of an Initiative? Article XIII C, section 3 expressly allows initiatives to reduce or repeal “any local tax, assessment, fee or charge.” The Supreme Court held “fee or charge” includes a fee for a property-related service (those discussed in article XIII D) and may include other fees and charges as well. (Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 212–213 (Bighorn).) The Court suggested the fees and charges subject to initiative reduction or repeal under article XIII C, section 3 may be broader than those “property related” fees and charges governed by Article XIII D (like water, sewer, and trash fees), but that section applies at least to those defined in XIII D, including the water fees at issue: Comparing the provisions of article XIII C and article XIII D, it appears to us that the words “fee” and “charge,” which appear in both articles, may well have been intended to have a narrower, more restrictive meaning in article XIII D. The title of article XIII D is Assessment and Property–Related Fee Reform (italics added) and section 6 of article XIII D, which imposes restrictions on fees, is titled Property Related Fees and Charges (italics added). Consistent with these references to “property-related” fees, article XIII D’s definition of “fee” requires that it be imposed “upon a parcel or upon a person as an incident of property ownership.” (Cal. Const., art. XIII D, § 2, subd. (e).) By comparison, the words “property related” do not appear anywhere in article XIII C, nor does anything in the text of article XIII C suggest that it is limited to levies imposed on real property or on persons as an incident of property ownership… . Thus, it is possible that California Constitution article XIII C’s grant of initiative power extends to some fees that, because they are not property related, are not fees within the meaning of article XIII D. But we perceive no basis for excluding from article XIII C’s authorization any of the fees subject to article XIII D. The absence of a restrictive definition of “fee” or “charge” in article XIII C suggests that those terms include all levies that are ordinarily understood to be fees or charges, including all of the property-related fees and charges subject to article XIII D. (Id. at p. 216.) B. Which Changes to Levies can be Accomplished by Initiative? Bighorn also interprets “affect” as used in section 3’s phrase “affect local taxes, assessments, fees and charges.” The Court rejected an initiative proponent’s argument that “affect” allowed a local initiative to require future voter approval of water fee increases, reading section 3’s provision that the initiative power may not be limited “in matters of reducing or repealing” taxes, assessments, fees, or charges. (Bighorn, supra, 39 Cal.4th at p. 218.) As such, Bighorn held Proposition 218 addressed only “reducing or repealing” such levies, not requiring voter approval for future increases. Given Rossi’s holding that the initiative power has always included fiscal measures discussed above, however, there is a strong argument that article XIII C, section 3 does not prohibit initiatives to increase public revenues; at most, it does not authorize them and that authority arises instead under Article II. C. Post-Proposition 218 Challenges to Local Fiscal Initiatives: Bighorn and Mission Springs Two cases explain that Proposition 218 did not expand the right to initiative except to clarify that initiatives may repeal existing taxes, fees, and charges, so all other requirements for initiatives arising from statutory and case law remain. They provide guidance on potential defenses to fiscal initiatives that endanger the provision of essential services. Where the Legislature has required agencies to fund certain projects or specifically delegated authority to their legislative bodies, those statutes cannot be frustrated by initiative any more than an ordinance might. Bighorn rejected the plaintiff water agency’s position that, because the Legislature delegated to its Board exclusive authority to set the agency’s rates and charges, rates could not be set by initiative. Instead, Bighorn reasoned the Water Code could not trump Proposition 218’s language allowing initiatives to reduce or repeal fees. (Bighorn, supra, 39 Cal.4th at p. 217.) Bighorn refrained from deciding whether article XIII, section 3 forbids any restriction on initiatives to reduce, repeal, or affect taxes, assessments, or fees. (Id. at p. 221.) Because Proposition 218 J-103 102 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 5: FISCAL INITIATIVES did not fundamentally change the initiative power, the better argument is still that voters are no freer of legal mandates binding an agency than is its governing body. Mission Springs answered the question Bighorn reserved. Mission Springs is a 2013 case brought by another water district seeking declaratory relief from its duty to conduct an election on a water-rate-reduction initiative. The court found the Legislature mandated the district to establish rates sufficient to pay its operating expenses, maintain its water works, and pay the interest and principal on debt, but this mandate did not exclusively delegate rate-making authority to the District’s board to the exclusion of voters. (Mission Springs, supra, 218 Cal.App.4th at pp. 912–914 citing DeVita v. County of Napa, supra, 9 Cal.4th at p. 776.) However, both elected officials and voters must make rates sufficient to operate the utility. Accordingly, the proposed initiative, which would have prevented the water district from doing so, was invalid. (Id. at p. 921.) Thus, Mission Springs holds that even though Proposition 218 allows initiatives to reduce water rates, it does not allow initiatives to violate statutory limits on rate-making. As such, an initiative that would set rates too low to meet a bond covenant would meet a similar fate under the impairment of contracts clause of the state and federal Constitutions. (See Gov. Code, § 53753.5, subd. (b) (3) [exempting assessments to repay bonds from Proposition 218]; U.S. Trust Co. of New York v. New Jersey (1977) 431 U.S. 1, 32 [federal constitution’s contracts clause prohibits retroactive repeal of bond covenant].) X PRACTICE TIP: Because local agencies are subject to many statutory mandates, initiative drafters should take care to avoid preventing agencies from meeting them. By the same token, those challenging an initiative might identify those statutory mandates the initiative would prevent the local agency from satisfying, as in Mission Springs. Statutory mandates to provide a safe and adequate water supply, to fund cost of sewer service requirements, or to satisfy other environmental requirements and mandates such as the Clean Water Act and Safe Drinking Water Act may be relevant to such disputes. If a fiscal initiative will disable a water provider from meeting statutory water quality standards or service needs, a court should strike it down. Mission Springs thus lays a path for challenges of this type, rejecting the initiative proponents’ argument against pre-election review and examining evidence submitted by the water district demonstrating that the initiative reducing rates would have set its rates so low that it could not have met statutory requirements to pay operating costs, bond covenants, etc. (Mission Springs, supra, 218 Cal.App.4th at p. 921.) For a more complete discussion of defenses to initiatives, including a public agency’s options for responding to initiatives it believes are invalid, see sections 3.102 to 3.118 of the Municipal Law Handbook. J-104 103LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE VI. Implementation of successful fiscal initiatives If an initiative is adopted to repeal, the question arises whether and when the agency can pass a new fee without voter approval. This may depend on a close reading of local ordinances and resolutions, but Bighorn invalidated the provision of the measure there purporting to require two-thirds voter approval of new water rates. Under the Elections Code, a local initiative takes effect 10 days after the election results are certified by the agency’s legislative body. (Elec. Code, § 9217.) But if rates are repealed, an agency must be able to impose a rate to avoid selling a service for free. Options include: (1) re-implementing the rates in effect before those repealed; (2) adopting new rates before the election to take effect if rates are repealed; or (3) implementing rates by urgency action. Any of these options would arguably not require compliance with Proposition 218 because they do not constitute imposing, extending, or increasing a levy. If a public entity increases an existing levy while initiative proponents seek to reduce or repeal it, whether the proponents’ initiative would affect the levy adopted during the initiative process turns on the language of the initiative. Courts will attempt to give meaning to the initiative (including any stated intent to legislate retroactively) but must also apply current law; how to balance these competing principles will turn on the language of the initiative. (E.g., Professional Engineers in California Government v. Kempton (2007) 40 Cal.4th 1016, 1037–1039 [initiative impliedly repealed statutes regulating contracts between State and private contractors].) Special tax measures proposed by voters through the citizen’s initiative process are not subject to the procedural limitations of Proposition 218. As such, the two-thirds voter approval requirement of article XIII C, section 2, subdivision (d) and article XIIIA, section 4 of the Constitution do not apply to special tax measures proposed by voters through the initiative process. (City and County of San Francisco v. All Persons Interested in the Matter of Proposition C (2020) 51 Cal.App.5th 703. See also City of Fresno v. Fresno Building Healthy Communities (2020) 59 Cal.App.5th 220; Howard Jarvis Taxpayers Ass’n v. City and County of San Francisco (2021) 60 Cal.App.5th 227.)87 In addition, voters may approve a general tax proposed by local voter initiative at a special election, even though article XIII C, section 2 requires local governments to place a general tax before voters at a general election. (California Cannabis Coalition v. City of Upland (2017) 3 Cal. 5th 924.) On the other hand, a citizen’s initiative must comply with the substantive requirements of Article XIIID. (Tesoro Logistic Operations, LLC v. City of Rialto (2019) 40 Cal.App.5th 798 [tax on liquid fuel storage facilities was held to be a tax as an incident of property ownership, and was not subject to any of the four exceptions for imposing the tax under Article XIIID].) VII. Proposition 218’s Petition Signature Threshold Article XIII C, section 3 also prohibits the Legislature and local governments from imposing “a signature requirement higher than that applicable to statewide statutory initiatives.” In other words, the required number of signatures to qualify a fiscal initiative can be no higher than 5 percent of the votes cast for Governor in the relevant jurisdiction in the last gubernatorial election. (See Cal. Const., art. II, § 8, subd. (b); Elec. Code, § 9035.) As gubernatorial turnouts are in the range of 40 percent, this figure is quite low: 5 percent of 40 percent is just 2 percent of all registered voters. In 2002, the Attorney General interpreted article XIII C, section 3 to mean that, to qualify an initiative for a special election, an initiative petition must obtain signatures of 15 percent of voters from the last gubernatorial election because there is no “signature requirement” for initiatives at statewide special elections; only the Governor may call such elections. (85 Ops.Cal.Atty. Gen. 151 (2002).) This is to say that Proposition 218 speaks to the signature requirement for fiscal initiatives but is silent as to the timing of elections, which is governed by the Elections Code. An unpublished (but citable in state court) Ninth Circuit decision is to similar effect. (Coltharp v. Herrera (9th Cir. 2014) 584 Fed. Appx. 334 [affirming clerk’s refusal to conduct election on measure demanding special election not signed by 15 percent of voters as required by the Elections Code.) 87 The application of this rule to parcel taxes is currently being litigated in two cases: City and County of San Francisco v. All Persons Interested in the Matter of Proposition G, First District Court of Appeal, Case No. A160659, and Jobs & Housing Coalition et al. v. City of Oakland, First District Court of Appeal, Case No. A158977. J-105 104 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 5: FISCAL INITIATIVES Under the Elections Code, the number of signatures submitted by an initiative proponent determines the timing of an election. If the proponent submits valid signatures of 5 percent of the number of voters who participated in the last gubernatorial election, the initiative will be voted on at the next regular election unless the local government chooses to conduct a special election under the Election Code or city charter. (Cal. Const., art. II, § 8; art. XIII C, § 3; Elec. Code, §§ 1405, subd. (b); 9215.) If a proponent submits signatures from 15 percent of voters on a petition requesting a special election, the local agency must specially call an election within 103 days. (Elec. Code, § 9214.) Of course, that Code also allows a local government to call a special election to consider an initiative proposal even when it is not obliged to do so. (Elec. Code, § 9222.) VIII. Who Votes on Proposition 218 Initiatives? Article XIII C, section 3 does not define who votes on fiscal initiatives or discuss whether only those who pay the tax, assessment, or fee may vote. Article XIII D, section 6, covering property-related fees, limits voting to “the property owners of the property subject to the fee or charge” or, at the agency’s option, the “electorate residing in the affected area.” (Cal. Const., art. XIII D, § 6, subd. (c).) The use of “the electorate” and “the voters” in article XIII C, section 2 appears to require the entire electorate to vote on imposing taxes, suggesting the entire electorate would participate in any initiative to reduce or repeal them. Shapiro v. City of San Diego (2014) 228 Cal.App.4th 756 concludes that a charter-city ordinance limiting the “electorate” on a special tax under a charter-city ordinance comparable to the Mello Roos Act violated Propositions 13 and 218 in limiting the franchise on a hotel bed tax to hoteliers on which the City imposed the tax (most bed taxes are an incident on hotel guest). Shapiro noted the Supreme Court has used the phrases “qualified electors” in article XIII A, section 4 (part of Proposition 13) and “electorate” in article XIII C, section 2 interchangeably, and thus concluded their interpretations should be harmonized. (Id. at pp. 778–779.) Shapiro also distinguished the provisions in article XIII D, which allow only property owners to vote on assessments, from the use of “electorate” in article XIII C to conclude that elections on taxes, unlike those for assessments, must be open to all registered voters. (Id. at pp. 779–781, 782–783.) As an independent basis for invalidating the ordinance, Shapiro held that San Diego’s ordinance limiting “electorate” violated San Diego’s charter, which the court held required the City to include all City voters. (Id. at pp. 790–792.) Shapiro does not resolve whether a subset of the “electorate” may exercise the initiative power to reduce or repeal a tax, assessment, fee, or charge. Article II, section 11 of the Constitution holds that the power of initiative “may be exercised by the electors of each city or county,” which supports a conclusion that all voters of a local government have the right to vote on any initiative even if the revenue measure in issue does not apply agency-wide. But article II, section 11 also notes that those electors may exercise the initiative power “under procedures that the Legislature shall provide” and makes clear the restriction does not apply to charter cities, meaning that the Legislature and charter cities may have the power to address this procedural question. Shapiro questioned the provision of the Mello Roos Act (Government Code section 53326, subd. (b)) limiting the vote to property owners when a Mello Roos District has fewer than 12 registered voters (228 Cal.App.4th at p. 786, fn. 2.) However, this statute appears to the authors of the Guide to be defensible under landowner voting cases such as Sayler Land Co. v. Tulare Lake Basin Water Storage Dist. (1973) 410 U.S. 719 [upholding landowner voting against 14th Amendment challenge as to district which primarily funded services to property owners which funded them].) A. Equal Protection Challenges by Non-Voters Who Pay a Levy Case law allows cities to limit the vote to registered voters when implementing new taxes on non-resident property owners. In Neilson v. City of California City (2005) 133 Cal.App.4th 1296, a non-resident landowner challenged a city’s flat-rate special parcel tax approved by the city’s registered voters. The plaintiff argued the city’s failure to allow non-resident property owners who would pay the tax to vote on the measure violated equal protection. Neilson disagrees, holding that strict scrutiny analysis for J-106 105LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE limitations on the right to vote applies only when the right is denied those who are otherwise qualified to vote. (Id. at p. 1315.) In Neilson, because the plaintiff was a non-resident property owner not qualified to vote in city elections, the court applied a rational basis test to determine whether California City violated his equal protection rights. Limiting the vote to the city’s voters had a rational basis given their interest in local affairs and the city’s planned uses of the special tax for city services, and thus it was not a violation of equal protection to prevent non-resident landowners from voting. (Id. at p. 1317.) Neilson holds there is no authority requiring a government entity to extend the right to vote to nonresident property owners, but cites no authority stating a government entity may not do so. (Ibid.) In the fiscal initiative context, given that votes on property-based assessments may be limited to those who own property affected by the assessment and the limited scope of those assessments, an equal protection challenge would likely be analyzed using a rational basis test. Shapiro expressly avoided the question for tax elections, citing Greene v. Marin County Flood Control and Water Conservation Dist. (2010) 49 Cal.4th 277, 297, fn. 8, which held that the equal protection provisions of the state Constitution do not apply to fee elections under article XIII D, section 6, subdivision (c). (Shapiro, supra, 228 Cal.App.4th at p. 780, fn. 23.) The Mello-Roos Act, which Shapiro distinguishes, expressly allows an election of only those who would pay an assessment in a community facilities district (Government Code, § 53326), and further supports a conclusion that limiting the vote for an assessment to landowners would not violate equal protection. (See also Not About Water Committee v. Board of Sup’rs (2002) 95 Cal.App.4th 982, 987–1001 [upholding weighted assessment protests under article XIII D, section 4 against equal protection challenge] disapproved on other grounds by Silicon Valley, supra, 44 Cal.4th at p. 450 fn. 6.) Neilson does note, however, that local entities may base the right to vote on land ownership in limited situations without violating equal protection. (Neilson, supra, 133 Cal.App.4th at p. 1316; cf. Salyer Land Co. v. Tulare Lake Basin Water Storage Dist. (1973) 410 U.S. 719, 728 [upholding landowner vote on water storage agency’s board of directors because it provided services to property funded by property owners]; Southern Cal. Rapid Transit Dist. v. Bolen (1992) 1 Cal.4th 654 [upholding votes on special benefit district referendum to owners of real property subject to assessment]), meaning an assessment levied on a well-defined subset of a district’s parcels could also be limited to the owners of those parcels consistently with Neilson. Thus, limiting the vote on an initiative to repeal a property-based assessment (but perhaps not a tax, given Shapiro) to those who actually pay it would survive an equal protection challenge. J-107 106 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 5: FISCAL INITIATIVES J-108 107 107LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Chapter 6 Litigating Cases Under Propositions 26 and 218 I. Statutes of Limitations Lawsuits challenging the imposition and collection of local taxes, assessments, fees, and charges are governed by a variety of statutes of limitations. As a general matter, however, these statutes of limitations can be divided into two categories: the default statutes, which apply when no specific statute of limitations exists for the particular tax, assessment, fee, or charge at issue; and the special statutes, which impose a statute of limitations applicable to a specific tax, assessment, fee, or charge. When assessing the timeliness of a challenge to a local tax, assessment, fee, or charge, one should carefully review the statutory provisions applicable to the particular levy at issue to determine whether a special limitations period exists. If no specific statute of limitations governs the challenge, the default statutes of limitations will apply. NOTE: Certain challenges to ballot measures must be brought pre-election. (See, e.g., Owens v. County of Los Angeles (2013) 2020 Cal.App.4th 107, 123 [“Generally, a challenge to ballot materials must be made before an election. Indeed, a postelection challenge to ballot materials is not permitted by the Elections Code.”]) The fact that the claims in these lawsuits arise under the Constitution does not mean that the limitations periods provided by statute are inapplicable. (See Barratt American v. City of San Diego (2004) 117 Cal.App.4th 809, 818 [upholding a 30-day statute of limitations under Code of Civil Procedure section 329.5 to bar a Proposition 218 challenge to an assessment, and noting that Proposition 218 does not conflict with procedures relating to the timing of legal challenges to such an assessment].) A. The Default Statutes of Limitations There are two default statutes of limitations applicable to actions challenging taxes, assessments, fees, and charges: the Government Claims Act, which imposes the equivalent of a one-year limitations period for actions seeking a refund of a tax, assessment, fee, or charge (Gov. Code, § 911.2); and Code of Civil Procedure section 338(a), which imposes a three-year limitations period for actions in which no refund is sought. If a plaintiff challenges a tax, assessment, fee, or charge but only seeks prospective relief (to the extent such prospective relief is available; see below regarding the “pay first, litigate later” rule), such as a writ or declaration invalidating the levy, the Government Claims Act does not apply. In such situations, unless a special statute of limitations applies to the particular tax, assessment, fee, J-109 108 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 6: LITIGATING CASES UNDER PROPOSITIONS 26 AND 218 or charge at issue, Code of Civil Procedure section 338(a) — which applies to actions “upon a liability created by statute” — will govern. (La Habra, supra, 25 Cal.4th at 815; see also City of Los Angeles v. Belridge Oil Co. (1954) 42 Cal.2d 823, 833–834 [liabilities created by statute under section 338(a) (then section 338(1)) include liabilities created by ordinance].) Code of Civil Procedure section 338(a) imposes a three-year statute of limitations that runs from the accrual of the cause of action. (See Code Civ. Proc. § 312.) Despite its reference to “liability created by statute,” this section establishes the statute of limitations for constitutional challenges to revenue measures. (State ex rel. Dept. of Motor Vehicles v. Superior Court (1998) 66 Cal. App.4th 421, 434–436 & fn. 8 [Dormant Commerce Clause challenge to tax on out-of-state vehicles brought into California subject to Code Civ. Proc., § 338, subd. (a)]; Peles v. LaBounty (1979) 90 Cal.App.3d 431, 435 [First Amendment challenge to expulsion from public university subject to Code Civ. Proc., § 338].) As is the case with refund actions subject to the Government Claims Act, discussed below, the continuous accrual rule applies to actions subject to Code of Civil Procedure section 338(a). (La Habra, supra, 25 Cal.4th at 818–825.) Thus, a challenge to a tax, assessment, fee, or charge that seeks only prospective relief will be timely under section 338(a) if brought by someone who paid any installment on the challenge a levy within the three-year period preceding the filing of the complaint. B. Special Statutes of Limitations A patchwork of statutory provisions found in the Code of Civil Procedure, Government Code, Streets and Highways Code, and elsewhere impose specific, and sometimes very short, statutes of limitations governing challenges to specific taxes, assessments, fees, or charges. Some of these statutory provisions are discussed below. 1. The Validation Statutes Code of Civil Procedure sections 860 through 870.5, known as the “validation statutes,” establish a unique, expedited procedure for challenging certain government acts. When made applicable by any “other law,” the validation statutes create a 60-day period in which the public entity or any interested person may sue to determine the validity of a governmental act. (Golden Gate Hill Development Company, Inc. v. County of Alameda (2015) 242 Cal.App.4th 760, 765–767; Code Civ. Proc. §§ 860, 863.) Lawsuits brought by the public entity are called “validation actions,” and lawsuits by the public are called “reverse validation actions.” (Ibid.) “A validating proceeding differs from a traditional action challenging a public agency’s decision because it is an in rem action whose effect is binding on the agency and on all other persons.” (Committee for Responsible Planning v. City of Indian Wells (1990) 225 Cal.App.3d 191, 197, citations omitted.) Moreover, subject to certain exceptions such as with respect to claims under Government Code section 66022, discussed below, if no action is brought by the public entity or members of the public within the 60–day timeframe, the public is “forever barred from contesting the validity of the agency’s action in a court of law.” (Golden Gate Hill, supra, 242 Cal.App.4th at 766, citations omitted; Code Civ. Proc. § 869 [“No contest except by the public agency … of any thing or matter under this chapter shall be made other than within the time and the manner herein specified.”].) NOTE: On occasion, a statute will require a public entity to bring a validation action directly to secure the benefit of the 60-day statute of limitations. For instance, if a public entity levying an assessment under the Benefit Assessment Act of 1982 (Gov. Code § 54703 et seq.) does not bring a validation action within 60 days of the adoption of the assessment, members of the public need not bring a reverse validation action to challenge the assessment. (Gov. Code § 54712.) The validation statutes apply only when some “other law” authorizes their application to the matter at issue. (Code Civ. Proc. § 860.) Thus, a public entity seeking to secure the protection of the 60-day statute of limitations must identify some law providing that challenges to the governmental act at issue be brought pursuant to the validation statutes. (Santa J-110 109LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Clarita Organization for Planning and the Environment (SCOPE) v. Abercrombie (2015) 240 Cal.App.4th 300, 308.) For a discussion of whether a local ordinance may constitute an “other law” for this purpose, see below. Historically, the validation statutes applied primarily to acts related to the issuance of debt. “[I]n its most common and practical application, the validation proceeding is used to secure a judicial determination that proceedings by a local government entity, such as the issuance of municipal bonds and the resolution or ordinance authorizing the bonds, are valid, legal, and binding. Assurance as to the legality of the proceedings surrounding the issuance of municipal bonds is essential before underwriters will purchase bonds for resale to the public.” (Friedland v. City of Long Beach (1998) 62 Cal. App.4th 835, 842, citations omitted, brackets in original.) However, in the last few decades, validation proceedings have been authorized for a variety of taxes, assessments, fees, or charges. NOTE: In addition to imposing a 60-day statute of repose, the validation statutes require that any appeal from a judgment in a validation or reverse validation action be brought within 30 days after notice of entry of judgment or, if there is no answering party in a validation action, within 30 days after entry of judgment. 2. Special Taxes The validation statutes apply to actions seeking to attack, review, set aside, void, or annul an ordinance or resolution levying a special tax approved by the voters pursuant to Title 5, Division 1, Part 1, Chapter 1, Article 3.5 of the Government Code, a statutory scheme establishing procedures for the adoption of special taxes. (Gov. Code § 50077.5.) Any action challenging a special tax approved pursuant to that article must be brought as a reverse validation action within 60 days of the adoption of the ordinance or resolution. (Code Civ. Proc. § 863.) If an ordinance or resolution provides for an automatic adjustment in the rate or amount of tax that increases the amount of the tax, an action challenging the increase (but not the underlying tax) may be brought within 60 days of the effective date of the increase. (Gov. Code § 50077.5.) NOTE: Proposition 62, adopted by the voters in 1986, included a provision stating that “Article 3.5 of Division 1 of Title 5 of the Government Code” may not “be construed to authorize any local government or district to impose any general or special tax which it is not otherwise authorized to impose… .” (Gov. Code § 53727.) Proposition 62 thus withdrew any authority to adopt special taxes previously granted by these provisions. (California Building Industry Ass’n v. Governing Board of the Newhall School District of Los Angeles County (1989) 206 Cal.App.3d 212, 224, 232–233.) Nevertheless, public agencies that are otherwise authorized to adopt special taxes may still utilize the procedures established by Government Code section 50077 and gain the benefit of 60-day statute of limitations. The validation statutes also apply to actions challenging the validity of special taxes adopted under sections 53311 et seq. of the Government Code, the Mello-Roos Community Facilities Act of 1982. (Gov. Code § 53359.) In fact, Mello-Roos special taxes are subject to an even shorter statute of limitations than is typically applied in validation actions, as a reverse validation action must be brought within 30 days after the voters approve the challenged special tax. (Gov. Code § 53359.) 3. Government Code section 66022 Government Code section 66022 states that challenges to development impact and certain other fees and charges must be brought under the validation statutes within 120 days of the effective date of the ordinance, resolution, or motion establishing the fee or charge. Many of the fees and charges subject to this 120-day statute of limitations involve levies designed to recover costs incurred in adopting and administering land use policies, including fees related to zoning variances and changes, use permits, building inspections and permits, LAFCO proceedings, the Subdivision Map Act, and specific plans, among other land use activities. (Gov. Code §§ 66014(a), 66016(d) [listing land use-related fees subject to Government Code section 66022].) J-111 110 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 6: LITIGATING CASES UNDER PROPOSITIONS 26 AND 218 Fees for sewer and water connections and “capacity charges” are also subject to Government Code section 66022’s 120-day statute of limitations. (Gov. Code § 66013.) The inclusion of “capacity charges” is potentially significant, as the statutory definition of “capacity charge” is very broad: “Capacity charge” means a charge for public facilities in existence at the time a charge is imposed or charges for new public facilities to be acquired or constructed in the future that are of proportional benefit to the person or property being charged, including supply or capacity contracts for rights or entitlements, real property interests, and entitlements and other rights of the local agency involving capital expense relating to its use of existing or new public facilities. A “capacity charge” does not include a commodity charge. (Id. § 66013(b)(3).) “Public facilities” are defined as “public improvements, public services, and community amenities.” (Id. § 66000(d), 66013(b)(6).) However, the definition of “capacity charge” has not been extensively litigated, and there is uncertainty as to the fees and charges covered by this 120-day statute of limitations. (Compare Utility Cost Management v. Indian Wells Valley Water District (2001) 26 Cal.4th 1185 [portion of fees for water service used to fund capital costs of public facilities was a capacity charge subject to 120-day statute of limitations] and Rincon Del Diablo Municipal Water District v. San Diego County Water Authority (2004) 121 Cal.App.4th 813, 819-22 [capital component of water rates was not a capacity charge].) 4. Public Utilities Code § 10004.5 and electric rates Public Utilities Code section 10004.5, subdivision (a) imposes a 120-day statute of limitations on challenges to municipal power rates that is worded nearly identically to Government Code section 66022: [A]ny judicial action or proceeding against a municipal corporation that provides electric utility service, to attack, review, set aside, void, or annul an ordinance, resolution, or motion fixing or changing a rate or charge for an electric commodity or an electric service furnished by a municipal corporation and adopted on or after July 1, 2000, shall be commenced within 120 days of the effective date of that ordinance, resolution, or motion. As Proposition 26 challenges to municipal power rates have been common, this statute of limitations is of particular value. Analogs to it appear in other statutes. (E.g., Water Code section 22651.5(a) [Irrigation District Act].) 5. Local Ordinances It is not uncommon for local ordinances authorizing and establishing procedures for the adoption of assessments to include provisions requiring that any challenges to an assessment be brought within a particular time frame, and courts have upheld such provisions. (See, e.g., Reid v. City of San Diego (2018) 24 Cal.App.5th 343, 355-367 [upholding 30-day statute of limitations in San Diego Municipal Code sections 61.2517 and 62.2526(b) for bringing a challenge to a local assessment].) No case appears to have directly addressed whether a local ordinance may authorize application of the validation procedures in Civil Code section 860 et seq. (Id. [analyzing, but refusing to determine, the “open question” of whether a local ordinance can constitute an “other law” that can authorize application of the validation statutes].) But courts have validated local taxes in lawsuits filed as validation actions under such local ordinances. (See, e.g., City and County of San Francisco v. All Persons Interested in the Matter of Proposition C (2020) 51 Cal.App.5th [upholding local tax in an action brought under the validation statutes, as authorized by San Francisco Business and Tax Regulations Code Section 6.154].) J-112 111LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE X PRACTICE TIP: Before including a provision in a local tax ordinance authorizing application of the validation statutes to that tax ordinance, local jurisdictions should weigh the benefits of the validation statutes against the partial loss of the “pay first, litigate later” rule, described below. Authorizing validation actions will permit taxpayers to bring suit to invalidate a tax much sooner than if they had to wait to pay the tax and pursue a refund through the Government Claims Act. 6. Validating Acts In addition to the validation statutes, the Legislature adopts special statutes three times every year to validate governmental acts related to the issuance of bonds and to the formation of public entities and boundary changes such as annexations. These special statutes, which are not codified, are known as “Validating Acts.” Validating Acts are enacted on the theory “that the Legislature … may subsequently ratify whatever it could have originally authorized so that an act ratified will be equivalent to an act performed under an original grant of power, provided no constitutional obstacles or vested rights are involved.” (Hewitt v. Rincon Del Diablo Municipal Water District (1980) 107 Cal.App.3d 78, 91.) Although Validating Acts do not typically apply to taxes, assessments, fees, or charges, a tax or other levy adopted for the purpose of funding the repayment of bonds or adopted pursuant to a LAFCO-imposed condition on a “change of organization” under the Cortese-Knox-Hertzberg Local Government Reorganization Act would be covered. (See Gov. Code § 56886(s).) However, because the Legislature cannot authorize unconstitutional acts, the Validating Acts do not directly ratify governmental actions that violate either the California or United States Constitutions, including Propositions 218 and 26. Nevertheless, Validating Acts often create a six-month statute of limitations, running from the Act’s effective date, which does bar litigation of Constitutional challenges to governmental acts related to bonds and changes of organization. (See, e.g., Las Tunas Beach Geologic Hazard Abatement District v. Superior Court (1995) 38 Cal.App.4th 1002 [discussing First Validating Act of 1992, Stats. 1992, ch. 62, § 8].) This special six-month statute of limitations generally does not override other, shorter statutes of limitations. (See, e.g., Stats. 1992, ch. 62, § 8.) C. Assessment Statutes of Limitations Although lawsuits challenging the imposition of assessments are occasionally governed by the validation statutes, it is more common for statutory provisions to apply very short statutes of limitations to assessment challenges without subjecting those challenges to validation. For instance, a challenge to an assessment levied under the Property and Business Improvement District Law of 1994 (Sts. & Hy. Code §§ 36600 et seq.) must be commenced within 30 days after the resolution levying the assessment is adopted. (Sts. & Hy. Code § 36633; see also Sts. & Hy. Code § 10400 [same, Municipal Improvement Act of 1913]; Sts. & Hy. Code § 36537 [same, Parking and Business Improvement Area Law of 1989].) NOTE: On occasion, these short limitations periods do not apply to all assessments authorized by a particular statute. For instance, the Landscaping and Lighting Act of 1972 states the “validity of an assessment levied under this part for the purpose of raising revenue necessary to pay the debt service on bonds” must be brought within 30 days after the initial assessment is levied. (Sts. & Hy. Code § 22675 (emphasis added).) NOTE: As is the case in actions subject to the validation statutes, appeals in actions subject to these short statutes of limitations for specified assessments must generally be brought within 30 days of entry of judgment rather than the 60 or 180 days typically allowed for a civil appeal. (See, e.g., Sts. & Hy. Code §§ 10400, 36633, 36537.) Charter cities that adopt their own assessment procedures are subject to a special statute of limitations for actions challenging assessments adopted under those procedures. Code of Civil Procedure section 329.5 states that any action challenging the validity of an assessment against real property for public improvements, “the proceedings for which are prescribed by the J-113 112 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 6: LITIGATING CASES UNDER PROPOSITIONS 26 AND 218 legislative body of any chartered city,” must be brought within 30 days after the assessment is levied, or a longer period if provided by the city’s legislative body. D. Statutes Applying the Property Tax Refund Statute The Revenue and Taxation Code details procedures for property tax refund actions. Any taxpayer generally must present a written claim to the county administering those taxes within four years of making a payment to be refunded. (Rev. & Tax. Code § 5097(a).) In general, no lawsuit may be brought seeking a refund of property taxes unless a claim has been presented, and if a claim is presented, the lawsuit must be filed within six months after the claim has been rejected. (Rev. & Tax. Code §§ 5141, 5142(a).) These procedures also apply to actions for refunds of certain types of assessments, fees, and charges. The property tax refund procedures are made applicable to assessments, fees, or charges only when directly incorporated by a separate statute, as is common for revenues collected on the property tax roll. When these procedures are applicable, they govern any attempt to secure a refund of the challenged assessment, fee, or charge on the grounds that it is “[e]rroneously or illegally collected” or “[i] llegally assessed or levied.” (Rev. & Tax. Code § 5096.) For instance, assessments that are “collected at the same time and in the same manner as county taxes” are subject to the refund procedures applicable to property taxes. (Rev. & Tax. Code § 4801.) Thus, any action brought to recover an assessment collected by a county on the property tax roll is governed by Revenue and Taxation Code section 5097’s four-year statute of limitations, unless a more specific statute of limitations applies (see the above discussion). Moreover, many assessment statutes state the assessments they authorize shall be collected at the same time and in the same manner as county taxes. (See, e.g., Pub. Utilities Code § 33017 [assessments imposed by the Southern California Rapid Transit District “shall be levied and collected by the county at the same time and in the same manner as county taxes are levied and collected”].) This language generally triggers application of the property tax refund statutes, including Revenue and Taxation Code section 5097’s four-year statute of limitations. (See Hanjin International Corp. v. Los Angeles County Metropolitan Transportation Authority (2003) 110 Cal.App.4th 1109, 1113.) Furthermore, some property tax refund procedures also apply to water, sanitation, storm drainage, or sewerage system fees or charges adopted by cities, counties, and special districts under Health and Safety Code section 5471, which states that these public entities: shall have the power, by an ordinance or resolution approved by a two-thirds vote of the members of the legislative body thereof, to prescribe, revise and collect, fees, tolls, rates, rentals, or other charges for services and facilities furnished by it, either within or without its territorial limits, in connection with its water, sanitation, storm drainage, or sewerage system. Fees or charges fixed pursuant to this statute must be challenged “in the manner provided for the payment of taxes under protest and action for refunds thereof in Article 2, Chapter 5, Part 9, of Division 1 of the Revenue and Taxation Code, insofar as those provisions are applicable.” (Health & Safety Code § 5472; Los Altos Golf and Country Club v. County of Santa Clara (2008) 165 Cal. App.4th 198.) II. Claim Requirements & Standing A. Government Claims Act Under the Government Claims Act, “no suit for money or damages may be brought against a public entity on a cause of action for which a claim is required to be presented … until a written claim therefor has been presented to the public entity … .” (Gov. Code § 945.4; State v. Superior Court (Bodde) (2004) 32 Cal.4th 1234, 1240 [“[T]he filing of a claim … is more than a J-114 113LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE procedural requirement”; it is a “condition precedent” to filing suit against a public agency and “an integral part of [a] plaintiff’s cause of action.”].) Government Code section 911.2(a) states that any claim (except those related to death or injury to persons, personal property, or crops) must be presented to the public agency “not later than one year after the accrual of the cause of action.” Because the presentation of a written claim is a statutory prerequisite to suing a public agency for money or damages, Government Code section 911.2 operates like a one-year statute of limitations that is calculated backwards from the date the written claim is presented, although it is not technically a statute of limitations. (See, e.g., Utility Audit Co. v. City of Los Angeles (2003) 112 Cal.App.4th 950, 960–961.) Any action must be brought within six months after the claim is rejected or, if the claim is not rejected, within two years of accrual of the cause of action. (Gov. Code § 945.6.) “[T]he date of the accrual of a cause of action to which a claim relates is the date upon which the cause of action would be deemed to have accrued within the meaning of the statute of limitations which would be applicable thereto if there were no requirement that a claim be presented … .” (Gov. Code § 901.) Unless otherwise specified by statute, a cause of action accrues when “complete with all its elements”— wrongdoing, harm, and causation. (Howard Jarvis Taxpayers Ass’n v. City of La Habra (2001) 25 Cal.4th 809, 815; Pooshs v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797, citations omitted.) For most cases seeking a refund of a tax, assessment, fee, or charge, payment of the challenged levy that causes “harm” to taxpayers is the last element of a cause of action to occur and triggers accrual. Thus, under this “last element” rule, a refund cause of action accrues upon the first payment of an allegedly illegal tax, assessment, fee, or charge, and any taxpayer who did not present a written claim within one year of making his or her first payment would be barred from filing a lawsuit by Government Code section 911.2(a). However, the “last element” accrual rule often will not apply in actions seeking a refund of taxes, assessments, fees, or charges. Instead, courts apply an exception to the rule known as “continuous accrual,” under which “separate, recurring invasions of the same right can trigger their own statute of limitations.” (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1198.) When the continuous accrual rule applies, each wrongful act creates a distinct cause of action. (Hogar Dulce Hogar v. Community Development Commission of the City of Escondido (2003) 110 Cal.App.4th 1288, 1295.) Since each breach of a recurring obligation “provides all the elements of a claim—wrongdoing, harm, and causation— each may be treated as an independently actionable wrong.” (Aryeh, supra, 55 Cal.4th at 1199, citations omitted.) Thus, a new cause of action accrues — and a new statute of limitations commences — with each payment of a revenue measure. In 2001, the California Supreme Court held that this rule applies, at least as a general matter, to actions challenging taxes, and by extension, it likely applies to other government levies as well in the absence of a more specific statute of limitations than the general rule of Code of Civil Procedure section 338(a). (La Habra, supra, 25 Cal.4th at 818–825.) Because taxes, assessments, fees, and charges are generally collected periodically, each collection triggers all of the elements of a cause of action for a refund. Thus, taxpayers who first present a written claim within one year of making any payment of a challenged levy satisfy Government Code section 911.2, subdivision (a)’s one-year claim requirement. When a more specific statute of limitations applies and runs from a date other than the date of accrual — like the validation rule of Code of Civil Procedure sections 860 et seq., which runs from the “existence of any matter which under any other law is authorized to be determined pursuant to [section 860 et seq.]” — the continuous accrual rule of La Habra will not apply. (E.g., Utility Cost Management v. Indian Wells Valley Water Dist. (2001) 26 Cal.4th 1185, 1195 [120-day statute of Gov. Code, § 66022 for capital facilities fees, which runs from the “effective date” of the fee legislation, displaced La Habra rule].) The “continuous accrual” rule does come with an important caveat limiting liability. Because each wrongful act creates its own cause of action, the continuous accrual rule “supports recovery only for damages arising from those breaches falling within the limitations period[,]” effectively “limit[ing] the amount of retroactive relief a plaintiff or petitioner can obtain to the benefits or obligations which came due” during that period. (Aryeh, supra, 55 Cal.4th at 1199; Hogar Dulce Hogar, supra, 110 Cal.App.4th at 1296.) Thus, any taxpayer seeking a refund of taxes, assessments, fees, or charges in situations governed by the continuous accrual rule may not recover any amounts collected more than one year before he or she presented a written claim to the entity imposing the levy. J-115 114 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 6: LITIGATING CASES UNDER PROPOSITIONS 26 AND 218 X PRACTICE TIP: Typically, a plaintiff will not allege each collection of a tax, assessment, fee, or charge — whether it be monthly, annually, or on some other schedule — as a separate cause of action in a complaint. However, cases hold that “cause of action” for purposes of the summary adjudication statute (Code Civ. Proc. § 437c(f)(1)) means any “separate and distinct wrongful act,” and that summary adjudication may be granted as to any such separate and distinct act, even if it is alleged in the aggregate with other wrongful acts. (Lilienthal & Fowler v. Superior Court (1993) 12 Cal.App.4th 1848, 1853–1855; Edward Fineman Co. v. Superior Court (1998) 66 Cal.App.4th 1110, 114–118.) A similar rule has been applied on demurrer. (See Sun ‘n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 678–679, 692, 703.) Because each collection of an allegedly illegal tax, assessment, fee, or charge is a separate cause of action, if a taxpayer seeks a refund of amounts collected more than one year before he or she presented a written claim to the public entity imposing the levy, it may be possible to limit recovery to the one-year period by demurrer, motion for judgment on the pleadings, or motion for summary adjudication. 1. Exceptions to the claims presentation requirement Despite the general rule that the filing of a claim is a condition precedent to filing suit, section 905 Government Code lists several categories of claims not subject to the Government Claims Act’s claims presentation requirements. Two are of particular relevance to claims for taxes, assessments, fees, or charges: claims by a government entity and claims for which there is a claim or refund procedure in the Revenue and Taxation Code or other statute. (Gov. Code § 905, subds. (a), (i).) Subdivision (i) of section 905 provides that “[c]laims by the state or by a state department or agency or by another local public entity or by a judicial branch entity” are not subject to the claims presentation requirements of the Government Claims Act. However, Government Code section 935 allows a local government to create its own claims presentation requirements and procedures for claims that are exempted under section 905. (Gov. Code § 935, subd. (a).) The procedure must be substantially the same as the procedures of the Government Claims Act. (Gov. Code § 905, subds. (b)–(e).) Under this authority, local governments can enact claims ordinances requiring other government entities to submit claims as a precondition to suit. (City of Ontario v. Superior Court (1993) 12 Cal.App.4th 894, 901–903 [defeating CalTrans indemnity suit for failure to file a claim under city ordinance].) There are a number of claims procedures in statutes, particularly in the Revenue and Taxation Code for levies collected with property taxes. See discussion, infra, in this Guide. B. Class Actions Class claims can be submitted under the Government Claims Act. (Ardon v. City of Los Angeles (2011) 52 Cal.4th 241, 253.) Consequently, unless there is a statutory refund procedure applicable to a tax, assessment, fee, or charge, the tax, assessment, fee, or charge can be the subject of a class claim. (Ibid.) Because local claims ordinances are not “statutes” under Government Code section 905, subdivision (a), a provision of the Government Claims Act (although they are for other purposes), they cannot override the claim procedures of the Government Claims Act and prohibit class claims. (McWilliams v. City of Long Beach (2013) 56 Cal.4th 613, 616–617.) However, a class claim can be prohibited by a claims procedure set forth in a statute. (See, e.g., Neecke v. City of Mill Valley (1995) 39 Cal.App.4th 946, 960 [class certification barred because claim for refund of municipal services tax was governed by Revenue and Taxation Code sections 5097 and 5140, which do not allow class claims].) J-116 115LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE C. Pay First, Litigate Later Rule The California Constitution provides that the validity a tax cannot be challenged unless the tax has first been paid. No legal or equitable process shall issue in any proceeding in any court against this State or any officer thereof to prevent or enjoin the collection of any tax. After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as may be provided by the Legislature. (Cal. Const., art. XIII, § 32.) Although this provision only applies to the State by its terms, the courts have extended its “pay first, litigate later” requirement to local governments by common law. (Flying Dutchman Park, Inc. v. City and County of San Francisco (2001) 93 Cal.App.4th 1129, 1137–1138.) The “pay first, litigate later” rule applies at all levels of government: federal, state, and local. (Batt v. City and County of San Francisco (2007) 155 Cal.App.4th 65, 72, disapproved of on other grounds by McWilliams, supra, 56 Cal.4th at p. 626.) Courts have also interpreted the term “tax” broadly for purposes of the application of the “pay first, litigate later” rule. (See , e.g., Woosley v. State of California, 3 Cal.4th 758, 789 (1992) [“Vehicle license fees and use taxes are excise taxes [citations omitted], refunds of which fall within the ambit of article XIII, section 32 of the state Constitution.”]; Water Replenishment District of Southern California v. City of Cerritos (2013) 220 Cal.App.4th 1450, 1469–1470 [noting that payer did not contend that the water replenishment charges at issue were not taxes, and could not do so while claiming protections under Proposition 218].) Logically, the “pay first, litigate later” rule should also apply to a wide range of government fees, particularly where the challenge to the fee asserts that the fee is actually a tax. For the “Pay first, litigate later” rule to apply, there must be an adequate post-payment remedy through which the taxpayer can obtain a refund. (Batt v. City and County of San Francisco, supra, 155 Cal.App.4th 65, 72 disapproved of on other grounds by McWilliams v. City of Long Beach, supra.) III. Standards of Review A. Review in the Trial Court The setting of assessments, fees, and other charges pursuant to legislative authority is a quasi-legislative act. (See Silicon Valley Taxpayers Ass’n, Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 443–444, 448 (Silicon Valley); Shapell Industries, Inc. v. Governing Bd. of the Milpitas Unified Sch. Dist. (1991) 1 Cal.App.4th 218, 230-231 (Shapell Indus.); Kahn v. East Bay Mun. Util. Dist. (1974) 41 Cal.App.3d 397, 409; Durant v. City of Beverly Hills (1940) 39 Cal.App.2d 133, 139.) As such, trial courts review related challenges by writ of traditional mandate pursuant to Code of Civil Procedure section 1085. (Shapell, at pp. 230–231; see also Western States Petroleum Assoc. v. Superior Court (1995) 9 Cal.4th 559, 575 (Western States).) Writ review is generally limited to the administrative record before the governing board when it set the challenged levy. (See Code Civ. Proc., § 1094.5(c); Western States, supra, 9 Cal.4th at pp. 575–576; Carrancho v. Cal. Air Resources Bd. (2003) 111 Cal. App.4th 1255, 1269; Lewin v. St. Joseph Hospital of Orange (1978) 82 Cal.App.3d 368, 388.) As a corollary, discovery is generally not available. (See San Joaquin LAFCO v. Superior Court (2008) 162 Cal.App.4th 159, 167–170; see also Schwartz v. Poizner (2010) 187 Cal.App.4th 592, 599 [holding petitioner failed to justify discovery by identifying specific factual uncertainty affecting his right to mandate].) Further, discovery of a legislative body’s mental or deliberative processes is generally prohibited, although it is the agency’s burden to show that nondisclosure of documents related to those processes is supported by the deliberative process exclusion. (Citizens for Open Gov. v. City of Lodi (2012) 205 Cal.App.4th 296, 306; San Joaquin LAFCO, supra, 82 Cal.App.3d 170; Regents of University of California v. Superior Court (1999) 20 Cal.4th 509, 541.) However, there are limited exceptions to the foregoing limits on the factual record. (Western States, supra, 9 Cal.4th at pp. 578–579) For example, extra-record evidence may be admitted in traditional mandamus actions challenging ministerial or informal administrative actions if specific, material facts are in dispute. (Id. at p. 576; see also Code Civ. Proc., § 1090 [specifying the procedures for setting a factual dispute for evidentiary resolution].) That rule will not commonly apply in rate-making disputes, J-117 116 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 6: LITIGATING CASES UNDER PROPOSITIONS 26 AND 218 as rate-making is a discretionary, legislative action. Extra-record evidence may also be relevant to evaluate whether an agency considered all relevant information or fully explained its actions. (Id. at pp. 579–579, citing Asarco, Inc. v. U.S. Environmental Protection Agency (9th Cir. 1980) 616 F.2d 1153, 1160.) This exception also allows extra-record evidence to assist a court penetrate a record replete with dense, technical language. (Ibid.) Evidence may be introduced for the first time in a trial court when it existed before the agency made its decision, but could not with reasonable diligence have been presented to the agency. (Id. at p. 578.) Finally, Western States suggests that extra-record evidence may be relevant to evaluate collateral matters, such as a challenger’s standing or the accuracy of an administrative record. (See id. at 575, fn. 5.) Critically, however, “extra-record evidence can never be admitted merely to contradict the evidence the administrative agency relied on in making a quasi- legislative decision or to raise a question regarding the wisdom of that decision.” (Western States, supra, 9 Cal.4th at pp. 578–579, emphasis added.)88 B. Separation of Powers and Burden of Proof Under separation-of-powers principles, traditional mandate could issue to correct the exercise of discretionary legislative power, but only if the action taken was so palpably unreasonable and arbitrary as to show an abuse of discretion as a matter of law. (See Shapell Indus., supra, 1 Cal.App.4th at p. 233; Brydon v. East Bay Municipal Utility District (1994) 24 Cal.App.4th 178, 196.) In addition, assessments, fees, and other charges were presumed valid, and the burden to prove otherwise was on the challenger. (Brydon, supra, 24 Cal.App.4th at p. 196.) Propositions 26 and 218 changed this standard in part. Under Articles XIII C and XIII D, once a challenger has made a prima facie case, agencies now have the burden to demonstrate that their assessments, fees, and other charges satisfy the requirements of applicable constitutional provisions. (Cal. Const., art. XIII C, § 1, subd. (e)(unnumbered paragraph); art. XIII D, §§ 4, subd. (f), 6, subd. (b)(5); Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892, 914 [burden shifts to rate-maker under art. XIII D only if plaintiff makes a prima facie case].) These provisions not only shifted the burden of proof, but also implicitly abrogated the common law’s presumption of validity. (Silicon Valley, supra, 44 Cal.4th at pp. 448–449.) Nonetheless, some traditional separation-of-powers principles remain intact. For example, trial courts still constrain their review to the administrative record and may not consider extra-record evidence. (Western States, supra, 9 Cal.4th at pp. 575–576; but see Malott, supra, 55 Cal.App.5th at p. 1110 .) Consistently, even under the constitutionally shifted burden, trial courts should not substitute their judgment for that of the local agency, so long as the administrative record demonstrates no violation of constitutional standards. (See Silicon Valley, supra, 44 Cal.4th at pp. 447–448 [holding legislative discretion is subordinate to constitutional mandate].) The fact that challengers or even a court find alternative rates or methodologies preferable should not be relevant. Put differently, courts should review an agency’s action for constitutional compliance; they should not compare the relative strengths of an agency’s actions with the universe of alternatives proposed by challengers: Given that Proposition 218 prescribes no particular method for apportioning a fee or charge other than that the amount shall not exceed the proportional cost of the service attributable to the parcel, defendant’s method of grouping similar users together for the same augmentation rate and charging the users according to usage is a reasonable way to apportion the cost of service. That there may be other methods favored by plaintiffs does not render defendant’s method unconstitutional. Proposition 218 does not require a more finely calibrated apportion.” (Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586, 601.) 88 The Second District has, however, allowed an extra-record expert declaration where it found the available administrative remedies insufficient, albeit without discussing or distinguishing Western States. (Malott v. Summerland Sanitary District (2020) 55 Cal.App.5th 1102, 1110 [expert declaration allowed because rate increase hearing not adequate venue to challenge existing rate allocation policy].). J-118 117LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE C. Review in the Court of Appeal Whether a charge is a tax or a fee is a question of law decided upon independent review of the rate-making record. (Sinclair Paint, supra, 15 Cal.4th at p. 874 [applying Prop. 13]; California Farm Bureau Federation v. State Water Resources Control Bd. (2011) 51 Cal.4th 421, 436 [same]; Morgan, supra, 223 Cal.App.4th at p. 912 [“We exercise our independent judgment in reviewing whether the District’s rate increases violated [article XIII D] section 6. … In applying this standard of review, we will not provide any deference to the District’s determination of the constitutionality of its rate increase.”].) The agency imposing the fee has the burden to demonstrate that it is not a tax pursuant to Article XIII C, Section 1(e). (Schmeer v. County of Los Angeles (2013) 213 Cal. App.4th 1310, 1322.) Even so, the courts of appeal will not decide disputed issues of fact. (See Moore v. City of Lemon Grove (2015) 237 Cal.App.4th 363, 368–369.) Further, appellate courts will always presume that an underlying judgment is correct. (Ibid.) Thus, even de novo review extends only to the issues properly raised by the appellant in its briefs. (Ibid.) Even so, the courts of appeal will not decide disputed issues of fact. (See Moore v. City of Lemon Grove (2015) 237 Cal.App.4th 363, 368–369.) Further, appellate courts will always presume that an underlying judgment is correct. (Ibid.) Thus, even de novo review extends only to the issues properly raised by the appellant in its briefs. (Ibid.) “Constitutional facts” are reviewed de novo to ensure meaningful appellate review of facts on which constitutional rights depend. (See McCoy v. Hearst Corp. (1986) 42 Cal.3d 835, 842 [independent review “reflects a deeply held conviction that judges — and particularly Members of this Court — must exercise such review in order to preserve the precious liberties established and ordained by the Constitution,” quoting Bose Corp. v. Consumers Union of U.S., Inc. (1984) 466 U.S. 485, 510–511].) An interesting discussion of this theory of appellate review of trial court fact-finding can be found in Faigman, Constitutional Fictions: A Unified Theory of Constitutional Facts (2008). Factual findings on conflicting evidence adduced at trial are properly reviewed for substantial evidence. (See People v. Cromer (2001) 24 Cal.4th 889, 894.) However, in mandate review of a cold administrative record, the trial and appellate task is the same: “Although an appellate court defers to a trial court’s factual determinations if supported by substantial evidence,” where, as here, “the trial court’s decision did not turn on any disputed facts,” the trial court’s decision “is subject to de novo review.” (Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 911, 916; see also Professional Engineers in California Government v. Kempton (2007) 40 Cal.4th 1016, 1032; Moore, supra, 237 Cal.App.4th at p. 369.) If, however, a rate-making agency waives the benefit of Western States Petroleum Ass’n. v. Superior Court (1995) 9 Cal.4th 559 (mandate review of agency action limited to administrative record) and offers — or allows a challenger to offer — extra-record evidence, the trial court’s findings of facts are reviewed for substantial evidence. Such was the case in Morgan, supra, 223 Cal. App.4th at p. 915 [applying substantial evidence standard to challenger’s attack on rate-making using extra-record data].) Finally, a trial court sitting in equity has broad remedial discretion, and remedy is reviewed for abuse of discretion. (In re Estates of Collins (2012) 205 Cal.App.4th 1238, 1246.) IV. Remedies A. Prospective Relief Writ relief is commonly pursued in actions under Propositions 218 and 26. (E.g., Golden Hill Neighborhood Assn., Inc. v. City of San Diego (2011) 199 Cal.App.4th 416, 435 [writ of mandate to vacate resolution forming special assessment district in violation of Proposition 218]; AB Cellular, LA, LLC v. City of Los Angeles (2007) 150 Cal.App.4th 747, 767 [affirming writ of mandate directing city to reinstate previous calculation of tax on telephone services under Prop. 218].) Injunctions are available after litigation challenging the tax is complete. (Ardon v. City of Los Angeles (2011) 52 Cal.4th 241, 252.) They are not available pendente lite, however. (See Cal. Const., art. XIIII, § 32 and related case law, discussed above.) J-119 118 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 6: LITIGATING CASES UNDER PROPOSITIONS 26 AND 218 Plaintiffs will often seek declaratory and injunctive relief as separate causes of action when bringing writ claims under Proposition 218 and 26. Courts often dismiss separate causes of action for declaratory or injunctive relief as duplicative of relief requested in a writ claim. Many cases hold an injunction is a remedy, not a cause of action, and a writ of mandate often has the same effect as an injunction: requiring action by a public agency. (E.g., City of Pasadena v. Cohen (2014) 228 Cal.App.4th 1461, 1467 [no declaratory relief with writ claim challenging administrative decision in post-redevelopment dispute]; Mental Health Assn. in California v. Schwarzenegger (2010) 190 Cal.App.4th 952, 959 [declaratory and injunctive relief claims “redundant” of mandate petition when all present same question of law].) When a plaintiff seeks only declaratory relief to challenge a levy and that declaratory relief would have an injunctive effect, the same “pay first, litigate later” rule applies as in taxpayer challenges seeking injunctions. (Chodos v. City of Los Angeles (2011) 195 Cal.App.4th 675, 680.) B. Refunds and Class Actions The Supreme Court reinvigorated use of the Government Claims Act and class action complaints to challenge revenue measures in Ardon v. City of Los Angeles (2011) 52 Cal.4th 241. Where plaintiffs pursue refund claims not subject to statutory exhaustion requirements (such as those applicable to certain tax refund claims), Ardon held Government Code section 910 in the Government Claims Act allows class claims. (Id. at p.251.) In rejecting the City of Los Angeles’s reliance on article XIII, section 32 of the Constitution, which prohibits injunctions on the collection of taxes, the Supreme Court found the city’s fear of “a potentially huge liability in the form of a class action” did not “justify precluding legitimate class proceedings for the refund of allegedly illegal taxes[.]” (Id. at p. 252.) Two years after Ardon, the Supreme Court rejected the City of Long Beach’s reliance on its municipal code, which purported to bar class refund claims, because it was not a “statute” prescribing procedures for tax refunds under Government Code section 905 and thus did not bar class refund claims under the Government Claims Act. (McWilliams v. City of Long Beach (2013) 56 Cal.4th 613, 621.) Cities are thus left to the mercy of the Legislature to amend the Government Claims Act and allow local measures to bar refund class actions; the Legislature has not yet seen fit to do so. Until the Legislature amends the Government Claims Act to allow cities to bar class action refund claims, cities are at significant risk of large class action refund judgments if a revenue measure is determined to be invalid. A potential class refund begins to accrue one year before a Government Claims Act claim for the class is filed (Gov. Code, § 911.2, subd. (a)) and continues to accrue for the duration of the litigation or until the city replaces the challenged levy. For a more thorough discussion of class action challenges to revenue measures, see Ryan Thomas Dunn, Emerging Trends to Class Action Challenges to Revenue Measures (May 7, 2021), available at, https://www.cacities.org/Resources-Documents/ Member-Engagement/Professional-Departments/City-Attorneys/Library/2021/21-Spring/5-2021-Spring;-Dunn-Emerging- Trends-in-Class-Actio. C. Attorneys’ Fees Successful plaintiffs can be entitled to attorneys’ fees pursuant to Code of Civil Procedure section 1021.5 so long as those plaintiffs filed actions result “in the enforcement of an important right affecting the public interest,” as successful challenges to levies often do. (Cf. Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892, 929–931 [reversing award of attorneys’ fees based on trial court’s incorrect assumption challenged rates violated Proposition 218].) A litigant who has a financial interest in the litigation may be disqualified from obtaining fees under Code of Civil Procedure section 1021.5 because no fee award is necessary to induce litigation to establish important principles of law to benefit the public. (E.g., Norberg v. California Coastal Commission (2013) 221 Cal.App.4th 535.) In class actions seeking refunds under the Government Claims Act, plaintiffs’ counsel may also seek a portion of the total refund award under the “common fund” theory for attorney fees. (E.g., Lafitte v. Robert Half Internat. Inc. (2016) 1 Cal.5th 480, 503–504.) J-120 119LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE D. Validation Actions The Code of Civil Procedure allows public entities to bring validation actions to confirm a decision to institute or raise a levy subject to Propositions 218 and 26 in an in rem judgment that binds all who might later challenge that decision. (Code Civ. Proc., § 860 et seq.) Agencies might use validation actions to control litigation that challenges a tax or to establish that a levy is valid. (E.g., Pajaro Valley Water Mgmt. Agency v. Amrhein (2007) 150 Cal.App.4th 1364 [agency’s complaint to validate groundwater augmentation fee increase]; City of San Diego v. Shapiro (2014) 228 Cal.App.4th 756 [complaint to validate special tax].) Challengers to levies may file “reverse validation” actions within the same, short, 60-day statute of limitations if an agency does not file a validation action. (E.g., Howard Jarvis Taxpayers Ass’n v. City of Salinas (2002) 98 Cal.App.4th 1351 [taxpayers’ reverse validation action to challenge storm drainage fee pursuant to Prop. 218].) As mentioned above, some procedural ordinances require challenges to a levy to be brought in validation. Further discussion of validation appears above, in the section regarding statutes of limitation. E. Proposition 62 Penalty Remedy Proposition 62 is a 1986 statutory initiative applicable to general law cities, counties, and special districts. (Gov. Code, § 53720 et seq.) It includes a penalty provision requiring that, if a court finds a local government did not comply with Proposition 62’s requirements, “the amount of property tax revenue allocated to the jurisdiction … shall be reduced by one dollar ($1.00) for each one dollar ($1.00) of revenue attributable to such tax for each year that the tax is collected.” (Gov. Code, § 53728.) Thus, pursuant to Proposition 62, a court can order withholding of property tax revenue from local governments on a dollar-for-dollar basis for each dollar of revenue attributable to an unauthorized special tax. Despite Proposition 62’s enactment in 1986, no reported case has yet discussed this remedy. The Proposition 62 remedy arguably does not apply to “taxes” as defined by 2010’s Proposition 26, which succeeded it by 24 years, but only “taxes” as they were defined by common law in 1986 when Proposition 62 was adopted. (See Sinclair Paint v. State Bd. of Equalization (1997) 15 Cal.4th 866, 874 [pre-Prop. 26 case noting “‘tax’ has no fixed meaning” and “compulsory fees may be deemed legitimate fees rather than taxes”].) The Proposition 62 penalty is also arguably unconstitutional under Proposition 13, which requires property taxes to be distributed “to the districts” from which they are collected. (Cal. Const., art. XIII A, § 1, subd. (a).) Further, Prop. 62 has no provision redirecting funds withheld pursuant to Government Code section 53728, leaving open the question of whether withheld funds should be returned to the State general fund, left with the Counties, held as escheat, or returned to taxpayers as a refund. J-121 120 LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE CHAPTER 6: LITIGATING CASES UNDER PROPOSITIONS 26 AND 218 J-122 121 121LEAGUE OF CALIFORNIA CITIES: PROPOSITION 26 AND 218 IMPLEMENTATION GUIDE Attachments Attachments A. Proposition 26 Materials 1. Text of Proposition 26 2. Proposition 26 Ballot Materials 3. Text of Articles XIIIC and XIIID with Proposition 26 Codified Therein B. Proposition 218 Materials 1. Text of Proposition 218 2. Proposition 218 Ballot Materials 3. Howard Jarvis Taxpayers Association Annotated Version of Proposition 218 4. Proposition 218 Statement of Drafters Intent 5. Legislative Analyst Post-Election Analysis on Proposition 218 6. Proposition 218 Guidelines for Placing Flat Fees on the Secured Role, California State Association for County Auditors, April 1997 C. Sample Notice of Proposed Assessment D. Sample Notice of Assessment Procedures E. Sample Resolution Setting Rules for Counting Protests on Property Related Fee J-123 Attachment A J-124 114 | Text of Proposed Laws TEXT OF PROPOSED LAWS (PROPOSITION 25 CONTINUED) (b) The Governor and the Governor-elect may require a state agency, officer or employee to furnish whatever information is deemed necessary to prepare the budget. (c) (l) The budget shall be accompanied by a budget bill itemizing recommended expenditures. (2) The budget bill shall be introduced immediately in each house by the persons chairing the committees that consider the budget. (3) The Legislature shall pass the budget bill by midnight on June 15 of each year. (4) Until the budget bill has been enacted, the Legislature shall not send to the Governor for consideration any bill appropriating funds for expenditure during the fiscal year for which the budget bill is to be enacted, except emergency bills recommended by the Governor or appropriations for the salaries and expenses of the Legislature. (d) No bill except the budget bill may contain more than one item of appropriation, and that for one certain, expressed purpose. Appropriations from the General Fund of the State, except appropriations for the public schools, and appropriations in the budget bill and in other bills providing for appropriations related to the budget bill, are void unless passed in each house by rollcall vote entered in the journal, two-thirds of the membership concurring. (e) (1) Notwithstanding any other provision of law or of this Constitution, the budget bill and other bills providing for appropriations related to the budget bill may be passed in each house by rollcall vote entered in the journal, a majority of the membership concurring, to take effect immediately upon being signed by the Governor or upon a date specified in the legislation. Nothing in this subdivision shall affect the vote requirement for appropriations for the public schools contained in subdivision (d) of this section and in subdivision (b) of Section 8 of this article. (2) For purposes of this section, “other bills providing for appropriations related to the budget bill” shall consist only of bills identified as related to the budget in the budget bill passed by the Legislature. (e) (f) The Legislature may control the submission, approval, and enforcement of budgets and the filing of claims for all state agencies. (f) (g) For the 2004–05 fiscal year, or any subsequent fiscal year, the Legislature may not send to the Governor for consideration, nor may the Governor sign into law, a budget bill that would appropriate from the General Fund, for that fiscal year, a total amount that, when combined with all appropriations from the General Fund for that fiscal year made as of the date of the budget bill’s passage, and the amount of any General Fund moneys transferred to the Budget Stabilization Account for that fiscal year pursuant to Section 20 of Article XVI, exceeds General Fund revenues for that fiscal year estimated as of the date of the budget bill’s passage. That estimate of General Fund revenues shall be set forth in the budget bill passed by the Legislature. (h) Notwithstanding any other provision of law or of this Constitution, including subdivision (c) of this section, Section 4 of this article, and Sections 4 and 8 of Article III, in any year in which the budget bill is not passed by the Legislature by midnight on June 15, there shall be no appropriation from the current budget or future budget to pay any salary or reimbursement for travel or living expenses for Members of the Legislature during any regular or special session for the period from midnight on June 15 until the day that the budget bill is presented to the Governor. No salary or reimbursement for travel or living expenses forfeited pursuant to this subdivision shall be paid retroactively. SEC. 5. Severability. If any of the provisions of this measure or the applicability of any provision of this measure to any person or circumstances shall be found to be unconstitutional or otherwise invalid, such finding shall not affect the remaining provisions or applications of this measure to other persons or circumstances, and to that extent the provisions of this measure are deemed to be severable. PROPOSITION 26 This initiative measure is submitted to the people in accordance with the provisions of Section 8 of Article II of the California Constitution. This initiative measure amends sections of the California Constitution; therefore, existing provisions proposed to be deleted are printed in strikeout type and new provisions proposed to be added are printed in italic type to indicate that they are new. PROPOSED LAW SECTION 1. Findings and Declarations of Purpose. The people of the State of California find and declare that: (a) Since the people overwhelmingly approved Proposition 13 in 1978, the Constitution of the State of California has required that increases in state taxes be adopted by not less than two-thirds of the members elected to each house of the Legislature. (b) Since the enactment of Proposition 218 in 1996, the Constitution of the State of California has required that increases in local taxes be approved by the voters. (c) Despite these limitations, California taxes have continued to escalate. Rates for state personal income taxes, state and local sales and use taxes, and a myriad of state and local business taxes are at all-time highs. Californians are taxed at one of the highest levels of any state in the nation. (d) Recently, the Legislature added another $12 billion in new taxes to be paid by drivers, shoppers, and anyone who earns an income. (e) This escalation in taxation does not account for the recent phenomenon whereby the Legislature and local governments have disguised new taxes as “fees” in order to extract even more revenue from California taxpayers without having to abide by these constitutional voting requirements. Fees couched as “regulatory” but which exceed the reasonable costs of actual regulation or are simply imposed to raise revenue for a new program and are not part of any licensing or permitting program are actually taxes and should be subject to the limitations applicable to the imposition of taxes. (f) In order to ensure the effectiveness of these constitutional limitations, this measure also defines a “tax” for state and local purposes so that neither the Legislature nor local governments can circumvent these restrictions on increasing taxes by simply defining new or expanded taxes as “fees.” SECTION 2. Section 3 of Article XIII A of the California Constitution is amended to read: SEC. 3. (a) From and after the effective date of this article, any changes in state taxes enacted for the purpose of increasing revenues collected pursuant thereto Any change in state statute which results in any taxpayer paying a higher tax whether by increased rates or changes in methods of computation must be imposed by an Act act passed by not less than two-thirds of all members elected to each of the two houses of the Legislature, except that no new ad valorem taxes on real property, or sales or transaction taxes on the sales of real property may be imposed. 114 | Text of Proposed Laws J-125 Text of Proposed Laws | 115 TEXT OF PROPOSED LAWS (PROPOSITION 26 CONTINUED) (b) As used in this section, “tax” means any levy, charge, or exaction of any kind imposed by the State, except the following: (1) A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the State of conferring the benefit or granting the privilege to the payor. (2) A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the State of providing the service or product to the payor. (3) A charge imposed for the reasonable regulatory costs to the State incident to issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. (4) A charge imposed for entrance to or use of state property, or the purchase, rental, or lease of state property, except charges governed by Section 15 of Article XI. (5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or the State, as a result of a violation of law. (c) Any tax adopted after January 1, 2010, but prior to the effective date of this act, that was not adopted in compliance with the requirements of this section is void 12 months after the effective date of this act unless the tax is reenacted by the Legislature and signed into law by the Governor in compliance with the requirements of this section. (d) The State bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. SECTION 3. Section 1 of Article XIII C of the California Constitution is amended to read: SECTION 1. Def initions. As used in this article: (a) “General tax” means any tax imposed for general governmental purposes. (b) “Local government” means any county, city, city and county, including a charter city or county, any special district, or any other local or regional governmental entity. (c) “Special district” means 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 including, but not limited to, school districts and redevelopment agencies. (d) “Special tax” means any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund. (e) As used in this article, “tax” means any levy, charge, or exaction of any kind imposed by a local government, except the following: (1) A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. (2) A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product. (3) A charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. (4) A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property. (5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law. (6) A charge imposed as a condition of property development. (7) Assessments and property-related fees imposed in accordance with the provisions of Article XIII D. The local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. SECTION 4. Conflicting Measures. In the event that this measure and another measure or measures relating to the legislative or local votes required to enact taxes or fees shall appear on the same statewide election ballot, the provisions of the other measure or measures shall be deemed to be in conflict with this measure. In the event that this measure shall receive a greater number of affirmative votes, the provisions of this measure shall prevail in their entirety, and the provisions of the other measure or measures relating to the legislative or local votes required to enact taxes or fees shall be null and void. SECTION 5. Severability. If any provision of this act, or any part thereof, is for any reason held to be invalid or unconstitutional, the remaining provisions shall not be affected, but shall remain in full force and effect, and to this end the provisions of this act are severable. PROPOSITION 27 This initiative measure is submitted to the people in accordance with the provisions of Section 8 of Article II of the California Constitution. This initiative measure amends the California Constitution and repeals sections of the Government Code; therefore, existing provisions proposed to be deleted are printed in strikeout type and new provisions proposed to be added are printed in italic type to indicate that they are new. PROPOSED LAW SECTION 1. Title. This Act shall be known and may be cited as the “Financial Accountability in Redistricting Act” or “FAIR Act.” SECTION 2. Findings and Purpose. The people of the State of California hereby make the following findings and declare their purpose in enacting the FAIR Act is as follows: (a) Our political leadership has failed us. California is facing an unprecedented economic crisis and we, the people (not the politicians), need to prioritize how we spend our limited funds. We are going broke. Spending unlimited millions of dollars to create multiple new bureaucracies just to decide a political game of Musical Chairs is a waste—pure and simple. Under current law, a group of unelected commissioners, making up to $1 million a year Text of Proposed Laws | 115J-126 Attachment B J-127 OFFICIAL TITLE AND SUMMARY PREPARED BY THE ATTORNEY GENERAL REQUIRES THAT CERTAIN STATE AND LOCAL FEES BE APPROVED BY TWO-THIRDS VOTE. FEES INCLUDE THOSE THAT ADDRESS ADVERSE IMPACTS ON SOCIETY OR THE ENVIRONMENT CAUSED BY THE FEE-PAYER’S BUSINESS. INITIATIVE CONSTITUTIONAL AMENDMENT. • Requires that certain state fees be approved by two-thirds vote of Legislature and certain local fees be approved by two-thirds of voters. • Increases legislative vote requirement to two-thirds for certain tax measures, including those that do not result in a net increase in revenue, currently subject to majority vote. Summary of Legislative Analyst’s Estimate of Net State and Local Government Fiscal Impact: • Decreased state and local government revenues and spending due to the higher approval requirements for new revenues. The amount of the decrease would depend on future decisions by governing bodies and voters, but over time could total up to billions of dollars annually. • Additional state fiscal effects from repealing recent fee and tax laws: (1) increased transportation program spending and increased General Fund costs of $1 billion annually, and (2) unknown potential decrease in state revenues. 56 | Title and Summary / Analy sis PROPOSITION REQUIRES THAT CERTAIN STATE AND LOCAL FEES BE APPROVED BY TWO-THIRDS VOTE. FEES INCLUDE THOSE THAT ADDRESS ADVERSE IMPACTS ON SOCIETY OR THE ENVIRONMENT CAUSED BY THE FEE-PAYER’S BUSINESS. INITIATIVE CONSTITUTIONAL AMENDMENT.26 • Regulatory fees—such as fees on restaurants to pay for health inspections and fees on the purchase of beverage containers to support recycling programs. Regulatory fees pay for programs that place requirements on the activities of businesses or people to achieve particular public goals or help offset the public or environmental impact of certain activities. • Property charges—such as charges imposed on property developers to improve roads leading to new subdivisions and assessments that pay for improvements and services that benefit the property owner. BACKGROUND State and local governments impose a variety of taxes, fees, and charges on individuals and businesses. Taxes—such as income, sales, and property taxes—are typically used to pay for general public services such as education, prisons, health, and social services. Fees and charges, by comparison, typically pay for a particular service or program benefitting individuals or businesses. There are three broad categories of fees and charges: • User fees—such as state park entrance fees and garbage fees, where the user pays for the cost of a specific service or program. ANALYSIS BY THE LEGISLATIVE ANALYST Figure 1 Approval Requirements: State and Local Taxes, Fees, and Charges State Local Tax Two-thirds of each house of the Legislature for measures increasing state revenues. • Two-thirds of local voters if the local government specifies how the funds will be used. • Majority of local voters if the local government does not specify how the funds will be used. Fee Majority of each house of the Legislature. Generally, a majority of the governing body. Property Charges Majority of each house of the Legislature. Generally, a majority of the governing body. Some also require approval by a majority of property owners or two-thirds of local voters. J-128 For text of Proposition 26, see page 114. Analysis | 57 State law has different approval requirements regarding taxes, fees, and property charges. As Figure 1 shows, state or local governments usually can create or increase a fee or charge with a majority vote of the governing body (the Legislature, city council, county board of supervisors, etc.). In contrast, increasing tax revenues usually requires approval by two-thirds of each house of the state Legislature (for state proposals) or a vote of the people (for local proposals). Disagreements Regarding Regulatory Fees. Over the years, there has been disagreement regarding the difference between regulatory fees and taxes, particularly when the money is raised to pay for a program of broad public benefit. In 1991, for example, the state began imposing a regulatory fee on businesses that made products containing lead. The state uses this money to screen children at risk for lead poisoning, follow up on their treatment, and identify sources of lead contamination responsible for the poisoning. In court, the Sinclair Paint Company argued that this regulatory fee was a tax because: (1) the program provides a broad public benefit, not a benefit to the regulated business, and (2) the companies that pay the fee have no duties regarding the lead poisoning program other than payment of the fee. In 1997, the California Supreme Court ruled that this charge on businesses was a regulatory fee, not a tax. The court said government may impose regulatory fees on companies that make contaminating products in order to help correct adverse health effects related to those products. Consequently, regulatory fees of this type can be created or increased by (1) a majority vote of each house of the Legislature or (2) a majority vote of a local governing body. PROPOSAL This measure expands the definition of a tax and a tax increase so that more proposals would require approval by two-thirds of the Legislature or by local voters. Figure 2 summarizes its main provisions. REQUIRES THAT CERTAIN STATE AND LOCAL FEES BE APPROVED BY TWO-THIRDS VOTE. FEES INCLUDE THOSE THAT ADDRESS ADVERSE IMPACTS ON SOCIETY OR THE ENVIRONMENT CAUSED BY THE FEE-PAYER’S BUSINESS. INITIATIVE CONSTITUTIONAL AMENDMENT. PROP26 ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED Figure 2 Major Provisions of Proposition 26 9 Expands the Scope of What Is a State or Local Tax • Classifies as taxes some fees and charges that government currently may impose with a majority vote. • As a result, more state revenue proposals would require approval by two-thirds of each house of the Legislature and more local revenue proposals would require local voter approval. 9 Raises the Approval Requirement for Some State Revenue Proposals • Requires a two-thirds vote of each house of the Legislature to approve laws that increase taxes on any taxpayer, even if the law’s overall fiscal effect does not increase state revenues. 9 Repeals Recently Passed, Conflicting State Laws • Repeals recent state laws that conflict with this measure, unless they are approved again by two-thirds of each house of the Legislature. Repeal becomes effective in November 2011. J-129 ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED 58 | Analysis PROP26 Definition of a State or Local Tax Expands Definition. This measure broadens the definition of a state or local tax to include many payments currently considered to be fees or charges. As a result, the measure would have the effect of increasing the number of revenue proposals subject to the higher approval requirements summarized in Figure 1. Generally, the types of fees and charges that would become taxes under the measure are ones that government imposes to address health, environmental, or other societal or economic concerns. Figure 3 provides examples of some regulatory fees that could be considered taxes, in part or in whole, under the measure. This is because these fees pay for many services that benefit the public broadly, rather than providing services directly to the fee payer. The state currently uses these types of regulatory fees to pay for most of its environmental programs. Certain other fees and charges also could be considered to be taxes under the measure. For example, some business assessments could be considered to be taxes because government uses the assessment revenues to improve shopping districts (such as providing parking, street lighting, increased security, and marketing), rather than providing a direct and distinct service to the business owner. Some Fees and Charges Are Not Affected. The change in the definition of taxes would not affect most user fees, property development charges, and property assessments. This is because these fees and charges generally comply with Proposition 26’s requirements already, or are exempt from its provisions. In addition, most other fees or charges in existence at the time of the November 2, 2010 election would not be affected unless: • The state or local government later increases or extends the fees or charges. (In this case, the state or local government would have to comply with the approval requirements of Proposition 26.) • The fees or charges were created or increased by a state law—passed between January 1, 2010 and November 2, 2010—that conflicts with Proposition 26 (discussed further below). Approval Requirement for State Tax Measures Current Requirement. The State Constitution currently specifies that laws enacted “for the purpose REQUIRES THAT CERTAIN STATE AND LOCAL FEES BE APPROVED BY TWO-THIRDS VOTE. FEES INCLUDE THOSE THAT ADDRESS ADVERSE IMPACTS ON SOCIETY OR THE ENVIRONMENT CAUSED BY THE FEE-PAYER’S BUSINESS. INITIATIVE CONSTITUTIONAL AMENDMENT. Figure 3 Regulatory Fees That Benefit the Public Broadly Oil Recycling Fee The state imposes a regulatory fee on oil manufacturers and uses the funds for: • Public information and education programs. • Payments to local used oil collection programs. • Payment of recycling incentives. • Research and demonstration projects. • Inspections and enforcement of used-oil recycling facilities. Hazardous Materials Fee The state imposes a regulatory fee on businesses that treat, dispose of, or recycle hazardous waste and uses the funds for: • Clean up of toxic waste sites. • Promotion of pollution prevention. • Evaluation of waste source reduction plans. • Certification of new environmental technologies. Fees on Alcohol Retailers Some cities impose a fee on alcohol retailers and use the funds for: • Code and law enforcement. • Merchant education to reduce public nuisance problems associated with alcohol (such as violations of alcohol laws, violence, loitering, drug dealing, public drinking, and graffiti). J-130 ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED For text of Proposition 26, see page 114. Analy sis | 59 PROP26 of increasing revenues” must be approved by two- thirds of each house of the Legislature. Under current practice, a law that increases the amount of taxes charged to some taxpayers but offers an equal (or larger) reduction in taxes for other taxpayers has been viewed as not increasing revenues. As such, it can be approved by a majority vote of the Legislature. New Approval Requirement. The measure specifies that state laws that result in any taxpayer paying a higher tax must be approved by two-thirds of each house of the Legislature. State Laws in Conflict With Proposition 26 Repeal Requirement. Any state law adopted between January 1, 2010 and November 2, 2010 that conflicts with Proposition 26 would be repealed one year after the proposition is approved. This repeal would not take place, however, if two-thirds of each house of the Legislature passed the law again. Recent Fuel Tax Law Changes. In the spring of 2010, the state increased fuel taxes paid by gasoline suppliers, but decreased other fuel taxes paid by gasoline retailers. Overall, these changes do not raise more state tax revenues, but they give the state greater spending flexibility over their use. Using this flexibility, the state shifted about $1 billion of annual transportation bond costs from the state’s General Fund to its fuel tax funds. (The General Fund is the state’s main funding source for schools, universities, prisons, health, and social services programs.) This action decreases the amount of money available for transportation programs, but helps the state balance its General Fund budget. Because the Legislature approved this tax change with a majority vote in each house, this law would be repealed in November 2011—unless the Legislature approved the tax again with a two-thirds vote in each house. Other Laws. At the time this analysis was prepared (early in the summer of 2010), the Legislature and Governor were considering many new laws and funding changes to address the state’s major budget difficulties. In addition, parts of this measure would be subject to future interpretation by the courts. As a result, we cannot determine the full range of state laws that could be affected or repealed by the measure. FISCAL EFFECTS Approval Requirement Changes. By expanding the scope of what is considered a tax, the measure would make it more difficult for state and local governments to pass new laws that raise revenues. This change would affect many environmental, health, and other regulatory fees (similar to the ones in Figure 3), as well as some business assessments and other levies. New laws to create—or extend— these types of fees and charges would be subject to the higher approval requirements for taxes. The fiscal effect of this change would depend on future actions by the Legislature, local governing boards, and local voters. If the increased voting requirements resulted in some proposals not being approved, government revenues would be lower than otherwise would have occurred. This, in turn, likely would result in comparable decreases in state spending. Given the range of fees and charges that would be subject to the higher approval threshold for taxes, the fiscal effect of this change could be major. Over time, we estimate that it could reduce government revenues and spending statewide by up to billions of dollars annually compared with what otherwise would have occurred. Repeal of Conflicting Laws. Repealing conflicting state laws could have a variety of fiscal effects. For example, repealing the recent fuel tax laws would increase state General Fund costs by about $1 billion annually for about two decades and increase funds available for transportation programs by the same amount. Because this measure could repeal laws passed after this analysis was prepared and some of the measure’s provisions would be subject to future interpretation by the courts, we cannot estimate the full fiscal effect of this repeal provision. Given the nature of the proposals the state was considering in 2010, however, it is likely that repealing any adopted proposals would decrease state revenues (or in some cases increase state General Fund costs). Under this proposition, these fiscal effects could be avoided if the Legislature approves the laws again with a two- thirds vote of each house. REQUIRES THAT CERTAIN STATE AND LOCAL FEES BE APPROVED BY TWO-THIRDS VOTE. FEES INCLUDE THOSE THAT ADDRESS ADVERSE IMPACTS ON SOCIETY OR THE ENVIRONMENT CAUSED BY THE FEE-PAYER’S BUSINESS. INITIATIVE CONSTITUTIONAL AMENDMENT. J-131 60 | Arguments Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency. REQUIRES THAT CERTAIN STATE AND LOCAL FEES BE APPROVED BY TWO-THIRDS VOTE. FEES INCLUDE THOSE THAT ADDRESS ADVERSE IMPACTS ON SOCIETY OR THE ENVIRONMENT CAUSED BY THE FEE-PAYER’S BUSINESS. INITIATIVE CONSTITUTIONAL AMENDMENT. PROP26 ARGUMENT IN FAVOR OF PROPOSITION 26 REBUTTAL TO ARGUMENT IN FAVOR OF PROPOSITION 26 Do you want corporations to write special protections into California’s Constitution? Should California protect polluters at the expense of public safety? That’s what Prop. 26 is: big oil, tobacco, and alcohol companies want taxpayers to pay for cleaning their mess. As a result, local police and fire departments will have fewer resources to keep us safe. The claim that Prop. 26 won’t harm consumers and the environment is false. Corporations are spending millions misleading voters into thinking that the payments made by companies that pollute or harm public health are “hidden taxes.” The campaign’s own website cited “Oil severance fee to mitigate oil spill clean up, and build larger response and enforcement capabilities” as a hidden tax. Here are some other fees they don’t want to pay—listed in their own documents: • Fees on polluters to clean up hazardous waste • Fees on oil companies for oil spill cleanup • Fees on tobacco companies for the adverse health effects of tobacco products. PROPOSITION 26 IS BAD FOR THE ENVIRONMENT, PUBLIC SAFETY, & TAXPAYERS. The California Professional Firefighters, League of Women Voters of California, California Nurses Association, Sierra Club, Planning & Conservation League, Californians Against Waste, and California Tax Reform Association all oppose 26 because it would force ordinary citizens to pay for the damage done by polluters. Californians can’t afford to clean up polluters’ messes when local governments are cutting essential services like police and fire departments. WE NEED TO PROTECT THE PUBLIC, NOT POLLUTERS! VOTE NO on 26. RON COTTINGHAM, President Peace Officers Research Association of California WARNER CHABOT, Chief Executive Officer California League of Conservation Voters PATTY VELEZ, President California Association of Professional Scientists YES ON PROPOSITION 26: STOP POLITICIANS FROM ENACTING HIDDEN TAXES State and local politicians are using a loophole to impose Hidden Taxes on many products and services by calling them “fees” instead of taxes. Here’s how it works: At the State Level: • California’s Constitution requires a two-thirds vote of the Legislature for new or increased taxes, but the politicians use a gimmick to get around this by calling their taxes “fees” so they can pass them with only a bare majority vote. At the Local Level: • Most tax increases at the local level require voter approval. Local politicians have been calling taxes “fees” so they can bypass voters and raise taxes without voter permission— taking away your right to stop these Hidden Taxes at the ballot. PROPOSITION 26 CLOSES THIS LOOPHOLE Proposition 26 requires politicians to meet the same vote requirements to pass these Hidden Taxes as they must to raise other taxes, protecting California taxpayers and consumers by requiring these Hidden Taxes to be passed by a two-thirds vote of the Legislature and, at the local level, by public vote. PROPOSITION 26 PROTECTS ENVIRONMENTAL AND CONSUMER REGULATIONS AND FEES Don’t be misled by opponents of Proposition 26. California has some of the strongest environmental and consumer protection laws in the country. Proposition 26 preserves those laws and PROTECTS LEGITIMATE FEES SUCH AS THOSE TO CLEAN UP ENVIRONMENTAL OR OCEAN DAMAGE, FUND NECESSARY CONSUMER REGULATIONS, OR PUNISH WRONGDOING, and for licenses for professional certification or driving. DON’T LET THE POLITICIANS CIRCUMVENT OUR CONSTITUTION TO TAKE EVEN MORE MONEY FROM US Politicians have proposed more than $10 billion in Hidden Taxes. Here are a few examples of things they could apply Hidden Taxes to unless we stop them: • Food • Gas • Toys • Water • Cell Phones • Electricity • Insurance • Beverages • Emergency Services • Entertainment PROPOSITION 26: HOLD POLITICIANS ACCOUNTABLE “State politicians already raised taxes by $18 billion. Now, instead of controlling spending to address the budget deficit, they’re using this gimmick to increase taxes even more! It’s time for voters to STOP the politicians by passing Proposition 26.”— Teresa Casazza, California Taxpayers’ Association Local politicians play tricks on voters by disguising taxes as “fees” so they don’t have to ask voters for approval. They need to control spending, not use loopholes to raise taxes! It’s time to hold them accountable for runaway spending and to stop Hidden Taxes at the local level. YES ON PROPOSITION 26: PROTECT CALIFORNIA FAMILIES California families and small businesses can’t afford new and higher Hidden Taxes that will kill jobs and hurt families. When government increases Hidden Taxes, consumers and taxpayers pay increased costs on everyday items. “The best way out of this recession is to grow the economy and create jobs, not increase taxes. Proposition 26 will send a message to politicians that it’s time to clean up wasteful spending in Sacramento.”—John Kabateck, National Federation of Independent Business/California VOTE YES ON PROPOSITION 26 TO STOP HIDDEN TAXES—www.No25Yes26.com TERESA CASAZZA, President California Taxpayers’ Association ALLAN ZAREMBERG, President California Chamber of Commerce JOEL FOX, President Small Business Action Committee J-132 Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency. Ar guments | 61 ARGUMENT AGAINST PROPOSITION 26 REBUTTAL TO ARGUMENT AGAINST PROPOSITION 26 REQUIRES THAT CERTAIN STATE AND LOCAL FEES BE APPROVED BY TWO-THIRDS VOTE. FEES INCLUDE THOSE THAT ADDRESS ADVERSE IMPACTS ON SOCIETY OR THE ENVIRONMENT CAUSED BY THE FEE-PAYER’S BUSINESS. INITIATIVE CONSTITUTIONAL AMENDMENT. PROP26 Should polluters be protected from paying to clean up the damage they do? Should taxpayers foot the bill instead? The answer is NO, and that’s why voters should reject Proposition 26, the Polluter Protection Act. Who put Prop. 26 on the ballot? Oil, tobacco, and alcohol companies provided virtually all the funding for this measure, including Chevron, Exxon Mobil, and Phillip Morris. Their goal: to shift the burden of paying for the damage these companies have done onto the taxpayers. How does this work? Prop. 26 redefines payments for harm to the environment or public health as tax increases, requiring a ²/³ vote for passage. Such payments, or pollution fees on public nuisances, would become much harder to enact—leaving taxpayers to foot the bill. California has enough problems without forcing taxpayers to pay for cleaning up after polluting corporations. Companies that pollute, harm the public health, or create a public nuisance should be required to pay to cover the damage they cause. But the big oil, tobacco, and alcohol corporations want you, the taxpayer, to pay for cleaning up their messes. That’s why these corporations wrote Proposition 26 behind closed doors, with zero public input, and why they put up millions of dollars to get Proposition 26 on the ballot. Proposition 26 is just another attempt by corporations to protect themselves at the expense of ordinary citizens. The problem isn’t taxes “hidden” as fees; it’s the oil and tobacco companies hiding their true motives: • Polluters don’t want to pay fees used to clean up hazardous waste. • Oil companies don’t want to pay fees used for cleaning up oil spills and fighting air pollution. • Tobacco companies don’t want to pay fees used for addressing the adverse health effects of tobacco products. • Alcohol companies don’t want to pay fees used for police protection in neighborhoods and programs to prevent underage drinking. One of the so-called “hidden taxes” identified by the Proposition 26 campaign is a fee that oil companies pay in order to cover the cost of oil spill clean-up, like the one in the Gulf. The oil companies should be responsible for the mess they create, not the taxpayers. Proposition 26 will harm local public safety and health, by requiring expensive litigation and endless elections in order for local government to provide basic services. Fees on those who do harm should cover such costs as policing public nuisances or repairing damaged roads. The funds raised by these fees are used by state and local governments for essential programs like fighting air pollution, cleaning up environmental disasters and monitoring hazardous waste. They require corporations such as tobacco companies to pay for the harm they cause. If Proposition 26 passes, these costs would have to be paid for by the taxpayers. DON’T PROTECT POLLUTERS. Join California Professional Firefighters, California Federation of Teachers, California League of Conservation Voters, California Nurses Association, Consumer Federation of California, and California Alliance for Retired Americans, and vote NO on 26. www.stoppolluterprotection.com JANIS R. HIROHAMA, President League of Women Voters of California JANE WARNER, President American Lung Association in California BILL MAGAVERN, Director Sierra Club California Proposition 26 fixes a loophole that allows politicians to impose new taxes on businesses and consumers by falsely calling them “fees”. Proposition 26 stops politicians from increasing Hidden Taxes on food, water, cell phones and even emergency services— BILLIONS OF DOLLARS IN HIGHER COSTS THAT CONSUMERS WILL PAY, NOT BIG CORPORATIONS. Politicians and special interests oppose Prop. 26 because they want to take more money from working California families by putting “fees” on everything they can think of. Their interest is simple—more taxpayer money for the politicians to waste, including on lavish public pensions. Here are the facts: Prop. 26 protects legitimate fees and WON’T ELIMINATE OR PHASE OUT ANY OF CALIFORNIA’S ENVIRONMENTAL OR CONSUMER PROTECTION LAWS, including: –Oil Spill Prevention and Response Act –Hazardous Substance Control Laws –California Clean Air Act –California Water Quality Control Act –Laws regulating licensing and oversight of Contractors, Attorneys and Doctors “Proposition 26 doesn’t change or undermine a single law protecting our air, ocean, waterways or forests—it simply stops the runaway fees politicians pass to fund ineffective programs.”— Ryan Broddrick, former Director, Department of Fish and Game Here’s what Prop. 26 really does: • Requires a TWO-THIRDS VOTE OF THE LEGISLATURE FOR PASSING STATEWIDE HIDDEN TAXES disguised as fees, just like the Constitution requires for regular tax increases. • Requires a POPULAR VOTE TO PASS LOCAL HIDDEN TAXES disguised as fees, just like the Constitution requires for most other local tax increases. YES on 26—Stop Hidden Taxes. Preserve our Environmental Protection Laws. www.No25Yes26.com JOHN DUNLAP, Former Chairman California Air Resources Board MANUEL CUNHA, JR., President Nisei Farmers League JULIAN CANETE, Chairman California Hispanic Chamber of Commerce J-133 Attachment C J-134 CALIFORNIA CONSTITUTION ARTICLE 13A [TAX LIMITATION] SECTION 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed One percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties. (b) The limitation provided for in subdivision (a) shall not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any of the following: (1) Indebtedness approved by the voters prior to July 1, 1978. (2) Bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition. (3) Bonded indebtedness incurred by a school district, community college district, or county office of education for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, approved by 55 percent of the voters of the district or county, as appropriate, voting on the proposition on or after the effective date of the measure adding this paragraph. This paragraph shall apply only if the proposition approved by the voters and resulting in the bonded indebtedness includes all of the following accountability requirements: (A) A requirement that the proceeds from the sale of the bonds be used only for the purposes specified in Article XIII A, Section 1(b) (3), and not for any other purpose, including teacher and administrator salaries and other school operating expenses. (B) A list of the specific school facilities projects to be funded and certification that the school district board, community college board, or county office of education has evaluated safety, class size reduction, and information technology needs in developing that list. (C) A requirement that the school district board, community college board, or county office of education conduct an annual, independent performance audit to ensure that the funds have been expended only on the specific projects listed. (D) A requirement that the school district board, community college board, or county office of education conduct an annual, independent financial audit of the proceeds from the sale of the bonds until all of those proceeds have been expended for the school facilities projects. (c) Notwithstanding any other provisions of law or of this Constitution, school districts, community college districts, and J-135 county offices of education may levy a 55 percent vote ad valorem tax pursuant to subdivision (b). SEC. 2. (a) The "full cash value" means the county assessor's valuation of real property as shown on the 1975-76 tax bill under "full cash value" or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. All real property not already assessed up to the 1975-76 full cash value may be reassessed to reflect that valuation. For purposes of this section, "newly constructed" does not include real property that is reconstructed after a disaster, as declared by the Governor, where the fair market value of the real property, as reconstructed, is comparable to its fair market value prior to the disaster. For purposes of this section, the term "newly constructed" does not include that portion of an existing structure that consists of the construction or reconstruction of seismic retrofitting components, as defined by the Legislature. However, the Legislature may provide that, under appropriate circumstances and pursuant to definitions and procedures established by the Legislature, any person over the age of 55 years who resides in property that is eligible for the homeowner's exemption under subdivision (k) of Section 3 of Article XIII and any implementing legislation may transfer the base year value of the property entitled to exemption, with the adjustments authorized by subdivision (b), to any replacement dwelling of equal or lesser value located within the same county and purchased or newly constructed by that person as his or her principal residence within two years of the sale of the original property. For purposes of this section, "any person over the age of 55 years" includes a married couple one member of which is over the age of 55 years. For purposes of this section, "replacement dwelling" means a building, structure, or other shelter constituting a place of abode, whether real property or personal property, and any land on which it may be situated. For purposes of this section, a two-dwelling unit shall be considered as two separate single-family dwellings. This paragraph shall apply to any replacement dwelling that was purchased or newly constructed on or after November 5, 1986. In addition, the Legislature may authorize each county board of supervisors, after consultation with the local affected agencies within the county's boundaries, to adopt an ordinance making the provisions of this subdivision relating to transfer of base year value also applicable to situations in which the replacement dwellings are located in that county and the original properties are located in another county within this State. For purposes of this J-136 paragraph, "local affected agency" means any city, special district, school district, or community college district that receives an annual property tax revenue allocation. This paragraph applies to any replacement dwelling that was purchased or newly constructed on or after the date the county adopted the provisions of this subdivision relating to transfer of base year value, but does not apply to any replacement dwelling that was purchased or newly constructed before November 9, 1988. The Legislature may extend the provisions of this subdivision relating to the transfer of base year values from original properties to replacement dwellings of homeowners over the age of 55 years to severely disabled homeowners, but only with respect to those replacement dwellings purchased or newly constructed on or after the effective date of this paragraph. (b) The full cash value base may reflect from year to year the inflationary rate not to exceed 2 percent for any given year or reduction as shown in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced to reflect substantial damage, destruction, or other factors causing a decline in value. (c) For purposes of subdivision (a), the Legislature may provide that the term "newly constructed" does not include any of the following: (1) The construction or addition of any active solar energy system. (2) The construction or installation of any fire sprinkler system, other fire extinguishing system, fire detection system, or fire-related egress improvement, as defined by the Legislature, that is constructed or installed after the effective date of this paragraph. (3) The construction, installation, or modification on or after the effective date of this paragraph of any portion or structural component of a single- or multiple-family dwelling that is eligible for the homeowner's exemption if the construction, installation, or modification is for the purpose of making the dwelling more accessible to a severely disabled person. (4) The construction, installation, removal, or modification on or after the effective date of this paragraph of any portion or structural component of an existing building or structure if the construction, installation, removal, or modification is for the purpose of making the building more accessible to, or more usable by, a disabled person. (d) For purposes of this section, the term "change in ownership" does not include the acquisition of real property as a replacement for comparable property if the person acquiring the real property has been displaced from the property replaced by eminent domain J-137 proceedings, by acquisition by a public entity, or governmental action that has resulted in a judgment of inverse condemnation. The real property acquired shall be deemed comparable to the property replaced if it is similar in size, utility, and function, or if it conforms to state regulations defined by the Legislature governing the relocation of persons displaced by governmental actions. This subdivision applies to any property acquired after March 1, 1975, but affects only those assessments of that property that occur after the provisions of this subdivision take effect. (e) (1) Notwithstanding any other provision of this section, the Legislature shall provide that the base year value of property that is substantially damaged or destroyed by a disaster, as declared by the Governor, may be transferred to comparable property within the same county that is acquired or newly constructed as a replacement for the substantially damaged or destroyed property. (2) Except as provided in paragraph (3), this subdivision applies to any comparable replacement property acquired or newly constructed on or after July 1, 1985, and to the determination of base year values for the 1985-86 fiscal year and fiscal years thereafter. (3) In addition to the transfer of base year value of property within the same county that is permitted by paragraph (1), the Legislature may authorize each county board of supervisors to adopt, after consultation with affected local agencies within the county, an ordinance allowing the transfer of the base year value of property that is located within another county in the State and is substantially damaged or destroyed by a disaster, as declared by the Governor, to comparable replacement property of equal or lesser value that is located within the adopting county and is acquired or newly constructed within three years of the substantial damage or destruction of the original property as a replacement for that property. The scope and amount of the benefit provided to a property owner by the transfer of base year value of property pursuant to this paragraph shall not exceed the scope and amount of the benefit provided to a property owner by the transfer of base year value of property pursuant to subdivision (a). For purposes of this paragraph, "affected local agency" means any city, special district, school district, or community college district that receives an annual allocation of ad valorem property tax revenues. This paragraph applies to any comparable replacement property that is acquired or newly constructed as a replacement for property substantially damaged or destroyed by a disaster, as declared by the Governor, occurring on or after October 20, 1991, and to the determination of base year values for the 1991-92 fiscal year and fiscal years thereafter. (f) For the purposes of subdivision (e): (1) Property is substantially damaged or destroyed if it sustains physical damage amounting to more than 50 percent of its value J-138 immediately before the disaster. Damage includes a diminution in the value of property as a result of restricted access caused by the disaster. (2) Replacement property is comparable to the property substantially damaged or destroyed if it is similar in size, utility, and function to the property that it replaces, and if the fair market value of the acquired property is comparable to the fair market value of the replaced property prior to the disaster. (g) For purposes of subdivision (a), the terms "purchased" and "change in ownership" do not include the purchase or transfer of real property between spouses since March 1, 1975, including, but not limited to, all of the following: (1) Transfers to a trustee for the beneficial use of a spouse, or the surviving spouse of a deceased transferor, or by a trustee of such a trust to the spouse of the trustor. (2) Transfers to a spouse that take effect upon the death of a spouse. (3) Transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of a marriage or legal separation. (4) The creation, transfer, or termination, solely between spouses, of any coowner's interest. (5) The distribution of a legal entity's property to a spouse or former spouse in exchange for the interest of the spouse in the legal entity in connection with a property settlement agreement or a decree of dissolution of a marriage or legal separation. (h) (1) For purposes of subdivision (a), the terms "purchased" and "change in ownership" do not include the purchase or transfer of the principal residence of the transferor in the case of a purchase or transfer between parents and their children, as defined by the Legislature, and the purchase or transfer of the first one million dollars ($1,000,000) of the full cash value of all other real property between parents and their children, as defined by the Legislature. This subdivision applies to both voluntary transfers and transfers resulting from a court order or judicial decree. (2) (A) Subject to subparagraph (B), commencing with purchases or transfers that occur on or after the date upon which the measure adding this paragraph becomes effective, the exclusion established by paragraph (1) also applies to a purchase or transfer of real property between grandparents and their grandchild or grandchildren, as defined by the Legislature, that otherwise qualifies under paragraph (1), if all of the parents of that grandchild or those grandchildren, who qualify as the children of the grandparents, are deceased as of the date of the purchase or transfer. (B) A purchase or transfer of a principal residence shall not be excluded pursuant to subparagraph (A) if the transferee grandchild or J-139 grandchildren also received a principal residence, or interest therein, through another purchase or transfer that was excludable pursuant to paragraph (1). The full cash value of any real property, other than a principal residence, that was transferred to the grandchild or grandchildren pursuant to a purchase or transfer that was excludable pursuant to paragraph (1), and the full cash value of a principal residence that fails to qualify for exclusion as a result of the preceding sentence, shall be included in applying, for purposes of subparagraph (A), the one-million-dollar ($1,000,000) full cash value limit specified in paragraph (1). (i) (1) Notwithstanding any other provision of this section, the Legislature shall provide with respect to a qualified contaminated property, as defined in paragraph (2), that either, but not both, of the following apply: (A) (i) Subject to the limitation of clause (ii), the base year value of the qualified contaminated property, as adjusted as authorized by subdivision (b), may be transferred to a replacement property that is acquired or newly constructed as a replacement for the qualified contaminated property, if the replacement real property has a fair market value that is equal to or less than the fair market value of the qualified contaminated property if that property were not contaminated and, except as otherwise provided by this clause, is located within the same county. The base year value of the qualified contaminated property may be transferred to a replacement real property located within another county if the board of supervisors of that other county has, after consultation with the affected local agencies within that county, adopted a resolution authorizing an intercounty transfer of base year value as so described. (ii) This subparagraph applies only to replacement property that is acquired or newly constructed within five years after ownership in the qualified contaminated property is sold or otherwise transferred. (B) In the case in which the remediation of the environmental problems on the qualified contaminated property requires the destruction of, or results in substantial damage to, a structure located on that property, the term "new construction" does not include the repair of a substantially damaged structure, or the construction of a structure replacing a destroyed structure on the qualified contaminated property, performed after the remediation of the environmental problems on that property, provided that the repaired or replacement structure is similar in size, utility, and function to the original structure. (2) For purposes of this subdivision, "qualified contaminated property" means residential or nonresidential real property that is all of the following: J-140 (A) In the case of residential real property, rendered uninhabitable, and in the case of nonresidential real property, rendered unusable, as the result of either environmental problems, in the nature of and including, but not limited to, the presence of toxic or hazardous materials, or the remediation of those environmental problems, except where the existence of the environmental problems was known to the owner, or to a related individual or entity as described in paragraph (3), at the time the real property was acquired or constructed. For purposes of this subparagraph, residential real property is "uninhabitable" if that property, as a result of health hazards caused by or associated with the environmental problems, is unfit for human habitation, and nonresidential real property is "unusable" if that property, as a result of health hazards caused by or associated with the environmental problems, is unhealthy and unsuitable for occupancy. (B) Located on a site that has been designated as a toxic or environmental hazard or as an environmental cleanup site by an agency of the State of California or the federal government. (C) Real property that contains a structure or structures thereon prior to the completion of environmental cleanup activities, and that structure or structures are substantially damaged or destroyed as a result of those environmental cleanup activities. (D) Stipulated by the lead governmental agency, with respect to the environmental problems or environmental cleanup of the real property, not to have been rendered uninhabitable or unusable, as applicable, as described in subparagraph (A), by any act or omission in which an owner of that real property participated or acquiesced. (3) It shall be rebuttably presumed that an owner of the real property participated or acquiesced in any act or omission that rendered the real property uninhabitable or unusable, as applicable, if that owner is related to any individual or entity that committed that act or omission in any of the following ways: (A) Is a spouse, parent, child, grandparent, grandchild, or sibling of that individual. (B) Is a corporate parent, subsidiary, or affiliate of that entity. (C) Is an owner of, or has control of, that entity. (D) Is owned or controlled by that entity. If this presumption is not overcome, the owner shall not receive the relief provided for in subparagraph (A) or (B) of paragraph (1). The presumption may be overcome by presentation of satisfactory evidence to the assessor, who shall not be bound by the findings of the lead governmental agency in determining whether the presumption has been overcome. (4) This subdivision applies only to replacement property that is acquired or constructed on or after January 1, 1995, and to property J-141 repairs performed on or after that date. (j) Unless specifically provided otherwise, amendments to this section adopted prior to November 1, 1988, are effective for changes in ownership that occur, and new construction that is completed, after the effective date of the amendment. Unless specifically provided otherwise, amendments to this section adopted after November 1, 1988, are effective for changes in ownership that occur, and new construction that is completed, on or after the effective date of the amendment. SEC. 3. (a) Any change in state statute which results in any taxpayer paying a higher tax must be imposed by an act passed by not less than two-thirds of all members elected to each of the two houses of the Legislature, except that no new ad valorem taxes on real property, or sales or transaction taxes on the sales of real property may be imposed. (b) As used in this section, "tax" means any levy, charge, or exaction of any kind imposed by the State, except the following: (1) A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the State of conferring the benefit or granting the privilege to the payor. (2) A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the State of providing the service or product to the payor. (3) A charge imposed for the reasonable regulatory costs to the State incident to issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. (4) A charge imposed for entrance to or use of state property, or the purchase, rental, or lease of state property, except charges governed by Section 15 of Article XI. (5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or the State, as a result of a violation of law. (c) Any tax adopted after January 1, 2010, but prior to the effective date of this act, that was not adopted in compliance with the requirements of this section is void 12 months after the effective date of this act unless the tax is reenacted by the Legislature and signed into law by the Governor in compliance with the requirements of this section. (d) The State bears the burden of proving by a preponderance of J-142 the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. Section 4. Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district. Section 5. This article shall take effect for the tax year beginning on July 1 following the passage of this Amendment, except Section 3 which shall become effective upon the passage of this article. Section 6. If any section, part, clause, or phrase hereof is for any reason held to be invalid or unconstitutional, the remaining sections shall not be affected but will remain in full force and effect. SEC. 7. Section 3 of this article does not apply to the California Children and Families First Act of 1998. J-143 CALIFORNIA CONSTITUTION ARTICLE 13C [VOTER APPROVAL FOR LOCAL TAX LEVIES] SECTION 1. Definitions. As used in this article: (a) "General tax" means any tax imposed for general governmental purposes. (b) "Local government" means any county, city, city and county, including a charter city or county, any special district, or any other local or regional governmental entity. (c) "Special district" means 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 including, but not limited to, school districts and redevelopment agencies. (d) "Special tax" means any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund. (e) As used in this article, "tax" means any levy, charge, or exaction of any kind imposed by a local government, except the following: (1) A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. (2) A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product. (3) A charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. (4) A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property. (5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law. (6) A charge imposed as a condition of property development. (7) Assessments and property-related fees imposed in accordance with the provisions of Article XIII D. The local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the J-144 reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. SEC. 2. Local Government Tax Limitation. Notwithstanding any other provision of this Constitution: (a) All taxes imposed by any local government shall be deemed to be either general taxes or special taxes. Special purpose districts or agencies, including school districts, shall have no power to levy general taxes. (b) No local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote. A general 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 election required by this subdivision shall be consolidated with a regularly scheduled general election for members of the governing body of the local government, except in cases of emergency declared by a unanimous vote of the governing body. (c) Any general tax imposed, extended, or increased, without voter approval, by any local government on or after January 1, 1995, and prior to the effective date of this article, shall continue to be imposed only if approved by a majority vote of the voters voting in an election on the issue of the imposition, which election shall be held within two years of the effective date of this article and in compliance with subdivision (b). (d) 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. 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. J-145 PROPOSITION 218 TAXATION—VOTER APPROVAL OF LOCAL TAJUS, ETC.—INITIATIVE CONS ILL UTIONAL AMMIDNIENT This initiative measure is submitted to the people in accordance with the provisions of Article II, Section 8 of the Constitution. PROPOSE) ADDITION OF ARTICLE XIII C AND ARTICLE XIII D RIGHT TO VOTE ON TA:as ACT SECTION 1. TITLE. This act shltil be known and may be cited as the "Right to Vote on Taxes Act." SECTION 2. FTN. DENGS 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. SECTION 3. VOTER APPROVAL FOR LOCAL TAX LEVIES. Ar ticle Xia C is added to the California Constitution to read: CONST Prec. Art. XIII C, § I ARTICLE XIII C SECTION 1. Definitions. As used in this uncle: (a)"General tax" Means any tax imposed for general governmental purposes. (b)"Local government" means any county, City, city and county, inch/ding a charter city or county, any special district, or any other local or reonal governmental entity. (c)"Special district" means an agency of the state, formed pursuant to general law or a special am, for the local performance of governmental or proprietary fimcnons with limited geographic boundaries including, but not limited to, school districts and redevelopment agencies. (d)"Special tax" means any tax imposed for specific purpose; including a tax imposed for specific purposes, which is placed into a general fund. PROPOSITION 218 - 1 111 J-146 SEC. 2. Local Government Tax Limitation. Notwithstanding any other provision of this Constitution: (a)All taxes imposed by any local government shall be deemed to be either general taxes or special taxes. Special purpose districts or agencies, including school districts, shall have no power to levy general taxes. (b)No local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote. A general tax ch n ll not be deemed to have been increased if it is imposed at a rate not higher than the maximum rate so approved. The election required by this subdivision shall be consolidated with a regularly scheduled general election for members of the governing body of the local government, except in cases of emergency declared by a unanimous vote of the governing body. (c)Any general tax imposed, extended, or increased, without voter approval, by any local government on or after January 1, 1995, and prior to the effective date of this article, chatl continue to be imposed only if approved by a majority vote of the voters voting in an election on the issue of the imposition, which election shall be held within two years of the effective date of this article and in compliance with subdivision (b). (d)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. 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 the initiative power sbn11 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. SECTION 4. ASSESSMENT AND PROPERTY RELATED FEE REFORM. • Article XIII D is added to the California Constitution to read: PROPOSITION 218 - 2 112 J-147 ARTICLE xm D SECTION 1. Application. Notwithstanding any other provision of law, the provisions of this article shall apply to all assessments, fees and charges, whether imposed pursuant to state statute or iota/ government charter authority. Nothing in this article or Article X0I C shall be construed to: (a)Provide any new authority to any agency to impose a tax, assessment, fee, or charge. (b)Affect existing laws relating to the imposition of fees or charges as a condition of property development (c)Affect existing laws relating to the imposition of timber yield taxes. SEC. 2. Definitions. As used in this article: (a)"Agency" means any local government as defined in subdivision (b) of Section 1 of Article MI C. (b)"Assessment" means any levy or charge upon real property by an agency for a special benefit conferred upon the real property. "Assessment" includes, but is not limited to, "special assessment," "benefit assessment," "maintenance assessment" and "special assessment tax." (c)"Capital cost" means the cost of acquisition, installation, construction, reconstruction, or replacement of a permanent public improvement by an agency. (d)"District" means an area determined by an agency to contain all parcels which will receive a special benefit from a proposed public improvement or property-related service. (e)"Fee" or "charge" means any levy other than an ad valorem tax, a special tax, or an assessment, imposed by an agency upon a panel or upon a person as an incident of property ownership, including a user fee or charge for a property related serrice. (1) "Maintenance and operation expenses" means the cost of rent repair, replacement, rehabilitation, fuel, power, electrical current, care, and supervision necessary to properly operate and maintain a permanent public improvement. (g) "Property ownership" shall be deemed to include tenancies of real property where tenants are directly liable to pay the assessment, fee, or charge in question. PROPOSMON 218 - 3 113 J-148 (h)"Property-related service" means a public service having a direct relationship to property ownership. (i)"Special benefit" means a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large. General enhancement of property value does not constitute "special benefit" SEC 3. Property Taxes, Assessments, Fees and Charges Limited. (a) No tax, assessment, 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)The ad valorem property tax imposed pursuant to Article XIII and Article XIII A. (2)Any special tax receiving a two-thirds vote pursuant to Section 4 of Article A. (3)Assessments as provided by this article. (4)Fees or charges for property related services as provided by this article. (b) For purposes of this article, fees for the provision of electrical or gas service shall not be deemed charges or fees imposed as an incident of property ownership. SEC. 4. Procedures and Requirements for All Assessments. (a) An agency which proposes to levy an assessment shall identifr all parcels which will have a special benefit conferred upon them and upon which an assessment will be imposed. The proportionate special benefit derived by each identified parcel shall be determined in relationship to the entirety of the capital cost of a public improvement, the maintenance and operation expenses of a public improvement, or the cost of the property related service being provided. No assessment shall be imposed on any parcel which exceeric the reasonable cost of the proportional special benefit conferred on that parcel. Only special benefits are assessable, and an agency 0141 separate the general benefits from the special benefits conferred on a parcel. Parcels within a district that are owned or used by any agency, the State of California or the United States shall not be exempt from assessment unless the agency can demonstrate by clear and convincing evidence that those publicly owned parcels in fact receive no special benefit (b) All assessments g ha 11 be supported by a detailed engineer's report prepared by a registered professional engineer certified by the State of California PROPOSITION 218 - 4 114 J-149 (c)The amount of the proposed assessment for each identified parcel shall be calculated and the record owner of each parcel shall be given written notice by mail of the proposed assessment, the total amotmt thereof chargeable to the entire district, the amount chargeable to the owner's particular parcel, the duration of the payments, the reason 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. Each notice shall also include, in a conspicuous place thereon, a summary of the procedures applicable to the completion, return, and tabulation of the ballots required pursuant to subdivision (d), including a disclosure statement that the existence of a majority protest, as defined in subdivision (e), will result in the assessment not being imposed. (d)Each notice mailed to owners of identified parcels within the district pursuant to subdivision (c) shall contain a ballot which includes the agency's address for receipt of the ballot once completed by any owner receiving the notice whereby the owner may indicate his or her name, reasonable identification of the parcel, and his or her support or opposition to the proposed assessment (e)The agency shall conduct a public hearing upon the proposed assessment not less than 45 days after mailing the notice of the proposed assessment to record owners of each identified parceL At the public hearing, the agency shall consider all protests against the proposed assessment and tabulate the ballots. The agency shall not impose an assessment if there is a majority protest. A majority protest exists if, upon the conclusion of the hearing, ballots submitted in opposition to the assessment exceed the ballots submitted in favor of the assessment. In tabulating the ballots, the ballots shall be weighted according to the proportional financial obligation of the affected property. (f)In any legal action contesting the validity of any assessment, the burden shall be on the agency to demonstrate that the property or 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 geater than, the benefits conferred on the property or properties in question. (g)Because only special benefits are assessable, electors residing within the district who do not own property within the district shall not be deemed under this Constitution to have been deprived of the right to vote for any assessment. If a court determines that the Constitution of the United States or other federal law requires otherwise, the assessment shall not be imposed unless approved by a two-thirds vote of the electorate in the district in addition to being approved by the property owners as required by subdivision (e). • SEC. 5. Effective Date. Pursuant to subdivision (a) of Section 10 of Article 11, the provisions of this article shall become effective the day after the election unless otherwise provided. PROPOSITION 218 - 5 • 115 J-150 Beginning July 1, 1997, all existing, new, or increased assessments shall comply with this article. Notwithstanding the foregoing, the following assessments existing on the effective date of this article shall be exempt from the procedures and approval process set forth in Section 4: (a)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. Subsequent increases in such assessments shall be subject to the procedures and approval process set forth in Section 4. (b)Any assessment imposed pursuant to a petition signed by the persons owning all of the parcels subject to the assessment at the time the assessment is initially imposed. Subsequent increases in such assessments shall be subject to the procedures and approval process set forth in Section 4. (c)Any assessment the proceeds of which are exclusively used to repay bonded indebtedness of which the failure to pay would violate the Contract Impairment Clause of the Constitution of the United States. (d)Any assessment which previously received majority voter approval from the voters voting in an election on the issue of the assessment. Subsequent increases in those assessments shall be subject to the procedures and approval process set forth in Section 4. SEC. 6. Property Related Fees and Charges. (a) Procedures for New or Increased Fees and Charges. An agency shall follow the procedures pursuant to this section in imposing or increasing any fee or charge as defined pursuant to this article; including, but not limited to, the following: (1)The parcels upon which a fee or charge is proposed for imposition shall be identified. The amount of the fee or charge proposed to be imposed upon each parcel shall be calculated. The agency shall provide written notice by mail of the proposed fee or charge to the record owner of each identified parcel upon which the fee or charge is proposed for imposition, the amount of the fee or charge proposed to be imposed upon each, the basis upon which the amount of the proposed fee or charge was calculated, the reason for the fee or charge, together with the date, time, and location of a public hearing on the proposed fee or charge. (2)The agency shall conduct a public hearing upon the proposed fee or charge not less than 45 days after mailing the notice of the proposed fee or charge to the record owners of each identified parcel upon which the fee or charge is proposed for imposition. At the public hearing, the agency shall consider all protests against the proposed fee or charge. If written protests against PROPOSITION 218 - 6 116 J-151 the proposed fee or charge are presented by a majority of owners of the identified parcels, the agency shall not impose the fee or charge. (b) Requirements for Existing, New or Increased Fees and Charges. A fee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following requirements: (1)Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service. (2)Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed. (3)The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel. (4)No fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Fees or charges based on potential or future use of a service are not permitted. Standby charges, whether characterized as charges or assessments, shall be classified as assessments and shall not be imposed without compliance with Section 4. (5)No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Reliance by an agency on any parcel map, including, but not limited to, an assessoes parcel map, may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership for purposes of this article. In any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this article. (c) Voter Approval for New or Increased Fees and Charges. Except for fees or charges for sewer, water, and refuse collection services, no property related fee or charge shall be imposed or increased unless and until that fee or charge is submitted and approved by a majority vote of the property owners of the property subject to the fee or charge or, at the option of the agency, by a two-thirds vote of the electorate residing in the affected area. The election shall be conducted not less than 45 days after the public hearing. An agency may adopt procedures similar to those for increases in assessments in the conduct of elections under this subdivision. (d) Begiming July 1, 1997, all fees or charges shall comply with this section. SECTION 5. LIBERAL CONSTRUCTION. The provisions of this act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent PROPOSITION 218 - 7 117 J-152 SECTION 6. SEVERA.BILITY. If any provision of this act, or part thereof: is for any reason held to be invalid or unconstitutional, the remaining sections shall not be affected, but shall remain in full force and effect, and to this end the provisions of this act are severable. PROPOSITION 218 - 8 118 J-153 a-. (118 Voter Approval for Local Government Taxes. 111111 Limitations on Fees, Assessments, and Charges. Initiative Constitutional Amendment Official Title and Summary Prepared by the Attorney General VOTER APPROVAL FOR LOCAL GOVERNMENT TAXES. MUTATIONS ON FEES, ASSESSMENTS, AND CHARGES. IMITATIVE CONSTITUTIONAL AMENDMENT. •Limits authority of local governments to impose taxes and property-related assessments, fees, and charges. Requires majority of voters approve increases in general taxes and reiterates that two-thirds must approve special tax. •Assessments, fees, and charges must be submitted to property owners for approval or rejection, after notice and public hearing. •Assessments are limited to the special benefit conferred. •Fees and charges are limited to the cost of providing the service and may not be imposed for general governmental services available to the public. Summary of Legislative Analyst's Estimate of Net State and Local Government Fiscal Impact •Short-term local government revenue losses of more than $100 million annually. •Long-term local government revenue losses of potentially hundreds of millions of dollars annually. •Local government revenue losses generally would result in comparable reductions in spending for local public services. 72 G96 119 J-154 Analysis by the Legislative Analyst OVERVIEW Local governments provide many services to people and businesses in their communities. To pay for these services, local governments raise revenues by imposing fees, assessments, and taxes. This constitutional measure would make it more difficult for local governments to raise these revenues. As a result, this measure would: •Reduce the amount of fees, assessments, and taxes that individuals and businesses pay. •Decrease spending for local public services. PROPOSAL This measure would constrain local governments' ability to impose fees, assessments, and taxes. The measure would apply to all cities, counties special districts, redevelopment agencies, and school districts in California. Fees Current Practice. Local governments charge fees to pay for many services to their residents. Some of these fees pay for services to property, such as garbage collection and sewer service. Fees are also called °charges." Local governments often establish several fee amounts for a service, each based on the approximate cost of providing the service to different types of properties (such as commercial, industrial, or residential property). Local governments usually send monthly bills to property owners to collect these fees, although some fees are placed on the property tax bill. Local governments generally hold public hearings before creating or increasing such a fee, but do not hold elections on fees. Proposed Requirements for Property-Related Fees. This measure would restrict local governments' ability to charge "property-related" fees. (Fees for water, sewer, and refuse collection service probably meet the measure's definition of a property-related fee. Gas and. electric fees and fees charged to land developers are specifically exempted.) Specifically, the measure states that all local property-related fees must comply by July 1, 1997, with the following restrictions: •No property owner's fee may be more than the cost to provide service to that property owner's land. •No fee may be charged for fire, police, ambulance, library service, or any other service widely available to the public. •No fee revenue may be used for any purpose other than providing the property-related service. •Fees may only be charged for services immediately available to property owners. In addition, the measure specifies that before adopting a new property-related fee (or increasing an existing one), local governments must: mail information about the fee to every property owner, reject the fee if a majority of the property owners protest in writing, and hold an election on the fee (unless it is for water, sewer, or refuse collection service). G96 Taken together, these fee restrictions would require local governments to reduce or eliminate some existing fees. Unless local governments increased taxes to replace these lost fee revenues, spending for local public services likely would be decreased. The measure's requirements would also expand local governments' administrative workload. For example, local governments would have to adjust many property-related fees, potentially (1) setting them on a block-by-block or parcel-by-parcel basis and (2) ending programs that allow low-income people to pay reduced property-related fees. Local governments would also have to mail information to every property owner and hold elections. Assessments Current Practice. Local governments charge assessments to pay for projects and services that benefit specific properties. For example, home owners may pay assessments for sidewalks, streets, lighting, or recreation programs in their neighborhood. Assessments are also called "benefit assessments," "special assessments," "maintenance assessments," and similar terms. Local governments typically place assessment charges on the property tax bill. Tb create an assessment, state laws require local governments to determine which properties would benefit from a project or service, notify the owners, and set assessment amounts based on the approximate benefit property owners would receive. Often, the rest of the community or region also receives some general benefit from the project or service, but does not pay a share of cost Typical assessments that provide general benefits include fire, park, ambulance, and mosquito control assessments. State laws generally require local governments to reject a proposed assessment if more than 50 percent of the property owners protest in writing. Some local governments also levy "standby charges," which are similar to assessments. Standby charges commonly finance water and sewer service expansions to new households and businesses. (The measure treats standby charges as assessments.) Proposed Requirements for Assessments. This measure would place extensive requirements on local governments charging assessments. Specifically, the measure requires all new or increased assessments—and some existing assessments—to meet four conditions. •First, local governments must estimate the amount of "special benefit" landowners receive—or would receive—from a project or service. Special benefit is defined as a particular benefit to land and buildings, not a general benefit to the public at large or a general increase in property values. If a project provides both special benefits and general benefits, a local government may charge landowners only for the cost of providing the special benefit. Local government must use general revenues (such as taxes) to pay the remaining portion of the project or service's cost In some cases, local government may not have sufficient revenues to pay this cost, or may choose not to pay it. In these cases, a project or service would not be provided. 73 120 J-155 Existing Assessments Exempt from the Measure's Requirements •Assessments previously approved by voters—or by all property owners at the time the assessment was created. •Assessments where all the funds are used to repay bond obligations. •Assessments where all the funds are used to pay for sidewalks, streets, sewers, water, flood control, drainage systems or, "vector control" (such as mosquito control). •Second, local governments must ensure that no property owner's assessment is greater than the cost to provide the improvement or service to the owner's property This provision would require local governments to examine assessment amounts in detail, potentially setting them on a parcel-by-parcel Or block-by-block basis. •Third, local governments must charge schools and other public agencies their share of assessments. Currently, public agencies generally do not pay assessments. , • Finally; local governments must hold a mail-in election for each assessment Only property owners and any renters responsibly for paying assessments would be eligible to vote. Ballots cast in these elections would be weighted based on the amount of the assessment the property owner or renter would pay. For example, if a business owner would pay twice as much assessment as a homeowner, the •business owner's vote would "count" twice as much as the homeowner's vote. Figure 1 summarizes the existing assessments that would be exempt from the measure's requirements. We estimate that more than half of all existing assessments would qualify for an exemption. All other existing assessments must meet the measure's requirements—including the voter approval requirement—by July 1, 1997. Taxes Current Practice Local governments typically use taxes to pay for general government programs, such as police and fire services. Taxes are "general" if their revenues can be used to pay for many government programs, rather than being reserved for specific programs. Proposition 62—a statutory measure approved by the voters in 1986—requires new local general taxes to be approved by a majority vote of the people. Currently, there are lawsuits pending as to whether this provision applies to cities that have adopted a local charter, such as Los Angeles, Long Beach. Sacramento, San Jose, and manytithers. Proposed Requirements for Taxes. The measure states that all future local general tares, including those in cities with charters, must be approved by a majority vote of the people. The measure also requires existing local general taxes established after December 31, 1994, without a vote of the people to be placed before the voters within two years. Other Provisions Burden of Proof. Currently, the courts allow local governments significant flexibility in determining fee and assessment amounts. In lawsuits challenging property fees and assessments, the taxpayer generally has the "burden of proor to show that they are not legal. This measure shifts the burden of proof in these lawsuits to local government. As a result, it would be easier for taxpayers to win lawsuits, resulting in reduced or repealed fees and assessments. Initiative Powers. The measure states that Californians have the power to repeal or reduce any local tax, assessment, or fee through the initiative process. This provision broadens the existing initiative powers available under the State Constitution and local charters. FISCAL IMPACT Revenue Reductions Existing Revenues. By July 1, 1997, local governments would be required to reduce or repeal existing property-related fees and assessments that do not meet the measure's restrictions on (1) fee and assessment amounts or (2) the use of these revenues. The most likely fees and assessments affected by these provisions would be those for park and recreation programs, fire protection, lighting, ambulance, business improvement programs, library, and water service. Statewide, local government revenue reductions probably would exceed $100 million annually. The actual level of revenue reduction would depend in large part on how the courts interpret various provisions of the measure. In addition, because local governments vary significantly in their reliance upon fees and assessments, the measure's impact on individual communities would differ greatly. Within two years, local governments also would be required to hold elections on some recently imposed taxes and existing assessments. The total amount of these taxes and assessments is unknown, but probably exceeds $100 million statewide. If voters do not approve these existing taxes and assessments, local governments would lose additional existing revenues. New Revenues. The measure's restrictions and voter-approval requirements would constrain new and increased fees, assessments, and taxes. As a result, local government revenues in the future would be lower than they would be otherwise. The extent of these revenue reductions would depend on court interpretation of the measure's provisions and local government actions to replace lost revenues. 74 G96 121 J-156 Summary of Revenue Reductions. In the short term, local government revenues probably, would be reduced by more than $100 million annually. Over time, local government revenues would be significantly lower than they would otherwise be, potentially by hundreds of millions of dollars annually. Individual and business payments to local government would decline by the same amount. In general, these local government revenue losses would result in comparable reductions in spending for local public services. Cost Increases Local governments would have significantly increased costs to hold elections, calculate fees and assessments, notify the public, and defend their fees and assessments in court. These local increased costs are unknown, but could exceed $10 million initially, and lesser amounts annually after that. School and community college districts, state agencies, cities, counties, and other public agencies would have increased costs to pay their share of assessments. The amount of this cost is not known, but could total over $10 million initially, and increasing amounts in the future. For text of Proposition 218 see page 108 096 75 122 J-157 218 Voter Approval for Local Government Taxes. Limitations on Fees, Assessments, and Charges. Initiative Constitutional Amendment Argument in Favor of Proposition 218 VOTE YES ON PROPOSITION 218. IT WILL GIVE YOU THE RIGHT TO VOTE ON TAX INCREASES! Proposition 218 guarantees your right to vote on local tax increases—even when they are called something else, like 'assessments' or "fees' and imposed an homeowners. Proposition 218 guarantees your right to vote on tans imposed on your water, gas, electric, and telephone bills. Proposition 218 dam NOT prevent government from raising and spending money for vital services like police. fire and education. If politicians want to raise taxes they need only convince kcal voters that new taxes are really needed. Proposition 218 simply extends the long standing constitutional protection against politicians imposing tax increases without voter approval. After voters passed Proposition 13. politicians created a loophole in the law that allows them to raise taxes without voter approval by calling taxes -assessments and lees' Once this loophole was created, one lawyer working with politicians wrote. assessments an now limited only by the limits of human imagination.' How ispnative can the politicians be with assessments? Here are a few examples among thousands: •A view tax in Southern California—the better the view of the ocean you have the more you pay. -• In Los Angeles, a proposal for assessments for a S2miIllon scoreboard and a $8-million equestrian center to be paid for by property owners. •In Northern California. taxpayers 27 miles any from a •perk are assessed because their property supposedly benefits from that park. •In the Central Valley, homeowners are assessed to refurbish a college foothali field. TAXPAYERS HAVE NO RIGHT TO VOTE ON THESE TAX INCREASES AND OTHERS LUCE THEM UNLESS PROPOSITION 218 PASSES! Proposition 218 will significantly tighten the kind of benefit assessments that can be levied Here are examples of why fees and assessments and other nonvotsd taxes are so unfair •The poor pay the same assessments as the rich. An elderly widow pays exactly the same on her modest home as a tycoon with a mansion. •There are now over 5.000 local districts which can impose fees and assessments without the consent of local voters. Special districts have increased assessments by over 2400% over 15 y ears. Likewise, cities have increased utility taxes 415% and raised benefit assessments 976%. a ten-fold increase. Non-voted taxes an electricity, gas. water, and telephone services hit renters and homeowners hard. And, retired homeowners get hit doubly hard! lb confirm the im p act of fees and assessments on you. look at your property tax bill You will see a growing list of assessments imposed without voter approval. The list will grow even longer unless Proposition 218 pass. Proposition 218 will allow you and your neighbors—not politicians—to decide how high your :axes will be. It will allow those who pa y assessments to decide if what they are being asked to pay for is worth the cost. • FOR THE RIGHT TO VOTE ON TAXES, VOTE YES ON PROPOSITION 218, JOEL FOX President, Howard Janis Taxmen Association CONRAN President, Cosetwiere First RICHARD GANN President, Pout Gann Citizen* Coeinattee Rebuttal to Argument in Favor of Proposition 218 PROPOSITION 218 IS NO FALSE ALARM. . . IT HURTS ..Propositions can deceive, so carefully judge who you believe. Beware of wild claims for new "constitutional rights" and people who pretend concern about widows and orphans. Read Proposition 218 yourself and see ho w large corporations. big landowners and foreign interests gain more voting power than YOU. Promoters say you got "al reform; . . you may usually get serious cutbacks in local service and FEWER VOTING RIGHTS for millions of California citizens Sometimes we hear hysterical warnings about bad things that never occur . . Proposition 218 is a REAL threat. On Proposition 2113 consider the ha to =NG local services not vague future duos •May reduce CURRENT funding for police, fire and emergency medical programs aCrOas Calstornsa. •Worsens SCHOOL CROWDING by making public schools pay NEW TAXES, cutting classroom teething. •Could eliminate LiteLine utility support for SENIORS and disabled "is'' CONSTITUTIONAL POWER SHIFT. Proposition 218 etches this into the state Constitution: •Blocks 3 million Californians from voting on tax assessments. The struggling „young couple Tessin a smell home. WILL HAVE NO VOTE on the assesses imposed on the house they rent. •Grants special land interests more voting power than average homeowners. The 'elderly widow' promoters cite will be banned from voting if she is a sum or her vinsag power dwarfed by large property owns •Gives non-citizens volaa....g rights on your oSOOmossiaY taxes. Proposition 218 is a great deal for wealth,' special Miens. But it's a bad deal for the average taxpayer, homeowner and renter. HOWARD OWES Congress of California Seniors LOIS TWISON President California Dasher. Aeweiadat RON SNMER President, California Associatian of Righsoem Patrolmen 76 Amazomirs printed on this page are the opinions of the grantors and have not been checked for wroracy by any Clad agar G86 123 J-158 Voter Approval for Local Government Taxes. Limitations on Fees, Assessments. and Charges. Initiative Constitutional Amendment. Argument Against Proposition 218 218 PROPOSITION 218 DILUTES VOTING RIGHTS. HURTS LOCAL SERVICES In the disguise of tax reform. Pro position 218's Constitutional Amendment REDUCES YOUR VOTING POWER and gives huge voting power to corporations, foreign interests and wealthy land owners. It cuts police, fire. fibrin, park, seniott and disabled services and diverts hinds needed for cLassroonnize reductions. Read Proposition 218 careftthy—it's a wolf. nut a lamb! YOU LOSE RIGHTS: CORPORATIONS. DEVELOPERS. NONCIZENS GAIN voTiNG POWER Section Mel of Proposition 218 changes the Constitution to. give corporations. wealth y landowners and developers MORE VOTING POWER THAN HOMEOWNERS. It lets large outside interests control community taxes—against the will of local citizens. EXAMPLE: An ail company owni 1000 acres, you own the acre: the oil corporation gets 1000 times more voting power than you. While Prop. 218 gives voting power to outside interests. Section 44(1 denies voting rignu to more than 3.000.000 California renters. Reducing American citizens Constitutional rights, it grants voting rights to corporations and absentee landowners—even foreign citizens. EXA2dPLE: A shopping center owned by a foreign citizen is worth 100 times as mum as your home: that person gets 100 times more voting power than yen! Every citizen Mould have the right to vote if a community is voting on local assessments for police, fire. emergency medical and library programs. It's unfair to give voting .power to non-citizens. big landowners and devesopers. yet deny it to millions of Californians. - MAY CUT LOCAL POLICE. FIRE PROTECTION Section &ha/ eliminates vital funding sources for local police. fire, emergency medical and library services. Proposition 218 goes too far—may forbid emergency assessments for earthquakes, floods and tires. Don't handcuff police and firefighters. The California Police Chiefs Association. Fire Chiefs Association and California Professional Firefighters ask you to vote NO. The impartial Legislative Anal ysis report shows how Proposition 218 could impede LifeLthe support for the elderly and disabled. It prohibits seniors and disabled from receiving needed utility services unless they pay all costs themselves. Proposition 218 cuts more than 5100 million from local services, yet wastes tens of millions each year by changing the Constitution to require 5.000 local elections even if local,- citizens don't want an election . . . even if the election cost is more than the potential revenue. MAKES SCHOOL CROWDING WORSE California teachers oppose Proposition 218 because Section 4( t) imposes a new tax on public school property, diverting millions from classroom programs to pay for non-school expenses. California already has the most crowded classrooms in America dead last of 50 stater. Proposition 218 makes school crowding worse. • SHELL GAME - • ..This measure takes a few good ideas, hut twists and perverts them. It cripples the best local services and puts more power into the hands of special interests and non-citizens. Proposition 218 goes too far. Assessment laws DO need improvement. but Proposition 218 is the wrong way to do it It does more harm than good, restricting our voting rights. hurting schools, seniors and public safety programs. Please vote NO on Proposition 218,. FRAN PACEARD President. League of Women Voters of California CEOEF RON LOWENBERG President. California Polk, Chia fs' Association CSDEF JEFF BOWMAN President, California Fire Chiefs' Association Rebuttal to Argument Against Proposition 218 Arguments against Proposition 218 are misleading and designed to confuse eaters. In truck I. Proposition 218 expands your voting rights. It CONSTITUTIONALLY GUARANTEES your right to vote on tans. 2.Under Proposition 218. only California registered voters. including renters, can vote in tax elections. Corporations and foreigners get no new rights. 3.Current law already allows property owners, including nonresidents. CO an on property assessments based on the assessment amount they pay. This is NOT created by Proposition 218. a 'Lifeline' rates for elderl y and disabled for telephone, gas, and electric salvia= are ROT affected. S. Proposition 218 allows voter approved taxes for police, fire, education. Proposition 218 simply gives taxpayers the right to vote on tams arid stops pa:intros'-end-runs around Proposition 13. That's why ordinary taxpayers. - seniors, parents. homeowners, renters, consumer advocates, support Proposition 218. Under Proposition 218. officials must convince taxpayers that tax increases are justified. Politicians and special interest groups don't like this idea. But they can't win by saying 'taxpayers should not vote on taxes." so they use misleading statements to confuse a sim ple question That attestion: DO YOU BELIEVE TAXPAYERS SHOULD HAVE THE RIGHT TO VOTE ON TAXES? If you answered 'yes', VOTE YES ON PROPOSITION 218. Read the nonpartisan. independent SUMMARY by the Attorney Genera/, which begins 'VOTER APPROVAL FOR LOCAL GOVERNMENT TAM." And, by eli means read your property tax bill, due out now. Then you'd know the truth FOR THE RIGHT TO VOTE ON TAXF-S. VOTE YES ON PROPOSITION 218! CAROL ROSS EVANS Vice-President, Califonsia Tetepoiere datotailion FELICIA ELEINSON Past President ! Council of Sacramento Senior Organisations LEE PHELPS Founder. Alliance of Califo rnia Faxpayere and Dumbed Voters (AC77V) G88 angamagas First an this Page an the opinions of the authors and have not been checked for aecorary by suy official tel easY 77-J 124 J-159 HOWARD JARVIS TAXPAYERS ASSOCIATION HOWAILD JAAVIS. Fonder C1903-19t6) On3744.LEJARY15.Hattorary JOE. FOX. Prod= TREVOR CRINOL Gant Camel JONATHAN )4. COPAL Di2=11 Of LOpi Albin December 6. 1996 Joanne Spears LEAGUE OF CALIFORNIA =ES 1400 K Street Sacramento, CA 95814 Dear Ms. Spears: Pursuant to your request, enclosed is a copy of the Annotated version of Proposition 218. If you have questions after reviewing this document please do not hesitate to =11 Thank you Sincerely, frerCJl.Cr4 (574 Jonathan M. Coupal Director of Legal Affairs Enclosure OFFICE CIP LEGAL MUMS- °II ,ti, 4•••n•• 5L-in• y r. C..... CA wil t,. raw as, !sr PMA1 &WWII 125 J-160 RIGHT TO VOTE ON TAXES ACT (PROPOSMON 218) [ANNOTATED AS OF SEPTEMBER 5, 19961 SECTION 1. mu. This Act shall be known and may be cited as the Right to Vote on Taxes Act l'AnnOtation: The tide reflects the unifying theme — there are three main elements of the initiative and each relates to voter and taxpayer control over local taxesI SECTION 2. FINDINGS AND DECLARATIONS. The People of the State of Caiifornia 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. [Annotation: Findings specifically refer to Proposition 13. If local governments and courts had not abused the letter and spirit of 13, this initiative would not be necessary. Again, focus is on voter and taxpayer control] SECTION 3. VOTER APPROVAL FOR LOCAL TAX LEVIES. Article XIIIC of the California Constitution is hereby added: [Annotation: This secdon consriturionalizes Proposition 62, Government Code Section 53720, et seq. Although Proposition 62 was upheld by the California Supreme Court in ,Car ra Ccifrm County nra( Tnnermr-vinn Auttnritv v r;tmrrfinn tHnward darvie Tgxnava r s A tsmearian. et al, Real Parties In Interest (18851 11 cat 4th 220, that initiative was a statutory initiative and its applicability to charter cities has been called into question. If Proposition 218 passes, there will be no question that all the voter approval requirements will apply to charter cities. As noted below, this section also makes Proposition 62 stronger in its application.] SEC. 1. Definitions. As used in this Article: (a)"General tax" means any tax imposed for general governmental purposes. (b)"Local government" means any county, city, city and county, including a charter city or county, any special district, or any other local or regional governmental entity. 126 J-161 Right to Vote on Taxes Act Page 2 [Annotation: Regional governments were included to ensure that provisions of Act apply to all governmental entitles other than the state itself.] Cc) "Special District" means an agency of the state, formed pursuant to general law or spedal act, for the local performance of governmental or proprietary functions with limited geographic boundaries including, but not limited to, school districts and redevelopment agencies. [Annotation: Even more expansive definition than Proposition 62. No government, except the stare itself, is exempt) (d) "special tax" means any tax imposed for specific purposes including taxes imposed for specific purposes which are placed into a general fund. [Annotation: This reinforces language of Rfripr v San nipnn dealing with special taxes. The key is the purpose of the funding, not the name of the bank account A number of analyses of Proposition 278 prepared by local governments have stated that the revised transportation tax in Santa Clara County (proposing 'dual" measures on the ballot) would be illegal under this definition.! SEC. 2. Local Government Tax Limitation. Notwithstanding any other provision of this Constitution: (a)All taxes imposed by any local government shall be deemed to be either general taxes or special taxes. Special purpose districts or agencies, including school districts, shall have no power to levy general taxes. [Annotation: This provision merely reflects language of Supreme Court in the Riflar v Sar (worm decision saying special districts, by their special nature, haVe no power to levy general taxes.] (b)No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. A general tax shill Fibt be deemed to have been increased if it is imposed at a rate not higher than the maximum rate so approved. The election required by this subdivision shall be consolidated with a regularly scheduled general election for members of the governing body of the local government except in cases of emergency declared by a unanimous vote of the governing body. 127 J-162 Right to Vote on Taxes Act Page 3 [Annotation: Similar to provision in Proposition 62 with one clarification — the ballot language could incorporate future increases and if the ballot measure is approved, then the government would not have to go back to the voters for those increases As long than the government wants to levy now but could raise to the voter approved level at some later time. Also, elections are consolidated with elections at which members of governing body are elected, except in cases of emergency. Note that a unanimous vote Is needed to declare an emergency but this has always been interpreted as a unanimous vote of those present. The concern is that the nature of the emergency might keep some members from attending a meeting.) (c) Any general tax imposed, extended or increased, without voter approval, by any local government on or after januarY 1, 1995, and prior to the effective date of this Article, shall continue to be imposed only if approved by a majority vote of the voters voting in an election on the issue of the imposition, which election shall be held within two years of the effective date of this Article and in compliance with subdivision (b) of this section. [Annotation: Effective date of January 1, 19.95 was necessary to prevent a 'rush" of new taxes to meet what would otherwise be an effective date of November, 1556. In any event, this provision is not draconian for local governments which have been complying with the requirements of Proposition 62.1 (d) No local government may impose, extend or increase any special tax unless and until such 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 rare not higher than the maximum rare so' approved. . SEC. 3. Initiative Power For Local Taxes, Assessments, Fees and Charges. Notwithstanding any other provision of this Constitution, including, but not limited to, Article II, Sections 8 and 9, the initiative power shall not be prohibited or otherwise United in mercers 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. [Annotation: This section merely tonstitutionalizes"Thssi v Prawn a recent decision of the California Supreme Court upholding the right of the electorate to use the local 128 J-163 Right to Vote on Taxes Act Page 4 initiative power to reduce or eliminate government imposed levies via the initiative power. It provides a last resort' remedy.] SECTION 4. ASSESSMENT AND PROPERTY RELATED FEE REFORM. [Annotation: This is the third major element of Proposition 218.1 Article XIIID of the California Constitution is hereby added: SEC. 1. Application. Notwithstanding any other provision of law, the provisions of this Article shall apply to all assessments, fees and charges whether imposed pursuant to state statute or local government charter authority. Nothing in this Articie or Article XIIIC shall be consrued to: (a)provide any new authority to any agency to impose a tax, assessment, fee or charge; (b)affect existing laws relating to the imposition of fees or charges as a condition of property development; [Annotation: the purpose of this provision is to leave unaffected any existing law relating to developer fees. Although there have been abuses in this area by local governments (resulting in substantially increased housing costs), the focus of Proposition 278 is on those levies imposed simply by virtue of property ownership. Developer fees, in contrast, are imposed as an incident of the voluntary act of development Moreover, neither this section nor other provisions of Proposition 218 would impair the ability of developers to employ land secured financing' as a means to finance infrastnicrure.1 or; (c)affect existing laws relating to the imposition of timber yield taxes. (These taxes are already addressed in the California Constitution and by legislation. The intent of Proposition 218 was to leave this entire area of law unaffected.] SEC. 2. Definitions. As used in this article: lal "Agency" means any local government as defined in Article XIIIC, 129 J-164 Right to Vote on Taxes Act Page 5 Section 1(h). (b)"Assessment" means any levy or charge upon real property by an agency for a special benefit conferred upon the real property. 'Assessment" includes, but is not limited to, "special assessment," "benefit assessment," "maintenance assessment" and "special assessment tax.". (c)"Capital cost" means the cost of acquisition, installation, construction, reconstruction or replacement of a permanent public improvement by an agency. (d)"District" means an area determined by an agency to contain all parcels which will receive a special benefit from a proposed pubiic improvement or property-related service. (e)"Fee" or "charge" means 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 user fees or charges for a property related service. [Annotation: definition of fees, for purposes of this article, are limited to fees imposed as an incident of property ownership. DMV fees, statewide fees, fines, and recreation fees such as gate fees, are not affected) (f)"Maintenance and operation expenses" means the cost of rent, repair, replacement rehabilitation, fuel, power, electrical current, care, and supervision necessary to properly operate and maintain a permanent public improvement. (g)"Property ownership" shall be deemed to include tenancies of real property where tenants are directly liable to pay the assessment, fee, or charge in question. [Annotation: Under this definition, if a tenant of real property is !firer,* liable to pay an assessment, they would have the right to protest and vote. This will depend on the terms of the lease. Direct pass throughs'are more common in commercial leases as opposed to residential leases.] (h)"Property-related service" means a public service having a direct relationship to property ownership. 130 J-165 Right to Vote on Taxes Act Page 6 (I) "Special benefit" means a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large. General enhancement of property value does not constitute 'special benefit." SEC. 3. Property Taxes, Assessments, Fees and Charges Limited. (Annotation: This section provides an peril isivp list of those levies which can be imposed on properyl (a) No tax, assessment, 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)The ad valorem property tax imposed pursuant to Article XIII and Arcic:e XIIIA of this Constitution. (2)Any special tax receiving a two-thirds vote pursuant to Article XIII& Section 4 of this Constitution. - [Annotadon: Proposition 218 permits special :axes with a two-thirds vote consistent with Proposition 13. Although there remain significant policy Issues with respect to gam non-ad valorem property tax, the authors of Proposition 218 realized it would be difficult to repeal existing statutory authonZadon for special taxes on property as long as those taxes secured the requisite two-thirds vote.] (3)Assessments as provided by this Article. (4)Fees or charges for property related services as provided by this Article. (b) For purposes of this Article, fees for the provision of electrical or gas service shall not be deemed charges or fees imposed as an incident of property ownership. (Annotation: Such services, even when provided by a public entity, are usually metered and, therefore, probably meet the 'cost of service s requirements of this initiative. Therefore, they were exempted from application.] SEC. 4. Procedures and Requirements for All Assessments. 131 J-166 Right to Vote on Taxes Act Page 7 (a) An agency which proposes to levy an assessment shall identify all parcels which will have a special benefit conferred upon them and upon which an assessrnent will be imposed. The proportionate special benefit derived by each identified parcel shall be determined in relationship to the entirety of the capital cost of a public improvement or the maintenance and operation expenses of a public improvement or for the cost of the property related service being provided. No assessment shall be imposed on any parcel which exceeds the reasonable cost of the proportional special benefit conferred on that parcel. Only special benefits are assessable, and an agency must separate the general benefits from the special benefits conferred on a parcel. Parcels within a district that are owned or used by any agency, the State of California or the United States shall not be exempt from assessment unless the agency can demonstrate by clear and convincing evidence that such publicly owned parcels in fact receive no special benefit [Annotation: These new requirements for assessments are ac:ually si177113f to those imposed by traditional assessment law. The overall purpose of this section is to permit assessments to be used, once again, as a legitimate financing mechanism and not just a means to impose flat rate parcel taxes. These requirements are: assessments must be proportional to the benefit; only special benefits are assessable: and public properties must pay their fair share. Historically, public properties were also assessed benefit assessments. (See, e.g., Municipal Improvement Act of 1911). Only in recent years when assessments have been used to impose what are, in effect, parcel taxes, have public properties received blanket exemptions froth assessments. Under Proposition 2181 if public property is benefited the same as private property, then it should also be assessed.] (b)All assessments must be supported by a detailed engineer's report prepared by a registered professional engineer certified by the State of California. (Annotation: This requirement is consistent with traditional assessment law. Only since Proposition 13 have non-engineers been able to prepare 'engineers' reports- 7 (c)The amount of the proposed assessment for each identified parcel shall be calculated and the record owner of each parcel shall be given written notice by mail of the proposed assessment, the total amount thereof chargeable to the entire district, the amount chargeable to the owner's particular parcel, the duration of such 132 J-167 Right to Vote on Taxes Act Page 8 payments, the reason for such 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. Each notice shall also include, in a conspicuous place thereon, a summary of the procedures applicable to the completion, return and tabulation of the ballots required pursuant to subdivision (d), including a disclosure statement that the existence of a majority protest, as defined in subdivision (e), will result in the assessment not being imposed. [Annotation: Notice requirements for assessments have been substantially liberalized in recent years: Proposition 278 would require mailed notice, not just publication in a newspaper. Mailed notice would also include a ballot for to be returned by the property ownersi (d)Each such notice mailed to owners of identified parcels within the district shall contain a ballot which includes the agency's address for receipt of any such ballot once completed by any owner receiving such notice whereby each such owner may indicate his or her name, reasonable identification of the parcel and support or opposition to the proposed assessment. (e)The agency shall conduct a public hearing upon the proposed assessment not less than 45 days after mailing the notice of the proposed .assessment to record owners of each identified parcel. At .the public hearing, the agency shall consider all protests against the proposed assessment and tabulate the ballots. The agency shall not impose an assessment if there is a majority protest. A majority protest exists if, upon the conclusion of the hearing, ballots submitted in opposition to the assessment exceed the ballots submitted in favor of the assessment. In tabulating the ballots, the ballots shall be weighted according to the proportional financial obligation of the affected property. (Annotation: Under Proposition 218, assessments may not be imposed without majority approval of property owners. Ballots are weighted according to financial obligation. Several existing statutes call for the 'Weighring-of votes so this does not represent a significant change in the law. In any event, this is consistent with policy of permitting those financially obligated to pay to impact the decision of whether the levy is imposed. Moreover, under existing law, the failure to file a protest counts as a "yes' vote. This changes the current methodology by subjecting the levy to a simple majority vote of those property owners who return ballots.] 133 J-168 Right to Vote on Taxes Act Page 9 if) In any legal action contesting the validity of any assessment, the burden shall be on the agency to demonstrate that the property or 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 property or properties in question. (Annotation: Although this provision shifts burden of proof in taxpayers' favor on issue of benefits to property, it is consistent with some current case law. .Ce P . P g. r VV ear i (1°6) 165 Cal.App.3d 5671- II • ••II • (g) Because only special benefits are assessable, electors residing within the district who do not own property within the district shall not be deemed under this Constitution to have been deprived of the right to vote for any assessment. If a court determines that the Constitution of the United States or other federal law requires otherwise, the assessment shall not be imposed unless approved by a two-thirds vote of the electorate in the district in addition to being approved by the property owners as required by Section 4(e). (Annotation: Under existing law, it is not a violation of the right to vote to limit elections to property owners if the district provides only a narrow, property related service. So. CR1 Rgnirl Trpn.sir Distrin f v. Polon (1992) 1 Ca1.4th 654. However, in the unlikely event this becomes an issue, this provision would simply require an additional vote of the registered voters to impose the assessment.! SEC. 5. Effective Date !Annotation: Although titled 'effective date," this section has some important excep dons regarding the requirements for assessments. If one of the following exceptions does not apply, then an existing assessments must cease by July 1, 1.937 unless ratified by the property owners! Pursuant to Article II, Section 10(a), the provisions of this Article shall become effective the day after the election unless otherwise provided. Beginning July 1, 1997, all existing, new or increased assessments shall comply with this Article. Notwithstanding the foregoing, the following assessments existing on the effective date of this Article shall be exempt from the procedures and 134 J-169 Right to Vote on Taxes Act Page 10 approval process set forth in Section 4: Mr:notation: An assessment is deemed "existing on the affective date of this Article,' even if it is the type of assPnment which comes up for annual renewal. As long as the assessment rates and methodology remained the same from year to year, the fact that the assessment is imposed' annually would not necessarily trigger applicability of the requirements of this Article. This would be d ye even if the total revenue to the &vim' increased due to changes in land use for specific parcels (e.g., newly-created or improved parcels). Again, as long as the assessment rates and methodology remain the same, an increase in revenue as the result of land use changes would not trigger applicability of Section 4. However, the procedures and approval process of Section 4 would apply to the entire assessment in the event the assessments were increased either by the rare of assessment or by a change in methodologyj. (a) 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. Subsequent increases in such assessments shall be subject to the procedures and approval process set fort in Section 4; [Annotation: This is the "thaditional purposes e exception. These existing assessments do not need property owner approval to continue. However, future assessments for these traditional purposes are covered.] (13) any assessment imposed pursuant to a petition signed by the persons owning all of the parcels subject to the assessment at the time the assessment is initially imposed Subsequent increases in such assessments shall be subject to the procedures and approval process set forth in Section 4; [Annotation: This provision exempts land secured financing arrangements used by developers. This does not concern us because increased tax liability is capitalized into the purchase price] lc/ any assessment the proceeds of which are exclusively used to repay bonded indebtedness of which the failure to pay would violate the Contract Impairment Cause of the Constitution of the United States of America: [Annotation: Even an amendment to the California Constitution cannot impair a contract protected by the federal constitution. However, this exception can only be 135 J-170 Right to Vote on Taxes Act Page 11 used for bonds that are actually protected by the impairment clause. Certificates of Participation and other creative debt instruments would not be protected.] or, (d) any assessment which previously received majority voter approval from the voters voting in an election on the issue of the assessment. Subsequent increases in such assessments shall be subject to the procedures and approval process set forth in Section 4. [Annotation: Although the exception for assessments previously approved by the voters will permit the continued collection of some particularly illegitimate assessments, requiring an additional approval process would be redundant! SEC. 6. Property Related Fees and Charges. [Annotation: The purpose of this section is to prevent the exploitation of fees" as a means to avoid the new restrictions on assessments. .Because flat rate parcel taxes have avoided the strictures of Proposition 13 simply by being called 'assessments,' the drafters are concerned that the same will happen with tees" — that is, circumventing taxpayer protections by manipulating the label of the levy.] (a) Procedures for New or Increased Fees and Charges. An agency shall follow the procedures pursuant to this section in imposing or increasing any fee or charge as defined pursuant to this Article including, but not limited to, the following: (1) The parcels upon which a fee or charge is proposed for imposition shall be identified. The amount of the fee or charge proposed to be imposed upon each parcel shall be calculated. The agency shall provide written notice by mail of the proposed fee or charge to the record owner of each identified parcel upon which the fee or charge is proposed for imposition, the amount of the fee or charge proposed to be imposed upon each, the basis upon which the amount of the proposed fee or charge was calculated, the reason for the fee or charge, together with the date, time, and location of a public hearing on the proposed fee or charge. [Annotation: This section is applicable to any fee imposed on a parcel basis or for fees which provide a property related service. It does not affect fees that are not property rated such as DMV fees, park fees, or administrative charges imposed by a local government! 136 J-171 Right to Vote on Taxes Act Page 12 (2) The agency shall conduct a public hearing upon the proposed fee or charge not less than 45 days after mailing the notice of the proposed fee or charge to the record owners of each identified parcel upon which the fee or charge is proposed for imposition. At the public hearing, the agency shall consider all protests against the proposed fee or charge. If written protests against the proposed fee or charge are presented by a majority of owners of the identified parcels, the agency shall. not impose the fee or charge. [Annotation: Votes on property fees are not weighted in the same manner as assessments because to do so would be administrativeiy costly. A simple majority of fee payers can stop a fee proposal] (b) Requirements for Existng, New or Increased Fees and Charges. A fee or charge shall not be extended, imposed or increased by any agency unless it meets all of the following requirements: [Annotation: These five requirements are applicable to all fees, including those that currently exist In essence, these requirements mandate that fees not exceed the 'cost of service. 7 (1)Revenues derived from the fee or charge shall not exceed the funds required to provide the pro p erty related service. (2)Revenuet derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed. [Annotation: Requirements 1 & 2 will prohibit a current practice of siphoning off fee revenue to supplement a city's general fund. This currently occurs both in Los Angeles and Sacramento] (3)The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel. [Annotation: tinder the initiative, fees, just like assessments, must be proportional] (4)No fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Fees or charges based on potential or future use of a service are not permitted. Standby charges, whether 137 J-172 Right to Vote on Taxes Act Page 13 characterized as charges or assessments, shall be classified as assessments and shall not be imposed without compliance with Section 4 of this Article. [Annotadon: Requires standby charges to go through assessment procedures. If a current standby charge is in the nature of an assessment, it may take advantage of the current exemptions for assessments. If not, the levy would have to be reimposed as an assessment and meet all requirements of Section 5 or cease to be collected.) (5) No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services where the service is available to the public at large in substantially the same manner as it is to property owners. [Annotation: This would prohibit the imposition of parcel -charges' for general governmental services. The purpose of this provision is to reverse those levies, such as the County of Los Angeles' parcel "charge' for library services irrespective of use of library services.) Reliance by an agency on any parcel map including, but not limited to, an assessor's parcel map, may be considered a significant factor in determining whether a fee or charge is imposed as incident of property ownership for purposes of this Article. In any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this Article. (c) Voter Approval for New or Increased Fees and Charges. Except for fees or charges for sewer, water, and refuse collection services, no property related fee or charge shall be imposed or increased unless and until such fee or charge is submitted and approved by a majority vote of the property owners of the property subject to the fee or charge or, at the option of the agency, by a two-thirds vote of the electorate residing in the affected area. The election shall be conducted not less than 45 days after the public hearing. An agency may adopt procedures similar to those for increases in assessments in the conduct of elections under this subdivision. /Annotation: Exemption for sewer, water and refuse collection is for voter approval only. Such fees se must meet all of the five substantive requirements of paragraph MI. Exemption is based on philosophy of attempting to reverse the end-runs around Proposition 13. Since water, sewer and refuse collection fees pre-date proposition 13, they were exempted from voter approval) 138 J-173 Right to Vote on Taxes Act Page 14 (dl Beginning July 1, 1997, all fees or charges shall comply with this Section. SECTION 5. LIBERAL CONSTRUCTION. The provisions of this Act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent. b4nnotadon: Purpose of this section is to ensure that, in the event of any ambiguity, that the rights of taxpayers will be paramount.] SECTION 6. SEVERABILITY. If any provision of this Act, or part thereof, is for any reason held to be invalid or unconstitutional, the remaining sections shall not be affected, but shall remain in full force and effect, and to this end the provisions of this Act are severable. [Annotation: Standard severabillty clause.) e 139 J-174 (This page left intentionally blank) 140 J-175 PROPOSITION 218 RIGHT TO VOTE ON TAXES ACT STATEMENT OF DRAFTERS' INTENT January 2, 1997 SECTION 1. TITLE. This Act shall be known and may be cited as the "Right to Vote on Taxes Act.' Comment: The title reflects the unifying theme — there are three main elements of the Initiative and each relates to voter and taxpayer control over local taxes. The first part of the initiative deals with general and special taxes; the second section deals with assessment reform; the third and last section deals with property related fees and charges. SECTION 2. 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. Comment Findings specifically refer to Proposition 13. If local governments and courts had not circumvented Proposition 13, Proposition 218 would not have been necessary. SECTION 3. VOTER APPROVAL FOR LOCAL TAX LEVIES. Article XIIIC of the California Constitution is added to the California Constitution to read: Comment: This section sets forth provisions similar to those found in Proposition 62, Government Code Section 53720, et seq. Although Proposition 62 was upheld by the California Supreme Court in Sanarlarar,s2S v. rhmrdinn (Howard .larvis TAXIMVPIT Assnr:intinn et al Real Partiel in Intereet) (1995)11 Ca1.4th 220, that initiative was a statutory initiative and charter cities, for the most part, have refused to follow its mandates. On the other hand, there is no dispute that Proposition 218 applies to charter cities. 141 J-176 PROPOSITION 218 STATEMENT OF DRAFTERS' INTENT PAGE 7 Article XIIIC SEC. 1. Definitions. As used in this Article: (a)'General tax" means any tax imposed for general governmental purposes. (b)i Local government" means any co u nty , city, city and county, including a charter city or county, any special district, or any other local or regional governmental entity. (c)"Special District" means 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 including, but not limited to, school districts and redevelopment agencies. Comment The terms local government' and 'special district" are defined broadly so as to encompass all government entities other than the state itself. These definitions are more expansive than those set forth in Proposition 62. (d)"Special tax" means any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund. Comment The purpose of this definition is to require an analysis which looks to the purpose of the funding, not to the name on the account. See, e.g. Rider v San Diego (1991) 1 Cat 4th T. This provision is intended to prevent local governments from levying special taxes without a two-thirds vote simply by laundering the proceeds through a general fund. To this extent, the revised definition reverses Alparka v. Citv of Mill Vallav (1995) 39 Cal.App.4th 946. It also would prohibit schemes which purport to authorize a Veneral s tax with a simple majority vote while, at the same time, propose a companion "advisory' vote on how the money should be spent Such taxes retain their Veciarcharacteristics under Proposition 218. SEC. 2. Local Government Tax Limitation. Notwithstanding any other provision of this Constitution: (a) All taxes imposed by any local government shall be deemed to be either general taxes or special taxes. Special purpose districts or agencies, including school districts, shall have no power to levy general taxes. 142 J-177 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT POW 3 Comment: This provision is similar to the language of the Supreme Court in the pirlar v. San blown decision recognizing that special districts, by their special nature, have no power to levy general taxes. (b)No local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote. A general 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 election required by this subdivision shall be consolidated with a regularly scheduled general election for members of the governing body of the local government, except in cases of emergency declared by a unanimous vote of the governing body. Comment: Under Proposition 2 -18, a tax measure put to the voters could incorporate future increases and, if the ballot measure is approved, then the agency would not have to seek additional authorization from the voters for those increases. Also, except in cases of emergency, tax-measure elections are to be consolidated with regular elections at which members of governing bodies are chosen. A unanimous vote is needed to declare an emergency but, consistent with existing case law, this should be interpreted as a unanimous vote of those present at the meeting. The concern Is that the nature of the emergency might keep some members of the local legislative body from attending a meeting. (c)Any general tax imposed, extended or increased, without voter approval, by any local government on or after January 1, 1995, and prior to the effective date of this article, shall continue to be imposed only if approved by a majority vote of the voters voting in an election on the issue of the imposition, which election shall be held within two years of the effective date of this article and in compliance with subdivision (b). Comment: This provision of Proposition 218 applies to any general fund tax levied after 1994. Those taxes imposed, extended or increased without voter approval on or after January 1, 1995 which have not received majority voter approval must be approved by a simple majority vote of the electorate by November 6, 1998. The reason the drafters designated an effective date of January 1, 1995 was to prevent a lush' of new taxes imposed prior to November 1996 designed to avoid voter approval. The designation of the January 1, 1995 date does not, in any way, affect any potential claim against a local government entity for violations of Proposition 62. Taxes imposed prior to that date without voter approval may still be subject to 143 J-178 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT pAGF 4 challenge under that initiative as well as the recent arrardinn decision. (d) 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. Comment This section states that any tax that is levied for a specific purpose must obtain a two-thirds vote of the electorate. These taxes include any tax impose for a specific purpose or purposes including, but not limited to, local sales taxes or parcel taxes designated for specific purposes. 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. Comment This section merely tonstitutionalizes' the principles of Tinsel v Rrnwn (1995) 9 Ca1.4th 688, a recent decision of the California Supreme Court upholding the right of the electorate to use the local initiative power to reduce or eliminate government imposed levies via the initiative power. A concern has been expressed with respect to this provision's impact on existing and future bonds. The drafters believe these concerns are not well-founded. First, with respect to existing bonds, the impairment clause of the federal constitution (U.S. Coast., art. I, Sec. 10(1)) would prevent a revenue stream protected thereunder from being jeopardized by an inappropriate use of the initiative power. Notwithstanding the clear application of federal law, however, Proposition 218's detractors contended, during the campaign, that there is no expressed exclusion for existing bonds under this provision. Because that part of the Right to Vote on Taxes Act dealing with assessment reform set forth in proposed Article XI/ID does have such an exemption, the implication is that the lack of one in Section 3 was intentional. There are two responses to this argument. First, if anything, the protection for existing assessments which are used to repay bonded debt reflects a policy of protecting those instruments. Second, the reason that there was an expressed exception in the 144 J-179 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT pASF 5 assessment provisions is that those provisions were dealing with retroactive application of the initiative. Because of that, a special effort was made to carefully detail those exemptions. In any event, it is clear that the impairment clause would prevent extension of the initiative power to jeopardize a dedicated revenue stream used to pay existing bonded indebtedness Indeed, the California State Treasurer called opponents of Proposition 218 Irresponsible" for their failed effort to make the credit worthiness of existing bonds an issue during the campaign. Proposition 218 does not greatly expand the initiative power. This power historically was intended to apply to the repeal of taxes. See, Rossi v. &own. supra at 699-705. It was not until the Meyers line of cases that this even became an issue. But the Supreme Court in larmi expressly repudiated Meyers and its progeny (fin c11 at 705- 711) and the goal of the proponents has simply been to place this repudia don in the California Constitution.' The next issue is whether Section 3 has an impact on future bonds. For a number of reasons, any detrimental impact is wholly speculative. First, as noted above, the initiative power could not be used to impair bonds that are already sold (even if they are sold after Proposition 218 becomes effective). The concern that the new provision will put potential bond holders 'on notice" that the revenue stream could be eliminated is not well-founded. The concerns expressed, in short, do not take into account the fact that the people's power of initiative is a co-extensive power with that of the legislative body. See e g. Carlson v. Cory (1983) 139 Cal.App.3d 724 and DeVita v. County of Nan e (1995) 9 Cal.4th 763. If the legislative body could be enjoin. ed from impairing contractual rights, then so could the people. The above does not leave the taxpayers without a remedy, however. If the taxpayers wish to preclude or limit future rate or tax increases via an initiative, they could do so prior to any valid, legally binding commitment being made by the legislative body lAs a side issue, the opponents claim we have greatly expanded Rossi because that case merely dealt with a tax. Our initiative, on the other hand, expressly refers to assessments and charges as well as taxes However, the Meyers line of cases had already been found applicable to assessments and charges. See, e.g. Dare V. akenort City round( (1970) 12 Cal.App.3d 864. When the Supreme Court rejected Meyers, this line of cases can no longer be deemed to insulate assessments and charges from the initiative power. hi this respect, Proposition 218 is consistent with current law. 145 J-180 PROPOSITION 218 STATEMENT OF DRAFTERS' INTENT pAGE 6 with respect to a particular revenue stream. For example, the one scenario where our initiative could in fact have an impact is when the bonds are authorized, but not sold. Presumably, at that point, the legislative body could decide not to sell the bonds and no Impainnent" would be at issue. If this is true, then there is no policy reason why the people, using the initiative power, could not be able to impact the sale of the bonds in a similar fashion. ft should be noted, however, that since li sncsi was decided more than a year ago, the drafters are aware of no instance where the initiative power was even threatened to be used to stop the sale of unsold bonds. SECTION 4. ASSESSMENT AND PROPERTY RELATED FEE REFORM. Comment This is the third major element of Proposition 218 which provides significant reforms in the area of assessments, fees and charges. Article XIIID is added to the California Constitution to read: ARTICLE XIIID SEC. 1. Application. Notwithstanding any other provision of law, the provisions of this article shall apply to all assessments, fees, and charges, whether imposed pursuant to state statute or local government charter authority. Nothing in this Article or Article XIIIC shall be construed to: (a)Provide any new authority to any agency to impose a tax, assessment, fee or charge. (b)Affect existing laws relating to the imposition of fees or charges as a condition of property development. Comment The purpose of this provision is to leave unaffected existing laws relating to the imposition of developer fees. Although there have been abuses in this area by local governments (resulting in substantially increased housing costs), the focus of Proposition 218 is on those levies imposed simply by virtue of property ownership. Developer fees, in contrast, are imposed as an incident of the voluntary act of development. Proposition 218 should not significantly impede the ability of developers to employ land secured financing' as a means to finance infrastructure. While assessments on developers are to be treated as any other assessment it should be noted that Mello-Roos taxes (as special taxes consistent with the provisions of 146 J-181 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT pASE 7 Proposition 13) will still be available to developers. One significant impact of Proposition 218 on developers is that a tax imposed on development would be subject to voter approval just like any other tax. For example, in Centex Real Fstate Corn v Cint of Vallejo (1993) 19 Cal.App.3d 1358, the court upheld the legality of a so-called 'excise tax' on development levied by a charter city outside the restrictions that state law places on the imposition of developer fees. Because such levies are conceded to be taxes (levied solely for the purpose of raising revenue), they would fall under the purview of Proposition 218's voter approval requirement. (Such taxes also violate Proposition 62. However, Proposition 218 does not present the yet unresolved issue regarding whether the voter approval requirements of Proposition 62 are enforceable as against charter cities). (c) Affect existing laws relating to the imposition of timber yield taxes. Comment These taxes are already addressed in the California Constitution and by legislation. The intent of Proposition 218 was to leave this entire area of law unaffected. SEC. 2. Definitions. As used in this article: (a)"Agency" means any local government as defined in subdivision (b) of Section 1 of Article XIIIC. (b)"Assessment" means any levy or charge upon real property by an agency for a special benefit conferred upon the real property. "Assessment" includes, but is not limited to, "special assessment," "benefit assessment," "maintenance assessment" and "special assessment tax." (c)"Capital cost" means the cost of acquisition, installation, construction, reconstruction or replacement of a permanent public improvement by an agency. Id) "District" means an area determined by an agency to contain all parcels which will receive a special benefit from a proposed public improvement or property-related service. 147 J-182 PROPOSITION 218 STATEMENT OF DRAFTERS' INTENT pA( (e)"Fee" or "charge' means 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 user fees or charges for a property related service. Comment Included in covered fees and charges are levies for property related services. Such services should be broadly construed to include levies imposed for services or regulatory activities which have a nexus to the beneficial use of property including rent control fees. "Fees," for purposes of this article, are limited to levies imposed as an incident of property ownership or fees for property related services. DMV fees, statewide fees, fines, and recreation fees such as park gate fees, are not affected. However, fees for sewer, water and refuse collection, because of their connection to property, are included. (f)"Maintenance and operation expenses" means the cost of rent, repair, replacement, rehabilitation, fuel, power, electrical current, care, and supervision necessary to properly operate and- maintain a permanent public improvement. (g)'Property ownership" shall be deemed to include tenancies of real property where tenants are directly liable to pay the assessment, fee, or charge in question. Comment Under this definition, if a tenant of real property is rlirprtiv liable to pay an assessment that tenant would have the right to protest and vote. This will depend on the terms of the lease. 'Direct pass-throughs" are more common in commercial leases than in residential leases. Moreover, it would not be inappropriate for the Legislature to provide the specific guidelines with respect to the duties of the agency and property owners for the implementation of this provision. (h)"Property-related service" means a public service having a direct relationship to property ownership. (I) "Special benefit" means a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large. General enhancement of property value does not constitute "special benefit." Comment What constitutes a special benefit will depend on the nature of the capital improvement or service being provided. It must be more than a mere increase in the value of the property because, arguably, the availability of any public service could 148 J-183 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT PAGF 9 provide additional value. It must a direct and special benefit conferred on the property that exceeds the benefit conferred on the public or large or even to other similar properties SEC. 3. Property Taxes, Assessments, Fees and Charges Limited. Comment This section provides an exclucive list of those levies which can be imposed on real property. (a) No tax, assessment, 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)The ad valorem property tax imposed pursuant to Article XIII and Article XIIIA of this Constitution. (2)Any special tax receiving a two-thirds vote pursuant to Article XIIIA, Section 4. Comment Proposition 218 permits special taxes with a two-thirds vote consistent with Proposition 13. Although there remain significant policy issues with respect to an y non-ad valorem property tax, the authors of Proposition 218 realized it would be difficult to repeal existing statutory authorization for special taxes on property as long as those taxes secured the requisite two-thirds vote. General taxes on property are not permitted on property under existing California Constitutional principles. (Article XIII, Section 1). (3)Assessments as provided by this article. (4)Fees or charges for property related services as provided by this article. (b) For purposes of this article, fees for the provision of electrical or gas service shall not be deemed charges or fees imposed as an incident of property ownership. SEC. 4. Procedures and Requirements for AU Assessments. (a) An agency which proposes to levy an assessment shall identify all parcels which will have a special benefit conferred upon them 149 J-184 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT pAGF 10 and upon which an assessment will be imposed. The proportionate special benefit derived by each identified parcel shall be determined in relationship to the entirety of the capital cost of a public improvement, the maintenance and operation expenses of a public improvement, the cost of the property related service being provided. No assessment shall be imposed on any parcel which exceeds the reasonable cost of the proportional special benefit conferred on that parcel. Only special benefits are assessable, and an agency shall separate the general benefits from the special benefits conferred on a parcel. Parcels within a district that are owned or used by any agency, the State of California or the United States shall not be exempt from assessment unless the agency can demonstrate by clear and convincing evidence that such publicly owned parcels in fact receive no special benefit. Comment These requirements for assessments are similar to those imposed by traditional assessment law. The overall purpose of this section is to permit assessments to be used, once again, as a legitimate financing mechanism for capital improvements and services that provides particular benefits to property and not just a means to impose fiat rate parcel taxes. These requirements are: assessments must be proportional to the benefit only special benefits are assessable; and public properties must pay their fair share. Historically, benefit assessments have also been levied on public properties. (See, e.g., Municipal Improvement Act of 1911). Only in recent years when assessments have been used to impose what are, in effect, parcel taxes, have public properties received blanket exemptions from assessments. Under Proposition 218, if public property is benefited in the same manner as private property, then it must be assessed. (b)All assessments must be supported by a detailed engineer's report prepared by a registered professional engineer certified by the State of California. Comment: This requirement is consistent with traditional assessment law. Only since Proposition 13 have non-engineers been able to prepare 'engineers' reports' (c)The amount of the proposed assessment for each identified parcel shall be calculated and the record owner of each parcel shall be given written notice by mail of the proposed assessment, the total amount thereof chargeable to the entire district, the amount chargeable to the owner's particular parcel, the duration of such 150 J-185 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT ASP 11 payments, the reason 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. Each notice shall also include, in a conspicuous place thereon, a summary of the procedures applicable to the completion, return and tabulation of the ballots required pursuant to subdivision (d), including a disclosure statement that the existence of a majority protest, as defined in subdivision (el, will result in the assessment not being imposed. (d) Each notice mailed to owners of identified parcels within the district pursuant to subdivision (c) shall contain a ballot which includes the agency's address for receipt of any such ballot once completed by any owner receiving the notice whereby the owner may indicate his or her name, reasonable identification of the parcel, and his or her support or opposition to the proposed assessment. Comment Notice requirements for assessments have been substantially liberalized in recent years to the detriment of taxpayers. Proposition 218 requires mailed notice,. not just publication in a newspaper. Mailed notice would also include a ballot to be returned by the property owners as more fully described below. Nntice of Prnnnspr/ AsTessment The procedures for processing and tabulating protests against a proposed assessment under Proposition 218 are largely set forth in the initlatiife. Linder Proposition 218, each property owner subject to a proposed assessment must receive a written notice of the proposed assessment and a ballot to be returned to the agency indicating support or opposition to the proposed assessment. The notice, ballot, and return envelope must be mailed to property owners at least 45 days before the required public hearing on the assessment During the 45 days • between the time the notice is mailed and the hearing is held, the engineers report and all other pertinent materials or public records must be made available to property owners for their review, along with the address where they may review the documents. It must also set forth: 11 The amount proposed to be charged as an assessment against the specific parcel. 21 The amount proposed to be charged as an assessment to the entire district. 151 •J-186 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT PAGE 12 3)The length of time the proposed assessment will be in place. 4)The reasons for the assessment and the grounds upon which the proposed assessment for the parcel was calculated. 5)The date, location and time of the required public hearing. 6)A summary of the protest procedure, including instructions for the comple don and return of the ballot. Drafters' Suggested Procedures: Beat: The ballot should remain sealed with all pertinent property owner information on the outside of the envelope so that both the signature and the information can be verified by the tabulator before the envelope is opened. The envelope should include parcel number, signature, address, sworn declaration, etc. The ballot should include the agency's address (or a self-addressed envelope, stamp at agencies discretion) for return of the ballot. Tahulatinn Prricarlurpv Ballots should be opened and tabulated at the end of the public hearing. Ballots can be mailed to the agency or delivered personally to the agency prior to actual ballot tabulations. Ballots are tabulated by adding the amount of the assessment on each ballot indicating either approval of, or opposition to, the assessment If the dollar amount representing the consenting ballots exceeds the dollar amount reflective of the opposing ballots, the assessment may be imposed. In the event of a tie, the assessment cannot be imposed. Ballots should be retained by the agency for a sufficient period of time to permit resolution of disputes involving the ballot process. Also, nothing in Proposition 218 prohibits the use of independent private firms or public agencies .to contract with the levying agency to administer the ballot process. Thus, a local agency could contract either with an accounting firm or a county registrar of voters for this purpose. 152 J-187 PROPOSITION 218 STATEMENT OF DRAFTERS' INTENT pAGF 13 Preprinted ballots in the following format are recommended: Parcel No. [preprinted from assessors tax roll) Record Owner [preprinted from assessors tax roll) Address: [preprinted from assessors tax roll] Yes, I approve of the proposed annual assessment of $ inrenrinterfl on the parcel identified on this ballot. No, I do not approve the proposed assessment on this parcel. Signature of Record Owner or Authorized Representative in the case of property owned by non-individuals. As previously noted, the Legislature may wish to provide additional details with respect to those tenants of real property who, by virtue of their lease, are directly obligated to pay an assessment The Drafters do not recommend legislation which places the burden of determining who has the right to protest an assessment on the public agency. One possible solution is a statute providing that the property owners have an affirmative duty to inform tenants, and transmit the ballots, in those situations where the tenants are financially responsible for the payment Legal Issue Regarding Right to Vote During the campaign, opponents of Proposition 218 claimed that the initiative would deprive electors of the right to vote by giving corporations (including foreign corporations) more voting power than individual voters or property owners. However, limiting the ability to protest assessments to those who own property is consistent with over one hundred years of assessment law. Similarly, Proposition 218's specific provision of 'Weighting the protest votes according to the amount of the assessment Is also consistent with the Weighting' formula of some existing statutes. See, e.g. Fire Suppression Assessments, Gov't Code I 50078, et seq. This formula was selected because it the most reflective of the policy that those who have to pay should have the right to affect the decision of whether the levy should be imposed. Moreover, some of the other existing "weighting" formulas, such as those based on acreage, led to some strange and Inequitable results. The County of Los Angeles' 153 J-188 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT PAGE 14 park assessments are prime examples. (e)The agency shall conduct a public hearing upon the proposed assessment not less than 45 days after mailing the notice of the proposed assessment to record owners of each identified parcel. At the public hearing, the agency shall consider all protests against the proposed assessment and tabulate the ballots. The agency shall not impose an assessment if there is a majority protest. A majority protest exists if, upon the conclusion of the hearing, ballots submitted in opposition to the assessment exceed the ballots submitted in favor of the assessment. In tabulating the ballots, the ballots shall be weighted according to the proportional financial obligation of the affected property. (f)In any legal action contesting the validity of any assessment, the burden shall be on the agency to demonstrate that the property or 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 property or properties in question. Comment: Although this provision shifts burden of proof in taxpayers' favor on issue of benefits to property, it is consistent with some current case law. $AP f2..a., BeauenataastrazikaucaoLECL1fax_16Later_Dist. (1985) 165 Cal.A pP.3d 567. (g)Because only special benefits are assessable, electors residing within the district who do not own property within the district shall not be deemed under this Constitution to have been deprived of the right to vote for any assessment. If a court determines that the Constitution of the United States or other federal law requires otherwise, the assessment shall not be imposed unless approved by a two-thirds vote of the electorate in the district in addition to being approved by the property owners as required by Section 4(e). Comment Under existing law, it is not a violation of the right to vote to limit elections to property owners if the district provides only a narrow, property related service. SsraLaliflialaSlialtdati.-Bilier1(1992) 1 Ca1.4th 654. 154 J-189 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT pACP 15 SEC. 5. Effective Date Comment Although titled "effective date,' this section has some important exceptions regarding the requirements for assessments. If one of the following exceptions does not apply, then an existing assessment must cease by July 1, 1997 unless ratified by the property owners. Pursuant to subdivision (a) of Section 10 of Article II, the provisions of this article shall become effective the day after the election unless otherwise provided. Beginning July 1, 1997, all existing, new or increased assessments , shall comply with this article. Notwithstanding the foregoing, the following assessments existing on the effective date of this article shall be exempt from the procedures and approval process set forth in Section 4: Comment An assessment is deemed "existing on the effective date of this Article," even if it is the type of assessment which comes up for annual renewal. As long as the assessment rates and methodology remained the same from year to year, the fact that the assessment is Imposed" annually would not necessarily trigger applicability of the requirements of this Article. This would be true even if the total revenue to the district increased due to changes in land use for specific parcels (e.g., newly-created or improved parcels). Again, as long as the assessment rates and methodology remain the same, an increase in revenue as the result of land use changes would not trigger applicability of Section 4. However, the procedures and approval process of Section 4 would apply to the entire assessment in the event the assessments were increased either by the rate of assessment or by a change in methodology. (a)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. Subsequent increases in such assessments shall be subject to the procedures and approval process set forth in Section 4. Comment This is the traditional purposes- exception. These existing assessments do not need property owner approval to continue. However, future assessments for these traditional purposes are covered. The reference to 'treets"does not include street lighting. (b)Any assessment imposed pursuant to a petition signed by the persons owning all of the parcels subject to the assessment at the time the assessment is initially imposed. Subsequent increases in 155 J-190 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT PA(IF 145 such assessments shall be subject to the procedures and approval process set forth in Section 4. Comment: This provision exempts most land secured financing arrangements used by developers. Cc) Any assessment the proceeds of which are exclusively used to repay bonded indebtedness of which the failure to pay would violate the Contract Impairment Clause of the Constitution of the United States. Comment Even an amendment to the California Constitution cannot impair a contract protected by the federal constitution. However, this excep don can only be used for bonds that are actually protected by the impairment clause. Certificates of Participation and other creative debt instruments would not be protected. Moreover, in order to qualify for this exception, the assessment levied would have to be specifically tied to the repayment of bonds. (d) Any assessment which previously received majority voter approval from thivoters voting in an election on the issue of the assessment. Sasequent increases in such assessments shall be subject to the procedures and approval process set forth in Section 4. Comment: Although the exception for assessments previously approved by the voters will permit the continued collection of some particularly illegitimate assessments, requiring an additional approval process would be redundant. It should also be noted, however, that the vote necessary to qualify for this exception must be binding. Advisory votes are insufficient. tf-" SEC. 6. Property Related Fees and Charges. Comment The purpose of this section is to prevent the exploitation of tees" as a means to avoid the new restrictions on assessments. Because flat rate parcel taxes have avoided the strictures of Proposition 13 simply by being called 'assessments,' the drafters are concerned that the same will happen with 'fees" — that is, circumventing taxpayer protections by manipulating the label of the levy. (a) Procedures for New or Increased Fees and Charges. An agency shall follow the procedures pursuant to this section in imposing or increasing 156 J-191 PROPOSITION 218 STATEMENT OF DRAFTERS' INTENT pAor 17 any fee or charge as defined pursuant to this Article including, but not limited to, the following: (1)The parcels upon which a fee or charge is proposed for imposition shall be identified. The amount of the fee or charge proposed to be imposed upon each parcel shall be calculated. The agency shall provide written notice by mail of the proposed fee or charge to the record owners of each identified parcel upon which the fee or charge is proposed for imposition, the amount of the fee or charge proposed to be imposed upon each, the basis upon which the amount of the proposed fee or charge was calculated, the reason for the fee or charge, together with the date, time, and location of a public hearing on the proposed fee or charge. Comment This section is applicable to any fee imposed on a parcel basis or for fees which provide a property related service. It does not affect fees that are not property related such as DMV fees, park fees, or administrative charges imposed by a local government (2)The agency shall conduct a public hearing upon the proposed fee or charge not less than 45 days after mailing the notice of the proposed fee or charge to the record owners of each identified parcel upon which the fee or charge is proposed for imposition. At the public hearing, the agency shall consider all protests against the proposed fee or charge. If written protests against the proposed fee or charge are presented by a majority of owners of the identified parcels, the agency shall not impose the fee or charge. Comment Votes on property fees and charges are not weighted in the same manner as assessments. Because fees can vary according to usage of the service, there is no workable methodology to apportion the votes of the service users. Thus, the issue of a fee increase will be determined by a simple majority vote of property owners or fee payers. (b) Requirements for Existing, New or Increased Fees and Charges. A fee or charge shall not be extended, imposed or increased by any agency unless it meets all of the following requirements: Comment These five requirements are applicable to all fees, including those that currently exist. In essence, these requirements mandate that fees not exceed the 157 J-192 PROPOSITION 218 STATEMENT OF DRAFTERS' INTENT pAsE 18 'cost of service.' (1)Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service. (2)Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed. Comment Requirements 1 & 2 will prohibit the current practice of siphoning off fee revenue to supplement a city's general fund. This practice, sometimes known as charging an 'in lieu franchise fee," currently occurs both in Los Angeles and Sacramento, as well as In many other municipalities. However, 'cost of service" may also inc.lude reasonable overhead expenses as well as other items on a service bill which are necessary to provide service to the particular service user. What is included In "cost of service" will have to be determined on a case by case basis. (3)The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel. Comment: As with assessments, fees and charges, must be proportional to the actual use of the service. (4)No fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Fees or charges based on potential or future use of a service are not permitted. Standby charges, whether characterized as charges or assessments, shall be classified as assessments and shall not be imposed without compliance with Section 4. Comment Standby charges are usually nothing more than flat rate parcel taxes imposed on the theory that water or sewer service may, at some point In the Indefinite future, be available to the property being charged. This provision is a flat prohibition of such levies. However, if a Current standby charge is in the nature of an assessment and can meet the more stringent "special benefit" requirements, it may take advantage of the exemption for assessments. If not, the levy would have to be reimposed as an assessment and meet all requirements of Section 5 or cease to be collected. (5)No fee or charge may be imposed for general governmental 158 J-193 PROPOSMON 218 STATEMENT OF DRAFTERS' INTENT pAriF 19 services including, but not limited to, police, fire, ambulance or library services where the service is available to the public at large in substantially the same manner as it is to property owners. Comment This provision prohibits the imposition of parcel "charges' for general governmental services. The purpose of this provision is to stop those levies, such as the County of Los Angeles' parcel 'charge' for library services irrespective of use of library services. Reliance by an agency on any parcel map including, but not limited to, an assessor's parcel map, may be considered a significant factor in determining whether a fee or charge is imposed as incident of property ownership for purposes of this Article. In any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this Article. (c)Voter Approval for New or Increased Fees and Charges. Except for fees or charges for sewer, water, and refuse collection services, no property related fee or charge shall be imposed or increased unless and until such fee or charge is submitted and approved by a majority vote of the property owners of the property subject to the fee or charge or, at the option of the agency, by a two-thirds vote of the electorate residing in the affected area. The election shall be conducted not less than 45 days after the public hearing. An agency may adopt procedures similar to those for increases in assessments in the conduct of elections under this subdivision. Comment: This exemption for sewer, water and refuse collection is for voter approval only. Such fees must still meet all of the five substantive requirements of paragraph la The policy reason for this exemption is consistent with preventing end-runs around Proposition 13. Since water, sewer and refuse collection fees pre-date Proposition 13, they were exempted from voter approval. (d)Beginning July 1, 1997, all fees or charges shall comply with this Section. SECTION 5. LIBERAL CONSTRUCTION. The provisions of this Act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent. 159 J-194 PROPOSITION 218 STATEMENT OF DRAFTERS' INTENT pASE 9n Comment The purpose of this section is to ensure that, in the event of any ambiguity, the rights of taxpayers will be the paramount consideration. SECTION 6. SEVERABIUTY. If any provision of this Act, or part thereof, is for any reason held to be invalid or unconstitutional, the remaining sections shall not be affected, but shall remain in full force and effect, and to this end the provisions of this act are severable. Comment This provision is a standard severabilfty clause. 160 J-195 Understanding Proposition 218;, _ Elizabeth G. Hill Legislative Analyst • December 1996 Legislative Analyst's Office J-196 UNDERSTANDING PROPOSITION 218 Table of Contents Introduction 5 How Proposition 218 Changes Local Finance and Governance r—r ON Understanding the Vocabulary of Proposition 218 17 Are Existing Revenues Affected by Proposition 218? 20 What Must a Local Government Do to Raise New Revenues? 31 May Residents Overturn Local Taxes, Assessments, and Fees? 38 Appendix I: Areas in Which Legislative or Judicial Clarification May Be Needed 38 Appendix IL Text of Proposition 218 42 Legislative Analyst's Office Legislative Analyst's Office J-197 INTRODUCTION Proposition 218 significantly changes local government finance. This constitutional initiativerapproved by the state's voters in November 1996—applies to each of California's nearly 7,000 cities, counties, special districts, schools, community college districts, redevelopment agencies, and regional organizations. The purpose of this guide is to help the Legislature, local officials, and other parties understand Proposition 218, including the actions local governments must take to implement it. The guide includes five chapters: •How Proposition 218 Changes Local Finance and Governance. •Understanding the Vocabulary of Proposition 218. •Are Existing Revenues Affected by Proposition 218? •What Must a Local Government do to Raise New Reve- nues? •May Residents Overturn Local Taxes, Assessments, and Fees? Finally, the appendix to this guide summarizes major areas of uncertainty pertaining to Proposition 218 (some of which the Legislature may wish to address), and includes the text of Proposition 218 (now Article XIII C and D of the California Constitution). CHAPTER 1 •How Proposition 218 Changes Local Finance and Governance Nearly two decades ago, Proposition 13 sharply constrained local governments' ability to raise property taxes, the mainstay of local government finance. Proposition 13 also specified that any local tax Imposed to pay for specific governmental programs—a "special tae—must be approved by two-thirds of the voters. Since that time, many local governments have relied increasingly upon other revenue tools to finance local services, most notably: assessments, property-related fees, and a variety of small general purpose taxes (such as hotel, business license, and utility user taxes). It is the use of these local revenue tools that is the focus of Proposition 218. In general, the intent of Proposition 218 Is to ensure that all taxes and most charges on property owners are subject to voter approval. In addition, Proposition 218 seeks to curb some perceived abuses in the use of assessments and property-related fees, specifically the use of these revenue-raising tools to pay for general governmental services rather than property-related services. In this chapter, we provide an overview and perspective on the impact of Proposition 218 on local finance and governance. Legislative Analyst's Office Legislative Analyst's Office J-198 Figure 1 Proposition 218's Impact on Local Finance •The measure's fiscal impact cannot be fully ascertained until the uncertainty regarding some of its provisions are resolved. •Most local revenues are not affected. •The impact on certain local governments could be substantial. •Local government revenue reductions will begin In 1997. •In the long term, local government revenues are likely to be some- what lower and come from different sources. 7 Local Finance and Governance Changes Local Finance and Governance Changes 8 PROPOSMON 218 CHANGES LOCAL GOVERNMENT FINANCE Proposition 218 makes several important changes regarding ocal government finance. Figure 1 summarizes our observations egardIng their fiscal Impact. Some Uncertainty Regarding Proposition 218's Provisions Proposition 218's requirements span a large spectrum, including local Initiatives, water standby charges, legal standards of proof, election procedures, and the calculation and use of sewer assessment revenues. Although the measure is quite detailed in many respects, some important provisions are not completely dear. In this guide, we provide our interpretation of the measure's requirements. This interpretation is based on cur extensive review of the measure, as well as consultations with the measure's drafters, local government officials, and legal counsel. In some cases, however, we are not able to fully ascertain the meaning or scope of a Proposition 218 requirement We believe our uncer- tainty—frequently shared by other analysts of the measure—will be resolved only when the Legislature enacts implementing statutes or court rulings become available. Accordingly, throughout this guide we discuss Proposition 218 as we understand it. Where other parties have different opinions or the measure's requirements are not clear, we provide this information. Finally, we provide in Appendix I a summary of the areas in which clarifying legislative or judicial action may be necessary. Most Local Revenues Are Not Affected California local governments raise more than $50 billion annually from taxes, assessments, and fees. As Figure 2 shows, most of these local revenues are not affected directly by Proposition 218. Instead, Proposition 218's provisions apply to a relatively small subset of local government revenues. Given the relatively small number and dollar value of local revenue sources that are affected by Proposition 218, we think it is highly unlikely that the measure could cause more than a 5 percent annual decrease in aggregate local government own- source revenues. Legislative Analyst's Office Legislative Analyst's Office J-199 New and some recently imposed s generar taxes. Property taxes. Bradley-Bums sales taxes. Special taxes. Vehicle license taxes. Redevelopment revenues. Mello-Roos taxes. Timber taxes. Figure 2 Which Local Revenues Are Affected by Proposition 218? Taxes Assessments NI new or Increased assessments. Most existing assessments. Some existing assessments. Fees Property-related fees. (Fees Fees that are not property-related. imposed as an 'incident of property Gas and electric fees. ownership,' not including gas, elec- Developer fees. tric, or developer fees.) Local Finance and Governance Changes mpact on Certain Local Governments May Be Substantial The actual impact of Proposition 218 on local public services may be greater than our 5 percent estimate would suggest, however, for a variety of reasons. First, some governments are highly reliant upon the types of assessments and fees that would Local Finance and Governance Changes 10 be restricted by this measure. These local governments—typically, small, newly incorporated cities, and library, fire, and park and recreation special districts—may sustain revenue reductions of Much more than 5 percent. Some special districts also lack the authority to propose taxes to replace the lost assessment and fee revenues. Second, many local governments have limited flexibility to reduce programs when revenues decline. Most major county programs, for example, are subject to state and federal mandates and spending requirements. As a result, relatively small revenue losses can trigger significant reductions to the few programs over which the local government has control. Finally, many local governments will experience both revenue reductions and cost increases to comply with Proposition 218. For example, some local governments will lose pail of their assessment and fee revenues, and have to pay: •Assessments charges to other local governments. •Increased election, property-owner notification, and administrative costs. These increased costs will increase the fiscal Impact of this measure on local government programs. Fiscal Impact Begins in 1997 The fiscal impact of Proposition 218 will begin almost immediately. Within eight months of Proposition 218's passage, local governments will need to reduce or eliminate certain existing assessments and fees to meet the measure's requirements. (These Legislative Analyst's Office Legislative Analyst's Office J-200 11 Local Finance and Governance Changes requirements are discussed in Chapter Three.) We estimate that these actions will reduce local government revenues by at least $100 million In 1997-98. Proposition 218 also requires local governments to place before the voters cettain existing assessments and taxes. Unless the voters ratify these assessments and taxes, local governments will experience additional revenues losses, potentially exceeding $100 million annually. Longer Term: Different Revenue Sources, Probably Less Money Proposition 218 restricts local governments' ability to impose assessments and property-related fees—and requires elections to approve many local government revenue raising methods. Because of this, it is likely that over the long term local governments will raise fewer revenues from assessments, property-related fees, and some taxes. Unless these reduced local revenues are replaced with other revenues, local government spending for local public services will decrease accordingly. What other revenues could offset these revenue reductions? It Is likely that local governments will pursue one or more of the following sources of potential replacement revenues: •Redevelopment revenues. •Developer exactions. Legislative Analyst's Office Local Finance and Governance Changes 12 •General taxes imposed on particular groups (such as business license, hotel occupancy, and sporting or entertainment admission taxes). •Special taxes imposed on properties within small, discrete areas. •Intergovernmental transfers. •Non-property related fees. Limited Ability to Raise Replacement Revenues. Local govemments' ability to expand these six other revenue sources is not great. Various legal and practical restrictions limit a major expansion of redevelopment or developer exactions, for example. In addition, many local government observers believe that existing hotel and business taxes are already high and not all parts of the state have major entertainment or sporting centers. (We include these taxes on the above list because these taxes are not paid directly by most voters. Thus, the likelihood of their being approved by a majority of voters may be higher than other general taxes.) Similarly, while local governments in California have had difficulty securing the requisite two-thirds vote to impose special taxes, it is likely that some additional special taxes will be approved. Special taxes probably are more likely to be adopted In small, discrete areas of a community where the commonality of interest is high, however, rather than on a community-wide basis. Thus, the likelihood of generating significant revenues from special taxes is not great. Additional major revenues from the state or federal government also do not appear likely, given the fiscal limitations faced by both these level of governments. (Please see our November 1996 Legislative Analyst's Office J-201 13 Local Finance and Governance Changes Local Finance and Governance Changes 14 publication, California's Fiscal Outlook, for our projections of the state's fiscal condition.) This leaves the last revenue source on our list non-properly related fees. Ultimately, the ability of local government to expand this revenue source turns on how the term "property-related" fee Is defined by the Legislature or courts. If the definition of a property- related fee is.broad, then local government's ability to replace revenues lost by Proposition 218 is limited. Conversely, if this definition is narrow, then local government will have greater opportunities to replace lost revenues with expanded non property- related fees. (Even then, however, the state Constitution and statutes do not permit local government to charge fees in excess of costs.) All in all, our review indicates that most local governments will have some ability to raise revenues to replace some of the funding lost by Proposition 218. This ability, however, is bmited Accordingly, we expect that in the long term, local governments will raise somewhat less revenues than they would have otherwise—and local government revenues will come from somewhat different sources. These revenue reductions will result in lower payments by people and businesses to government—and decreased spending for local public services. PROPOSMON 218 CHANGES LOCAL GOVERNANCE In addition to changing local finance, Proposition 218 changes the governance roles and responsibilities of iota! residents and property owners, local government, and potentially, the state. While the full ramifications of these changes will not be known for years to come, some elements are already apparent. Increased Role for Local Residents And Property Owners Prior to Proposition 218, the local resident and property owner's role in approving most new local government revenue-raising measures was minimal. Local governments typically raised new funds by imposing new or increased assessments or fees, or in the case of charter cities, general-purpose taxes on utility use, business licences, and hotel occupancy. In most cases, California residents or property owners could object to these taxes or charges at a public hearing or during a statutory protest procedure, but these taxes or charges were not placed on the ballot In short, locally elected governing bodies held most of the power over local revenue raising. Proposition 218 shifts most of this power over taxation from locally elected governing boards to residents and property owners. In order to fulfill this considerable responsibility, local residents and property owners will need greater information on local government finances and responsibilities. Even with this information, however, the task of local residents and property owners will be difficult, given the frequently confusing manner in which program responsibilities are shared between state and local government, and among local governments. Legislative Analyst's Office Legislative Analyst's Office J-202 15 Local Finance and Governance Changes Local Finance and Governance Changes 16 Local Government Remains Responsible for Expenditures Local government's powers, in contrast become significantly constrained. While locally elected governing boards continue to be fully responsible for decision-making regarding the expenditure of public funds, they now have very little authority to raise funds without a vote of the residents or property owners. In addition,. Proposition 218 limits local government's authority to call an election to raise revenues. Specifically, except in cases of emergency, local governments now may hold elections on general taxes only once every two years (consolidated with an election for members of the governing board.) Moreover. Proposition 218 limits the amount of an assessment or property-related fee that may be put before the property owners for a vote. State Government Role May Expand Proposition 218 may also alter the state's role and responsibili- ties regarding local government in several important ways. First, the Legislature will be asked to play a large role in interpreting Proposition 218's requirements, and helping set the rules regarding local government finance. In some cases, local governments are likely to ask for urgency legislation to enact these measures because the deadline for compliance with some Proposition 218 provisions Is July 1, 1997. Second, the Legislature will probably receive requests for fiscal assistance from local governments. These requests are likely to begin in the spring of 1997, as the fiscal consequences of the assessment and fee restrictions become apparent. Local governments are likely to turn to the state because It has more fiscal flexibility than local government. For example, the Legislature may raise taxes at any time with a two-thirds vote of its members. Finally, any effort to restructure state-local program responsibili- ties is now more complicated. Specifically, the Legislature vAll have less flexibility to realign programs in a manner that increases local government responsibility without providing a direct subvention of state funds. This is because local governments have little or no flexibility to adjust their own revenues. 00 Legislative Analyst's 0Mce Legislative Analyst's Office J-203 CHAPTER 2 Understanding the Vocabulary of Proposition 218 Any discussion of Proposition 218 requires an explanation of several local government finance words and terms. This chapter explains the vocabulary. WHAT Is A TAX? Taxes are government's most flexible revenue raising tool. A tax is a charge on an individual or business that pays for governmental services or facilities that benefit the public broadly There need not be any direct relationship between how much tax a person pays and how much service he or she receives from government Example of taxes include the property tax, sales tax, business licence tax, hotel occupancy tax, and utility users tax. Special Tax Versus General Tax A tax is called a "special" tax if its revenues are used for specific purposes and a "general tax if Its revenues may be used for any governmental purpose. This distinction is important because it determines whether a tax must be approved by a majority vote of the electorate (general tax)—or a two-thirds vote (special tax). Vocabulary of Proposition 218 18 WHAT IS AN ASSESSMENT? An assessment is a charge levied on property to pay for a putt improvement or service that benefits property. Assessments are usually collected on the regular property tax bill. They are different, however, from the regular 1 percent property tax and properly tax debt overrides in that assessment rates are not based on the value of the property. Assessments are also different from another charge that sometimes is placed on the property tax bill, parcel taxes. Unlike parcel taxes, assessments typically were not voter approved prior to Proposition 218. In addition, assessment rates were linked to the cost of providing a service or improvement, whereas parcel taxes could be set at any amount. Typical assessments include those for flood control improvements, streets, and lighting and landscaping. WHAT IS A FEE? A fee is a charge imposed on an individual or business for a service or facility provided directly to an individual or business. Local governments charge fees for a wide range of purposes, from park entry fees to building plan check fees. The amount of the fee may not exceed the cost of government to provide the service. A New Term: "Property-Related Fee" Proposition 218 restricts property-related fees, defined as fees imposed "as an incident of property ownership." At this time, there is no consensus as to which fees meet this definition. The drafters of Proposition 218 Indicate that it was their intent to Include most Legislative Analyst's Office Legislative Analyst's Office J-204 19 Vocabulary of Proposition 218 fees commonly collected on monthly bills to property owners, such as those for water delivery, garbage service, sewer service, and storm water management fees. Other analysts of Proposition 218 contend that fees that vary by level of service (for example, a fee for metered water usage) should not be considered a property- related fee, because it is based on service usage, rather than property ownership. Because Proposition 218 does not restrict nonproperty-related fees, the definition of this term will be an Important and sensitive issue for the Legislature and courts. OVERLAPPING TERMS While the terms tax, assessment, and fee are each legally distinct, In practice they overlap. For example, communities in California may finance streets from taxes, assessments, and/or fees. In addition, local government offidals sometimes call a charge one term, when it was legally adopted as another. As a result, the work of sorting out whether a particular charge must comply with Proposition 218's requirements for a tax, assessment, or fee will not always be easy. Legislative Analyst's Office CHAPTER 3 Are Existing Revenues Affected by Proposition 218? Local governments must bring their existing taxes, assessments and property-related fees into conformity with Proposition 218. The deadline for each of these actions is: •July 1, 1997—for assessment and property-related fees. •November 6, 1998—for taxes. Below, we discuss Proposition 218's requirements regarding existing taxes, assessments, and fees. (The requirements for new or increasedrevenue raising tools is the topic of the next chapter.) After each section, we answer some common questions regarding Proposition 218's requirements. REQUIREMENTS FOR EXISTING TAXES Proposition 218 does not affect existing special taxes or most general taxes. Proposition 218 affects only those general taxes that were imposed in 1995 or 1996 without a vote of the people. In order to continue such a tax. Proposition 218 requires the governing body to place the tax before the voters by November 8, 1998. Unless the governing body unanimously votes to declare the election an emergency, the tax election must be consolidated Legislative Analyst's Office J-205 Actions Required for Existing Assessments N, { Exempt List A- t No Further \ Action Required/ Action List 1 viv Calculation Requirement Election Requirement Impose Assessment Figure 3 • 21 Am Existing Revenues Affected? with a regularly scheduled election for members of the governing body. The local government may continue an existing tax if it is approved by a majority vote. REQUIREMENTS FOR EXISTING ASSESSMENTS Local governments must review all existing assessments, including standby-charges (which the measure defines as assessments). Figure 3 (see next page) shows the actions local govemments must take to bring their existing assessments into compliance with Proposition 218. Legislative Analyst's Office Are Existing Revenues Affected? 22 The Examination Requirement: Many Assessments Will Qualify for Exempt List Local government must examine each assessment to determine whether it meets one of the conditions for placement on the "exempt list.' These conditions are: Legislative Analyst's Office J-206 23 Are Existing Revenues Affected? •The assessment was previously approved by voters—or by all the property owners at the time the assessment was created. •All of the assessment proceeds are pledged to bond repayment. •All the assessment proceeds are used to pay for sidewalks, streets, sewers, water, flood control, drainage systems, or "vector control" (such as mosquito control). Our review indicates that more than half of all existing assessments are likely to be exempt. Generally, this is because the assessmenfs funds are used for one of the approved purposes or are pledged to bond repayment—or the assessment was agreed to by a land developer, the sole property owner at the time the assessment was established. If an assessment is not exempt, then the local government must eliminate the assessment or bring it into compliance with Proposition 211:1's assessment calculation and election requirements (described below). Our review indicates that the types of assessments that are not likely to satisfy any of the conditions for exemption are: fire, lighting and landscaping, and park and recreation assessments. The Calculation Requirement: One of Proposition 218's Most Significant Changes Local governments must recalculate all existing assessments that do not qualify for the exempt list. Our review indicates that In many cases, Proposition 218's provisions regarding the calculation of assessments will result in local governments lowering Legislative Analyst's Office Are Existing Revenues Affected? 24 the amount they collect in assessments from property owners, or eliminating the assessment We Identify the specific calculation provisions below. First Determine .. if a Project or Service Provides Special Benefits. The local government must determine whether property owners would receive a "special benefit- from the project or service to be financed by the assessment Proposition 218 defines a special benefit as a particular benefit to land and buildings, not a general benefit to the public or a general increase In property values. If a project or service would not provide such a special benefit, Proposition 218 states that it may not be financed by an assess- ment Our review Indicates that local governments will find it difficult to demonstrate that some existing assessments for ambulance, library, police, business improvement, and other services satisfy this tightened definition of special benefit. As a consequence, some existing assessments may need to be eliminated. Second: Estimate the Amount of Special Benefit Local government must use a professional engineer's report to estimate the amount of special benefit landowners would receive from the project or service, as well as the amount of "general benefit." This step is needed because Proposition 218 allows local government to recoup from assessments only the proportionate share of cost to provide the special benefit. That is, if special benefits represent 50 percent of total benefits, local government may use assessments to recoup half the project or service's costs. Local governments must use other revenues to pay for any remaining costs. This limitation on the use of assessments represents a major change from the law prior to Proposition 218, when local governments could Legislative Analyst's Office J-207 25 Am Existing Revenues Affected? recoup from assessments the costs of providing both general and special benefits. Third: Set Assessment Charges Proportionally. Finally, the local govemment must set Individual assessment charges so that no property owner pays more than his or her proportional share of the total cost. This may require the local government to set assessment rates on a parcel-by-parcel basis. Properties owned by schools and other governmental agencies—previously exempt from some assessment charges—now must pay assessments. Election Requirement: All Property-Owners Vote on Assessments Local governments must mail information regarding assess-,/ments to all property owners. (Prior to Proposition 218, large communities could publish assessment Information, rather than mall it to every property owner.) Each assessment notice must contain a mall-in ballot for the property owner to indicate his or her approval or disapproval of the assessment After mailing the notices, the local government must hold a public hearing. At the conclusion of the hearing, the local government must tabulate the ballots, weighing them in proportion to the amount of the assessment each property, owner would pay. (For example, if homeowner Jones would pay twice as much assessment as homeowner Smith, homeowner Jones' vote would "count' twice as much as homeowner Smith's vote.) The assessment may be Imposed only if 50 percent or more of the weighted ballots support the assessment. Are Existing Revenues Affected? 26 Legislative Analyst's Office Legislative Analyst's Office J-208 Actions Required for Existing Fees Examine All Fees A7 — -N1 Not Property-Related I Property-Related No Further Action Required C R:te Calculation Requirement Impose \ Fee if Restrictions on Use of Fees Figure 4 27 Are Existing Revenues Affected? REQUIREMENTS FOR EXISTING FEES As with assessments, local governments must complete a multi- step review of all fees. Figure 4 summarizes the process. Am Existing Revenues Affected? 28 Examination Requirement: identifying Property-Related Fees Local government must begin by examining all existing fees to determine whether they are "property-related" fees, imposed as an Incident of property ownership." (We discuss this term and the controversy surrounding it in Chapter Two). As Figure 4 shows, if a fee is not property-related, then the local government need not take any further action regarding the fee. Conversely, if the fee is property-related, then the local government must make sure that the fee complies with Proposition 218's restrictions on use of fee revenues and the rate calculation requirements. The deadline for these actions Is July 1, 1997. New Restrictions on Use of Fees Proposition 218 specifies that no property-related fee may be: •Levied to pay for a general governmental service, such as police or fire service. •Imposed for a service not used by, or immediately available hi, the property owner. •Used to finance programs unrelated to the property-related service. In order to comply with these restrictions, local governments will need to eliminate or reduce some existing fees. For example, some small cities currently charge property owners fees for ambulance or fire service. Proposition 218 does not permit governments to impose property-related fees for these purposes. Legislative Analyst's Office Legislative Analyst's Office J-209 11•nn• ton 29 Are Existing Revenues Affected? Similarly, some cities collect "franchise fees" or "in-fieu property taxes" from their water departments and deposit these revenues Into their general hinds. The cost of these franchise fees and taxes is passed onto local residents in terms of higher water fees. If water fees are considered property-related fees, then Proposition 218 would forbid this diversion of fee revenues. (Some local government observers believe that this diversion of fee revenues was impermissible prior to Proposition 218, as well.) Possible Local Government Response to Fee Restrictions. In some cases, it may be possible for a local government to restructure a property-related fee so that it would no longer be considered a fee imposed 'as an incident of property ownership." For example, a mandatory per parcel garbage collection fee may be considered a property-related fee, while an optional garbage collection service charge may not Similarly, some local govern- ments may be able to show that their franchise fee or in-lieu property tax represents their water department's reasonable share of central administrative expenses. If so, then Proposition 218 would not prohibit this transfer of revenues from the water department. Finally, some local governments may elect to privatize certain functions formally financed by property-related fees. Proposition 218 imposes no limit on private fees. Fee Rate Calculation Requirement After complying with Proposition 218's restrictions on the use of property-related fees, the local government must make sure that its property-related fees comply with the measure's calculation requirements. Specifically, local governments must make sure Legislative Analyst's Office Are Existing Revenues Affected? 30 that no property owner's fee is greater than the proportionate cost to provide the property-related service to his or her parcel. Like assessments, this requirement may result In local governments setting property-related fee rates on a block-by-block, or parcel-by- parcel basis. This fee rate calculation requirement—sometimes called the "proportionality" requirement—will make it difficult for local government to continue certain programs, such as those that offer reduced rates to low-income residents. This is because local governments typically finance these lower rates by charging higher rates to other property-owners. If these fees are considered property-related fees, the higher rates would not be permitted by Proposition 218. In order to continue these programs in the future, therefore, the local government would need to offset the cost of the program with other revenues, such as general tax revenues. Legislative Analyst's Office J-210 Property owners (and renters responsible for paying assess- ments) in affected area. Majority, weighted In proportion to assessment liability. NI Yes General, not No properly related Property related Yes, for any service other than water, sewer, or refuse col- lection. N/A Local government may choose: •Property owners (and renters re- sponsible for pay- ing fee) In affected area, or •Electorate In the affected area. N/A Majority of prop- erty owners or two-thirds of electorate. Local govern- ments may weight ballots In proportion to fee liability. rigure 5 New or Increased Taxes, Assessment, and Fees What Vote is Needed? Taxes General Yes All voters In commu- MPlorltY nity or affected area. Special Yes All voters In commu- Two-thirds nity or affected area. As s essments Pees Raising New Revenues 32 CHAPTER 4 What Must a Local Government Do to Raise New Revenues? In order to raise a new tax, assessment, or property-related fee, or to increase an existing one, local governments must comply with many of the same provisions dscussed in the previous chapter. In general, these requirements are that local governments may use assessments and property-related fees only to finance projects and services that directly benefit property—and that most revenue- raising measures be approved in an election. Figure 5 (see next page) summarizes the vote required in these elections. This chapter explains the steps local government must take to raise a new tax, assessment or property-related fee, or to Increase an existing one. REQUIREMENTS FOR NEW TAXES In order to Impose or Increase a tax, local government must comply with the following provisions: •All general taxes must be approved by a majority vote of the people. (A 1986 statutory initiative—Proposition 62— previously imposed this vote requirement Legislative Analyst's Office Legislative Analyst's Office J-211 33 Raising New Revenues on general taw cities and counties. Proposition 218 expands this requirement to include charter cities, such as Los Angeles, Oakland, and San Francisco.) •Elections for general taxes must be consolidated with a regularly scheduled election for members of the local governing body. (In an emergency, this provision may be waived by a unanimous vote of the governing body.) •Any tax imposed for a specific purpose is a "special tax,"even if its funds are placed into the community's general fund. (Prior to Proposition 218, all taxes placed into-a communitys general fund were commonly considered general taxes, requiring only a majority vote.) REQUIREMENTS FOR NEW ASSESSMENTS All new or Increased assessments must follow the assessment calculation and election requirements discussed in the previous chapter. There are no exceptions to this requirement. As a practical mailer, this requirement will mean that programs that benefit people, rather than specific properties—such as libraries, mosquito abatement, recreation programs, police protection, and some business improvement programs—must be financed by general or special taxes or by other nonassessment revenues. Legislative Analyst's Office Raising New Revenues 34 REQUIREMENTS FOR NEW FEES To impose a new or Increased property-related fee, local government must comply with the fee restriction and fee rate calculation requirements discussed in the last chapter. Local governments must also: •Mail information regarding the proposed fee to every property owner. - •Hold a hearing at least 45 days after the mailing. Legislative Analyst's Office J-212 35 Raising New Revenues •Reject the proposed fee if written protests are presented by a majority of the affected property owners. •Hold an election on any property-related fee, other than a fee for water, sewer, or refuse collection. (Figure 5 shows the vote required in these elections.) As a practical matter, local governments will find it much more difficult—and expensive—to Impose or increase property-related fees. In some cases, local governments are probably more likely to by to raise revenues through non property-related fees or taxes. 1n11 00 I ncide nt sled fiki:* Is not a CHAPTER 5 May Residents Overturn Local Taxes, Assessments, and Fees? Proposition 218 expands Cal ifomia residents' paver to challenge local revenue raising measures. GREATER INITIATIVE POWERS Prior to Proposition 218, the extent to which local residents could use an initiative to challenge local government revenue raising methods was not certain. In a 1995 case, Rossi v. Brown, the California Supreme Court !tiled that people had the power to use the Initiative to repeal a minor tax. There have been no court rulings, however, addressing the question of whether an initiative may be used to repeal a more substantial revenue source. Proposition 218 eliminates any ambiguity regarding the power of local residents to use the initiative by stating that residents of California shall have the power to repeal or reduce any local tax, assessment, or fee. In addition, the measure forbids the Legislature and local governments from imposing a signature requirement for local initiatives that is higher than that applicable to statewide statutory initiatives. As a consequence of these provisions, the only knits on local residents' ability to overturn local revenue raising Legislative Analyst's OfficeLegislative Analyst's Office J-213 IiSnfe a rennua OMin Is oortltewlsy. Generally. man from Ott 37 Vocabulary of Proposition 218 measures appear to be those in the federal constitution, such as the federal debt impairment clause. SHIFT OF BURDEN OF PROOF Prior to Proposition 218's passage, the courts allowed local governments significant flexibility in determining fee and assessment amounts. A business or resident challenging the validity of a fee or assessment carried the "burden of proof' to show the court that the fee or assessment was illegal. Proposition 218 changed this legal standard by shifting the burden of proof to local governments. Now local governments must prove that any disputed fee or assessment charge is legal. Legislative Analyst's Office APPENDIX I Areas in Which Legislative or Judicial Clarification May Be Needed As we discuss throughout this guide, while Proposition 218 is quite detailed in many respects, some important provisions are not completely clear. This appends( summarizes the major questions regarding Proposition 218 that must be resolved so that local governments can begin implementation. Because Proposition 218 sets a July 1, 1997 deadline for local governments to bring existing fees and assessments into conformity with the measure's requirements, legislative or judicial clarification on questions related to assessments and fees is needed as soon as possible. PROPERTY-RELATED FEES •What is included in the definition of a property-related fee? •Are water charges that are based on metered use of water property-related fees? •Are regulatory fees, suc.h as rent control administrative fees, property-related fees? •Are lease payments and other such charges on government-owned assets property-related fees? Legislative Analyst's Office J-214 Om. 00 39 Appendix 1 •How precisely must local government allocate shares of costs for a property-related service? Can local government set general fee rate categories, or must local government determine the actual cost of service to every parcel? ASSESSMENTS •What is a "special benefit" and how can it be distinguished from a 'general benefit?" •Existing assessments used exclusively for sidewalks, streets, sewers, water, flood control, drainage systems, and vector control are exempt from the measure's calculation and election requirements. How broadly should these exemptions be interpreted? •How precisely must local government allocate shares of costs for an assessment? Can local government set general assessment rate categories, or must local government determine the actual cost of service to every parcel? •If an existing assessment is increased by a formula that was set forth at the time the existing assessment was Imposed, must the assessment comply with the measure's calculation and election requirements? Similarly, need the measure go through these processes again if a future. assessment is increased by a formula set forth at the time the new assessment was Imposed? •How should the existing statutory assessment approval process be reconciled with Proposition 218's assessment approval process? Appendix! 40 •Some assessments are annually re-imposed by local government. Must a local government annually repeat the calculation and election procedures required by Proposition 218? •If an assessment that is annually re-imposed by local government is currently eligible for the exempt list, must it comply with Proposition 218's calculation and election procedures when it is re-imposed next year? ELEc-noNs •What procedures should govern the assessment and fee !Sections? •Who may vote on referendums to repeal assessments, fees, or taxes? •How will a local government determine whether a renter is eligible to vote? •Who gets to vote when a parcel is owned by multiple parties, or by a governmental entity? TAXES •Are Mello-Roos taxes affected in any way? Similarly, how should assessments imposed under Mello-Roos law be treated? •Is the measure's requirement that certain existing taxes be ratified by the voters an unconstitutional referendum on taxes? Legislative Analyst's Office Legislative Analyst's Office J-215 41 Appendix I APPENDIX 11 Text of Proposition 218 This inkiative measure adds Artides XIII C and 0 to the California ConstAution. RIGHT TO VOTE ON TAXES ACT SECTION 1. TITLE. This act shall be known and may be cited as the *Right to Vote on Taxes Act' SECTION 2. FINDINGS AND DECLARATIONS. The people of the State of California hereby find and declare that Proposition 13 was intended to provide effective tax refief 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 econoriwbelf. This measure protects taxpayers by (uniting the methods by which local governments exact revenue from taxpayers without their consent. SECTION 3. VOTER APPROVAL FOR LOCAL TAX LEVIES. Article XIII C is added to the California Constitution to read: ARTICLE XM C SECTION I. Definitions. As used in this (a)"General MC means any tax imposed for general governmental purposes. (b)"Local government" means any county, city, city and county, including a charter city or county, any special district, or any other local or regional governmental entity. (c)"Spedal chute' means an agency of the state, fumed pursuant to general law or a special act, for the local performance of governmental or pmprietary DEBT • Gadd a local initiative jeopardize a revenue stream pledged to the payment of existing (or future) debt? Legislative Analyst's Office Legislative Analyst's Office J-216 11n1 00 43 Appendix 11 functions with knifed geographic boundaries inclucfing, but not limited to, school districts and redevelopment agencies. (d) °Spade, lax' means any fax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund. SEC. 2 Lace/ Government Tex Limfialion. NoMithstandng any other provision of this Constitution: (a) AI taxes Imposed by any local government shall be deemed to be either general taxes or special taxes. Special purpose districts or agencies. Including school districts, shall have no power to levy general taxes. (b) No local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote. A general lax shall not be deemed to have bean increased if it is imposed at a rate not higher than the maximum rate so approved. The election required by this subchiskn shal be consolidated with a regularly scheduled general election for members of the governing body of the local government, except in cases of emergency declared by a unanimous vote of the governing body. (c) Any genend tax linposed, extended, or increased, without voter approval, by any local government on or afier January I. 1995, and pdor to the effective dale of this article, shall continue to be Imposed only if approved by a majority vote of the voters voting in an election on the issue of the imposition, which election shall be held within two years of the effective date of this article and In compliance with subdivision (b). (d) No local government may Impose, extend, or increase any special tax unless and until that taxis submitted to the electorate and approved bye hvothirds vote. A special tax shall not be deemed to have been increased if it is imposed at a rate not higher then the maximum rate so approved. SEC 3. Initiative Power for Local Taxes, Assessments, Fees and Charges. Notwithstanding any other provision of this Constitution, including, but not limited to, Sections Bend 9 of Article II, the initiative power shall not be prohibited or oThernise limited In matters of redudng or repealing any local tax, assessment, fee or charge. The power of initiative to affect local taxes, assessments, fees and charges thane applicable to al local governments and neither the Legislature nor any local government charter shall Impose a signature requirement higher than that applicable to statewide statutory initiatives. SECTION 4. ASSESSMENT AND PROPERTY RELATED FEE REFORM. Article XIII D is added to the California Constitution to read: ARTICLE XM D SECTION 1. Application. Notwithstanding any other provision of law, the provisions of this article shell apply to all assessments, fees and charges, whether imposed pursuant to stale statute or local government charter authority. Nothing in this article or Article XIII c'shall be construed to: (a)Provide any new authority to any agency to impose a tax, assessment, fee, or charge. (b)Affect existing laws relating to the imposition of fees or charges as a condition of property development. (c)Affect existing laws relating to the imposition of limber yield taxes. SEC. 2. Definitions. As used in this article: (a) "Agency' means any local government as defined in subdivision (b) of Section 1 of Article XIII C. (b),issessinenrmiians my levy or charge upon real property by an agency for e special benefit conferred upon the real property. "Assessment' includes, but is not limited to, "special assessment,' "benefit assessment," 'maintenance assessment" and "spade! assessment fax.' (c) 'Capital cost' means the cost of acquisition, installation, construction, reconstruction, or replacement eta permanent public improvement byan agency (d)12istrid" means an area determined by an agency to contain all parcels which will receive a special benefit horn a proposed public improvement or property-related service. (e) "Fee' or "charge means any levy other than en ad valonsm tax, a spec/al tax, or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, inducing a user fee or charge for a property related service. Appendix 11 44 Legislative Analyst's Office Legislative Analyst's Office J-217 PROP 218 GUIDELINES FOR PLACING FLAT FEES ON THE SECURED ROLL Prepared by CALIFORNIA STATE ASSOCIATION OF COUNTY AUDITORS APRIL 1997 183 J-218 INTRODUCTION With the passage of Proposition 218 in November 1996, may questions rose regarding the validity of the direct charges placed on the secured roll and the County Auditor's responsibility regarding those charges. In response to those questions, the Association's Legislative Co=oittee created a sub-coanittee of the Auditors from Alameda, Mark, Napa and Sonoma to develop these . guidelines. They were adopted at the April 1997 Auditor's Annual Conference. The association believes the Auditor's responsibilities, regarding direct charges placed on the property tax tilts, are only administaial. It is not our legal responsibility to determine whether the fees or increases to fees comply with the provisions of Proposition 218. This position is consistent with Co=y Auditors' practices prior to Proposition 218. As with previous guidelines developed to implement other provisions of law, the objectives of these guidelines are: (1) develop a reasonable document counties may rely upon as an acceptable standard to follow in complying with Proposition 218, (2) promoting tmiformity in the implementation of the statutes and (3) provide an explanation of the decisions, standards, and documents developed for these guidelines The Association wishes to express its sincere appreciation to all those involved in the development and approval of these guidelines. INTERPRETATIONS AND DECISIONS As stated above, the association believes the Auditor's responsibilities are only administerial when we include the direct charges on the property tax bills. 'In our opinion, it is the responsibility of the local jurisdiction, for which the direct charge is placed on the property tax bill to insure compliance with Proposition 218. The proposition does not specify nor does it imply any County Auditor responsibility for determg each direct charges' compliance. Historically, County Auditors have relied on the local jurisdictions to insure compliance with statutes prior to placing the direct charge on the property tax bill However, it is the opinion of this association, each County Auditor should consider adopting the following policies to clarify and document each party's responsibility, in case a direct charge is questioned and/or litigated: •The County Auditor should require written agreements with the local jurisdictions specifying specifying responsibilities and hold harmless provisions. •• An annual compliance certification be signed by the appropriate official should be required. •Ali documents should be submitted prior to placing the direct charge on the property tax bill 184 J-219 After reading the above policies and the attached agreement, you may wonder why an annual certificadon would be recommended. The proposition requires a compliance process for both new fees and for Mt:raises in fees. The association believes the armual certification will again document The need for each jmisdiction's responsibility to Sore on-going compliance. RECOMMENDATIONS AND ECAMPLE DOCUMENTS In order to assist you in implementhig the above policies, the association has developed example dommears you may want to use when designing your agreements and ammal cercation. We would recommend seeking your Courtly Courtsers assistance prior to sending these documents to the local jurisdictions. Agreement for Collection of Sipecial Taxes Fes and Assessment - Example Ail This document is intended to specify each party's responsibilities regarding the collection of special taxes, fees, and assessment. Paragraph 4,5,6, & 7 specifically address each party's responsibilities in regards to Proposition 218 Again, you may wish to discuss the agreement wording with your Comity Counsel Annual Certification and Cover Letter - Example A7 As stated before, Proposition 218 requires a voter approval process for both new and increases to fem. This form will allow the Auditor to rely on the local jurisdiction for determining Proposition 218 compliance. 185 J-220 EXAMPLE #1 AGREEMENT FOR COLLECTION OF SPECT,AL TAXES, FEES, AND ASSESSMENTS TIES AGREEMENT is made and entered into this day of 19_, by and between the COUNTY OF SONOMk, a political subdivision of the State of California, hereinafter referred to as "County" and the a municipal corporation of the State of California, hereinafter referred to as "District". WTINESSETH: WHEREAS, Government Code Sections 29304 and 51800 authorize the County to recoup its collection cost when the County collects taxes, fees, or assessments for any School District, Special District, zone or improvement District thereof, and WHEREAS, when requested by District, it is in the public interest that the County collect on the County tax rolls the special taxes, fees, and assessment for District. NOW, THEREFORE, IT IS AGREED by and between the parties hereto as follows: 1.County agrees, when requested by District as hereinafter provided, or as required W law, to collect on the County tax rolls the special taxes, fees, and assessments of District, and of each zone or improvement District thereof 2.When County is to collect District's special taxes, fees, and assessments, District agrees to notify the Auditor-Controller of the County on or before the 10th day of August of each fiscal year of the Assessor's parcel numbers and the amount of each special tax, fee, or assessment to County, and including, but not limited to, any act of omission or assessment to be so collected. Provided, however, to be effective, the notice must be received by the Auditor-Controller by said date. 3.County may charge the sum of 1% of the Original Charge for each special tax, fee, or assessment that is to be collected on the County tax rolls by the County for the District 4.District warrants that the taxes, fees, or assessment imposed by District and collected pursuant to this Agreement comply with all requirement of state law, including but not limited to Articles XI= and XEID of the California Constitution (Proposition 218). District has requested, on County's behalf an opinion from their legal advisor stating that the tax, fee, or assessment complies with state law, and specifically analyzing compliance with Proposition 218. Said opinion is attached hereto as "Exhibit A" and incorporated by reference into this Agreement 186 J-221 EXAMPLE #1 5.District hereby releases and forever discharges County and its officers, agents and employees from any and all claims, demands, liabilities, costs and expenses, damages, causes of action, and judgments, in any manner arising our of District's responsibility under this agreement, or other action taken by District in establishing a special tax, fee, or assessment and implementing collection of special taxes, fees, or assessments as contemplated in this agreement 6.District agrees to and shall defend, indemnify and save harmless County and its officers, agents and employees ("indemnified parties" from any and all clams demands, liabilities, costs and expenses, damages, causes of action, and judgments, in any manner arising out of any of District's responsibility under this agreement, or other action taken by District in establishing a special tax, fee, or assessment and implementing collection of special taxes, fees, or assessments as contemplated in this agreement. If any judgment is entered against any indemnified partj as a result of action taken to implement this Agreement, District agrees that County may offset the amount of any judgment paid by County or by any indemnified party from any monies collected by County on District's behalf including property taxes, special taxes, fees, or assessments. County may, but is not required t3, notify District of its intent to implement any offset authorized by this paragraph. 7.District agrees that its officers, agents and employees will cooperate with County by answering inquiries made to District by any person concerning District's special tax, fee, or assessment, and District agrees that its officers, agents and employees will not refer such individuals malting inquiries to County officers or employees for response. 8.District shall not assign or transfer this agreement or any interest herein and any such assignment or transfer or attempted assignment or transfer of this agreement or any interest herein by District shall be void and shall immediately and automatically terminate this agreement 9.This agreement shall be effective for the 19_ fiscal year and shall be automatically renewed for each fiscal year thereafter unless terminated as hereinafter provided. 10.Ether party may terminate this agreement for any reason for any ensuing fiscal year by giving written notice thereof to the other party prior to May 1st of the preceding fiscal year. 11.County's waiver of breach of any one term, covenant, or other provision of this agreement, is not a waiver of breach of any other term, nor subsequent breach of the term or provision waived. 187 J-222 EXAMPLE #1 iN wrrwEss WHEREOF, the parties hereto have executed this agreement as of the day and year first above written. District By: SONOMA COUNTY AUDITOR-CONTROLLER 188 J-223 EXAMPLE #2 CERTIFICATION OF ASSESSMENT The (ACiENCTIDISTRTCT) hereby =tiftes that the special assessateM(s) (see low) to be placed on the lftecbm Secured Properry Tax bill by the (AGENCY/DISTRICT) rams the requirement; of PrOltatitital 218 that a6Sed Articles XI= and )01113 m the State Constitution. • • The (AGENCY/Dr-ICI) agrees to defend. indemnify and hold test the Comity of Alameda. the Board df Sepavisors. the Andimr-ConnolletiCerk-Recorder. its affects and eplo yees. from litigation over ;whether the timmiranents of Prows:him 218 were met with respect to such s) If any Judgment is emered against any indemnified party as a result of not meeting the requirements of Pmpositi= 218 for such assessment(s). the (AGENCY/DISTRICT) agrees that County may offset the amount of any judgement paid by an indemnified party from any MODICS collected by County on (AGENCY/DISTRICT'S) behalf, including property taxes, special tam, feta or assessment CITY COUNCIUBOARD OF DIRECTORS/SCHOOL BOARD 1996/97 Special Assessments anti/or Fixed Chines IftIVIVID3CSADICINWIICADII 189 J-224 EXAMPLE #2 April 1997 (AGENCY/D1717.1C11 ATTN: Finance Director/Filminess Manager. PROPOSITION 218 CERTIFICATION Pmposition 218 added Articles liaIIC and =ID to the Consti=ion which sigoificantly altered local government and special district eta= in C.alifomia. This proposition introduced new require:n=1s and constraints on the ability to itIVCISC =es, property related fees and charges. and assessmatts for the financing of public facilities and services. The Cotmty is markt an at to collect various assessmerm and/or fees an behalf of the (AGENCY/DISTRICT) an the sawed prtaretty tax roll. h is my mum= that any future collection of assess:x=3 and fees effective with the 1997- 98 fiscal year Dm roll meet all the requirements of Proposition 218. To amine that all Moirements are met, I am requiring that each agency or district sip a ceitfication =mount (me attached for your agency or district). On this =damn= I have listed your 1996197 assessments and fees. You will need to mxlate for 1997/91 F)Y for any new or deleted assessment and fees. -The ccdfieadon statemcst should be subintorid along with your annual delivery of ESSCSSMelITS and fees data to our office no h= than August 15, 1997. It is impel-mat to not that no assessment or fez will be collected on the County's Tat I Roll with' oto this cerrifzestion. In the past, the taxpayers had the bmden of proof to show that an assessment or fee is not legal. Proposition 218 has shifted that burden of proof to the local government Ii=after. "burden of proof s of any legal action contesting the 'validity of any assessotent or fees will be an the (AGENCY/DISTRICT). If you have any questions, please call ow Tax Analyst, Thomas Lum at (510) 272-6557. Sincerely, PATRICK O'CONNELL Auditor-Contra/ler Alameda County POCT'Llc En:lost= evemroomownsmosepee 190 J-225 - 1 – 176672.1 CITY OF _________ ASSESSMENT DISTRICT NO. _____ PROCEDURES FOR THE COMPLETION, RETURN, AND TABULATION OF ASSESSMENT BALLOTS I. Completion of Ballots • Who may complete a ballot? An assessment ballot may be completed by the owner of the parcel to be assessed. As used in these Procedures, the term "owner" includes the owner's authorized representative. If the owner of the parcel is a partnership, joint tenancy, or tenancy in common, a ballot may be completed by any of the general partners, joint tenants, or tenants in common. Except as set forth below, only one ballot may be completed for each parcel. • Proportional assessment ballots If a parcel has multiple owners, any owner may request a proportional assessment ballot. If the ownership interest of the owner is not shown on the last equalized secured property tax assessment roll, such request must include evidence, satisfactory to the City, of the owner's proportional rights in the parcel. The City will provide the proportional ballot to the owner at the address shown on the assessment roll. Any request for a ballot to be mailed to another location must be made in writing and must include evidence, satisfactory to the City, of the identity of the person requesting the ballot. Each proportional ballot will be marked to show the date on which the ballot was provided, to identify it as a proportional ballot and to indicate the owner's proportional rights in the parcel. The City will keep a record of each proportional ballot provided to an owner. • Duplicate ballots If an assessment ballot is lost, withdrawn, destroyed or never received, the City will mail or otherwise provide a duplicate ballot to the owner upon receipt of a request in writing delivered to the City Clerk. The duplicate ballot will be marked to show the date on which the ballot was mailed or provided and to identify it as a duplicate ballot or a duplicate proportional ballot. • Marking and signing the ballot To complete an assessment ballot, the owner of the parcel must (1) mark the appropriate box supporting or opposing the proposed assessment, and (2) sign, under penalty of perjury, the statement on the ballot that the person completing the ballot is the owner of the parcel or the owner's authorized representative. Only one box may be stamped or marked on each ballot. Ballots must be completed in ink. • Only assessment ballots provided by the City will be accepted The City will only accept ballots mailed or otherwise provided to owners by the City. No facsimile, mechanically duplicated, or other ballot will be accepted. II. Return of Ballots • Who may return ballots? An assessment ballot may be returned by the owner of the parcel or by anyone authorized by the owner to return the ballot. • Where to return ballots Ballots may be mailed to the address indicated on the ballot. The City has provided return postage on the ballot. Ballots may also be delivered in person to the City Clerk at City Hall, [address], California (before [time] on the date scheduled for the public hearing on the proposed assessment), or delivered to the City Clerk at the public hearing on the proposed assessment. • When to return ballots All returned ballots must be received by the City Clerk before the City Council closes the public input portion of the public hearing on the proposed assessment. The public input portion of the public hearing may be continued from time to time. The City Clerk will endorse on each ballot the date of its receipt. The City Clerk will pick up mailed ballots at [time] on the date scheduled for the public J-226 - 2 – 176672.1 hearing on the proposed assessment. To ensure that mailed ballots are received by the City Clerk before the conclusion of the public input portion of the public hearing, mailed ballots must be received by the City before [time] on the hearing date. Mailed ballots received after [time] on the hearing date will only be counted if the ballots are received by the City Clerk before the conclusion of the public input portion of the public hearing. The City makes no representation whether the public input portion of the public hearing will be concluded on the date scheduled for commencement of the public hearing or continued to a later date. • Withdrawal of assessment ballots After returning an assessment ballot to the City, the person who signed it may withdraw the ballot by submitting a written statement to the City Clerk directing the City Clerk to withdraw the ballot. Such before the close of the public input portion of the public hearing on the proposed assessment as described above for ballots. When ballots for the assessment are tabulated, the City Clerk will segregate withdrawn ballots from all other returned ballots. The City Clerk will retain all withdrawn ballots and will indicate on the face of such withdrawn ballots that they have been withdrawn. If any ballot has been withdrawn, the person withdrawing the ballot may request a duplicate ballot. • Changes to assessment ballots To change a ballot that has been submitted, the person who has signed it must (1) request the ballot be withdrawn, (2) request a duplicate ballot, and (3) return the duplicate ballot fully completed by the deadline noted above. Each of these steps must be completed as set forth above. III. Tabulation of Ballots • Which assessment ballots will be counted? Only ballots which are received by the City Clerk in compliance with these procedures will be counted. Ballots received by the City Clerk after the close of the public input portion of the public hearing on the proposed assessment will not be counted. Ballots which are not signed by the owner will not be counted. Ballots with no boxes marked, or with more than one box marked, will not be counted. Ballots withdrawn in accordance with these procedures will not be counted. None of these is a valid ballot. The City will keep a record of each proportional or duplicate ballot mailed or otherwise provided to an owner and will verify, prior to counting any duplicate ballot, that only one ballot has been returned for the parcel (or for an owner in the case of proportional ballots). The following rules will apply if more than one valid ballot for a parcel (or owner) has been returned. If a non-duplicate ballot has been returned, the City will count the non-duplicate ballot and disregard all duplicate ballots. If only duplicate ballots have been returned, the City will count the duplicate ballot first issued by the City and disregard subsequently issued duplicate ballots. If an owner returns both a non- proportional ballot and a proportional ballot, the City will count the proportional ballot and disregard the non-proportional ballot. • When and where ballots will be tabulated The tabulation of ballots will be performed, in view of those present, at the public hearing following the close of the public input portion of the public hearing. The public hearing may be continued from time to time for the purpose of tabulating ballots. Ballots will not be unsealed until the tabulation begins. • How ballots will be tabulated Ballots may be counted by hand, by computer or by any other tabulating device. Ballots will be tabulated by adding the ballots received in opposition to the assessment and adding the ballots received in favor of the assessment. Ballots shall be weighted according to the proportional financial obligation of the property with respect to which they are cast; provided, however, that proportional ballots shall also be weighted with respect to the ownership interests of each proportional ballot submitted. If one or more proportional ballots are received for a parcel and a non-proportional ballot is returned for the parcel, the non-proportional ballot will be J-227 - 3 – 176672.1 disregarded (if the same owner has returned a proportional ballot) or treated as a proportional ballot (if the same owner has not returned a proportional ballot). • Who will tabulate ballots? Ballots will be tabulated by the City Clerk or another impartial person designated by the City Council who does not have a vested interest in the outcome of the proposed assessment. The City Clerk or other designated person may be assisted by staff of and consultants to the City. • Results of tabulation The results of the tabulation will be announced following the completion of the tabulation and entered in the minutes of the City Council meeting. If ballots submitted in opposition to the proposed assessment exceed ballots submitted in favor of it (as tabulated above), the assessment will not be imposed. IV. Resolution of Disputes In the event of a dispute regarding whether the signer of a ballot is the owner of the parcel to which the ballot applies, the City Clerk or other person designated by the City Council will make such determination from the last equalized assessment roll and any evidence of ownership submitted to the City before the conclusion of the public hearing. The City will be under no duty to obtain or consider any other evidence as to ownership of property and its determination of ownership will be final and conclusive. In the event of a dispute regarding whether the signer of a ballot is an authorized representative of the owner of the parcel, the Clerk or other person designated by the City Council may rely on the statement on the ballot signed under penalty of perjury that the person completing the ballot is the owner's authorized representative and any evidence submitted to the City before the conclusion of the public hearing. The City has no duty to obtain or consider any other evidence as to whether the signer of the ballot is an authorized representative of the owner and its determination will be final and conclusive. Any other dispute shall be resolved by the City Clerk or other person designated by the City Council. V. Public Record During and after the tabulation, assessment ballots shall be treated as disclosable public records and be equally available for inspection by the proponents and opponents of the proposed assessment. VI. Further Information For further information, contact __________, J-228 176671.1 NOTICE OF PROPOSED NEW ASSESSMENT City Clerk and City of __________ _________________ for the _______, California _____ CITY OF _____ Assessment District No. _____ Assessment Nos.: <> APN: <> ASSESSMENT BALLOT: Select One: ❏ IN FAVOR OF ASSESSMENT ❏ OPPOSE ASSESSMENT <owner info> I hereby declare under penalty of perjury that I am the record owner of the parcel identified on this ballot or am authorized to submit a ballot on behalf of the record owner. Total [YEAR] Assessment <> (subject to annual adjustment for inflation, as discussed below) Total [YEAR] Assessment Units <> Signature of Property Owner Printed Name: _________________ Date: _____ Detach Here and Mail or Deliver to City Clerk at the Above Address - See Part 4 Below - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - THE CITY OF __________ GIVES NOTICE that: 1. Purpose of Assessment The City is proposing to levy a new assessment in the above Assessment District that includes your property. The purpose of the assessment is to [state purpose of assessment]. The total costs for FY [year] are estimated as $_____. 2. The Assessment. The total of the proposed annual assessment to be levied throughout the District for Fiscal Year [year] is $_____. The maximum assessment per assessment unit in Fiscal Year [year] is $___. An assessment is equivalent to [specify; commonly one single-family residence]. The proposed maximum annual assessment on your property is shown on the ballot above. If the assessment is confirmed, the assessment will be levied annually against your property until [describe any termination or sunset]. Each year, the maximum assessment against your parcel will be determined according to the following methodology: [assessment formula, including any inflation adjustment] As long as the assessment in any year subsequent to FY [year] does not exceed the amount adjusted as set forth above, the City may impose the assessment for that year without giving additional mailed notice or conducting a further balloting proceeding. Please refer to the Engineer’s Report for the District for a full and complete description of the assessment methodology. A copy of the Engineer’s Report is [attached / available at _____]. 3. Public Hearing. On [date] at [time] in the Council Chambers, City Hall, [address], the City Council will hold a Public Hearing on the proposed Assessment District and the assessment, and, at that time, receive public testimony, hear protests, tabulate the Assessment Ballots and the take final action on the levy of the assessment. 4. Assessment Ballot. At any time before the end of the public input portion of the Public Hearing, you may submit the Assessment Ballot, which is the upper part of this Notice, to the City Clerk. Ballots may be mailed or hand delivered to the City Clerk’s Office before [time] on [date] or may be hand delivered to the City Clerk at the Hearing. Ballots must be received by the City Clerk before these deadlines to be counted. Postmark dates will not be considered. J-229 176671.1 To complete your ballot, please cut off the Ballot portion above; mark the Ballot either “In Favor of Assessment” or “Oppose Assessment;” sign the Ballot and place it in the return envelope provided with this Notice. Seal the envelope and return it and the Ballot by mail or by hand delivery to the City Clerk. Any Ballot returned unmarked, unsigned or not enclosed in the return envelope will not be counted. The Ballot may be submitted, changed or withdrawn by the person submitting it at any time before the end of the Public Hearing. If you need a replacement Ballot, contact the City Clerk’s Office. The balloting is governed by the attached “PROCEDURES FOR THE COMPLETION, RETURN, AND TABULATION OF ASSESSMENT BALLOTS.” The assessment will not be imposed if the not be imposed if, upon tabulation of returned ballots, a majority protest exists. A majority protests exists i f the Ballots submitted in opposition to the assessment exceed the Ballots submitted in favor of the assessment, with Ballots weighted according to the proportional financial obligation of the affected properties. 5. More Information. Contact: [name] at [contact data]. The Engineer’s Report and other written material about the Assessment District may be reviewed during regular business hours at: [address]. Dated as of ___________________ City Clerk, City of __________ Enc: Engineer’s Report; Ballot Envelope J-230 176670.1 RESOLUTION NO. _____ APPROVAL OF GUIDELINES FOR THE SUBMISSION AND TABULATION OF PROTESTS IN CONNECTION WITH RATE HEARINGS CONDUCTED PURSUANT TO ARTICLE XIIID, SECTION 6 OF THE CALIFORNIA CONSTITUTION BE IT RESOLVED, by the City Council of the City of _______, California as follows: WHEREAS, Article XIIID, Section 6 of the California Constitution requires the City Council to consider written protests to certain proposed increases to utility charges; and WHEREAS, this constitutional provision does not offer specific guidance as to who may submit protests, how written protests are to be submitted, or how the City is to tabulate protests. WHEREAS, upon adoption of this resolution, any and all resolutions, or rules or regulations of this City in conflict with it, shall be repealed and shall have no further force or effect. This resolution supersedes all prior resolutions of the City to the extent that such resolutions established guidelines for the submission and tabulation of protests in connection with rate hearings conducted by the City pursuant to Article XIIID, Section 6 of the California Constitution. IT IS, THEREFORE, RESOLVED by the City Council of the City of _____ that when notice of a public hearing with respect to the adoption or increase of Wastewater or Stormwater charges has been given by the City pursuant to Article XIIID, Section 6(a) of the California Constitution, the following shall apply: SECTION 1: Definitions. Unless the context plainly indicates another meaning was intended, the following definitions shall apply in construction of these guidelines. A. “Parcel” means a County Assessor’s parcel the owner or occupant of which is subject to the proposed charge that is the subject of the hearing. B. “Record customer” and “customer of record” mean the person or persons whose name or names appear on the City records as the person who has contracted for, or is obligated to pay for, utility services to a particular utility account. C. “Record owner” or “parcel owner” means the person or persons whose name or names appear on the County Assessor’s latest equalized assessment roll as the owner of a parcel. D. A “fee protest proceeding” is not an election, but the City Clerk will maintain the confidentiality of protests as provided below and will maintain the security and integrity of protests at all times. J-231 176670.1 SECTION 2: Notice Delivery. Notice of proposed rates and public hearing shall be as follows: A. The City shall give notice of proposed charges via U.S. mail to all record owners and customers of record served by the City. B. The City will post the notice of proposed charges and public hearing at its official posting sites. SECTION 3: Protest Submittal. A. Any record owner or customer of record who is subject to the proposed utility charge that is the subject of the hearing may submit a written protest to the City Clerk, by: (i) Delivery to the City Clerk’s Office at _________[physical address] during published business hours (ii) Mail to City Clerk at __________ [mailing address], or (iii) Personally submitting the protest at the public hearing. B. Protests must be received by the end of the public hearing, including those mailed to the City. No postmarks will be accepted; therefore, any protest not physically received by the close of the hearing, whether or not mailed prior to the hearing, shall not be counted. C. Because an original signature is required, emailed, faxed and photocopied protests shall not be counted. D. Although oral comments at the public hearing will not qualify as a formal protest, unless accompanied by a written protest, the City Council; welcomes input from the community during the public hearing on the proposed charges. SECTION 4: Protest Requirements. A. A written protest must include: (i) A statement that it is a protest against the proposed charge that is the subject of the hearing. (ii) Name of the record owner or customer of record who is submitting the protest; (iii) Identification of assessor’s parcel number, street address, or utility account number of the parcel with respect to which the protest is made; (iv) Original signature and legibly printed name of the record owner or customer of record who is submitting the protest. J-232 176670.1 B. Protests shall not be counted if any of the required elements (i thru iv) outlined in the preceding subsection “A.” are omitted. SECTION 5: Protest Withdrawal. Any person who submits a protest may withdraw it by submitting to the City Clerk a written request that the protest be withdrawn. The withdrawal of a protest shall contain sufficient information to identify the affected parcel and the name of the record owner or customer of record who submitted both the protest and the request that it be withdrawn. SECTION 6: Multiple Record Owners or Customers of Record. A. Each record owner or customer of record of a parcel served by the City may submit a protest. This includes instances where: (i) A parcel is owned by more than one record owner or more than one name appears on the City’s records as the customer of record for a parcel, or (ii) A customer of record is not the record owner, or (iii) A parcel includes more than one record customer, or (iv) Multiple parcels are served via a single utility account, as master-metered multiple family residential units. B. Only one protest will be counted per parcel as provided by Government Code Section 53755(b). SECTION 7: Transparency, Confidentiality, and Disclosure. A. To ensure transparency and accountability in the fee protest tabulation while protecting the privacy rights of record owners and customers of record, protests will be maintained in confidence until tabulation begins following the public hearing. C. Once a protest is opened during the tabulation, it becomes a disclosable public record, as required by state law and will be maintained in City files for two years. SECTION 8: City Clerk. The City Clerk shall not accept as valid any protest if he or she determines that any of the following is true: A. The protest does not state its opposition to the proposed charges. B. The protest does not name the record owner or record customer of the parcel identified in the protest as of the date of the public hearing. J-233 176670.1 C. The protest does not identify a parcel served by the City that is subject to the proposed charge. D. The protest does not bear an original signature of the named record owner of, or record customer with respect to, the parcel identified on the protest. Whether a signature is valid shall be entrusted to the reasonable judgment of the City Clerk, who may consult signatures on file with the County Elections Official. E. The protest was altered in a way that raises a fair question as to whether the protest actually expresses the intent of a record owner or a customer of record to protest the charges. F. The protest was not received by the City Clerk before the close of the public hearing on the proposed charges. G. A request to withdraw the protest was received prior to the close of the public hearing on the proposed charges. SECTION 9: City Clerk’s Decisions Final. The City Clerk’s decision that a protest is not valid shall constitute a final action of the City and shall not be subject to any internal appeal. SECTION 10: Majority Protest. A. A majority protest exists if written protests are timely submitted and not withdrawn by the record owners of, or customers of record with respect to, a majority (50% plus one) of the parcels subject to the proposed charge. B. While the City may inform the public of the number of parcels served by the City when a notice of proposed rates is mailed, the number of parcels with active customer accounts served by the City on the date of the hearing shall control in determining whether a majority protest exists. SECTION 11: Tabulation of Protests. At the conclusion of the public hearing, the City Clerk shall tabulate all protests received, including those received during the public hearing, and shall report the result to the City Council. If the number of protests received is insufficient to constitute a majority protest, the City Clerk may determine the absence of a majority protest without validating the protests received, but may instead deem them all valid without further examination. Further, if the number of protests received is obviously substantially fewer than the number required to constitute a majority protest, the City Clerk may determine the J-234 176670.1 absence of a majority protest without opening the envelopes in which protests are returned. SECTION 12: Report of Tabulation. If at the conclusion of the public hearing, the City Clerk determines that he or she will require additional time to tabulate the protests, he or she shall so advise the City Council, which may adjourn the meeting to allow the tabulation to be completed on another day or days. If so, the City Council shall declare the time and place of tabulation, which shall be conducted in a place where interested members of the public may observe the tabulation, and the City Council shall declare the time at which the meeting shall be resumed to receive and act on the tabulation report of the City Clerk. SECTION 13: This resolution will become effective immediately upon adoption. ADOPTED by the City Council of the City of _______, California at a regular meeting on the ___ day of MONTH, YEAR, by the following vote: AYES: XX NOES: XX ABSENT: XX ABSTAIN: XX WITNESS my hand and Seal of said City this XX day of MONTH YEAR. [name] City Clerk J-235 1400 K Street, Suite 400, Sacramento, CA 95814 Phone: (916) 658-8200 | Fax: (916) 658-8240 www.calcities.org | www.calcities.org/events J-236 May 10, 2024 ABATEMENT ACTIVITIES WITHIN THE DISTRICT ABALONE COVE LANDSLIDE ABATEMENT DISTRICT FISCAL YEAR 2023-24 LOS ANGELES COUNTY, CALIFORNIA ENGINEER’S REPORT Prepared for: ABALONE COVE LANDSLIDE ABATEMENT DISTRICT BOARD OF DIRECTORS Rancho Palos Verdes, California Prepared by: GORDON LEON ABALONE COVE LANDSLIDE ABATEMENT DISTRICT PO Box 4351 Palos Verdes Peninsula, CA 90274 Godon.Leon@gmail.com K-1 1 TABLE OF CONTENTS Certification ...................................................................................................................2 Part I - Overview and Benefits Provided to the District ................................................3 Part II – Financial Performance and FY24/25 Budget ...................................................4 Part III – Benefit Assessment and Method of Apportionment ......................................6 Part IV – Conclusion ......................................................................................................7 Appendix A – Assessment Roll .....................................................................................8 K-2 2 CERTIFICATION AGENCY: ABALONE COVE LANDSLIDE ABATEMENT DISTRICT PROJECT: ABATEMENT ACTIVITIES WITHIN THE DISTRICT TO: ABALONE COVE LANDSLIDE ABATEMENT DISTRICT BOARD OF DIRECTORS IN THE CITY OF RANCHO PALOS VERDES, STATE OF CALIFORNIA ENGINEERING REPORT FOR FISCAL YEAR 2023-24 The preparation of this Annual Engineering Report (“Report”) is in conformance with the obligation of the Abalone Cove Landslide Abatement District in the City of Rancho Palos Verdes to levy assessments within the District to provide services upon each lot or parcel of land in the district in proportion to the estimated benefit to be received by each such lot or parcel of land for Fiscal Year 2023–24. I, Tim Kelly, authorized representative of the District, the duly appointed Assessment Engineer submit the following Report which consists of the following four (4) parts and an Appendix. PART I: Overview: Provides historical information about the District and the general scope and responsibilities of the District. PART II: Financial performance of the District including the budget and proposed budget for FY 24/25 PART III: Explanation of the Assessment apportionment process and an estimated cost of the improvements on each benefited lot or parcel of land within the Assessment District. PART IV: Conclusion Appendix A – Assessment Roll In conclusion, it is my opinion that the costs and expenses of the District have been assessed to the lots and parcels within the boundaries of the District in proportion to the estimated benefits to be received by each lot or parcel from the services provided. DATED: May 10, 2024 ___________________________________________ Tim Kelly, P.E., Assessment Engineer, MPE No. 25452 K-3 3 Part I: Abalone Cove Landslide Abatement District The Abalone Cove Landslide Abatement District (ACLAD) is a “geologic hazard abatement district" created by the City of Rancho Palos Verdes and residences of the Abalone Cove community under special legislation passed by the California Legislature in l980 for the “purposes of prevention, mitigation, abatement or control” of the Abalone Cove landslide. It was the first geohazard abatement district created in the state (GHAD). The District is governed by five elected Directors, which serve for a term of four years. Under the Beverly Act of l980, the District may assess properties benefiting from the mitigation or abatement efforts for the cost of the improvements. ACLAD is broadly responsible for abatement efforts to prevent movement of the Abalone Cove land movement. To do this, the district operates and maintains dewatering wells and associated discharge lines, easements to assure access to the dewatering facilities, monitors groundwater elevations throughout the District, reviews measurements of the Global Positioning System for evidence of slide movement and works with the City of RPV to maintain certain storm culverts and other improvements related to landslide abatement. What Does ACLAD DO? ACLAD is broadly responsible for abatement efforts to prevent movement of the Abalone Cove landslide. The most effective abatement method is the dewatering wells, and currently the district operates and maintains the dewatering wells. These include wells drilled during the formation of ACLAD by the interim homeowners association, wells drilled under the authority of ACLAD, funded by issuance of a bond, and wells drilled by the City. ACLAD also monitors the groundwater elevation, and periodically re-drills wells. ACLAD monitors the Global Positioning System (GPS) stations measurements for evidence of slide movement. The groundwater table within and immediately upslope of the landslide has been lowered significantly by the existing dewatering wells. This can halt or slow the movement except during periods of exceptional rainfall and has increased the stability of the Abalone Cove Landslide. The District conducts or contracts investigations related to the geology, rainwater discharge and groundwater flow in the area to aid in evaluating and developing abatement efforts. A complete set of documents that constitute ACLAD’s Plan of Control can be found on the ACLAD website AbaloneCLAD.com The Plan of Control details the mitigation activities that are performed by ACLAD K-4 4 Part 2: Current Financial Status and Proposed FY 24/25 Budget The increase land movement during the past year has resulted in shearing of existing wells, breaks in the drainage system that takes water from the wells to the ocean, and increased maintenance of individual wells. ACLAD also funded two new de-watering wells (WW 23 and WW24) located on Narcissa Drive with funding from the cash on hand. As a result of the increased operating costs and fast tracking the two new wells, cash on hand was depleted to approximately $71,000 at the time of the preparation of this report. The categories of spending are shown in the attached budget. Abalone Cove Landslide Abatement District Proposed Maintenance and Operations Budget 2024/2025 And - Budgets for Fiscal Years 2022/2023 and 2023/2024 Account Description Budget Budget Actual Proposed Budget 2022/2023 2023/2024 2023/2024 2024/2025 Application of Funds Contract Administrative Services 010 Support Staff 16,800.00 16,800.00 16,800.00 16,800.00 011 Legal Expenses 5,000.00 2,000.00 5,793.00 2,000.00 012 Board Related Expenses 300.00 300.00 610.00 600.00 013 Election Related Expenses 500.00 500.00 500.00 014 Office Expenses 950.00 950.00 1,650.54 1,200.00 015 Bank Charges - checking 50.00 50.00 50.00 Total Administrative 23,600.00 20,600.00 24,853.54 21,150.00 Maintenance & Operations 200 Field Staff 0.00 0.00 0.00 201 Consulting Services 30,000.00 20,000.00 10,152.59 20,000.00 202 Utilities 25,200.00 30,000.00 33,000.00 36,000.00 203 Insurance 7,500.00 7,500.00 9,511.80 7,500.00 204 Easement Payments 2,500.00 2,500.00 1,650.00 3,500.00 205 Maintenance Service/parts 78,454.00 75,000.00 105,000.00 130,000.00 206 Surface Drainage Expense 0.00 0.00 50,000.00 207 Replacement Reserves 100,000.00 208 Well Drilling Costs 47,500.00 120,000.00 293,293.49 250,000.00 209 Contingency Funds 10,782.00 13,780.00 29,850.00 K-5 5 210 RPV for Well Monitoring Expense 0.00 0.00 0.00 0.00 211 RPV for Well Maintenance 0.00 0.00 0.00 0.00 Total Maintenance & Operations 201,936.00 268,780.00 452,607.88 626,850.00 Total Warrants 225,536.00 289,380.00 477,461.42 648,000.00 Sources of Funds - Income Funds Requested by Assessment 225,636.00 289,380.00 289,380.00 648,000.00 RPV Monitoring reimbursement 0.00 2,400.00 2,400.00 2,400.00 Interest Income 700.00 700.00 52.93 700.00 Total Sources of Funds 226,336.00 292,480.00 291,832.93 651,100.00 Reserves 471,629.00 435,197.00 70,000* 100,000.00 * estimated from May actuals K-6 6 Part III: Benefit Assessment Method of Apportionment of the Assessments: The method of apportionment of assessments indicates the proposed assessment of the net amount of the costs and expenses of the maintenance and/or servicing of the improvements to be assessed upon the lots and parcels of land within the Assessment District in proportion to the estimated special benefits to be received by such lots and parcels. Benefit Assessment Formula To help in understanding the Benefit Assessment Formula, here is the formula as adopted by the Board of Directors. Type of Property Units of Assessment 1. Land (improved & unimproved) @ 1 unit per acre (43,560 square feet) 2. Habitable area* @ 1 unit per each 1,000 square feet of improvements 3. Public highways @ 1 unit per 5,000 square feet of public roads 4. Public Use @ 2 units per acre * Improvements are defined as the habitable area - living quarters on the property. For example: For a Non-Public property, if the parcel is 13,068 square feet, this equals 13,068 divided by 43,560 = 0.300 acres in size, or 0.300 units In addition, the habitable area is 2,175 square feet, which equals 2.175 units So, the Total Units for the property = (0.300) + (2.175) = 2.475 The Assessment Per Unit is the Total Operating Cost of the District divided by the Grand Total Units in the District. For example: If the Total Operating Cost of the District is $648,000 And the Total Units in the District is 1,471.66 Then the Assessment Per Unit = $648,000 / 1471.66 = $440.32 ** ** This is as of 04/18/2024. The numbers always change slightly. To determine the assessment for the property, multiply the Assessment Per Unit by the Total Units for the property. In the example above, the assessment per unit is $440.32 times 2.475 Total Units for the property = $1,098.79 assessment for the property. K-7 7 Part IV: Conclusion The record two years of Winter Rains and the resulting increase in movement of the Abalone Cove Landslide stressed the ACLAD de-watering well system. To meet the challenge, ACLAD increased the maintenance and reduced the cycle time for repairs. The board also added two new wells to the system, and managed the installation of four RPV wells in the coastal bluff below Palos Verdes Drive South. The board authorized spending as much of the cash on hand as was necessary to meet the demands of the landslide. The proposed budget for FY24/25 includes the rising cost of maintenance, provides $50K to fix storm drainage along PBCA and Vanderlip roads damaged by the landslide, adds another two wells to the system, and provides for the creation of a Replacement and Emergency Reserve to meet unanticipated and unbudgeted expenses which may arise during the year. The goal is to fund the Reserve to $500,000 at the rate of $100,000 per annum. There is no change to the apportionment formulas that have been in place since the beginning of ACLAD. The FY 24/25 proposed budget does not fund Altamira Canyon Lining, or a myriad of additional surface water drainage projects. ACLAD is currently applying for Federal grants to line Altamira Canyon and discussing fast track funding from the City of Rancho Palos Verdes to prepare for next winter's storms. The ACLAD Board of Directors continues to be dedicated to removing water from the landslide. There will be an election in November to elect 3 board members. All of the members of ACLAD are encouraged to stand for election. Active participation in the ACLAD system will help to maintain the high level of service to our community. K-8 8 Appendix A: ACLAD Assessments by APN K-9 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 1 7572 001 003 44,445.82$ 19,831.63$ 2,198,473 0.000 0.000 0.000 100.940 100.940 2 7572 001 004 85,192.96$ 38,012.92$ 4,213,994 0.000 0.000 0.000 193.480 193.480 3 7572 001 005 45.49$ 20.30$ 4,500 0.103 0.000 0.000 0.000 0.103 4 7572 002 017 2,587.29$ 1,154.44$ 88,119 3,853 2.023 3.853 0.000 0.000 5.876 5 7572 002 018 1,967.51$ 877.90$ 30,944 3,758 0.710 3.758 0.000 0.000 4.468 6 7572 002 019 1,604.39$ 715.87$ 34,704 2,847 0.797 2.847 0.000 0.000 3.644 7 7572 002 020 20.17$ 7.86$ 1,995 0 0.046 0.000 0.000 0.000 0.046 8 7572 002 021 7,778.68$ 3,213.65$ 301,784 10,738 6.928 10.738 0.000 0.000 17.666 9 7572 002 023 66.68$ 29.36$ 6,597 0.151 0.000 0.000 0.000 0.151 10 7572 002 024 4,192.28$ 1,621.69$ 304,528 2,530 6.991 2.530 0.000 0.000 9.521 11 7572 002 025 2,238.59$ 998.67$ 169,928 1,183 3.901 1.183 0.000 0.000 5.084 12 7572 002 026 2,575.43$ 1,148.20$ 169,579 1,956 3.893 1.956 0.000 0.000 5.849 13 7572 002 027 2,278.66$ 1,016.84$ 49,441 4,040 1.135 4.040 0.000 0.000 5.175 14 7572 002 029 2,371.56$ 1,051.11$ 234,614 0 5.386 0.000 0.000 0.000 5.386 15 7572 002 030 2,914.03$ 1,300.04$ 60,287 5,234 1.384 5.234 0.000 0.000 6.618 16 7572 009 007 2,282.62$ 1,001.81$ 44,650 4,159 1.025 4.159 0.000 0.000 5.184 17 7572 009 009 1,254.04$ 559.59$ 27,183 2,224 0.624 2.224 0.000 0.000 2.848 18 7572 009 010 927.82$ 413.99$ 21,569 1,612 0.495 1.612 0.000 0.000 2.107 19 7572 009 011 333.30$ 145.32$ 32,973 0 0.757 0.000 0.000 0.000 0.757 20 7572 009 012 1,292.92$ 577.09$ 31,421 2,215 0.721 2.215 0.000 0.000 2.936 K-10 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 21 7572 009 013 1,292.92$ 479.06$ 31,421 2,215 0.721 2.215 0.000 0.000 2.936 22 7572 009 014 257.66$ 114.25$ 25,490 0 0.585 0.000 0.000 0.000 0.585 23 7572 009 015 225.94$ 89.62$ 22,352 0 0.513 0.000 0.000 0.000 0.513 24 7572 009 016 1,400.47$ 624.89$ 23,548 2,640 0.541 2.640 0.000 0.000 3.181 25 7572 009 017 1,458.36$ 650.62$ 25,920 2,717 0.595 2.717 0.000 0.000 3.312 26 7572 009 018 251.59$ 114.34$ 24,889 0 0.571 0.000 0.000 0.000 0.571 27 7572 009 019 1,205.51$ 478.17$ 25,953 2,142 0.596 2.142 0.000 0.000 2.738 28 7572 009 020 779.84$ 347.96$ 24,136 1,217 0.554 1.217 0.000 0.000 1.771 29 7572 009 021 1,708.86$ 762.52$ 26,352 3,276 0.605 3.276 0.000 0.000 3.881 30 7572 009 022 365.34$ 161.42$ 36,142 0 0.830 0.000 0.000 0.000 0.830 31 7572 009 023 1,348.49$ 602.15$ 42,102 2,096 0.967 2.096 0.000 0.000 3.063 32 7572 009 024 1,621.39$ 713.38$ 44,793 2,654 1.028 2.654 0.000 0.000 3.682 33 7572 010 009 1,710.20$ 763.68$ 49,005 2,759 1.125 2.759 0.000 0.000 3.884 34 7572 010 010 271.52$ 121.55$ 26,861 0 0.617 0.000 0.000 0.000 0.617 35 7572 010 011 1,831.15$ 817.24$ 24,336 3,600 0.559 3.600 0.000 0.000 4.159 36 7572 010 012 1,864.42$ 831.90$ 23,228 3,701 0.533 3.701 0.000 0.000 4.234 37 7572 010 013 243.80$ 107.77$ 24,119 0 0.554 0.000 0.000 0.000 0.554 38 7572 010 014 281.40$ 128.36$ 27,838 0 0.639 0.000 0.000 0.000 0.639 39 7572 010 015 1,085.45$ 484.23$ 27,928 1,824 0.641 1.824 0.000 0.000 2.465 K-11 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 40 7572 010 016 1,205.44$ 537.81$ 22,287 2,226 0.512 2.226 0.000 0.000 2.738 41 7572 010 017 1,683.33$ 751.10$ 21,910 3,320 0.503 3.320 0.000 0.000 3.823 42 7572 010 018 1,183.36$ 528.01$ 21,715 2,189 0.499 2.189 0.000 0.000 2.688 43 7572 010 019 187.65$ 83.13$ 18,564 0 0.426 0.000 0.000 0.000 0.426 44 7572 010 020 1,185.00$ 529.40$ 33,725 1,917 0.774 1.917 0.000 0.000 2.691 45 7572 010 021 524.42$ 233.36$ 51,880 0 1.191 0.000 0.000 0.000 1.191 46 7572 010 022 1,448.72$ 646.41$ 33,417 2,523 0.767 2.523 0.000 0.000 3.290 47 7572 010 023 373.90$ 165.34$ 36,989 0 0.849 0.000 0.000 0.000 0.849 48 7572 010 024 1,999.49$ 1,030.59$ 62,465 3,107 1.434 3.107 0.000 0.000 4.541 49 7572 010 025 2,140.57$ 955.14$ 37,349 4,004 0.857 4.004 0.000 0.000 4.861 50 7572 010 026 2,117.03$ 944.85$ 39,768 3,895 0.913 3.895 0.000 0.000 4.808 51 7572 010 027 1,955.90$ 871.18$ 49,441 3,307 1.135 3.307 0.000 0.000 4.442 52 7572 011 005 1,266.90$ 565.29$ 34,292 2,090 0.787 2.090 0.000 0.000 2.877 53 7572 011 006 1,071.30$ 478.01$ 35,632 1,615 0.818 1.615 0.000 0.000 2.433 54 7572 011 007 364.07$ 158.99$ 36,017 0 0.827 0.000 0.000 0.000 0.827 55 7572 011 008 1,517.07$ 675.29$ 34,560 2,652 0.793 2.652 0.000 0.000 3.445 56 7572 011 009 2,456.91$ 1,095.65$ 34,188 4,795 0.785 4.795 0.000 0.000 5.580 57 7572 011 010 980.47$ 437.48$ 35,489 1,412 0.815 1.412 0.000 0.000 2.227 58 7572 011 011 1,141.59$ 509.38$ 35,573 1,776 0.817 1.776 0.000 0.000 2.593 K-12 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 59 7572 011 012 1,059.12$ 472.58$ 34,210 1,620 0.785 1.620 0.000 0.000 2.405 60 7572 011 013 356.14$ 158.57$ 35,232 0 0.809 0.000 0.000 0.000 0.809 61 7572 011 014 1,225.96$ 547.02$ 36,906 1,937 0.847 1.937 0.000 0.000 2.784 62 7572 011 015 347.71$ 155.15$ 34,398 0 0.790 0.000 0.000 0.000 0.790 63 7572 011 016 1,683.77$ 502.17$ 33,279 3,060 0.764 3.060 0.000 0.000 3.824 64 7572 011 017 298.97$ 116.68$ 29,577 0 0.679 0.000 0.000 0.000 0.679 65 7572 011 018 310.36$ 137.20$ 30,703 0 0.705 0.000 0.000 0.000 0.705 66 7572 011 019 1,338.22$ 715.87$ 30,327 2,343 0.696 2.343 0.000 0.000 3.039 67 7572 011 020 1,050.85$ 468.59$ 28,164 1,740 0.647 1.740 0.000 0.000 2.387 68 7572 011 021 1,741.33$ 777.23$ 25,818 3,362 0.593 3.362 0.000 0.000 3.955 69 7572 011 022 1,769.66$ 789.62$ 29,579 3,340 0.679 3.340 0.000 0.000 4.019 70 7572 011 023 345.62$ 154.34$ 34,192 0 0.785 0.000 0.000 0.000 0.785 71 7572 011 024 1,509.94$ 673.57$ 28,105 2,784 0.645 2.784 0.000 0.000 3.429 72 7572 011 025 1,228.64$ 593.16$ 27,327 2,163 0.627 2.163 0.000 0.000 2.790 73 7572 011 026 1,941.81$ 866.29$ 51,706 3,223 1.187 3.223 0.000 0.000 4.410 74 7572 011 027 1,752.21$ 781.83$ 35,693 3,160 0.819 3.160 0.000 0.000 3.979 75 7572 011 028 292.71$ 130.89$ 28,957 0 0.665 0.000 0.000 0.000 0.665 76 7572 011 029 1,284.81$ 573.13$ 32,666 2,168 0.750 2.168 0.000 0.000 2.918 77 7572 011 030 911.43$ 406.64$ 27,266 1,444 0.626 1.444 0.000 0.000 2.070 K-13 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 78 7572 011 031 1,277.45$ 569.40$ 34,029 2,120 0.781 2.120 0.000 0.000 2.901 79 7572 012 016 7,546.63$ 3,027.20$ 517,972 5,248 11.891 5.248 0.000 0.000 17.139 80 7572 012 017 1,527.46$ 681.43$ 46,696 2,397 1.072 2.397 0.000 0.000 3.469 81 7572 012 018 1,734.88$ 773.54$ 35,460 3,126 0.814 3.126 0.000 0.000 3.940 82 7572 012 019 273.63$ 127.78$ 27,070 0 0.621 0.000 0.000 0.000 0.621 83 7572 012 020 1,470.67$ 656.29$ 24,089 2,787 0.553 2.787 0.000 0.000 3.340 84 7572 012 021 230.02$ 108.34$ 22,755 0 0.522 0.000 0.000 0.000 0.522 85 7572 012 022 1,189.20$ 530.64$ 32,355 1,958 0.743 1.958 0.000 0.000 2.701 86 7572 012 023 1,485.20$ 662.41$ 44,736 2,346 1.027 2.346 0.000 0.000 3.373 87 7572 012 024 8,125.21$ 5,308.21$ 734,117 1,600 16.853 1.600 0.000 0.000 18.453 88 7572 012 026 4,644.04$ 1,869.21$ 196,586 6,034 4.513 6.034 0.000 0.000 10.547 89 7572 012 028 16,721.56$ 7,461.12$ 0 0 827,117 0.000 0.000 0.000 37.976 37.976 90 7572 013 001 1,224.07$ 545.99$ 39,769 1,867 0.913 1.867 0.000 0.000 2.780 91 7572 013 002 772.32$ 346.43$ 49,920 608 1.146 0.608 0.000 0.000 1.754 92 7572 013 003 367.08$ 160.12$ 36,315 0 0.834 0.000 0.000 0.000 0.834 93 7572 013 004 1,231.97$ 549.70$ 28,658 2,140 0.658 2.140 0.000 0.000 2.798 94 7572 013 005 1,190.74$ 531.35$ 25,799 2,112 0.592 2.112 0.000 0.000 2.704 95 7572 013 006 251.38$ 114.52$ 24,869 0 0.571 0.000 0.000 0.000 0.571 96 7572 013 007 261.77$ 115.55$ 25,896 0 0.594 0.000 0.000 0.000 0.594 K-14 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 97 7572 013 008 161.46$ 70.45$ 15,973 0 0.367 0.000 0.000 0.000 0.367 98 7572 013 009 111.60$ 51.64$ 11,040 0 0.253 0.000 0.000 0.000 0.253 99 7572 013 010 1,101.20$ 491.16$ 28,310 1,851 0.650 1.851 0.000 0.000 2.501 100 7572 013 011 1,586.66$ 708.01$ 39,571 2,695 0.908 2.695 0.000 0.000 3.603 101 7572 013 012 1,399.15$ 624.24$ 31,301 2,459 0.719 2.459 0.000 0.000 3.178 102 7572 013 013 1,263.17$ 563.62$ 38,453 1,986 0.883 1.986 0.000 0.000 2.869 103 7572 013 014 1,316.99$ 587.82$ 51,967 1,798 1.193 1.798 0.000 0.000 2.991 104 7572 013 015 1,458.34$ 650.67$ 43,865 2,305 1.007 2.305 0.000 0.000 3.312 105 7572 013 016 3,543.84$ 1,581.25$ 36,954 7,200 0.848 7.200 0.000 0.000 8.048 106 7572 013 017 628.78$ 286.32$ 62,204 0 1.428 0.000 0.000 0.000 1.428 107 7572 013 018 1,428.31$ 637.06$ 29,264 2,572 0.672 2.572 0.000 0.000 3.244 108 7572 013 019 1,349.63$ 602.50$ 29,103 2,397 0.668 2.397 0.000 0.000 3.065 109 7572 014 012 1,345.59$ 600.21$ 34,236 2,270 0.786 2.270 0.000 0.000 3.056 110 7572 014 013 1,280.04$ 570.66$ 32,020 2,172 0.735 2.172 0.000 0.000 2.907 111 7572 014 014 948.09$ 422.96$ 26,972 1,534 0.619 1.534 0.000 0.000 2.153 112 7572 014 015 1,364.95$ 609.08$ 22,560 2,582 0.518 2.582 0.000 0.000 3.100 113 7572 014 016 273.61$ 120.29$ 27,068 0 0.621 0.000 0.000 0.000 0.621 114 7572 014 017 268.23$ 119.52$ 26,536 0 0.609 0.000 0.000 0.000 0.609 115 7572 014 018 1,028.50$ 459.48$ 24,951 1,763 0.573 1.763 0.000 0.000 2.336 K-15 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 116 7572 014 019 253.05$ 111.31$ 25,034 0 0.575 0.000 0.000 0.000 0.575 117 7572 014 020 2,029.52$ 905.81$ 35,467 3,795 0.814 3.795 0.000 0.000 4.609 118 7572 014 021 1,215.32$ 542.14$ 25,051 2,185 0.575 2.185 0.000 0.000 2.760 119 7572 014 022 1,388.41$ 619.29$ 26,623 2,542 0.611 2.542 0.000 0.000 3.153 120 7572 014 023 1,227.56$ 547.34$ 25,303 2,207 0.581 2.207 0.000 0.000 2.788 121 7572 014 024 1,144.42$ 510.45$ 27,272 1,973 0.626 1.973 0.000 0.000 2.599 122 7572 014 025 311.81$ 142.17$ 30,847 0 0.708 0.000 0.000 0.000 0.708 123 7572 014 026 1,190.52$ 531.32$ 22,815 2,180 0.524 2.180 0.000 0.000 2.704 124 7572 014 027 1,160.28$ 517.71$ 25,007 2,061 0.574 2.061 0.000 0.000 2.635 125 7572 014 028 1,389.41$ 619.95$ 25,459 2,571 0.584 2.571 0.000 0.000 3.155 126 7572 014 029 1,105.38$ 493.46$ 29,464 1,834 0.676 1.834 0.000 0.000 2.510 127 7572 014 030 1,112.93$ 496.59$ 25,855 1,934 0.594 1.934 0.000 0.000 2.528 128 7572 014 031 1,404.83$ 626.83$ 22,062 2,684 0.506 2.684 0.000 0.000 3.190 129 7572 014 032 1,056.90$ 476.29$ 22,316 1,888 0.512 1.888 0.000 0.000 2.400 130 7572 014 033 1,124.50$ 501.79$ 21,773 2,054 0.500 2.054 0.000 0.000 2.554 131 7572 015 010 707.15$ 309.68$ 69,957 0 1.606 0.000 0.000 0.000 1.606 132 7572 015 011 1,861.23$ 830.98$ 87,773 2,212 2.015 2.212 0.000 0.000 4.227 133 7572 015 012 1,485.33$ 662.75$ 30,592 2,671 0.702 2.671 0.000 0.000 3.373 134 7572 015 013 1,348.03$ 601.49$ 29,947 2,374 0.687 2.374 0.000 0.000 3.061 K-16 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 135 7572 015 014 550.42$ 248.02$ 54,452 0 1.250 0.000 0.000 0.000 1.250 136 7572 015 015 504.61$ 225.74$ 49,920 0 1.146 0.000 0.000 0.000 1.146 137 7572 015 016 619.53$ 277.22$ 61,289 0 1.407 0.000 0.000 0.000 1.407 138 7572 015 017 1,131.18$ 418.47$ 111,906 0 2.569 0.000 0.000 0.000 2.569 139 7572 015 018 518.25$ 194.48$ 51,270 0 1.177 0.000 0.000 0.000 1.177 140 7572 016 002 339.70$ 151.19$ 33,606 0 0.771 0.000 0.000 0.000 0.771 141 7572 016 003 2,557.47$ 1,140.96$ 33,899 5,030 0.778 5.030 0.000 0.000 5.808 142 7572 016 004 1,220.80$ 544.75$ 36,047 1,945 0.828 1.945 0.000 0.000 2.773 143 7572 016 005 1,449.30$ 646.67$ 33,910 2,513 0.778 2.513 0.000 0.000 3.291 144 7572 016 006 982.75$ 460.85$ 39,287 1,330 0.902 1.330 0.000 0.000 2.232 145 7572 016 007 272.41$ 123.99$ 26,949 0 0.619 0.000 0.000 0.000 0.619 146 7572 016 008 399.59$ 175.23$ 39,531 0 0.908 0.000 0.000 0.000 0.908 147 7572 016 009 1,331.97$ 594.37$ 69,696 1,425 1.600 1.425 0.000 0.000 3.025 148 7572 016 010 874.04$ 387.73$ 86,467 0 1.985 0.000 0.000 0.000 1.985 149 7572 016 011 588.26$ 260.70$ 58,196 0 1.336 0.000 0.000 0.000 1.336 150 7572 016 012 1,272.24$ 567.67$ 24,583 2,325 0.564 2.325 0.000 0.000 2.889 151 7572 016 013 1,106.36$ 481.95$ 28,864 1,850 0.663 1.850 0.000 0.000 2.513 152 7572 016 014 648.59$ 295.03$ 64,164 0 1.473 0.000 0.000 0.000 1.473 153 7572 016 015 1,974.84$ 881.12$ 82,808 2,584 1.901 2.584 0.000 0.000 4.485 K-17 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 154 7572 016 016 1,941.37$ 866.17$ 50,878 3,241 1.168 3.241 0.000 0.000 4.409 155 7572 016 027 1,831.81$ 801.98$ 38,994 3,265 0.895 3.265 0.000 0.000 4.160 156 7572 016 018 1,018.94$ 454.65$ 33,763 1,539 0.775 1.539 0.000 0.000 2.314 157 7572 016 020 680.74$ 320.23$ 67,344 0 1.546 0.000 0.000 0.000 1.546 158 7572 016 021 2,619.46$ 1,168.79$ 67,257 4,405 1.544 4.405 0.000 0.000 5.949 159 7572 016 022 672.81$ 310.40$ 66,560 0 1.528 0.000 0.000 0.000 1.528 160 7572 016 023 3,718.50$ 1,659.11$ 151,807 4,960 3.485 4.960 0.000 0.000 8.445 161 7572 016 024 13,307.32$ 5,976.60$ 1,316,470 0 30.222 0.000 0.000 0.000 30.222 162 7572 016 026 368.65$ 164.58$ 36,470 0 0.837 0.000 0.000 0.000 0.837 163 7572 017 001 767.92$ 346.13$ 75,969 0 1.744 0.000 0.000 0.000 1.744 164 7572 017 002 2,307.27$ 1,029.56$ 84,550 3,299 1.941 3.299 0.000 0.000 5.240 165 7572 017 003 631.86$ 280.84$ 62,509 0 1.435 0.000 0.000 0.000 1.435 166 7572 017 004 354.13$ 155.34$ 35,033 0 0.804 0.000 0.000 0.000 0.804 167 7572 017 005 296.03$ 135.58$ 29,286 0 0.672 0.000 0.000 0.000 0.672 168 7572 017 006 1,007.02$ 449.37$ 34,675 1,491 0.796 1.491 0.000 0.000 2.287 169 7572 017 007 1,552.92$ 586.87$ 39,631 2,617 0.910 2.617 0.000 0.000 3.527 170 7572 017 009 1,828.83$ 627.16$ 35,215 3,345 0.808 3.345 0.000 0.000 4.153 171 7572 017 010 1,911.42$ 852.64$ 46,217 3,280 1.061 3.280 0.000 0.000 4.341 172 7572 017 011 1,337.21$ 596.66$ 35,280 2,227 0.810 2.227 0.000 0.000 3.037 K-18 anum mapbook page parcel 24/25 23/24 Lot Sq.Ft. Bldg. Sq.Ft. Sq Ft of Public Hwys Public Lands Units of lot Unit of Building Units of Public Hwy Units of Public Land Parcel Ass'd Units 173 7572 017 013 1,386.87$ 618.66$ 35,749 2,329 0.821 2.329 0.000 0.000 3.150 174 7572 017 014 367.70$ 162.69$ 36,376 0 0.835 0.000 0.000 0.000 0.835 175 7572 017 015 1,237.70$ 552.09$ 42,946 1,825 0.986 1.825 0.000 0.000 2.811 176 7572 017 016 1,001.93$ 446.40$ 41,446 1,324 0.951 1.324 0.000 0.000 2.275 177 7572 017 018 1,799.28$ 802.59$ 96,542 1,870 2.216 1.870 0.000 0.000 4.086 178 7572 017 019 818.90$ 365.43$ 81,012 0 1.860 0.000 0.000 0.000 1.860 179 7572 017 028 1,220.94$ 544.75$ 46,559 1,704 1.069 1.704 0.000 0.000 2.773 180 7572 017 029 1,216.01$ 542.80$ 44,068 1,750 1.012 1.750 0.000 0.000 2.762 181 7572 017 034 1,592.38$ 711.45$ 86,398 1,633 1.983 1.633 0.000 0.000 3.616 182 7572 017 035 5,546.12$ 2,474.34$ 548,668 0 12.596 0.000 0.000 0.000 12.596 183 7572 018 900 16,122.20$ 7,251.69$ 1,594,941 0 36.615 0.000 0.000 0.000 36.615 184 7572 019 005 2,867.75$ 1,279.26$ 89,903 4,449 2.064 4.449 0.000 0.000 6.513 185 7572 019 900 17,256.36$ 7,770.37$ 1,707,141 0 39.191 0.000 0.000 0.000 39.191 186 7581 023 035 30,197.08$ 13,473.88$ 0 0 1,493,672 0.000 0.000 0.000 68.580 68.580 187 7581 023 902 168,316.40$ 75,102.43$ 0 8,325,622 0.000 0.000 0.000 382.260 382.260 188 13,828.95$ 6,170.45$ 157,033 0.000 0.000 31.407 0.000 31.407 K-19