Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: Resolution of Opposition to Initiative No. 21-0042A1, the Taxpayer Protection and Government Accountability Act.
Date: February 28, 2023
Written by: Damien O'Bid, City Manager
Recommendation
It is recommended that the City Council adopt a Resolution opposing Initiative No. 21-0042A1, the Taxpayer Protection and Government Accountability Act.
Background
On Jan. 4, 2022, the California Business Roundtable filed the “Taxpayer Protection and Government Accountability Act” or AG# 21-0042A1. On Feb. 1, 2023, the measure qualified for the November 2024 ballot.
The League of California Cities (Cal Cities), along with a broad coalition of local governments, labor and public safety leaders, infrastructure advocates, and businesses, strongly opposes this initiative. Local government revenue-raising authority is currently substantially restricted by state statute and constitutional provisions, including the voter approved provisions of Proposition 13 of 1978, Proposition 218 of 1996, and Proposition 26 of 2010. The Taxpayer Protection and Government Accountability Act adds and expands restrictions on voters and local government tax and fee authority.
The Taxpayer Protection and Government Accountability Act would amend the California Constitution with provisions that limit voters’ authority and input, adopt new and stricter rules for raising taxes and fees, and may make it more difficult to impose fines and penalties for violation of state and local laws.
The proposed constitutional initiative is sponsored by the California Business Roundtable, which is the organization that previously used the State’s initiative process as leverage to force the State Legislature to pass legislation preventing cities from passing any new “soda tax” laws.
Full text of Ballot Initiative
Analysis/Discussion
Fees and Taxes
Local governments levy a variety of fees and other charges to provide core public services.
Major examples of affected fees and charges are:
• Nuisance abatement charges, such as for weed, rubbish, and general nuisance abatement to fund community safety, code enforcement, and neighborhood cleanup programs. • Commercial franchise fees.
• Emergency response fees, such as in connection with DUI. • Advanced Life Support (ALS) transport charges.
• Document processing and duplication fees.
• Transit fees, tolls, parking fees, and public airport and harbor use fees. • Facility use charges, fees for parks and recreation services, garbage disposal tipping fees.
Virtually every city, county, and special district must regularly (e.g., annually) adopt changes to fee rates and charges and revise rate schedules to accommodate new users and activities. Most of these would be subject to new standards and limitations under threat of legal challenge. Based on the current volume of fees and charges imposed by local agencies, including council-adopted increases to simply accommodate inflation, Cal Cities estimates the amount of local government fee and charge revenue at risk is approximately $2 billion per year including those adopted since Jan. 1, 2022. Over ten years, $20 billion of local government fee and charge revenues will be at heightened legal peril.
The City’s affected fees and charges include virtually all of the charges for services in the adopted fee schedule, as well as recreation and facility fees.
Hundreds of local tax measures were approved in 20221 that likely do not comply with the provisions of the initiative. Nearly $2 billion of annual revenues from these voter-approved measures will cease a year after the effective date of the measure, reducing the local public services funded by these measures, unless the tax is re-submitted for voter approval.
Reductions on local government tax revenues have impacts on core services and infrastructure including fire and emergency response, law enforcement, streets and roads, drinking water, sewer sanitation, parks, libraries, public schools, affordable housing, homelessness prevention, and mental health services.
While the City doesn’t have a tax measure subject to re-submittal, any future changes to taxes, including business license taxes or transient occupancy taxes would be affected if passed by the voters.
Fines and Penalties
Under existing law, cities are required to provide due process before imposing a penalty or fine for violation of its municipal code:
1. A local agency must adopt administrative procedures that govern imposing fines and 1 http://www.californiacityfinance.com/Votes2211final.pdf penalties, including providing a reasonable period of time for a person responsible for a continuing violation to correct or remedy the violation [Gov't Code 53069.4].
2. Notice must be given to the violating party before imposing the penalty; and give the party an opportunity to be heard and present any facts or arguments [Merco Construction Engineers v. Los Angeles Unified School District (1969) 274 CA 2d 154, 166].
3. The fine may not be "excessive" [U.S. Constitution amendments VIII and XIV].
The initiative converts administratively-imposed fines and penalties into taxes unless a new, undefined, and ambiguous “adjudicatory due process” is followed. This provision may put at risk authority to impose fines and penalties for violations of state and local law.
City of Cotati affected fines and penalties include violations of City Municipal Code, primarily provisions routinely enforced on building code and quality of life nuisance violations, but also potentially including locally imposed traffic or parking fines.
Fees and Charges2:
• Except for licensing and other regulatory fees, fees and charges may not exceed the “actual cost” of providing the product or service for which the fee is charged. “Actual cost” is the “minimum amount necessary.” The burden to prove the fee or charge does not exceed “actual cost” is changed to “clear and convincing” evidence. • Requires fees and charges paid for the use of local and state government property and the amount paid to purchase or rent government property to be “reasonable.” These fees and charges are currently allowed to be market-based. Whether the amount is “reasonable” (introducing a new legal standard aiming to force below market fee and charge amounts) must be proved by “clear and convincing evidence.”3 The standard may significantly reduce the amount large companies (e.g., oil, utilities, gas, railroads, garbage/refuse, cable, and other corporations) will pay for the use of local public property. • Prohibits fees on new development based on vehicle miles traveled.
Taxes4:
• Taxes and fees adopted after Jan. 1, 2022, that do not comply with the new rules, are void unless reenacted5.
• Invalidates Upland decision that allows a majority of local voters to pass special taxes.
The measure specifies that taxes proposed by the initiative are subject to the same rules as taxes placed on the ballot by a city council.
• Expressly prohibits local advisory measures which allow local voters to express a 2 Initiative No. 21-0042A1 (pgs.4-6; Section 1 (a)-(j) 3 Initiative No. 21-0042A1 (pg.5; (3))
4 Initiative No. 21-0042A1 (pgs.4-6; Section 1 (a)-(j) 5 Initiative No. 21-0042A1 (pg.7; Section 6 (Sec. 2)(g)
preference for how local general tax dollars should be spent.6 • Requires voter approval to expand existing taxes (e.g., Utility, Transient Occupancy) to new territory (e.g., annexations) or to expand the tax base (e.g., new utility service) • New taxes can only be imposed for a specific time period. • City charters may not be amended to include a tax or fee. • All state taxes require majority voter approval.
Fines and Penalties7:
• May require voter approval of fines, penalties, and levies for corporations and property owners that violate state and local laws unless a new, undefined adjudicatory process is used to impose the fines and penalties.
Financial Considerations
The measure puts billions of local government tax and fee revenues at risk statewide with related core public service impacts. The measure would have significant negative impacts on the City of Cotati operations and core service delivery.
California is the largest state in the United States, both in terms of population and economic output.
The dramatic increase in population through the 1960s and 1970s and accompanying rapid growth of development and crowding inevitably led to a series of voter initiatives adding layers of public review and approval of development, as well as a complete upheaval of the tax system with the passage of Proposition 13. Additionally, the sales tax system, created in the 1930’s, remains antiquated and does not reflect today’s predominantly service-based economy. In most states, like California prior to Proposition 13, local funding is simply set by developing a budget and assessing that amount in property taxes. Many states also have modernized their sales tax systems to tax most goods and services.
As a result, the system to fund the necessary services and infrastructure in California has evolved in the shadow of Proposition 13 and other voter initiatives to become a complex system of fees and taxes. If passed, the Taxpayer Protection and Government Accountability Act will likely upend the system for funding public services and infrastructure in California by immediately jeopardizing billions in funding statewide. The sudden drop in revenue will either result in legislative measures or voter initiatives to “fix” the system, or services will be cut and the infrastructure will deteriorate – which will eventually result in a crisis and legislative measures or voter initiatives to “fix” the system once the damage becomes apparent to voters.
Environmental Issues
This action is exempt from the California Environmental Quality Act (CEQA) because it is not a project which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment, pursuant to CEQA 6 Initiative No. 21-0042A1 (pg.6 (3)) 7
Initiative No. 21-0042A1 (pg. 5 (4))
Guideline section 15378.
Attachments:
FINAL-CBRT Fiscal Analysis (PDF)