DATE: March 4, 2024
TO: Mayor and Members of the City Council
VIA: Stefan Chatwin, City Manager
FROM: Marlene Subhashini, Assistant City Manager
DEPARTMENT: City Manager
SUBJECT: THE CALIFORNIA BUSINESS ROUNDTABLE “TAXPAYER
PROTECTION AND GOVERNMENT ACCOUNTABILITY ACT”
RECOMMENDATION
It is recommended that the City Council receive and accept a report on the California Business Roundtable’s (CBRT) Taxpayer Protection and Government Accountability Act and by Minute Order, direct staff to draft a letter in opposition of the measure and authorize the Mayor to sign the letter and find the action exempt under CEQA pursuant to CEQA Guidelines section 15061(b)(3).
EXECUTIVE SUMMARY
The Taxpayer Protection and Government Accountability Act (“CBRT measure”), is an initiative (Initiative #1935) proposed for the November 2024 State Ballot. Sponsored by CBRT, the measure proposes significant new tax and fee limitations on both state and local governments, reversing numerous court decisions, and retroactively voiding any state or local laws, decisions, or administrative actions in conflict with its provisions enacted after January 1, 2022. If passed, the measure would greatly limit the ability of voters and state and local governments to raise revenues to provide government services and fund critical infrastructure projects. The measure 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. Based on the current volume of fees and charges imposed by local agencies, including council-adopted increases to simply accommodate inflation, the League of California Cities (Cal Cities) estimates the amount
of local government fee and charge revenue at risk is approximately $2 billion per year, including those adopted since January 1, 2022. Cal Cities, along with a broad coalition of local agencies and other partners, strongly oppose 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 (1978), Proposition 218 (1996), and Proposition 26 (2010). The CBRT measure is the most consequential proposal that would further limit the ability of the state and local governments to enact, modify, or expand taxes, assessments, fees, and property-related charges. If passed by voters in 2024, the CBRT measure would put billions of local government tax and fee revenues at risk statewide with impacts to related core public services. The measure could have significant negative impacts on the City operations and core service delivery.
BACKGROUND/ANALYSIS
In 2018, a proposed constitutional initiative, the “Tax Fairness, Transparency and Accountability Act” was circulated to qualify for the November 2018 Ballot. This initiative was supported by the CBRT and would have significantly impacted local revenue authority. The initiative was withdrawn due to strong opposition from Cal Cities, and other coalition partners. On January 4, 2022, the CBRT filed the "Taxpayer Protection and Government Accountability Act" (Initiative No. 21-0042A1). On February 1, 2023, the Secretary of State certified that initiative #1935 – a measure that would amend the California Constitution to change the rules for how the state and local governments can impose taxes, fees, and other charges is eligible to appear on the ballot at the November 5, 2024, Statewide General Election.
The proposed constitutional initiative is sponsored by CBRT. The CBRT is a non-partisan organization comprised of the senior executive leadership of the major employers throughout the state (and considered to be the lobbying arm of the largest and wealthiest corporations in California).
If passed by the voters, key impacts of the initiative would include the following major provisions, among others:
Fees and Charges
▪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.” 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.
Taxes
▪Taxes and fees adopted after Jan. 1, 2022, that do not comply with the new rules, are void unless reenacted.
▪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 preference for how local general tax dollars should be spent. ▪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 Penalties
▪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.
In September 2023, Governor Gavin Newsom joined the State Legislature and former President pro Tempore of the California State Senate John Burton to file an emergency petition for writ of mandate with the California Supreme Court, asking the court to conduct preelection review of the Taxpayer Protection and Government Accountability Act (Initiative #1935) and prevent the measure from being placed on the November 2024 Ballot. The California Supreme Court did grant a hearing to rule on the petition filed by Newsom, and Burton to withhold the CBRT measure from the ballot. The petition makes two legal arguments as to why the measure should not appear on the November 2024 Ballot. First, it argues that the measure is an invalid revision of the State Constitution — which cannot be accomplished by initiative — rather than an amendment, which can. This is because the measure strips the Legislature and the Executive branch of important powers — requiring voter approval of all taxes, and requiring legislative action on all fees, even such things as a fee for a replacement driver’s license. The second claim is that the measure would impair essential governmental powers; here, the power to impose taxes, delegate fee-making procedures to the Executive branch, and for that branch to fully administer financial aspects of government programs. The matter will likely be set for argument in March or April and a decision is likely by the June ballot-printing deadline. While it is uncertain whether the Court will agree with the claims made by the plaintiffs, it is a positive development that the case will be deliberated.
As part of the broader CBRT discussion, it is important to note that ACA 13 (Ward) is also appearing on the ballot in November. While two standalone propositions, should ACA 13 pass with a simple 50%+1 majority vote, it would make it incredibly difficult for CBRT to take effect. This is because, the CBRT measure (which only requires a simple 50%+1 majority to pass) would require a two-thirds vote threshold to modify. ACA 13 states that in cases such as this, a ballot measure must secure the vote threshold that the proposition is seeking to raise. In other words, if ACA 13 were to pass, CBRT would not take effect unless it garnered a two-thirds vote. Additionally, ACA 13 permits a local governing body, at any election, to hold an advisory vote concerning any issue of governance for the purpose of allowing voters within the jurisdiction to voice their opinions on the issue.
It also provides that an advisory question is approved only if a majority of the votes cast on the question are in favor, and that the results of the advisory vote are not controlling on the local governing body.
ACA 13 is backed by local government associations, including Cal Cities, and labor organizations and is in response to the CBRT ballot measure. If ACA 13 is approved by voters, it would mark the first time that any state ballot measure would require more than a simple majority vote to be approved. Specifically, state ballot measures that: (1) are initiative measures (the term “initiative” refers exclusively to a proposed law that qualifies for the ballot through the collection of voters’ signatures on an initiative petition); (2) propose to amend the State Constitution; and (3) propose to increase the vote required for voters to approve a state or local ballot measure, would be subject to a voter approval threshold that is greater than a simple majority vote.
The City of Foster City relies on the use of fees, taxes, and other charges to provide vital core services to the community, including infrastructure and public safety services. The proposed CBRT measure would create detrimental fiscal implications for the City, potentially impacting core services to the community, which would negatively impact the quality of life of Foster City residents and businesses.
Link to the full text of the ballot initiative: Initiative 21-0042
CALIFORNIA ENVIRONMENTAL QUALITY ACT
This proposed action is not subject to review under the California Environmental Quality Act (California Public Resources Code §§ 21000, et seq., "CEQA") and CEQA Guidelines (Title 14 California Code of Regulations §§ 15000, et seq.), because it does not involve any commitment to a specific project which could result in a potentially significant physical impact on the environment; and, constitutes an organizational or administrative activity that will not result in direct or indirect physical changes in the environment.
FISCAL IMPACT
There is no fiscal impact associated with receiving this report. However, passage of the CBRT measure would put City revenues and future budgets at risk.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Smart Planning, Development, and the Local Economy
ATTACHMENTS:
Attachment 1 - The Taxpayer Protection & Government Accountability Act Economic Development Analysis prepared by CALED
Attachment 2 - ACA 13 Memo prepared by RPPG