California Proposition 218 (1996) Local Initiative Power

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Proposition 218 was an adopted initiative constitutional amendment in the state of California on the November 5, 1996 statewide election ballot.^[1] Proposition 218 revolutionized local and regional government finance in California.^[2] Called the “Right to Vote on Taxes Act,”^[3] Proposition 218 was sponsored by the Howard Jarvis Taxpayers Association as a constitutional follow-up to the historic Proposition 13 property tax revolt initiative constitutional amendment approved by California voters on June 6, 1978.^[4] Proposition 218 was drafted and masterminded by constitutional attorneys Jonathan Coupal and Jack Cohen.^[5]

One of the most significant provisions of Proposition 218 constitutionally reserves to local voters the exercise of the initiative power to reduce or repeal any local tax, assessment, fee, or charge.^[6] This includes a significantly reduced signature requirement to qualify such initiatives for the ballot.^[7] Proposition 218 was the first successful initiative measure in California history to alter the scope of the constitutional initiative power.^[8]

The local initiative power under Proposition 218 is a powerful tool available to voters, particularly when local elected officials are not responsive to their constituents in matters relating to local taxes, assessments, fees, and charges. As the California Supreme Court stated in the landmark case upholding the constitutionality of Proposition 13, the initiative power is “in essence a legislative battering ram which may be used to tear through the exasperating tangle of the traditional legislative procedure and strike directly toward the desired end.”^[9] The author of an article in a League of California Cities publication wrote the following about Proposition 218: “Voters now hold the power to direct or withdraw monetary resources for government functions. Motivated by distrust, the voters’ objective was to replace reliance on elected representatives with direct voter control over local government finances.”^[10] The local initiative power under Proposition 218 constitutionally empowers voters to accomplish the preceding.

Overview of Local Initiative Power Under Proposition 218

The initiative is the power of the voters to propose laws and thereafter to adopt or reject them.^[11] The initiative power is a reserved power under California law.^[12] This means that the local initiative power is not a right granted the people by the State Legislature or by local governments, but rather is a power reserved by the people under the California Constitution.^[13] As a result, legal authority to exercise the local initiative power under Proposition 218 is not required either by a state statute or by a local charter provision. Rather, the power to exercise the local initiative power under Proposition 218 is derived directly from the constitutional provision itself. Under the express constitutional language, the Proposition 218 local initiative power cannot be prohibited or otherwise limited by either state or local government officials,^[14] and because it is a constitutional provision, it can only be amended by California voters.^[15]

California courts have also stated that the local initiative power in general must be construed liberally in favor of the people’s right to exercise that reserved power. Declaring it the duty of the courts to jealously guard the initiative power, the courts have described the initiative as articulating one of the most precious rights of the democratic process. It has long been the policy of California courts to apply a liberal construction to the initiative power wherever it is challenged in order that the right not be improperly annulled. If doubts can reasonably be resolved in favor of the use of the reserved initiative power, the courts will preserve it.^[16] Proposition 218 also contains a liberal interpretation provision constitutionally requiring that its provisions be “liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent.”^[17] This provides an additional legal basis for liberally construing the local initiative power under Proposition 218.

The specific constitutional language applicable to the local initiative power under Proposition 218 (contained in Section 3 of Article XIII C of the California Constitution) states:

“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.”^[18]

Legislative Intent Clarifying Scope of Proposition 218 Local Initiative Power

Concerning the local initiative power, the Impartial Analysis of Proposition 218 prepared by the California Legislative Analyst, as contained in the Official Ballot Pamphlet provided to California voters, stated:

“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.”^[19]

Shortly after the passage of Proposition 218, the California Legislative Analyst wrote the following about the broad scope of the local initiative power under Proposition 218:

“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 limits on local residents’ ability to overturn local revenue raising measures appear to be those in the federal constitution, such as the federal debt impairment clause.”^[20]

Reduced Signature Requirement for Local Proposition 218 Initiatives

The local initiative power under Proposition 218 is also subject to a significantly reduced signature requirement which cannot exceed the requirement applicable to statewide statutory initiatives. The specific maximum signature requirement under Proposition 218 is five percent (5%) of the votes cast for all candidates for Governor at the last gubernatorial election within the territory of the local government.^[21] After the unusually low local voter turnouts during the November 2014 gubernatorial election in California, the signature requirement to exercise the local initiative power under Proposition 218 is significantly lower than usual in many local jurisdictions.

Reduced Signature Requirement Example Calculation

The following is an example of how the reduced signature requirement for a local reduction or repeal initiative measure under Proposition 218 is calculated. Local government “X” has 10,000 registered voters. Of those 10,000 voters, the total number of votes for all candidates for Governor at the last gubernatorial election within the boundaries of local government “X” is 4,000 votes. Five (5) percent of the 4,000 vote total is 200. A total of 200 valid signatures would be needed to qualify a local reduction or repeal initiative under Proposition 218. In this example, the 200 signature requirement represents 2% of the registered voters in local government “X.”

Total Signatures vs. Valid Signatures

The applicable signature requirement is based on the number of valid signatures. Since many petition signatures end up not being valid, the total number of signatures needed is typically significantly larger than the number of valid signatures required. How many additional signatures are needed generally depends upon the estimated signature validity rate. The higher the validity rate, the fewer number of additional signatures needed. It is not uncommon for the number of additional signatures needed to be 50% or more of the applicable signature requirement under Proposition 218.

Sources of Data to Compute Signature Requirement

Data needed to compute the applicable signature requirement for a local government with respect to the exercise of the local initiative power under Proposition 218 (total number of gubernatorial election votes) is generally available from local county registrars of voters. It is necessary to verify that any obtained data are based on the total votes cast (precinct and absentee) and not just the precinct votes which will significantly understate the correct signature requirement if based only on precinct votes. It may also be more difficult to calculate the applicable signature requirement for some local governments (e.g., special districts) because data totals for all local governments may not be readily available from some local county registrars of voters.

The Supplement to the Statement of Vote published by the California Secretary of State also contains data needed to calculate the applicable signature requirement in counties as well as cities. This publication is generally available several months following each statewide election in California, and a copy of the supplement must legally be made available, upon request, to any California voter.^[22] The applicable gubernatorial election data from the Supplement to the Statement of Vote for the November 4, 2014 California General Election has been released by the California Secretary of State.^[23]

Example Uses of Local Initiative Power Under Proposition 218

The local initiative power under Proposition 218 can be used to reduce or repeal local taxes like utility user taxes, sales taxes, business taxes, parcel taxes, and also to reduce or repeal local government fees and charges such as stormwater fees, groundwater fees, public ambulance/paramedic fees, public park/sports fees, public parking fees, or utility fees and charges for water (including drought fees and surcharges), sewer, or refuse collection services.

Accountability Tool

Exercise of the local initiative power under Proposition 218 gives voters a powerful tool to use such as when local government officials are not responsive to the needs of their constituents, when local voters have not previously voted on a particular levy (including special taxes for services in many Mello-Roos Districts), when there has been significant waste or mismanagement by a local government, when there has been a controversial expenditure of revenue proceeds by a local government, when the amount of a local levy is excessive or unreasonable, or when promises previously made by local politicians about the imposition of a levy are broken.

Sometimes even the mere mention or threat by voters to pursue a local reduction or repeal initiative under Proposition 218 will result in local government officials being more responsive to the concerns of the public regarding a particular local tax, assessment, fee or charge. This is especially the case since the signature requirement to qualify a local reduction or repeal initiative under Proposition 218 is low.

Alternative to Litigation

The local initiative power under Proposition 218 can also be used as an alternative to litigation (such as when cost, time delay, or legal risk issues might not make litigation an attractive option), and has even been successfully used as a legislative remedy to reduce or repeal a local levy following the defeat of a lawsuit challenging the validity of the levy under Proposition 218.^[24]

There have also been instances where the local initiative power under Proposition 218 has been used concurrently with pending litigation (typically as a speedier remedy to litigation or as a backup if litigation is unsuccessful or dropped) such as an instance where a local groundwater charge was repealed by voters which resulted in the legal issues in the litigation being rendered moot.^[25]

When Legal Remedy Not Available

The local initiative power under Proposition 218 is also an available legislative remedy in situations where a legal remedy may not be available such as when the applicable statute of limitations has run or when other legal procedural impediments are present (e.g., exhaustion of remedies, standing, or claims requirements).

Targeted Applications of Local Initiative Power Under Proposition 218

The local initiative power under Proposition 218 can also be used to target specific components of a local government levy to better achieve public policy goals as well as to increase the chances of a local initiative being approved by voters. This approach is especially useful in situations where a local levy repeal is politically or legally problematic. Often, a more specifically targeted levy reduction will have a significantly better chance of being approved by local voters and withstanding a legal challenge.

Local Utility User Taxes

An example application involves local utility user taxes. Utility user taxes are levied on the use of utility services, whether provided by a public or private entity, with the tax proceeds nearly always spent by local governments on purposes completely unrelated to the particular utility service being taxed. Local utility taxes are generally levied as a percentage of utility service cost, and are imposed in addition to local utility fees and charges. Utility user taxes typically appear as a separate charge on the local utility bill. Utility user taxes are imposed on one or more utility services, including water, electricity, sewer, gas, telephone, cable television, and refuse collection. When local utility rates are increased, the cost of utility service increases which generally also results in an increase in the amount of utility users tax that is paid by the consumer.

Utility user taxes are sometimes a significant revenue source for a local government. This can make the complete repeal of a local utility users tax politically problematic. Rather than providing for a complete repeal of a local utility user tax, a local initiative under Proposition 218 could target tax relief for just the residential utility customers while leaving utility tax rates for commercial customers unchanged.

Another application could target a particular utility service for tax relief while leaving the tax rate for other utility services unchanged. For example, reducing just the utility users tax for water service to offset significant water utility fee and charge increases such as those resulting from statewide water conservation mandates, or to offset historical (before Proposition 218) utility fee overcharges where the “profits” were transferred to the general fund of the local government and thereafter spent at the discretion of local politicians.

Similar to the foregoing would involve reducing just a utility users tax for electric service to offset historical and/or current electricity utility fee overcharges where the “profits” are then transferred to the general fund of the local government and thereafter spent at the discretion of local politicians such as on public employee salaries and benefits. This approach can be particularly attractive to taxpayers since the “cost of service” constitutional protections under Proposition 218 do not apply to electric or gas utility fee charges levied by a local government.^[26]

Yet another application could target local utility user tax “modernization” measures that have been approved by voters over the past few years. There exists controversy whether utility user tax “modernization” measures permit local governments to levy taxes on online video streaming services.^[27] In some instances, voters may have unknowingly authorized the imposition of a tax on online video streaming services in approving a local utility user tax “modernization” measure. The local initiative power under Proposition 218 can be used to reduce or repeal a local tax on online video streaming services previously approved under a utility user tax “modernization” measure.

Local Utility Fees and Charges

The reduction or repeal of local government utility fees and charges represents one of the most frequent uses of the local initiative power under Proposition 218. In particular, local initiatives to reduce or repeal local government utility fees and charges for domestic water or sanitary sewer services which are not subject to a mandatory election under Proposition 218 prior to their imposition by the local government.

Drafting an initiative to reduce or repeal local utility fees or charges requires the assistance of expert legal counsel because of the multitude of legal issues that must be properly addressed, especially if federal contract impairment issues may be present. Furthermore, if state statutes or other laws require local utility rates to be set at specified service levels, those issues must also be taken into consideration and satisfactorily addressed in drafting an initiative.

Local government utility rate repeals are more drastic in their impact, are often more difficult to legally defend, and historically are more difficult to get approved by local voters. Utility rate reductions, especially more modest reduction amounts or reductions spread over time, generally have a better chance of being approved by local voters and withstanding legal scrutiny.

The local initiative power under Proposition 218 only applies to utility fees and charges imposed by local governments. Utility fees and charges imposed by private utilities are outside the scope of the local initiative power under Proposition 218. These private utilities are generally subject to regulation, including rate regulation, by the California Public Utilities Commission.

Local Stormwater Fees and Charges

New or increased stormwater fees and charges imposed by local governments in California (sometimes referred to as “clean water” fees) are generally subject to a mandatory property-related fee or charge election under Proposition 218.^[28] However, local government imposed stormwater fees and charges existing before Proposition 218 was enacted are not subject to a mandatory ratification election by local voters. This may also include existing local government street cleaning or sweeping fees and charges to fund services intended to help keep storm drains clear and reduce pollutants entering the local storm drain system. A local initiative under Proposition 218 could target for reduction or repeal local government stormwater fees and charges existing before Proposition 218 became law, including existing local street cleaning or sweeping fees and charges.

Local Sales Taxes

In 2003, SB 566 was enacted into law which legally authorized California cities to impose additional local sales taxes.^[29] Since the passage of SB 566, the number of local sales tax increases has exploded.^[30] The vast majority of the local sales tax increases pay for skyrocketing public pension and public employee retiree healthcare costs.^[31]

A local initiative under Proposition 218 can target for reduction or repeal local government sales taxes, especially where there has been significant waste and/or mismanagement of sales tax proceeds, when there has been controversial or questionable spending of sales tax proceeds by a local government such as using tax proceeds to pay for excessive public employee salaries and/or benefits like pensions and retiree healthcare, when the programs and services financed from sales tax proceeds are not delivered at an acceptably high level, when voters desire to lower the local sales tax rate in situations where the current tax rate is excessive and/or unreasonably high, when another tax election is desired especially where a local sales tax increase was narrowly approved by voters or otherwise approved under controversial circumstances, or when campaign promises made by local politicians about the expenditure of local sales tax proceeds are broken after voter approval, including in situations where legally nonbinding promises concerning the spending of general sales tax proceeds were made by local politicians before the election.

In some situations, all or a portion of local sales tax proceeds may be pledged to repay bonds issued by the local government. In this situation, the exercise of the local initiative power under Proposition 218 to reduce or repeal a sales tax may not be possible because of federal contract impairment issues under the United States Constitution. Local sales taxes imposed for transportation projects often include bond issuances where some of the sales tax proceeds are pledged to repay the bonds. Consultation with legal counsel is usually needed where bonds are issued and sales tax proceeds are pledged by the local government to repay the bonds. As an alternative, a compensatory initiative under Proposition 218 is usually available where contract impairment issues may preclude or significantly limit the ability of voters to directly reduce or repeal the targeted local sales tax.

Local Parcel Taxes

Parcel taxes are property taxes levied by local governments without regard to the assessed value of the property. Most parcel taxes are imposed on a flat tax basis with each taxable parcel paying the same tax amount. There are numerous fairness issues associated with the imposition of parcel taxes. For example, a modest single-family residential parcel typically pays the same amount as a more expensive home or more expensive commercial parcels. Since most parcels in a local government are single-family residential, the vast majority of the tax burden falls on single-family residential parcels. There are also fairness issues associated with singling out property owners to bear the financial burden of some public services and programs, especially those services and programs that benefit the community as a whole.

A local initiative under Proposition 218 can target for reduction or repeal local government parcel taxes, especially in situations where major tax fairness issues are present in a particular community. Many parcel taxes in California are imposed for K-12 public education purposes. A local initiative under Proposition 218 could also be pursued as a tie-in initiative that would tie the continued imposition of a parcel tax with improved student achievement benchmarks.

Since parcel taxes require two-thirds voter approval under Proposition 218^[32] (which corresponds to less than one-third of the voters opposing a parcel tax), the level of community opposition to a parcel tax would have to increase significantly subsequent to its approval in order to secure the necessary majority voter approval to reduce or repeal a parcel tax using the local initiative power under Proposition 218.

Local Mello-Roos Taxes

Special property taxes for services under the Mello-Roos Community Facilities Act of 1982^[33] are sometimes controversial in a community. Mello-Roos taxes for services such as police protection, fire protection and suppression, recreation, libraries, lighting, and flood/storm protection are authorized under California law.^[34] A Mello-Roos tax or other charge levied to finance a service is generally subject to reduction or repeal using the local initiative power under Proposition 218. This provides local voters with a readily available remedy to address issues of inequity associated with the financing of local public services in a particular community.

In some instances, the successful reduction or repeal of a Mello-Roos tax on services may result in the curtailment or elimination of some public services within the territory of the Mello-Roos tax district. To the extent this may happen and be lawful, it is up to voters within the tax district to decide, as part of an election associated with the exercise of the local initiative power under Proposition 218, whether this is an acceptable policy outcome. This is part of the balancing process voters must consider in deciding whether or not to support a Mello-Roos tax reduction or repeal.

Policy examples where the reduction or repeal of a Mello-Roos tax on services may be appropriate include where voters desire to eliminate or reduce a local public service currently provided by government, where voters believe certain local services currently provided by government can be more cost-effectively delivered by the private sector such as by a local property owners association, where voters did not previously vote in a registered voter election on a Mello-Roos tax, and where voters believe they are bearing a disproportionate and/or unfair financial burden compared to others in the community with regard to the financing of one or more general governmental services.

A Mello-Roos tax or other charge levied to repay bonds is a legally more complex situation because federal contract impairment issues may preclude the exercise of the local initiative power under Proposition 218. Advice from legal counsel is typically needed in such situations to determine whether the local initiative power under Proposition 218 is available. A local compensatory initiative under Proposition 218 is a potential option when contract impairment problems are present.

Local Mobile Telephony Surcharges

Another example involves targeting local telecommunications services utility tax rates for reduction or repeal, including local utility taxes relating to cell phone (mobile telephony) usage. This matter has received greater attention from taxpayers since the mobile telephony services (MTS) tax surcharge started to be collected in California on January 1, 2016. The local MTS tax surcharge is collected by sellers on each retail transaction involving prepaid mobile telephony services under the provisions of the Local Prepaid Mobile Telephony Services Collection Act.^[35] Also affected by the Local Prepaid Mobile Telephony Services Collection Act are “911” emergency access fees imposed by local governments.^[36] These “911” emergency access “fees” have been found to be taxes and subject to the voter approval requirements under Proposition 218.^[37]

Local Home-Based Business Taxes

Yet another example is with local business license taxes that are intended to provide general revenue for a local government as opposed to the regulation of local businesses. The imposition of local business license taxes on home-based businesses has been controversial in some local governments in California. A local initiative under Proposition 218 could target for reduction or repeal that component of a local business license tax relating to home-based businesses.

Local General Obligation Bond Taxes

When voters approve a local general obligation bond measure in California, the bonds are paid off by property owners via ad valorem (based on assessed value) property tax increases. Local general obligation bonds in California generally require two-thirds (2/3) voter approval except for some school bonds that only require 55% voter approval.^[38] When voter approval for a local general obligation bond occurs, voters are concurrently approving three separate items: (1) Authorization to incur bonded indebtedness;^[39] (2) Authorization to exceed the 1% ad valorem property tax rate limit under Proposition 13;^[40] and (3) Authorization to impose a special property tax (based on the assessed value of the property) to repay bonds that are subsequently issued pursuant to the debt authorization.^[41]

In some instances, the local initiative power under Proposition 218 may be used to alter the preceding third item relating to the imposition of a special property tax to repay bonds. In particular, using the local initiative power to reduce or repeal such bond tax authorizations. Because significant federal contract impairment issues are typically present which may preclude the exercise of the local initiative power with respect to such bond taxes, advice from legal counsel is almost always needed to determine whether the local initiative power under Proposition 218 is available. In circumstances where bonds have been authorized (via election approval) but not yet actually issued by the local government, voters will generally have their best opportunity to exercise the local initiative power under Proposition 218 to reduce or repeal the bond tax authorization.

To the extent a local initiative under Proposition 218 reduces or repeals a local bond tax authorization, the authorization to incur debt and the authorization to exceed the 1% tax rate limit under Proposition 13 would remain since these items are outside the scope of the local initiative power under Proposition 218. However, as a practical matter, this would make it difficult for the local government to subsequently issue bonds since the bond tax authorization has been reduced or repealed by the local initiative.

Types of Local Initiatives Under Proposition 218

An initiative to reduce or repeal a local levy under Proposition 218 may be as simple as a straight reduction or repeal of the levy, or more complex such as tying the reduction or repeal of the levy to satisfaction of specific performance standards set forth in the initiative. Local initiatives under Proposition 218 generally fall into three broad types.

Traditional Initiatives

The first type is a traditional initiative involving a straight reduction or repeal of a local tax, assessment, fee or charge. Traditional initiatives usually include specific findings and/or declarations describing the policy reasons for pursuing the initiative. However, conditions attached to the reduction or repeal of a levy are not included.

Compensatory Initiatives

The second type is a compensatory initiative. A compensatory initiative targets one or more alternative revenue sources for reduction or repeal to compensate for the inability, such as for legal or political reasons, to reduce or repeal a particular revenue source. Several examples of compensatory initiatives follow.

Countering Contract Impairment Issues Associated With a Local Revenue Source

In some instances, it may not be legally possible to target a particular utility service fee or charge for reduction or repeal because the fee revenues have been pledged to repay bonds, and a violation of the contract impairment clause of the United States Constitution would occur if the pledged revenue source were reduced or repealed using the initiative power under Proposition 218. A compensatory initiative would target an alternative revenue source for reduction or repeal, such as a related utility users tax or a legally permissible component of a related utility service fee, to compensate for the desired utility fee relief not otherwise available due to federal legal constraints.

Countering State Restriction Issues Associated With a Local Revenue Source

In some instances, it may not be legally possible to target a particular utility service fee or charge for reduction or repeal because of California statutory or case law restrictions affecting the exercise of the local initiative power under Proposition 218. While the California Supreme Court has yet to definitively rule on the extent to which California statutory restrictions can preclude or otherwise limit the ability of voters to exercise their constitutional right to reduce or repeal local government revenues under Proposition 218, this hasn’t stopped some local governments from filing lawsuits claiming that statutory or other restrictions preclude voters from exercising their constitutional initiative rights under Proposition 218.

A compensatory initiative would target an alternative revenue source for reduction or repeal, such as a related utility users tax or a legally permissible component of a related utility service fee, to compensate for the desired utility fee relief not otherwise available due to state legal constraints, to the extent any such legal restrictions may be found by California courts to exist.

Countering Utility Fee and Charge General Fund Transfers

In some situations, a local government may be legally allowed to transfer utility fee or charge proceeds to the general fund of the local agency to thereafter be spent at the discretion of local politicians. Such situations may include controversial (but legally allowable under Proposition 218) reimbursements to the general fund for services and/or other benefits provided by the local government to the utility, legally allowable return on investment (“profit”) utility fee overcharges for electrical or gas service which are not subject to the cost of service constitutional protections under Proposition 218,^[42] or other expenses that may be regarded as controversial or questionable by local ratepayers. One option to address excessive local government utility fee and charges is a local Proposition 218 initiative that directly targets the specific utility fees and charges in question. However, because of legal and/or political considerations, an indirect approach targeting an alternative revenue source using a compensatory initiative may be the better option. This is particularly the case if a local government also levies a utility users tax relating to the same utility service.

An example illustrating the foregoing involves the transfer of “profit” fees and charges by a local government in connection with the provision of electric service. This occurs when the local government intentionally overcharges ratepayers for electric service and then subsequently transfers a percentage of the utility fee and charge proceeds (known as “profit”) to the general fund of the local agency to be spent at the discretion of local politicians. If the local agency also levies a utility users tax on electric service, which tax proceeds are also typically placed in the general fund of the local agency to be spent at the discretion of local politicians, then it may be a better option to pursue a compensatory initiative under Proposition 218 providing for the repeal or reduction of the utility users tax as it pertains to electric service. In this instance, a successfully constructed compensatory initiative would at least offset any resulting increase in general fund revenues from the utility fund transfer with a corresponding reduction (or elimination) of utility tax revenues.

Countering Excessive Parking Ticket Fines as a Local Revenue Source

Another example involves a revenue source outside the scope of the local initiative power under Proposition 218. Parking ticket revenues illustrate the foregoing. Some cities in California generate substantial revenues from parking citations, but the initiative power under Proposition 218 may not be available to reduce or repeal high parking fine amounts as a local government revenue source. A compensatory initiative would target an alternative revenue source subject to the initiative power under Proposition 218 to at least offset parking citation revenues and thereby provide a strong incentive for the local government to reduce reliance on high parking fines as a revenue source.

Countering Excessive Local Franchise Fees as a Revenue Source

Yet another example involves franchise fees. Franchise fees are paid for the governmental grant of a relatively long possessory right to use land to provide essential services to the general public.^[43] Especially in cases where the amount of a franchise fee imposed by a local government exceeds the prevailing rate for the area or is otherwise excessive, a compensatory initiative targeting an alternative revenue source for reduction or repeal, such as a related utility users tax, would compensate for and offset excessive franchise fees.

Contents of Compensatory Initiatives

Compensatory initiatives typically contain specific findings and declarations setting forth the compensatory policy reasons for pursuing the local initiative, including reasons why the particular revenue source cannot be pursued and the compensatory nature of the alternative revenue source(s) being reduced or repealed.

Tie-In Initiatives

The third type is a tie-in initiative. A tie-in initiative ties the magnitude of a levy reduction, or the timing of a levy repeal, to satisfaction of specified objective performance standards or conditions contained in the local initiative.

The California Supreme Court has ruled that the local initiative power under Proposition 218 extends only to the reduction or repeal of local levies.^[44] However, there is significant flexibility in determining the magnitude of a levy reduction or the timing of a levy repeal. That flexibility is manifested with a tie-in initiative. Whether or not specified objective performance standards or conditions are satisfied determines the magnitude of a levy reduction or the timing when a levy is repealed.

A properly drafted tie-in initiative ordinarily requires the assistance of expert legal counsel to ensure compliance with all applicable legal requirements, including the levy reduction or repeal requirement. In addition, technical expertise in the subject area of a tie-in initiative is also usually required. For example, a tie-in initiative involving transportation may also require technical assistance from a transportation professional.

Tie-in initiatives can be applied to existing local revenue sources where voter approval may not have been previously obtained. Tie-in initiatives may also be applied to revenue sources approved by voters in an election required under Proposition 218 but where voters want to hold local government officials accountable for obtaining continued positive results after the election.

Satisfaction of Objective Performance Standards – Transportation/Traffic

An example of a tie-in initiative is the reduction or repeal of a local transportation sales tax if traffic and/or road conditions over time do not significantly improve relative to conditions existing before the imposition of the sales tax. This might include the establishment of traffic improvement benchmarks over time with the continued imposition of the sales tax contingent on satisfaction of traffic improvement benchmarks at specified time intervals. The preceding represents an alternative to the approach used by local governments and transportation interests in which they pursue one or more local transportation sales tax increases offering the possibility that traffic and road conditions may improve if the tax increase(s) were to pass.

The preceding tie-in initiative example involving local transportation sales taxes could also be utilized in the context of improved mass transit usage with the continued imposition of the sales tax contingent on satisfaction of mass transit ridership benchmarks at specified time intervals. Local transportation sales taxes in California are often used to finance mass transit projects. Sometimes questionable mass transit ridership projections are given during the tax election campaign in support of a transportation sales tax measure. A tie-in initiative can serve as a tool to hold transportation sales tax supporters accountable if ridership projections don’t match actual numbers following approval of the tax.

Satisfaction of Objective Performance Standards – Other Examples

Other examples of tie-in initiatives include tying an education parcel tax to improved student achievement, tying a public safety tax to reduced crime, and tying a utility service fee to completion of specified public improvement projects on schedule and without cost overruns.

Matching Contributions (Joint Venture Investment Partnerships)

A tie-in initiative under Proposition 218 can also include specific conditions associated with the continued imposition of a levy. For example, a local initiative could attach an annual matching contribution condition whereby a levy such as a tax would be reduced or repealed if the specified annual matching contribution condition is not satisfied.

A matching contribution condition (sometimes referred to as a Joint Venture Investment Partnership) is intended to leverage additional financial support as well as to demonstrate a strong financial commitment to the purposes for which the levy is imposed, especially from those interests who promoted the levy. Matching contributions typically come from either other government sources or from the private sector in the form of voluntary payments such as from the local business community. This approach is particularly appropriate in places like Los Angeles County and the Silicon Valley where the local business community tends to be big supporters of tax increases that disproportionately burden ordinary taxpayers but generally opposes tax increases on the business community for the same purposes.

Matching Contribution Example Involving a Sales Tax

The following illustrates a matching contribution condition in a local initiative. Suppose various organizations and groups promoted a successful sales tax increase within a local government. After passage of the tax increase, there remained questions concerning the fairness and burden of the tax. A tie-in initiative is pursued containing an annual matching contribution condition in which the sales tax would either by reduced or repealed unless the private sector, particularly the various organizations and groups that promoted the sales tax increase, provides annual matching funds (typically in an amount equal to or greater than the annual revenues received from the sales tax) to make the revenue burden more equitable. An annual matching condition does not create a legal obligation to pay, but if at any time during the life of the sales tax the condition is not satisfied, the tax would either be reduced or repealed in accordance with the terms of the local initiative. In this example, a policy is also advanced whereby if those organizations and groups that promoted the sales tax increase aren’t willing to voluntarily contribute additional funds on an annual basis for their promoted purpose, then taxpayers would not be legally obligated to continue paying for that purpose in the form of higher taxes.

Penalizing Local Government Bad Conduct Events

A tie-in initiative could tie the magnitude of a levy reduction to local government “bad conduct” events associated with a local initiative under Proposition 218. Such local government bad conduct events include, but are not limited to, preelection lawsuits filed by a local government that have the resulting effect of frustrating or otherwise delaying the exercise of the initiative power by the voters, preelection lawsuits filed by the proponents of an initiative measure that are necessary to force a local government to perform a mandatory legal duty applicable to the exercise of the initiative power which the local government refuses to perform, and misleading “impartial” ballot titles and/or summaries prepared by a local government that necessitate legal action to bring the title and summary into compliance with impartiality requirements under California law.

If one or more local government bad conduct events specified in a local Proposition 218 initiative were to occur, the magnitude of the levy reduction would be increased by a specified factor as set forth in the initiative. For example, a utility users tax rate could be reduced from 8% to 5% under the regular terms of the initiative, but the tax rate could be reduced by an additional amount to 2% (from 8% to 2%) if a local government bad conduct event were to occur. If multiple local government bad conduct events were to occur, the measure could provide for the repeal of the utility users tax.

A tie-in initiative associated with local government bad conduct events can also be incorporated into a Proposition 218 compensatory initiative (a compensatory tie-in hybrid initiative). As an example, suppose a local initiative under Proposition 218 is pursued to reduce or repeal a local government utility fee and the local government subsequently sues the initiative proponents to prevent the ballot initiative from proceeding or seeks to invalidate the initiative. As a potential legislative remedy, the initiative proponents could file a compensatory initiative providing for the reduction or repeal of a utility users tax imposed by the local government with a tie-in to local bad conduct events associated with the utility fee reduction or repeal initiative that was previously filed. The practical effect of this approach is that the local government could be facing a substantial loss of utility user tax revenues if it continues with its bad conduct in connection with the utility fee reduction or repeal initiative. If the local government were to subsequently act more responsibly in connection with the utility fee reduction or repeal initiative (such as dropping a lawsuit and allowing the measure to proceed to the ballot if sufficient signatures are obtained), the loss of utility user tax revenues would be minimal.

Use of a tie-in initiative to tie the magnitude of a levy reduction to local government bad conduct events serves as a mechanism to discourage a local government from engaging in the specified bad conduct events and to provide accountability in the event the local government does engage in one or more bad conduct events. Furthermore, if a local government engages in one or more bad conduct events, this will likely anger a significant segment of the voters which will increase the likelihood of the initiative measure being approved by the voters when it does appear on the ballot.

Pure vs. Mixed Local Initiatives Under Proposition 218

Local initiative measures under Proposition 218 can be categorized as either “pure” or “mixed.”

Pure Local Initiatives

A “pure” initiative under Proposition 218 contains subject matter exclusively within the scope of the initiative power thereunder. Such initiatives provide for the reduction or repeal of a local tax, assessment, fee or charge, and generally contain no other substantive provisions. With a pure initiative, the legal authority to exercise that power is derived from the constitutional provisions of Proposition 218 itself, and the initiative proponents may also take advantage of the significantly lower signature requirement.^[45]

Mixed Local Initiatives

A “mixed” initiative under Proposition 218 contains provisions that fall within the scope of the initiative power thereunder (i.e., the reduction or repeal of a local levy) and one or more other substantive provisions that fall outside the scope of the Proposition 218 local initiative power. Mixed initiatives present issues relating to the application of the lower signature requirement under Proposition 218 as well as the need for additional legal authority to pursue a local initiative containing provisions outside the scope of the Proposition 218 local initiative power.

The significantly reduced signature requirement for local initiatives under Proposition 218 only applies to the reduction or repeal of local government levies.^[46] Thus, if a local initiative contains one or more provisions outside the scope of the Proposition 218 initiative power, the lower signature requirement would not apply. Under such circumstances, the signature requirement would be the standard requirement applicable to the exercise of the initiative power in general within the local government. In most instances, the standard signature requirement will be significantly higher than the reduced signature requirement under Proposition 218.

The second issue presented with a mixed initiative is the need for legal authority independent of Proposition 218 to pursue a local initiative containing one or more provisions that are outside the scope of the Proposition 218 local initiative power. If such independent legal authority does not exist, the entire initiative measure can be invalidated. As a result, if a local initiative measure contains one or more provisions outside the scope of the local initiative power under Proposition 218, there must exist independent legal authority for those outside provisions.

The California Supreme Court in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (July 2006) addressed the foregoing issue in connection with a mixed initiative under Proposition 218.^[47] The Bighorn case involved the validity of a local initiative that would have reduced a local public water district’s charges for delivering domestic water to existing customers and that also would have required voter preapproval for any future increase in those charges or for the imposition of any new charge.

The California Supreme Court concluded in Bighorn that the local initiative power provision under Proposition 218 grants local voters the right to use the initiative power to reduce the rate that a public water district charges for domestic water. However, the California Supreme Court also concluded that the local initiative provision under Proposition 218 does not grant local voters a right to impose a voter-approval requirement on all future adjustments of water delivery charges and that no other independent legal authority for such a provision existed. As a result, the California Supreme Court invalidated the local initiative measure on that specific basis.^[48]

Because a mixed initiative presents additional and more complex legal issues compared to a pure initiative, it is usually preferable for local voters to pursue a pure initiative measure under Proposition 218.

Initiative Drafting and Qualification Issues

Significant legal and policy issues exist regarding the drafting and qualification of local initiatives under Proposition 218.

Assistance From Legal Counsel Usually Needed By Initiative Proponents

Due to the complexity of the procedural requirements applicable to the exercise of the local initiative power in California (which procedures vary depending upon the type of local government involved) as well as the substantive legal requirements applicable to the drafting of a local revenue reduction or repeal initiative measure under Proposition 218, the assistance of expert legal counsel is typically needed to draft an initiative measure as well as to properly guide the initiative proponents through the legal process.

Extensive Findings and Declarations Needed in Some Instances (Utility Fees and Charges)

Extensive findings and declarations language, with supporting foundations in the official record, are also generally necessary for certain reduction or repeal initiatives involving local government utility fees and charges, especially in situations where California laws may require the local governing body to levy utility fees and charges in sufficient amounts to maintain specified service levels to the community.^[49]

In situations where California law requires a local government to impose utility fees and charges in a sufficient amount to maintain specified service levels, the governing body of the local government will typically make numerous findings in support of any adopted utility fees and charges. These findings are generally supported by documentation included in the official record of the utility levy adoption proceedings. Courts will typically rely on such findings and the official record in any lawsuit relating to the adopted utility fee and charge, including a lawsuit relating to the exercise of the local initiative power under Proposition 218. This also applies in situations where a local government is obligated to impose utility fees and charges in a sufficient amount to meet its debt obligations.

Although the constitutional language of Proposition 218 does not expressly require a local initiative thereunder to include extensive findings and declarations (including a supporting basis in the official record),^[50] such findings and declarations are of practical necessity whenever the governing body of the local government has made specific findings in support of a local utility fee or charge increase. This is particularly the case where such findings are intended to support the local government’s position that a utility fee or charge increase is necessary in order to meet various requirements and obligations under California law.

Simply because the governing body of a local government makes findings in support of a utility fee or charge increase does not necessarily mean that those findings are valid in all respects. However, if those findings are left unchallenged by the public, and the local government includes a basis of support for its findings in the official record, the findings will generally be upheld by the courts in a lawsuit involving the utility fees and charges. This includes lawsuits relating to the exercise of the local initiative power under Proposition 218 which can result in the initiative measure being invalidated by the courts.

If a local initiative measure under Proposition 218 includes extensive findings and declarations relating to the reduction or repeal of a utility fee or charge subject to specified service levels mandated by California law, and if the local initiative measure is subsequently approved by the voters, then the findings and declarations of the people as set forth in the initiative measure should generally control for purposes of determining compliance with legal mandates related to specified utility service levels.

Prior to the passage of a local initiative measure under Proposition 218 providing for the reduction or repeal of local government utility fees or charges, the findings of the governing body of the local government relating to the necessity of imposing a utility fee or charge generally control. However, any potential loss of utility fund revenues would not occur until such time as the initiative measure is actually approved by the voters in an election. As a result, the presence of such findings by the governing body of the local government should not preclude the exercise of the local initiative power under Proposition 218 prior to the election on the measure.

If a local reduction or repeal initiative is approved by the voters, a loss of utility fee or charge revenues would generally occur. However, if the findings and declarations of the people as set forth in the initiative measure are now controlling, then violation of legal mandates related to the provision of local government utility services may not occur as a result of the findings and declarations by the people.

Supporting Basis for Findings and Declarations

To avoid possible invalidation of a local initiative measure under Proposition 218 providing for the reduction or repeal of a utility fee or charge subject to specified service levels mandated by California law, any findings and declarations in the initiative generally must have a supporting basis. That supporting basis usually comes from documentation in the official record of the utility fee adoption proceedings by the governing body of the local government. Thus, voters contemplating a local initiative measure under Proposition 218 in such instances generally need to include their documentation in the official record of the utility fee adoption proceedings to counter any documentation included in the official record by the governing body of the local government.

A Compensatory Initiative as an Alternative Option

If a supporting basis in the official record cannot be adequately provided by voters, then a compensatory initiative under Proposition 218, which targets alternative revenue sources for reduction or repeal, is an available option.

Potential Inadvertent Tax Increases

A local initiative under Proposition 218 could result in an inadvertent tax increase under Proposition 26 which was approved by California voters in 2010. Proposition 26 included a specific (and generally more expansive) constitutional definition of a “tax” for purposes of the voter approval requirements under Proposition 218.^[51]

Under certain circumstances, a levy reduction or repeal could result in some persons paying a higher levy amount which could constitute a tax under Proposition 26 and be deemed a tax increase for purposes of the voter approval requirements under Proposition 218.^[52]

Inadvertent tax increases can have significant consequences affecting the legal validity of a local initiative measure. First, the levy would likely be outside the scope of the local initiative power under Proposition 218 which only applies to the reduction of repeal of local government levies.^[53] This means that the significantly lower signature requirement thereunder would not apply and legal authority to exercise the local initiative power in such instances must come from a source independent of Proposition 218. Second, a supermajority vote requirement (two-thirds voter approval) would apply if the tax is deemed a special tax under Proposition 218.^[54]

Consequences of Failure to Comply With Legal Requirements

A local initiative under Proposition 218 can be denied placement on the ballot or subsequently invalidated by the courts if all legal requirements, including procedural requirements applicable to the exercise of the local initiative power, are not completely followed by the initiative proponents. Local governments have generally been hostile to voters exercising the local initiative power under Proposition 218 which is another reason why it is important for the proponents of any such initiative to comply with all applicable legal requirements.

The Howard Jarvis Taxpayers Association has released a general publication to assist voters in repealing or reducing existing city taxes using the local initiative power under Proposition 218.^[55]

Initiative Timetable Requires Flexibility

The process of qualifying a local initiative under Proposition 218 typically involves multiple moving elements relating to legal requirements, local government hostility, political considerations, signature gathering, and organizational factors. Some of these elements are outside the control of initiative proponents.

Initiative proponents generally need to be flexible in developing their timetable for exercising the local initiative power under Proposition 218. Not all elements applicable to the exercise of the initiative power will necessarily go according to schedule and there will often be delays. In addition, if a local government is hostile to an initiative proposal, delay tactics on the part of the local government can be expected and need to be factored in by initiative proponents.

Need for Flexibility in Initiative Language

The actual language of a local initiative measure itself should also be flexible, particularly as it relates to the effective and operative dates of the initiative. Delay tactics by a hostile local government, including legal challenges, can sometimes result in a significant delay in an initiative appearing on the ballot. The language of an initiative needs to be flexible enough to address such scenarios so that if the initiative were to be approved by the voters any resulting delays in ballot qualification will not adversely impact the substantive provisions of the measure.

Operative Date Flexibility

The preceding is especially important because if a local initiative under Proposition 218 has an operative date that ends up being either retroactive or affecting the current fiscal year budget, it could be deemed an unlawful referendum and not a proper exercise of the initiative power.^[56] This scenario can materialize in situations where there is a significant delay in an initiative appearing on the ballot beyond the election date anticipated by the initiative proponents. The issue can generally be addressed by setting the operative date for a local government revenue reduction or repeal initiative as the first day of the next (or any subsequent) fiscal year following the date in which the local initiative actually appears on the ballot.

Lawsuits Involving Local Proposition 218 Initiatives

Opposition from the majority of the governing body of a local government facing a local reduction or repeal initiative under Proposition 218 is almost universal. Local government opposition must generally be assumed by initiative proponents in planning their initiative timetable.

It is a common tactic for a hostile local government to file a lawsuit to prevent a local initiative under Proposition 218 from appearing on the ballot. It is also becoming more common for a local government to refuse to issue a ballot title and summary (which initiative proponents must obtain prior to circulating initiative petitions) and then file a lawsuit seeking to invalidate an initiative at the earliest stage of the initiative process. Local government lawsuits particularly occur with respect to local initiatives that propose to reduce or repeal utility fees and charges for domestic water or sanitary sewer services provided by a local government.

The local government typically alleges that any such initiative would have a major adverse financial impact, and in some cases, state statutory law supposedly precludes local voters from exercising the initiative power under Proposition 218.

The timetable for initiative proponents must also be flexible enough to incorporate any likely delays which will result from any legal action by a hostile local government to thwart the exercise of the local initiative power under Proposition 218. Initiative proponents must be ready for a significant political and likely legal battle against their local government once a decision is made to proceed with a local revenue reduction or repeal initiative under Proposition 218, especially if that measure involves the reduction or repeal of local government imposed utility fees and charges.

Preelection Lawsuits

It is now a common tactic for a hostile local government to file a lawsuit against the initiative proponents even before the issuance of the ballot title and summary (which must legally be included on initiative petitions) during the early stages of the initiative process. Such lawsuits have the practical effect of prohibiting the initiative proponents from gathering signatures to place their measure on the ballot (because of the absence of a ballot title and summary) which effectively precludes the proponents from exercising the local initiative power under Proposition 218 until at least such time as the local government lawsuit concerning the ballot title and summary has either been resolved by the courts or by the parties.

In many instances, the initiative proponents may also need to file a lawsuit against the local government to compel the local government to prepare and issue the ballot title and summary. This generally provides a speedier remedy for the initiative proponents since the local government has little incentive to expeditiously resolve any lawsuit that it files against the initiative proponents.

While preelection lawsuits typically allege major adverse financial impacts resulting from the exercise of the local initiative power under Proposition 218, the fact is that none of these impacts occur before any election on the initiative measure in the event the initiative qualifies for the ballot. No local government revenue reductions would occur by the mere issuance of a ballot title and summary before initiative petitions are circulated, or by the mere placement of a local Proposition 218 initiative on the ballot.

Similarly, no such revenue reductions occur if a local Proposition 218 initiative were rejected by the voters in an election actually held since the legal and financial issues associated with any revenue repeals or reductions would become moot.^[57] Only if a local Proposition 218 initiative were approved by the voters in an election actually held could local government revenue repeals or reductions possibly occur as a result of the substantive provisions contained in the initiative measure. Even then, the arguments by the local government in this situation are based on the assumption that the local government will do nothing in response to a passing local initiative under Proposition 218 which is rarely the case.

The California Supreme Court has set forth a “power-sharing arrangement” for dealing with the preceding situation where a significant local revenue reduction or repeal initiative under Proposition 218 is approved by local voters.^[58] This “power-sharing arrangement” seeks to balance the constitutional right of local voters under Proposition 218 to reduce or repeal any local government levy via the initiative power against the financial problems a local government may legitimately experience following the passage of a significant revenue reduction or repeal initiative, including setting forth options available to a local government to raise additional revenues. To the extent any additional revenues are raised by a local government, compliance with Proposition 218 and any other applicable legal requirements is necessary.^[59] This may also include a voter approval requirement if a local government proposes to amend or repeal a local revenue or reduction initiative approved by the voters.

Sometimes a local government may refuse to place a local Proposition 218 initiative on the ballot even though the required number of signatures has been obtained and certified. Once a local initiative measure has qualified for the ballot, the responsible local entity or official generally has a mandatory duty to place the initiative on the ballot.^[60] If the responsible local entity or official refuses to place the initiative on the ballot, this can force the initiative proponents to file a lawsuit to legally require the local government to place the initiative on the ballot. Even if such a lawsuit by the initiative proponents is successful, it often results in a delay in when the initiative measure eventually appears on the ballot which is often part of the strategy of a hostile local government. Initiative proponents generally need to incorporate this potential scenario in their timetable for pursuing a local initiative under Proposition 218.

Preelection lawsuits by voters may also be filed over other issues related to a local initiative under Proposition 218. Such lawsuits may include matters relating to the impartiality of the ballot label (the language that appears on the ballot itself), the ballot title and summary, the impartial analysis of the measure, or the ballot arguments that appear in the ballot pamphlet sent to voters. The ballot title and summary as well as the impartial analysis are generally prepared by the local government where issues relating to impartiality are likely to arise.

Postelection Lawsuits

A hostile local government is also likely to file a lawsuit against a local Proposition 218 initiative should it be approved by local voters in an election. Postelection lawsuits may also be filed by private interests such as those that may have opposed the initiative during the election campaign. The initiative proponents have to be prepared for any such lawsuits. This also places emphasis on the need for initiative proponents to ensure that their local initiative under Proposition 218 is drafted in compliance with all applicable legal requirements since violation of any provision of law could result in the invalidation of part or even all of a local revenue reduction or repeal initiative.

A postelection lawsuit by a local government against an approved local initiative under Proposition 218 also raises legal issues associated with the extent to which a local government has a legal duty to defend an initiative measure that has been duly approved by local voters. California courts have yet to clarify the scope of the local government duty to defend as it pertains to a ballot measure approved by voters using the local initiative power under Proposition 218.

Integrated Approach Using the Recall Power

If as a result of the actions of a hostile local government litigation is involved, the initiative proponents could pursue the local recall power to remove from elective office those local public officials frustrating the exercise of the local initiative power under Proposition 218.

Integrated Approach Using Compensatory Initiatives

Additional local initiatives under Proposition 218 to reduce or repeal other revenue sources of the local government can be pursued, including a compensatory initiative. An example involves targeting a local government utility users tax for reduction or repeal if a hostile local government is frustrating the exercise of the local initiative power under Proposition 218 to reduce or repeal utility fees and charges imposed by the local government.

California Anti-SLAPP Law

Those filing lawsuits relating to local initiatives under Proposition 218 also have to be aware of potential liability for attorney fees under the California Anti-SLAPP (Strategic Lawsuit Against Public Participation) Law.^[61] Some local governments have successfully used the California Anti-SLAPP Law to force individuals to pay attorney fees incurred by the local government in certain lawsuits.^[62] As a result of this potential liability, those considering legal action relating to a local initiative under Proposition 218 should discuss this issue with legal counsel before filing any lawsuit.

Lawsuits as a Ballot Campaign Issue

Even when local government lawsuits seeking to prevent a local initiative under Proposition 218 from appearing on the ballot are unsuccessful, they almost always result in significant delay which is often the real intent of the local government. When such initiatives do eventually appear on the ballot, any previous questionable conduct on the part of the local government during the initiative process, including any applicable lawsuits which also typically result in a significant waste of public funds paying for lawyers, can be a major campaign issue that increases the likelihood of the initiative measure being approved by the voters. Prior questionable conduct during the initiative process also affects the credibility and trustworthiness of local government officials in any arguments they may make in opposition to an initiative measure appearing on the ballot.

Validity of Local Initiative Power Under Proposition 218

Exercise of the local initiative power under Proposition 218 was generally confirmed and upheld by the California Supreme Court in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (July 2006).^[63] Although the California Supreme Court has yet to more precisely define the limits of the local initiative power under Proposition 218, the California Legislative Analyst has opined that, based on the actual constitutional language, the only limits appear to be those under federal law, such as the federal debt impairment clause.^[64]

Local Referendum Power Not Included

Section 3 of Article XIII C under Proposition 218 only applies to the initiative power and not to the referendum power which is a separate power under California law. The referendum is the power of the voters to approve or reject laws (or parts of laws) except urgency laws, laws calling elections, and laws providing for tax levies or appropriations for usual current expenses of government.^[65] The referendum power is generally exercisable in cities and counties in California,^[66] and may also be available for other local governments by statute.

The referendum issue becomes more significant with respect to local levies that do not require a mandatory election under Proposition 218 prior to their imposition. This is particularly the case concerning property-related fees and charges that are exempt from a mandatory election under Proposition 218.^[67] Such exempt fees and charges include property-related fees and charges for local utility services such as domestic water, sanitary sewer, and refuse collection.

Differences Between Initiative Power and Referendum Power

When a referendum petition qualifies for the ballot prior to the effective date of a local law, the local law is suspended pending reconsideration and repeal of the law by the local governing body or submission of the measure to the voters at an election. The local law does not become effective unless and until a majority of the voters approves it at a referendum election.^[68]

In contrast to a local referendum, a local initiative generally has no immediate impact on a local government. Passage of a local initiative which reduces or repeals an existing local revenue source will rarely affect the current budgetary process of a local government. In addition, under procedures applicable to the exercise of the local initiative power, local government officials have ample notice of the potential budgetary impacts of a local initiative well before the measure can become effective.^[69]

An Initiative Becoming the “Functional Equivalent” of a Referendum

The California Supreme Court has held that a local initiative which repeals taxes prospectively (i.e., one in which the repeal does not become effective until a subsequent fiscal year), is not the “functional equivalent” of a referendum.^[70] There remains an issue whether a local initiative under Proposition 218 that reduces or repeals a local government levy can nonetheless, under certain circumstances, become the “functional equivalent” of a referendum and thereby possibly be invalidated by the courts on that basis.

Until such time as the courts more clearly resolve this legal issue involving the exercise of the local initiative power under Proposition 218, the legally safer approach is to apply any local revenue reductions or repeals on a prospective basis. In other words, have the levy reduction or repeal become operative during the next or a subsequent fiscal year following its adoption by the voters.

This approach may also be preferable from a political perspective in addition to consideration of the legal issues involved. Voters within a particular local government may be more willing to approve the reduction or repeal of a local government levy if that reduction or repeal is applied on a prospective basis and does not impact the current year budget.

Legal Authority Independent of Proposition 218 Needed to Exercise Referendum Power

In order to exercise the referendum power with respect to a local levy approved by a local government, the legal authority to do so must come from a source independent of Proposition 218. This independent legal source is ordinarily a state statute but may also include a charter provision if a local levy approved by a charter city is involved. In addition, to the extent the referendum power is available, the applicable signature requirement is typically significantly higher and the referendum proponents will have a much shorter period of time to collect the required number of valid signatures compared to a local initiative under Proposition 218.

Local Initiatives After Proposition 218 Precondition Requirements Are Satisfied

Once Proposition 218 preconditions applicable to a local government levy have been legally satisfied, a local government may generally impose the local levy. Furthermore, once a local levy is actually imposed by a local government, Proposition 218 provides no mechanism to suspend the effective date of the local levy pending a subsequent vote of the electorate. What this means is that Proposition 218 does not provide for the referendum power to suspend an already approved local levy.

On the other hand, the local initiative power under Proposition 218 is generally available to reduce or repeal a local government levy that has already been imposed by a local government (i.e., an existing local government levy).^[71] This includes situations where Proposition 218 constitutional preconditions (e.g., prior voter approval for taxes or the majority protest process for property-related fees and charges) applied to the local government levy. As a practical matter, this means that a local levy will typically be in effect and imposed by a local government for a period of time (sometimes as long as a year or more) before local voters would have an opportunity to reduce or repeal that levy in an election utilizing the local initiative power under Proposition 218.

Application to Property-Related Fees and Charges Exempt From Election

The most common situation where exercise of the local initiative power under Proposition 218 is considered following local government compliance with Proposition 218 precondition requirements involves the approval of property-related fees and charges where only the majority protest process (with no election) is involved. This occurs with the approval of local government property-related fees and charges for domestic water, sanitary sewer, or refuse collection services since these property-related services are exempt from a property-related fee or charge election under Proposition 218.^[72]

Since the majority protest process for property-related fees and charges requires an absolute majority of property owners to protest,^[73] majority protests are generally difficult to attain even when significant property owner opposition is present. This is especially the case in large local government jurisdictions containing a large number of parcels.

If the governing body of a local government is not responsive to the objections of property owners concerning a proposed property-related fee or charge that is exempt from an election, local voters generally have recourse in the subsequent exercise of the local initiative power under Proposition 218. This is especially the case if significant opposition is present but the opposition level is not great enough to reach a majority protest which, if reached, would constitutionally preclude the imposition of the property-related fee or charge.^[74]

If no majority protest occurs with respect to an election exempt property-related fee or charge, the local government almost always imposes the levy and the levy goes into effect. If there is a subsequent exercise of the local initiative power under Proposition 218 to reduce or repeal that levy, the levy generally remains in effect throughout the initiative process and would only be subsequently reduced or repealed if an initiative measure qualifies for the ballot and is then approved by the local voters.

Amending or Repealing a Local Proposition 218 Initiative

A local initiative under Proposition 218 that has been approved by the voters of a local government may be subsequently amended or repealed by the voters. Under the initiative power in general, an initiative measure may be amended or repealed by a majority vote of the applicable electorate unless the initiative measure specifically allows for amendment or repeal without voter approval.^[75]

Replacement Revenue Sources Imposed by Local Governments

It is not uncommon for a local government to seek to replace revenues that are lost as a result of passage of an initiative under Proposition 218 that reduces or repeals a local government levy. In many instances, other provisions of Proposition 218 will require a mandatory election for any replacement revenue source. This includes a replacement tax (a new tax or a tax increase)^[76] or a replacement property-related fee or charge (a new or increased property-related fee or charge) subject to a mandatory election under Proposition 218.^[77]

It is also possible that voters may use the local initiative power to replace revenues lost as a result of a successful revenue reduction or repeal initiative under Proposition 218. The legal authority to exercise the local initiative power in this instance must come from a source independent of Proposition 218 and the lower initiative signature requirement set forth in Proposition 218 does not apply. This is because the local initiative power under Proposition 218, including the significantly reduced signature requirement thereunder, only applies to the reduction or repeal of local government levies and not to the imposition of new, increased, or extended local government levies such as a local initiative measure that seeks to increase taxes.^[78][79]

Replacement Revenue Sources Not Subject to Mandatory Election Under Proposition 218

Where significant controversy often arises is when a reduced or repealed revenue source is not subject to a mandatory election under Proposition 218 in the event a replacement revenue source is pursued by a local government. This occurs primarily in regard to property-related fees and charges exempt from a mandatory election under Proposition 218 (local government fees and charges for domestic water, sanitary sewer, and refuse collection services)^[80] and other local fees and charges that are not property-related under the provisions of Proposition 218. To the extent that a replacement fee or charge would be deemed a “tax” under the provisions of Proposition 26 approved by California voters in 2010,^[81] voter approval would be required for that tax under Proposition 218.^[82]

Initiative Amendment Issue

For a replacement revenue source not subject to a mandatory election under Proposition 218, a critical legal issue is whether the imposition of that replacement source would result in an amendment of the reduction or repeal local initiative measure. If an amendment of the reduction or repeal initiative is involved, then majority voter approval would be required for the amendment to become law. In this situation, the voter approval requirement results not from the provisions of Proposition 218 but rather from the separate legal requirement that the amendment or repeal of an initiative measure generally requires majority voter approval for the amendment or repeal provision to become law.^[83]

By way of an example, if voters were to approve a local initiative under Proposition 218 that reduced the water rates charged by a local government, the governing body of the local government would need majority voter approval before it could increase the water rates that had been reduced by the reduction initiative.^[84]

On the other hand, the governing body of the local government would not need voter approval to increase a fee or charge that was not affected by a reduction or repeal initiative under Proposition 218 or to impose an entirely new fee or charge.^[85] The reason is that an amendment of the reduction or repeal initiative is not implicated in the foregoing situations.

In some instances, there exists reasonable uncertainty whether a replacement revenue source constitutes an amendment of a successful reduction or repeal initiative under Proposition 218. The governing body of a local government will typically seek to structure a replacement revenue source in such a manner as to avoid the replacement levy being categorized as an initiative amendment, and thereby avoid the voter approval requirement applicable to initiative amendments. On the other hand, the reduction or repeal initiative proponents will generally have a broad interpretation of the types of replacement levies that constitute an amendment of their initiative measure. If a resolution of the initiative amendment issue in regard to the imposition of a replacement revenue source cannot be attained, then litigation over the issue usually occurs.

Drafting Local Initiatives With Future Amendments in Mind

The proponents of a local initiative under Proposition 218 to reduce or repeal a local revenue source need to take into consideration the foregoing amendment issue in drafting the provisions of their initiative measure. The initiative generally needs to be drafted in such a manner to make it more difficult for a local government to avoid any potential replacement revenue proposal from being categorized as an initiative amendment which would bypass the voter approval requirement applicable to initiative amendments.

This problem is more likely to occur if the scope of the reduction or repeal initiative measure is too narrowly drafted by the initiative proponents. Findings and declarations of a broader scope will also make it more difficult for a local government to avoid a replacement revenue proposal from being categorized as an initiative amendment. However, the preceding needs to be balanced against the fact that in some instances, due to legal and/or local political considerations, a local reduction or repeal initiative under Proposition 218 may need to be more narrowly drafted.

Initiatizing a Local Government Revenue Source

Initiatizing a local government revenue source occurs when voters pass a local reduction or repeal initiative measure under Proposition 218 thereby making any amendment applicable to the local revenue source contained in the initiative measure subject to voter approval. The voter approval requirement results not directly from Proposition 218 itself but rather from the separate legal requirement that an amendment or repeal of an initiative measure requires voter approval for the amendment or repeal provision to go into effect and become law.^[86]

Technically, the passage of any local reduction or repeal initiative measure under Proposition 218 results in the subject revenue source being initiatized. However, initiatizing a local government revenue source is more commonly used to refer to those initiatives under Proposition 218 where the primary purpose is to make any subsequent amendment of the initiative measure subject to voter approval. This effectively makes a future increase in the initiatized local government revenue source subject to voter approval even in situations where Proposition 218 does not constitutionally require an election.

Examples of Local Government Levies Appropriate for Initiatizing

The types of local government revenue sources for which voters might want to initiatize include those levies that are generally not subject to voter approval under Proposition 218. Such local levies include property-related fees and charges exempt from a mandatory election under Proposition 218 (property-related fees and charges for domestic water, sanitary sewer, or refuse collection services)^[87] as well as local government fees and charges that are not property-related under Proposition 218 and would not be deemed a “tax” under the constitutional provisions Proposition 26 approved by California voters in 2010.^[88]

Characteristics of Local Initiatives that Initiatize Local Revenue Sources

A local initiative under Proposition 218 that seeks to initiatize a local government revenue source typically provides for a nominal reduction so as to bring the initiative within the scope of the Proposition 218 initiative power, including providing the initiative proponents with the constitutional power to pursue such an initiative and the ability to take advantage of the significantly lower signature requirement under Proposition 218.^[89] The nominal reduction amount will also generally make the initiative measure more politically acceptable to voters and more likely to withstand legal scrutiny. This is especially the case if the local government revenue source is a property-related fee or charge.

If voters approve a local initiative that initiatizes a local government revenue source, voter approval would be subsequently required to increase the revenue that had been reduced by the local initiative under Proposition 218. As an example, suppose voters approved a local revenue initiative under Proposition 218 that reduced by a nominal amount certain water rates charged by a local government. The local government would then need voter approval before it could increase the water rates that had been reduced by the local revenue reduction initiative under Proposition 218.^[90]

Initiatizing a Local Revenue Source as a Proactive Approach

Initiatizing a local government revenue source represents a proactive approach that voters can use to protect against future increases in the targeted local revenue source. The governing body of a local government is not precluded from increasing an initiatized revenue source, but voter approval must first be secured before any increase can become effective. This will generally make the governing body of the local government more responsive to any concerns and objections raised by the public as well as require the local government to justify the need in an election for any increase in an initiatized revenue source.

Distinction Between Initiatizing a Local Revenue Source and a Voter Preapproval Requirement

The California Supreme Court has held that a local initiative under Proposition 218 cannot impose a requirement of voter preapproval for a future revenue source increase.^[91] The authority to do the foregoing must come from a legal source independent of Proposition 218. For many local governments in California, such a legal source does not exist.

The process of initiatizing a local revenue source is similar but legally distinct from incorporating a voter preapproval requirement for future local government revenue source increases. Of legal significance, the authority for subsequent voter approval to increase a revenue source that has been initiatized is derived from the legal requirement that voter approval is needed to amend a local initiative measure. However, the voter approval requirement would only apply to the initiatized local revenue source. The local government would not need voter approval to increase a local revenue source not affected by a local initiative under Proposition 218 or to impose an entirely new local levy.^[92]

Reinitiatizing a Local Government Revenue Source

California courts have yet to clarify under what circumstances would a local revenue source that has been initiatized pursuant to a local initiative under Proposition 218, and subsequently amended by the voters to increase the initiatized levy, be subject to voter approval for any additional modifications to the initiative that may occur in the future. Until such time as the California courts clarify the preceding issue, one option available to local voters is to reinitiatize a local revenue source.

As an example, suppose voters use the local initiative power under Proposition 218 to successfully initiatize a local revenue source. The local government subsequently places an amendment on the local ballot for voter approval that would increase an initiatized local levy. Following the approval of the amendment that increases the local levy, voters could again use the local initiative power under Proposition 218 to initiatize (i.e., reinitiatize) the local revenue source so that a future increase in the reinitiatized local levy would be subject to voter approval as an initiative amendment.

Opposition to Local Proposition 218 Initiatives

Local initiatives under Proposition 218 frequently face well organized and funded opposition, especially from local public employee unions and often from the local business community. Historically, local initiatives under Proposition 218 have tended to do better in local governments where voters are angry over a local levy and are in a “taxpayer revolt” mood.

Some of the most heated political and legal battles under Proposition 218 involve the exercise of the local initiative power to reduce or repeal local government levies. This occurs because while the other provisions of Proposition 218 generally involve processes associated with increasing local government revenues yet to be realized, the local initiative power under Proposition 218 involves the reduction or repeal of already existing revenue sources which can potentially have a more significant financial impact on a local government and those interests (such as public employee unions) that benefit from any revenues targeted for reduction or repeal.

Local Government “Informational” Campaigns in Initiative Elections

Although local governments are prohibited from spending public funds and resources to campaign against local initiatives under Proposition 218, they are allowed to expend public funds to engage in “informational” campaigns that “educate” voters about such initiatives.^[93] Local governments tend to be more aggressive in their “informational” campaigns when local revenue reduction or repeal initiatives are involved. When questionable or controversial “informational” campaigns occur by local governments in connection with a local initiative under Proposition 218, often the only practical remedy available to voters is to make such “informational” campaigns a significant political issue during the election campaign which can increase the chances of the local revenue reduction or repeal initiative measure being approved by the voters.

The Howard Jarvis Taxpayers Association has released information to assist taxpayers in stopping illegal campaign spending by a local government, including in connection with the exercise of the local initiative power under Proposition 218.^[94]

Availability of Local Government Data

It is often helpful for voters and initiative proponents to have financial data about a local government to help make more informed voting decisions concerning the merits of a local initiative under Proposition 218. Financial data about a local government can be obtained directly from the local government itself. Additional data that can be of value includes public employee salary and benefits data (especially pension and health benefits data), and annual budgetary and financial reports. Local government budget spending priorities, as contained in recent budgetary data, can be especially helpful with general tax reduction or repeal initiatives where local politicians decide how the proceeds from an existing general tax are spent.

Extensive public data sources outside of a local government are also available to voters in connection with local initiatives under Proposition 218. Such data can help provide a supporting basis for pursuing a local reduction or repeal initiative, including a foundation for any factual findings and declarations contained in a local initiative.

Application of Political Reform Act

Campaign reporting requirements under the California Political Reform Act of 1974^[95] usually apply to local initiatives under Proposition 218. This will generally give both the proponents and opponents of such initiative measures an opportunity to find out where the campaign contributions are coming from and the amounts of those campaign contributions. Additional information about the California Political Reform Act of 1974, including how to form a political action committee, can be obtained from the California Fair Political Practices Commission.^[96]

Local governments may also adopt additional campaign reporting requirements that apply to local ballot measures, including the local initiative power under Proposition 218. Initiative proponents need to check if any additional local campaign reporting requirements apply.

Local Recall Power as an Additional Tool

The recall power is the power of the voters to remove an elective officer before the term of that officer expires.^[97] Although Proposition 218 does not directly affect the recall power, local voters can nonetheless use the local recall power in conjunction with the exercise of the local initiative power under Proposition 218. This is especially the case if one or more members of the local governing body are frustrating the exercise of the local initiative power under Proposition 218 to reduce or repeal a local government levy such as by filing a lawsuit against the levy (before and/or after the election), by refusing to place an initiative on the ballot after having received the required number of signatures (which ordinarily requires the initiative proponents to file a lawsuit to get the initiative placed on the ballot), or by refusing to comply with an initiative after having been approved by local voters.

Impact of Potential Recall

Sometimes even just the credible threat of a recall can result in local elected officials acting more responsively to those exercising the local initiative power under Proposition 218. Although local government attorneys provide legal advice to a local government, it is the governing body of the local government that makes the ultimate decision about the filing of any lawsuits involving the exercise of the local initiative power under Proposition 218. These governing body members, if they are elected by the voters, are subject to recall and the prospect of facing a recall can impact their decision making process.

Impact of Successful Recall

The local recall power only applies to elective officers^[98] which generally applies to the governing body members of most local governments in California. In addition, even if a recall is successful, the recall process only provides for the removal of elective officers and does not by itself alter any prior decisions made by the governing body of the local government such as the approval of a controversial utility fee increase. The local initiative power under Proposition 218 is designed to address such matters involving prior decisions made by the governing body of the local government relating to the approval of controversial local levies.

The recall also does not directly affect the local initiative power process under Proposition 218. However, if one or more recalled elective officers are replaced by more sympathetic elective officers, this can help eliminate local governing body impediments to the lawful exercise of the local initiative power under Proposition 218.

Holding Politicians Accountable During the Next Governing Body Election

Even if a recall is not actually pursued by initiative proponents or other interested voters, the approval of one or more controversial levies by local elected politicians is a matter for which those elected government officials can be held politically accountable during the next scheduled election for members of the governing body. This is especially the case for controversial local levies that are not subject to a constitutionally required election under Proposition 218 such as local agency utility fees and charges for domestic water or sanitary sewer services.

If an impacted local politician decides to run for another term of office, then the prior approval of one or more controversial local levies often becomes a significant campaign issue during the upcoming election. It is during such governing body elections that incumbent local politicians are held politically accountable for their decisions on the governing body during their current term of office.

In the aftermath following approval of one or more controversial local levies, having new and more sympathetic members on the governing body of the local government can be beneficial. Such new governing body members are likely to be more receptive to either repealing or at least more beneficially modifying a controversial local levy to make it more acceptable to the community. If litigation against the local government was pursued following approval of one or more controversial local levies, new and more sympathetic governing body members are more likely to favorably settle any legal cases resulting in a more beneficial outcome for the community.

References

External links

• Understanding Proposition 218 from the California Legislative Analyst's Office