On Dec. 17, 2020, the California Court of Appeal for the Fifth Appellate District ruled that the Fresno Clean and Safe Neighborhood Parks Tax Ordinance (Measure P) was valid and enforceable despite only being passed with a simple majority.1 The appellate court reversed the trial court and concluded that neither Proposition 13 (passed in 1978) nor Proposition 218 (passed in 1996) required a two-thirds supermajority because these provisions do not affect the voters’ initiative power.
Fresno voters passed Measure P with a 52.17% majority in November 2018 to impose a 0.375% transaction and use tax (i.e., a sales tax) for 30 years to improve city parks and playgrounds. On Dec. 18, 2018, the Fresno City Council declared that Measure P failed to pass because it had not received approval of two-thirds of the electorate. On Feb. 1, 2019, the city filed a complaint, naming Fresno Building Healthy Communities (FHBC) as defendant, requesting declaratory relief regarding the voter threshold required to pass Measure P. On the same day, FHBC filed a separate complaint naming the city as defendant and requesting declaratory relief that Measure P had been properly enacted, and that the city implement the tax. The Howard Jarvis Taxpayers Association (the Association) intervened in both actions, and filed a motion for summary judgment in the city’s action requesting that the measure was invalid because it did not receive a two-thirds supermajority vote. Challenging the validity of Measure P, the Association argued that Articles XIII A and XIII C of the California Constitution require approval of two-thirds of the electorate and this two-thirds requirement applies equally to voter ballot initiatives, including Measure P.
Due to the overlapping parties, facts, and legal issues, the two cases were consolidated.
Background on California’s voter initiative process
As background on California’s initiative power,2 the California Constitution was amended in 1911 to provide voters the power to adopt laws, through ballot initiatives receiving a majority vote. California voters have utilized this process for years to enact state and local legislative or constitutional changes, including Measure P.
California voters enacted Proposition 13 in 1978, which added Article XIII A (among other provisions) to California’s Constitution, which requires “that any special tax imposed by a local government entity be approved by two-thirds of the qualified electors.”3 The California Supreme Court has interpreted that the two-thirds requirement is not applicable to statewide voter initiatives.4
In 1996, California voters approved Proposition 218, which added Articles XIII C and D to the California Constitution. Article XIII C classifies all local taxes as a “general” or “special” tax, and requires that “[l]ocal governments may not impose, increase, or extend: (1) any general tax, unless approved by a majority vote at a general election; or (2) any special tax, unless approved by a two-thirds vote.”5 In California Cannabis Coalition v. City of Upland,6 the California Supreme Court interpreted the general tax restriction to apply to those put on the ballot by a “local government body,” which does not refer to voter initiatives.
Court of Appeal’s decision
On June 30, 2020, after FBHC had filed its opening brief, the First District Court of Appeal released its opinion in City & County of San Francisco v. All Persons Interested in the Matter of Proposition C.7 The Court of Appeal concluded that Proposition 13 and Proposition 218 did not apply to voter initiative power. The decision affirmed the trial court’s ruling that supermajority requirements are generally procedural limitations on legislative bodies that do not generally apply to the initiative power, absent evidence of a clear indication of intent to impose such a restriction.8
In accord with the decision in City & County of San Francisco v. All Persons Interested in the Matter of Proposition C,9 the Court of Appeal in City of Fresno v. Fresno Building Healthy Communities reversed the trial court, and held that neither Proposition 13 nor Proposition 218 required a two-thirds vote of the electorate for the passage of a voter-circulated ballot initiative, such as Measure P.
The Court of Appeal recognized the language of Article XIII A, section 4 of the California Constitution as being ambiguous in many respects, due to the silence of the voting requirements for ballot initiatives. Turning to “context” to interpret section 4, the Court interpreted the requirement that “cities, counties and special districts” impose special taxes by a two-thirds vote as inapplicable to the people of such districts exercising their initiative power. Based on this interpretation, the Court concluded that Proposition 13 did not repeal or abridge the people’s power to raise taxes by initiative and merely require a simple majority vote to pass such measures.
The Court then reviewed the trial court’s conclusion that Measure P was invalid under Article XIII C, section 2(d), as added by Proposition 218, which provides that “[n]o local government may impose, extend or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote.” Again, citing the decision on San Francisco’s Measure C, the Court stated that the First District “correctly arrived” at the conclusion that “local government” was not defined broadly enough to include the voting electorate.
Finally, the Court declined to address the Association’s hypothetical scenario that failing to impose a supermajority voting requirement on voter-circulated ballot initiatives would “create a playground for mischief . . . [where] local politicians who support a tax increase could qualify an initiative as private citizens and . . . could enact the measure without putting it on the ballot.” The Court explained that this policy argument should be addressed to the state legislature, due to its “limited function as a court is to construe the texts of Propositions 13 and 218 in the factual context presented here.”
On Sept. 9, 2020, the California Supreme Court denied the petition for review of City & County of San Francisco v. All Persons Interested in the Matter of Proposition C. More recently, the Court of Appeal upheld the validity of a San Francisco tax on certain commercial rents that was adopted via voter initiative in 2018, rejecting a challenge that such tax needed a two-thirds majority vote to pass.10 Therefore, absent subsequent intervention by the California Supreme Court, the Court of Appeal’s consistent line of decisions currently mean that the two-thirds voter approval requirements of Propositions 13 and 218 do not extend to local voter-circulated initiatives (as opposed to those put forth by the legislature or a city or county government).
Spurred by the COVID-19 pandemic, California’s legislature is projecting a material budget deficit beginning with the 2021-2022 state budget. As a result, many city and municipal governments may be forced to revisit their budgets with less guaranteed state-level support. Given this economic reality, the Court of Appeal’s decision in City of Fresno v. Fresno Building Healthy Communities coupled with the California Supreme Court’s reticence to hear recent similar cases could potentially embolden local action to raise revenue through the voter-circulated initiative process, where only a simple majority may be needed to pass local revenue-raising measures.
1 City of Fresno v. Fresno Building Healthy Communities, 59 Cal. App. 5th 220 (2020).
2 For a more detailed explanation of California’s ballot initiative process, see GT SALT Alert: California court affirms SF Prop C tax.
3 CAL. CONST. art. XIII A, § 4.
4 See Kennedy Wholesale, Inc. v. State Board of Equalization, 806 P.2d 1360 (Cal. 1991).
5 CAL. CONST. art. XIII C, § 2(b), (d).
6 401 P.3d 49 (Cal. 2017).
7 51 Cal. App. 5th 703 (2020).
9 For a more detailed review of City & County of San Francisco v. All Persons Interested in the Matter of Proposition C, see GT SALT Alert: California court affirms SF Prop C tax.
10 Howard Jarvis Taxpayers Association v. City and County of San Francisco, California Court of Appeal, First Appellate District, Division Five, No. A157983, Jan. 27, 2021.
Joshua “Josh” is a State and Local Tax (“SALT”) Principal in the San Francisco office of Grant Thornton LLP. Mr. Grossman specializes as a subject matter expert in California Corporation Income or Franchise Tax matters.
San Francisco, California
- Asset management
- State and local tax
Dana Lance is the Tax Practice Leader for the Greater Bay Area and the SALT Practice Leader for the West Region. Dana is based in San Jose, California.
San Jose, California
- Technology and telecommunications
- Transportation, logistics, warehousing and distribution
- State and local tax
Jamie C. Yesnowitz
Jamie Yesnowitz, principal serving as the State and Local Tax (SALT) leader within Grant Thornton's Washington National Tax Office, is a national technical resource for Grant Thornton's SALT practice. He has 22 years of broad-based SALT consulting experience at the national and practice office levels in large public accounting firms.
Washington DC, Washington DC
Explore our SALT insights
No Results Found. Please search again using different keywords and/or filters.