There is a lot of confusion about Proposition 26, and it is likely that the voters had no idea what they were actually voting on when they approved it 53-47% a few weeks ago.
In general, the measure converts local fees to taxes that require voter approval. The biggest impact will not even be directly on the public, but on fees imposed on various businesses in order to mitigate the impact of their products. Thus, environmentalists fear the loss of fees to mitigate the environmental impact of gasoline use, for instance. In another example, consumer advocates fear the loss of fees that would have gone to public education efforts to address the adverse consequences of alcohol and tobacco consumption.
The key to Proposition 26 is its definition and its exceptions. The measure defines tax: “‘Tax’ means any levy, charge, or exaction of any kind imposed by a local government, except the following…”
Writes attorney Michael Colantuono, “Seven exceptions to this sweeping definition are all that remain of local governments’ power to impose fees without voter approval.”
The first exception are fees “imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege.”
This, writes Mr. Colantuono, “should cover fees associated with planning and police permits, franchises, parking passes, and the like, provided that those fees are limited to cost of the permit program and the benefit or privilege “is not provided to those not charged.”
This sounds okay except as he points out, “If taken literally, this means that no one can be charged for a benefit or privilege if anyone gets it for free, thus prohibiting free passes for senior citizens and lower-income households.”
There are a number of problems that he identifies, but this provision alone has the chance to throw chaos into systems no one intended.
The second exception answers a question earlier – yes the City of Davis can impose new fees on water to cover capital improvement projects. These are covered under the category of fees ““imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.”
As Mr. Colantuono points out, this exception covers utility fees that are not already subject to Prop. 218, but also park and rec fees that are not admission or equipment rental fees, transit fees, emergency response fees, and a wide range of other government fees. Writes Colantuono, “We believe this exception will apply to such inter-governmental charges as booking fees, property tax administration fees, etc.”
Third are fees for issuing license and permits, investigation, inspections and audits, basically anything that involves “administrative enforcement and adjudication thereof.”
Fourth are those fees imposed to enter or use local government property or purchasing and renting local government property. Writes Mr. Colantuono, “Notably, this exception does not require the City to limit fees for use of its property to cost nor is this exception limited to real property. If the City makes personal property available for purchase or rental, it can charge whatever the market will bear.”
Fifth are for fines and penalties and other charges that result from the violation of the law.
Sixth is the exemption for fees that are imposed as condition of property development, meaning that planning and building fees will fall under this exemption and not be impacted.
Finally, it has no application to assessments related to fees already subject to Prop 218, and again this covers our water, sewer, and trash services.
From my read of this list of exceptions, it does not look like Proposition 26 is going to have a huge impact on local government. The bigger impacts will be at the state level and their inability to use fees as quasi-taxes and with environmental and consumer mitigations on large corporations, which is why those latter entities bankrolled this initiative.
Actually, from that standpoint it is pretty clever, as corporations were largely able to avoid the wrath of local government, harness the wrath of anti-tax voters angry at the vehicle license fee, and bootstrap their own protection measure into a package that was able to avoid detection long enough to be narrowly passed.
That is not to say there are not impacts to this law.
Writes Mr. Colantuono, the list of what is requiring voter approval as a result of Prop. 26 is short for now. He writes, “It includes mainly the kinds of fees authorized by the Sinclair Paint case, like the state’s fee on lead-containing products, the alcohol impacts fees some local governments have imposed to address nuisance behaviors near alcohol vendors, and some air pollution district fees. It also appears to prevent increases in the Fish & Game fees imposed on local governments to fund review of CEQA documents. It may also require rethinking of some 1989 Act (non-property-based) business improvement districts to separate services to the public from services to the assessed businesses.”
As we said, from a local government standpoint, the impact of Proposition 26 seems almost minimal. We will have to see how it plays out in the courts however.
—David M. Greenwald reporting
David,
You’re the only local media person who’ll take up thorny issues with a lot of thoughtful investigation. I thank you for that. However, this article about Prop 26 is far too sanguine.
I’ll think more on this topic because it’s really important and interesting. However, a quick Bing search turned up another opinion. On a quick read, the LA Times, 11/14,finds more negatives than neutral effects, differing opinions of its effect on AB 32 and a definite boon to attys. More later.
dmg: “It is likely that the source of the voter angst was the use of fees by the Legislature seeking to avoid the two-thirds approval required for taxes. Thus, actions to shift taxes on gas or impose vehicle license fees have generally been considered fees and thus not subject to two-thirds voter approval.”
The point of Prop 26 was to close the loophole that allowed politicians to impose a tax without the required two thirds majority vote – by simply renaming the tax a “fee”. Politicians never knew a tax dollar (OPM – other people’s money) they didn’t want to spend…
I agree with your reading of Prop 26 – that it will have no effect on local water/sewer rate increases.
“it is likely that the voters had no idea what they were actually voting on”
Given that they voted in Jerry Brown and a host of far left extremists across the state, I have to say you have a good case.
LOL…….Good point J.R.
“The point of Prop 26 was to close the loophole that allowed politicians to impose a tax without the required two thirds majority vote – by simply renaming the tax a “fee”. “
That was the hook, the point was to eliminate the regulatory function of imposing fees on companies for externalities associated with the cost of their doing business. Those were the authors and the main backers of the bill. They were able to win in part because they were able to encompass the issue you mentioned as well.
Mary: I understand your point but I decided to analyze Prop 26 from a very limited perspective and understand its impact on local government.
dmg: “That was the hook, the point was to eliminate the regulatory function of imposing fees on companies for externalities associated with the cost of their doing business.”
Eliminate the regulatory function of imposing fees, or just make sure it is not imposed unless there is a 2/3 majority?