City Council
MEETING DATE: 3/14/2018
TITLE:
Title
Resolution in Opposition to the Proposed Tax Fairness, Transparency and Accountability Act of 2018
End
FROM:
Charlie McClendon, City Manager
RECOMMENDATION:
Recommendation
Staff recommends the City Council approve a resolution confirming the Council's opposition to the proposed Tax Fairness, Transparency and Accountability Act of 2018.
Body
BACKGROUND:
The League of California Cities has raised concern recently related to a potential initiative that could dramatically change the requirements for the adoption of local tax measures. The initiative is currently called the Tax Fairness, Transparency and Accountability Act of 2018. It would apparently require a supermajority (minority rule) on any tax measure and could potentially affect rules governing the adoption of fees and also might affect the imposition of taxes in newly annexed areas. Council discussed the initiative during study session on February 28, 2018 and asked staff to prepare a resolution confirming Council's opposition to the initiative.
DISCUSSION:
The League of California Cities has identified the following troubling provisions in the proposed initiative:
Restricting Local Tax Authority:
a) Eliminates local authority to impose a tax for general purposes by majority vote and
instead requires all local proposed tax increases subject to a two-thirds vote. This
proposal also requires two-thirds approval of all members of the local legislative body
before a tax can be placed on the ballot.
b) Requires a two-thirds vote to “extend” a tax to new territory, a new class of payor, or
expanded base. For cities, this would limit all future annexations by requiring a
separate two-thirds vote of the affected residents prior to applying any existing city
tax. Other limitations may apply to a local interpretation that an existing local tax
applies to a business or product.
c) Expands the definition of a tax to include payments voluntarily made in exchange for a benefit received, which may cover local franchise fees.
d) Prohibits any tax to be placed on the ballot unless it either specifically identifies by binding and enforceable limitation how it can be spent, with any change requiring reapproval by the electorate, or states in a separate stand-alone segment of the ballot that the tax revenue is intended for “unrestricted revenue purposes.”
e) Requires tax measures to be consolidated with the regularly scheduled general election for members of the governing body, unless an emergency is declared by a unanimous vote of the governing body.
f) Expands the application of this act to include actions and “legal authority” that may be “enforced” or ‘”implemented” by a local government.
g) Requires a tax imposed by initiative to also be subject to a two-thirds vote, to address concerns over the Upland decision.
h) Clarifies a levy, charge, or exaction retained by and payable to a non-governmental entity is a tax, if the local agency limits in any way the use of the proceeds, to address concerns over the Schmeer decision.
i) Exempts existing school bond (55% vote) construction authority from the application of the bill.
Restricting Local Fee Authority:
Restricts the ability of a local government to impose fees or charges, other than those subject to Prop. 218, by:
a) Prohibiting a fee or charge from being imposed, increased or extended unless approved by two-thirds vote of the legislative body.
b) Authorizing a referendum on decisions of a legislative body to impose, increase or extend a fee or charge triggered by petitions signed by 5% of affected voters.
c) Requiring a fee or charge proposed by initiative to be subject to a two-thirds vote of the electorate.
d) Narrows the legal threshold from “reasonable” to “actual” costs for fees applied to local services, permits, licenses, etc. Further, the measure authorizes new avenues to challenge “actual” costs by enabling a payor to also second-guess in court whether they are “reasonable.” Opens up further litigation and debate by replacing the existing standard that fees and charges bear a “fair and reasonable relationship to the payors burdens and benefits” with a more rigorous “proportional to the costs created by the payor” standard.
e) Increases the legal burden of proof for local agencies from “preponderance of evidence” (more likely than not) to “clear and convincing evidence” (high probability) to establish that a levy, charge or other exaction is: (1) not a tax, (2) the amount is no more than necessary to cover the actual costs, and (3) the revenue is not being used for other than its stated purpose.
FISCAL IMPACT:
The initiative, if approved, would hinder the City's ability to raise revenues to provide services to the people of the City.
ATTACHMENTS:
Resolution
Analysis of the Initiative