Local Tax Conflict Heats Up

For decades, it’s been an article of political faith – as well as law – that local government taxes designated for particular purposes require two-thirds approval by voters.

The supermajority vote provision was created by Proposition 13, California’s famous – or infamous – property tax limit measure, passed by voters in 1978, and later bolstered by another initiative, Proposition 218.

Two years ago, however, the state Supreme Court seemingly carved out a way for local governments to sidestep that law. It implied, in ruling on a Southern California marijuana case, that if special purpose tax measures are placed on the ballot by initiative petition, rather than by the local governments themselves, the two-thirds vote threshold might not apply.

Ever since, those who want to raise local taxes have yearned to learn whether the Supreme Court really meant to make an exception and, not surprisingly, San Francisco’s very liberal city government, acting on the advice of City Attorney Dennis Herrera, volunteered to become the legal guinea pig.

Members of the city’s governing body, its Board of Supervisors, personally sponsored two tax increase initiatives last year, one for the June election and another in November, both listed on the ballot as “Proposition C.”

The June measure, a tax on commercial rents to finance early childhood education and child care services, received 51 percent voter support. The November proposal, a tax on businesses to finance services and housing for the homeless, garnered 61 percent voter support.

With both votes below two-thirds, opponents of the measures sued, contending that they were invalid. The city began collecting the taxes, but not spending them, while the legal battle raged.

Last week, San Francisco Superior Court Judge Ethan Schulman agreed with Herrera and validated both taxes. However, he doesn’t have the last word. Business and anti-tax groups, such as the Howard Jarvis Taxpayers Association, vowed “an immediate appeal” and the issue is clearly headed to the state Supreme Court for a definitive ruling.

A third San Francisco tax measure, also placed by initiative petition and receiving a simple majority approval from voters in 2018, is also being contested. Proposition G imposes a new “parcel tax” on homes and other real estate to increase teacher pay.

Were the state’s highest court to convert its 2017 implication into declarative law, it would almost completely change the dynamics of local tax battles.

Rather than propose special purpose taxes directly, local officials and their political allies, especially public employee unions, could do it via initiative petition and completely bypass the long-standing supermajority vote requirement.

There is, however, another wrinkle to the situation.

Last year, as the San Francisco tax measures were being challenged, the state Supreme Court issued another decision that could affect the eventual outcome.

It declared that when former San Diego Mayor Jerry Sanders sponsored a 2012 ballot measure to reform city pensions, he was acting in an official capacity, not as a private citizen, and therefore was legally obligated to “meet and confer” with unions on something that affected their members’ compensation.

Logically, if Sanders was under that legal obligation as an official while sponsoring a ballot measure, then members of the San Francisco Board of Supervisors also were acting officially, and not as ordinary citizens, when they sponsored their tax measures. If so, their measures probably should have been subject to the supermajority rule.

It will be interesting to see how the court balances one ruling with the other, if it can, with financial stakes astronomically high in the outcome.

This article was originally published by CalMatters.org

Measure EE tax hike for LAUSD fails

A proposed parcel tax ballot measure that would have created a new stream of local funding for the Los Angeles Unified School District went down to defeat at the hands of voters late Tuesday, even as its supporters acknowledged it had an “uphill battle” from the beginning.

With all precincts reporting following the day’s special election, 54.32% of the electorate —165,294 voters — said no to Measure EE, and 139,027 — 45.68% — said yes, a far cry from the required two-thirds majority of voters need to pass the controversial measure. As the only item on the ballot in most parts of the massive district, low turnout was anticipated.

A total of 304,321 voters cast ballots for or against Measure EE in Tuesday’s election.

The district placed this parcel tax on the ballot — an annual charge of 16 cents per square foot of developed property — to help pay for a labor contract agreement reached with striking teachers and ease its financial burden due to ballooning pension costs and declining student enrollment.

The campaign was quickly launched in the wake of a high-profile strike in January, as district leaders hoped to capitalize on public support for picketing teachers. …

Click here to read the full article from the LA Daily News

Two tax hikes for schools could end up on California’s 2020 ballot

Though it’s never a sure bet that California voters will sign off on a tax increase, the odds improve when the money is promised to schools. Less clear, though, is what happens if two school tax measures are on the same ballot — now a distinct possibility for next year’s statewide election.

Asking voters to weigh in on how to pay for education is hardly new, from the creation of the California Lottery in 1984 to the 1988 ballot measure that created strict constitutional funding formulas. A nonpartisan statewide poll released last month found that 59% of likely voters believe current public school funding isn’t sufficient. And while K-12 education is getting more money than ever before, a variety of long-term problems have left many California school districts in financial distress.

With that in mind, the California School Boards Assn. is strongly hinting it may draft a November 2020 ballot measure asking voters to impose $11 billion in new taxes for schools — specifically, a tax hike on corporate income over $1 million and on personal incomes above $1 million. A CSBA spokesman said additional details of the proposed taxes are still being hashed out. …

Click here to read the full article from the L.A. Times

Use $21 Billion Surplus Instead of Taxing Californians More

California has a record $21.5 billion surplus.

That’s the good news. The bad news is that we have all that money because you are being overtaxed.

Earlier this month, Gov. Gavin Newsom released his revised budget proposal, the largest in California history.

At a staggering $214 billion dollars, the budget is larger than that of most nations and every other state.

The budget also includes a new $140 million tax on water customers to help all Californians have access to clean water.

Clean water is important, and there are a million people in the Central Valley without access to it. But do we need a new tax to pay for it?  Maybe we don’t.

To read the entire column, please click here.

Guns, gas and soda – most California tax proposals died at the Capitol, but a few remain

California lawmakers this year put forward new tax proposals that would have hit soda drinkers, bankers and gun owners  not to mention anyone with a car.

Most of those proposals died this week in a major culling of bills, leaving only a handful of tax measures in place.

Some of them died before they reached the Senate and Assembly Appropriations Committees, while others were pulled by their authors. The remaining were left to consideration on Thursday by the two checkpoint committees that decide which bills can move forward this legislative session. …

Click here to read the full article from the Sacramento Bee

California is reviewing 23,500 state tax refunds it paid too soon

California erroneously sent refunds to 23,500 taxpayers last month, according to an announcement Tuesday from the state’s Franchise Tax Board.

The department responsible for collecting state personal income and corporate income taxes said a “system error” from March 8 to March 11 caused it to issue refunds to people without first verifying the amount of money people claimed was automatically taken out of their paycheck.

As a result, as many as 23,500 Californians might have their income tax returns adjusted, though the board said the vast majority aren’t expected to change.

The FTB said it will spend the next few weeks reviewing all of the affected accounts. …

Click here to read the full article from the Fresno Bee

A crackdown on misuse of taxpayer money?


TaxesAs documented in this space on several occasions, local government officials throughout California have been thumbing their noses at a state law that prohibits them from using taxpayer funds for political campaigns.

Officials in cities, counties, school districts and special purpose districts routinely hire campaign management firms, often with multi-million-dollar fees, to manage every stage of their ballot measures seeking voter approval of new taxes or new bond issues (which require new taxes to service).

The consulting firms conduct polling of local voters and then draft the ballot measures to conform to what those polls indicate voters would find acceptable. The political pros then design campaigns for the measures, under the guise of “education,” to persuade voters to approve them.

Typically, the “education” campaigns are misleading, promising that the proceeds of the taxes and bonds will be used for popular facilities and services, such as police and fire protection or parks, while ignoring the underlying real reasons, such as to cover rapidly increasing employee pension and health care costs.

The consultants often boast of their high passage rates, and with good reason, because most of the carefully crafted and marketed measures do, in fact, win voter approval.

The practice is, as mentioned earlier, illegal. A specific state law prohibits it. But it continues unabated because local prosecutors, who sometimes share in the proceeds of the measures, have consistently refused to pursue cases against their fellow politicians.

Lately and belatedly, the Fair Political Practices Commission (FPPC) has dived into the increasingly blatant misuse of taxpayer dollars, but it lacks the power to prosecute the miscreant officials. Rather, it has in some cases taken the indirect action of trying to compel the offending governments to file campaign donor reports.

Filing such reports would be tantamount to admitting that the law had been broken, so of course, local officials have dragged their feet on complying.

Local prosecutors appear to be adamant in turning a blind eye to this obvious law-breaking, so the FPPC is now asking the Legislature to give it the power to prosecute cases.

Assemblywoman Cristina Garcia, a Democrat from Bell Gardens, has introduced Assembly Bill 1306, which would give the FPPC the power to bring civil and administrative actions against those who misuse public funds.

“The rules should apply to everyone,” said Garcia, who’s been an outspoken advocate of political reform. “I’m all for giving the FPPC more teeth to bite down on those who misuse taxpayer resources.  It’s quite convenient that the campaign laws enforceable by the FPPC didn’t include public officials or public entities within our own government entities. The FPPC noticed this gap in their enforcement ability and this bill now sends a clear message that California won’t tolerate public agencies, or elected officials, spending taxpayer dollars on campaign activities.” 

“This bill simply holds those in power to the same standard we hold those who are not,” Garcia added.  “Government shouldn’t get a pass just because it makes the rules. Fair is fair and we must hold individuals, and entities, accountable by empowering our oversight entities to dole out more than a fix-it ticket fine. No one is above the law, including our government.”

What happens to Garcia’s bill as it winds its way through the Capitol will be very instructive. Logically, legislators should be willing to put some teeth into the law they enacted, but logic doesn’t always prevail in politics.

If lawmakers continue to let their counterparts in local government off the hook, they should be ashamed of themselves.

This article was originally published by CalMatters.org

California May Be Reaching the Point of ‘Taxuration’


taxesThe phenomenon of “taxuration” occurs when taxpayers are so saturated with new tax-hike proposals that they start to rebel. According to a new poll, taxuration may have finally arrived in California, if hasn’t been here already.

Last week, the Public Policy Institute of California released the findings of a survey showing that a majority of likely voters in the state aren’t very happy with the tax burdens they are forced to pay. Most Californians say the state’s tax system is unfair, which is a reversal from the same question asked in March 2017. More importantly, a solid majority of likely voters in California think they pay more taxes to state and local governments than they should.

While perception is often not correlated with reality, it appears that Californians have a fairly realistic understanding of the tax burden in the state relative to other states. According to the report, “The public’s perceptions are somewhat in line with fiscal facts: California’s state and local tax collections per capita in 2015 were 10th-highest in the nation,” citing the left leaning Tax Policy Center. Note that another think tank, the Tax Foundation, ranks California even higher in tax burden.

It shouldn’t be surprising to anyone paying attention that citizens are reaching the breaking point on tax hikes. Every day seems to bring a new big tax-hike proposal emanating from the state Capitol. Just one example that popped up this week was a proposal to bring back California’s estate tax, which was repealed by voters in 1982. Other tax-hike proposals in the mix include higher income tax rates, a water tax, a soda tax, sales tax on services and a so-called “carbon intensity” tax. (Don’t ask.)

To read the entire column, please click here.

Are Big Tax Increases Coming to California?


TaxesGavin Newsom’s election as governor and the expanded Democratic Party majorities in the Legislature have raised hopes in some quarters and fears in others that big tax increases may be on the horizon.

During his campaign for governor last year, Newsom pledged support for a variety of expensive public services, including universal health insurance coverage and universal pre-kindergarten care and education.

His initial budget offered only token appropriations for those and other items on his wish list, but were he to seriously pursue them, they would require tens of billions of dollars in new taxes each year.

Newsom has proposed a new tax on water to pay for cleaning up municipal water supplies in impoverished communities. Several other targeted taxes have also been introduced in the Legislature.

Meanwhile, an initiative has qualified for the 2020 ballot to undo some of Proposition 13’s property tax limits. The measure would create a “split roll,” removing the 2 percent annual cap on increases in assessed valuation for non-residential, non-agricultural commercial property, such as office building and shopping centers.

If passed, it would raise property taxes by perhaps $10 billion a year – a lot of money, certainly, but far short of what the most ambitious service expansions would need. However, the initial polling on the split-roll measure doesn’t bode well for its passage, and the commercial real estate industry has pledged to spend $100 million to defeat it.

The more likely avenue for big tax increases would be some version of tax reform, which Newsom has endorsed in principle.

However, it must contend with the simple fact that we Californians are, in the aggregate, already carrying one of the nation’s highest tax burdens and quite possibly the highest.

The Tax Foundation, a Washington-based organization that charts taxation trends, has California at No. 6 in state and local tax burden as a percentage of personal income, the most accepted method of comparison. It pegs Californians’ burden at 11 percent of personal income.

However, that’s based on 2012 data, so it is seven years out of date, and it does not include all forms of taxation.

A more up-to-date estimate is that California’s state and local governments collect about $325 billion a year in taxes, and that works out to 12.5 percent of personal income, estimated by the state as $2.6 trillion this year, thus putting us very near the top of the states.

So, assuming that Newsom and his fellow Democrats in the Legislature want a bigger tax bite to finance their expansionist ambitions, what form would it take?

Income taxes? They already supply 71 percent of the state’s general fund revenues, half of them are paid by the top 1 percent of taxpayers and California already has the nation’s highest marginal tax rate, 13.3 percent on incomes over $1 million.

Sales taxes? We’re at or near the top in those rates as well, 10 percent in many communities.

Property taxes? That would require not just a split roll for commercial property, but voter permission to virtually repeal Proposition 13’s protections for homes, which polling indicates would be close to impossible.

The real world effect of a big tax increase, moreover, would be magnified by new federal tax laws that sharply limit deductions for state and local taxes, raising the likelihood of a political backlash.

So are we going to see a big tax increase? However much Newsom, et al, might want it, the political lift would be daunting.

This article was originally published by CalMatters.org

California Voters Could Be Asked To Impose An Estate Tax

property taxCalifornia voters would consider a state-mandated tax on the assets of wealthy residents, one that could generate as much as $1 billion a year for low-income families, under legislation introduced in the state Legislature on Tuesday.

The bill would ask voters next year to impose an estate tax of a size equal to what was loosened in 2017 by President Trump and Republicans in Congress as part of a broad tax overhaul law. The goal, said the proposal’s author, is to create an overall tax burden for wealthy Californians equal to what existed before the federal tax break was created.

Under Senate Bill 378, the revenues from the tax would be earmarked for programs designed to combat income inequality.

“A California estate tax benefits low-income families by helping them build wealth and end the cycle of intergenerational poverty,” state Sen. Scott Wiener (D-San Francisco) said in a written statement. …

Click here to read the full article from the Los Angeles Times