DEFENDING TWO-THIRDS VOTER APPROVAL ON LOCAL SPECIAL TAXES
HJTA v. City and County of San Francisco, and All Interested Persons
Local special taxes require two-thirds voter approval under Propositions 13 and 218. However, the San Francisco Board of Supervisors declared that Proposition C, a gross receipts special tax on commercial rents, passed with only 50.87% voter approval at the June 2018 election. They did so relying on a city attorney memo from October 2017 that interpreted a California Supreme Court decision (California Cannabis Coalition v. City of Upland) to mean that special taxes proposed by initiative need only simple majority approval.
On August 3, 2018, HJTA — joined by the Building Owners and Managers Association of California, California Business Properties Association, and California Business Roundtable — filed a reverse validation action alleging that two-thirds approval was required by Propositions 13 and 218.
The City admits that a Supervisor was the proponent of the special tax measure and gathered the signatures to place it on the ballot. This City Supervisor had copied his Board-proposed tax into the citizens’ initiative petition format, and then continued using his public office to promote the measure and explain “the intent of the Board.” The City knew the two-thirds voter approval margin applied. It acknowledged it on a competing special tax proposal to fund homeless services. In fact, it styled the competing measure as the “same tax.”
In July 2019, the San Francisco Superior Court judge validated Proposition C, finding that California Cannabis applies and that it is normal for a Supervisor to sponsor a citizens’ initiative, even to this end. HJTA appealed. As of August 2020, this case is on appeal at the First District Court of Appeal. It is currently one of five cases statewide testing the two-thirds voter approval margin on a local special tax.
City of Fresno v. Fresno Building Healthy Communities
Fresno Building Healthy Communities v. City of Fresno
This is another one of the five cases challenging the two-thirds vote requirement. Fresno’s Measure P was a sales tax initiative on the November 2018 ballot that proposed a sales tax increase to provide extra funding for city parks and recreation programs. The measure received 52% voter approval. The City correctly declared it failed for lacking a two-thirds vote. Litigation ensued.
Following San Francisco’s line of thought, the initiative proponents argued that the two-thirds voter approval margin applies only to special taxes proposed by the governing body, not taxes proposed by a voter initiative. The City took a neutral position.
HJTA intervened and made a similar argument to the one made in the San Francisco matter: that the courts would create a huge loophole in the two-thirds vote protection if taxes proposed by initiative were exempt.
In September 2019, the Fresno Superior Court judge found the tax invalid. It declared correctly that the two-thirds voter approval margin applies to the voters regardless of who proposes the tax, in direct contrast to the judge in San Francisco.
The City remains neutral, but the proponent has appealed to the Fifth District Court of Appeal.
CHALLENGING WASTE OF TAXPAYER FUNDS
HJTA v. Chiang and the California Secure Choice Retirement Savings Program (AKA “CalSavers”)
The Legislature created a new state-run retirement savings program for private employees called “CalSavers.” The problem: CalSavers is expressly preempted by ERISA, the federal Employee Retirement Income Security Act of 1974. In other words, CalSavers is illegal under federal law because federal law has governed employment-based retirement savings for almost half a century. A short-lived Department of Labor regulation sought to authorize programs like CalSavers, but Congress repealed it in May 2017.
The California State Treasurer implemented CalSavers anyway and HJTA filed a federal court case arguing preemption. The State moved to dismiss, while the United States Department of Justice filed a “Statement of Interest” in September 2019, agreeing with HJTA that CalSavers is illegal.
So, what is the harm in a state creating its own retirement program? In short, the Treasurer’s office is wasting taxpayer money implementing something illegal and unnecessary. CalSavers is a byzantine high-risk system of Roth IRAs. Private employee funds are pooled with each other and can be pooled with existing public pensions. Anyone can open an IRA with their own automatic debits (at any bank in person, online or by telephone), so CalSavers meets a non-existent need. For employers large and small, CalSavers imposes liabilities, mandating employers to participate if they do not already have an ERISA retirement plan. But Congress designed ERISA to safeguard against all these risks through uniform federal law everyone could follow. CalSavers self-proclaims ERISA inapplicable on paper but writing it doesn’t make it so.
Judge Morrison England in the U.S. District Court for the Eastern District of California heard the case. He correctly found that the one federal regulatory safe harbor for IRA payroll deduction programs does not save CalSavers. This is mainly because CalSavers mandates employers to make automatic payroll deductions. Nevertheless, Judge England saw the CalSavers program as a simple employer mandate rather than the comprehensive retirement scheme that it is according to retirement experts and the United States government itself. He has twice granted the State’s motion to dismiss HJTA’s case.
HJTA appealed to the Ninth Circuit Court of Appeals. In June 2020, the DOJ filed an even more comprehensive brief to the Ninth Circuit in support of HJTA.
DEFENDING YOUR RIGHTS OF REFERENDA AND INITIATIVE
Wilde v. City of Dunsmuir
The California Constitution reserves the powers of initiative and referendum. When it comes to local water rates, voters have the right to propose their own rates via initiative. The question answered by this case was whether voters also have the right to challenge their agency’s rate increases on the ballot via referendum.
In March 2016, the City of Dunsmuir passed a resolution raising water rates to fund an extensive system upgrade. One resident, believing it to be unnecessary and unaffordable, gathered sufficient signatures to call for a referendum of the resolution. She followed all procedures, but the City refused to put her referendum on the ballot, claiming voters cannot referend water rates. She sued.
The trial court agreed with the City. The Third District Court of Appeal reversed, ruling in favor of ratepayers that fees for water and other utilities are within the people’s referendum power. When the City petitioned the California Supreme Court for review, HJTA took over as legal counsel for Ms. Wilde.
Unfortunately, the California Supreme Court decided against ratepayers in August 2020. It held that water rates must be deemed “tax levies” for purposes of Article II, section 9, of the California Constitution, which exempts “tax levies” from the people’s referendum power.
HJTA v. Amador Water Agency
Presaging Wilde v. City of Dunsmuir, this case began when local water customers reacted similarly to a significant hike in water rates by collecting signatures on a referendum petition.
When the clerk and the board of the Amador Water Agency (AWA) refused to process the referendum, HJTA sued asking the court for an order placing the referendum on the ballot. The trial court ruled against us. We appealed to the Third District Court of Appeal, the same court that decided the Wilde case in favor of ratepayers. However, the case was assigned to a different panel, which reached an opposite conclusion, finding that customers cannot referend a water rate increase.
HJTA petitioned the California Supreme Court for review and it was granted. Given the Supreme Court’s August 2020 decision against ratepayers in Wilde, however, a similar negative outcome is expected.
City of Oxnard v. Aaron Starr
Aaron Starr exercised his Proposition 218 initiative power by placing Measure M on his local ballot, proposing to repeal an exorbitant wastewater rate increase. The City first sued Aaron Starr to take Measure M off the ballot. The trial judge was not persuaded that the measure could imperil the City’s operations and refused to take Measure M off the ballot.
Measure M then passed by 73%! The City of Oxnard sued Aaron Starr again. It again attempted to prove that it really needed the rate increase. The trial judge was not persuaded. The City had already increased rates in 2012 and still had enough surplus to consider loaning some wastewater funds to the general fund due to COVID-19 in 2020.
Nevertheless, the City appealed the trial court’s decision to uphold Measure M, challenging its citizens’ general right of initiative under Proposition 218. HJTA submitted an amicus brief in support of Aaron Starr and the Proposition 218 initiative power to the Second District Court of Appeal.
CHALLENGING UNLIMITED CHARGES FOR BRIDGE CROSSINGS, TRASH SERVICE, and TELEPHONE SERVICE, aka “GOVERNMENT PROPERTY”
HJTA v. Bay Area Toll Authority, California State Legislature
HJTA filed an action against the Bay Area Toll Authority (BATA) and the State Legislature to invalidate Regional Measure 3 (RM3), a $3 toll increase on the seven state-owned Bay Area bridges that appeared on the June 2018 ballot in the nine Bay Area counties. BATA declared RM3 passed with 54% voter approval.
HJTA’s suit alleged that, because the revenue will be used to subsidize public transportation and other projects unrelated to bridge maintenance (i.e. BART, MUNI, ferries, Port of Oakland, and bicycle and pedestrian trails), RM3 needed two-thirds voter approval. Our complaint also challenged SB 595, the bill that authorized BATA to propose and implement the toll increase, because it did not receive two-thirds legislative approval. A similar suit was filed by Randall Whitney, in pro per, against the Metropolitan Transportation Commission (MTC).
MTC, BATA and the Legislature filed motions for judgment on the pleadings, arguing that the toll increase was imposed by the Legislature under a Proposition 26 exemption from the legislative vote requirement applicable to fees for entrance to or use of public property. In April 2019, the trial court granted the motions. Mr. Whitney asked HJTA to take over his representation, and we appealed both cases.
The Court of Appeal ruled against us in June 2020, affirming the trial court’s finding that the Legislature imposed the toll increase and that fees for entrance to or use of public property are not “taxes” that require two-thirds legislative approval under Proposition 26. HJTA filed a petition for review in the California Supreme Court on August 10.
Zolly v. City of Oakland
The City of Oakland has been charging hidden taxes in trash collection franchise fees. Plaintiffs in this case saw their bills rise by 80-155% as a result! A grand jury even found the franchise fees disproportionate and questioned whether they were the product of true arms-length negotiations. Nevertheless, the City of Oakland argues, as did the Bay Area Toll Authority regarding commuters crossing bridges to get to work, that it can charge any amount it “negotiates.” But franchise fees are unavoidably passed on to the ratepayers. The City of Oakland also argues that since the fees are only “passed on,” the ratepayers have no right to be heard in court.
HJTA filed an amicus brief supporting the ratepayers. The First District Court of Appeal found in favor of the ratepayers, concluding that ratepayers should be allowed to challenge the fees and that the City of Oakland may not charge any amount it wishes, but must be reasonable.
The City of Oakland did not give up there. It petitioned the California Supreme Court for review and review was granted. HJTA will continue to support the ratepayers.
In Re County Inmate Telephone Service Cases
While the State of California recently — and commendably — ended the practice of charging inmates and their families exorbitant fees for telephone calls, nine county governments still do so.
This case was a class action seeking to correct the nine counties’ continued practice of charging “commissions” to exclusive telephone service providers for calls made between inmates and their families. By charging these “commissions,” much like the trash service franchise fees in Zolly v. City of Oakland, the counties reap millions of dollars every year from the state’s lowest-income citizens for essential family communication, something known to be a factor in reducing recidivism rates as well. One fifteen-minute phone call costs an inmate or their family $5. This is an obviously artificially inflated price for a short phone call in the 21st Century. The counties reason that they own “government property” in the exclusivity of the telephone contracts and can charge any “negotiated” amount.
HJTA filed an amicus brief in support of the class action plaintiffs to the Second District Court of Appeal. Unfortunately, the court decided in favor of the counties. The class action plaintiffs petitioned the California Supreme Court for review, which, sadly, was denied. Please contact your local representative to urge change through the Legislature.
CHALLENGING PUBLICLY FUNDED CAMPAIGNS
HJTA v. County of Los Angeles
Represented by Bell, McAndrews, and Hiltachk, HJTA sought repayment to the public treasury of almost $1 million in taxpayer funds spent by the County of Los Angeles campaigning for Measure H on the March 2017 ballot, a ¼ cent sales tax increase. From January to March 2017, County officials spent this money on a comprehensive multi-media campaign telling voters to vote in favor of the tax increase.
The use of public funds for political advocacy is prohibited under the Political Reform Act of 1974 and a 1976 California Supreme Court decision. (Stanson v. Mott) Stanson said it is a “fundamental precept” of fair elections that the public treasury cannot “take sides.” This creates unfair advantage and violates the taxpayer’s First Amendment right against compelled speech.
HJTA had simultaneously filed a complaint with the Fair Political Practice Commission (FPPC) and supported the recent expansion of its authority over similar violations. Ultimately, in August 2020, the FPPC approved a settlement agreement of HJTA’s case in which the County of Los Angeles was fined $1.35 million. This is the largest fine ever imposed against any agency in California. Funds received by the Howard Jarvis Taxpayers Foundation are being used to establish and operate the Public Integrity Project. The Public Integrity Project will act as an enforcement mechanism for similar campaign funding violations across the state.
If you believe your local government, including a local school district, is planning to use your taxpayer dollars to take a side in a campaign, please see our sample letters you can use to put them on notice here. If you believe the spending is already under way, please supplement your letter with a Public Records Act Request using our sample request here.
HJTA v. Brown
Represented by Anthony Caso of the Chapman University Center for Constitutional Jurisprudence, HJTA and former State Senator and Judge Quentin Kopp sought a writ of mandate and a declaration that Senate Bill 1107 is invalid as a violation of the Political Reform Act (Act), which was enacted by voter initiative. SB 1107 would have allowed public funds to be used for political campaigning, which we alleged is expressly prohibited by the Act as amended by Proposition 73 in 1988. While the Act permits legislative amendments that “further the purposes of the Act,” we allege that SB 1107 is at cross-purposes with the Act and, therefore, needed voter approval.
The Attorney General answered our complaint, and a hearing was held on August 3, 2017. The Superior Court judge asked Mr. Caso and the Deputy Attorney General four questions about the power of the Legislature versus the long-standing initiatives that for decades have established no public financing of elections and a voter approval requirement to change that rule. The judge ruled for HJTA, invalidating SB 1107 and requiring the State to disregard it. The State appealed and lost in August 2019.
CHALLENGING PILOTS (PAYMENTS-IN-LIEU-OF-TAXES)
Citizens for Fair REU Rates v. City of Redding
This case challenged a city-owned electrical utility surcharge imposed on its ratepayers, known as a PILOT (payment in lieu of taxes), designed to capture the ad valorem property taxes that the utility would have had to pay if it were privately owned. PILOT revenue was transferred to the city’s general fund. The city did not codify the PILOT. Rather, it was a line item in the municipal budget passed by the city council biennially. The Third District Court of Appeal rendered a decision in favor of the ratepayers that is perfectly in line with our Roseville, Fresno, and La Habra cases. It found that the PILOT was a tax under Proposition 26 necessitating two-thirds voter approval.
Unfortunately, the California Supreme Court agreed to review. This is one of several cases that were correctly decided, but that the California Supreme Court was poised to overturn. HJTA filed an amicus brief in support of the ratepayers in August 2016. Although the Supreme Court reversed the Court of Appeal’s decision, as we expected, we breathed a sigh of relief that it did no damage to Proposition 26. It held that the PILOT was not a tax because the utility had more than enough non-rate revenue to cover it, and thus its charges were not necessarily passed through to and imposed on ratepayers.
CHALLENGING ILLEGAL SALES TAXES
McClain v. Sav-on Drugs
Diabetics need insulin and supplies to test their insulin levels several times a day to live. Since 2000, by a statutorily authorized regulation, they are not to be charged sales tax on these supplies. But, sadly, they have been so charged and the State has been content to keep tens of millions of dollars in improperly charged sales tax.
By a quirky California law, sales taxes are technically paid by the retailer, not the customer. The retailer takes “reimbursement” from customers at the cash register, but the retailer is the legal taxpayer. That means the retailer is the only one who can take the State to court to challenge a sales tax. But retailers have no incentive to get involved in fixing this problem. They have a statutory “safe harbor” from liability once they remit the funds.
The California Supreme Court had recently decided a similar case about coffee sales at Target, and in that case even the Attorney General stated the obvious under our quirky law: the customer needs a remedy.
We filed a letter in support of the petition for review. The Supreme Court granted review, and we filed an amicus brief in support of the diabetic plaintiffs. Unfortunately, the Supreme Court sided with the Department of Tax and Fee Administration, finding that the diabetics still cannot challenge the sales tax. Please contact your local representative to urge change through the Legislature.
CHALLENGING WATER RATE STRUCTURES
Plantier v. Ramona Municipal Water District
Ramona Municipal Water District uses a non-volumetric EDU (equivalent dwelling unit) billing methodology for sewer services. A taxpayer made the case in court that such a method does not comply with Proposition 218’s proportionality requirement. The trial court found the suit barred on the ground that the plaintiff failed to exhaust administrative remedies. The water district’s argument had been that, under Proposition 218 itself, before a ratepayer can make a case about proportionality, they must have participated at the most recent public hearing for a rate increase and must have submitted a written protest at that hearing.
HJTA filed an amicus brief to argue that nonparticipation in the most recent protest proceeding for a rate increase should not bar a ratepayer from challenging the rate structure. If a rate structure is challenged as unconstitutionally disproportionate, it does not matter whether the rates were recently raised. The structure was not necessarily considered. The purpose of the exhaustion doctrine is not served by such a requirement, nor does Proposition 218 impose such a condition on access to judicial review.
The Fourth District Court of Appeal ruled for the taxpayer in a published decision, finding no special exhaustion requirement in Proposition 218. Footnote 3 of the opinion stated, “We found the amicus brief of Howard Jarvis Taxpayers Association — the author and principal sponsor of Proposition 218 — particularly useful in resolving this case.” The Ramona Municipal Water District petitioned the California Supreme Court for review and it was granted. HJTA filed an amicus brief in support of the Court of Appeal’s well-reasoned decision. HJTA also appeared at oral argument with the plaintiffs. The Supreme Court unanimously affirmed the decision in favor of ratepayers in June 2019, finding that submitting a protest at the latest hearing wouldn’t and couldn’t have helped anyone. The fact that there was a rate increase hearing not long before Mr. Plantier filed his claim about the rate structure being disproportionate was “purely coincidental.”
In addition to our own cases, HJTA regularly files amicus curiae briefs (“friend of the court” briefs) in cases brought by others where we have determined that the case could affect taxpayer rights. Courts have often expressed appreciation for our perspective, and the contribution that our legal analysis adds to the case.