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 based 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 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 copied his Board-proposed tax into the citizens’ initiative petition format and continued using his position to promote the measure and explain “the intent of the Board.” The City acknowledged that the two-thirds voter approval margin applied on another special tax proposal to fund homeless services and then styled their “initiative” 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 perfectly normal for a Supervisor to sponsor a citizens’ initiative, even to this extent. HJTA appealed. The Court of Appeal affirmed. HJTA has petitioned the California Supreme Court for review.
City of Fresno v. Fresno Building Healthy Communities
Fresno Building Healthy Communities v. City of Fresno
Fresno’s Measure P was a November 2018 voter initiative for a sales tax increase to provide extra parks and recreation funding. It received 52% voter approval and the City correctly declared it failed without a two-thirds vote. Proponents took it to court, arguing, just as in San Francisco, that the two-thirds vote applies only to special taxes proposed by the governing body, not those proposed by a voter initiative.
The City took a neutral position so HJTA intervened, arguing that the courts would create a huge loophole in the two-thirds vote protection if taxes proposed by initiative were exempt. The Fresno Superior Court judge 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, and declared the tax invalid. The City remained neutral, but the proponent appealed to the Fifth District Court of Appeal, where the judgment was reversed. HJTA petitioned the California Supreme Court for review, but it declined to hear the case.
CHALLENGING WASTE OF TAXPAYER FUNDS
HJTA v. Chiang and the California Secure Choice Retirement Savings Program (AKA “CalSavers”)
The CA Legislature created “CalSavers” as a state-run retirement savings program for private employees, but there’s a problem: CalSavers is preempted (or made illegal) by ERISA, the federal Employee Retirement Income Security Act of 1974. Currently, anyone can easily save for retirement by opening their own IRA and enrolling in automatic debits. CalSavers appears similar in concept, but really it is a high-risk system of Roth IRAs that pools private employees’ funds together with existing public pensions. Additionally, CalSavers imposes liabilities on employers large and small, mandating participation if they do not already offer an ERISA retirement plan. Congress designed ERISA to safeguard against such risks under uniform federal law and even repealed a short-lived Department of Labor regulation sought to authorize CalSavers in 2017, rendering it and similar state programs illegal. However, CalSavers simply proclaimed itself exempt from ERISA and the California State Treasurer implemented CalSavers anyway, wasting taxpayer money on an illegal, dangerous, and unnecessary program.
HJTA filed a federal court case raising the critical preemption question, in which the United States Department of Justice filed a “Statement of Interest,” agreeing that CalSavers is illegal. Judge Morrison England in the U.S. District Court for the Eastern District of California 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 CalSavers 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 has appealed to the Ninth Circuit Court of Appeals and the DOJ filed an even more comprehensive brief with the Ninth Circuit in support of HJTA. The new Biden Administration instructed the DOJ to withdraw its participation just before oral argument, but that did not change the analysis submitted.
Coachella Valley Water District v. Superior Court, Randall C. Roberts, Real Party In Interest
Proposition 13 grandfathered certain ad valorem taxes pledged for the repayment of existing debts that were approved by voters before 1978. Under that provision, taxes paying for State Water Project obligations in effect in 1978 are grandfathered because voters approved the Burns-Porter Act in 1960.
In 2013, the Coachella Valley Water District enacted a $0.02 per $100 in value ad valorem tax increase without voter approval for the stated purpose of paying its SWP obligations. That would have been ok if it had made the necessity determination required by law for such increases, and if it had used the money to pay those obligations. But the district appears to have used the money to pay “groundwater replenishment taxes,” which are meant to subsidize groundwater use by large agricultural companies in the East Coachella Valley, including companies owned or represented by members of CVWD’s Board of Directors. So there are two problems: a tax increase that wasn’t really grandfathered under Proposition 13, and misuse of taxpayer funds.
Roberts filed suit to challenge the impropriety of the tax increase without a necessity determination and the subsequent misappropriation of funds slated for SWP obligations.
The water district made a procedural argument against Roberts’s case. It asked the court to dismiss it, saying that Roberts should have filed it in a different form called “reverse validation.” The trial court refused to dismiss, but the Court of Appeal agreed. In agreeing with the water district’s argument, the Court of Appeal extended existing law in a way that had not been done before. It thus should have at least made its new rule prospective and left Roberts’s case alone. Additionally, the taxpayer waste is a separate claim that should have continued in its own right.
Roberts has filed a petition for review to the Supreme Court. HJTA filed a letter in support. The narrow grandfathering exceptions to Proposition 13 should not be abused, and allegations of taxpayer waste should not be dismissed on unrelated procedural questions.
UPHOLDING VOTER APPROVAL ON BONDS AND THE BOUNDARY ON GRANDFATHERING PROPERTY TAXES UNDER PROPOSITION 13
CA Department of Water Resources v. All Persons
In August 2020, the State Department of Water Resources sought court approval to sell a series of revenue bonds to fund construction of a large tunnel to transport water to Central and Southern California from the Sacramento-San Joaquin Delta. Proposition 13 does not grandfather a property tax to repay these new bonds for this new project.
HJTA has no position on the wisdom of building the planned Delta Tunnel. We joined the suit to protect Proposition 13. The California Constitution requires statewide voter approval before the State may issue bonds, unless an existing stream of revenue is dedicated to repay the bonds. Water sales to water customers is one such stream of revenue.
HJTA wants to ensure that the State, through this case, does not seek court approval to raise property taxes as an additional or alternative method of repaying the bonds. HJTA’s concern is warranted because certain agencies have floated that idea in the past.
DEFENDING YOUR RIGHTS OF REFERENDA AND INITIATIVE
Wilde v. City of Dunsmuir
In March 2016, the City of Dunsmuir passed a resolution raising water rates to fund an extensive system upgrade. One resident, believing the project 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 that, while voters have a constitutional right to propose their own rates via initiative, they cannot referend water rates. She sued, setting up a case that would answer the question of whether voters can also challenge rate increases on the ballot via referendum.
The trial court agreed with the City, but 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 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
Predating Wilde v. City of Dunsmuir, this case began when local water customers reacted to a significant water rate hike 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 sought a court order placing the referendum on the ballot.
When the trial court ruled against us, we appealed to the Third District Court of Appeal, the same court that later decided the Wilde case in favor of ratepayers. However, the case went before a different panel, which found that customers cannot referend a water rate increase. HJTA petitioned the California Supreme Court for review and it was granted. Following the Supreme Court’s August 2020 decision against ratepayers in Wilde, however, it dismissed review.
City of Oxnard v. Aaron Starr
Aaron Starr exercised his Proposition 218 initiative power by collecting sufficient signatures to place 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. It then passed by 73%! The City of Oxnard sued Aaron Starr again, attempting to prove the same thing as before: that it 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’ Proposition 218 initiative right. HJTA submitted an amicus brief in support of Aaron Starr and the Proposition 218 initiative power to the Second District Court of Appeal. Sadly, the Court of Appeal reversed in favor of the City. That ruling is now final.
CHALLENGING UNLIMITED CHARGES FOR BRIDGE CROSSINGS, TRASH SERVICE, and TELEPHONE SERVICE, aka “GOVERNMENT PROPERTY”
HJTA v. Bay Area Toll Authority, California State Legislature (consolidated with) Whitney v. Metropolitan Transportation Commission
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 submitted to the nine Bay Area counties’ voters in June 2018. 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 argued that the toll increase was imposed by the Legislature under a Proposition 26 exemption for fees for entrance to or use of public property, meaning the Legislature did not have to pass it by two-thirds in each house and the voters did not have to pass it by two-thirds either. In April 2019, the trial court decided against us. Mr. Whitney asked HJTA to take over his representation and we then 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 petitioned the California Supreme Court for review. Review was granted, but briefing is suspended pending the outcome of Zolly v. City of Oakland (below), which presents a similar legal question that may decide this case as well.
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 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 concerning motorists crossing bridges, that it can charge any amount it “negotiates” with the waste haulers who pay the fees. Although franchise fees are ultimately paid by ratepayers, not the waste haulers the City of Oakland 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 their favor, 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 and instead petitioned the California Supreme Court for review. Review was granted and HJTA filed an amicus brief supporting the ratepayers in that Court as well. The case is fully briefed and awaits oral argument.
In Re County Inmate Telephone Service Cases
This case was a class action seeking to correct the continued practice of charging “commissions” to exclusive telephone service providers for inmate calls. 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. 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, which is also a known factor in reducing recidivism rates.
One fifteen-minute call costs an inmate or their family the obviously inflated price of $5. The counties reason that they can charge any “negotiated” amount as they own “government property” in the form of exclusive telephone contracts. HJTA filed an amicus brief in support of the plaintiffs’ appeal in the Second District Court of Appeal. Unfortunately, the Court decided for the counties and the plaintiffs’ petition for review was denied. We encourage you to contact your local representative to urge change through the Legislature.
CHALLENGING PUBLICLY FUNDED CAMPAIGNS
HJTA v. County of Los Angeles and the Public Integrity Project
From January to March 2017, Los Angeles County officials spent almost $1 million in taxpayer funds on a comprehensive multi-media campaign favoring Measure H, a ¼ cent sales tax increase, on the March 2017 ballot. 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 held that the public treasury cannot “take sides” as it creates an unfair advantage and violates the taxpayer’s First Amendment right against compelled speech.
Represented by Bell, McAndrews and Hiltachk, HJTA sued for repayment of these funds to the public treasury. HJTA also filed a complaint with the Fair Political Practice Commission (FPPC). Ultimately, in August 2020, the FPPC approved a settlement of HJTA’s case and fined LA County $1.35 million. This is the largest FPPC fine ever imposed against any agency in California history. Funds received by the Howard Jarvis Taxpayers Foundation helped 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 a local government agency or 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, or file a report with the FPPC AdWatch program here. If you believe the spending is already occurring, 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/Judge Quentin Kopp sought to invalidate Senate Bill 1107 as a violation of the Political Reform Act (Act). 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 alleged that SB 1107 was 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 to file supplemental briefs answering 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 replicate the ad valorem property tax that the utility would have had to pay if it were privately owned. PILOT revenue was transferred to the city’s general fund. The Third District Court of Appeal found for ratepayers in line with our Roseville, Fresno, and La Habra cases. It found that the PILOT was a tax under Proposition 26 needing two-thirds voter approval.
Unfortunately, the California Supreme Court agreed to review. HJTA filed an amicus brief supporting ratepayers in August 2016. Although the Supreme Court reversed the Court of Appeal 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 onto 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, charging sales tax on these supplies has been statutorily prohibited. But, sadly, they have been charged and the State has been content to keep tens of millions of dollars in improperly charged sales tax. Diabetic plaintiffs in this case sought to remedy the problem in court, but a quirky California law makes retailers the legal taxpayers who take “reimbursement” from customers at the register. This also means the retailers are the only ones who can challenge a sales tax in court, but they have a statutory “safe harbor” from liability once they remit the funds and thus lack incentive to do so.
Ironically, the California Supreme Court had recently decided a similar case concerning coffee sales at Target, in which even the Attorney General stated the obvious: the customer needs a remedy. HJTA filed a letter in support of plaintiffs’ petition for review. The Supreme Court granted review, and we filed an amicus brief in support of plaintiffs. Unfortunately, the Supreme Court sided with the Department of Tax and Fee Administration, finding that diabetics still cannot challenge the sales tax. Please contact your local representative to urge change through the Legislature.
PRESERVING THE RIGHT TO CHALLENGERATE STRUCTURES
Malott v. Summerland Sanitary District
Lucinda Malott faced unfair procedural hurdles when she challenged her sewer district’s rate structure under Proposition 218. She owns a 30-unit apartment building of efficiency studios (about 550 square feet each) in the Summerland Sanitary District. The district’s rates are based on an equivalent-dwelling-unit (EDU) system that was classifying all residential properties the same, regardless of their impact on the sewer system. Yet the District had over a dozen classifications for commercial property. Under the district’s system, Malott’s building was assigned 30 EDUs. In other words, each of Malott’s tiny studios was charged the same amount as a five-bedroom house.
This type of case requires expert evidence to show that a single-occupancy studio produces less wastewater than a large family home, and to show that the district’s water treatment costs are therefore less. The district tried to block her case, however, by arguing that Malott should have presented her expert evidence at the last rate increase hearing. Malott responded that the district’s EDU assignment for residential properties is unfair whether the rate is increased or not. Presenting her evidence at a rate increase hearing, therefore, would have served no purpose because the hearing had nothing to do with the EDU system she was challenging.
HJTA supported Malott on appeal by filing an amicus brief. Malott won on appeal and the Court of Appeal extensively quoted HJTA’s amicus brief. The district then asked the Supreme Court to either review the case or order the decision depublished. Several local government associations joined in this request. Fortunately, the Supreme Court denied review and let the decision remain published as statewide precedent. Ratepayers will not be stopped from presenting their cases when their rate structures are outrageously disproportionate.
Plantier v. Ramona Municipal Water District
Ramona Municipal Water District also uses a non-volumetric EDU (equivalent dwelling unit) billing methodology for sewer services. A ratepayer made the case in court that this method did not comply with Proposition 218’s proportionality requirement. The water district argued that, under Proposition 218, a ratepayer must have participated in and submitted a written protest at the most recent public hearing for a rate increase before they can make a case. The trial court then found the suit barred because the plaintiff failed to exhaust administrative remedies. Plaintiffs appealed.
On appeal, HJTA filed an amicus brief and The Fourth District Court of Appeal ruled for the ratepayer 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.” When the California Supreme Court granted the Ramona Municipal Water District’s petition for review, HJTA filed an amicus brief supporting the Court of Appeal’s well-reasoned decision and even spoke at oral argument with plaintiffs’ counsel. The Supreme Court unanimously affirmed the decision in favor of ratepayers in June 2019.
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.