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By Laura Dougherty, Senior Staff Attorney

Sometimes government turns voter intent on its head. HJTA is fighting for the true intent of Proposition 26 against a very damaging government argument: that fees for use of public property are now unlimited. Such fees have never been unlimited, even before Proposition 26, and Proposition 26’s voters certainly did not intend to relax the rules for fees and taxes. But in one provision known as the “use of public property” provision, government argues that is exactly what voters did.

The Supreme Court granted review this summer in a case alleging that Oakland’s trash franchise fees violate Proposition 26. This case is called Zolly v. City of Oakland, S262634. HJTA has been tracking this case for years, and now it is clear it will greatly impact Proposition 26 and future taxpayer initiatives.

Oakland had selected two private trash haulers with a condition that the haulers pay $28 million per year in “franchise fees” to the city. These fees resulted in customer bills rising 80–155 percent. A grand jury disapproved and found “political considerations” were involved. Customers challenged the fees as disguised taxes because no value analysis was performed. The fees were not based on any documented costs incurred by the city or services provided to the haulers. The city argued that franchise fees are categorically exempt from Proposition 26 and may be for any “negotiated” amount regardless of value. Per the city’s argument, franchise fees need not be related to the city’s costs or the payer’s benefit, but can be charged purely to produce general fund revenue.

The First District Court of Appeal, Division One, found correctly that Oakland’s fees violate Proposition 26 because the excessive portion is a tax that needed, but did not receive, voter approval. On grant of review, the Supreme Court phrased the issue as a question to which the answer should be an obvious yes: “Must city franchise fees that are subject to California Constitution, article XIII C [Proposition 26], be reasonably related to the value of the franchise?”

In a 2017 case to which Proposition 26 was not yet applicable, the Supreme Court found that a franchise fee had to represent a “reasonable estimate of the value of the franchise” under Proposition 218 (Jacks v. City of Santa Barbara (2017) 3 Cal.5th 248, 267). How to estimate that value remained an open question. Is it whatever private companies are willing to pay for a monopoly? Government prefers to think so. Now that Proposition 26 has passed and is beginning to apply to more and more fees, HJTA argues that such fees must be “valued” based on costs incurred by the government or services provided to the payer. Government argues that such fees need not be reasonable at all but can be “negotiated” between the government and the company —even though it is the customer, not the company, who ultimately pays these fees.

Proposition 26 classifies all government charges as taxes (needing voter approval) unless they meet certain exceptions. One of those exceptions is for “use of or entrance to” government property. This would include physical uses such as crossing a bridge or entering a state park. Government lawyers argue that it also includes abstract concepts of property, like a legal right or privilege, such as a permit or franchise.

However that question may be answered, Proposition 26 does not allow unlimited charges. To prevent the government from abusing an exception to the definition of a tax, Proposition 26’s final paragraph instructs that it is the government’s burden to prove the fee is not a tax, that the charge is reasonably related to the government’s expenses and that the charge is reasonably related to the payer’s benefit received from or burden upon the government. Applying that final paragraph to the trash franchise fees at issue in Zolly, the court of appeal made the correct decision, and it makes one wonder why the Supreme Court granted review.

The Supreme Court denied review this summer in a related case titled In re County Inmate Telephone Service Cases, S262577. As in Zolly, local governments argued here that the proper fee for an exclusive government contract is whatever is “negotiated.” In this case, they call the fees “commissions” paid to counties by private companies that provide telephone service to inmates. Like the overtaxed trash customers in Oakland, the inmates and their families in nine counties are paying extremely high rates for telephone calls: roughly $5 for 15 minutes. All research shows that communication with family reduces recidivism rates, so high charges are counterproductive. The lack of documented county costs suggests that the “commissions” are simply general revenue-generating machines for the counties. HJTA argued as a friend of the court in this case and in Zolly that Proposition 26’s voters clearly did not intend that fees on users of government property would be unlimited.

HJTA has two in-house cases against the most recent $3 bridge toll increase in the Bay Area where HJTA is again fighting directly for the voters’ true intent of Proposition 26, but this time against the state. The state argued, and the court of appeal agreed, that bridge tolls are fees for use of government property, and that such fees need not be related to the state’s costs in operating and maintaining the bridges. In fact, the court of appeal ruled, the expenditure of bridge toll revenue need not benefit the toll-paying motorists but can be used for other programs or to benefit other people. And although an election was held, the court found it an unnecessary exercise.

HJTA petitioned the Supreme Court for review of its in-house cases, HJTA v. Bay Area Toll Authority and Whitney v. Metropolitan Transportation Commission on August 10, S263835. As of the writing of this article, it is unknown whether review will be granted.

HJTA will keep fighting for the correct interpretation of Proposition 26. All fees, including fees for use of government property, must be reasonably related to government costs and the benefits and burdens attributable to fee payers.