Proposition 218 is an adopted initiative constitutional amendment which revolutionized local and regional government finance and taxation in California.California Secretary of State, Statement of Vote November 5, 1996, p. xii. Named the "Right to Vote on Taxes Act,"Prop. 218, § 1. it was sponsored by the Howard Jarvis Taxpayers Association as a constitutional follow-up to the landmark property tax reduction initiative constitutional amendment, Proposition 13, approved in June 1978. Proposition 218 was approved and adopted by California voters during the November 5, 1996, statewide general election.
Proposition 218 amended the California Constitution by adding Article XIII C and Article XIII D.Prop. 218, §§ 3, 4. Article XIII C added constitutional voter approval requirements for all local government taxes which previously did not exist.Prop. 218, § 3. Also included in Article XIII C is a provision significantly expanding the reserved constitutional local initiative power by voters to reduce or repeal any local government tax, assessment, fee or charge, and this constitutional reservation is also subject to a significantly reduced signature requirement making ballot qualification easier.Cal. Const., art. XIII C, § 3. Article XIII D added constitutional assessment and property-related fee reforms applicable to all local governments.Prop. 218, § 4. This includes numerous additional requirements for special benefit assessments on real propertyCal. Const., art. XIII D, § 4. and for property-related fees and charges, such as various utility fees imposed by local governments which are no longer allowed to exceed the cost of providing the utility service to a customer.Cal. Const., art. XIII D, § 6.
The California Senate Office of Research listed Proposition 218 as one of the most significant laws of the 20th century in California. Following the November 1996 election, a high level official from the California State Association of Counties wrote that Proposition 218 "profoundly changes the way California is governed" and "may prove to be the most revolutionary act in the history of California." Proposition 218 was also the first successful initiative constitutional amendment in California history to add more than one article to the California Constitution as well as to alter the scope of the constitutional initiative power.California Statewide Initiatives 1912–2000 (2003), Initiative & Referendum Institute. The measure was drafted by constitutional attorneys Jonathan Coupal and Jack Cohen.
General information
The official legal title of Proposition 218 was: "Voter Approval for Local Government Taxes. Limitations on Fees, Assessments, and Charges. Initiative Constitutional Amendment."Ballot Pamphlet, California General Election (November 5, 1996), Official Title and Summary of Proposition 218 Prepared by the Attorney General, p. 72.
The Findings and Declarations contained in Proposition 218 stated: "The people of the State of California hereby find and declare that Proposition 13 was intended to provide effective tax relief and to require voter approval of tax increases. However, local governments have subjected taxpayers to excessive tax, assessment, fee and charge increases that not only frustrate the purposes of voter approval for tax increases, but also threaten the economic security of all Californians and the California economy itself. This measure protects taxpayers by limiting the methods by which local governments exact revenue from taxpayers without their consent."Prop. 218, § 2.
Proposition 218 has been part of the California Constitution for .
Conditions leading to Proposition 218
The special assessment and property-related fee reforms contained in Proposition 218 were a response to local government taxation practices in the 1980s and 1990s following the passage of Proposition 13. After Proposition 13 passed in 1978, local governments sought methods to raise additional revenues while avoiding the two-thirds voter approval requirement for special taxes under Proposition 13.
Proposition 218 supporters claimed that local governments found a particularly pernicious way to raise additional revenues and avoid the Proposition 13 two-thirds local voter approval requirement for taxes by using special benefit assessment districts. Special assessments on real property became a vehicle of choice for local politicians seeking to avoid difficult government spending decisions.
The property assessment loophole floodgates opened wide following a controversial 1992 California Supreme Court decision (known as the Knox case) holding that the two-thirds voter approval requirement for local special taxes under Proposition 13 did not apply to special benefit assessments on real property.Knox v. City of Orland, 4 Cal. 4th 132 (December 1992).
As a result of the Knox decision, local governments could legally impose special assessments on real property for a wide range of purposes without voter approval. Special assessments effectively became unrestricted property tax increases appearing on the property tax bills of millions of California property owners.
Once the special assessment loophole following the Knox decision was created by the courts, one lawyer working with local government politicians wrote that property assessments in California "are now limited only by the limits of human imagination."Ballot Pamphlet, California General Election (November 5, 1996), argument in favor of Proposition 218, p. 76. Some of the more imaginative special assessments imposed by local governments included: (1) A "view tax" in southern California – the better the view of the ocean the property owner had, the more the owner paid; (2) In northern California, property owners 27 miles away from a park were assessed because their property allegedly specially benefited from that park.
Controversial property-related fees and charges also became a significant problem following the passage of Proposition 13, as many local governments labeled taxes as "fees" or "charges" and imposed these levies without voter approval. For example, the California Supreme Court ruled that a local municipal utility, such as a city providing domestic water service, is entitled to a reasonable "return on investment" (otherwise referred to as "profit").Hansen v. City of San Buenaventura, 42 Cal. 3d 1172 (December 1986). As a result, a local municipal utility could legally overcharge its customers in excess of the cost of providing the utility service to its customers, and then transfer the excess revenues to the general fund of the local agency to be spent at the discretion of local politicians just like an unrestricted tax. All this could generally be done without voter approval.
Election campaign
Proposition 218 was considered a sleeper measure by the media as local governments were legally prohibited from using public funds and other resources to campaign against it, and because greater media attention had been given to the Proposition 209 ban on affirmative action and the Proposition 215 medical marijuana initiative measures which also appeared on the same election ballot.
Proposition 218 was initially estimated to cost local governments in California at least $100 million per year with long-term cost estimates being much greater in the many billions of dollars per year, and Moody's Investors Service warned the initiative measure would cause "significantly declining credit quality." The credit ratings issue became so heated during the Proposition 218 election campaign that the California State Treasurer, in an effort to calm the municipal bond market, took the extraordinary step of warning measure opponents against exaggerating the possible negative impacts on local government credit ratings and bond issuances when discussing Proposition 218.
Like Proposition 13 in 1978, Proposition 218 was also opposed by the vast majority of prominent newspapers and the political establishment in California. Opposition to Proposition 218 included public employee unions, local governments, local government interest organizations, environmental interest groups, public education interest groups, and private business firms that underwrite municipal bonds.
Of the total campaign contributions received against Proposition 218, 74% came from public employee unions, and those interests contributing $10,000 or more represented 91% of the total contributions received by the Proposition 218 opposition campaign.Los Angeles County Registrar-Recorder, Citizens for Voters' Rights (No on 218), Form 419 Ballot Measure Committee Campaign Disclosure Statements.
Measure opponents often warned of dire consequences over Proposition 218's approval, including major job losses in Silicon Valley, the shuttering of many parks, senior centers, and other public buildings, and be threats to fire safety.
Supporters of Proposition 218 focused on the ability for residents to vote on local government taxes.Ballot Pamphlet, California General Election (November 5, 1996), Rebuttal to Argument Against Proposition 218, p. 77. Proposition 218 supporters also urged voters to review their property tax bill, arguing that it would confirm the growing list of property-related fees, charges and special assessments imposed by local governments without voter approval.Ballot Pamphlet, California General Election (November 5, 1996), Argument in Favor of Proposition 218, p. 76.
Election results
Proposition 218 passed with 56.55% support statewide, representing a margin of victory of 13.1 percentage points.See Statement of the Vote , page xiii.
Proposition 218 passed in 67 of the 80 State Assembly Districts and in 34 of the 40 State Senate Districts in California (based on 2011 redistricting).
Proposition 218's victory was unusual in that it was behind in the majority of polls, with only 36% of likely voters reported as being in support in the final Field Poll.
Article XIII C – Local government taxes
Section 3 of Proposition 218 added Article XIII C to the California Constitution.
Section 1 of Article XIII C contains definitions applicable to the article. Section 1 also defines the types of taxes local governments may levy. A "general tax" is defined as any tax imposed for general governmental purposes.Cal. Const., art. XIII C, § 1, subd. (a). A "special tax" is defined as any tax imposed for specific purposes, including a tax imposed for specific purposes which is placed into a general fund.Cal. Const., art. XIII C, § 1, subd. (d). The general versus special tax distinction existed in California prior to Proposition 218, but Proposition 218 contains a broader definition of "special tax" as also including taxes imposed for specific purposes that are placed into a general fund.
Section 1 definitions also include the term "local government" setting forth the various public entities subject to the article. The term "local government" for purposes of Proposition 218 is broadly defined to counter a previously narrow interpretation given by the California Supreme Court under Proposition 13Los Angeles County Transportation Commission v. Richmond, 31 Cal. 3d 197 (April 1982). which created loopholes allowing some local governments to circumvent constitutional two-thirds voter approval requirements for local taxes. Government entities subject to Proposition 218 provisions are local and regional governments, including counties, cities, a city and county, school districts, community college districts, public authorities, joint powers agencies, and special districts such as water or fire districts.Cal. Const., art. XIII C, § 1, subd. (b). The "local government" definition also expressly states that it includes charter cities having a local charter (similar to a local constitution) as their primary source of government powers and authority.