Pass: 4,915,262 / 52.4% Yes votes ...... 4,460,681 / 47.6% No votes

See Also: Index of all Propositions

Summary Prepared by the State Attorney General:

• Requires that certain state fees be approved by two-thirds vote of Legislature and certain local fees be approved by two-thirds of voters.
• Increases legislative vote requirement to two-thirds for certain tax measures, including those that do not result in a net increase in revenue, currently subject to majority vote.

Fiscal Impact from the Legislative Analyst:

Depending on decisions by governing bodies and voters, decreased state and local government revenues and spending (up to billions of dollars annually). Increased transportation spending and state General Fund costs ($1 billion annually).

Meaning of Voting Yes/No

A YES vote on this measure means:

The definition of taxes would be broadened to include many payments currently considered to be fees or charges. As a result, more state and local proposals to increase revenues would require approval by two-thirds of each house of the Legislature or by local voters.

A NO vote on this measure means:

Current constitutional requirements regarding fees and taxes would not be changed.

BACKGROUND

State and local governments impose a variety of taxes, fees, and charges on individuals and businesses. Taxes--such as income, sales, and property taxes--are typically used to pay for general public services such as education, prisons, health, and social services. Fees and charges, by comparison, typically pay for a particular service or program benefitting individuals or businesses. There are three broad categories of fees and charges:

• User fees--such as state park entrance fees and garbage fees, where the user pays for the cost of a specific service or program.
• Regulatory fees--such as fees on restaurants to pay for health inspections and fees on the purchase of beverage containers to support recycling programs. Regulatory fees pay for programs that place requirements on the activities of businesses or people to achieve particular public goals or help offset the public or environmental impact of certain activities.
• Property charges--such as charges imposed on property developers to improve roads leading to new subdivisions and assessments that pay for improvements and services that benefit the property owner.

State law has different approval requirements regarding taxes, fees, and property charges. As Figure 1 shows, state or local governments usually can create or increase a fee or charge with a majority vote of the governing body (the Legislature, city council, county board of supervisors, etc.). In contrast, increasing tax revenues usually requires approval by two-thirds of each house of the state Legislature (for state proposals) or a vote of the people (for local proposals).

Disagreements Regarding Regulatory Fees. Over the years, there has been disagreement regarding the difference between regulatory fees and taxes, particularly when the money is raised to pay for a program of broad public benefit. In 1991, for example, the state began imposing a regulatory fee on businesses that made products containing lead. The state uses this money to screen children at risk for lead poisoning, follow up on their treatment, and identify sources of lead contamination responsible for the poisoning. In court, the Sinclair Paint Company argued that this regulatory fee was a tax because: (1) the program provides a broad public benefit, not a benefit to the regulated business, and (2) the companies that pay the fee have no duties regarding the lead poisoning program other than payment of the fee.

In 1997, the California Supreme Court ruled that this charge on businesses was a regulatory fee, not a tax. The court said government may impose regulatory fees on companies that make contaminating products in order to help correct adverse health effects related to those products. Consequently, regulatory fees of this type can be created or increased by (1) a majority vote of each house of the Legislature or (2) a majority vote of a local governing body.

PROPOSAL

This measure expands the definition of a tax and a tax increase so that more proposals would require approval by two-thirds of the Legislature or by local voters. Figure 2 summarizes its main provisions.

See Figure 2 (click here and scroll down to view) Major Provisions of Proposition 26

Definition of a State or Local Tax

Expands Definition. This measure broadens the definition of a state or local tax to include many payments currently considered to be fees or charges. As a result, the measure would have the effect of increasing the number of revenue proposals subject to the higher approval requirements summarized in Figure 1. Generally, the types of fees and charges that would become taxes under the measure are ones that government imposes to address health, environmental, or other societal or economic concerns. Figure 3 provides examples of some regulatory fees that could be considered taxes, in part or in whole, under the measure. This is because these fees pay for many services that benefit the public broadly, rather than providing services directly to the fee payer. The state currently uses these types of regulatory fees to pay for most of its environmental programs.

Certain other fees and charges also could be considered to be taxes under the measure. For example, some business assessments could be considered to be taxes because government uses the assessment revenues to improve shopping districts (such as providing parking, street lighting, increased security, and marketing), rather than providing a direct and distinct service to the business owner.

Some Fees and Charges Are Not Affected. The change in the definition of taxes would not affect most user fees, property development charges, and property assessments. This is because these fees and charges generally comply with Proposition 26's requirements already, or are exempt from its provisions. In addition, most other fees or charges in existence at the time of the November 2, 2010 election would not be affected unless:

• The state or local government later increases or extends the fees or charges. (In this case, the state or local government would have to comply with the approval requirements of Proposition 26.)
• The fees or charges were created or increased by a state law--passed between January 1, 2010 and November 2, 2010--that conflicts with Proposition 26 (discussed further below).

Current Requirement. The State Constitution currently specifies that laws enacted "for the purpose of increasing revenues" must be approved by two-thirds of each house of the Legislature. Under current practice, a law that increases the amount of taxes charged to some taxpayers but offers an equal (or larger) reduction in taxes for other taxpayers has been viewed as not increasing revenues. As such, it can be approved by a majority vote of the Legislature.

See Figure 3 (click here and scroll down to view) Regulatory Fees That Benefit the Public Broadly

New Approval Requirement. The measure specifies that state laws that result in any taxpayer paying a higher tax must be approved by two-thirds of each house of the Legislature.

State Laws in Conflict With Proposition 26

Repeal Requirement. Any state law adopted between January 1, 2010 and November 2, 2010 that conflicts with Proposition 26 would be repealed one year after the proposition is approved. This repeal would not take place, however, if two-thirds of each house of the Legislature passed the law again.

Recent Fuel Tax Law Changes. In the spring of 2010, the state increased fuel taxes paid by gasoline suppliers, but decreased other fuel taxes paid by gasoline retailers. Overall, these changes do not raise more state tax revenues, but they give the state greater spending flexibility over their use.

Using this flexibility, the state shifted about $1 billion of annual transportation bond costs from the state's General Fund to its fuel tax funds. (The General Fund is the state's main funding source for schools, universities, prisons, health, and social services programs.) This action decreases the amount of money available for transportation programs, but helps the state balance its General Fund budget. Because the Legislature approved this tax change with a majority vote in each house, this law would be repealed in November 2011--unless the Legislature approved the tax again with a two-thirds vote in each house.

Other Laws. At the time this analysis was prepared (early in the summer of 2010), the Legislature and Governor were considering many new laws and funding changes to address the state's major budget difficulties. In addition, parts of this measure would be subject to future interpretation by the courts. As a result, we cannot determine the full range of state laws that could be affected or repealed by the measure.

Arguments Submitted to the Secretary of State

Summary of Arguments FOR Proposition 26:

Yes on 26 stops state and local politicians from raising Hidden Taxes on goods like food and gas, by disguising taxes as "fees" and circumventing constitutional requirements for passing higher taxes. Don't be misled. 26 preserves California's strong environmental and consumer laws AND protects taxpayers and consumers from Hidden Taxes.

Summary of Arguments AGAINST Proposition 26:

Big oil, tobacco, and alcohol corporations want you to pay for the damages they cause. Prop. 26 was written behind closed doors and without public input. Don't protect polluters. League of Women Voters of California, Firefighters, Police Officers, Nurses, and Sierra Club all say NO on 26.

Contact FOR Proposition 26:

Stop Hidden Taxes--No on 25/Yes on 26, a coalition of taxpayers, small businesses, environmental experts, good government groups, minorities, farmers, and vineyards.
(866) 218-4450
info@nomorehiddentaxes.com
http://www.no25yes26.com

Contact AGAINST Proposition 26:

Doug Linney
Taxpayers Against Protecting Polluters
1814 Franklin Street, Suite 510
Oakland, CA 94612
(510) 444-4710
stopprotectingpolluters@gmail.com
http://www.stoppolluterprotection.com

Video Overview

• Analysis of the Ballot Measure - produced by LWV Cupertino-Sunnyvale (4 min video)

Secretary of State

• Full Arguments and Rebuttals
• Full Text of Proposed Law [PDF]

• Full Impartial Analysis of this Measure

League of Women Voters of California Education Fund

• Pros and Cons - A nonpartisan explanation of this state proposition, with supporting and opposing arguments
• Easy Voter Guide - A brief summary of this state proposition

• Forum - KQED San Francisco - A debate on the proposition hosted by John Myers (10/1, 52 min)
• KQED State Proposition Guide - A succinct summary of the proposal, background and arguments for and against

• In-Depth Analysis of this Proposition - Prepared by Institute of Governmental Studies at UC Berkeley
• Table of Endorsements For or Against this Proposition - Convenient display of nonprofit organizations, unions, newspapers, political parties and gubernatorial candidates
• Proposition 26: Should the State and Local Governments Be Required To Meet Higher Voting Thresholds To Raise Revenues? - A CBP Budget Brief provides an overview and assesses the potential impact on the state budget [PDF]

Secretary of State

• Follow the money for Prop 26 - Who contributes money and how is it spent

• Follow the Money - Top 5 Donors - Convenient summary of largest donors in support and opposition