The San Francisco Court of Appeal upheld a victory for the Bay Area Toll Authority (the Metropolitan Transportation Commission “wearing another hat”) today in Howard Jarvis Taxpayers Association v. Bay Area Toll Authority (HJTA v. BATA). The case is a challenge to 2018’s Regional Measure 3, authorizing a $3 hike in tolls on Bay Area bridges (other than the Golden Gate) to fund 35 alternative transportation programs. The Howard Jarvis Taxpayers Association and individuals sued, arguing the toll increase was a special tax requiring two-thirds voter approval (it got 55% at the polls) or two-thirds legislative approval (it got two-thirds in the Senate, but not in the Assembly). The trial court had ruled for the government at an early stage (judgment on the pleadings, for the lawyers among us). This is an important development under Proposition 26, a 2010 initiative amendment to the California Constitution making most government revenues taxes requiring voter approval unless one of seven exceptions applies for local government fees. Only five exceptions apply to the State.

First, the Court of Appeal concluded this fee was imposed, not authorized, by the Legislature, so the State provisions of Proposition 26 apply. Proposition 26’s provisions for state taxes are largely parallel to those for local government, although the former require two-thirds approval of each house of the Legislature to adopt a tax, while the latter require majority approval of local voters to approve general taxes and two-thirds voter approval of local special taxes. The case helpfully clarifies the meanings of three terms used in Proposition 26:

  • “Enact” means to establish by legal and authoritative act (i.e., what a legislative body does);
  • “Impose” means to establish or apply by authority, also typically what a legislative body does; and,
  • “Adopt” means to accept formally and put into effect and could describe the role of the regional transportation agency in this case.

Second, the Court of Appeal found this was not a tax because it was a fee for the use of government property and those are not subject to any cost of service limit — they are one of the few revenue sources available to government that can provide discretionary revenue without voter approval.

For we appellate lawyers, there is a nice statement (in footnote 7) that the Court of Appeal can decide legal issues whether or not forfeited in the trial court and suggesting that one has to very clearly agree with a trial court ruling to forfeit the right to appeal it.

The Court of Appeal reasoned that the cost-of-service limits in the first three exceptions to Proposition 26 (for fees for benefits and privileges, services and products, and regulatory fees) do not apply to the fourth (for use of government property) and fifth (fines and penalties) for these reasons:

  • Different language is used in the first three than in the fourth and fifth.
  • It would be illogical to read the final provision of Proposition 26 regarding the burden of proof as changing the substantive standards of the measure because that would render much of the language of exceptions unnecessary, violating a rule by which courts construe statutes and initiatives.
  • Limiting fees to buy or lease state property and fines and penalties to the cost the State incurs would lead to absurd results — it may cost very little to sell an asset of great value and the goal of Proposition 26 was not to make State government sell assets for a song.
  • There is nothing by which to measure costs as to fees for use of property or as to fines. Governments set fees for property based on their rental values and set fines considering how large a fine is both fair and effective. Neither kind of fee is set only to recover particular costs.

Interestingly, the Court of Appeal devotes a lengthy footnote (number 18) to disagreeing with Zolly v. Oakland, a March 30th decision of another panel of the San Francisco Court of Appeal. Zolly overturned a win for Oakland on demurrer (another early disposition of a case) in a challenge to franchise fees its solid waste haulers pay the City but fund from fees imposed on customers. The HJTA v. BATA court held that Zolly erred to apply the cost-of-service standard to a fee for use of property. A petition for review in the California Supreme Court is pending in Zolly and the Supreme Court recently granted the plaintiffs’ lawyers an extension of time to file their answer to the petition. It is now due July 10, 2020. HJTA v. BATA’s disagreement with Zolly may make review more likely in Zolly, but Supreme Court review is unlikely nevertheless. A petition for review is likely in HJTA v. BATA, too. Review in Zolly must be granted or denied by August 7th unless the Supreme Court extends its time by 30 days, as it commonly does. A petition for review in HJTA v. BATA is due 40 days from today or by August 10th. So, we’ll know more about the status of these issues in a bit more than a month.

HJTA v. BATA is a very helpful win for the State and for local governments, nearly all of which charge for the use of their property. It also develops the law nicely for those of us who practice in this area. Things are still in motion, though, so stay tuned!