The San Francisco Court of Appeal issued the third landmark local government finance decision in two days today in City and County of San Francisco v. All Persons Interested in the Matter of Proposition C. [A blog post on one appears here and we’ll have one up on the other shortly.] The case concludes that special taxes do not require two-thirds voter approval if proposed by initiative under any of Prop. 13, Prop. 218, or San Francisco’s charter. [Disclosure: CH&W represents the County of Alameda in a case challenging a special tax approved by less than two-thirds of its voters in March 2020.]

It follows on a 2017 decision of the California Supreme Court in California Cannabis Coalition v. City of Upland, regarding Prop. 218. That case concluded that a provision of that 1996 initiative amendment to California’s Constitution requiring local general taxes (those which can be used in the discretion of the legislative body) to appear on general election ballots when city council or board of supervisors seats are contested did not apply to initiative tax proposals because “local government” did not include the electorate exercising the initiative power.

Here’s my initial analysis of the decision.

Facts: San Francisco voters approved Measure C in 2018 to raise a business license tax to fund homeless services. It passed by 61% and SF filed a validation action to test whether it could be enforced despite the lack of two-thirds-voter approval. The California Business Properties Association, the Howard Jarvis Taxpayers Association, and the California Business Roundtable answered. The case was tried on cross motions for judgment on the pleadings and the trial court ruled for the City, citing Upland.

Claims: On appeal, the Business Associations argued that two-thirds was required by Prop. 13, Prop. 218, and the City Charter, which extends the initiative power to measures “within the powers conferred upon the Board of Supervisors to enact.”  The Court of Appeal disagreed.

Analysis:

First, the court concluded that Prop. 13 was ambiguous as to whether the two-thirds-voter approval requirement for special taxes under article XIII A, section 4 applies to the initiative power because no express reference to initiatives appears in section 4. That ambiguity allowed resort to extrinsic evidence of voters’ intent. The two-thirds voter approval requirement is in conflict with the initiative provisions of the Constitution, which require only simple majority voter approval of initiatives. Several doctrines favor construing Prop. 13 not to require two-thirds voter approval for initiative special taxes:

    • The rule against implied repeals (citing Kennedy Wholesale, Inc. v. State Bd. of Equalization, a Prop. 13 case underlying Upland)
    • The rule favoring broad construction of the initiative power
    • That the ballot materials gave no hint voters intended to restrict their initiative power
    • Procedural requirements for actions by legislative bodies are not extended to voters acting by initiative (citing Upland and Associated Home Builders etc., Inc. v. City of Livermore)
    • The Court of Appeal rejected as dictum language in Kennedy Wholesale stating that article XIII A, section 4’s text was strong evidence that “the voters knew how to impose a supermajority voting requirement upon themselves when that is what they wanted to do.”
    • The Court also cited the language from City and County of San Francisco v. Farrell narrowly construing the super-majority requirements of Prop. 13 because they are anti-majoritarian. This theory of the liberal Rose Bird court was not often cited in the years following her 1986 recall and the construction of a very conservative judiciary under 16 years of the Deukmejian and Wilson governorships. Modern California looks less and less like the red or purple state of that era and its courts, especially after the second eight years of Governor Jerry Brown, have changed, too.
    • Contemporaneous construction of Prop. 13 by the Legislature did not show intent to limit the initiative power nor did the absence of changes to the initiative provisions of the Elections Code.

Second, as to Prop. 218, the Court used these bases to conclude that its article XIII C, section 2(d) imposes the two-thirds requirement on legislative bodies, not voters:

    • The Business Associations conceded that Prop. 218 implements Prop. 13 and the two should be interpreted consistently
    • Upland’s conclusion that “local governments” as used in Prop. 218 means legislative bodies, not voters
    • Upland interpreted article XIII C, section 2(b) (regarding election timing) and it has parallel language to its section 2(d) (the two-thirds rule in issue here)
    • The rule favoring broad construction of the initiative power
    • Nothing supported the Business Associations’ effort to distinguish Upland by having “local government” exclude voters for purposes of election timing, but include them for purpose of vote thresholds
    • Nothing in Prop. 218’s ballot materials indicated an intent to limit the initiative power

Third, as to San Francisco’s charter, the Court applied the rule that procedural restrictions on legislation by legislators are not applied to the initiatives.

This is a very nice win for local government but, of course, it is not the end of the story. A trial court in Oakland reached the opposite conclusion and the appeal in that case (to Division One of the San Francisco Court of Appeal) is just now being briefed. That court could disagree. A Fresno court also ruled that the two-thirds rules applies to local government initiatives and that appeal is pending in the Court of Appeal in that city. That, too, is still in briefing. Moreover, a petition for review to the California Supreme Court is a near certainty in the San Francisco case and, given that this flurry of legal developments has its roots in the Supreme Court’s 2017 Upland decision, review is far more likely than in a typical appeal — though still a bit of a long shot, especially with Justice Chin’s vacancy on the horizon.

Still, the decision is big news for San Francisco and for local government. It got immediate press attention here and here. We’ll keep you posted as this story unfolds.