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PROPOSITION 218
Introduction
California voters have spoken again. On November 6, they passed (56%) Proposition 218, marking the
continued fiscal conservatism of the state's electorate and their frustration with what has been characterized
as the arrogance and inefficiency of government. (SF Chronicle Staff, SF Chronicle: 11/6/96). As Bob
Therrien of Ventura stated in his letter to the LA Times "Prop 13 and Prop 218 are the direct result of
taxpayer abuse by our elected officials. Its time for government to do some serious soul-searching as to its
duties, including the right of the people to have minimum intrusive government." (Therrien, LA Times,
10/13/96).
There are two primary political impacts of Prop 218. The first is to take the power to levy taxes and
assessments out of the hands of local government and put it into the hands of the general populace, and the
second is to strengthen the control of the State government over local affairs.
In essence, combined with Prop 13, local government officials have been told by its citizenry - here's a
level of taxes, fees, charges and assessments you can collect from us without asking our permission for
more. Mechanically, this is somewhat debilitating because getting voter approval is a slow and, often,
expensive process. The schedule of elections does not allow for a rapid enough response to deal with the
speed of today's demands. A case in point has already occurred in the City of Inglewood where the City
has pulled back its offer to help finance a sports arena because Prop 218 knocked out taxes needed to
support this effort and it would not be able to go before its voters until April 1997. This has given the City
of Los Angeles "a leg up in getting a new sports facility at its downtown Convention Center" and may
cause Inglewood to lose both the Lakers and the Kings, which would result in a significant negative
financial impact. (Belgum & Merl, LA Times: 11/8/96).!
In another example, the City of South Pasadena decided to cancel a special election for a utility tax which
was scheduled in December and would have cost $25,000. (LA Times Staff, LA Times: 9/20/96).
The LA Times, in a post-election article raised an interesting point when it said " the legislature and the
governor must come to terms with the huge new burdens put on local governments... Sacramento, now
flush with revenues, should help solve the problem by restoring property tax revenues to local
government." (LA Times Staff, LA Times: 11/7/96). Although a potential short-term solution, it does give
the State government an additional level of control of local government action (the other golden rule - he
who has the gold rules) and, in effect, directly contradicts one of the intents of Prop 218's sponsors of
putting more control in the hands of the local citizenry.
It is my opinion that Prop 218 is another aspect of a developing trend toward a realignment of American
society away from a representative democracy toward a desire for a general democracy (whether or not this
will really work is another matter altogether). It is part of the citizenry's way of saying to both elected and
appointed government officials that government has lost its trust.
Background
In 1978, the California electorate passed Prop 13 which set property taxes at a maximum rate of 1% of the
property's assessed value and limited annual assessment increases to 2% until the property is sold, at which
time the assessment adjusts to sales price, or there is construction or improvements to the property. Prop
13 also requires approval of two-thirds of the Legislature to raise state taxes and two-thirds of the local
voters to raise special taxes.
Since the passage of Prop 13, local government and the State Legislature have devised a number of ways to
finance their operations. These have included increasing the use of assessments from capital specific to
revenue general, expanding the use of Community Facilities Districts to charge "fees" citywide, and
charging user type fees and taxes (i.e. - utility, hotel occupancy). Although challenged a number of times
in court, California courts have, generally, upheld these practices. According to lawyers at O'Melveny &
Myers (a major California law firm which represents many local governments), after a 1993 California
Supreme Court decision affirmed these practices, "The Supreme Court seems to be encouraging
experimentation in the use of assessments." (Morain, LA Times: 10/8/96).
Major Provisions of Prop 218 (Senate Office of Research, LA Times: 10/31/96).
1. It expands the law to require that charter cities secure a majority vote of the electorate to impose
new general taxes or extend or increase current general taxes. Previously, only general law cities had this
requirement.
2. It requires that assessments on property be approved by a majority of property owners by 7/1/97.
Exempted from this provision are assessments used to support bonded debt and assessments imposed for
water, sewer or vector control.
3. Government owned property would be subject to assessments.
4. Provision in State law permitting an assessment to be levied based on a vote of an elected board or
an override of property owners' vote by 80% of an elected board would be superseded. Assessments would
be restricted to the cost of the benefit for each property. All such assessments would be subject to a mail
ballot of property owners. Owner's ballot would carry the proportionate weight of their proportionate
ownership of property within the assessment area. A weighted majority of owners would be required for
passage.
5. With the exception of fees charged for water, sewer and garbage collection, all fees and charges
(current and new) must obtain approval of 2/3 of the electorate and all assessments on property must obtain
the approval of a majority of affected property owners.
Fiscal Impact of Prop 218
According to the Office of Legislative Analyst, Prop 218 will "reduce local government revenue by more
than $100 million annually. Over time, local government revenue would be ... lower ... by hundreds of
millions of dollars annually....{and} would result in comparable reduction in spending for local public
services." They went on to say that "...costs to hold elections, calculate fees and assessments, notify the
public, and defend their fees and assessments in courts ... could exceed $10 million initially..." They
further asserted that " schools, community college districts ... and other public agencies would have to pay
their share of assessments {which}... could total over $10 million initially..." (Secretary of State, General
Election Ballot Pamphlet, 1996: 75).
The Debate
Proponents
Some of the proponents of Prop 218 include:
Howard Jarvis Taxpayers Association
Consumers First
Paul Gann's Citizens Committee
California Taxpayers Association
Council of Sacramento Senior Organizations
Alliance of California Taxpayers and Involved Voters
California Republican Party
California Chamber of Commerce
California Farm Bureau
Orange City Council
Yes on Prop 218
The arguments for Prop 218 were presented in the spirit of Proposition 13 and related to the reasons for tax
limitations and citizens' rights to control what they pay and for what they pay. Joel Fox, President of the
Howard Jarvis Taxpayers Association, the major sponsor of Proposition 218, in an editorial in the LA
Times (Fox, LA times: 10/20/96) put forth the following:
Proposition 13 was designed to protect property taxpayers. Due to Prop 13's success, "bureaucrats looked
for ways to raise revenue while avoiding Prop 13's restrictions. They hit upon assessment districts which
were historically used to fund capital improvements that directly benefited property." With the courts'
support, assessment districts have been reformed to enable local governments to have unlimited taxing
power on property without voter consent. According to Fox "Prop 218 would remedy this... by giving the
voters a ... say in the taxes levied on them and their property. Prop 218 will continue the Prop 13 legacy of
protecting property owners from being the cash cow forced to fund most local services." Prop 218 returns
assessment districts to what they were designed for and limits their use to "services which specifically
benefits property." Fox goes on to say that "government officials still will be able to raise taxes - if they
can convince voters of the need fo!
r an increase." He concludes with his belief that the safest place for the power to control taxation is with
the people.
Opponents
Some of the opponents of Prop 218 include:
Congress of California Seniors
California Teachers Association
California Association of Highway Patrolmen
League of Women Voters
California Police Chiefs' Association
California Fire Chiefs' Association
California State Association of Counties
Ventura County Supervisor John Flynn
Los Angeles County Supervisor Zev Yaroslavsky
Los Angeles County Board of Supervisors
Stone & Youngberg
La Palma City Council
Ventura Economic Development Association
Buena Park City Council
Brea City Council
Citizens for Voters' Rights
League of California Cities
Davis City Manager John Meyer
North Tahoe Fire Protection District Fire Chief Duane Whitelaw
Sacramento City Manager Bill Edgar
Sacramento Area Flood Control District
El Dorado County Supervisor Ray Nutting
El Dorado County CAO Michael Hanford
Georgetown Fire Control District Fire Chief Rick Todd
Cameron Park Community Services District Board Chair John McGinness
El Dorado Hills Community Services District General Manager Wayne Lowery
Placerville City Manager Phil Rose
MBIA Insurance Corp.
The San Francisco Chronicle
The arguments against Prop 218 center on its fiscal effect, reduced services and the structure of the law. A
number of opponents say it is just plain bad law . Others objected to the voting rights it gives to all
property owners, whether or not they are US citizens.
With respect to the fiscal effect and the resultant level of services, the legislative analyst (who is neutral)
brought forth the overall expected loss of revenue to local governments at $100 million plus a year. Local
officials believe that the amount will more likely exceed $300 million per annum. (Morain, Slater, LA
Times: 11/7/96). These are just numerical figures with little argument associated with them. However,
when put in perspective for individual municipalities, one can see that the impact of lost revenues could
cause serious budget problems. In Buena Park, the City Council said that "general fees for emergency
services would be eliminated, threatening the safety of communities." (Wright, LA Times: 10/23/96). In
Brea, the City Council estimated that Prop 218 would cost the city $500,000 a year. (Pope, LA Times:
10/31/96). In La Palma, the loss may also be about $500,000 which is 10% of their annual budget. Prop
218 threatens LA County's $9MM/yr levy for librar!
ies and Inglewood's $1.4MM/yr special tax for police. (Morain, Slater, LA Times: 11/7/96). In Ventura
County, a plan to establish an assessment for the library system has been eliminated. For the County to
hold a special election, which it is still considering, the cost has been estimated to be $235,000.
Assessments for various Ventura County cities are impacted: Thousand Oaks - $2.3MM/yr for lighting and
landscaping; Moorpark - $900,000/yr for lighting and landscaping; Ventura - $850,000/yr for street lighting
maintenance; Simi Valley - $670,000/yr for landscape maintenance; Ojai - $130,000/yr for street lighting
and downtown maintenance; and Camarillo - $88,000/yr for landscape maintenance. Ventura County is
also concerned because Prop 218 significantly impacts fees used for flood control and landslide
emergencies. (Lozano, LA Times: 11/10/96). In northern California, an example of Prop 218's impact is
the loss of $709,000 from a $2.7MM budget for the North Tahoe Fire !
Protection District. (Bizjak, Young, Sacramento Bee: 9/1/96). Another impact on municipal budgets, as
well as the education quality of our school systems, is the requirement that assessments are levied against
public property. If upheld in the courts, this will take money away from school budgets and the educational
process. (No on Prop 218: 10/96).
Of major concern on the fiscal side is the impact Prop 218 will have on municipalities' ability to finance
their capital needs and on the possible detrimental impacts on credit quality. The municipal bond industry
and the three major rating agencies (Moody's, S&P, and Fitch) have all expressed a great deal of concern
with respect to the impact of Prop 218. According to Stephen Heaney of Stone & Youngberg (one of
California's major underwriters of municipal bonds) in his testimony before a State Senate committee in
September "The impact on credit quality will be significant and will be negative." (Young, Sacramento
Bee: 9/25/96). The California Society of Municipal Securities Analysts stated "This could limit severely
financial flexibility for many local governments and ... leave less money available to pay debt service on
municipal bonds." (Ingram, LA Times: 10/19/96).
Another major argument against Prop 218 is in the law's structure. While the thrust of the Proposition is
not necessarily disagreed with, the manner in which it goes about accomplishing it is. (Editorial, SF
Chronicle: 10/31/96). Others have no such affinity with the essence of the Proposition and strongly object
to its structure. The City of Buena Park believes "it shifts control on assessments to people who control the
largest amounts of property, whoever or wherever they may be. It disenfranchises small property owners."
(Wright, LA Times: 10/23/96). Officials in Brea believe the law is flawed because "it would grant voting
power to property owners and noncitizens based on the size of their land holding and would exempt renters
from voting on such issues." (Pope, LA Times: 10/31/96).
Conclusion
As stated earlier, the people of California have spoken. Proposition 218 is now approved. Whether or not
is stands up to court challenges remains to be seen. Fox's argument with respect to the modified nature of
assessment districts is true. Assessment Districts have been providing capital improvements in California
since 1911 (similar legislation authorized different forms of assessment districts in 1913 and 1915).
Community Facilities Districts (commonly called Mello-Roos Districts after their legislative sponsors)
have been around since the 1980's. Both of these districts were designed with proportionate benefits to be
determined for property and proportionate benefits assessed. While the courts have philosophically
determined that general services benefit property, they also serve non-property interests. Fox's argument is
based on the principal of fairness. On the other hand, Prop 13 and Prop 218 went too far. We require
services from local government but we do n!
ot enable them to pay for them.
Additionally, it is inherently unfair for a simple majority to require that a super majority make future
decisions. This actually enables a minority interest to control events while the majority suffers. I hope a
future proposition goes before the electorate which adds to the State Constitution the requirement that when
a proportion of the electorate is required to change laws or add taxes or approve measures in future
legislation, for such legislation to be approved that percentage of the electorate must vote for the measure.
At least in this way the requirements are on a level playing field.
BIBLIOGRAPHY
1. Secretary of State, General Election Ballot Pamphlet
2. Kenneth R. Weiss and Carlos V. Lozano. 9/1/96. "Tax, Education Issues Dominates Local Races"
Los Angeles Times.
3. Eric Wahlgren. 9/17/96. "Board Expected to OK Emergency Funds for Libraries." Los Angeles
Times.
4. LA Times Staff. 9/20/96. South Pasadena Scraps Proposal for Special Election on Utility Tax."
Los Angeles Times.
5. Dan Morain. 10/8/96. "Jarvis Name Retains Clout in Anti-Tax Campaign." Los Angeles Times.
6. Bob Therrien. 10/13/96. Letters to the Editor. Los Angeles Times.
7. Carl Ingram. 10/19/96. "Bond Analysts Wave Red Flag on Proposition 218." Los Angeles Times.
8. Hope Hamashige, John Canalis, Bill Billiter. 10/19/96. "La Palma, Council Opposes Proposition
218." Los Angeles Times.
9. T. Willard Hunter. 10/20/96. Letters to the Editor. Los Angeles Times.
10. Joel Fox. 10/20/96. "Closing the Assessment Loophole in Proposition 13." Los Angeles Times.
11. Miguel Helft. 10/23/96. "Group Will Discuss 2 Ballot Propositions." Los Angeles Times.
12. Lesley Wright. 10/23/96. "Buena Park, City Leaders Call State Fee Proposition Unfair." Los
Angeles Times.
13. Lesley Wright. 10/25/96. "Orange, City Officials Vote to Back Proposition 218." Los Angeles
Times.
14. Secretary of State. 10/31/96. "Proposition 218, Voter Approval for Local Government Taxes,
Limitation on Fees, Assessments, and Charges." Los Angeles Times.
15. Senate Office of Research. 10/31/96. "Analysis: Proposition 218 - Initiative Constitutional
Amendment to Limit Fees, Assessments and Charges." Los Angeles Times.
16. John Pope. 10/31/96. "Brea, City Council Opposes Proposition 218." Los Angeles Times.
17. LA Times Staff. 11/7/96. "Postelection Load for Sacramento." Los Angeles Times.
18. Dan Morain, Eric Slater. 11/7/96. "Cities Brace for Tighter Budgets After Proposition 218." Los
Angeles Times.
19. Adam Entous (Reuter). 11/7/96. "Calif. Approves Tax Reform Measure." Los Angeles Times.
20. Bill Stall. 11/7/96. "Outcomes on State Propositions Yield Paradoxes and Contradictions." Los
Angeles Times.
21. Deborah Belgum, Jean Merl. 11/8/96. "Prop. 218 Forces Inglewood to Pull Arena Offer." Los
Angeles Times.
22. Carlos V. Lozano. 11/10/96. "Prop. 218 May Cost Local Cities Millions in Revenue." Los
Angeles Times.
23. Tony Bizjak and Eric Young. 9/1/96. "Effect of Proposition 218 would be wide-ranging." The
Sacramento Bee.
24. The Sacramento Bee Research. 9/1/96. "How Proposition 218 would work." The Sacramento Bee.
25. Tony Bizjak and Eric Young. 9/1/96. " Tax-cutters' plan aims at assessment districts." The
Sacramento Bee.
26. Kimberly A. Moy. 9/20/96. "Flood agency to repay 5-year-old debt with bonds -- if Prop. 218
allows." The Sacramento Bee.
27. Phil Garcia. 9/20/96. "Nine voters in 10 draw a blank on Prop. 218." The Sacramento Bee.
28. Eric Young. 9/25/96. "Prop. 218 will be costly, lawmakers told." The Sacramento Bee.
29. Eric Young. 9/28/96. "Fong blasts remarks on Prop. 218." The Sacramento Bee.
30. Dan Walters. 10/1/96. "Two tax issues ask a question." The Sacramento Bee.
31. Catherine Bridge. 10/3/96. "Officials anxious over impact of ballot initiative." The Sacramento
Bee.
32. Eric Young and Tony Bizjak. 10/11/96. "Tax restricting Prop. 218 leads foes in fund raising. The
Sacramento Bee.
33. The Sacramento Bee Staff. 10/27/96. "The Propositions." The Sacramento Bee.
34. The San Francisco Chronicle Staff. 10/27/96. "State Ballot Propositions." The San Francisco
Chronicle.
35. Editorial. 10/31/96. "Prop 218 Portends Cost and Confusion." The San Francisco Chronicle.
36. The San Francisco Chronicle Staff. 11/6/96. "State Propositions." The San Francisco Chronicle.
37. Greg Lucas. 11/6/96. "Prop.211 Loses By Wide Margin Surprise Win for anti-tax 218." The San
Francisco Chronicle.
38. The San Francisco Chronicle Staff. 11/6/96. "How San Francisco Voted." The San Francisco
Chronicle.
39. No on Proposition 218. 10/96. " [On-line] Available World Wide Web:
http://www.prop218no.org/
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