A Look at Voter-Approval Requirements for Local Taxes

A Look at Voter-Approval Requirements for Local Taxes MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • MARCH 20, 2014 Introduction For about 100 years, California’s local governments generally could raise taxes without directly securing their residents’ consent. Beginning in 1978, the state’s voters amended the California Constitution several times to require that local government tax increases be approved by local voters. Recently, the Legislature has shown interest in exploring changes to voter-approval requirements for local taxes. Several proposals to place changes before the voters have been introduced during the current legislative session. This report was developed to provide context for discussions about the state’s voter-approval requirements. We do not offer any suggested changes to these requirements. The report is divided into four sections: • Local Government Basics. This section provides a brief introduction to local governments in California. • Voter-Approval Requirements for Taxes. This section summarizes the state’s existing system of voter-approval requirements for local taxes. • How California’s Requirements Evolved. This section explains how the state’s complex voter-approval system evolved. • A Look at Election Results. This section reviews outcomes of local tax elections over the last 15 years. LOCAL GOVERNMENT BASICS Understanding California’s voter-approval this section we provide a brief introduction to local requirements for local taxes necessitates some basic governments in California. knowledge of local governments. Therefore, prior to California Has Over 5,000 Local our discussion of voter-approval requirements, in Governments. Californians receive services from AN LAO BRIEF over 5,000 local governments—counties, cities, property taxes are referred to simply as property school districts, community college districts, taxes.) The State Constitution limits, with narrow and special districts (such as fire districts, flood exceptions, the property tax rate to 1 percent. Local control districts, and water districts). Each local governments may raise the property tax rate only government has a local governing body (such for two purposes: (1) to pay debt approved by voters as a city council or board of supervisors) that prior to July 1, 1978 and (2) to finance bonds for makes decisions about its programs, services, and infrastructure projects. operations. Local residents generally elect the Cities and Counties Have Broad Tax members of local governing bodies. Authority. Outside of the property tax, cities and Role of Local Governments. Cities, counties, counties have authority to impose a broad range and special districts share the responsibility of of taxes, including sales taxes, parcel taxes, utility providing municipal services—such as police, fire taxes, hotel taxes, and business taxes. Figure 1 protection, sewer, water, parks, and libraries—to provides descriptions of the primary types of taxes California residents. Counties, in addition to that local governments may impose. providing some municipal services, also provide Special Districts and School and Community countywide services, such as health and social College Districts Have More Narrow Tax service programs. School and community college Authority. Most special districts and school and districts are the primary provider of education community college districts are authorized to levy from kindergarten to lower-level post-secondary only parcel taxes to fund services. Parcel taxes education and vocational training. generally are paid by most property owners within Local Governments May Increase Property each local government’s jurisdiction. In some cases, Taxes Only to Finance Voter-Approved Debt. however, certain groups of property owners— Taxes levied on property owners based on a such as senior citizens—may be exempted. A property’s value are known as ad valorem taxes. limited number of special districts—primarily (For the remainder of the report, ad valorem transportation districts—also may levy sales taxes. Figure 1 Local Governments Levy Many Types of Taxes Tax Description Local Governments Property Tax A levy on property based on the properties’ Cities, counties, special districts, and for debt assessed value and used for voter approved debt. school and community college districts Parcel Tax A levy on parcels of property, typically set at some Cities, counties, special districts, and fixed amount per parcel. Cannot be based on a school and community college districts property’s value. Sales Tax A levy on the retail sale of tangible goods. Cities, counties, and some special districts Hotel Tax A levy on the occupancy of hotels, motels, or other Cities and counties short-term lodging. Utility Tax A levy on the use of utilities, such as electricity, Cities and counties gas, or telecommunications. Business Tax A levy on operators of businesses. Cities and counties Other Taxes Other types of taxes including Mello-Roos taxes Primarily cities and counties and property transfer taxes. 2 Legislative Analyst’s Office www.lao.ca.gov AN LAO BRIEF VOTER APPROVAL REQUIREMENTS FOR TAXES Local governments must obtain the approval exemptions defined in the State Constitution. of local voters to raise taxes. The only exception Figure 2 lists these exemptions. Some charges to this rule is for property tax rate increases to are categorically exempt: fines and penalties for pay debt approved by voters before 1978. Local violating the law, entrance charges and charges government voter-approval requirements vary for use of government property, local property based on several factors, including the type of development charges, and property assessments local government raising the revenues, the revenue and property-related fees imposed in accordance mechanism, and the use of the revenues. In this with Proposition 218 (discussed in more detail section we summarize California’s complex system below). Other charges are exempt if they satisfy of voter-approval requirements for local taxes. certain conditions. Charges for a government service, benefit, or product are exempt if the local Is the Charge a Tax? government (1) charges no more than its reasonable Some types of local government charges are costs, (2) provides the service directly to the payer, not considered taxes and, therefore, are not subject and (3) does not provide the service to non-fee to voter approval. In general, a local government payers. In addition, regulatory fees are exempt if the levy, charge, or exaction is a tax and subject to fee is limited to the local government’s direct cost voter approval unless it meets at least one of seven to regulate the fee payer. Figure 2 Local Government Charges Exempt From Voter Approval 9 A charge imposed for a specific benefit conferred or privilege granted directly to the payer that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. 9 A charge imposed for a specific government service or product provided directly to the payer that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product. 9 A charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. 9 A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property. 9 A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law. 9 A charge imposed as a condition of property development. 9 Assessments and property-related fees imposed in accordance with the provisions of Article XIII D. www.lao.ca.gov Legislative Analyst’s Office 3 AN LAO BRIEF Determining the Applicable non-property taxes which cities and counties are Voter-Approval Threshold authorized to levy may be imposed as general taxes. Two-Thirds of Voters Are Required to Approve All Local Government Taxes Fall in One of Special Taxes. Special taxes require approval from Three Categories. New local government taxes two-thirds of local voters. A special tax is a tax that generally can be placed into one of three categories: meets one of the following conditions: (1) property taxes to finance debt, (2) general taxes, and (3) special taxes. Each of these categories has • Special-Purpose District Tax. All taxes— different rules regarding voter approval. Figure 3 other than property taxes for infrastructure displays a process that can be used to determine bonds—levied by special districts, school to which of the three categories a proposed tax districts, and community college districts belongs and to determine the tax’s voter-approval are special taxes. requirement. Below, we define each of these • Tax Dedicated to a Specific Purpose. A categories of taxes and discuss the applicable voter- city or county tax dedicated to a specific approval requirements. purpose or specific purposes—including a Requirements Vary to Increase Property Tax tax for a specific purpose deposited to the for Infrastructure Bonds. As discussed above, agency’s general fund—is a special tax. All the property tax may be raised only to (1) pay non-property taxes that cities and counties debt approved by voters prior to July 1, 1978 and are authorized to levy may be raised as (2) finance infrastructure bonds. Additional, voter special taxes. approval is not required to increase property tax to pay debt approved by voters prior to July 1, 1978. • Tax Levied on Property. All taxes levied Voter approval is required to increase the property on property other than the property tax— tax to finance infrastructure bonds. The voter- typically parcel taxes—are special taxes. approval requirement to raise property taxes to fund bonds depends on the type of infrastructure Election Timing project to be funded. Generally speaking, property State Law Establishes Official Election Dates. tax increases for infrastructure bonds require State law designates four dates as established approval by two-thirds of local voters. Property election dates: (1) the second Tuesday in April in tax increases for school facility bonds that satisfy even-numbered years, (2) the first Tuesday after certain conditions, however, can be approved by the first Monday in March in odd-numbered years, 55 percent of local voters. These requirements are (3) the first Tuesday after the first Monday in June described in more detail in Figure 4 (see page 6). in each year, and (4) the first Tuesday after the Simple Majority Approval Is Required for first Monday in November in each year. Statewide General Taxes. A general tax requires approval by elections generally are held in June and November a simple majority of voters. (A simple majority is in even-numbered years. Local government 50 percent of voters plus one additional voter.) A elections—including elections called for voter general tax is a tax (1) levied by a general purpose approval of taxes—generally must be held on an government—city or county—and (2) expended, established election date or at a special election at the discretion of the local government’s called by the Governor. This requirement does not governing body, on any programs or services. All apply to: 4 Legislative Analyst’s Office www.lao.ca.gov Graphic Sign Off Secretary Analyst MPA AN LAO BRIEF Deputy Figure 3 How to Determine the Voter-Approval Threshold for a Proposed Local Government Chargea Is the charge a: Fine or penalty for violating the law? Entrance fee or charge for use of government property? The charge is Property development charge or YES not a tax and Proposition 218 charge? voter approval is not required. Charge for a specific service, benefit, or product provided directly and exclusively to the payer? Charge for direct regulation? NO The charge is a tax. Is it an ad valorem property tax used to finance infrastructure bonds? NO YES Will the tax be used to fund a Will a special district, school school facilities bond? YES district, or community college The tax is an district levy the tax? ad valorem property YES NO tax and requires NO approval from The tax is a special two-thirds of tax and requires YES Will the tax be levied on voters. approval from parcels of property? Do all of these conditions two-thirds of voters. apply to the bond measure? NO Funds will be used only for school facilities and will be subject to an annual audit and citizens YES Will the tax be dedicated oversight committee review. to a specific purpose? Measure includes a specific list of projects. NO Two-thirds of governing board approved the bond. NO Measure on a statewide or regularly scheduled local election. Property tax will not exceed levels specified in state law. The tax is a general YES tax and requires approval from a simple majority of voters. The tax is an ad valorem property tax and requires approval from 55 percent of voters. a This graphic excludes property tax increases to pay debt approved by voters prior to July 1, 1978. Template_LAOReport_fullpage.ait ARTWORK #140103 www.lao.ca.gov Legislative Analyst’s Office 5 AN LAO BRIEF • Elections of charter cities and charter each year, (2) the first Tuesday after the first counties (cities and counties that are Monday in March in even-numbered years, governed primarily by their own charter and (3) the last Tuesday in August in each as opposed to state law) as these local year. government are generally free to select Additional Limitations Apply to Some Taxes. their own election dates. Local governments may call an election to seek approval of a special tax or bond measure (except • Elections of school districts that have for school facilities bond measures subject to a consolidated their election with a city or 55 percent voter-approval threshold) on any date county. allowed in state law or authorized in their local • Elections for school facilities bond charters. Additional limitations, however, apply to measures that are to be approved by elections for general taxes and school facilities bond two-thirds of local voters. measures subject to a 55 percent voter-approval threshold. General taxes must be decided at a • All-mail ballot elections, which may be regularly scheduled local election, except in the held on one of three dates: (1) the first case of an emergency declared by a unanimous vote Tuesday after the first Monday in May in Figure 4 Conditions a School Facilities Bond Must Meet to Qualify for 55 Percent Voter Approval 9 The bond measure includes: • A requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities. • A specific list of projects to be funded and certification that the school district board or community college board has evaluated safety, class size reduction, and information technology needs in developing the list. • A requirement that the school district board or community college board conduct annual, independent financial and performance audits until all bond funds have been spent to ensure that the bond funds have been used only for the projects listed in the measure. 9 Two-thirds of the governing board of the school district or community college district approve placing the bond measure on the ballot. 9 The bond measure is decided at a statewide primary, general, or special election or a regularly scheduled local election. 9 The property tax rate levied as a result of any single election will not exceed $60 (for unified school district), $30 (for a school district), or $25 (for a community college district), per $100,000 of taxable property value. 9 The bonds issued, when combined with other bonds issued by the district, will not exceed 1.25 percent of property value in the district or 2.5 percent of property value in unified school districts and community college districts. 9 The governing board of the school district or community college district appoint a citizens’ oversight committee to inform the public concerning spending of the bond revenues. 6 Legislative Analyst’s Office www.lao.ca.gov AN LAO BRIEF of the local government’s governing body. (This scheduled elections.) School facilities bond measures requirement applies to charter cities and charter subject to a 55 percent voter-approval threshold must counties, although these entities generally have be decided at a regularly scheduled local election or a broad authority to set the dates of their regularly state primary, general, or special election. HOW CALIFORNIA’S REQUIREMENTS EVOLVED California’s voter-approval requirements for government annually determined the amount local taxes evolved over multiple decades, as can of property tax revenue necessary to finance the be seen in Figure 5. In this section, we discuss the desired level of services and set its property tax major events in the evolution of voter-approval rate—by a vote of its governing board—to collect requirements for local taxes. that amount. A property owner’s property tax Prior to Proposition 13, Most Taxes Could bill reflected the sum of the individual rates set Be Raised Without Voter Approval. Local by each taxing entity serving the property. State governments generally could raise or lower a tax law provided most local governments very limited without the assent of local voters prior to voter authority to levy other non-property taxes. Cities, approval of Proposition 13 in 1978. For most especially charter cities, were an exception as they local governments, the property tax was the most had greater authority to levy non-property taxes. significant source of local tax revenue. Each local Although voter approval generally was not required Figure 5 Major Milestones in the Development of Voter-Approval Requirements for Local Taxes Year Event Significancea 1978 Proposition 13 • Lowered the property tax rate to a maximum of 1 percent (for general purposes). • Required special taxes to be approved by two-thirds of voters. 1982 City and County of • Defined a special tax as a tax levied for a specific purpose. San Francisco v. Farrell 1986 Proposition 46 • Allowed local governments to raise the property tax rate to finance infrastructure bonds if approved by two-thirds of local voters. 1986 Proposition 62 • Required general taxes to be approved by a simple majority of voters. (Did not apply to charter cities.) 1996 Proposition 218 • Required all general taxes to be approved by a simple majority of voters. • Defined a special tax as all taxes (1) levied by special districts and school and community colleges districts and (2) used for specific purposes. • Required all parcel taxes to be levied as special taxes. 2000 Proposition 39 • Lowered the voter-approval threshold for school facilities bond measures to 55 percent. 2010 Proposition 26 • Narrowed the scope of charges that local governments can levy without voter approval. a Excludes provisions related to state taxes or local assessments and fees. www.lao.ca.gov Legislative Analyst’s Office 7 AN LAO BRIEF for local taxes until 1978, as discussed in the by two-thirds of local voters. However, the measure nearby box, voter-approval requirements for local did not explicitly define the term special taxes and government debt date back to the 19th century. different local governments interpreted this term Proposition 13 Fundamentally Altered Local differently. Notably, the City and County of San Government Finance. In June 1978, California Francisco suggested an alternative definition of a voters approved a constitutional amendment special tax: a tax levied for a specific purpose. Based that fundamentally changed local government on this reasoning, in 1980 the City and County of finance. (Proposition 13 also required state taxes San Francisco increased a tax on businesses for to be approved by two-thirds of both houses of general government purposes without obtaining the Legislature. Requirements for state taxes approval of two-thirds of voters. The legality of are not discussed in this report.) Specifically, the new business tax was challenged—in City and Proposition 13 lowered the aggregate property tax County of San Francisco v. Farrell—and, in 1982, rate in each county to a constitutional maximum the California Supreme Court ruled in favor of San of 1 percent (plus amounts necessary to pay debt Francisco. In doing so, the Court defined a special approved by voters prior to Proposition 13) and tax as a tax levied for a specific purpose, as opposed assigned responsibility for property tax allocation to a tax used for general government purposes. to the state. In effect, Proposition 13 eliminated (This ruling is hereafter referred to as the Farrell local government control over property taxes and decision.) By extension, taxes levied for general immediately reduced local government property government purposes, general taxes, were not tax revenues by more than 60 percent. subject to voter approval. Voter Approval Required for “Special Taxes.” Voter-Approval Requirements Extended to Proposition 13 also required special taxes levied by General Taxes. Following Proposition 13, many local governments to be approved by two-thirds of cities that had historically been reliant on the local voters. At the time of Proposition 13’s passage, property tax began to enact other non-property the ramifications of this provision were unclear. taxes. Business taxes, hotel taxes, and utility Some supporters of Proposition 13 indicated taxes that had comprised a small portion of city that they intended special taxes to refer to all revenue prior to Proposition 13 began to comprise non-property taxes levied by local governments, a growing share of city revenues. In many cases, thereby requiring all new local taxes to be approved these taxes were enacted as general taxes and, Vote Requirements for Local Debt Were Established in the 19th Century The State Constitution of 1879 required most local governments to obtain approval from two-thirds of local voters prior to issuing long-term debt. While these requirements remain in effect today (voters relaxed these requirements for school facilities bonds in 2000), the breadth of their application has declined over time. Various types of long-term obligations commonly incurred by local governments—such as lease-revenue bonds, certificates of participation, pension obligation bonds, and pension liabilities and other retiree benefits—have not been held to be debt subject to voter-approval requirements. Long-term obligations not subject to voter-approval were far less common among local governments over a century ago than they are today. 8 Legislative Analyst’s Office www.lao.ca.gov AN LAO BRIEF therefore, did not require voter approval. In Proposition 218 Adds Voter-Approval response to this trend, in 1984 the proponents Requirements to the State Constitution. In of Proposition 13 advanced another initiative November 1996, voters approved Proposition 218, constitutional amendment, Proposition 36, that which added to the State Constitution a collection would have required all local government tax of voter-approval requirements for local taxes. increases (both general and special taxes) to be Proposition 218 also made other important approved by two-thirds of local voters. Voters changes to local government finance, which are did not approve Proposition 36. Two years later, summarized in the box on page 10. In several voters approved Proposition 62, which required respects, Proposition 218 simply constitutionalized general taxes to be approved by a simple majority aspects of the voter-approval system that of local voters. Proposition 62 also reiterated that already existed in statute and case law. First, special taxes must be approved by two-thirds Proposition 218 reinforced Proposition 62’s of local voters. Some challenged Proposition 62 simple majority approval requirement for general in court, arguing that it (1) constituted an taxes. In doing so, Proposition 218 extended unconstitutional referendum on taxes and (2) as a voter-approval requirements of general taxes to statutory measure, did not apply to charter cities, all local governments—including charter cities. which derive their taxing authority from the State Proposition 218 also largely affirmed the Farrell Constitution. In 1990, prior to the California decision’s definition of special taxes—special Supreme Court ruling on Proposition 62, voters taxes are those dedicated for specific government rejected a measure (Proposition 136) proposing to purposes. Proposition 218 established in the amend the State Constitution to require, among State Constitution that special taxes are (1) all other provisions, simple majority voter approval taxes levied by special districts and school and of all local government general taxes. Five years community colleges districts and (2) taxes later, the California Supreme Court upheld the for specific purposes, even if the revenues are constitutionality of Proposition 62, for all local deposited in an agency’s general fund. Finally, governments other than charter cities. Proposition 218 added to the State Constitution Legislature Authorizes Local Governments to the requirement that all parcel taxes must be Levy Parcel Taxes. While Proposition 13 capped approved as special taxes, thereby requiring them property taxes, it did not prohibit other levies on to be approved by two-thirds of local voters. property owners not based on a property’s value. Proposition 218 also introduced a new requirement During the 1980s, the Legislature enacted a series that a general tax must be presented to voters at a of legislation that authorized local governments to regularly scheduled local election, except in cases of levy a new type of tax on property owners: the parcel an emergency declared by a unanimous vote of the tax. Unlike the property tax which varies based on a local government’s governing body. property’s value, a parcel tax is typically set at a fixed Voters Relaxed Proposition 13’s Limit amount per parcel (or fixed amounts per room or on Property Taxes. During roughly the same per square foot of the parcel). Under Proposition 13, period that two measures (Proposition 62 and parcel taxes are the only source of locally controlled, Proposition 218) were approved to expand the general purpose tax revenue for most special voter-approval requirements of Proposition 13, districts, school districts, and community college voters approved two measures that relaxed the districts. Constitution’s limitations on property taxes. www.lao.ca.gov Legislative Analyst’s Office 9 AN LAO BRIEF In June 1986, voters approved Proposition 46, measures proposed to lower the voter-approval which amended the provisions of Proposition 13 threshold (the proportion of voters that must to allow local governments to raise the aggregate approve a tax measure) for school facilities bond property tax rate for the purpose of financing measures. Specifically, Proposition 170 (November infrastructure bonds if approved by two-thirds 1993) and Proposition 26 (March 2000) proposed of local voters. (Property tax increases to fund to lower the voter-approval threshold from infrastructure bonds are hereafter referred to as two-thirds to a simple majority. These measures “bond measures.”) Following Proposition 46, three were not approved by voters. The third measure, Proposition 218 Addressed More Than Voter Approval of Taxes Proposition 218, a constitutional amendment approved by voters in November 1996, added to the State Constitution a collection of voter-approval requirements for local taxes. Proposition 218 also constrained the revenue-raising capacity of local governments in other ways, described below. Tightened Approval Requirements for Property Assessments. Local governments may levy a charge, known as an assessment, on property owners to pay for a particular public improvement or service—such as flood control improvements, streets, lighting, and landscaping—that benefits the properties. Assessment rates are linked to the cost of providing the service or improvement. Proposition 218 established requirements local governments must follow to impose an assessment. First, a local government must verify that property owners would receive a specific, direct benefit from the project or service being funded by the assessment. Second, a local government must estimate the cost of providing the specific benefit to each property owner. Next, each property owner’s assessment should be set such that the assessment does not exceed his or her proportional share of total costs. Finally, the local government must notify all affected property owners by mail. Each assessment notice must contain a mail-in form for the property owner to indicate his or her approval or disapproval of the assessment. The assessment may be imposed only if 50 percent or more of these forms, weighted by the assessment amount each property owner will pay, support the assessment. Constrained Local Government Authority to Impose Certain Fees on Property Owners. Proposition 218 limits local government authority to impose “property related fees.” This term is defined as fees imposed “as an incident of property ownership” and includes fees such as those for garbage service, sewer service, and storm water management. Under Proposition 218, revenues from these fees may not be used for a general governmental service or for a service not immediately available to the fee payer. In addition, the amount of the fee may not exceed the local government’s proportionate cost to provide the service to the property owner. Finally, Proposition 218 specifies that, before imposing or increasing these fees, the local government must (1) mail information to fee payers, (2) reject the fee if written protests are presented by a majority of the affected property owners and (3) hold an election except for fees for water, sewer, and refuse collection. Voters Given Power to Reduce or Repeal Taxes and Other Charges Via Initiative. Proposition 218 also included a provision which expressly authorizes local residents to reduce or repeal any local tax, assessment, or fee through the initiative process. 10 Legislative Analyst’s Office www.lao.ca.gov AN LAO BRIEF Proposition 39, approved by voters in November to approve new fees—which can be imposed by 2000, lowered the voter-approval threshold to a majority vote of the governing board without 55 percent for school facilities bond measures voter approval—than to approve new taxes. meeting certain conditions. Proposition 39 and Proposition 26, approved by voters in November legislation enacted to implement Proposition 39— 2010, amended the State Constitution to recast as Chapter 44, Statutes of 2000 (AB 1908, Lempert), taxes some charges that local governments formerly as amended by Chapter 580, Statutes of 2000 could levy without voter approval. (Proposition 26 (AB 2659, Lempert)—defined the conditions a bond also recast as taxes certain charges that the measure must satisfy to qualify for a 55 percent Legislature formerly could impose as fees.) Under voter-approval threshold. These conditions are Proposition 26, a local government levy, charge, described in Figure 4 on page 6. or exaction is a tax and subject to voter approval Proposition 26 Broadened the Definition of unless it meets at least one of seven exemptions. a Tax. It generally is easier for local governments Figure 2 on page 3 lists these exemptions. A LOOK AT ELECTION RESULTS Over the past 15 years, voters have considered Investment Advisory Commission summary over 3,000 local tax and bond measures (property reports of state and local elections and (2) the tax increases to fund infrastructure bonds) under California Elections Data Archive maintained by the rules described earlier in this report. In this the Institute for Social Research at California State section, we discuss the main findings of our review University, Sacramento. These sources provide of the outcomes of these measures. the outcomes of most local tax and bond measure elections over the period 1998-2012. The dataset • The passage rate of tax and bond measures does not include information about measures increased during the past 15 years. proposed by special districts at local special • Proposition 39 led to a substantial increase elections. in the passage rate of school facilities bond Passage Rates of Tax and Bond measures. Measures Have Increased • Voter support of tax and bond measures Tax Measures Are Now Passing More is influenced by many factors, including Frequently. As Figure 6 shows (see next page), the location, revenue sources, use of the statewide passage rate of tax measures increased revenues, and election timing. over the period 1998-2012. Voters approved a little • Variation in voter-approval requirements less than half of tax measures in 1998, compared results in variation in passage rates. with nearly two-thirds of tax measures in 2012. Certain taxes, subject to a higher voter- The increase in the passage rate of tax measures approval threshold, pass less often despite does not appear to reflect an increase in voter receiving more yes votes. support for taxes because the average percent of electors voting yes for tax measures was fairly flat About the Data. We compiled data from during this period. Instead, the upward trend in the two primary sources: (1) California Debt and www.lao.ca.gov Legislative Analyst’s Office 11 Graphic Sign Off Secretary Analyst MPA Deputy AN LAO BRIEF Proposition 39’s reduction Figure 6 in the voter-approval Passage Rate of Local Tax threshold for school facility Measures Increased Over Past 15 Years bonds, which comprise a significant majority of 70% local bond measures. As 60 Figure 7 shows, the passage 50 rate of school facilities 40 bonds increased by almost 30 30 percentage points Average Percentage of Electors Voting Yes on Tax following voter approval of 20 Passage Rate Proposition 39 in 2000. In 10 the 12 years following voter approval of Proposition 39, 98-99 00-01 02-03 04-05 06-07 08-09 10-11 2012 83 percent of Proposition 39 school facilities bonds Graphic Sign Off passed, compared to passage rate of tax measures appears to be due to an 54 percent of bonds for the 12 year period prior to Secretary increase in the number of proposed general taxes Proposition 39. Factors other than Proposition 39’s Analyst relative to the number of proposed special taxes. change in the voter-approval threshold for school MPA Largely because general taxes are subject to a lower ARTWORK #140103 voter-approval threshold, general taxes typically facilities bonds—such changes in availability of Deputy state matching funds or the various transparency pass more often thanT sepmecpialal tteax_eLsA.OReport_mid.ait requirements for Proposition 39 school facilities Passage Rate of Bond Measures Increased bonds—could have contributed to the increase in Significantly Following Proposition 39. The statewide passage rate of bond measures also increased during Figure 7 this period. Voters approved School Bond Passage Rates 58 percent of bond measures Increased After Proposition 39 in 1998, compared with Proposition 39 80 percent in 2012. Similar 90% to tax measures, the increase 80 in the passage rate of bond 70 measures does not appear to 60 reflect an increase in voter 50 support for bonds. The average 40 percent of electors voting 30 Average Percentage of Electors Voting Yes on Bond yes on bond measures was 20 Passage Rate roughly flat during this period. 10 Rather, the increase in the passage rate of bond measures 89-90 91-92 93-94 95-96 97-98 99-00 01-02 03-04 05-06 07-08 09-10 11-12 appears to be the result of 12 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #140103 Template_LAOReport_mid.ait AN LAO BRIEF the passage rate of these measures. However, the base—such as business taxes and hotel taxes—than fact that we find no increase in the percent of yes other types of taxes. Figure 9 (see next page) shows votes received by school facilities bond measures the number of approved and failed tax measures suggests that the effect of these other factors was by revenue source. As suggested by Figure 9, the limited. passage rates of business taxes (68 percent) and No Clear Trend In Passage Rate of Nonschool hotel taxes (60 percent) exceeded the passage Graphic Sign Off Bond Measures. Although the passage rate of rates of other major types of local government Secretary school facilities bonds increased, we find that there taxes, specifically utility taxes (57 percent), sales was no clear trend in the passage rate of nonschool taxes (54 percent), and parcel taxes (51 percent). Analyst bond measures. During this period, voters Although business and hotel taxes passed more MPA approved 57 percent of nonschool bond measures. often, they represent less than 20 percent of Deputy approved tax measures (in part because only Location, Revenue Source, and Purpose Figure 8 Affect Passage Rates Local Tax and Bond Measure Outcomes Vary Across Counties Taxes Passed More Often in Some Counties. The passage Greater Than 70 Percent rate of tax and bond 60 Percent to 70 Percent measures varies 50 Percent to 60 Percent significantly from Less Than 50 Percent county to county. Voters approved over 80 percent of tax and bond measures in some counties, while voters approved less than a third of measures in other counties. Figure 8 displays the passage rate for each county. A Higher Percentage of Taxes Paid by a Narrow Group Passed Than Other Types of Taxes. Voters approved a higher percentage of taxes levied on Note: According to our data, no measures were proposed in Alpine County between 1998 and 2012. a narrow taxpayer www.lao.ca.gov Legislative Analyst’s Office 13 Template_CA_County Map.ait ARTWORK# 140103 Graphic Sign Off Secretary Analyst MPA Deputy AN LAO BRIEF Election Timing Figure 9 Affects Passage Rates Which Types of Local Taxes Have Higher Passage Rates? Tax and Bond Number of Proposed Local Taxes by Type, 1998 to 2012 Measures More Likely Passage Rate to Pass at Off-Cycle Business Tax 68% Elections. As discussed Approved Tax Measures previously, local Hotel Tax Failed Tax Measures 60 governments have substantial autonomy Utility Tax 57 in deciding when to present tax and bond Sales Tax 54 measures to voters for approval. In examining Parcel Tax 51 city and county tax and 100 200 300 400 500 600 700 800 900 1,000 1,100 bond elections during the period 2002-2011, Graphic Sign Off cities and counties may impose these taxes). Over we found placing a two-thirds of approved measures were parcel taxes measure on a statewide ballot significantly affeScteedc retary and sales taxes (taxes that also may be imposed by its passage rate. (This analysis is limited to citieAs nalyst special districts and/or schools). and counties because voter registration data w M as PA ARTWORK #140103 Taxes for Education Pass More Often Than not readily available for other local governmen D ts e .) puty Taxes for Other Purp T o e s m es p . l E a d te u _ ca L t A io O n R -r e e p la o te r d t _ ta m x i d.ait During this period, the passage rate of city and and bond measures passed significantly more county tax and bond measures on a statewide ballot often than measures dedicated for other purposes. was 58 percent compared to 68 percent for measures Figure 10 not on a statewide ballot. shows the Figure 10 passage rates Taxes for Education Passed More Often Than Taxes for Other Purposes of taxes Passage Rate of Local Taxes by Purpose, 1998 to 2012 dedicated 80% to various 70 purposes. 60 Education- related 50 measures 40 also 30 comprised 20 a significant 10 majority (75 percent) School K-14 Nonschool Water Public Transportation Library Health Parks Facilities EducationInfrastructure Safety and of approved Bonds Bonds Recreation measures. 14 Legislative Analyst’s Office www.lao.ca.gov ARTWORK #140103 Template_LAOReport_mid.ait AN LAO BRIEF Voter Participation Is Higher at Statewide measures face a higher voter-approval threshold Elections . . . We also found that voter participation than school bond measures. One result of requiring was higher for tax measures on a statewide ballot. higher approval thresholds for some taxes is that On average, 55 percent of registered voters cast a they were approved less often than other taxes vote on city and county tax and bond measures on despite receiving more yes votes. For example, a statewide ballot, compared to only 30 percent of 58 percent of electors, on average, voted in favor registered voters for city and county measures not of city taxes, a significantly lower percent than the on a statewide ballot. percent voting for special district taxes (63 percent) . . . However, Voter Participation Does Not and school and community college district taxes Appear to Explain Differences in Outcomes. (68 percent). Nonetheless, as Figure 12 shows (see Differences in voter participation, however, do not next page), city taxes passed about as often as appear to explain why measures on a statewide school and community college district taxes and Graphic Sign Off ballot are less likely to pass. Even among measures significantly more often than special district taxes. with roughly similar voter participation rates, Similarly, 63 percent of electors, on average, voted Secretary we found that the passage rate of measures on for city and county taxes for specific purposes, Analyst a statewide ballot fell below measures not on a compared to 55 percent of electors for general MPA statewide ballot. For example, measures with voter taxes. General taxes, however, passed considerably Deputy participation between 20 percent and 30 percent on more often than city and county taxes for specific a statewide ballot had a passage rate of 54 percent purposes—18 percent more general taxes passed compared to 74 percent for measures not on a than special taxes. statewide ballot. Additional comparisons are shown on Figure 11 Figure 11. No Clear Relationship Between Voter Participation and Tax Measure Outcomes Some Taxes Passed Less Frequently Despite Being Passage Rate of City and County Taxes, 2002-2011 Favored by More Residents Non-Statewide Elections 80% Statewide Elections California’s voter-approval 70 system for local taxes provides 60 50 for a higher voter-approval 40 threshold for certain types 30 of taxes than for others. 20 Specifically, special taxes and 10 bond measures are subject Less Than 20% 20%-30% 30%-40% 40%-50% Greater Than 50% to a higher voter-approval Voter Participation threshold than general taxes. Additionally, nonschool bond ARTWORK #140103 wTewmwp.llaatoe.c_aL.AgOovR e pLeogrits_lamtiivde. aAitnalyst’s Office 15 Graphic Sign Off Secretary Analyst MPA Deputy AN LAO BRIEF Figure 12 Special District Taxes Received More Yes Votes But Passed Less Often Than City Taxes Average Percent of Electors Voting Yes on Tax 80% Passage Rate 70 60 50 40 30 20 10 Special Districts Cities School and Counties Community College Districts CONCLUSION ARTWORK #140103 Template_LAOReport_mid.ait California’s system of voter-approval Recently, the Legislature has shown interest in requirements is complex. As described in the exploring changes to voter-approval requirements first section of this report, local government for local taxes. In this report, we do not offer any approval requirements vary based on many factors, suggested changes to the state’s system of voter- including the type of local government raising approval requirements. Nonetheless, because our the tax, the revenue mechanism, and the use of analysis in the third section of this report shows the revenues. The system has become increasingly that the decisions Californians make about voter- complex in every decade since the 1970s. As approval requirements have significant implications discussed in the report’s second section, the current for local government finance, we suggest that system developed in a piecemeal fashion. Neither the Legislature and voters carefully weigh the the voters nor the Legislature have been asked to ramifications of any potential changes to these consider the current system as a complete package. requirements. LAO Publications This brief was prepared by Brian Uhler and reviewed by Marianne O’Malley. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This brief and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 16 Legislative Analyst’s Office www.lao.ca.gov