Staff Report. Considering adoption of Resolution No opposing the Tax Fairness, Transparency, and Accountability Act of 2018

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1 6.e Staff Report Date: May 8, 2018 To: From: Prepared by: Subject: City Council Valerie J. Barone, City Manager Joelle Fockler, MMC, City Clerk (925) Considering adoption of Resolution No opposing the Tax Fairness, Transparency, and Accountability Act of 2018 Report in Brief The Tax Fairness, Transparency, and Accountability Act of 2018 is an initiative sponsored by the American Beverage Association, the Trade Association of Soda Companies, and the California Business Roundtable, which represents some of the largest corporate interest groups in California. The Act would eliminate the current authority of cities and counties to enact a tax for general purposes with approval from a simple majority of voters and instead would require a 2/3 rd vote of support for any new taxes, retroactive to January 1, It would also require a super majority vote of City Council members to enact fees for services, making it harder for communities to fund services and recover costs. Recommended Action Adopt Resolution No opposing the Tax Fairness, Transparency, and Accountability Act of 2018 and direct staff to undertake advocacy efforts to communicate the City s opposition among local members of the California Business Roundtable and other groups supporting this initiative. Background The California Business Roundtable and other business associations are coordinating a signature-gathering campaign for a state ballot measure called The Tax Fairness, Transparency, and Accountability Act of 2018 (the Act). If the Act qualifies for the ballot, this initiative would amend both Proposition 26 and Proposition 218, severely eroding the ability of local government to raise revenue to support operations. Page 1 of 5

2 City Council Agenda Report Agenda Item No. 6.e May 8, 2018 Approved by the voters in November 1996, Proposition 218 requires voter approval of any tax or property-related assessments and established approval thresholds depending on the tax purpose. General taxes require a simple majority of the voters to approve, while specific purpose taxes require a two-third, or super majority, vote of approval. Proposition 26 was approved by voters in the November 2010 election, which amended the California Constitution to define what constitutes a local tax. A tax was defined as any levy, charge, or exaction of any kind imposed by a local government This broad definition was accompanied by several exceptions, including fees for a special benefit or privilege; a government service or product; licenses and permits; use of local government property; fines and penalties; property development; and the Prop 218 exception for property assessment and property-related fees. These exceptions allowed local jurisdictions to approve new and amended fees by a simple majority vote of local council members or supervisors. Analysis In general, the proposed Act would eliminate the current distinction between general and special taxes with their differing vote thresholds, and would require a two-thirds vote by the local electorate to levy any new or amended local tax. It also requires any fees to be approved by a two-third, or super majority, vote by the Council. The Act is also retroactive, and includes language invalidating any new or amended taxes or fees approved after January If passed, the Act would require that any fees or taxes approved after January 1, 2018, be re-approved by a supermajority of the voters or council members for those taxes or fees. In addition, the Act also requires that any new local government fee not exceed the actual cost of providing that service, while current law specifies that the fee cannot exceed the reasonable cost of providing that service; therefore, the proposed change represents a much more exacting standard, which will be harder to defend if legally challenged. If passed, the Act would require any local tax placed on the ballot to specifically identify how the revenues will be spent with binding and enforceable actions and require all local tax measures to appear only on a regularly scheduled general election ballot unless an emergency is declared by the authorizing governing body with a unanimous vote. Finally, for the first time, locally approved fees can be challenged through a voter referendum, which would only require 5% of the affected voters to sign a petition requesting voter consideration of Council approved fees. Potentially, a small minority of voters could roll back cost recovery fees and much needed revenue to support operations. Page 2 of 5

3 City Council Agenda Report Agenda Item No. 6.e May 8, 2018 This measure is bankrolled by the American Beverage Association, made up of soda companies. In 2016, the Association spent more than $25 million opposing local soda tax measures that required a majority vote, and has already spent more than $3.5 million to qualify this measure for the November 2018 ballot. The other main sponsor of the initiative is the California Business Roundtable, which is made up of California s largest corporations, including oil companies, insurance companies, banks (such as Wells Fargo), and pharmaceutical companies. This Act would severely harm the ability of local governments to continue to provide quality services in an already difficult climate of constrained budgets, severely limiting local control. As a result, the League of California Cities is strongly recommending that cities adopt a resolution opposing the Tax Fairness, Transparency and Accountability Act of 2018 and undertake local advocacy efforts communicating city opposition to local members of the California Business Roundtable and other groups supporting this initiative. In Concord, such outreach would include Wells Fargo, ComCast, Chevron, PepsiCo, and Granite Construction. Financial Impact There is no fiscal impact associated with passing this resolution or conducting advocacy efforts other than staff time. If the Act qualifies and is passed by California voters in the November 2018 election, the ability for the City of Concord to raise and manage revenue could be significantly impacted. The State s Legislative Analyst s Office notes that by expanding the definition of taxes and increasing vote thresholds for certain taxes and fees, the measure makes it harder for local governments and initiative proponents to increase local revenues. Roughly half of recently enacted sales, business, hotel, and utility general tax measures would have failed if the measure's increased vote threshold requirements were in effect, suggesting that the reduction in local tax revenue could be substantial. Public Contact The City Council Agenda was posted. Attachment 1. Resolution No Page 3 of 5

4 Attachment BEFORE THE CITY COUNCIL OF THE CITY OF CONCORD COUNTY OF CONTRA COSTA, STATE OF CALIFORNIA A Resolution Opposing the Tax Fairness, Transparency and Accountability Act of 2018 Resolution No / WHEREAS, California's cities, counties and special districts follow strict guidelines and existing state law regarding the establishment of reasonable fees and the required voter approval of all local taxes; and WHEREAS, the California Business Roundtable, the American Beverage Association and the Trade Association of Soda Companies are sponsoring a signature-gathering campaign the place the Tax Fairness, Transparency and Accountability Act on the November state ballot, which would amend existing laws to require a super majority of voters to approve any new taxes, even general purpose ones, and a super majority Council Members to approve any new fees; and WHEREAS, this initiative would also invalidate any new taxes or fees adopted after January 1, 2018, without re-authorization by voters or the local legislative body; and WHEREAS, this initiative would also require that any new fee not exceed the actual cost of providing that service, rather than the reasonable cost of providing that service, creating a more exacting standard that is harder to defend legally if challenged; and WHEREAS, this initiative would severely harm the ability of local governments to continue to provide quality services by imposing onerous roadblocks to raising local revenue to address community needs, provide services and maintain infrastructure; and WHEREAS, it is important for local community members, in concert with their duly- elected officials, rather than special interest groups in Sacramento, to determine the services and funding levels appropriate for their own cities. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CONCORD DOES RESOLVE AS FOLLOWS: Section 1. The City of Concord does hereby oppose the Tax Fairness, Transparency and Accountability Act of 2018 sponsored by the California Business Roundtable, the American Beverage Association and the Trade Association of Soda Companies as this measure would harm the ability of Page 4 of 5 Res. No

5 Attachment local communities to adequately fund services. Section 2. The City Manager is hereby directed to distribute a copy of this adopted resolution to the League of California Cities and to join advocacy efforts to oppose this measure, sharing this resolution with the Chamber of Commerce and local members of the aforementioned Associations. Section 3. This resolution shall become effective immediately upon its passage and adoption. PASSED AND ADOPTED by the City Council of the City of Concord on May 8, 2018, by the following vote: AYES: Councilmembers - NOES: Councilmembers - ABSTAIN: Councilmembers - ABSENT: Councilmembers - I HEREBY CERTIFY that the foregoing Resolution No was duly and regularly adopted at a regular meeting of the City Council of the City of Concord on May 8, APPROVED AS TO FORM: Susanne Meyer Brown City Attorney Joelle Fockler, MMC City Clerk Cc: League of California Cities, cityletters@cacities.org 28 Res. No Page 5 of 5