Constitutional limitations to raising revenue are becoming increasingly relevant for water and other governmental agencies as well as their customers and landowners in response to aging infrastructure, climate change and regulatory requirements (see May 16, 2024, alert here). Last Thursday, the California Supreme Court issued a major win to the state and local governments when it ruled unanimously to bar an anti-tax initiative measure known as the Taxpayer Protection and Government Accountability Act (“TPA”) from appearing on the November 2024 ballot. (Legis. of the State of Cal. v. Weber (June 20, 2024, S281977) __ Cal. __ ). Cities, agencies and labor unions viewed the TPA as a threat to their ability to function efficiently and fund essential services in the state’s most sensitive communities. In contrast, business and taxpayer advocacy groups, led by the California Business Roundtable, argue that the court’s decision negatively interferes with the democratic system and diminishes citizen participation through the ballot initiative process.

The Court’s Ruling

The TPA is the latest in a series of initiatives intended to limit state and local governments’ ability to raise revenue. Propositions 13 (1978), 218 (1996) and 26 (2010) added procedural and substantive requirements on how state and local agencies impose taxes, assessments and fees. However, unlike these previous initiatives, the court held “the TPA would clearly ‘accomplish such far reaching changes in the nature of our basic governmental plan as to amount to a revision’ of the Constitution” because the TPA would: (1) limit the legislature’s plenary power to levy taxes; (2) alter the balance of power regarding fee setting among legislative bodies, executive agencies and the electorate; and (3) prohibit local governments from imposing any tax or charge without legislative approval or referendum. (Legis. of the State of Cal. v. Weber (June 20, 2024, S281977) __ Cal. __ [p.50], quoting Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 223.). Relying on this reasoning, the Supreme Court held that the TPA “exceeds the scope of the power to amend the Constitution via citizen initiative ... these changes ... must be undertaken in a manner commensurate with their gravity: through the process for revision set forth in article XVIII of the Constitution.” (Id.) Importantly, the court’s opinion does not pass judgment on the wisdom of policy choices within the TPA, and only stands for the proposition that a constitutional convention is required to amend the California Constitution consistent with the TPA.

What changes would the TPA have presented to the electorate?

Existing law requires affirmative supermajority (two-thirds) approval by both houses of the legislature (state taxes) or voters (local taxes) unless an exception applies. If it had been approved by voters through the initiative process, the TPA generally would have expanded voter approval requirements and narrowed the scope of exemptions. For example, the TPA would have:

• Required majority voter approval of state taxes, in addition to the existing requirement that both houses of the legislature approve by a two-thirds vote.
• Required legally enforceable expenditure limitations on state tax revenue. Changes to the expenditure limitation would have been subject to two-thirds approval by both houses of the legislature and majority approval by the electorate.
• Subjected exempt charges to referendum.¹
• Required two-thirds voter approval for taxes proposed by the electorate (i.e., by citizen initiative) instead of the existing majority approval requirement.²
• Required governing bodies of local governments or the electorate (via initiative) to impose non-taxexempt charges, prohibiting local governments from imposing taxes or exempt charges by charter amendment.
• Required any change in state law that could result in higher taxes or charges to be passed by a two-thirds vote in both houses of the legislature, limiting administrative agencies’ ability to impose exempt charges.
• Imposed a heightened burden of proof on state and local governments in litigation.

What comes next?

TPA supporters have indicated they are considering their options for continuing to promote the goals and principles of the TPA, including support of related and future anti-tax initiatives and legislation, opposition of proposed rollbacks of constitutional limitations, and potentially pursuing a constitutional convention to amend the California Constitution. We’ll keep you posted.

¹ This change was intended to overrule Wilde v. City of Dunsmuir (2020) 9 Cal.5th 1105.

² This change was intended to overrule California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924