SF judge’s ruling on tax measures could have statewide implications

SAN FRANCISCO -- Applying a 2017 state Supreme Court decision, Judge Ethan Schulman ruled two San Francisco ballot propositions only needed a majority to pass because they were appropriately brought by voters.

The opinion reinforces a growing trend of local politicians introducing seemingly contentious tax laws through the initiative process rather than bringing it themselves, potentially reshaping the way in which local governments pass new taxes.

"Nothing in the ballot materials suggested that the voters intended to constrain the power of the initiative," Schulman wrote in his order dismissing the challenges to the ballot measures. "To the contrary: the crux of the concern repeatedly reflected in the ballot materials is with local governments and politicians, not the electorate, imposing taxes."

Laura Murray of the Howard Jarvis Taxpayers Association said she will be appealing the decision.

"Another review is inevitable," she said, referring to the state Supreme Court again weighing in on the issue.

San Francisco voters passed Proposition C to fund homelessness programs in June, but the city controller is setting the funds aside until the legal challenges are resolved.

The dispute stemmed from a lawsuit over a November ballot measure, also called Prop. C, to fund child care services and early education by raising taxes on commercial rents, a complaint in which plaintiffs argued the state Constitution requires the law be passed by two-thirds of voters as opposed to 50% plus one.

Both propositions passed with a simple majority.

The uncertainty revolves around the phrase "local government" in the state Constitution and a 2017 state Supreme Court decision. California Cannabis Coalition v. City of Upland, 3 Cal. 5th 924 (2017).

City officials issued a memorandum following the Upland decision, arguing taxes proposed by citizens now only require a simple majority. They interpreted the state Supreme Court choosing not to define local government to mean voters are excluded from the scope of the phrase.

"[The state Supreme Court] opinion relies on the Court's duty to protect and liberally construe the people's constitutional right to direct democracy," wrote Deputy City Attorney Burk Delventhal in the memo following the opinion.

Anti-tax groups argued nothing changed from the status quo. Howard Jarvis Taxpayers Association v. City and County of San Francisco, CGC-18-568657 (S.F. Super. Ct., filed Aug. 3, 2018).

Schulman vindicated City Attorney Dennis Herrera on Friday, finding the challenge by the anti-tax groups "easily dismissed" because they "supply no convincing evidence."

Murray said Schulman "has gone out on a limb here" since politicians will now exploit a "loophole" in which they can bypass the need to get a two-thirds majority to pass a tax law by having voters introduce it themselves.

Oakland voters passed Measure AA to fund early childhood education programs in November 2018, which was promptly challenged by homeowner and landlord groups arguing the certification of the law is illegal.

Fresno's Measure P funded parks, recreation, streets and arts, but the city invalidated the ballot measure because officials determined it needed a two-thirds majority to pass.

The challenges are pending at the trial courts.

"The implication of the [California Supreme Court] majority, if applied, would be absurd, and that's what we have happening now," Murray said. "Now any local government can use the citizens' initiative process and completely ignore the two-thirds vote requirement."

Public finance attorney Lutfi Kharuf of Best Best & Krieger LLP said the state high court's ruling left the "competing interests" of safeguarding voters' initiative powers and limiting the ability of local governments to impose or increase general taxes an "open question."

"I can understand both sides of the argument," Kharuf said. "But I don't see a specific line in that decision that would allow or prohibit it."