Corporate Interest Behind California's November Tax Proposition

It looks likely that California voters will be presented with the “Two-Thirds Vote for State and Local Revenue Increases Initiative” on the November 6th ballot. The proposition has potentially sweeping implications for our state governments and yet the push to certify and promote the measure is funded by out-of-state corporate interests. Californians may want to tie the fundraising hands of their cities, but they should only vote to do so with their eyes wide open about who is pushing the initiative.

The ballot measure is quite complex but has one overriding purpose – to make it more difficult for the state and its local governments to raise revenue. It rewrites major portions of Article XIII of the California Constitution, which governs taxation.

Currently, taxes are categorized as either ‘general’ taxes or ‘special’ taxes. General taxes are collected for general use and, after approval by local government, require majority approval by the electorate. Special taxes are collected for a specific use and, also after approval by local government, require 2/3 approval by the electorate. There are some subtleties embedded in these figures that I do not address; the level of electorate vote is sufficient to illustrate the effect of this ballot measure. As the measure’s title indicates, it requires a 2/3 vote from elected bodies as well as a 2/3 vote from electorates to raise or extend taxes. This is a substantial increase over our current ‘general’ tax regime and a de facto increase over the ‘special’ tax regime.

The measure also applies its 2/3 voting requirements to publicly sponsored ballot initiatives. The 2/3 electorate voting threshold for ‘special’ taxes in our current system only applies to taxes proposed by ‘local government’. Last year, the court in California Cannabis Coalition v. City of Upland, 401 P.3d 49 (2017), held that ‘local government’ does not include public ballot initiatives. Therefore, publicly proposed ‘special’ tax ballot initiatives only require majority approval. After the ruling, State Senator Scott Wiener (D-11) said, “It’s hard to overstate how important this ruling is. Communities will now have a much easier time funding schools, transportation and other critical needs.” This proposed measure expressly subjects public tax ballot measures to the same 2/3 vote requirement as taxes proposed by local governments.

The measure makes many other changes. It subjects existing taxes to a vote if a municipality expands geographically. It reduces the number of exempt levies, government charges that are not subject those these voting requirements, from 7 to 6. It narrows the applicability of the exemptions that remain. And, it raises the burden of persuasion for governments that contend their levies are exempt. These are just some of the changes that this ballot measure proposes.

The impact of this measure on state and local revenues is potentially profound. California’s legislative analyst and director of finance foresee the potential for a “substantial decrease in annual local revenues.” The measure may not lead to a decrease in state and local funding at all, if elected bodies and the people want to raise taxes. The immediate impact of this measure is that more state and local levies will be subject to votes and those votes will require much more support to pass. In the long run, that will undoubtedly reduce government revenues.

California has high taxes. Republican gubernatorial candidate Travis Allen said that California’s taxes are “among the highest in the nation.” Politifact rated his claim as mostly true. California’s top income tax rate of 13.3% is the highest in the country, although only a small fraction of citizens actually pay that rate. California has the highest sales tax in the nation, at 7.25%. Although not all California taxes are so high, California’s property tax rate is the 36th highest in the country thanks to a longstanding cap on annual increases at 2%, it is understandable if some Californians want to curtail their governments’ ability to raise more revenue.

At first glance, it seems like the measure has received overwhelming support. As of June 16, 2018, campaign contributions in support of the measure totaled $6.235 million against $0 in opposition. But looks are deceiving. Of that total, $5,050,000 came from the American Beverage Association. Their membership consists largely of bottling and beverage companies from outside of California. Members include a host of Coca-Coca and 7UP bottling subsidiaries (e.g., Bainbridge Coca-Cola Bottling Co. (Bainbridge, GA) & Baton Rouge Coca-Cola (Baton Rouge, LA)), other companies from around the country (M.G. Newell Corporation (Greensboro, NC)), and even international corporations (e.g., Beezz International (United Arab Emirates)). Chevron Corporation contributed $145,000 and Andeavor gave $400,000. Andeavor is an oil refining, distribution, and marketing company that works with Shell, Exxon, Arco, and other gasoline brands. They are headquartered in Texas and have refining and distribution assets strewn across the Western United States, from Wisconsin and Washington down to New Mexico and Arizona.

These companies are not funding the promotion of this ballot measure because they are concerned for the welfare of California citizens. Their primary goal is proactively fight ‘sin’ taxes. The American Beverage Association is concerned about taxes on sugary beverages, which are a direct and effective way to fight the obesity epidemic. Chevron and Andeavor are concerned about gas taxes, which are an effective and progressive tool to reduce unnecessary driving, incentivize more people to use public transportation, and reduce our carbon footprint. As described by Alma Hernandez, Treasurer of the Committee to Protect our Communities, “[w]hile proponents argue that this initiative is about giving more control to taxpayers, make no mistake about it, this is an attempt by Big Soda to end local ballot fights, and rig the rules to make it much harder to pass local soda taxes as well as other corporate offset fees.” Carolyn Coleman, the group’s Executive Director, condemned these corporations’ attempts to interfere “with our cities’ ability to raise revenues to pay for local services” like libraries, parks, medical emergency response, police, fire, sewers, and roads, as “overreach that will hurt California’s quality of life for generations to come.”

Californians may want to make it more difficult for their state and local governments to raise revenue in the future. Before voting to do so, Californians must understand two things. First, the measure puts very significant restraints on governments’ and citizens’ ability to raise revenue. Second, the measure is promoted by out-of-state corporate interests who are afraid of taxes that are targeted at mitigating some of the most extreme social excesses of our time, the obesity epidemic and climate change.