1. IMPACTS OF PROPOSITON
26 ON LOCAL AGENCIES
Kelly J. Salt
BEST BEST & KRIEGER LLP

2. Proposition 26
• Adopted November 2, 2010.
• Restricts the ability of the state and local
agencies to raise revenues to fund government
services, facilities, and programs.
• Amends California
Constitution article XIIIC
by reclassifying certain
fees and charges as taxes.

3. Background
• Proposition 13 added
Article XIII A.
• Legislature adopted
Government Code sections
50075 and 50076.
• Proposition 4 added Article
XIII B.
• Proposition 218 added
Articles XIII C & D.

4. Regulatory Fees
• Sinclair Paint Co. v. State Board of
Equalization
– Fee assessed upon manufacturers of
materials that contributed to environmental
lead contamination could reasonably be
characterized as a “regulatory fee” and not a
special tax.
– Regulatory fees imposed to mitigate the past,
present, or future adverse impact of the fee
payer’s operations are valid.

5. Regulatory Fees Targeted
Proposition 26 targets fees which are
“couched as ‘regulatory’ but which exceed
the reasonable costs of actual regulation”
or which “are imposed to raise revenue for
a new program and are not part of any
licensing or permitting program.”

6. Article XIII C Section 1(e)
• As used in this article, “tax” means any
levy, charge, or exaction of any kind
imposed by a local government, except
the following:
– (1) A charge imposed for a specific benefit
conferred or privilege granted directly to the
payor 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.

7. Article XIII C, section 1(e)
– (2) A charge imposed for a specific government
service or product provided directly to the payor
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.
– (3) A charge imposed for the reasonable
regulatory costs to a local government for issuing
licenses and permits, performing investigations,
inspections, and audits, enforcing agricultural
marketing orders, and the administrative
enforcement and adjudication thereof.

8. Article XIII C, section 1(e)
– (4) A charge imposed for
entrance to or use of local
government property, or the
purchase, rental, or lease of
local government property.
– (5) 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. Article XIII C, section 1(e)
– (6) A charge imposed as a
condition of property
development.
– (7) Assessments and property-
related fees imposed in
accordance with the provisions
of Article XIII D.

10. Consequences of Proposition 26
If a fee is deemed to be tax pursuant to Section
1(e), then it will be classified either as a general
tax requiring a majority vote or a special tax
requiring a 2/3
voter approval
pursuant to
Article XIII C,
§2 (c) & (d).

11. Section 1(e)(1) & (2) – Benefits,
Privileges, Services, and Products
• (1) the fee or charge is imposed for a specific
benefit conferred or privilege granted, or specific
government service or product provided to the
payer of the fee; and
• (2) the same benefit is conferred, privilege is
granted, or service or product is also provided to
others who are not charged for such benefit,
privilege, service or product; and
• (3) the fee or charge exceeds the reasonable
costs of providing the benefit, privilege, service
or product.

12. Examples
• A city provides discounts to
seniors and students who
participate in a parks and
recreation ceramics class.
• A school district charges
students for a lunch
program and after school
care services, but provides
such products and services
for free to qualifying low
income students.

13. Examples
• A park district charges
different rates for swim
classes provided to adults,
children, and seniors.
• A city provides gas and
electrical service within its
jurisdiction and provides
discounts to low income
customers.

14. Examples
• A municipal water district provides
discounted water capacity and
connection charges for affordable
housing projects

15. Section 1(e)(3) – Regulatory Fees
A charge imposed for the reasonable
regulatory costs to a local government for
issuing licenses and permits, performing
investigations, inspections, and audits,
enforcing agricultural marketing orders,
and the administrative enforcement and
adjudication thereof.

16. Examples
• A city imposes a business license fee on
businesses that sell alcoholic beverages. A
portion of the revenues from the fee funds a
program to address public nuisances
associated with those sales.
• A city authorizes ministerial grading permits
for construction projects. The revenues
from the permit fees fund inspection of the
construction site, administration, and
enforcement.

17. Examples
• A city establishes regulations requiring
businesses that operate surface parking lots to
comply with best management practices to
prevent storm water run off. The city imposes
an inspection fee on such
businesses. A portion of
the fee is used to fund a
storm water prevention
education program in
local schools.

18. Examples
• A community services district adopts a fee to be
imposed on all persons who use grocery store
carryout plastic and paper bags. The fee is
imposed to mitigate the adverse impact that the
fee payer’s use of such materials has on the
district’s landfill.

19. Section 1(e)(3)
• A municipal water district adopts a
water conservation ordinance and
imposes an inspection fee on
property owners who violate the
ordinance. A portion of the fee is
used to fund a rebate
program for the
installation of low
volume water fixtures.

20. Examples
• A fire protection district imposes
an inspection fee on properties
located adjacent to canyons,
hillsides, and other open space
for brush management. A
portion of the inspection fee
funds an emergency
preparedness
education program.

21. Examples
• A county licenses all restaurants and food
establishments within its jurisdiction. The county
also establishes regulations prohibiting the use
of styrofoam in the distribution and sale of food
products. The purpose of the regulation is to
mitigate the adverse impacts that styrofoam has
on the county’s landfill. The revenues from the
county’s license fee are used to fund the
reasonable costs of issuing licenses, performing
investigations and inspections and enforcement
of the styrofoam regulations.

22. Section 1(e)(4)-(7) –
Fees Not Impacted
• Charges imposed for entrance to or use of local
agency property, or the purchase, rental, or
lease of local agency property;
• Fines, penalties, or other monetary charges
imposed by a court or local agency as a result of
a violation of law;
• A charge imposed as a condition of
development; and
• Assessments and property-related fees imposed
in accordance with Article XIII D.

23. Examples
• A city provides a discount to
local residents for green fees
at its municipal golf course
and entrance fees to its
aquatic centers.
• A county discounts the
special events fees paid by
non-profit organizations for
use of county parks.

24. Examples
• A city imposes a franchise fee on public
utilities (e.g., gas and electric utilities) for
the use of the public right-of-way and
other city property. The amount of the
franchise fee is five percent of the
franchisees’ annual income arising from
the use, operation, or possession of the
franchise.

25. Examples
• An irrigation district provides discounted rates to
low income water customers.
• A municipal water district prosecutes violations
of its water conservation ordinance and seeks to
impose a fine of $1,500 for a first violation.
• As a condition of approval of a development
project, a city imposes a fee of $2.5 million for
construction of a water pump station necessary
to serve the proposed project. The estimated
cost of the pump station is $1.5 million.

26. Examples
• A transit district provides
discounted transit fares to
students and the disabled.
• A county water district
provides discounted rates to
local residents for use of
boats at its local reservoir.

27. Examples
• A city levies an assessment for the maintenance
of landscape improvements within an
assessment district, but exempts city property
from the levy of the assessment.
• A community services district enters into a
franchise agreement with a solid waste hauler to
provide solid waste services to residential
property within the district. Pursuant to the
franchise agreement, the city collects a franchise
fee from the solid waste hauler.

28. Fees Grandfathered
• State fees reclassified as taxes, void
within twelve months of the effective date
of the constitutional amendments
• There are no similar repeal provisions for
local agency fees.

29. Burden of Proof
• Establishes
preponderance of the
evidence standard.
• Will this standard of
proof be extended to
property-related fees
and charges and
assessments?

30. Unfunded State Mandates
• Article XIII B, section 6 – “Whenever the
Legislature or any state agency mandates
a new program or higher level of service
on any local government, the state shall
provide a subvention of funds to reimburse
that local government for the costs of the
program or increased level of service”
except in certain specific circumstances.

31. Unfunded State Mandates
• Exception to state mandate provision:
A state mandate will not be considered
“unfunded” if the local agency “has the
authority to levy service charges, fees, or
assessments sufficient to pay for the
mandated program or increased level of
service.”

32. Unfunded State Mandates
• Administrative
appeal process
• File test claim

33. Issues that Remain to be Resolved
• Section 1(e)(5) – What constitutes the
“law” for purposes of this exception?
• Section 1(e)(4) – Does the term “property”
include tangible property or was it
intended to solely mean real property?

34. Issues that Remain to be Resolved
• Will the same burden of proof standard be
applicable to property-related fees and
assessments?
• How do public agencies approach fees
which may be classified under more than
one exception?

35. Conclusion
• Proposition 26 will restrict the ability of
public agencies to impose certain fees
but may bolster the argument that
certain state requirements are unfunded
mandates.
• Proposition 26 will be the subject of
litigation and clarifying legislation.

36. Conclusion
• Public agencies should closely review the
basis upon which their fees are calculated,
the purposes for which they are imposed,
and how the revenues are expended.
• Public agencies should continue to review
any other constitutional or statutory
limitations relative to a fee.
• Public agencies should include in their
administrative record the basis for any
exemption from Section 1(e)

37. QUESTIONS?
Kelly J. Salt
BEST BEST & KRIEGER LLP
655 W. Broadway, 15th Floor
San Diego, CA 92101
(619) 525-1375
kelly.salt@bbklaw.com