California's Proposition 13 battle enters a new phase

California's famous — or infamous — Proposition 13, passed by voters 44 years ago, sought to impose limits on state and local taxes.

The initiative, and several follow-up measures, imposed a direct cap on property taxes, created voting thresholds that made it more difficult to enact other taxes and curbed the use of taxlike fees. Although voters have rejected direct assaults on Proposition 13, politicians and protax interest groups such as public employee unions have fought legal and political skirmishes with the anti-tax movement over what kinds of revenue-increasing instruments can be used to skirt constitutional restraints.

One potential clash this year is Gov. Gavin Newsom's proposed financial penalties on oil companies that exceed still-tobe-specified limits on their profits. He initially proposed a tax on those profits, but a tax would require a two-thirds legislative vote, so Newsom substituted financial penalties which, at least theoretically, would require only a simple majority vote.

However, the petroleum industry is branding the penalties as a tax, hinting that if Newsom's measure becomes law, a legal challenge will be mounted on its constitutionality.

“A fee imposed on the industry as a commodity going to the government, that is going to look and act like a tax,” Kevin Slagle, spokesperson for the Western States Petroleum Association, said. “We know windfall taxes have been tried nationally and don't work. What we need to do is focus on better public policy.”

A couple of years ago, the state Supreme Court handed pro-tax groups a major victory, declaring that although special purpose taxes proposed by local governments require two-thirds approval by voters, such taxes proposed by initiative ballot measure need just simple majority support from voters.

Writing the 5-2 majority opinion, Supreme Court Justice Mariano-Florentino Cuéllar declared, “Multiple provisions of the state constitution explicitly constrain the power of local governments to raise taxes. But we will not lightly apply such restrictions on local governments to voter initiatives.”

The decision validated some local initiative tax measures that had failed to get two-thirds votes and touched off a flurry of new tax proposals using the initiative process, one of them being a highly controversial tax on property transfers of $5 million or more in Los Angeles.

In November, Los Angeles voters approved Proposition ULA by a nearly 3-2 margin — a clear majority but short of a two-thirds vote. It would generate between $600 million and $1.1 billion a year for lowcost housing, rent relief and programs to battle homelessness.

The city's newly elected mayor, Karen Bass, is counting on the funds to help fulfill her pledge to alleviate the nation's worst urban homelessness crisis.

However, if the tax is to take effect, its advocates must prevail in a lawsuit filed last month by the Howard Jarvis Taxpayers Association — named for Proposition 13's late author — and local real estate interests, contending that the tax is prohibited by the state constitution and Los Angeles' city charter.

The suit argues that “great and irreparable harm will result to plaintiffs, and to all Los Angeles property owners in being required to pay unconstitutionally imposed taxes . ... Similar harm will occur to all Los Angeles residents in the form of increased rent and consumer prices resulting from the tax increase on all property sold (or value transferred) above $5 million.”

Given the huge amounts of money involved, it's likely that the legality of the transfer tax will eventually reach the state Supreme Court and it could wind up on the same docket as a challenge to Newsom's oil profits penalties. Thus the never-ending saga of Proposition 13 enters a new phase.