The following is for study only and has NOT been approved by the
Taxation Committee, Legislative or Executive Committees or the Board of
Should C.A.R. review its policy on the threshold votes required to impose a
tax or sell bonds?
1. Do nothing. Continue with existing C.A.R. policy which generally
requires a two-thirds vote threshold to impose a tax or sell bonds.
2. Create a task force. Have a task force review the existing tax vote
thresholds and make a recommendation as to whether an attempt should be
made to change the vote threshold needed to approve a tax or sell
Status/Summary From time-to-time and, in particular,
when the state is experiencing fiscal difficulties, C.A.R. has reviewed the
state’s financial and taxation mechanisms in order to be “ahead of the
curve” so-to-speak with regard to potential proposed changes to those
mechanisms. To date, C.A.R. has maintained a policy that it “should judge
proposals on a case-by-case basis, rather than precluding any approaches
out of hand.” The vote threshold required for imposing taxes or selling
bonds varies from a simple majority to two-thirds; however, education bonds
can be approved with a 55 percent vote. One area that may warrant some
consideration is that of the vote requirement for general taxes versus
specific taxes. An argument could be made that the current vote
requirements are backwards. Under existing law, a two-thirds vote is needed
for a special tax (i.e., for a specific purpose) while a simple majority is
needed for a general tax (i.e., for a general purpose). It would seem that
if the public is provided with less information about how the tax funds are
to be used, then a two-thirds vote should be required for approval. And, in
fact, there have been instances in which cities knew the purpose for which
the tax funds were going to be used but did not link the tax to the
specific purpose in order to avoid the two-thirds vote requirement.
The budget stalemate that occurred this summer resulted in the state
operating without a state budget for approximately 2 ½ months. Given the
difficulty in securing the two-thirds vote of each house of the legislature
needed to pass the state budget, it is likely that legislators as well as
special interest groups will be advancing proposals to lower the vote
thresholds needed not only for approval of the state budget by the
legislature but also the thresholds needed to approve the imposition of
taxes and the sale of bonds.
During the last major fiscal crisis faced by the state in the early 1990s,
C.A.R. conducted a review of the state’s financial and taxation mechanisms
in order to be “ahead of the curve” so-to-speak with regard to potential
proposed changes to those mechanisms. In 1990, the chair of the Special
Committee on Taxation appointed the Tax Working Group to review the state’s
finance and taxation mechanisms. Ultimately, the Tax Working Group
concluded that C.A.R. should maintain its “case-by-case” decision making
approach with regard to any proposed changes. In other words, the group
felt that no overriding policy change should be made and, instead, any
proposed changes to existing policy should be reviewed individually.
The basic guidelines recommended by the Tax Working Group, and approved by
the Board of Directors in January 1991, are as follows:
* No taxing mechanism is, in and of itself, either entirely positive
or entirely negative. Thus, C.A.R. should judge proposals on a case-by-case
basis, rather than precluding any approaches out of hand.
* A general tax, such as sales and income taxes, should be levied to
provide a general benefit, thereby spreading the cost of government over
the largest number of citizens. Specific taxes, such as user fees, should
be levied to support activities with narrowly defined benefits and not to
fund programs that benefit society as a whole. For example, the real estate
community should not shoulder the responsibility for housing the homeless,
which is a societal problem.
* General Obligation (GO) bonds should be used exclusively for
capital expenditures, not to finance day-to-day operating and maintenance
costs. The “flight to bonds” is placing an increasing burden on future
* To maintain some fiscal discipline on government spending, an
overall budget limitation subject to periodic reviews should be in place.
Additionally, given the difficulty of raising needed revenues, funds should
be earmarked for specific uses when necessary.
Reflective of C.A.R. reviewing and changing its position on vote
thresholds, the Board of Directors voted in 1988 to require only a simple
majority vote for passage of school bonds. This shift in policy resulted in
C.A.R. supporting Proposition 39 (November 2000) which reduced the vote
requirement for local school bonds from two-thirds to 55% vote.
In June 2003, C.A.R. reviewed local government finance and taxation
mechanisms with the establishment of the Vote Reduction Task Force whose
mission was: “To review existing C.A.R. policy in the tax area and
establish policy parameters for determining appropriate vote thresholds for
local bonds and local special taxes.” Ultimately, this task force
“concluded that maintaining C.A.R.’s ‘case-by-case’ decision-making
approach was most effective.”
The votes required to approve tax increases are summarized in the following
Tax Vote Requirements
Limited to 1% of assessed value: may be exceeded to pay off
bonds approved by 2/3rds vote. (Proposition 13)
Transfer taxes could be either general taxes (revenues to be used for
general purposes) or special taxes (revenues to be used for a specific
purpose). However, Proposition 13 specifically prohibits special transfer
taxes. In addition, general law cities are limited to transfer taxes of
$1.10 per $1,000 of the value of the property; there is no monetary limit
on the transfer taxes that can be levied by charter cities.
Does the vote requirement for general taxes versus special taxes warrant
consideration? An argument could be made that the current vote requirements
are backwards. Currently, if the voting public is not told the purpose for
the tax, then the vote requirement is a simple majority. On the other hand,
if the purpose for the tax funds is specified, then a two-thirds vote is
required for approval. It would seem that if the public is provided with
less information about how the tax funds are to be used, then a higher vote
threshold should be required for approval. In fact, there have been
instances in which cities knew the purpose for which the tax funds were
going to be used but did not link the tax to the specific purpose in order
to avoid the two-thirds vote requirement.