Cost Accounting in Local Government

Proposition 26 – Voter Approval Requirement for Local Regulatory Fees

On the California ballot this fall is Proposition 26, which proposes to redefine many current fees at the statewide and local level as taxes and therefore require a majority vote of the local voters to implement those local fees.

While this is a continuation of the budget battles at the state level, it is the inclusion of local levies that could make it affect your agency. There are numerous exemptions from the terms of the proposition, including fees “which do not exceed the reasonable costs to the local government of providing the service or product” and “a charge imposed as a condition of property development.”  That should include most fees that local agencies charge.

Instead, it appears that the proposition is targeting regulatory fees where the funding is to pay for a program of broad public benefit rather than providing a service directly to the fee payer.  This issue goes back to the State Supreme Court’s Sinclair Paint decision in 1997, which said that a lead paint fee was a regulatory fee and not a tax.  So the fees that would most likely be affected by this proposition would be things such as health and environmental fees, like Hazardous Materials Fees or Oil Recycling Fees.  But it could also affect such things as Business District Fees or General Plan Maintenance Fees, where the service is not directly provided to the fee payer.

Another important component of Proposition 26 is that it puts the burden on the local government of proving that a fee is not a tax and that it is fair and does not exceed its costs.  While a local agency should already be properly accounting for the calculation of its fees, this will make it clearer that it is a local agency’s responsibility to do these calculations.

I am sure that over the next few months the League of California Cities and others will provide more analysis of the effects of this Proposition, but it might be a good idea to look at your regulatory fees and determine which ones might be affected if Proposition 26 passes in November.

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