Cost Accounting in Local Government

Giving Proper Respect to Proposition 4

In the world of fees in California, there are a couple of ballot measures that get all of the love.  Everyone remembers Proposition 218 (1996) because it limited property-related fees and narrowed the definition of fees that did not have to go to a vote. The notification process for property-related and utility fees also made for lot of extra work for a number of agencies.  Then there is the recently passed Proposition 26 (2010) which gets undeserved notice here, because it really had a very minor effect on the fees that are charged at the local level. A good summary of Proposition 26 can be found here.

But very few remember Proposition 4 (1979).  It is the Rodney Dangerfield of ballot propositions, but it had a large effect on how and why governments charge fees in California.  Everyone knows that fees can’t be more than the cost of providing the service, but very few know why.  To the extent it is included in various sections of the Government Code, it is because of the constitutional principles that flow out of Proposition 4, which became Article XIIIB of the State Constitution upon passage.

The primary purpose of Proposition 4 dealt with taxes and appropriations in the wake of the recently passed Proposition 13 (1978). The Gann Appropriation Limit calculation came out of Proposition 4.  But there is one little phrase in section 8(c) of the proposition text that says,

“Proceeds of taxes” shall include, but not be restricted to, all tax revenues and the proceeds to an entity of government, from (1) regulatory licenses, user charges, and user fees to the extent that those proceeds exceed the costs reasonably borne by that entity in providing the regulation, product, or service…”

Did you catch that?  Everything over the cost reasonably borne of a service is a tax, and therefore everything up to that point is a fee that does not have the various limitations of a tax, such as triggering a vote to approve it.

That’s it.  The legal ability for government agencies to charge fees in California in the wake of all of the changes wrought by Proposition 13 comes out of that little phrase.  The importance, and the deeper meaning, is detailed in this section of the author’s intent documents:

“The phrase ‘costs reasonably borne by such entity in providing the regulation, product, or service’ is intended to incorporate all appropriations by an entity for reasonable costs appropriate for the continuation of service over time.  This includes ongoing expenses such as operation costs and a reasonable allocation for overhead and administration, but it also includes responsible allocations for capital replacement, expansion of services, and repayment of related bond issuances would be considered ‘costs reasonably borne’.”

So while Propositions 26 and 218 have their place in the discussion of fees, don’t forget about the granddaddy of them all: Proposition 4.

 

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