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There could be a snag in the city’s effort to assert that Measure C, a 2020 effort to increase the hotel tax, passed with less than the two-thirds vote traditionally required to pass tax increases for specific purposes.
The City Council earlier this month voted to proceed with a validation action asking the San Diego Superior Court and any opponents to weigh in on the city’s legal argument that Measure C passed with 65 percent of the vote. The City Council also took an initial vote to authorize the city to borrow money for Convention Center and homelessness projects, as called for in the initiative.
Those steps come nearly four years after a Supreme Court ruling raised the possibility that citizens’ measures might only need a majority vote to pass. Proponents of the tax hike and now the city officially believe Measure C passed last March. That’s because since then, state appellate courts have declared that three citizens’ initiatives intending to raise taxes in in Fresno and San Francisco passed with a simple majority. The state Supreme Court declined to consider two of those cases. Those court actions paved the way for San Diego’s forthcoming validation case.
But San Diego’s citizens’ initiative would not just increase the hotel tax. It also had separate language authorizing the city to borrow money. And that often requires two-thirds vote too, something the courts have not weighed in on. For more than two decades, efforts to raise taxes in the state have been crippled by Proposition 218, a voter-approved amendment to the state Constitution that requires new taxes that fund a specific government program to be approved by two-thirds of voters. The state Constitution also includes a mandate that cities get approval from two-thirds of voters before taking on a debt when money isn’t expected to roll in to cover costs within a given year.
Former deputy city attorney Brant Will, once the city’s lead lawyer on bond issues, last year flagged the challenge that Measure C’s inclusion of bonds might present if the city or proponents tried to contend that the measure passed with a simple majority. At the time, multiple citizens’ initiatives that received less than a two-thirds vote had gone to court in the wake of the state Supreme Court ruling in California Cannabis Coalition v. City of Upland that suggested citizens’ measures weren’t bound by the same bar for passage as those pushed by local governments.
Two former elected San Diego city attorneys and a handful of legal experts who spoke with Voice of San Diego agree that Measure C’s authorization of city-issued bonds for a Convention Center expansion, homeless initiatives and road repairs adds a wrinkle to the city’s legal case.
Whether it becomes a substantial issue in the city’s case will rest on whether a judge chooses to wade into Measure C’s bond language and whether any outside challengers invited to respond in the court validation process raise related concerns.
A spokeswoman for City Attorney Mara Elliott’s office, which expects to soon file the validation suit, declined to comment on the significance of the bond-related complication, citing the pending litigation. Elliott’s office has previously avoided weighing in but has acknowledged Will’s argument was on its radar. Before the vote last March and appellate court rulings on multiple other citizens’ measures, Elliott’s office concluded that Measure C needed a two-thirds vote to pass.
Proponents of Measure C contend that the measure’s bond authorizations shouldn’t sink the city’s case. They note that the city and supporters believe bond payments should be covered by the hotel-tax increase and that revenue bonds like those they called for the city to pursue usually do not require a two-thirds vote. Revenue bonds are sold to bondholders with a pledge that debt will be covered by specific revenue streams such as rent or tolls.
Keith Maddox of the San Diego & Imperial Counties Labor Council, a key leader of the coalition behind Measure C, said that proponents envisioned hotel-tax revenues covering all bond debt.
“It would be a bond that is funded specifically by the increase in the (transient occupancy tax) that it’s allocated for,” Maddox said. “It would have no general fund or general taxes included in it.”
Indeed, Measure C states that all bonds it authorizes should be “limited obligations” of the city solely covered by hotel-tax revenues tied to the initiative. It also states, however, that the city “may, but is not obligated to” supplement that funding source with others to cover bond payments.
Will, who declined to comment, has said that language in the measure doesn’t suffice.
Former elected city attorney Mike Aguirre agrees.
“I don’t think you can circumvent the Constitution on the debt limit because it’s a citizens’ initiative,” Aguirre said.
He also argued Measure C doesn’t offer strong enough language – or certainty – that new hotel-tax collections will cover the city’s debt payments.
Still, Aguirre acknowledged that different judges could view Measure C’s inclusion of bonds differently or dig more or less into related state and city requirements.
Jan Goldsmith, another former city attorney who unseated Aguirre in 2008, was reluctant to draw conclusions but said he supported current city attorneys’ plan to ask the San Diego Superior Court to weigh in before the city collects new taxes given the uncertainty surrounding the initiative, including its bond authorizations.
“There are multiple issues involving taxes and bonds. Each one of these issues has to be peeled back, thoroughly researched and then applied to what the measure specifically does,” Goldsmith wrote in an email to Voice of San Diego. “Given the uncertainty and the Supreme Court’s record of vagueness on some of these issues, however, it is really difficult to predict an outcome other than to evaluate risks.”
San Francisco-based campaign attorney Jim Sutton and Sacramento-based election attorney Brian Hildreth have closely followed the aftermath of the Upland ruling. Both said that the bonding piece of the measure gives the court an issue to grapple with that hasn’t come up in other citizens’ initiative cases – and that makes the outcome of the San Diego case less clear.
The city has long issued bonds without seeking approval from voters. But Hildreth noted that a recent Court of Appeal ruling restated the state requirement that city-backed bond measures must cross the two-thirds threshold even as it concluded that the city of San Diego’s onetime plan to bypass a public vote and issue bonds backed by parking revenues to help pay for an overhaul of Balboa Park’s central mesa was technically permissible.
As for what might happen should a court decide the bonding piece of Measure C doesn’t fly, Hildreth said he did not expect the court would sever its bond provisions and also allow the tax increase portion of the initiative to pass with a simple majority. He said courts do sometimes remove provisions if they decide voters would have approved the measure absent the portion deemed invalid.
“This one is a closer call,” Hildreth wrote in an email to VOSD. “While the bond provision is a material provision of Measure C, it could be argued that it was merely the vehicle by which the city would fund certain projects, and that without the bond provision, the city could have implemented the purpose and intent of Measure C regardless.”
Sutton theorized that a judge would be more likely to nix the measure than remove problematic passages of it.
“If it’s severed, have you kind of taken out the guts of it? That would be the question here,” Sutton said.
Still, both Sutton and Hildreth agreed that nature of the validation action the city is pursuing means that the bond issue may not become a significant problem unless a judge chooses to dig in, or if opponents who respond to it raise that issue.
“If no one raises the issue in court/court filings, then a judge would not be required to consider that issue,” Hildreth wrote.
The initiative language makes it clear that proponents were setting the stage for many of these arguments.
Measure C includes a standard severability clause urging courts to remove problematic portions of the measure if deemed necessary, and proactively addressed the Upland case and a section of the city’s charter that limits the city’s use of bonds repaid with specific revenues to those paid by water ratepayers.
Measure C says that voters’ intent is to approve the bonds and that Charter Section 90.1, which referenced only water ratepayers, “applies to the City Council and other city officials but not to the voters.” It also states that if a court decides bonds allowed by the initiative are governed by the charter section, “voters express their desire that the City Council exercise their authority” to approve the bonds for the Convention Center, homelessness and road repairs.
The City Council earlier this month signed off on a similar declaration about Charter Section 90.1 and its expectation that hotel-tax revenues would cover bond debts in resolutions authorizing the issuance of up to $200 million in bonds for unspecified Convention Center modernization projects and up to $750 million in bonds for homelessness initiatives. The resolutions stated that because new hotel-tax revenues should cover bond debts, they don’t require voter approval or create a debt limit issue for the city.
Mayor Todd Gloria’s team has promised to return to the City Council with more details if a court rules that Measure C passed.
Advocacy group Alliance San Diego, which previously challenged Measure C’s ballot description in court, has notified the city that it plans to respond.
Alliance San Diego executive director Andrea Guerrero said the bond element of Measure C makes the city’s case a legal leap rather than one following precedent elsewhere.
But Guerrero said her organization’s challenge will focus on the City Council’s decision that Measure C only required a simple majority to pass after city ballot materials stated that victory required a two-thirds vote.
“The fact that the courts have not considered or ruled on the provisions governing bonds makes it more egregious that the San Diego City Council crossed voters,” Guerrero said.