Politics Report: The Great Tax Ballot

We’ve talked a lot about the group of tax increases voters in San Diego may have to consider on November’s ballot, but we haven’t grappled with how the California ballot could transform public taxing policy and even directly affect all the planned San Diego tax hikes.

One statewide proposition could severely limit local tax increases. Another would make them easier to pass. One would retroactively rescind tax increases governments have collected for years, while another would make it harder to ever try to make it harder to raise taxes.

The implications are enormous. Not only are local proposals in jeopardy but dozens of recent tax increases passed across California in recent years could be rolled back.

The three big propositions on the state ballot in November don’t have their numbers yet (think “Proposition 13”). For now, they’re known as ACA 1, ACA 13 and the California Business Roundtable’s Taxpayer Protection and Government Accountability Act.

Status quo refresher: Right now, if a city or county or other local government wants to pass a special tax on, say, hotel room stays to pay for an expansion of a convention center, the government needs to get approval from two-thirds of voters. If it wants to get money just to have more money, it only needs approval from a simple majority of voters.

Two exceptions: School districts are allowed to raise property taxes so they can borrow money to build schools with just 55 percent of voter support. And citizens initiatives can raise taxes with approval from just a majority of voters.

ACA 1 would expand that schools threshold: The Legislature put this on the November ballot. It would allow local governments to raise property taxes OR sales taxes OR parcel taxes with a vote of approval by the people of 55% or higher. This would only be for “construction, reconstruction, rehabilitation, or replacement of public· infrastructure, affordable housing, including downpayment assistance, or permanent supportive housing, or the acquisition or lease of real property for those purposes…”

Local implication: If this were in place before, the Chargers would probably still be here. The Convention Center would be bigger.

More relevant now, though, is that some San Diego city leaders believe this will pass and will immediately apply to the stormwater tax Council President Sean Elo-Rivera is trying to put on the November ballot as well. We could see have another weird situation where the city attorney tells voters it needs two-thirds majority support from them to pass but then the state proposition changes that law and it could all go to court.

The Business Roundtable proposition: This is a citizens proposition that aims to make it much harder to raise taxes. A Supreme Court ruling several years ago changed everything and allowed taxes to go up with a simple majority support from voters if they are citizens initiatives. San Diego voters will have to decide on at least one in November: the 0.5% sales tax on the ballot for SANDAG/transit/highways.

This Business Roundtable proposition would clarify that all new taxes for special purposes must get two-thirds vote approval even if they are citizens initiatives. It would require the Legislature to pass taxes with two-thirds approval in both the state Senate and Assembly and then a majority vote of the people across the state.

It would prohibit fees on vehicle miles traveled, which includes the driving fee that became controversial when SANDAG put it in its long-term vision for the region’s transportation infrastructure. It also, though, prohibits fees governments like the county put on property development proposals that generate excessive vehicle miles. Builders blame those fees for stifling housing development in rural areas.

It purports to act immediately meaning it says that if it is passed, it would affect all items on the same November ballot.

It has major implications: It also purports to undo all new taxes enacted after Jan. 2, 2022 that do not comply with its new requirements. inewsource recently wrote about the panic it’s causing in Imperial Valley about a lithium extraction tax the state passed. This is controversial legally and would also likely go to court.

ACA 13: San Diego Assemblyman Chris Ward was at the center of this effort. The Legislature put this on November’s ballot as well as a direct counter to the Business Roundtable proposition described above.

It would require that any proposition that intends to make it harder for voters to pass something by making the threshold higher should also have to reach that same threshold of voter support.

“It’s simply not fair that groups are trying to move the goal posts but it doesn’t apply to them,” Ward told me.

And if they all pass: Chaos will ensue. Human sacrifice, dogs and cats sleeping together. Mass hysteria. Or just a complicated series of tests. If parts of each one conflict with each other, then the one with the most votes prevails. So if the Business Roundtable proposition passes with more votes than ACA 1, ACA 1 is gone. But if they both pass and ACA 1 passes with more votes than the Business Roundtable one, a lot of provisions in the Business Roundtable one would still survive. In other words, it could still unroll many taxes governments are already spending.

Also, ACA 1 allows for easier tax increases to build stuff. But a new tax to pay cops or firefighters, for example, would have to be two-thirds if the Business Roundtable initiative passes and ACA 1 passes.

But then there’s ACA 13. If it passes, it would void most of the Business Roundtable one … unless the Business Roundtable one gets two-thirds of the vote.

Get it? Good, there will be a test after Politifest in September.

That Subsidy for Midway Rising

I was caught off guard this week when the Union-Tribune broke the news that city officials and the development team negotiating a plan for the city’s nearly 50 acres of land in Midway were going to explore an Enhanced Infrastructure Financing District, or EIFD.

“Midway Rising May Get Subsidy” blared the U-T front-page headline. This was always the case: Housing projects that set aside, in this example, thousands of units of homes for low-income residents by default rely on taxpayer subsidies.

But what are we looking at here? Is the government giving billionaire Stan Kroenke new money? I have since taken a crash course in EIFD’s so you don’t have to.

What they are: EIFDs are part of a group of several similar structures California authorized after the Legislature and governor dismantled redevelopment 12 years ago. In short, they allow cities to draw a boundary around the area and mark the property taxes collected within it. Those property taxes will continue to flow to the city, county, state and school districts as normal.

Any growth, however, in those property taxes is called “increment” and the city would forego the increment and keep that money within the new district. If the county decides to participate as well, the county would forego its share of increment. Importantly, and unlike redevelopment, school districts cannot participate and would continue to collect their property tax revenue as the properties improve and grow.

In this case, the city owns the Midway land and if it retains ownership of the land, the people who rent it will have to pay property (or possessory income) taxes on improvements on it and the enterprises they run on it and as new units or restaurants or whatever are built on the land, they would pay those taxes and that increasing revenue would be “increment” and stay in the EIFD.

If the city alone runs it, then the city would have three members on the board overseeing it and two from the public. If the county participates, it would have trustees on the board (called a public financing authority) as well.

Then they can borrow money: At first, the state required cities to get a vote of the people before they could borrow money. Now they can borrow money without a vote – they project how much new property taxes their developments will create and then they can imagine the payments they could make with it and calculate how much they can borrow.

“Projections are inherently speculative,” said Larry Kosmont, the CEO of Kosmont Companies, which has helped set up EIFDs across the state. “But it’s not that hard to figure out what a project will be worth once it’s delivered.”

They use what they borrow to build anything the EIFDs allow, from libraries to sustainability measures to improvements needed to support affordable housing.

What Midway Rising wants it for: Brad Termini, the CEO of Zephyr and leader of the Midway Rising team, said he wasn’t sure exactly what the EIFD would fund in Midway.

“That’s part of this exploration stage. We want to establish which improvements would apply. The first thing that comes to our mind is connectivity to the Old Town transit station and other last-mile transportation solutions are obvious potential investments,” he said.

Not a bait and switch: The breathless way the news came out that the city and Midway Rising team were exploring a “subsidy” made it seem like they were backtracking on commitments and changing expectations. But creating an EIFD was part of all three final bidding teams’ proposals.

I checked in with a former competitor of the Midway Rising team, Andrew Malick, who was part of the Neighborhood Next team. Malick’s group did not advance because they did not promise to fully rebuild the Sports Arena.

“It’s really easy to be cynical about these large scale developments,” Malick said. “I’m going to defend them a little bit. It doesn’t matter if you have a billionaire backing you. He’s not going to invest if there isn’t a financial model which balances out. You have to justify moving a development forward … you’re not toing to throw money down the drain no matter how rich you are.”

If you have any feedback or ideas for the Politics Report, send them to scott.lewis@voiceofsandiego.org.