The California Supreme Court recently held that the City of Oakland’s waste management franchise fees may constitute illegal taxes that fail to meet the state’s constitutional voter approval requirements. Accordingly, the state supreme court upheld the reversal of a trial court decision sustaining the city’s demurrer.
The plaintiffs challenging the fees are owners of multifamily properties that pay their tenants’ waste collection bills and had the franchise fees passed onto them by two waste management companies. The plaintiffs allege that the fees constitute illegal taxes because they were not approved by voters pursuant to Cal Const, Art. XIIIC. That provision requires voters to approve local “taxes,” which the constitution defines as “any levy, charge, or exaction of any kind imposed by a local government.” Art. XIIIC, § 1(e). This general definition, however, is qualified by seven specific exemptions, the first of which exempts a “charge imposed for a specific benefit conferred or privilege … which does not exceed the reasonable costs to the local government of conferring the benefit.” See id. Art. XIIIC § 1(e)(1). According to the plaintiffs, the waste franchise fees were “taxes” subject to voter approval because the fees did not bear a reasonable relationship to the value received from the government and the fees are not based on the value of the franchises conveyed.
The supreme court held that plaintiffs demonstrated that the fees fall under the state constitution’s broad definition of a “tax” because they are a “levy, charge or extraction” and were imposed by a local government. The court further held that plaintiffs had also demonstrated that the exemption in Art. XIIIC, § 1(e)(4) did not apply because the fees were not for the purchase or use of local government property. Finally, the court held that plaintiffs had alleged sufficient facts to show that the exemption in Art. XIIIC, § 1(e)(1) did not apply because the fees exceeded the reasonable costs to the local government of conferring a benefit or granting of a privilege.