Business groups are prepared to spend tens of millions of dollars this year on a California initiative that would make it more difficult to raise state and local taxes.
The proposal, which is currently gathering signatures for the November ballot, would increase the threshold for passing any new tax or tax hike to two-thirds of voters or an elected body — a change that supporters say is necessary after several recent court decisions weakened previous voter-approved initiatives to protect taxpayers. It would also require the money from those taxes to be spent on specific purposes.
"When we see a slowdown in the economy, as you know, money gets moved around quickly," said Rob Lapsley, president of the California Business Roundtable, who is leading the campaign. "We at least want to make sure that the money is going where it’s intended to go."
Coca-Cola, Pepsi and other beverage companies have already contributed millions of dollars to the effort, as they face a wave of public health-driven soda taxes in cities across the country that appear to be hobbling sales. Increasingly subjected to new taxes by local politicians trying to close municipal budget deficits, more major industries, including oil, are prepared to jump in.
But cities and organized labor are joining together to fight back against the measure, which they argue would devastate their communities.
Alma Hernandez, executive director of the Service Employees International Union California, said cities are still struggling to recover from the economic recession. Hampered by the historic protections of Proposition 13, which keep property taxes relatively low in California, she said, cities are looking for other ways to pay for the services they provide.
"It's a sheer anti-tax measure, because they know that local voters are willing to fund the things they care about," she said. "It's such an overreach and shameless self-interest."
Under California law, local tax increases that contribute to general funding can win with a simple majority vote, while special taxes earmarked for a specific purpose, such as fixing roads, and parcel taxes already require two-thirds. New state taxes passed by the Legislature also need a two-thirds vote.
Lapsley said businesses are concerned that those standards are rapidly eroding.
A California Supreme Court decision last year raised the possibility that special taxes could pass with a simple majority if they qualify through the local initiative process rather than being placed on the ballot by elected officials, though that has yet to be tested legally. It would significantly undercut Proposition 218, sponsored by the business community in 1996, to set the two-thirds bar for local special taxes.
Business groups lost another lawsuit last year over California's cap-and-trade system, where heavy industrial polluters buy credits to offset their carbon emissions. They unsuccessfully argued that program, created by the Air Resources Board, was an illegal tax under Proposition 26, an initiative they pushed in 2010 to narrow the types of regulatory fees that the state can impose.
And future threats loom. An effort already underway for the 2020 election aims to scale back the part of Proposition 13 that reduces commercial property taxes.
"Given where we are, there’s no protections anymore," Lapsley said.
Provisions in the California Business Roundtable initiative directly address those court decisions, such as a requirement that any charge created by a regulatory agency come back to the Legislature for final approval.
Lapsley said the ultimate goal is accountability and transparency about how taxes are spent. Cities are facing growing budget pressures from salaries and pensions, he said, and they should not be able to take money that voters designated for other services to fill those holes.
The measure would eliminate the ability to pass any local tax with a simple majority vote, even if it is intended for general funding.
Since 2010, about a fifth of the 995 tax measures that have gone before voters in local elections passed with more than 50 percent but less than two-thirds support, according to the California Taxpayers Association.
In November 2016, for example, 59 cities and counties considered general sales tax increases of up to 1 cent, according to an analysis by the website California Local Government Finance Almanac. While all but eight of them passed, 30 were approved with a simple majority.
The battle over the California Business Roundtable initiative will likely be costly and contentious; Lapsley expects his campaign could run $30 million or more.
The American Beverage Association has already contributed more than $4 million, the vast majority of what the committee has raised so far. The trade group, which represents soda, bottled water, juice and energy drink companies, said in a statement that as "an original member of the Prop. 26 coalition," it supports "efforts to restore its protections."
But Hernandez said the measure is about big corporations, many of them based outside the state, trying to protect their bottom line.
"They recognize the trend that voters are approving measures because they see them as responsible for some of the social ills of our communities," she said.
The beverage industry is under particular pressure. After batting back bills at the Capitol for years, Berkeley became the first city in the country to pass a local tax on sugary drinks in 2014.
Similar proposals have since spread nationwide, including to San Francisco and Oakland in 2016. While the industry spent more than $30 million fighting those measures, both cities passed their taxes with about 60 percent of the vote.
The result has been good for the fight against obesity and bad for beverage companies, said Kristine Madsen, an associate professor of public health at UC Berkeley.
She completed a study last year that found consumption of soda and other sugary drinks had dropped by 21 percent in low-income Berkeley neighborhoods a year after its penny-per-ounce tax took effect. She is currently conducting research on San Francisco and Oakland that she said is showing similar results.
"This is the most powerful public health tool that I’ve ever seen," Madsen said.