An Upside to City of Upland: Clarification on the Ability to Refer Majority-vote Budget Trailer Bills

• Publication year: 2019
• Author: By Kurt R. Oneto

An Upside to City of Upland: Clarification on the Ability to Refer Majority-Vote Budget Trailer Bills

By Kurt R. Oneto

MCLE SELF-STUDY ARTICLE

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Kurt R. Oneto is a Sacramento-based partner at Nielsen Merksamer Parrinello Gross & Leoni LLP where he specializes in initiative and referendum law, administrative law, state and local taxation, and many other aspects of California state and local government law.

I. INTRODUCTION

The press and opinion leaders have been writing the referendum's obituary since late 2010, after state voters approved Proposition 25 in November of that year.¹ Proposition 25's main purpose was to reduce the vote threshold for the Legislature to approve the state budget from two-thirds to a simple majority²—a requirement that had been on the books since 1933.³ Proposition 25 did reduce the legislative vote threshold for the annual state budget to a simple majority.⁴ But a much less well-publicized provision of Proposition 25 also created a new type of bill related to the budget bill that could also be enacted by a simple majority vote and take immediate effect.⁵

The stated purpose of these so-called "budget trailer bills" is to enact substantive policy changes necessary to implement the budget for the upcoming fiscal year.⁶ For example, certain budget actions, such as a decision to change the services that a state department is mandated to provide, require changing state law.⁷ Under state law, each fiscal year starts on July 1.⁸ On the other hand, however, statutes ordinarily do not take effect until the next January 1 following a ninety day period from the date the statute is signed by the Governor.⁹ Statutes needed to implement the budget obviously need to take effect well in advance of that. Instead, they need to take effect immediately in order to be in place for the expenditures required by the annual budget bill.

Prior to the adoption of Proposition 25, the only way for statutory changes to take immediate effect was for the Legislature to adopt them as urgency statutes. Urgency statutes require approval by two-thirds of the Legislature.¹⁰ However, since prior to Proposition 25 the state budget also required two-thirds legislative approval, having to pass budget trailer bills as urgency statutes did not present much of a problem: if a two-thirds vote could be achieved for the budget, then a two-thirds vote could also be achieved for corresponding statutory changes. In addition to the state budget itself, the fact that budget trailer bills pre-Proposition 25 required a two-thirds vote meant that in most years they needed at least some support from the minority party in the Legislature. This ordinarily prevented budget trailer bills from being used for dubious purposes. However, in order to maintain parity between the vote threshold for the state budget itself and budget trailer bills, Proposition 25 dropped the vote threshold for budget trailer bills to a simple majority as well.¹¹

The creation of a bill that can take immediate effect on just a simple majority vote is where Proposition 25's story intersects with the referendum power. Urgency statutes take immediate effect and are expressly exempted from the referendum power in the Constitution.¹²The fact that the new Proposition 25 budget trailer bills also take immediate effect thereby suggested that they too were immune from referendum. The specter of a simple majority vote, referendum-proof bill presented a potentially formidable tool for the majority legislative party to use in exercising its power. The threat, or the promise depending on one's perspective, was that any controversial proposal could simply be tucked into a budget trailer bill and immunized from the threat of being overturned by a referendum.

As expected, once Proposition 25 was law, legislative leadership quickly deployed the new budget trailer bill process to advance its political and legislative agendas. In 2011, the Legislature used the budget trailer bill process to revise school finance to benefit the California Teachers Association and make it more difficult for school districts to manage cuts in state aid, and to require online retailers to collect sales tax.¹³ In more recent years, budget trailer bills have been used to water down the state's open records law, make it harder to recall state officeholders, expand the pool of people prohibited from owning guns, ban local sugar-sweetened beverage taxes, and give public employee unions more opportunities to talk to newly-hired government employees.¹⁴

II. THE REFERENDUM IS DEAD?

Feeding into the notion that budget trailer bills are non-referable was the fact that legislators in the majority party, state capital opinion leaders, and the press have all expressed the view at one point or another that budget trailer bills enacted pursuant to Proposition 25 are not subject to referendum.¹⁵ Political self-interest aside, there was some historical support for this argument. As the California Supreme Court chronicled long ago, "Prior to the adoption of the referendum system, the Constitution contained no provision precluding immediate operation of statutes, and the effective dates of statutes were determined by the Legislature."¹⁶ Thus, if the purpose of prohibiting statutes from taking immediate effect was to create a window for the voters to exercise their referendum rights, then logic would dictate that the absence of any window between a statute's enactment and its effectiveness means that such a statute is not subject to referendum.

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In addition, all of the bills directly exempted from the referendum power in the Constitution—urgency statutes, statutes calling elections, statutes providing for tax levies, and statutes providing appropriations for the usual current expenses¹⁷ of the state—all go into effect immediately upon their enactment.¹⁸ The fact that all of the statutes that take immediate effect are immune from the people's referendum power, and vice-versa, could be seen as further evidence that any statute which falls into one category necessarily falls into the other. By placing budget trailer bills into the category of immediately effective statutes, the argument could therefore follow that Proposition 25 also inserted budget trailer bills onto the list of referendum-proof statutes as well.

III. CALIFORNIA CANNABIS COALITION V. CITY OF UPLAND

Although largely unnoticed, a recent Supreme Court decision upended the "conventional wisdom" regarding the referability of budget trailer bills.¹⁹ On August 28, 2017, the California Supreme Court issued its opinion in California Cannabis Coalition v. City of Upland ("Upland").²⁰ The question in that case was whether or not the phrase "local government" within Proposition 218, a constitutional amendment adopted by voters in 1996, encompassed not only local governing bodies but also the electorate acting through the initiative process. The Upland opinion concluded that "local government" as used in Proposition 218 does not include local voters acting through the initiative process. Thus, because Proposition 218 only requires special taxes²¹ imposed, extended, or increased by a "local government" to be approved by a two-thirds vote of the electorate, the publicity surrounding Upland focused almost exclusively on the notion that it created a major loophole in Proposition 218's procedural restrictions on new and higher local taxes by effectively permitting special taxes proposed via initiative to be approved on nothing more than a simple majority vote of the electorate.²²

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However, in the process of analyzing whether or not the restrictions contained in Proposition 218 applied to voter initiatives, the Supreme Court established—or at least clarified—the standards for evaluating alleged restrictions on California voters' direct democracy rights. In doing so, given that Californians' direct democracy rights include not only the initiative but also the referendum and recall, the Supreme Court identified the proper framework for determining whether Proposition 25 did in fact restrict the right of referendum.²³

Recognizing that requiring a supermajority two-thirds vote for special taxes proposed by...