STATE

California Supreme Court Clarifies that Voter Initiatives Are Not Subject to Certain of Proposition 218’s Limitations on Local Governments, Though the Full Implications Remain to be Seen

JD Supra Press Release: Information Penned By Law Firm Orrick Herrington & Sutcliffe

http://www.jdsupra.com/legalnews/california-supreme-court-clarifies-that-46386/

Since Proposition 218 was passed in 1996, which added Article XIIIC to the California Constitution (“Article XIIIC”), local governments have faced heightened restrictions in their abilities to impose taxes.  Specifically, Article XIIIC, section 2(b) requires local governments to obtain majority voter approval at a general election before imposing, extending, or increasing any general tax.  Further, Article XIIIC, section 2(d) requires that no local government may impose, extend, or increase a special tax without a two-thirds vote of the electorate.

The California Supreme Court’s recent decision in California Cannabis Coalition v. City of Upland (August 2017) (“California Cannabis Coalition”) held that Article XIIIC, section 2(b)’s requirement that a general tax be submitted to voters at a general election does not apply to taxes proposed via voter initiatives.  A voter initiative is a proposed change in law that is submitted by voters for inclusion on an election ballot.  Additionally, as pointed out in the concurring and dissenting opinion, the reasoning of the Court in California Cannabis Coalition could be interpreted as suggesting that the procedural two-thirds voter approval requirement for special taxes in Article XIIIC, section 2(d) would likewise not apply to special taxes proposed by a voter initiative.  Despite the Court’s holding and some of its analysis regarding Article XIIIC as a whole, the effective voter threshold for local special taxes may not have necessarily been lowered from the two-thirds requirement specified in Article XIIIC, section 2(d) to the simple majority vote otherwise required under the California Elections Code (the “Elections Code”).  The Court in California Cannabis Coalition did not expressly address whether its analysis that exempted voter initiatives from Article XIIIC, section 2(b) would likewise apply to Article XIIIC, section 2(d) and the two-thirds voter threshold for local special taxes.  Additionally, Article XIIIA, section 4 of the California Constitution (“Article XIIIA, section 4”), enacted by Proposition 13 in 1978, also carries a two-thirds voter approval requirement for special taxes imposed by “Cities, Counties and special districts” and was not addressed by the Court in California Cannabis Coalition.  Accordingly, the full implications of California Cannabis Coalition are currently unknown, and future legislation and/or litigation can likely be expected to further shape the legal landscape in this area of Public Finance.

Facts of the Case

The California Cannabis Coalition (the “Plaintiffs”), a non-profit that drafts cannabis laws for California municipalities, prepared a medical marijuana initiative for submission to the voters of the City of Upland (the “City”) in 2014.  Among other effects, the initiative would have allowed for up to three medical marijuana dispensaries to operate in the City and would have imposed an annual “Licensing and Inspection fee” on each of the dispensaries.  The Plaintiffs submitted the initiative, which had been signed by at least 15% of the City’s registered voters, to the City and requested that, consistent with section 9214 of the Elections Code, the City hold a special election.  The City then ordered that various city departments prepare a joint agency report.  The report concluded that the proposed annual fee would exceed the City’s costs in issuing a license to and conducting an annual inspection of each of the dispensaries.  The report also determined that the excess amount of the annual fee constituted a general tax and that the initiative could not be voted on during a special election.  Instead, according to the report, the initiative was to be submitted to the City’s voters, pursuant to Article XIIIC, section 2(b), at the next general election, which was scheduled for over 18 months later.

Holding

The Court had two holdings.  First, the Court held that a general tax proposed via voter initiative need not comply with the requirements of Article XIIIC, section 2(b) because these requirements only apply to general taxes imposed by “local government,” not voters.  As a result, local general taxes imposed via voter initiative do not necessarily need to be submitted for voter approval at a general election, as otherwise required by the text of Article XIIIC, section 2(b), and can instead be approved after complying with the requirements of the Elections Code.  Second, the Court’s holding included a narrow recitation of the procedure the City must follow under the Elections Code upon receiving a petition signed by at least 15% of the City’s registered voters.  The Court explained that section 9214 of the Elections Code requires the City, after receiving a petition with the requisite number of signatures, to either: (i) adopt the ordinance without alteration; (ii) immediately order a special election; or (iii) order an agency report and, once the report is presented to the city council, adopt the ordinance or order a special election.

Court’s Analysis

The Court begins from the principle that the voter initiative process is a power reserved by the people, not a right granted to them.  Since 1911, case law has affirmed the need to guard and liberally construe the initiative power.  Article XIIIC, section 2(b) provides: “No local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote,” where the term “local government” is defined as “any county, city, city and county, including a charter city or county, any special district, or any other local or regional governmental entity.”  The Court reasoned that this definition does not include the electorate because the common understanding of the term “local government” is as a reference to the locality’s governing body, officials and bureaucracy, not the voters.  Additionally, the Court declined to broaden the definition of “local government” in Article XIIIC to include the electorate because the text of Article XIIIC, its ballot materials, and contextual references do not lend themselves to interpretations of the term “local government” that extend to the voters.

The Court further noted that Article XIIIC’s enactors explicitly referenced the initiative power in another section of Article XIIIC.  The Court observed, however, that there is no similarly explicit language referencing the initiative power in the text of Article XIIIC, section 2(b).  Given the precedent that the voters’ initiative power must be strongly guarded, the Court refused to infer an implicit regulation of the initiative power in Article XIIIC, section 2(b), endorsing the view that Article XIIIC’s enactors had intentionally omitted such language from section 2(b).

The Court also rejected arguments from the concurring and dissenting opinion, reasoning that it had failed to begin with the important presumption that the initiative power should not be constrained absent clear evidence of an intent to do so.

Finally, the Court observed that the City erred in proceeding under Article XIIIC when the initiative had been submitted to the City in compliance with the Elections Code.  Instead of applying the requirements of Article XIIIC to Plaintiffs’ initiative, the City should have followed the procedures and deadlines of the Elections Code.  The proper course in cases like this are for cities to order the special election, and a city or other interested parties may pursue a legal challenge pre- or post-election.

Issues Relevant to Public Finance

California Cannabis Coalition has some potentially significant consequences for the field of Public Finance because special tax measures are often developed as a source of repayment for bonds.  The implications of this case are especially relevant given the current environment of budget stress and the difficulty governments can face when raising new funds.  Accordingly, it seems likely that the boundaries of this decision will be tested in the years to come, particularly with respect to voter-initiated special taxes.  These issues are discussed below.

General Taxes The Court’s definition of “local government” means that Article XIIIC, section 2(b) does not apply to voter initiatives seeking to impose a local general tax. Therefore, such a voter initiative need not be submitted to the voters at a local general election, unless otherwise required by the Elections Code and/or the city’s charter, if applicable.

Special Taxes. Article XIIIC, section 2(d) requires local governments to obtain two-thirds voter approval before imposing a local special tax.  The Court in California Cannabis Coalition did not make clear whether its holding exempting voter initiatives from Article XIIIC, section 2(b) would also apply equally to Article XIIIC, section 2(d).  As noted in the concurring and dissenting opinion, the Court’s definition of “local government” could, if wholly applied to Article XIIIC, section 2(d), suggest that voter initiatives for local special taxes are exempt from Article XIIIC, section 2(d)’s requirements.  However, because the Court’s holding only expressly applied to Article XIIIC, section 2(b), not section 2(d), the question of whether Article XIIIC, section 2(d) applies to voter initiatives was not resolved by the Court.  Legislation and/or litigation attempting to clarify Article XIIIC, section 2(d)’s applicability to local special taxes can be expected.

Further, there is an additional consideration that may be applicable for special taxes beyond Article XIIIC.  Proposition 13 amended Article XIIIA, section 4 to, among other things, require two-thirds voter approval for local special taxes.  Whether this provision of Article XIIIA, section 4 would be subject to the same interpretation as Article XIIIC with respect to voter initiatives is unclear.  The text of Article XIIIA, section 4 states that “Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district . . . .”  The Court’s reasoning as to the common understanding of the term “local government” in California Cannabis Coalition could similarly be applied by a court to Article XIIIA, section 4’s reference to “Cities, Counties and special districts.”  Alternatively, a court could distinguish this language from the term “local government” under Article XIIIC and find that Article XIIIA, section 4’s reference to “Cities, Counties and special districts” does encompass the electorate, thereby requiring a two-thirds vote whenever a measure is presented to the voters for approval.  Further, in a prior case, Kennedy Wholesale, Inc. v. State Board of Equalization (1991), the California Supreme Court found that there was no evidence that the enactors of Proposition 13 intended to limit voters’ initiative power but instead intended to limit the Legislature’s power.  However, we caution against extending the reasoning in Kennedy Wholesale, Inc. prematurely.  The Court’s opinion in Kennedy Wholesale, Inc. only directly addressed Article XIIIA, section 3 (which relates to the State’s ability to raise taxes), as opposed to section 4 (which relates to cities’, counties’ and special districts’ abilities to raise taxes).  Therefore, a similar analysis of Article XIIIA may or may not yield the same conclusion as it did in California Cannabis Coalition, and the two-thirds voter approval requirement for local special taxes in Article XIIIA, section 4 could be construed by a court to still apply to voter initiatives.

Avoiding the Ballot The Court also mentioned a hypothetical that could arise under its holding that it chose not to address in its opinion.  Under the Elections Code, a city council, for example, has the option to immediately adopt a voter initiative that has secured the requisite number of signatures, thereby avoiding an election altogether.  The defendant in California Cannabis Coalition suggested that cities could collude with interested parties to raise a tax, whereby such interested parties would collect the required signatures and the city would immediately adopt the ordinance imposing the tax, violating the spirit, if not the letter, of Proposition 218.  Because the Court didn’t rule on these facts, nothing in California Cannabis Coalition should be read to either endorse or oppose such a strategy to implement a new tax without first submitting it to the voters.

Further Developments.  On September 6, 2017, California Assembly Member Mayes introduced Assembly Constitutional Amendment 19 to modify the definition of “local government” within Article XIIIC to include “the electorate exercising its initiative power.”  The proposed amendment will require a two-thirds vote in the California State Assembly and Senate after which it may be submitted as a ballot measure at a future election, requiring a majority approval of California voters.  If approved by the California Legislature and voters, the proposed amendment would undo the Court’s holding in California Cannabis Coalition by expressly requiring that voter initiatives for local general taxes comply with Article XIIIC, section 2(b)’s requirements.  The proposed amendment would also make clear that local special taxes proposed via voter initiatives would be subject to Article XIIIC, section 2(d)’s two-thirds voter threshold.  Additionally, since the Court’s opinion was announced, at least one taxpayer group has expressed interest in pursuing a voter initiative to make a similar change to the California Constitution and has also suggested that if any new tax is imposed without voter approval they would pursue litigation to challenge it.

Advice from competent bond counsel can help local governments and other stakeholders evaluate their options in this evolving legal environment.  Attorneys for Orrick, Herrington & Sutcliffe LLP have assisted many clients over the years in the issuance of billions of dollars of bonds secured by special taxes for a wide variety of projects.

California Regulators Release Retail Industry Draft Rules

California Regulators Release Retail Industry Draft Rules

 

Smoking pot while driving or riding in a car in California will soon be punishable with a fine

With state-licensed marijuana sales months away, Gov. Jerry Brown on Monday signed a bill that prohibits smoking or consuming cannabis while driving or riding in a vehicle in California.

The measure was written by Sen. Jerry Hill (D-San Mateo) in anticipation of the state’s Jan. 1 start of marijuana sales for recreational use. The new law makes a violation punishable with a $70 fine.

It is already illegal to drive while intoxicated with marijuana and to have an open bag of cannabis in a motor vehicle. The new law bans actually smoking marijuana or consuming cannabis edibles while driving or riding in a vehicle. It is similar to open container laws that prohibit drinking while driving.

In proposing the law, Hill cited a 2012 study by the California Office of Traffic Safety that found more weekend nighttime drivers in California tested positive for marijuana than alcohol.

Source:  http://www.latimes.com/politics/essential/la-pol-ca-essential-politics-updates-gov-brown-approves-penalties-for-1505187585-htmlstory.html

Sen Jerry Hill Websitehttp://sd13.senate.ca.gov/news/2017-09-11-smoking-pot-while-driving-or-riding-car-california-will-soon-be-punishable-fine

GOLETA

Goleta City Council Signals It’s Leaning Toward Regulating Recreational Marijuana Use

The City of Goleta will work fast to try to adopt rules for regulating recreational marijuana sales, but if it cannot agree on an ordinance by Jan. 1, the city intends to enact a temporary ban.

Such a ban would give Goleta more time to craft a reasonable, well-considered ordinance, and prevent state law from taking precedence.

If cities don’t have their own ordinances in place by Jan. 1, the state will start issuing licenses to business that want to sell recreational marijuana.

The City Council wrestled with regulations at a special Thursday night meeting that stretched past 10 p.m.

Goleta has the option to ban recreational sales altogether, or to regulate it, which is expected to open up a windfall of new revenue.

California voters in 2016 legalized recreational marijuana use for people 21 and older.

Most of the council members hinted that they wanted to regulate marijuana sales, rather than prohibit them.

If Goleta bans them, the companies will just go to Santa Barbara or Isla Vista, or other unincorporated areas of Santa Barbara County.

“I support marijuana,” Councilman Michael Bennett said. “It’s in our community whether we think so or not. People didn’t say ‘No.’”

More At The Link

https://www.noozhawk.com/article/goleta_leaning_toward_regulating_recreational_marijuana_use_20170910

Source: http://www.cityofgoleta.org/projects-programs/studies-and-other-projects/marijuana-regulations

MARTINEZ

Martinez studies options for marijuana availability

MARTINEZ — The City Council got a cram course on the city’s options under three new California cannabis laws allowing legal use and sale of marijuana.

Martinez has to make decisions soon or consider a ban until choices are made about how marijuana availability will affect the local community, according to City Attorney Jeff Walters.

No decisions were made at the informational policy study session Sept. 6, however some determination on the temporary ban will likely come at the next meeting.

Council concerns are about public safety, under age-21 access, the effect of marijuana availability on neighborhoods, and protecting the environment. They have also heard reports of “surprising amounts” of tax revenue.

POWAY

Cannabis dispensaries banned permanently in Poway

The (Poway) City Council Tuesday night solidified regulations it first put into effect last year banning pot dispensaries in the city, a move criticized by some for denying city coffers what could be sizable sales tax revenues in the years to come.

“Some cities are using the revenue generated by marijuana stores to improve their communities,” said resident Nancy Jalaty, who said she was neutral on the issue. “Did Poway do any analysis to determine what amount of revenue they are leaving on the table by saying no? — Better to have the revenue go to a city that regulates it properly than to a criminal.”“I am not neutral on this,” Mayor Steve Vaus responded later. “There is no amount of money that would make me vote to support the commercial sales of marijuana in Poway. Period.”

By unanimous vote, the council approved the first reading of an ordinance that permanently prohibits the establishment of marijuana dispensaries, collectives and cooperatives, and prohibits marijuana cultivation, delivery, manufacturing and storage, whether for medical or recreational use throughout the city.

Once finalized later this month, the ordinance will not prohibit the personal use of marijuana and residents will still be allowed grow up to six plants per person inside their homes. However outdoor cultivation will be prohibited.

Cannabis dispensaries banned permanently in Poway

SAN DIEGO

San Diego legalizes marijuana cultivation, manufacturing

VIDEO REPORT: http://www.sandiegouniontribune.com/visuals/94152413-132.html

San Diego will have a fully legal and regulated marijuana industry including pot farms, factories making edibles and retail storefronts selling the drug to both medical and recreational customers.

The City Council voted 6-3 on Monday to legalize local cultivation, manufacturing and testing of marijuana when new state laws take effect in January.

The council also agreed earlier this year to allow legally approved medical marijuana dispensaries to expand their sales to recreational customers. The city has approved 17 such businesses and 11 have begun operating.

The approval came despite strong objections from Police Chief Shelley Zimmerman, who warned of significant threats to public safety that she said couldn’t be outweighed by new tax revenue from the highly profitable industry.

The council majority said, however, that creating a local supply chain for the city’s dispensaries would boost the economy, create jobs and improve the quality and safety of local marijuana by eliminating the need to truck it in from elsewhere.

They also said it would prevent a local “black market” of unregulated cultivators and manufacturers that would emerge if the city outlawed those activities.

Read the rest of the report at the following link and if you are looking at San Diego it really is worth reading the rest of the detail.

http://www.sandiegouniontribune.com/news/politics/sd-me-marijuana-legalize-20170911-story.html

 

WILLITS

City to introduce medical cannabis

http://www.willitsnews.com/general-news/20170912/city-to-introduce-medical-cannabis-ordinance

The Willits City Council will introduce the final draft of the medical cannabis ordinance at its regular meeting this week, according to the agenda.

“The City of Willits proposes a comprehensive Commercial Medical Cannabis Ordinance amending the City’s Zoning Code to regulate medical cannabis land uses consistent with California State law,” reads a notice of public hearing from the City.

The proposal will include a Medical Cannabis Land Use Ordinance describing permit regulations and where and how each commercial cannabis business type may operate. Business types include cultivators, dispensaries, and lab and research. The ordinance also lays out the requirements for personal cultivation of both medical and nonmedical cannabis.

Under the current ordinance, licensed medical marijuana users or their caregivers are permitted to grow six plants in an enclosed and secure structure on an individual parcel. The proposed ordinance would extend the privilege to cultivate six plants to non-medical cannabis users.

The final draft ordinance lays out rules for permit renewal, regulating odor and public safety.

http://www.willitsnews.com/general-news/20170912/city-to-introduce-medical-cannabis-ordinance

Willits-Cannabis-Ordinance-Final-Draft