California Supreme Court

The state Supreme Court cleared the way Wednesday for San Francisco to fund programs for the homeless with hundreds of millions of dollars in business taxes approved by a majority of city voters in 2018 – it's an important case for tax measures on local ballots throughout California.

Proposition C, which would raise $250 million to $300 million per year with a tax on gross receipts of corporations with annual revenue above $50 million, received 61% of the vote in November 2018. It was immediately challenged by the Howard Jarvis Taxpayers Association and other business-supported groups, which argued that Proposition 218, a 1996 state ballot measure, required a two-thirds majority for any tax increase proposed by a local government for specific purposes.

But a state appeals court ruled in June that the two-thirds requirement applied only to taxes proposed by a government body – a city council, school board or board of supervisors – and not to measures like Prop. C, an initiative placed on the ballot by private citizens.

Opponents appealed to the state's high court, which denied review Wednesday without comment or any indication of a dissenting vote. The appellate ruling allowing majority approval is now final and binding on trial courts statewide.

"San Francisco voters have the right to direct democracy and self-government," City Attorney Dennis Herrera said in a statement. "We're pleased that this legal victory will free up millions of dollars to provide services, housing and mental health treatment for those who most desperately need it in our city."

The ruling is not necessarily the last word on the issue. Another appellate court could reach a different conclusion in a future case, returning the dispute to the state Supreme Court.

And the San Francisco precedent does not necessarily apply to a $30 million Oakland tax initiative for school programs that 62% of the city's voters approved in November 2018. An Alameda County judge ruled last October that Oakland was bound by City Attorney Barbara Parker's statement to the voters, in ballot materials, that Measure AA needed a two-thirds majority. The city has appealed the ruling.

But Wednesday's court action allows San Francisco to start spending Prop. C revenue that it had kept in reserve during the legal challenge – so far $492 million has been collected. It also appears to apply to an Alameda County half-cent sales tax increase for children's health care and other youth services, Measure C, that was approved by 64% of county voters in March.

Jonathan Coupal, president of the Howard Jarvis Taxpayers Association, said he would await the outcome of other tax cases, including one in Fresno that is now before a different appeals court. But he said his organization was prepared to sponsor another statewide initiative, if necessary, to specify that a two-thirds majority is required for any measure to raise specific local taxes.

"I think the voters would be on our side," Coupal said.

Prop. 218, the 1996 measure requiring two-thirds majorities for local taxes funding specific programs, was a follow-up to Proposition 13, the 1978 initiative that slashed property taxes and required two-thirds votes of both legislative houses for new state taxes. Both measures substantially reduced government revenue and raised the bar for future tax increases.

The state Supreme Court has upheld those measures but gave a strict interpretation of Prop. 218 in a 2017 ruling that the San Francisco court invoked in the Prop. C case. In deciding that a Southern California city's tax initiative was not covered by another provision of Prop. 218 that required special elections for local tax measures, the high court said neither the text nor the context of Prop. 218 "supports the conclusion that the term 'local government' was meant to encompass the electorate."

Likewise, said the First District Court of Appeal in its June 30 decision, applying the same two-thirds vote requirement to local tax initiatives that Prop. 218 expressly requires for tax measures approved by a local government would be an "unreasonably broad construction of the term 'local government' at the expense of the people's constitutional right to direct democracy."

In California, Justice Alison Tucher said in the 3-0 ruling, quoting the state Constitution, "all political power is inherent in the people."

The case is San Francisco vs. All Persons Interested in the Matter of Proposition C, S263753.

Bob Egelko is a San Francisco Chronicle staff writer. Email: begelko@sfchronicle.com Twitter: @BobEgelko

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