THE QUESTION Should the California Constitution be changed to redefine as taxes any compulsory regulatory fees enacted by state or local government on a product or activity that has or can cause environmental or health damages? PROVISIONS Proposition 37 would:
BACKGROUND AND ANALYSIS State and local governments currently can impose a variety of fees and taxes on residents and businesses. In general, taxes (such as income, property and sales) are applied to pay for general public services such as transportation, education, and the courts. However, fees usually pay for a specific service or program that benefits individuals or businesses. Fees fall in two categories: (1) user fees (such as park entrance charges) where the user pays for the cost of the service, and (2) regulatory fees (such as land development, smog check, restaurant health inspection), which are born by the particular person or business. The state constitution has different rules specific to taxes and fees. For example, the process for creating new taxes is more stringent than that for creating new fees. State or local governments can create or increase a fee by a majority vote of the governing body. In contrast, creating or increasing a state tax requires two-thirds approval by the state legislature. Local taxes require two-thirds approval by voters for special taxes and a majority vote for general taxes not designated for a special purpose. Some businesses that have been paying regulatory fees that are used for programs of broad public benefit believe that those fees should be treated as if they were taxes, thus requiring more stringent rules of approval. Since 1991, California has imposed regulatory fees on those paint companies and other businesses that make or previously made products using lead. These fees are then used to screen children at risk for lead poisoning. The Sinclair Paint Company took the issue to court, arguing that the regulatory fee was a tax which benefits the general public and the companies that paid the fees had no other responsibilities in operating the lead poisoning program funded by the fees. The State Supreme Court, in 1997, ruled unanimously that the charge was a regulatory fee, not a tax. Further, the Court ruled that government has the right to impose fees on companies that manufacture a contaminating or polluting product. Those fees must be used to help correct adverse health effects related to those products. Economists refer to these fees as externalities and accept them as a cost of business. FISCAL EFFECT Certain charges that are presently considered fees would be considered taxes. Governments would have to meet a more rigid standard to impose new regulatory fees on businesses and individuals to cover costs of new programs. According to the Legislative Analyst's Office, "To the extent that a newly defined tax does not obtain ... approval required for a tax, government would have less revenue ..." However, the amount of future revenue cannot be determined. In addition, if governments impose regulatory duties along with new fees, the proposition would have little effect. IMPACT OF YES OR NO VOTE A YES vote means government actions to establish certain regulatory charges would require approval by 2/3 of the Legislature or local voters. A NO vote means current laws and constitutional requirements regarding regulatory charges would not be changed. SUPPORTERS SAY This measure:
OPPONENTS SAY This measure:
SUPPORTERS AND OPPONENTS Official ballot arguments in favor are signed by Larry McCarthy, President, California Taxpayers' Association; David Moore, President, Western Growers Association; Susan Corrales-Diaz, Director, California Chamber of Commerce. Official ballot arguments in opposition are signed by Clancy Faria, President, Peace Officers Research Association of California; Lenny Goldberg, Executive Director, California Tax Reform Association; Jon Rainwater, Executive Director, California League of Conservation Voters. For further information: Supporters: Californians Against Hidden Taxes, 916-448-4266; email address: info@yesonprop37.org; website: www.yesonprop37.org Opponents: Taxpayers Against Polluter Protection, 510-444-4793; email address: info@polluterprotection.com; website: www.polluterprotection.com
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