California's Approval of Proposition 26 May Undermine Green Chemistry and Global Warming Efforts

November 3, 2010

Proposition 26, approved by Californians on Tuesday, now requires a two-thirds supermajority vote in the California state legislature to pass many of the fees and charges that under prior rules were enacted by a simple majority vote. Supporters of the initiative call it the "Stop Hidden Taxes" initiative, because they believe that such fees amount to taxes, and should therefore require the same supermajority vote required to enact income or sales tax increases.

While the target of Proposition 26 was not specifically environmental fees, the impact of this new law could fall heavily on environmental programs. In particular, Proposition 26 may thwart establishment of a stable funding stream for key state environmental efforts including the Green Chemistry Initiative which, although already enacted, does have established funding.

The Green Chemistry Initiative is aimed at controlling exposure to hazardous chemicals by creating a systematic, science-based process to evaluate chemicals of concern in various products. Proponents believe that the effort will stimulate innovation in California's product development sector.

However, since Proposition 26 requires a 2/3 vote not just on revenue bills, but on any legislation that results in a single person paying more tax (taxes being broadly defined), the Proposition can be read as transforming into a tax any regulatory action that requires a business to pay a higher regulatory fee. In addition, state government now has the evidentiary burden of demonstrating that a fee is not a tax, essentially giving the taxpayer the legal presumption that the tax is invalid.

Similarly, California’s Global Warming Solutions Act, AB 32, is another high-profile program under which the state may impose future regulatory fees to fund the program. To the extent that future AB 32 fees go beyond amounts necessary to effectively compensate the state, those fees could potentially be reclassified as taxes under Proposition 26. However, because AB 32 was enacted well before Proposition 26’s effective date, it is unclear whether the program will be drawn into the Proposition 26 limitations.

While it will remain unclear for the immediate future what fees now require a 2/3 majority vote, it appears certain that the Green Chemistry Initiative will be among the first to face the funding challenge under Proposition 26.

Voters showed strong support for California's Global Warming Solutions Act, rejecting a ballet proposition that would have suspended implementation of the Act until unemployment dropped to 5.5% or less for a full year. The measure was opposed by Governor Schwarzenegger, who argued that it would undermine growth of the state's green economic sector.