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California Proposition 26 and Product Stewardship

April 2016

Product Stewardship and Sustainability Report

California has passed product stewardship legislation for a wide variety of products including mattresses, carpets, electronics, and paint. Although several other states have product stewardship legislation, California’s laws face the unique challenge of complying with “Proposition 26,” a constitutional amendment that requires a two-thirds approval vote in both houses of the California Legislature for any tax. Failure to comply could leave the product stewardship programs susceptible to legal challenge.

Adopted in November 2010, Proposition 26 broadened the definition of “tax” while narrowing which charges qualify as “regulatory fees.”1 The Proposition’s goal was to curb the legislature’s practice of claiming that new taxes were “regulatory fees” in order to avoid the two-thirds approval requirement. Under Proposition 26, levies that “exceed the reasonable costs of actual regulation or are simply imposed to raise revenue for a new program” are considered taxes.

An assessment is a “regulatory fee” (and thus escapes Proposition 26’s two-thirds requirement) only if those paying the fee directly benefit from the service for which the fee is collected. For example, collecting a fee at the entrance to a dump to pay for maintenance of the dump is not a tax, because only those using the dump pay the fee. In contrast, the levies created by product stewardship legislation to pay for collection and recycling look more like taxes. Although there have been no court cases yet addressing the issue, many of these levies are assessed on people and companies who do not benefit from the services the fees are funding and therefore would require bicameral two-thirds votes for enactment.

For example, under California’s carpet recycling statute, a fee is assessed on new carpet sales, but is used to pay for recycling programs for old carpet. Someone replacing hardwoods with new carpet would pay the fee but would not receive the benefit of recycling facilities because they do not have old carpet to recycle. Even a person purchasing new carpet is not really benefiting from the stewardship program, either. Thus, there is a substantial likelihood that a challenge to the carpet recycling statute grounded in Proposition 26 would be successful.

Proposition 26 applies retroactively to laws passed after January 1, 2010, but before November 3, 2010. The legislature had to repass those laws by a two-thirds majority by November 3, 2011, or else the laws were void. In addition, any new legislation passed after November 3, 2010, that was not approved by two-thirds of the legislature is also subject to challenge for failure to meet Proposition 26’s requirements. And, of course, opponents of proposed programs can use Proposition 26 to require two-thirds approval for new product stewardship legislation.

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1 Cal. Const. art. 13A, § 3.