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CHAPTER I - THE NEED FOR USER FEES CHAPTER I - THE NEED FOR USER FEES Impact of Propositions 13, 4, 218 and 26 Proposition 13 was passed by California voters in 1978, forever changing city budgets. Prior to 1978, cities and counties balanced their budgets with a property tax formula. The property tax which property owners paid could increase dramatically year over year, creating hardship for those with fixed incomes. Proposition 13 capped property tax rates at 1%, with annual inflation increase of no more than 2%. The passage of Proposition 13 immediately reduced property tax payments from homes, businesses and farms by 57%. Local Government Revenue Dropped Immediately After Proposition 13 Local Government Annual Property Tax Revenue (in Billions, 2014-15 Dollars) $70 ProposKlon 13 Approved (1978) 60. 50.- 20 ]fears to recover 40................................ 30 20 10 1960 1970 1980 1990 ` W 2010 Common Claims About Proposition 93 (2016) — Legislative Analyst's Office The following year, Proposition 4 was passed primarily to clean up language related to taxes and appropriations limits after the wake of Proposition 13. However, there is one phrase in section 8(c) of the proposition text which better defines user charges and user fees: "Proceeds of taxes" shall include, but not be restricted to, all tax revenues and the proceeds to an entity ofgovernment, from (1) regulatory licenses, user charges, and user fees to the extent that those proceeds exceed the costs reasonably borne by that entity in providing the regulation, product, or service..." Restated, any proceeds from user charges and user fees which exceed the "costs reasonably borne" are considered taxes. The legal ability for government agencies to charge fees in California in the I'llarch 2023 City Council 9 -1 23