Filed 3/30/20

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

ROBERT ZOLLY et al.,

Plaintiffs and Appellants,

v.

CITY OF OAKLAND,

Defendant and Respondent.

 A154986

 (Alameda County

 Super. Ct. No. RG16821376)

The City of Oakland (City) entered into various waste management 

contracts with Waste Management of Alameda County (WMAC) and 

California Waste Solutions Inc. (CWS). As part of those contracts, WMAC 

and CWS agreed to pay franchise fees to the City, and the City redesignated 

part of WMAC’s franchise fee as a fee imposed pursuant to Public Resource 

Code section 41901 (the Redesignated Fee). Plaintiffs Robert Zolly, Ray 

McFadden, and Stephen Clayton filed a complaint for declaratory relief 

against the City, challenging the legality of those fees under the California 

Constitution, article XIII C (article XIII C).1 

The City demurred, arguing the franchise fees were not subject to 

article XIII C, the Redesignated Fee challenge was time-barred, and the 

Redesignated Fee was properly imposed. The trial court granted the City’s 

demurrer without leave to amend as to the franchise fees but with leave to 

1 Unspecified references to “article” are to the California Constitution.
2

amend as to future increases to the Redesignated Fee. Plaintiffs declined to 

amend, and judgment was entered. We affirm the judgment in part as to the 

Redesignated Fee and reverse in part as to the franchise fees.

I. BACKGROUND

Because this appeal challenges a trial court order sustaining a 

demurrer, we draw the relevant facts from the complaint and matters subject 

to judicial notice.2 (Yvanova v. New Century Mortgage Corp. (2016) 

62 Cal.4th 919, 924.)

A. Factual Background

The City initiated a request for proposal procurement process for three 

franchise contracts regarding garbage, mixed materials and organics, and 

residential recycling services. The initial procurement process resulted in the 

City’s Public Works Department (PWD) receiving contract proposals from 

only two firms, WMAC and CWS. PWD recommended the City award all 

three contracts to WMAC, stating the structure “provided the lowest overall 

rate option for Oakland residents.”

Rather than accept PWD’s recommendation, the City directed PWD to 

solicit new best and final bids from WMAC and CWS. PWD again 

recommended the City award all three contracts to WMAC. The City instead 

awarded all three contracts to CWS. Following a lawsuit by WMAC 

regarding the procurement process, WMAC and CWS reached a settlement in 

which WMAC would receive the garbage and mixed materials and organics 

contracts, and CWS would receive the residential recycling contract, subject 

2 On March 8, 2019, plaintiffs requested this court take judicial notice 

of an excerpt from the “2015–2016 Alameda County Grand Jury Final 

Report.” We deny this request because the exhibit is unnecessary to resolve 

the issues raised in this appeal.
3

to the City’s agreement. The City approved the settlement and amended the 

ordinance awarding the franchise contracts. 

The City’s ordinance approving the mixed materials and organics 

contract provided for an initial franchise fee of $25,034,000, with subsequent 

franchise fees “ ‘adjusted annually by the percentage change in the annual 

average of the Franchise Fee cost indicator.’ ” Similarly, the City’s ordinance 

approving the residential recycling contract provided for an initial franchise 

fee of $3 million, with subsequent franchise fees “ ‘adjusted annually by the 

percentage change in the annual average of the Franchise Fee cost 

indicator.’ ” 

Thereafter, the City passed an ordinance reducing WMAC’s franchise 

fee by $3.24 million and designated that amount as the Redesignated Fee to 

compensate the City for the cost of “preparing, adopting, and implementing 

the Alameda County Integrated Waste Management Plan.” The ordinance 

imposing the Redesignated Fee provides for a possible annual adjustment to 

reflect the impacts of inflation if certain criteria are met. In the event the 

Redesignated Fee is invalidated or the City is unable to collect that amount, 

then WMAC’s franchise fee is increased by the amount left uncollected. 

Based on “citizen complaints,” an Alameda County grand jury 

“undertook a comprehensive investigation related to the solicitation and 

award of [the City’s] Zero Waste contracts.” The grand jury found the 

franchise fees paid by haulers were disproportionately higher than the 

franchise fees paid to other Bay Area municipalities and special districts. 

That grand jury also found the City’s procurement process was mishandled 

and subject to political considerations. 
4

B. Procedural Background

Plaintiffs filed an initial complaint, seeking declaratory and injunctive 

relief. The complaint alleged violations of article XIII D, section 6, 

subdivision (b)(1), (2), and (3). The complaint asserted both the rates charged 

for refuse, recycling, and disposal collection and the franchise fee were 

excessive, not representative of the actual service costs or otherwise 

supported by any legitimate cost justification, and amounted to an 

improperly imposed tax that should be subject to article XIII C. 

The City filed a demurrer to the initial complaint. The demurrer 

alleged the complaint failed to state a cause of action, any claims regarding 

the Redesignated Fees were barred by the statute of limitations, and 

plaintiffs failed to exhaust their administrative remedies. 

The trial court sustained the demurrer with leave to amend. The court 

concluded all three causes of action contained insufficient allegations “that 

the allegedly ‘excessive and disproportional refuse, recycling and disposal 

collection charges . . . being imposed on Plaintiffs’ multifamily dwelling 

(“MFD”) properties’ . . . are a ‘fee or charge’ as defined in article XIIID, 

section 6, or are being ‘extended, imposed, or increased by any agency’ within 

section 6, subdivision (b).” Specifically, the court emphasized the complaint 

does not allege the franchise fee or rates are “ ‘imposed by an agency’—i.e. by 

the City—as distinguished from being charged to ratepayers by the private 

entities who contracted with the City.” The court also noted plaintiffs did not

address the City’s argument that the Redesignated Fee was untimely. 

Plaintiffs subsequently filed a first amended complaint, again seeking 

declaratory relief and alleging violations of article XIII C and article XIII D, 

section 6, subdivision (b)(1), (2), and (3). The amended complaint asserted

the City imposed an excessive franchise fee, failed to determine “how much 
5

the franchise fees would need to be to solely offset the cost to the [City] of the 

waste haulers’ operations,” and passed those fees on to ratepayers to avoid 

the limitations of Proposition 218. The amended complaint contended the 

City imposed such increased rates “through the guise of negotiated 

contracts,” fully knowing the franchisees would pass the charges on to 

ratepayers.

The City demurred to the amended complaint, arguing the franchise 

fees were beyond the purview of Proposition 218 and noting plaintiffs failed 

to cure the statute of limitations bar to the Redesignated Fee challenge. 

The trial court again granted the City’s demurrer with leave to amend. 

The court noted the Supreme Court’s recent decision in Jacks v. City of Santa 

Barbara (2017) 3 Cal.5th 248 (Jacks), and stated in part, “To properly state a 

claim that a franchise fee violates Proposition 218, a party challenging the 

fee must establish that the fee bears no rational relationship to the value of 

the property interest conveyed by the city to the franchisee.” The court noted 

the amended complaint “erroneously focuses on whether the franchise fee 

charged by [the City] exceeds the ‘proportional cost of the service 

attributable’ to each individual parcel, rather than . . . the ‘value of the 

franchise’ itself.” The court also held, in accordance with its prior decision, 

plaintiffs’ challenge to the Redesignated Fee was barred by the statute of 

limitations. 

Plaintiffs filed a second amended complaint (SAC) for declaratory 

relief, alleging the franchise fee and Redesignated Fee violated article XIII C. 

Specifically, the SAC alleged “[n]either of the franchise fees bears a 

reasonable relationship to the value received from the government and they 

are not based on the value of the franchises conveyed . . . .” The SAC 
6

challenged the validity of the Redesignated Fee, and further claimed the 

challenge was timely as to all future increases to the Redesignated Fee.

The City again demurred, restating its prior arguments and asserting 

Jacks, supra, 3 Cal.5th 248 is distinguishable from the current situation and 

does not apply. It further argued plaintiffs’ challenge to any annual 

increases to the Redesignated Fee failed to state a claim and was timebarred. 

The trial court sustained the demurrer with leave to amend as to the 

Redesignated Fee increases, but “only to the extent Plaintiffs can legitimately 

allege . . . that the [Redesignated Fee] in fact was increased as of July 1, 2016 

or thereafter.” The court denied leave to amend all other aspects of the SAC. 

Notably, the court concluded the lack of a direct pass-through of the franchise 

fees to the customers distinguished the franchise fee in Jacks from that 

charged by the City. 

Plaintiffs declined to amend. The court subsequently entered judgment 

against plaintiffs and dismissed the matter with prejudice. Plaintiffs timely 

appealed.

II. DISCUSSION

A. Standard of Review

We independently review a trial court’s order sustaining a demurrer. 

(Brown v. Deutsche Bank National Trust Co. (2016) 247 Cal.App.4th 275, 

279.) “In doing so, this court’s only task is to determine whether the 

complaint states a cause of action. [Citation.] We accept as true all wellpleaded allegations in the operative complaint, and we will reverse the trial 

court’s order of dismissal if the factual allegations state a cause of action on 

any available legal theory. [Citation.] We treat defendants’ demurrer as 

admitting all properly pleaded material facts, but not contentions, 
7

deductions, or conclusions of fact or law.” (Ibid.) “ ‘We also consider matters 

which may be judicially noticed.’ [Citation.] . . . [and] give the complaint a 

reasonable interpretation, reading it as a whole and its parts in their 

context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) 

“[W]hen a demurrer is sustained with leave to amend, but the plaintiff 

elects not to amend, it is presumed on appeal that the complaint states the 

strongest case possible.” (Ram v. OneWest Bank, FSB (2015) 234 Cal.App.4th 

1, 10.)

A. Article XIII C

In Citizens for Fair REU Rates v. City of Redding (2018) 6 Cal.5th 1, 

the California Supreme Court summarized the scope and application of 

article XIII C: “California voters have, over the past four decades, adopted a 

series of initiatives designed to limit the authority of state and local 

governments to impose taxes without voter approval. (Jacks, [supra,

3 Cal.5th] at p. 257.) [¶] The first of these initiatives was Proposition 13, 

adopted in 1978. It added article XIII A to the state Constitution ‘to assure 

effective real property tax relief by means of an “interlocking ‘package’ ” ’ of 

four provisions. (Sinclair Paint Co. v. State Bd. of Equalization (1997) 

15 Cal.4th 866, 872 (Sinclair Paint).) The first provision capped the ad 

valorem real property tax rate at 1 percent (art. XIII A, § 1); the second 

limited annual increases in real property assessments to 2 percent 

(art. XIII A, § 2); the third required that any increase in statewide taxes be 

approved by two-thirds of both houses of the Legislature (art. XIII A, § 3); 

and the fourth required that any special tax imposed by a local government 

entity be approved by two-thirds of the qualified electors (art. XIII A, § 4). 

Thus, with its first two provisions, Proposition 13 limited local government 

authority to increase property taxes. Further, ‘since any tax savings 
8

resulting from the operation of [the first two provisions] could be withdrawn 

or depleted by additional or increased state or local levies of other than 

property taxes, sections 3 and 4 combine to place restrictions upon the 

imposition of such taxes.’ (Amador Valley Joint Union High Sch. Dist. v. 

State Bd. of Equalization (1978) 22 Cal.3d 208, 231.)

“In 1996, the voters adopted Proposition 218, known as the ‘ “Right to 

Vote on Taxes Act.” ’ (Jacks, supra, 3 Cal.5th at p. 259.) It added articles 

XIII C and XIII D to the state Constitution. Article XIII D, like the first two 

provisions of article XIII A, limits the authority of local governments to 

assess taxes and other charges on real property. (See [City of] San 

Buenaventura [v. United Water Conservation Dist. (2017)] 3 Cal.5th [1191,] 

1203–1204.) Article XIII C buttresses article XIII D by limiting the other 

methods by which local governments can exact revenue using fees and taxes 

not based on real property value or ownership. As enacted, article XIII C 

provided that ‘[a]ll taxes imposed by any local government shall be deemed to 

be either general taxes or special taxes.’ (Art. XIII C, § 2, subd. (a).) Local 

governments may not impose, increase, or extend: (1) any general tax, unless 

approved by a majority vote at a general election; or (2) any special tax, 

unless approved by a two-thirds vote. (Art. XIII C, § 2, subds. (b), (d).)

“Significantly, Proposition 218 did not define the term ‘tax.’ That 

definition was provided 14 years later, with the passage of Proposition 26 in 

November 2010. Proposition 26’s findings stated that, despite the adoption of 

Propositions 13 and 218, ‘California taxes have continued to escalate.’ (Voter 

Information Guide, Gen. Elec. (Nov. 2, 2010) text of Proposition 26, § 1, 

subd. (c), p. 114.) The findings also took note of a ‘recent phenomenon 

whereby the Legislature and local governments have disguised new taxes as 

“fees” in order to extract even more revenue from California taxpayers 
9

without having to abide by [the] constitutional voting requirements.’ (Id., 

subd. (e), p. 114.)” (Citizens for Fair REU Rates v. City of Redding, supra, 

6 Cal.5th at pp. 10–11.) 

“To ensure the effectiveness of Propositions 13 and 218, Proposition 26 

made two changes to article XIII C. First, it specifically defined ‘ “tax,” ’ and 

did so broadly, to include ‘any levy, charge, or exaction of any kind imposed 

by a local government.’ (Art. XIII C, § 1, subd. (e).) However, the new 

definition has seven exceptions. A charge that satisfies an exception is, by 

definition, not a tax.” (Citizens for Fair REU Rates v. City of Redding, supra, 

6 Cal.5th at p. 11.) As relevant here, one exception involves charges 

“imposed for entrance to or use of local government property . . . .” 

(Art. XIII C, § 1, subd. (e)(4).)

“Second, Proposition 26 requires the local government to prove ‘by a 

preponderance of the evidence that . . . [an] exaction is not a tax, that the 

amount is no more than necessary to cover the reasonable costs of the 

governmental activity, and that the manner in which those costs are 

allocated to a payor bear a fair or reasonable relationship to the payor’s 

burdens on, or benefits received from, the governmental activity.’ 

(Art. XIII C, § 1, subd. (e).)” (Citizens for Fair REU Rates v. City of Redding, 

supra, 6 Cal.5th at p. 11.)

B. Whether the Franchise Fee is a Tax

Plaintiffs contend whether the SAC alleged an adequate cause of action 

is governed by Jacks, supra, 3 Cal.5th 248. Plaintiffs argue, pursuant to

Jacks, a franchise fee is valid only if it is reasonably related to the value of 

the property interests transferred, and its validity is not impacted by 

whether it is directly or indirectly imposed on ratepayers. Because the SAC

asserts the City’s franchise fee bears no reasonable relationship to the 
10

franchises’ values and was indirectly imposed by the City, plaintiffs contend 

they adequately alleged a valid cause of action. 

1. Whether Franchise Fees Are Subject to Article XIII C

In Jacks, the City of Santa Barbara and Southern California Edison 

(SCE) entered into an agreement to include a charge on SCE’s electricity bills 

equal to 1 percent of SCE’s gross receipts from the sale of electricity within 

Santa Barbara, which SCE would then transfer to Santa Barbara (the 

surcharge). (Jacks, supra, 3 Cal.5th. at p. 254.) This charge, along with 

another 1 percent charge, constituted the fee SCE paid for the privilege of 

using city property to deliver electricity. (Ibid.) Utility consumers filed a 

class action challenging the surcharge as an illegal tax under Proposition 

218. (Jacks, at p. 256.) The trial court held a franchise fee is not a tax under 

Proposition 218 and thus the surcharge was not subject to voter approval. 

(Jacks, at p. 256.) The Court of Appeal reversed, concluding the surcharge 

was a tax requiring voter approval under Proposition 218 because its 

“ ‘primary purpose is for the City to raise revenue from electricity users for 

general spending purposes.’ ” (Jacks, at p. 257.)

The California Supreme Court affirmed in part and reversed in part. 

(Jacks, supra, 3 Cal.5th at p. 274.) It explained “following the enactment of 

Proposition 13, the Legislature and courts viewed various fees as outside the 

scope of the initiative.” (Id. at p. 260.) The court noted “[t]he commonality 

among these categories of charges [that are fees rather than taxes] is the 

relationship between the charge imposed and a benefit or cost related to the 

payor.” (Id. at p. 261.) “However, if the charges exceed the reasonable cost of 

the activity on which they are based, the charges are levied for unrelated 

revenue purposes, and are therefore taxes.” (Ibid., citing Sinclair Paint, 

supra, 15 Cal.4th at pp. 874, 881.) The court noted such a relationship 
11

“serves Proposition 13’s purpose of limiting taxes.” (Jacks, at p. 261.) The 

court further explained “[a]lthough Sinclair Paint . . . focused on restrictions 

imposed by Proposition 13, its analysis of the characteristics of fees that may 

be imposed without voter approval remains sound.” (Jacks, at p. 261.)

In analyzing how franchise fees fit within this framework, the Supreme 

Court noted “[h]istorically, franchise fees have not been considered taxes,” 

and neither Proposition 218 nor Proposition 26 evidence an intent to change 

that historical characterization. (Jacks, supra, 3 Cal.5th at pp. 262–263.) It 

explained, however, while “sums paid for the right to use a jurisdiction’s 

rights-of-way are fees rather than taxes. . . . , to constitute compensation for 

the value received, the fees must reflect a reasonable estimate of the value of 

the franchise.” (Id. at p. 267.) The Supreme Court further explained “fees 

imposed in exchange for a property interest must bear a reasonable 

relationship to the value received from the government. To the extent a 

franchise fee exceeds any reasonable value of the franchise, the excessive 

portion of the fee does not come within the rationale that justifies the 

imposition of fees without voter approval. Therefore, the excessive portion is

a tax. If this were not the rule, franchise fees would become a vehicle for 

generating revenue independent of the purpose of the fees.” (Id. at p. 269.) 

The court thus held “a franchise fee must be based on the value of the 

franchise conveyed in order to come within the rationale for its imposition 

without approval of the voters.” (Id. at p. 270.)

The City argues Jacks is inapposite because the court adjudicated the 

surcharge—a fee placed directly on the customers’ bills—rather than the 

other 1 percent fee encompassed in SCE’s electricity rates. We disagree. The 

structure of the fee at issue—whether the surcharge in Jacks or the franchise 

fee in the instant matter—does not alter the key question: whether a charge 
12

constitutes a legitimate fee or an unlawful tax. Both Jacks and the present 

case raise this same question. And Jacks thus guides our analysis. 

While a true franchise fee is indisputably a nontax, Jacks instructs us 

to look beyond any label and determine whether such a fee “reflect[s] a 

reasonable estimate of the value of the franchise.” (Jacks, supra, 3 Cal.5th at 

p. 267.) The Supreme Court did not limit this analysis to the surcharge, but 

rather addressed all “charges that constitute compensation for the use of 

government property.” (Id. at p. 254.) The Supreme Court explained while 

compensation for use of government property is exempt from Proposition 

218’s requirements, imposed charges only constitute such compensation if 

there is “a reasonable relationship to the value of the property interest.” 

(Jacks, at p. 254.) Any imposed charge beyond such an amount constitutes a 

tax and requires voter approval. (Ibid.) 

The City next contends Jacks is inapposite because it analyzes 

franchise fees under Proposition 218 rather than under the later-adopted 

Proposition 26. The City argues the status of the franchise fees instead are 

controlled by article XIII C, which expressly exempts franchise fees from the 

definition of taxes. 

“The interpretation of constitutional or statutory provisions presents a 

legal question, which we decide de novo.” (Wunderlich v. County of Santa 

Cruz (2009) 178 Cal.App.4th 680, 694.) “The aim of constitutional 

interpretation is to determine and effectuate the intent of those who enacted 

the constitutional provision at issue. [Citations.] When the constitutional 

provision was enacted by initiative, the intent of the voters is the paramount 

consideration. [Citation.] To determine the voters’ intent, courts look first to 

the constitutional text, giving words their ordinary meanings. [Citations.] 

But where a provision in the Constitution is ambiguous, a court ordinarily 
13

must adopt that interpretation which carries out the intent and objective of 

the drafters of the provision and the people by whose vote it was enacted. 

[Citations.] New provisions of the Constitution must be considered with 

reference to the situation intended to be remedied or provided for.” (League 

of Women Voters of California v. McPherson (2006) 145 Cal.App.4th 1469, 

1481; see also Persky v. Bushey (2018) 21 Cal.App.5th 810, 819 [“If necessary, 

extrinsic evidence of the voters’ intent may include the analysis by the 

Legislative Analyst and the ballot arguments for and against the 

initiative.”].)

Section 1, subdivision (e) of article XIII C defines “ ‘tax’ ” as “any levy, 

charge, or exaction of any kind imposed by a local government, except for” 

seven exemptions. Relevant here is the fourth exemption, which applies to

“A charge imposed for entrance to or use of local government property, or the 

purchase, rental, or lease of local government property.” (Cal. Const., art.

XIII C, § 1, subd. (e)(4).) The fourth exemption does not expressly state the 

charge for entrance to or use of local government property must be 

reasonable. This absence contrasts with the first three exemptions, which do 

explicitly include such a requirement. (See id., § 1, subd. (e)(1) [“A charge 

imposed for a specific benefit conferred or privilege granted directly to the 

payor that is not provided to those not charged, and which does not exceed 

the reasonable costs to the local government of conferring the benefit or 

granting the privilege.”]; id., subd. (e)(2) [“A charge imposed for a specific 

government service or product provided directly to the payor that is not 

provided to those not charged, and which does not exceed the reasonable costs 

to the local government of providing the service or product.”]; id., subd. (e)(3) 

[“A charge imposed for the reasonable regulatory costs to a local government 

for issuing licenses and permits, performing investigations, inspections, and 
14

audits, enforcing agricultural marketing orders, and the administrative 

enforcement and adjudication thereof.”].) However, subdivision (e) also 

contains a broad statement regarding the government’s burden of proof: “The 

local government bears the burden of proving by a preponderance of the 

evidence that a levy, charge, or other exaction is not a tax, that the amount is 

no more than necessary to cover the reasonable costs of the governmental 

activity, and that the manner in which those costs are allocated to a payor 

bear a fair or reasonable relationship to the payor’s burdens on, or benefits 

received from, the governmental activity.” (Cal. Const., art. XIII C, § 1, 

subd. (e).) This provision requires that a charge be “no more than necessary 

to cover the reasonable costs of the governmental activity” in order to be 

exempt from the “tax” definition. (Ibid.) However, the subdivision is silent 

as to whether this requirement applies to all seven exemptions, or only to the 

first three exemptions that explicitly include a reasonableness requirement. 

On this question, we find the provision ambiguous and look to the intent and 

objective of the voters in enacting the provision to guide our interpretation.

The ballot materials uniformly indicate a desire to expand the 

definition of what constituted a “tax” for purposes of article XIII C. “One of 

the declared purposes of Proposition 26 was to halt evasions of Proposition 

218.” (Brooktrails Township Community Services Dist. v. Board of 

Supervisors of Mendocino County (2013) 218 Cal.App.4th 195, 203; Schmeer 

v. County of Los Angeles (2013) 213 Cal.App.4th 1310, 1322 [Proposition 26 

“was an effort to close perceived loopholes in Propositions 13 and 218”].) The 

Findings and Declarations of Purpose for Proposition 26 state: “Since the 

enactment of Proposition 218 in 1996, the Constitution of the State of 

California has required that increases in local taxes be approved by the 

voters. [¶] . . . Despite these limitations, California taxes have continued to 
15

escalate. Rates for . . . a myriad of state and local business taxes are at alltime highs. Californians are taxed at one of the highest levels of any state in 

the nation. [¶] . . . [¶] . . . This escalation in taxation does not account for the 

recent phenomenon whereby . . . local governments have disguised new taxes 

as ‘fees’ in order to extract even more revenue from California taxpayers 

without having to abide by these constitutional voting requirements. . . . [¶] 

. . . In order to ensure the effectiveness of these constitutional limitations, 

this measure . . . defines a ‘tax’ for state and local purposes so that neither 

the Legislature nor local governments can circumvent these restrictions on 

increasing taxes by simply defining new or expanded taxes as ‘fees.’ ” (Voter 

Info. Guide, Gen. Elec. (Nov. 2, 2010) text of Prop. 26, § 1, subds. (b), (c), (e), 

(f), p. 114.)

Likewise, the analysis by the Legislative Analyst explained Proposition 

26 “expands the definition of a tax and a tax increase so that more proposals 

would require approval by two-thirds of the Legislature or by local voters.” 

(Voter Info. Guide, Gen. Elec. (Nov. 2, 2010) analysis of Prop. 26 by the 

Legislative Analyst, p. 57.) It further states: “This measure broadens the 

definition of a state or local tax to include many payments currently 

considered to be fees or charges,” while noting other fees and charges “Are 

Not Affected.” (Id. at p. 58.) Nowhere does the analysis identify any 

narrowing of the definition of a state or local tax. 

Here, the intent and objective of the voters in passing Proposition 26 is 

clear. The purpose was to expand the definition of “tax” to require more 

types of fees and charges be approved by two-thirds of the Legislature or by 

local voters. Proposition 26’s Findings and Declarations of Purpose expressly 

note it was passed in response to “the recent phenomenon whereby the 

Legislature and local governments have disguised new taxes as ‘fees’ in order 
16

to extract even more revenue from California taxpayers without having to 

abide by these constitutional voting requirements.” (Voter Info. Guide, Gen. 

Elec. (Nov. 2, 2010) text of Prop. 26, § 1, subd. (e), p. 114.) As noted by the 

California Supreme Court, the purpose of Proposition 26 “was to reinforce the 

voter approval requirements set forth in Propositions 13 and 218.” (Jacks, 

supra, 3 Cal.5th at pp. 262–263.)

In light of this extensive evidence regarding the voters’ intent in 

passing Proposition 26, we conclude a franchise fee, arguably subject to the 

fourth exemption in article XIII C, section 1, subdivision (e), must still be 

reasonably related to the value of the franchise. (Jacks, supra, 3 Cal.5th at 

p. 267.) Only that portion with a reasonable relationship may be exempt 

from the “tax” definition. (See City of San Buenaventura v. United Water 

Conservation Dist., supra, 3 Cal.5th at p. 1214 [“it is clear from the text [of 

Proposition 26] itself that voters intended to adopt two separate 

requirements: To qualify as a nontax ‘fee’ under article XIII C, as amended, a 

charge must satisfy both the requirement that it be fixed in an amount that is 

‘no more than necessary to cover the reasonable costs of the governmental 

activity,’ and the requirement that ‘the manner in which those costs are 

allocated to a payor bear a fair or reasonable relationship to the payor’s 

burdens on, or benefits received from, the governmental activity.’ ” (italics 

added, italics omitted)].)

Finally, the City contends the franchise fee does not qualify as a “tax” 

under article XIII C because it was not “ ‘imposed by local government.’ ” 

Specifically, the City asserts the franchise fee constitutes contract 

consideration and is not imposed merely because it is passed on to 

ratepayers. However, if we accept the City’s reasoning, any local government 

could avoid running afoul of article XIII C by merely contracting with a third 
17

party to impose the desired tax on residents rather than enacting it directly. 

This result would directly conflict with the purpose of Propositions 218 and 

26. (See Howard Jarvis Taxpayers Assn. v. City of San Diego (2004) 120 

Cal.App.4th 374, 394 [purpose of Prop. 218 is to “ ‘protect[ ] taxpayers by 

limiting the methods by which local governments exact revenue from 

taxpayers without their consent’ ”]; Citizens for Fair REU Rates v. City of 

Redding, supra, 6 Cal.5th at p. 11 [Prop. 26 adopted “To ensure the 

effectiveness of Propositions 13 and 218”].) Moreover, the California 

Supreme Court implicitly rejected this argument in Jacks. There, the charge 

at issue was established “[p]ursuant to an agreement between [SCE] and 

defendant City of Santa Barbara.” (Jacks, supra, 3 Cal.5th at p. 254.) 

Nonetheless, its contractual formation did not automatically exempt the 

charge from being defined as a “tax.” Rather, the court held “fees imposed in 

exchange for a property interest must bear a reasonable relationship to the 

value received from the government. To the extent a franchise fee exceeds 

any reasonable value of the franchise, . . . . the excessive portion is a tax.” 

(Id. at p. 269.)

Neither of the two cases cited by the City, County of Tulare v. City of 

Dinuba (1922) 188 Cal. 664 and Citizens Assn. of Sunset Beach v. Orange 

County Local Agency Formation Com. (2012) 209 Cal.App.4th 1182, alter our 

analysis. In County of Tulare, the court addressed in part whether a 

subsequent constitutional amendment could void a preexisting statutory 

charge imposed on franchises. (County of Tulare, at p. 667.) While the court 

noted the fee was “not imposed by law but by his acceptance of the franchise,” 

it did not conclude the fee was not “imposed” under article XIII C but merely 

that it was “imposed . . . by his acceptance of the franchise.” (County of 

Tulare, at p. 670.) Likewise, Citizens Association of Sunset Beach, involved 
18

the extension of preexisting taxes, rather than a creation of new taxes. 

(Citizens Assn. of Sunset Beach, at pp. 1185–1186.) In assessing whether the 

preexisting taxes had to be approved by a two-thirds vote under Proposition 

218, the court noted “[t]he word ‘impose’ usually refers to the first enactment 

of a tax, as distinct from an extension through operation of a process such as 

annexation.” (Citizens Assn. of Sunset Beach, at p. 1194; accord California 

Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924, 944 [“impose” 

construed as synonymous to enacted, created, or established].) In the present 

matter, however, no one asserts the franchise fee is not “the first enactment” 

of the charge.

2. Whether the SAC Adequately Alleged a Cause of Action

As we conclude in the prior section, a franchise fee may constitute a tax 

subject to article XIII C to the extent it is not reasonably related to the value 

received from the government. The SAC adequately raises such allegations. 

First, the SAC recounts the manner in which the contracts were awarded and 

notes the ordinance approving the final contracts provided for the following

franchise fees: (1) an initial franchise fee of $25,034,000 for the mixed 

materials and organics contract, with subsequent franchise fees “ ‘adjusted 

annually by the percentage change in the annual average of the Franchise 

Fee cost indicator’ ”; (2) an initial franchise fee of $3 million for the 

residential recycling services contract, with subsequent franchise fees 

“ ‘adjusted annually by the percentage change in the annual average of the 

Franchise Fee cost indicator.’ ” Next, the SAC asserts these contracts “were 

not the product of bona fide negotiations” and, as a result, various financial 

analyses were not performed. The SAC further states the City “did not 

complete a value analysis of the government property interests conveyed.” 

As a result, alleges the SAC, a grand jury found these franchise fees “are 
19

disproportionately higher than franchise fees paid to other Bay Area 

municipalities and special districts,” and the City’s procurement process was 

mishandled and subject to political considerations. The SAC supports these 

allegations by noting the plaintiffs’ rate increases ranged from 79.76 percent

to 155.37 percent. The SAC also states no evidence was presented to the 

grand jury that the City analyzed service or disposal costs. The SAC thus 

claims the franchise fees do not “bear[ ] a reasonable relationship to the value 

received from the government,” “are not based on the value of the franchises 

conveyed,” and were set based on the prior franchise fee “without any 

analysis or determination of the value of the prior franchise.” These 

allegations sufficiently state a claim under the standard set forth in Jacks.

C. Redesignated Fee

The City passed an ordinance creating the Redesignated Fee, pursuant 

to Public Resources Code section 41901, to redesignate part of WMAC’s 

franchise fee as a fee to compensate the City for the cost of “preparing, 

adopting, and implementing the Alameda County Integrated Waste 

Management Plan.” While plaintiffs are not challenging the initial creation 

of the Redesignated Fee, the ordinance also provided for possible annual 

increases to the Redesignated Fee. Plaintiffs contend the SAC adequately 

sought declaratory relief as to the validity of those future Redesignated Fee

increases. While the SAC does not contend any Redesignated Fee increases 

have occurred and plaintiffs acknowledge such increases are not guaranteed 

to happen every year, plaintiffs contend declaratory relief is appropriate 

because the parties have an actual controversy about the validity of the 

“automatic” Redesignated Fee increases. 

“The ‘actual controversy’ language in Code of Civil Procedure section 

1060 encompasses a probable future controversy relating to the legal rights 
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and duties of the parties. [Citation.] For a probable future controversy to 

constitute an ‘actual controversy,’ however, the probable future controversy 

must be ripe. [Citation.] A ‘controversy is “ripe” when it has reached, but 

has not passed, the point that the facts have sufficiently congealed to permit 

an intelligent and useful decision to be made.’ ” (Environmental Defense

Project of Sierra County v. County of Sierra (2008) 158 Cal.App.4th 877, 885.) 

“It does not embrace controversies that are ‘conjectural, anticipated to occur 

in the future, or an attempt to obtain an advisory opinion from the court.’ ” 

(Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 

1559, 1582.) “ ‘ “Whether a claim presents an ‘actual controversy’ within the 

meaning of Code of Civil Procedure section 1060 is a question of law that we 

review de novo.” ’ ” (Ibid.) 

“A ripeness inquiry involves a two-step analysis: First, whether the 

issue is appropriate for immediate judicial resolution; and second, whether 

the complaining party will suffer a hardship from a refusal to entertain its 

legal challenge. [Citation.] [¶] Under the first test, ‘ “courts will decline to 

adjudicate a dispute if ‘the abstract posture of the proceeding makes it 

difficult to evaluate . . . the issues’ [citation], if the court is asked to speculate 

on the resolution of hypothetical situations [citation], or if the case presents a 

‘contrived inquiry’ [citation].” [Citation.]’ [Citation.] [¶] Under the second 

test, courts generally will not consider issues based on speculative future 

harm. [Citation.] This is particularly true where the complaining party will 

have the opportunity to pursue appropriate legal remedies should the 

anticipated harm ever materialize.” (Metropolitan Water Dist. of Southern

California v. Winograd (2018) 24 Cal.App.5th 881, 892–893.)

Here, the record indicates plaintiffs’ challenge to future Redesignated 

Fee increases does not present an actual controversy proper for adjudication. 
21

Any future Redesignated Fee increase is based on the percentage change in 

the annual “Consumer Price Index—All Urban Consumers, Series ID 

cuura422sa0, Not Seasonally adjusted, San Francisco-Oakland-San Jose.”

That potential increase, however, is not implemented for any particular year 

if WMAC’s gross receipts for the prior calendar year were less than the 

calendar year before that. Thus, while the ordinance imposing the 

Redesignated Fee provides for fee increases, it is uncertain whether or when 

those will occur and, if they do, the actual amount of such an increase. Nor 

do plaintiffs explain how the court could assess whether those future 

unknown increases exceed the City’s future costs for “preparing, adopting, 

and implementing the plan, as well as in setting and collecting the local fees.” 

(See Pub. Resource Code, § 41901.) 

Plaintiffs contend if the current Redesignated Fee exceeds the City’s 

current costs, as alleged in the complaint, then any future Redesignated Fee

increase would also exceed the City’s costs. But this presumes the City’s 

costs remain static, and the SAC contains no such allegations. Rather, it is 

reasonable to assume the City’s costs may increase by the time of any 

Redesignated Fee increase. The degree of any such cost increase, however, is 

unknown, and the SAC is entirely silent regarding this issue. 

Nor are plaintiffs’ arguments regarding hardship persuasive. Plaintiffs 

contend they incur such hardship because they are currently paying a

Redesignated Fee that exceeds the amount allowable by law. But the trial 

court concluded plaintiffs’ challenge to the current Redesignated Fee was 

time-barred, and plaintiffs have not challenged that ruling on appeal.

Instead, plaintiffs only contend the SAC “adequately alleges a claim for 

declaratory relief as to the automatic increases.” Accordingly, any harm 

plaintiffs currently are incurring is based on their own failure to timely 
22

challenge the Redesignated Fee. As discussed above, what, if any, harm 

plaintiffs may incur from future fee increases is uncertain at this time, and 

plaintiffs have not demonstrated they will be unable “to pursue appropriate 

legal remedies should the anticipated harm ever materialize.”3 (Metropolitan

Water Dist. of Southern California v. Winograd, supra, 24 Cal.App.5th at 

p. 893.) Accordingly, plaintiffs’ challenge to future Redesignated Fee

increases is not ripe for adjudication.

III. DISPOSITION

The trial court’s judgment is affirmed in part and reversed in part. We 

affirm the court’s order sustaining the City’s demurrer as to the Redesignated 

Fee increase. However, we reverse the trial court’s order sustaining the 

City’s demurrer as to the validity of the franchise fee. The parties shall bear 

their own costs on appeal. (See Cal. Rules of Court, rule 8.278(a)(5).)

3 The trial court rejected the City’s argument that plaintiffs’ challenge 

to the future Redesignated Fee increases are also time-barred, and the City 

did not contest that ruling. We do not independently opine on that holding or 

whether other legal arguments may bar such a claim in the future as neither 

party has raised such arguments in this appeal.
23

____________________________

Margulies, J.

We concur:

_____________________________

Humes, P. J.

_____________________________

Banke, J.

A154986

Zolly v. City of Oakland
24

Trial Court: Superior Court of Alameda County

Trial Judge: Hon. Paul D. Herbert

Counsel: 

Zacks, Freedman & Patterson and Andrew M. Zacks; Katz Appellate Law 

and Paul J. Katz for Plaintiffs and Appellants.

Barbara Parker, Doryanna Moreno, Maria Bee, David Pereda and Celso 

Ortiz, City Attorney; Chao ADR, PC and Cedric C. Chao; DLA Piper LLP,

Tamara Shepard and Mauricio Gonzalez, for Defendant and Respondent.