The business community-sponsored initiative, formally known as the Taxpayer Protection and Government Accountability Act, broadly aimed to make it more challenging to raise taxes in California, including by requiring the Legislature to seek approval from the voters for any new or higher state tax.

Newsom and legislative leaders sued last fall to stop the measure, arguing that it amounted to an illegal attempt to revise the California Constitution and would impair essential government functions. 

In a unanimous decision, the Supreme Court agreed, ordering Secretary of State Shirley Weber to refrain from taking any steps to place the initiative on the Nov. 5 ballot.

The proposed changes “are within the electorate’s prerogative to enact,” Justice Goodwin Liu wrote, “but because those changes would substantially alter our basic plan of government, the proposal cannot be enacted by initiative. It is instead governed by the procedures for revising our Constitution” — whereby proposed revisions must be submitted to voters by a supermajority of the Legislature or a constitutional convention.

The extraordinary decision marks the first time in more than two decades that the court has struck an initiative from the ballot following a full hearing. It last happened in 1999, with a measure that sought to restrict state officers’ pay and transfer redistricting power out of the Legislature, though a few others since then were removed after the proponents did not defend against legal challenges.

Critics called into question the intentions of the seven-member court — six of whom were appointed by Democratic governors, including three by Newsom. Proponents of the initiative slammed the ruling as a travesty and a “gut-punch to direct democracy in California.”

“Clearly, the state Supreme Court has now sent a signal that they are part of the progressive agenda in California, that we are a one-party state in California and there is no independent judiciary in California anymore,” Rob Lapsley, president of the California Business Roundtable, said at a press conference. He accused Newsom and the Legislature of supporting democracy “only on their terms, when they think it’s in their best interest.”

A spokesperson for Newsom said in a statement that “the Governor believes the initiative process is a sacred part of our democracy, but as the Court’s decision affirmed today, that process does not allow for an illegal constitutional revision.”

In his opinion, Liu acknowledged the unusual nature of the preelection review, but wrote that waiting until after voters weighed in to consider the constitutionality of the initiative “would be more challenging than in a typical case” because it includes a retroactive provision that could invalidate existing taxes.

It “would thus require the state and localities to start preparing to administer special elections if they wish to avoid nullification of taxes or charges,” Liu wrote.

Proponents introduced the initiative to crack down on what they contend are loopholes created by legislators and court rulings that weakened previous voter-approved tax accountability measures and allowed an unelected administrative bureaucracy to flourish. It was heavily supported by the real estate industry and a private ambulance company, which frequently battle local governments over taxes, fees and assessments to fund public services.

The measure would also have increased the margin to pass a voter-initiated special tax at the local level, to two-thirds from a simple majority; restricted how officials can calculate the cost of fees that fund public services and programs; and reclassified some of those charges as taxes.

These changes could have upended the operation of California government at every level, prohibiting administrative agencies from setting levies and requiring the Legislature or local governments to turn to the voters to adjust them. Cities, counties and the unions that represent their employees raised alarms that the initiative would blow a hole in their budgets, threatening their ability to provide essential services.

They celebrated the Supreme Court decision as a victory over corporate greed.

“The Taxpayer Deception Act was a flagrant attempt by a few extremely wealthy real estate developers to undermine our entire democratic system and our voice as voters and devastate the vital services Californians rely on — all to avoid paying their fair share,” David Huerta, president of SEIU California and SEIU United Service Workers West, said in a statement. “Today’s ruling is a strong warning to corporate interests that even those with the fattest pocketbooks will be held accountable to follow our laws.”

Opponents argued in court during a hearing last month that, rather than simply amending tax law in the state constitution, the initiative amounted to a fundamental restructuring of how government operates — a more substantial change that can only be proposed by a two-thirds vote of the Legislature or through a constitutional convention. The initiative’s proponents countered that the power of the legislative branch has always been shared with the public and urged the justices not to intervene in a political conflict that should be settled by voters.

The court’s decision to block the anti-tax measure from the ballot will likely create cascading effects in the November election and beyond.

Lapsley told reporters today that the business community will shift its financial resources into other campaign fights this fall, including supporting measures to increase penalties for some drug and property crimes, to require financial literacy courses in schools and to limit how funding from a tax on health care providers is used, as well as opposing a rent control measure.

He also said his coalition would develop a narrower tax proposal to put before voters in 2026, potentially incorporating elements of this initiative — protections against the whims of the Legislature and local governments that he said provide critical stability to the business climate in California.

“This, for us, is just a battle in the bigger war. We will be back,” he said. “They have no idea what’s coming.”

It could be harder two years from now. Legislative Democrats confirmed today that they will move forward with a competing measure that they placed on the November ballot last year to undermine the California Business Roundtable initiative.

The legislative measure flips the California Business Roundtable’s own higher standards around, requiring any changes to the threshold for approving state and local taxes pass by that same margin. So if adopted by voters, a future proposal requiring tax measures to secure support from two-thirds of the electorate would need to pass by a two-thirds margin to become law, rather than a simple majority, a high hurdle for a statewide ballot initiative.

“I’m very pleased the California Supreme Court rejected this unlawful and extreme effort to take power away from local communities to pay for essential services like police and firefighters,” Assembly Speaker Robert Rivas, a Salinas Democrat, said in a statement.

Republicans slammed the ruling as partisan politics that silenced more than 1.4 million voters who signed the petition to place the initiative on the ballot.

“I’m disgusted,” Senate Minority Leader Brian Jones, a San Diego Republican, said in a statement. “The court has failed in its duty to the people of California and our democratic system and instead simply caved to pressure from the governor and legislative Democrats.”

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More than 1 million people signed a petition to put a measure on the ballot this November that would have required voters to approve any tax increase passed by the state Legislature. It also would have required all local tax increases to be approved by two-thirds of voters instead of a simple majority vote.

The biggest impact, however, would have been that the measure threatened to retroactively reverse most tax increases approved since Jan. 1, 2022. Local governments warned they would have lost billions of dollars in revenue that had previously approved by voters. And it would have threatened recent statewide tax increases, including one on guns and ammunition set to take effect July 1.

That prospect alarmed Newsom and legislative leaders so much that they took the unusual step of asking the state Supreme Court to remove the measure from the ballot before voters had a chance to decide it.

California voters are allowed to bypass the governor and the state Legislature to amend the state Constitution at the ballot box, something they do frequently. Voters have amended the Constitution to protect abortion rights, declare marriage is between a man and a woman and dock legislators’ pay if they fail to pass a budget on time.

But the court has recognized a distinction between amending the Constitution — adding something new — and revising it by altering the way government works. Voters can amend the constitution by a ballot measure, but they cannot revise it.

In this case, the court ruled the ballot measure is a revision because it would take away the Legislature’s power to raise taxes — a shift the justices said would “fundamentally rework the fiscal underpinnings of our government at every level.” The only way to add these rules to the Constitution, the court ruled, would be for the Legislature and voters to approve a call for a new constitutional convention.

Matthew Hargrove, president and CEO of the California Business Properties Association, called the ruling “a gut punch to direct democracy in California.” Rob Lapsley, president of the California Business Roundtable, accused the court signaled its willingness “to back the progressive agenda at every turn moving forward.”

“There is no independent judiciary in California anymore,” Lapsley said. “Be scared. Because it’s only going to get worse.”

Newsom declined to speak to reporters after the ruling, but he issued a written statement — attributed to an aide — that said he supports the ballot initiative process but noted it “does not allow for an illegal constitutional revision.”

The issue is tricky for Newsom, a Democrat now in his second term who is a potential candidate for president. Newsom has tried to counter California’s reputation for high taxes by publicly opposing many new tax proposals, including campaigning publicly against a new tax on the rich.

But he has been willing to temporarily raise taxes on some businesses to balance the budget, something he is proposing to do again this year. And he signed a tax increase last year on guns and ammunition that is likely to be challenged in court once it takes effect on July 1.

Republicans on Thursday were quick to portray Newsom as “greedy,” arguing his successful attempt to block the measure will continue to make things more expensive in California, whose taxes on incomes, sales and gasoline are among the highest in the country.

“The California Democrat machine’s love affair with new taxes to pay for their ludicrous policies keep costing Californians their hard-earned money, and Newsom just made it that much easier to take even more,” said Jessica Millan Patterson, chairwoman of the California Republican Party.

Removing a measure from the ballot before an election is rare, but not unprecedented in California. In 1999, the court threw out one that would have cut lawmakers’ salaries and removed their authority to set boundaries for legislative districts. The court removed that measure from the ballot because it included more than one subject.

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