If San Diego voters approve a city sales tax hike on the Nov. 5 ballot, city leaders won’t be able to start spending the estimated $400 million a year in new money without first grappling with a policy voters approved in 2016. Eight-year-old Proposition H requires all increases in sales tax revenue above what the city collected in 2016 to be spent only on infrastructure projects and related expenses. But there’s a major caveat. Proposition H allows the City Council, with a two-thirds vote, to override and completely ignore its spending restrictions. So if enough council members agree, they could spend the new windfall on whatever they want. The issue hasn’t previously been raised in the debate over the proposed sales tax increase, Measure E. The measure’s supporters have been silent on the issue. When asked by The San Diego Union-Tribune, they said the loophole has prompted them to avoid mentioning the Proposition H restrictions in campaign materials — even as they promise that most of the Measure E money would be spent on streets, sidewalks and other infrastructure. “With or without Proposition H, I think the money’s going to go substantially to the same place, which is more infrastructure spending,” said Mike Zucchet, a Measure E supporter and leader of the city’s largest labor union. Zucchet said voters should be pleased there is a requirement on the books that Measure E money be spent on infrastructure, but the possibility of a council override makes that requirement difficult to include in campaign materials. “We’ve instead chosen to rely on the fact that this mayor and this council have doubled spending on road maintenance and road repair in the last three years,” he said. “This council has already shown the priorities they will have for new money.” The leading opponent of the sales tax increase, the San Diego County Taxpayers Association, was unaware of any restrictions from Proposition H until The San Diego Union-Tribune asked about them. Haney Hong, the association’s chief executive, said the restrictions are welcome news because they make it less likely the money would be spent on things like pay increases. But he said it would be far different if the city were legally bound and there were no override loophole. “The association would feel a lot better if we had guarantees,” he said. And Hong said the connection to Proposition H suggests that Measure E should be subject to a higher approval threshold. In California, proposed tax increases that would be spent on something specific require approval from two-thirds of voters to pass, while tax measures that wouldn’t be devoted to anything specific require only a simple majority. City Attorney Mara Elliott found in her impartial analysis of Measure E that it needed only a simple majority. Hong disagrees. “If the money has to be spent on infrastructure because of Proposition H, then this is a legal runaround of the intent of California voters,” he said. Elliott’s impartial analysis doesn’t refer to Proposition H, and a spokesperson for Elliott said last week that her office has not published any legal opinions on how Measure E and Proposition H would interact. The city’s independent budget analyst, Charles Modica, said his office hasn’t analyzed how the two measures would interact. He deferred further questions to Elliott. Zucchet said two-thirds approval isn’t required because the override loophole still requires the council to decide each year whether the money will be spent on something specific — infrastructure. The council has only used the override loophole twice in the eight annual budgets adopted since Proposition H was approved. And both times, fiscal years 2021 and 2022, city revenues had plummeted because of the pandemic. There is political pressure not to override a policy that 65 percent of voters approved back in 2016. But those dynamics could change if Measure E makes the annual amount of infrastructure spending required under Proposition H skyrocket from about $30 million to $430 million. Council members could use the override to devote $300 million to infrastructure instead of $430 million in a given year, and then point out to critics that $300 million is still 10 times the $30 million being spent before. But even without the override, Proposition H allows city leaders some flexibility. That flexibility was used for the first time last spring by Mayor Todd Gloria. Until the fiscal 2025 budget adopted last June, the city had been spending Proposition H money almost exclusively on infrastructure projects. But Gloria decided to spend much of the money on personnel connected to infrastructure and repairs to city buildings, traffic signals and other city assets. “Expenses allowed out of this fund are somewhat broad in the capital improvement area,” Zucchet said. “There is a lot there, including people who perform those services and contractors.” And even if every penny required by Proposition H is spent on actual infrastructure projects, Zucchet said the windfall from a sales tax increase would still free up millions in the budget that are now spent on infrastructure. “When you have taken one of the top two or three priorities and so substantially funded it, it helps with all the other priorities in the budget,” Zucchet said. Another arguable loophole is that Proposition H allows the city to pay off lease-revenue bonds it sold to raise money for infrastructure projects — as long as those bonds were sold after the proposition was approved in June 2016. This would allow city officials to spend millions of the new revenue from a sales tax measure on paying off old debts, instead of paying for new infrastructure projects. Proposition H doesn’t prevent San Diego from using the new sales tax revenue to sell new revenue bonds for infrastructure projects, which several city leaders have said they will do if Measure E passes. Estimates of how much of the new revenue the city would use for a bond have ranged from 50 percent, which would be about $200 million, to 70 percent, which would be closer to $300 million. The potential impact of Proposition H isn’t indefinite. The measure has a sunset clause ending its requirements in fiscal year 2042. So after that point, any restrictions on sales tax money from Proposition H would go away. Former San Diego Councilmember Mark Kersey, who spearheaded Proposition H, said last week that the group behind the measure didn’t anticipate San Diego would try to double the city’s sales tax revenue with the one-cent increase now on the ballot. “Our goal was really to capture the natural growth in sales tax that happens when the economy expands,” said Kersey, who served as chair of the council’s Infrastructure Committee. “We didn’t know what was on the horizon.” Kersey said he didn’t support the override loophole, noting that it was a legislative compromise needed to get Proposition H on the ballot. Even then, putting Proposition H on the ballot was only approved 7-2. The “no” votes were cast by Gloria, who was nearing the end of his council tenure, and David Alvarez, who is now in the state Assembly. Gloria and Alvarez said at the time that the proposition wouldn’t raise enough money to make a big dent in the city’s infrastructure backlog and would limit the council’s discretion over the budget too much. During the first five budgets Proposition H affected, it had requirements that went beyond sales tax. The city was also required to spend half of all revenue increases from property tax and hotel tax on infrastructure, but those requirements expired after the fiscal year 2022 budget. The annual sales tax contribution required by Proposition H is calculated by taking projected sales tax revenue for the coming fiscal year and subtracting the sales tax collected in fiscal year 2016, which gets adjusted upward for inflation each year using the consumer price index.