Court of Appeal Overturns Order That State Pay Welfare COLAs

Tuesday, February 20, 2007

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Court of Appeal Overturns Order That State Pay Welfare COLAs

By KENNETH OFGANG, Staff Writer

An order requiring the state to pay a cost of living adjustment to perhaps 500,000 welfare recipients was overturned Friday by the First District Court of Appeal.

A divided panel in Div. Three said that San Francisco Superior Court Judge James Warren, since retired, had erroneously interpreted a series of laws in which the Legislature tied the payment of COLAs to CalWORKS recipients to offsets in the state’s controversial vehicle license fee.

At issue in the class action was a COLA that beneficiaries of CalWORKS, which provides cash assistance to needy single parents, were to receive in October 2003. Presiding Justice William McGuiness said that increase was vitiated because there was no reduction in the VLF, or “car tax,” that year.

Efforts to relieve the burden on car owners, who had been paying a fee equal to two percent of the market value of their vehicles annually, began in 1998 with he enactment of Revenue and Taxation Code Sec. 10754. As originally enacted, the law provided for reductions, or offsets, of 25 percent of the tax in 1999 and 2000, and for offsets of between 25 percent and 67.5 percent in subsequent years depending on total revenues.

Burton Bill

At the same time, the Legislature approved legislation sponsored by then-Sen. John Burton, D-San Francisco, who argued that if the state could afford to cut taxes for car owners, it could afford to give welfare recipients enough money to keep up with the cost of living.

That bill, which amended what was then Welfare and Institutions Code Sec. 11453, created the possibility of reinstating COLAs, which were automatically granted annually prior to 1990. Under previous legislation, there were no COLAs for the fiscal years 1990-91 through 1997-98, and the COLA for FY 1998-99 did not take effect until November 1, four months after the start of the fiscal year.

Under the Burton legislation, the state was required to pay COLAs on Oct. 1 of any fiscal year from 2000-01 through 2003-04 “when there is any increase in tax relief pursuant to...Section 10754.” The law also provided, however, that “when there is no increase in [car] tax relief...then any increase [in welfare payments] shall be suspended.”

COLAs under that act were granted in October 2000 and October 2001. A later bill provided that a COLA for FY 2002-03 would be granted, but not until June 1, 2003.

More Bills

Lawmakers subsequently passed three more pieces of legislation dealing with the car tax. One bill provided for a 35 percent offset for the year 2000; another provided that if the formula offset for 2001 or 2002 was less than 67.5 percent, the difference would be rebated and that the offset would be increased to 67.5 percent beginning in 2003.

Finally, the Legislature made the 67.5 percent offset retroactive to July 1, 2001.

All three bills, however, authorized the executive branch to reduce VLF offsets if there was insufficient money in the state general fund. Based on that provision, the administration of then-Gov. Gray Davis declared in June 2003 that there were insufficient monies to fund any part of the VLF offset, which was suspended in June 2003.

The administration further determined that since there would be no VLF offset, there would be no October 2003 welfare COLA.

The VLF became a major issue in the fall 2003 recall election, which saw Davis removed from office and Arnold Schwarzenegger, who promised to “repeal the car tax increase,” elected. On his first day in office, the new governor made good on his pledge, declaring that the previous administration’s declaration of no offsets was “rescinded and...of no force and effect,” that the 67.5 percent offset would be reinstated “as soon as administratively feasible,” and that “all overpayments” since June would be refunded.

In December 2003, attorneys from the Los Angeles-based Western Center on Law and Poverty and the Lawyers Committee for Civil Rights of the Bay Area sought a petition for writ of mandate directing that a COLA be paid to all CalWORKS recipients retroactive to October 2003.

Judge James Warren granted the petition on the ground that by issuing an executive order mandating a 67.5 percent VLF offset, the governor was granting “an increase in relief” from the tax, triggering welfare COLAs under the Burton law.

The judge declined to rule on a separate argument that the governor had effectively raised the VLF offset from zero, under the Davis administration’s determination, to 67.5 percent and that this triggered COLAs for CalWORKS recipients.

Permanent Cut

While Warren’s order was on appeal, the Legislature provided that the tax be reduced to .65 percent of market value beginning in 2005, thus eliminating the system of offsets and rebates. Lawmakers also eliminated the link between welfare COLAs and VLF, delayed the COLA for FY 2004-05 for three months, and suspended COLAs entirely for FY 2005-06 and 2006-07.

McGuiness, writing Friday for the Court of Appeal, said the “any increase in tax relief” language of the Burton law meant “an increase over the previous year’s tax relief,” which did not occur, and that the Legislature intended to incorporate further amendments to the VLF statute, rather than to mandate that COLAs be granted in any year that car tax relief exceeded the original 25 percent figure.

“The plain meaning of ‘increase’ is to grow larger in size or amount,” the presiding justice wrote. “When a statute refers to an ‘increase’ occurring ‘[i]n any fiscal year.’...it is logical to construe ‘increase’ as meaning an increase over the previous year; therefore, appellants’ interpretation of ‘increase’ as a growth in the VLF offset level from one year to the next has commonsense appeal.”

Justice Joann Parrilli concurred in the opinion, while Justice Stuart Pollak dissented.

While the interrelationship of the VLF and COLA statutes was “Byzantine,” Pollak wrote, “I believe that the trial court correctly found its way through the maze and interpreted the provisions in a manner that conforms to the Legislature’s obvious intent and makes sense of the statutory scheme.”

He noted that the Department of Social Services, until its “last-minute and unexplained change of heart,” had interpreted the enactments the same way Warren did. His colleagues’ reversal, he said, was contrary to the language of the law and “irreconcilable with any rational explanation of the purpose behind the statute.”

Los Angeles attorney Clare Pastore, who handled the case on behalf of the Western Center, called the ruling “very disappointing and dead wrong,” and said the plaintiffs would seek review in the state Supreme Court.

Pastore acknowledged that the legislative scheme was “convoluted because of the nature of what [lawmakers] did in the car tax scheme.” But she insisted that “the idea was to prevent exactly what Arnold Schwarzenegger did, which was to say we have all this money for motorists, but we just can’t afford to give all these needy people” an increase in benefits.

Lawyers for the state could not immediately be reached for comment.

The case is Guillen v. Schwarzenegger, A106873.