Tuesday, June 5, 2001
S.C. Ruling Strengthens Proposition 62, Jeopardizes Many Taxes
By ROBERT GREENE, Staff Writer
A local tax imposed without mandated voter approval can be blocked even if the statutory three years have passed since the tax measure was enacted, because the limitations period starts fresh with each collection, the state Supreme Court ruled yesterday.
The ruling adds vigor to Proposition 62, a measure adopted by California voters in 1986 to assure that no new general taxes can be adopted without a public vote. The measure was struck down by an appellate court several years after its passage but was revived by the Supreme Court in its 1995 decision in Santa Clara County Local Transportation Authority v. Guardino.
The Orange County city of La Habra was one of numerous California municipalities that quickly adopted unpopular taxes without public vote beginning in 1991, when an economic slowdown placed city services in jeopardy and the mandates of Proposition 62 were lifted—temporarily—by the courts.
In 1992, in the midst of that “window,” La Habra officials placed a six percent tax on utilities, and has collected it monthly on residents’ utility bills ever since.
Statute of Limitations
In a unanimous opinion, the high court yesterday rejected the city’s assertion that the new tax permanently escaped challenge at the end of 1995 when the three-year statute of limitations elapsed.
The court likewise rejected the chief contention of the trio of taxpayer groups that challenged the tax—that the three-year period didn’t end but only began in 1995, with the court’s Guardino decision.
But in an opinion by Justice Kathryn Werdegar, the court adopted the plaintiffs’ alternative argument that the limitations period starts to run anew each month the tax is collected.
The ruling reinstates the lawsuit brought by the Howard Jarvis Taxpayers Association, two other groups and three La Habra taxpayers.
Attorney Timothy A. Bittle of the Jarvis group hailed the ruling as a major victory in defense of Proposition 62 and its successor, the constitutional amendment known as Proposition 218.
“This is really the first time ever that a court in California has said that an illegal tax can be challenged, no matter how much time has passed, if it is still being collected today,” Bittle said.
The ruling theoretically returns the case to the Orange Superior Court for trial. But trial is considered unlikely, since La Habra officials acknowledge that they imposed the tax without voter approval.
Attorney Kimberly Hall Barlow, who argued the case for the city, could not be reached for comment.
Impact of Ruling
The impact of the ruling extends far beyond La Habra. Attorney James L. Markman of Richards, Watson & Gershon, who represented the California Association of Counties and more than 100 cities as amici curiae, said he believed there were about 150 local governments currently collecting taxes like La Habra’s.
“These are sweeping, unexpected changes to the law,” Markman said. “They’ve changed 80 years of jurisprudence. We have understood that taxation power belonged to the elected official, and if you wanted to change the tax the way you did it was to vote the elected official out of office.”
The ruling does not mandate refunds for taxes already collected. Bittle, of the Jarvis group, said his organization as a general policy does not seek refunds because the money already has been spent, and there is only one way cities can raise it to pay it back—impose a new tax.
“That would be kind of pointless,” Bittle said. “We’re usually content if they will just discontinue the tax in the future.”
But individuals may still bring their own actions for refunds going back three years.
“That’s a lot of money,” Markman cautioned. “I don’t want to put ideas in anyone’s head, but there are potential class actions. There are 150 cities that will have to make do without a lot of police, without a lot of fire protection.”
The attorney for the amici also noted that under Proposition 218, cities cannot immediately validate their taxes by putting them on the ballot even if they want to. They must wait until the next election in which city council members appear on the ballot, unless bankruptcy is looming.
In her opinion, Werdegar rejected the argument put forward by the amici that the theory of continuous accrual would interfere with budgetary planning by impairing the security of revenue sources.
“The local governments’ suggestion, 14 years after the passage of Proposition 62 and five years after Guardino’s resolution of the constitutional questions... that their budgetary planning processes will be disrupted if Proposition 62’s requirements are enforced, is not well taken,” Werdegar said. “Cities and counties must eventually obey the state laws governing their taxing authority and cannot continue indefinitely to collect unauthorized taxes.”
Besides, the justice added, the Supreme Court’s ruling does not address the substance of the plaintiffs’ claims, but is limited to the statute of limitations question.
In the main portion of the opinion, Werdegar distinguished the case from rulings in which courts have determined that certain ordinances accrue only once, when the ordinance is enacted. For example, in a federal case in which a cattle rancher asserted a takings claim against the U.S. government for enacting a law that required him to let wild horses and burros drink his water, the claim was adjudged to have accrued when the law passed—and not each time a horse came by to drink from the watering hole.
“Here, in contrast, the City’s allegedly illegal actions include not only the ordinance’s initial enactment, but also the City’s continued collection, through the agency of service providers, of an unapproved tax,” the justice said.
In rejecting the plaintiffs’ primary contention that the statute should have begun to run when the Guardino opinion came down, Werdegar acknowledged that the court’s ruling could work “harsh results” by allowing the limitations period to lapse even during a time in which the law in contention is deemed invalid.
The plaintiffs may have been discouraged from filing their suit after the appeals court invalidated Proposition 62 in 1991 in City of Woodlake v. Logan, and after the Supreme Court declined to review that decision, Werdegar said.
But they still could have sued if they wanted to. In fact, she said, that is exactly what happened in Guardino, which was filed after the City of Woodlake ruling.
The case is Howard Jarvis Taxpayers Association v. City of La Habra, 01 S.O.S. 2660.