AGENDA BILL. Receive and Accept the BB&K Town Council Memorandum on Measures R and U: Ability to Supplant Funding
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1 AGENDA BILL Agenda Item October 5, 2011 FileNo. ~o5 ( 3 ~is - is) Subject: Initiated by: Receive and Accept the BB&K Town Council Memorandum on Measures R and U: Ability to Supplant Funding Andrew Morris, Town Attorney - Best Best & Krieger LLP Stuart Brown, Recreation Manager BACKGROUND: In 2008, the voters of Mammoth Lakes approved a.05% transaction and use tax (i.e., sales tax) increase ordinance, which appeared on the ballot as Measure R. Based on section 15 of the ordinance (now codified as MLMC ), all revenues received from the increase must be used for recreation, trails and parks funding. The Measure R Ordinance also included an Expenditure Plan component. As stated in MLMC : The Expenditure Plan may be amended from time to time by a majority vote of the city council as long as the funds are utilized for recreation, trails, and parks funding. Under this plan, all Measure R revenues are placed in a special fund that may be used for recreation programs and cannot supplant existing Town parks and recreation facility maintenance funding. In 2010, the voters approved another ordinance extending the Town s utility users tax at the rate of 2.5%, which appeared on the ballot as Measure U. Measure U revenue must be used for Planning, construction, operation, maintenance, programming, and administration of facilities and projects for mobility, recreation, and arts & culture. Unlike the Measure R Ordinance, supplanting is written directly into the Measure U Ordinance: Such tax proceeds shall not supplant existing funds used for the purposes set forth above. (MLMC ) In light of the Town s current budget difficulties, the Town Council is evaluating different funding and budget options. As part of this, some have questioned whether the Town can reduce general fund funding for projects currently receiving Measure R or Measure U funding. They question whether P~i e 1 of 3
2 reducing funding or service levels would violate the requirement that Measure R and Measure U funding not supplant existing funding. ANALYSIS/DISCUSSION: The BB&K Memorandum provides a bullet-point summary of the conclusions: Measures R and U do not impose general fund spending floors because doing so is beyond the scope of the voters initiative power. Any initiative that attempted to impose a spending floor would be invalid as it would impair the essential government function of fiscal management. Initiatives cannot eliminate the Town Council s discretion to increase or decrease general fund spending. For purposes of Measures R and U, supplant means to substitute for or be used in the place of. Accordingly, these measures require that the Town Council not simply replace general fund spending on U) recreation, trails, and parks and (2) mobility, recreation, and arts & culture with Measure R or U revenues, while redirecting the general fund dollars to other programs and services. These measures do not (1) guarantee continued service at existing levels or (2) otherwise prohibit the Town Council from reducing general fund spending. The Town Council could eliminate supplant from Measure R. This term is only used in the expenditure plan of Measure R. Measure R expressly permits the Town Council to amend this plan. OPTIONS ANALYSIS: Option 1: Receive and Accept the BB&K Town Council Memorandum on Measures R and U: Ability to Supplant Funding. Option 2: Do not take any action at this time. VISION CONSIDERATIONS: As stated in the 2007 Town of Mammoth Lakes General Plan Parks, open space, and recreation create an attractive quality of life and contribute to public health by encouraging physical activity and an appreciation of nature. Completing parks, trails, and recreation projects and planning for the future is critical to our residents quality of life, our visitors experience and to deliver on the promise of a Premier Year-Round Resort Community. Resident and visitor satisfaction are primary metrics that will drive this policy decision. P ~ge 2 of 3
3 FINANCIAL CONSIDERATIONS: None at this time. ENVIRONMENTAL CONSIDERATIONS: None at this time. LEGAL CONSIDERATIONS: The Measure R Expenditure Plan may be amended from time to time by a majority vote of the city council as long as the funds are utilized for recreation, trails, and parks funding. STAFFING CONSIDERATIONS: None at this time. RECOMMENDATION: Therefore, it is recommended that the Town Council approve Option 1: Receive and Accept the BB&K Town Council Memorandum on Measures R and U: Ability to Supplant Funding. Attachments: A - BB&K Town Council Memorandum on Measures R and U: Supplant Funding B Measure U Ordinance (10-4) C - Measure R Expenditure Plan Ability to I ~ige 3 of 3
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5 1111)- BEST BEST & KRIEGER ~ ATTORNEY WORK PRODUCT ATTORNEY-CLIENT PRIVILEGE Memorandum To: Honorable Mayor and Town Council Members From: Best Best & Krieger LLP Date: September 16, 2011 Re: Measures R and U: Ability to Supplant Funding BACKGROUND In 2008, the voters of Mammoth Lakes approved a.05% transaction and use tax (i.e., sales tax) increase ordinance, which appeared on the ballot as Measure R. Based on section 15 of the ordinance (now codified as MLMC ), all revenues received from the increase must be used for recreation, trails and parks funding. Measure R also included an expenditure plan. Under this plan, all Measure R revenues are placed in a special fund that may be used for recreation programs and cannot supplant existing Town parks and recreation facility maintenance funding. In 2010, the voters approved another ordinance extending the Town s utility users tax at the rate of 2.5%, which appeared on the ballot as Measure U. Measure U revenue must be used for [pilanning, construction, operation, maintenance, programming and administration of facilities and projects for mobility, recreation, and arts & culture. Such tax proceeds shall not supplant existing funds used for the purposes set forth above. (MLMC ) In light of the Town s current budget difficulties, the Town Council is evaluating different funding and budget options. As part of this, some have questioned whether the Town can reduce general fund funding for projects currently receiving Measure R or Measure U funding. They question whether reducing funding or service levels would violate the requirement that Measure R and Measure U funding not supplant existing funding. QUESTIONS PRESENTED 1) Do either Measure R or Measure U establish a minimum spending level the Town must meet? 2) In light of the absence of a required minimum spending level, what does supplant mean in Measure R and Measure U?
6 i~~iis~ BEST BEST & KRIEGER ~ 3) Does Measure R prohibit the Town Council from reducing recreation, trails and parks funding or services? 4) Does Measure U prohibit the Town Council from reducing mobility, recreation, and arts and culture funding or services? SHORT ANSWERS 1) No. California law does not allow voters to establish minimum general fund spending requirements. This point has important implications for the supplant issue and for the meaning of Measure R and Measure U generally. 2) Supplant is not defined in either Measure R or Measure U. The plain language definition of this term is to take the place of or substitute for. Accordingly, Measures R and U prevent the Town from simply substituting Measure R and Measure U revenues for general fund spending on (1) recreation, trails and parks and (2) mobility, recreation, and arts & culture. These measures do not impose a minimum general fund spending floor or otherwise guarantee a minimum level of service. 3) No. Measure R does not impose a minimum general fund spending floor or otherwise guarantee a minimum level of service for recreation, trails and parks. As described above, an initiative that attempted to do that would be invalid. In addition, Measure R specifically permits the Town Council to amend Measure R s expenditure plan to remove references to supplanting current funding. 4) No. Measure U does not impose a minimum spending floor or otherwise guarantee a minimum level of service for mobility, recreation and arts & culture. As described above, an initiative that attempted to do that would be invalid. ANALYSIS A. VOTERS CANNOT IMPAIR THE TowN CouNcIL s AUTHORITY OVER FISCAL MANAGEMENT As we will describe below, we do not believe that the plain language of Measures R and U limits the Town s ability to reduce general fund spending. However, some may argue that these initiatives are actually ambiguous on this point. For example, one may point to the use of the phrase existing... funds in Measure R and existing funds in Measure U as evidence of the voters intent to impose a spending floor. However, even assuming these measures are ambiguous, Measures R and U do not set minimum spending floors. Interpreting Measure R and U in this way would impair essential government functions, which the law does not allow. -2-
7 III) IIJp1s~ BEST BEST & KRIEGER ~ While the voters ability to adopt initiatives and conduct referenda it very broad, it is not absolute. One limitation on this authority is where an initiative or referendum will impair essential government functions. (See Simpson v. Hite (1950) 36 Cal.2d 125, 134.) Courts have recognized that one of the most essential government functions is fiscal management. (See Rossi v. Brown (1995) 9 Cal.4th 688, 703.) For example, courts do not permit referenda on tax measures because a referendum on a tax measure prevents a local legislative body from accurately estimating revenues and therefore from administrating the agency s finances. (Rossi, at p. 703.) Courts have also held that initiatives that impose minimum spending floors impair fiscal management. In Totten v. Board of Supervisors (2006) 139 Cal.App.4th 826, 830, the court struck down an initiative that prescribed minimum future annual budgets for county public safety agencies. In part, the court did so because the initiative impaired the exercise of essential government functions. Specifically, the court noted that the initiative... seriously impair[ed] the exercise of appellant s essential governmental function of managing the county s financial affairs. (Totten, at p. 839.) It explained that under the ordinance the county... would have no discretion to decrease public safety funding below this [minimum] level if the crime rate plummeted, if improved efficiency or innovations reduced public safety costs, or if the required level of public safety funding prevented the county from adequately funding state-mandated programs unrelated to public safety. (Totten, at p. 839.) Here, if Measures R and U set minimum general fund spending floors, they would impair the essential government function of fiscal management. Similar to Totten, imposing a general fund spending floor for (1) recreation, trails and parks and (2) mobility, recreation, and arts & culture would eliminate the Town Council s discretion to reduce spending if these costs decreased or, more importantly, if the required level of spending prevented the Council from funding other important and necessary programs. Accordingly, Measures R and U do not impose a minimum general fund spending floor because interpreting these measures in this way would impair essential government functions and would invalidate the initiatives. B. SUPPLANT PREVENTS THE TowN FROM SIMPLY SUBSTITUTING SPECIAL TAX FUNDS FOR FUNDS FROM THE GENERAL FUND When interpreting statutes and ordinances, courts... must look first to the words of the statute, giving to the language its usual, ordinary import and giving significance to every word, phrase and sentence if possible. (Lawrence v. Kuperman (2006) 137 Cal.App.4th 918, 928.) If a term is not ambiguous, the court will simply apply the plain meaning of the word. However, if the term is open to multiple interpretations, the court will apply a fundamental rule of construction applied to all legal documents. The objective of interpretation is to ascertain the intent of those who drafted the instrument and to give that intent full effect consistent with applicable legal provisions. (Armstrong v. County of San Mateo (1983) 146 Cal.App.3d 597, 617 [case using voter pamphlets as extrinsic aid to discern voter intent].) In -3- I%o
8 BEST BEST & KRIEGER ~ addition, [w]ords must be construed in context, and statutes must be harmonized, both internally and with each other, to the extent possible. Interpretive constructions which render some words surplusage, defy common sense, or lead to mischief or absurdity are to be avoided. (California Manufacturers Association v. Public Utilities Commission (1979) 24 Cal.3d 836, 844.) Applying this to the present case, there are a few helpful rules. First, if possible, courts simply apply the plain meaning of terms. Second, if a term is ambiguous, courts will seek to effectuate the intent of the voters (i.e., the drafters of an initiative) and apply an interpretation that does not lead to absurd or inconsistent results. For the first rule, supplant is not defined in Measure R or Measure U. However, it is generally defined as to take the place of; oust from a position and serve as a substitute for... ; or to completely remove from a situation and replace. (See Webster s Third New International Dictionary, p ) Applying this plain language definition, supplant means that Measure R and Measure U funding cannot take the place of or substitute for existing funding. Therefore, the Town Council could not simply substitute Measure R or Measure U funding for existing general fund spending on recreation, trails and parks or on mobility, recreation, and arts & culture while redirecting that general fund spending to other programs. Essentially, Measure R and Measure U provide new or additional funding for these purposes. Based on this interpretation, Measure R and Measure U simply require that the Town Council not use special tax funding in place of or as a substitute for general fund revenue that will simply be redirected to other expenditures. However, if the Town needs to scale back general fund spending, the Town can certainly cut spending in areas covered by Measure R and Measure U, just as it can for every program and expenditure type. For the reasons described above, the Town cannot be obligated to provide a minimum level of general fund spending on (1) recreation, trails and parks or (2) mobility, recreation, and arts & culture. For example, it would not be proper for the Town to shift $1 million from recreation, trails, parks, transit, and arts to other programs, keeping overall general fund spending constant. However, if the Town needs to cut general fund spending by $1 million, we believe some or all of this amount could come from recreation, trails, parks, transit, and arts. By analogy, Measure R and Measure U do not prevent the Town from shrinking the general fund pie. They only prevent the Town from taking the existing slices of the general fund pie for (1) recreation, trails and parks and (2) mobility, recreation, and arts & culture and using them to pay for other things (i.e., keeping the overall pie the same size but cutting out the slices for these purposes). If the Town cuts general fund spending and some of the cuts come from these categories, Measure R and Measure U revenues will still be used to enhance programs and services to levels beyond what the general fund can provide. The upshot is that the plain language of Measures R and U does not (1) obligate the Town to provide a minimum level of service or a fixed level of general fund spending or (2)
9 Ill). BEsT BEST & KRIEGER ~ otherwise prevent the Town from reducing or eliminating general fund spending or service levels. They only prevent the Town from using Measures R and U revenues as a substitute for general fund spending that will be redirected elsewhere. C. MEASURE R PERMITS THE TowN COUNCIL TO AMEND ITS EXPENDITURE PLAN It is also worth noting that Measure R does not impose a minimum funding floor for an alternative reason. The language of this initiative permits the Town Council to determine how to use Measure R revenues as long as they are used for recreation, trails and parks. Measure R actually only uses the term supplant in its expenditure plan. The plan provides that [a]ll proceeds of the tax levied and imposed hereunder shall be accounted for and paid into a special fund designated for use by the Town of Mammoth Lakes only for the planning, construction, operation, maintenance, programming and administration of all trails, parks and recreation facilities managed by the Town of Mammoth Lakes without supplanting existing parks and recreation facility maintenance funds. (MLMC ) Measure R specifically permits the Town Council to amend this expenditure plan. The expenditure plan may be amended from time to time by a majority vote of the city council, so long as the funds are utilized for recreation, trails and parks funding. For the purposes of this chapter, recreation, trails and parks funding means planning, construction, operation, maintenance, programming, and administration of all town recreation facilities and programs, trails and parks managed by the town. (MLMC ) Therefore, to avoid any concerns, the Town Council can amend the expenditure plan to eliminate references to supplanting existing funding and remove this restriction. The only limitation is that Measure R funds must continue to be used for recreation, trails and parks funding. D. SUMMARY OF CONCLUSIONS Below is a bullet-point summary of our conclusions: Measures R and U do not impose general fund spending floors because doing so is beyond the scope of the voters initiative power. Any initiative that attempted to impose a spending floor would be invalid as it would impair the essential government function of fiscal management. Initiatives cannot eliminate the Town Council s discretion to increase or decrease general fund spending. For purposes of Measures R and U, supplant means to substitute for or be used in the place of. Accordingly, these measures require that the Town Council not simply replace general fund spending on (1) recreation, trails and parks and (2) mobility, recreation, and arts & culture with Measure R or U revenues, while redirecting the general fund dollars to other programs and services. These measures do not (1) guarantee continued service at existing levels or (2) otherwise prohibit the Town Council from reducing general fund spending. -5-
10 liii) lije~ BEST BEST & KRIEGER ~ The Town Council could eliminate supplant from Measure R. This term is only used in the expenditure plan of Measure R. Measure R expressly permits the Town Council to amend this plan. CONCLUSION We hope this memorandum has been helpful in explaining the issues associated with Measures R and U and future general fund spending on (1) recreation, trails and parks and (2) mobility, recreation, and arts & culture. Please do not hesitate to contact us for more information. ANDY MORRIS JOSH NELSON
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