PROPOSITIONS 62 AND 218: A STATUS REPORT ON MUNICIPAL FINANCE

Transcription

1 ANNUAL CONFERENCE LEAGUE OF CALIFORNIA CITIES OCTOBER 10-12, 1999 Michael G. Colantuono City Attorney Barstow, Cudahy, La Habra Heights PROPOSITIONS 62 AND 218: A STATUS REPORT ON MUNICIPAL FINANCE PROPOSITION 62 I. Retroactivity and the Statute of Limitations Two critical issues were left undecided by the decision in Guardino v. Santa Clara County Local Transportation Authority, 11 Cal.4th 220 (1995), which held that Proposition 62, previously ruled invalid by lower courts, was in fact enforceable to require voter approval of local general taxes: Is the decision retroactively applicable to taxes adopted prior to the December 14, 1995 Guardino decision? What statute of limitations applies to a challenge to a tax under Guardino: three years, under Code of Civil Procedure 338(a), as several trial courts have concluded, or does a new statute begin to run each time a tax is collected, so the tax is never immune from attack? Recent analysis suggests a one-year statute may also apply under Code of Civil Procedure 340(1) in cases seeking refunds. An appellate decision answering both these questions adversely to local governments 1 was handed down in December In McBrearty v. City of Brawley, 59 Cal.App.4th 1441 (1997), the San Diego panel of the Court of Appeal concluded that: (1) Guardino is retroactively applicable to taxes imposed before that decision came down. (2) While the three-year statute of limitations of Code of Civil Procedure 338(a) does apply to Proposition 62 actions to compel elections or to enjoin tax collection, the McBrearty court refused to apply that period from the time the challenged tax ordinance was adopted. Instead, 1 / Unless otherwise specified, this paper uses the terms city, county, district, agency, and local government interchangeably. Proposition 218 applies to all local governments, however denominated. Proposition 62 applies to cities, counties, and districts.

2 McBrearty holds that the statute runs from the date of the Guardino decision. The reasoning on this second point is not supported by any case law. However, it represents only a partial loss for local government. Under this rule, any city or county which was not sued on its tax by December 14, 1998 can never be sued. The continuing force of this decision is now in doubt, however, as the Orange County panel of the Fourth District Court of Appeal has expressly refused to follow it. In Howard Jarvis Taxpayers Association v. City of La Habra, 99 Daily Journal DAR 9003 (filed August 27, 1999), the court affirmed a trial court judgment upholding an increase in La Habra's utility user tax imposed without voter approval in December The HJTA made two arguments. First, it argued that the court should follow the McBrearty decision and rule that the 3-year statute of limitation runs from the Guardino decision. The court criticized the reasoning of the McBrearty and held for La Habra: We disagree with the analysis and reasoning of McBrearty, as it does not comport with the consistent rulings of our Supreme Court that `a change in the law, either by statute or by case law, does not revive claims otherwise barred by the statute of limitations.' (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1116; see also Monroe v. Trustees of the California State Colleges (1971) 6 Cal.3d 399.) Id. at The court's analysis was particular tough on the HJTA: Thus, we conclude under Supreme Court precedent, we are unable to apply Guardino retroactively to revive HJTA's cause of action. The situation before us is no different than that facing the plaintiff in Jolly. In December 1992, the City adopted it allegedly illegal ordinance. HJTA cannot claim ignorance of the Ordinance; it was a matter of public record. Even though the appellate courts had held Proposition 62 unconstitutional, HJTA knew the Supreme Court had not yet spoken. It is absurd for HJTA to suggest it was forestalled by the prevailing case law from filing its suit at the time the City passed its utility tax ordinance. HJTA was in fact the real party in interest in Guardino, a case it pursued in the face of the contrary appellate court cases for the express purpose of having them overruled. Id. at HJTA's second argument was that a new cause of action should arise each time the utility tax is paid, thus creating a situation in which a tax ordinance is never immune from attack. The court soundly rejected this claim, too: The gravamen of HJTA's complaint is the legality of the adoption of an ordinance imposing a utility tax without complying with the voter approval requirements of Proposition 62. The legality of that act must be timely challenged and cannot be said to accrue continuously with each month's utility bill. Id. at 9006.

3 Thus, the La Habra case flatly rejects McBrearty's analysis and holds that a Proposition 62 challenge to a tax imposed without voter approve in reliance on the pre-guardino cases is barred by the statute of limitations unless filed within three years of the adoption of the tax. As three years have run since the Guardino case was decided, any city or county which has not already been sued on a Proposition 62 claim cannot now be sued. As local governments learned in Guardino, however, nothing in this area is certain until the California Supreme Court speaks. A petition for review may be filed in this case. In addition, identical issues are now pending in two cases before the Sixth District Court of Appeal in San Jose in cases involving cities in Santa Cruz and Monterey Counties. The decisions in those cases will likely be the next word on this subject. II. The Measure A/Measure B Strategy In Coleman v. County of Santa Clara, 64 Cal.App.4th 682 (1998), the 6th District Court of Appeal held that a sales tax imposed by Santa Clara's Measure B, which was on the November 1996 ballot that included Proposition 218, was not a special tax subject to the β voter approval requirement of Propositions 13 and 62. Proposition 218 did not apply to the case, as that measure took effect the day after Measure B was approved. The ballot also included Measure A, an advisory measure that advised the Board of Supervisors that, if the general sales tax to be imposed by Measure B were approved, the voters preferred the proceeds of the tax be devoted to a specific list of local transportation projects. Measure B imposed a general ½-cent sales tax. The plaintiffs alleged the two measures were a transparent attempt to evade the β- voter-approval requirement, but the Court of Appeal disagreed. The Court stated a two-part test for the identification of special taxes. First, the law asks whether the entity which imposed the tax is a general-purpose entity or a specialpurpose entity, which can impose only special taxes by its very nature. Second, if the tax is imposed by a multi-purpose or general-purpose entity, the law asks if the proceeds of the levy are legally obligated for a special purpose. In Coleman, the Court concluded that although Measure A expresses the voters' preference how new tax revenue should be spent, this relationship... does not reflect such inseparability that, as a matter of law, the two measures must be considered as one. On the contrary, the measures were not legally connected. Id. at 670. The court concluded: We readily acknowledge that as a result of our decision, ballot bifurcation makes it possible for cities and counties to raise new tax revenue by simple majority and then spent it on a specific list of projects. However, we do not believe that such bifurcation... represents a means to circumvent supermajority requirements. This is so because Propositions 13 and 62 were not intended to make it more difficult to rase all new taxes, only those that are legally earmarked for specific purposes. Id. at Proposition 218 contains a more detailed definition of special tax than did either Propositions 13 and 62 and the Measure A/Measure B strategy of combining a general tax with

4 an advisory measure is not without risk of challenge under that new definition. Nonetheless, Coleman suggests this strategy may be available to local governments seeking voter approval of new revenues. III. Charter City Cases Most public agency counsel have concluded that Proposition 62 is not applicable to charter cities. The adoption of Proposition 218 does require voter approval of general taxes of charter cities imposed after January 1, 1995, however, and thus exemption for Proposition 62 is of historical interest only for most charter cities. Nonetheless, a few cases contest the applicability of Guardino to pre-proposition 218 charter City taxes. The first published opinion on point since the Guardino decision is Burbank- Glendale-Pasadena Airport Authority v. City of Burbank, 64 Cal.App.4th 1217, (1998). 2 The Airport Authority and one of the cities which created it litigated this dispute over the City's parking tax. Burbank obtained voter approval of the tax on the April 1997 ballot as a Proposition 218 window-period tax and prevailed in the trial court on the ground that Proposition 62 does not apply to charter cities. The Court of Appeal affirmed. The appellate decision focuses on a number of other theories and its discussion of Propositions 62 and 218 is quite terse. Nonetheless, it is authority for the proposition that charter cities are exempt from Proposition 62. PROPOSITION 218 Proposition 218 can be understood as having four primary effects: (1) Some of Proposition 62's rules regarding taxes are now placed in the State Constitution and made applicable to charter cities; 3 (2) broad new restrictions are imposed on assessments; (3) complex and poorly drafted rules regarding so-called property related fees are imposed; and, (4) the initiative power is extended to at least some fiscal matters. Those four topics provide the structure of the balance of this paper. Because Proposition 218 treats standby fees as assessments, these fees are treated separately. I. Taxes 2 Pre-Guardino authorities holding Proposition 62 inapplicable to charter cities include Fielder v. City of Los Angeles, 14 Cal.App.4th 137 (1993), and Fisher v. County of Alameda, 20 Cal.App.4th 120 (1994). 3 A key provision of Proposition 62 which does appear in Proposition 218 is the requirement of Government Code Section 53724(b) that general taxes be proposed by a β majority of the legislative body. This requirement thus extends to general law cities, counties and special districts, but not to charter cities.

5 In most respects, the tax provisions of Proposition 218 do not differ significantly from those imposed by Propositions 13 and 62. Accordingly, there is less ambiguity in this area and, hence, relatively few developments to report. A. Definition of Impose or Extend. In McBrearty v. City of Brawley, 59 Cal.App.4th 1441 (1997), Brawley contended that Prop. 218's requirement of voter ratification of non-voter approved taxes imposed after January 1, 1995 (so-called window period taxes) impliedly validated non-voter approved taxes imposed prior to that time without need for an election under Prop. 62. The court rejected this argument. The court's conclusions, however, are helpful to local governments for two reasons. First, the court cited as authoritative the Proposition 218 Implementation Guide issued in January 1997 by the League of California Cities. 4 This will permit use of that document as authority in future cases involving Proposition 218. Second, and more importantly, the court rejected McBrearty's argument that Prop. 218 requires voter approval of all taxes and property-related fees which local governments continue to collect at pre-existing rates: McBrearty, however, takes the position that the City's continued collection of the tax during the window period constituted an `imposition' or `extension' thereof. She offers no ballot history or other legal basis for such a broad definition of those terms. Further, applying those terms as she defines them would require a local government to annually resubmit taxes previously approved by the voters, even in the absence of any change in the amount or duration of those taxes. Such an absurd result was clearly not intended by the voters. 59 Cal.App.4th at This is an important victory, as the HJTA and others have offered just this broad interpretation of impose and extend in debates regarding the impact of Proposition 218. This rule may potentially affect many more local revenue sources than the Proposition 62 taxes affected by Guardino. Indeed, the Attorney General has construed this language from McBrearty broadly to require legislative action before an increase in a tax or fee will trigger a duty to comply with Proposition 218's procedures. 82 Ops. Calif. Att'y Gen'l 35, (1999). B. Definition of Special Tax. Coleman v. County of Santa Clara, 64 Cal.App.4th 682 (1998), is a Proposition 62 case discussed more fully above. Although it does not construe Proposition 218, which took effect the day after the measures in issue in this case were voted upon, it will be helpful in future litigation regarding the meaning of the newly broadened definition of special tax provided by Article 13C, 1(d). 5 4 The most current edition of Guide is denoted as the 1998-A edition (the second of two editions produced that year) and is available from the League of Cities Publications Unit at (916) A comprehensive update of the Guide is now underway and a 2000 edition is expected early next year. 5 Earlier editions of this paper made reference to a then-pending Attorney General's opinion request which was expected to shed light on the meaning of special tax. In that request, the

6 C. Annexations and Incorporations. Legislative Counsel Opinion No (May 15, 1997) 6 was requested by former Senator Bill Craven (R-Oceanside) and concludes that Proposition 218 is triggered if an annexation to a City results in the imposition of a tax, assessment or fee on annexed properties to which those properties were not previously subject. This would require an election in virtually every annexation case and β voter approval wherever special taxes are in issue. This conclusion is reiterated in Legislative Counsel Opinion No (March 17, 1998). This opinion also concludes that the adoption of S.B. 919, The Omnibus Proposition 218 Implementation Act, does not alter the conclusion of Opinion No Legislation to address the problems created by these opinions has been introduced as S.B (Senator Morrow, R-Carlsbad). This measure would: (i) require an application to a Local Agency Formation Commission (LAFCO) to state whether the proposal would impose, extend, or increase taxes, assessment or property-related fees and charges in the affected territory, (ii) require the certificate of the filing of a proposal issued by the LAFCO to state whether the affected territory is inhabited within the meaning of the Cortese-Knox Act, (iii) as to proposals which do involve revenue measures subject to Proposition 218, the bill would require LAFCO's to impose any terms and conditions that are necessary to comply with [Proposition 218]..., including, but not limited to, the date on which and the territory within which the conducting authority shall conduct any election, (iv) provide for the waiver of election requirements by the written consent of affected property-owners (for uninhabited proposals) or voters, (v) require conducting authorities to comply with Proposition 218, if and as it applies, and (vi) provide procedural rules for the conduct of required property-owner elections, imposing a one-vote-per-acre standard and authorizing mailed-ballot elections. In its current form (amended as of May 18, 1999), the measure is an urgency statute which will require β approval in each chamber of the Legislature. Despite the initial intent of the measure, its value to local governments is now doubtful. The procedural rules for the conduct of election, and the provision of clear procedures (and legislative authorization) for waivers, are welcome. The decision to empower LAFCO's to sit in judgment on subtle and difficult legal questions regarding the application of Proposition 218 is not. First, it can be doubted whether LAFCO's would welcome this new responsibility -- and the exposure to litigation it entails. Second, it transfers important fiscal policy-making power from directly elected, and highly visible local governments, to an appointed arm of state government that is much less visible to the public affected by these decisions. Calaveras County Counsel sought guidance on a number of issues pertaining to the operation of a Veterans Memorial District, established pursuant to Veterans Code 1170 et seq. The Attorney General's issued opinion, however, was restricted to statutory issues and did not construe Proposition 218's tax provisions. 82 Ops. Calif. Att'y Gen'l 87 (1999). 6 / Legislative Counsel opinions are neither published nor made available by the Legislative Counsel's office. Copies must be obtained from a legislator. The opinions cited here are included in the 1999-A edition of the League's Proposition 218 Implementation Guide. In addition, the author of this paper can provide copies of the opinions cited here.

7 In response to Senator Morrow's proposal, and discussion of it before the Commission on Local Governance for the 21st Century, Senator Richard Rainey (R-Walnut Creek), Chair of the Senate Local Government Committee, has asked for an Attorney General's opinion, Opinion Request No Senator Rainey urged the Attorney General to issue his opinion by this fall to permit it to be used in the consideration of S.B As this paper is written, that request remains pending and the bill is not expected to move forward until the opinion issues. The author of this paper submitted a lengthy letter-brief on behalf of the Attorney General Opinions Committee of the City Attorneys Department of the League of California Cities, outlining the legal basis for a conclusion that Proposition 218 does not apply in the context of annexations and other changes in municipal boundaries. 7 While the courts may ultimately be required to resolve these issues, the pending Attorney General's opinion and S.B may provide some guidance in the coming months. 8 D. Judicial Circumvention of Voter Approval Requirements? F&L Farm Co. v. City of Lindsay, 65 Cal.App.4th 1345 (1998). Lindsay is renowned for its production of olives, packed in brine. For many years the City accepted brine waste at its municipal landfill. It appears that brine leaked from the landfill, contaminating local groundwater supplies and harming overlying farmland. Several farm owners obtained judgments in inverse condemnation which, with interest, amount to more than $5 million, far more than the City can pay. When the City failed to pay the judgment, the plaintiffs sought a writ to compel payment. The City defended the writ action, arguing that Prop. 218 and the debt limitation requirement of Article 16 of the California Constitution overrode its duty to pay the judgment. The trial court disagreed, as did the Court of Appeal. In a decision which is consistent with previous caselaw involving Prop. 13, the Court concluded that the constitutional duty to make amends for government damage to property has equal weight with the constitutional limits on local government finance and both must be given effect. Underlying the case is a more fundamental issue, one which has caught the attention of the HJTA -- can a court impose a tax to fund a judgment of the court without the voter approval required by Props. 62 and 218? On the one hand, a city's duty to pay its debts ought not to depend on the generosity of its voters. On the other hand, the HJTA fears that judicial power to impose taxes will invite collusive litigation such as where a friend of town hall sues a city for failing to maintain public streets, hoping for a court order to fill in where a voterapproved street tax could not. These issues are now pending in a 9th Circuit case entitled Ventura Group Ventures, Inc. (VGV) v. Ventura Port District. 7 A copy of that letter brief can be obtained from the League of California Cities ( ) or from the author of this paper. 8 The first test case on these issues was Howard Jarvis Taxpayers Association v. City of Cathedral City (Riverside County Superior Court). That case, however, was settled by the parties and the League of California Cities is currently unaware of any other pending case which raises these issues.

8 The League of Cities coordinated an amicus brief in that case. The Port District filed for Chapter 9 bankruptcy after a multi-million dollar judgment was entered against it in a contract dispute. The judgment debtor assigned its claim to VGV, which asserted the claim in the bankruptcy court. The bankruptcy was resolved, with a partial payment on the debt, but the stipulated decision left VGV free to appeal to the 9th Circuit on the question of whether the federal courts have power to impose an additional property tax on the land within the Port District or to re-allocate the existing 1% property tax to pay the debt. Obviously, taking property tax money from the City of Ventura, Ventura County, and schools could satisfy the judgment but would not be warmly greeted by those local governments! The 9th Circuit certified these questions to the California Supreme Court, 99 Daily Journal DAR 6606 (filed June 9, 1999), and the federal case will not proceed until the state Supreme Court's opinion issues. E. Tax Elections. S.B. 919, the Proposition 218 Omnibus Implementation Act, adopted as urgency legislation in 1997, amended Elections Code 4000 to authorize all-mailedballot elections for purposes of compliance with Proposition 218. Senator Murray (D-Los Angeles) introduced S.B to further amend 4000 to broadly allow mailed-ballot elections for almost all local government purposes with just two restrictions: (1) special elections to fill state and federal legislative positions may not be conducted by mail; and, (2) at least one polling place must be provided in each city with fewer than 250,000 voters, and one polling place per 25,000 registered voters must be provided in larger cities. As this paper is written, the measure is pending on Governor Davis' desk. S.C.A. 3 (Burton, D-San Francisco and Karnette, D-Long Beach), would amend the California Constitution to allow the imposition of special transportation taxes by a majority vote, rather than the β approval now required. The proposal would add 16 to Article 11 of the Constitution and make conforming changes to Propositions 13 and 218. To appear on the statewide ballot for adoption by the voters, this proposed constitutional amendment must first win βapproval in each chamber of the Legislature. It has received that approval in the Senate, but was rejected in the Assembly, when Republican legislators withheld their support. The issue is now expected to figure in the 2000 state election as a campaign issue rather than as a ballot measure. II. Assessments The assessment provision of Proposition 218 are the heart of the measure's objectives. There are many disputed terms in its assessment provisions and a wealth of authorities have already been generated as a result. A. Contracts Clause Defense of Multi-Year Assessment Fails. In Consolidated Fire Protection District v. Howard Jarvis Taxpayers Association, 63 Cal.App.4th 211 (1998), the County of Los Angeles sought protection for its multi-year fire assessment in the contracts clause of the federal Constitution. The County took the position that the imposition of a subsequent installment of a multi-year fire suppression benefit assessment established prior to the adoption of Proposition 218 was exempt from the procedures of Proposition 218 because:

9 (1) the payment of the initial year's assessment by taxpayers created a contract for the completion of the multi-year services program which could not be impaired by Proposition 218 and (2) Proposition 218 requires an unconstitutional referendum on an assessment. The County filed a validation complaint, which the HJTA answered. The trial court ruled against the County and the County obtained β voter approval of a special tax to replace these revenues. The County suspended implementation of the assessment, but did not rescind it, and appealed. The Court of Appeal concluded that the matter was not moot and affirmed the trial court's ruling against the County, concluding that no contract within the meaning of the impairment of contract clauses of the state and federal constitutions was in issue and that Guardino precludes argument that a requirement for voter approval for imposition of a revenue measure amounts to an unconstitutional referendum. The case does not consider the potential argument that the continued collection of a multi-year assessment does not constitute the levy of an assessment sufficient to trigger the provisions of Article 13D, 4. Depending on the language of the authorizing assessment statute (or, for a charter city, ordinance), this theory might allow an agency to defer compliance with Proposition 218 for a multi-year assessment until the current multi-year term expires and a new levy is required. B Act Business Improvement District Assessments are Exempt. Howard Jarvis Taxpayers Association v. City of San Diego, 72 Cal.App.4th 230 (1999), holds that assessments on business owners (who are not necessarily property owners) under the 1989 Business Improvement District Act are not subject to Proposition 218. Because Proposition 218 defines the assessments to which it applies as assessments on property, the court concluded that the measure does not apply to 1989 Act BID's. BID's formed under the several other statutes which authorize them likely are subject to Proposition In the face of this rather obvious omission from Proposition 218, HJTA argued that the definition of assessment in Proposition 218 was intended to repeal by implication all assessments which are not imposed on property. The court flatly rejected this argument: Proposition 218 plainly states the definition of the term `assessment' is `as used in this article.' '[T]he phrase `as used in this article' carefully limits the field of application' to article XIII D. (See Rihn v. Franchise Tax Board (1955) 131 Cal.App.3d 356, 366.) Proposition 218 clearly does not state a constitutional definition of assessment for all constitutional and statutory provisions. To read such an all encompassing `constitutional definition' of assessment into Proposition 218 would require us to ignore the clear language of the proposition and rewrite the proposition. This we may not do. 9 This position is spelled out in an opinion prepared for the San Diego BID Council by Rubin Weiner of Richards, Watson & Gershon, which is available from the League of Cities.

10 Moreover, as the City and Amici 10 point out, construing Proposition 218 as providing for a `constitutional definition' of assessment would result in repealing by implication many other statutory `assessments' which are not property based and which appear to be clearly outside the scope of the proposition. Id. at HJTA also relied on the language of 5 of Proposition 218, which states that the measure is to be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent, as it does in all disputes regarding the meaning of the measure. The Court soundly rejected the assertion that 5 is a magic wand sweeping away all other legal considerations: Liberal construction cannot overcome the plain language of Proposition 218 limiting the scope of its assessments (sic) to assessments based on real property. Nor is there anything in the language of Proposition 218 or in the ballot arguments that supports a conclusion that Proposition 218 was intended to encompass assessments imposed in the 1989 Act. Nothing in the ballot arguments or language of the proposition would have alerted the electorate to such a construction. Id. at Finally, HJTA attempted to re-litigate the decision in Evans v. City of San Jose, 3 Cal.App.4th 728 (1992), which concluded that 1989 Act BID assessments are not special taxes subject to the β-voter-approval requirement of Proposition 13. The San Diego court affirmed the earlier ruling on this point. The California Supreme Court unanimously rejected the HJTA's petition for review and the case is now final. Thus, the 1989 Act remains a viable tool for local governments seeking to fund services and facilities for their business districts. Moreover, the San Diego decision provides important authority that the construction of Proposition 218 is to be made in light of the language of the measure and the ballot arguments that preceded its adoption and that Section 5's call for liberal construction is not a magic wand which invariably produces victories for the HJTA and defeats for local governments. Legislation to amend the 1994 Property and Business Improvement District Act to conform its procedures with those required by Proposition 218, A.B (Steinberg, D- Sacramento) has passed both chambers and, as this paper is written, is pending on the Governor's desk. C. Streetlights are Exempt as Streets. In Howard Jarvis Taxpayers Association v. City of Riverside, 1999 Daily Journal DAR 7303 (filed July 16, 1999), the Fourth 10 Eighty-five California cities and towns joined an amicus brief in support of San Diego coordinated by the League of California Cities and written by the author of this paper, Rubin Weiner and Peter Pierce of Richards, Watson & Gershon.

11 District Court of Appeal concluded that streetlights fall within the definition of streets for purposes of Article 13D, 5(a), which exempts from the requirements of Proposition 218 an assessment imposed solely for street purposes. As many California local governments rely on assessments imposed under the Landscaping and Lighting Act of 1972 to fund streetlights, the case is an important victory. After the adoption of Proposition 218, Riverside obtained simple-majority voter approval of its existing street-lighting assessment. The City then took the position that its assessment was exempt from Proposition 218 under Article 13D, 5(d) as a voter-approved assessment as well as under Article 13D, 5(a) as an assessment imposed solely for street purposes. In its complaint, the HJTA contended that the assessment does not confer special benefit and must therefore be considered a special tax for which β-voter approval was required. The trial court ruled for the City on the ground that streetlighting assessments reflect special benefit and fall within the exemption for existing street assessments. The Inland Empire panel of the Fourth District Court of Appeal affirmed, concluding that streetlighting is within the sweep of the Article 13D, 5(a) exemption: Electrical current is necessary to operate streetlights; and streetlights, we believe, are necessary to operate streets and sidewalks. Streetlights make streets and sidewalks safer. They are analogous to traffic lights.... Our conclusion finds support in the apparent purpose of the exemption [of Article 13D, 5(a)].... Streetlighting, however, like sidewalks, sewers and flood control, has traditionally been financed through special assessments. In California, the history of special assessments for streetlighting goes back to at least Special assessments for streetlighting are by no means an abuse or a loophole. Thus, although the drafters of Proposition 218 did not exempt streetlighting assessments in so many words, it does not violate their evident intent to hold that a streetlighting assessment is exempt as an expense of the operation of streets and sidewalks. Id. at (citations omitted). Like, the San Diego case discussed above, the court rejects HJTA's reliance on the liberal construction language of Proposition 218's 5: However, `[a] proviso that `[t]his section shall be liberally construed...' does not license either enlargement of restriction of its evident meaning.' Where `the statutes at issue are unambiguous... no resort to this command is required.' Id. at 7305 (citations omitted). The Court also rejected HJTA's reliance on its own opinion, as the measure's proponent, as to the meaning of its terms: `[t]he opinion of drafters or of legislators who sponsor an initiative is not relevant since such opinion does not represent the intent of the electorate and we cannot say with assurance that the voters were aware of the drafters' intent.'

12 Id. at 7306 (citations omitted). Given the HJTA's frequent reliance on annotations of Proposition 218 prepared before and after the adoption of the measure, this point is especially valuable. The appellate court deemed HJTA's argument that streetlights do not provide the special benefit required by Proposition 218 to have been waived and did not address it. This case provides important assistance to local governments in two ways: it shores up an important source of funding for streetlighting and it provides interpretive tools that will assist in future disputes regarding Proposition 218. D. Secrecy of Assessment Ballots. Proposition 218 does not give any guidance as to whether assessment protest ballots submitted in the property-owner mailed-ballot election required by Article 13D are subject to public inspection. Three positions are possible: (i) the ballots are public records subject to inspection immediately upon receipt by the agency, as was true of assessment protests under traditional protest mechanisms; (ii) the ballots are forever exempt from disclosure in the interest of ballot secrecy; or, (iii) the ballots are exempt from disclosure until a proceeding is concluded, at which point they are available for public audit. Non-disclosure can only be justified under the general balancing exception to the duty of disclosure under the Public Records Act provided by Government Code We recommend that local governments determine how ballots are to be treated as a matter of local policy and reflect that policy in a resolution of the legislative body adopted before the assessment ballot proceeding begins. This will protect the agency from charges that it has changed the rules in the middle of the game and will create expectations of privacy that will bolster a claim of exemption under In the absence of local policy considerations to the contrary, we would recommend the third approach -- keep ballots secret during the proceeding to prevent intimidation or pressuring of property owners, but allow the ballots to be examined after-the-fact to indicate the agency's willingness to be audited and held accountable. This issue was litigated in HJTA v. City of Brentwood. Brentwood successfully defended its refusal to allow public inspection of assessment protest ballots under the general balancing exception of 6255 of the Public Records Act. A discovery referee sitting in the Contra Costa Superior Court by designation concluded that there is a constitutional duty to protect the privacy interest of voters and that non-disclosure is legally compelled. The Public Records Act does not provide for appellate review of such rulings and the appellate court declined to issue a discretionary writ to alter this result in a summary, unpublished ruling. The rationale of the decision is, in my view, suspect. Nonetheless, it suggests that courts are prepared to exempt ballots from disclosure in the interest of voter privacy. E. County Road Assessments. The Attorney General has opined in 81 Ops. Calif. Att'y Gen'l 356 (1998), that road maintenance charges imposed by County Services Areas (CSA's) may be either assessment or fees and that, if imposed on the basis of benefit, constitute assessments which, under Proposition 218, must be imposed in proportion to that benefit, rather than on a uniform basis. While some of the language of the opinion is unclear, it is generally helpful to the position of local agencies by clarifying the alternate procedures for imposing such

13 charges consistently with Proposition 218. The opinion was requested by Senator Monteith (R- Modesto). Related legislation is S.B. 614 (Morrow, R-Oceanside). This proposal, chaptered on August 30, 1999 as Chapter 269 of the Statutes of 1999, takes effect January 1, It adopts Government Code and Streets & Highways Code to authorize a county to form a permanent road division covering the entire unincorporated territory of the county. Road maintenance assessments may then be imposed on that division consistently with Proposition 218's requirements. F. Imposition of Assessments on Federal Agencies. Among the more peculiar provisions of Proposition 218 is Article 13D, 4(a)'s requirement that: Parcels within a[n assessment] district that are owned or used by any agency, the State of California or the United States shall not be exempt from assessment unless the agency can demonstrate by clear and convincing evidence that those publicly owned parcels in fact receive no special benefit [from the improvement or service to be funded by the assessment]. While this provision of the California Constitution might be construed to create authority for local governments to impose assessments on the State or other local governments, it clearly cannot alter the federal government's constitutional immunity from local revenue measures. A recent authority bears this out. In Novato Fire Protection District v. United States of America, 1999 Daily Journal DAR 6903 (filed July 7, 1999), the Ninth Circuit affirmed a District Court ruling that overturned the District's efforts to detach Hamilton Air Force Base from the District following the base's termination of a contract under which it paid fees in lieu of property taxes to the District. The Court explained that the detachment was an attempt to compel the Base to contract for the payment of taxes from which it was immune as a federal instrumentality: This is not to say that the United States cannot be charged reasonable fees related to the cost of governmental services provided, such as payment for metered water usage. However, the contractual fees that the District charged the government in exchange for continued fire and emergency medical protection were based not on the actual cost of services provided to Hamilton Field, but rather upon the value of the property in question. The fee was calculated to be `an amount equivalent to the revenue the District would receive were the Navy on property tax rolls.' The assessed tax value of a property is not equivalent to the cost of services rendered to that property. Indeed, tax revenue may be allocated to unrelated government services.... Accordingly, we hold that the fees charged to the United States by the District for fire protection and emergency medical services clearly constituted an impermissible tax. Id. at Because the detachment proceeding was merely a device to exact the illegal fee, the court overturned it, as well. Id. at 6905.

14 Federal agencies will sometimes pay fees in lieu of assessments for services which benefit their property. For example, post offices have agreed to contract with business improvement districts (BID's) for the services that other businesses pay for via an assessment. Nonetheless, local governments lack power to tax or assess federal property, making compliance with Article 13D, 4(a) most often a matter of providing local general funds to replace the assessments which federal property owners cannot be made to pay. III. Fees The fee provisions of Proposition 218 were hastily drafted and were intended to prevent local governments from evading the measure's detailed requirements for taxes and assessments by relabeling such a levy as a fee. The fee provisions are very uncertain in their expression and it has not been possible to achieve much in the way of legislative clarification of their terms. Thus, much of the activity in advisory opinions, litigation, and even a proposed further initiative, involves the fee provisions of Proposition A. Regulatory Fees. An unpublished appellate decision involving rent stabilization fees provides a hopeful sign that Proposition 218's fee provisions will not be read to undercut local governments' ability to impose fees on regulated businesses to recoup the cost of regulation. In Santa Monica Apartment Owners Association v. Santa Monica Rent Control Board and Apartment Owners Association of Greater Los Angeles, Howard Jarvis Taxpayers Association v. Rent Control Board of the City of Santa Monica, the plaintiffs alleged that the registration fees imposed on landlords to finance the City's rent control program were propertyrelated fees within the meaning of Proposition 218 and that annual fee-setting requires an annual election among the affected landlords. Because the fee can no more than cover the cost of the budget for the Rent Board's programs, it is established each budget time. Harry L. Gershon and Laurence S. Wiener of Richards, Watson & Gershon, in conjunction with the Rent Control Board's staff attorneys, persuaded the trial court to refuse a preliminary injunction on either issue; the parties stipulated that this ruling would dispose of the case. The Court of Appeal affirmed in a brief, unpublished decision filed August 5, 1998, discussing only the first issue. The Santa Monica cases are significant for two reasons. First, they broadly stand for the proposition that fees imposed to recover the cost of a regulatory program are not property-related service fees subject to Proposition 218. The contrary result would doom such fees, for what industry will vote to charge itself for the cost of government regulation? Second, the court concluded that the annual fee-setting did not constitute a new fee each year. The Court of Appeal wrote: A regulatory fee charged to persons engaged in a regulated business, and used only to cover the expenses of the regulator, is not a general or special tax or 11 The meaning of Proposition 218's fee provisions has also drawn the attention of a law student commentator. See Throckmorton, "Note, What is a Property-Related Fee? An Interpretation of California's Proposition 218," 48 Hastings L.J (1997) (arguing for an expansive interpretation of "property related fee").

15 fee `incident to the ownership of property' and is not subject to the Constitutional limits on the taxing power. (Pennell v. City of San Jose (1986) 42 Cal.3d 365, 375 [fee charged to cover costs of operation of San Jose rent control ordinance, and not used to raise general revenue, is not subject to taxation limits under Article XIII A of the California Constitution].) The holding in Pennell was recently affirmed by a unanimous Supreme Court in Sinclair Paint Co. v. State Board of Equalization (1997) 15 Cal.4th 866, 876 [fees imposed on manufacturer of lead products to support lead poisoning regulatory activities of Health Department are regulatory fees, not taxes, and not subject to Article XIII]. The fees here are regulatory fees within the rationale of Pennell and Sinclair, not taxes incident to property ownership. The fees are not imposed on all property owners -- only that small subset of owners who operate rental businesses. The fees are not used to generate general revenues, only to pay for rent board operations. Accordingly, they are not subject to the limits of Articles XIII C and XIII D of the constitution, and the trial court did not err in entering judgment for respondent. 12 The Sinclair Paint case is a powerful precedent. So powerful that it is among the HJTA's next targets. 13 Inexplicably, another panel of this same Court of Appeal reached a contrary result in a very similar case and this decision is designated for publication which, if it becomes final, will create precedent for future cases. In Apartment Association of Los Angeles County, Inc. v. City of Los Angeles, 1999 Daily Journal DAR 8951 (filed August 26, 1999), the court considered a challenge to a $1 per month fee on landlords to fund the cost of inspecting rental properties for compliance with City housing codes. Such a fee would seem to be closely analogous to the regulatory fees in issue in the Santa Monica Rent Control Board and Sinclair Paint cases. In a cursory opinion, however, Division One of the Second District Court of Appeal found the fee to be a property-related fee for which a majority vote of the affected property owners or a β vote of registered voters is required by Article 13D, 6(c): 12 Copies of the court's decision are available from the League of California Cities or from the author of this paper. 13 Assemblyman Tom McClintock (R-Granada Hills) has introduced ACA 1, which would completely repeal the vehicle license fee and "back-fill" the revenues lost to local government with State general fund monies. The measure is unlikely to win the necessary legislative support to appear on the ballot. Accordingly, Assemblyman McClintock has prepared an initiative measure which would have the same effect. This proposal also includes language, drafted by HJTA President Jonathan Coupal, which would overturn the Sinclair Paint decision and greatly expand Proposition 218's restrictions on fees. That measure can be viewed at Assemblyman McClintock's web site ( Political pundits now believe that the measure is unlikely to reach the ballot. Further efforts to limit the Sinclair Paint holding, however, can be expected.

16 There is nothing in Proposition 218 that exempts regulatory fees imposed on residential rental properties. It thus adds nothing to say, as does the City, that the fees are not `imposed upon property owners in general, but only those who voluntarily engage in the business of renting, generate the risks of slum housing, and specially benefit from regular inspections as they contribute to the overall reputability and safety of the housing provided.'... However well intentioned the City's program to abolish slum housing may be, we find it impossible to say that a fee imposed upon the owners of rental units so the City can locate and eradicate substandard housing is anything other than a user fee or charge for property related service. Id. at The Court was equally cursory in rejecting Los Angeles' reliance on Sinclair Paint, noting only that the California Supreme Court stated in Sinclair Paint that it was not construing the provisions of Proposition 218. Id. at 8952, n.9. The Court does not cite the legislative history of Proposition 218 nor any of the Attorney General's opinions noted below. The opinion turns solely on the intent [that this court finds] apparent from the words of Proposition 218. Id. at The decision is not yet final and the City of Los Angeles intends to seek rehearing and, if necessary, to petition the California Supreme Court for review. The Legal Advocacy Committee of the League of California Cities will coordinate a letter in support of the petition for review and, if review is granted, an amicus curiae brief in support of Los Angeles. Thus, there is substantial reason to believe that this decision will not become final and constitute precedent for other cases. Even if it does, however, the Court's analysis suggests that its sweep is quite limited. The Court took pains to note that: The $12.00 [per year] fee is imposed against every residential rental property with two or more rental units, without regard to whether the units are empty or rented, without regard to the amount of rent paid for the unit, without regard to the condition of the unit, and without regard to any other factor. Id. at 8951, n.5. Thus, like the proposed flood control fee considered in the Attorney General's opinion discussed in paragraph D. below, the Court understood Los Angeles' fee to be imposed on the basis of an essentially immutable characteristic of property -- the fact that it is improved with two or more rental units. Therefore, the Court understood Los Angeles to have imposed a fee on property solely by virtue of the physical characteristics of property and not on the basis of any voluntary conduct of the affected property owner. Thus, should the Court's analysis become precedential, it may not have application to other fees imposed on some property owners on the basis of their elective decisions to enter a regulated industry, consume a public service, or impose a cost on local government. The case is even more clearly inapplicable to regulatory fees which are not initially collected via the property tax roll. Nonetheless, the analysis of the decision is unfortunate and local governments will be well served if it is depublished or superseded by more thoroughly reasoned decision of the California Supreme Court.

17 Another opportunity to revisit these issues will likely arise in the San Diego division of the First District Court of Appeal. The City of San Diego won trial court victories in a series of challenges to its business license tax on landlords. Appeals are expected in those cases. City of San Diego v. McCarty and Teyssier v. City of San Diego. B. Metered Services Fees are not Property-Related. In 80 Ops. Calif. Att'y Gen'l 183 (1997), the Attorney General interpreted Proposition 218 in a question posed by Senator Richard Rainey (R-Walnut Creek) and concluded that tiered water rate structures that encourage conservation by increasing unit rates with higher volume do not violate Proposition 218. The Opinion is of broader significance than this, however, as the Attorney General concluded: We believe that fees for water that are based upon metered amounts used are not imposed... as an incident of property ownership and do not have a direct relationship to property ownership. Consequently, such fees would not be governed by [Proposition 218]. This logic can be extended to other fees based on the amount of a service provided, such as some trash and sewer fees, although some uncertainty in this area will remain until an appellate court renders a published decision. C. County Dump Charges are Property Related. Legislative Counsel Opinion No (April 28, 1997). The Legislative Counsel advised Senator Byron Sher (D-Palo Alto) that county waste disposal fees (i.e., fees imposed to fund the operations of county landfills) collected via the property tax rolls are property-related fees governed by Proposition 218. The Legislative Counsel also concluded that such fees come within the partial exception of Article 13D, 6(c), which exempts fees or charges for sewer, water, and refuse collection services from the requirement for voter approval. Hence all that is required to impose or increase such a fee is an old-fashioned majority protest proceeding (in which silence equals consent), but not an election. Government Code 53750(i), adopted by 1997's S.B. 919, allows notice for such a proceeding to be combined with another mailing, such as a utility bill. D. Storm-Drainage Fees. In 81 Ops. Calif. Att'y Gen'l 104 (1998), the Attorney General issued an opinion regarding the application of Proposition 218 fees in response to a request from then-senator (now Congressman) Mike Thompson (D-St. Helena) for advice regarding storm drainage fees proposed by the Vallejo Sanitation and Flood Control District. According to the opinion, the Vallejo District imposed two fees: a sewage fee based on volume of effluent from improved parcels served by the District's sewer mains and a storm water fee charged only to properties served by sewers and in proportion to the volume of sewage effluent from each property. The sewage fees were not in issue in the opinion. The District proposed to revise the storm water fee to charge all properties without regard to their use of sewers. The proposed fee was to be based on the amount of impervious coverage on each parcel. The Attorney General concludes first that the District's existing storm fee violates Article 13D, 6(b) of the State Constitution as it necessarily exceeds of the cost of providing