BILL ANALYSIS
AB 3222
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 3222 (Brown)
As Amended August 30, 1996
Majority vote
ASSEMBLY: (May 20, 1996) SENATE: > (August 31, 1996)
(vote not relevant)
Original Committee Reference: PUB. S.
SUMMARY: (1) In a manner identical to SB 1590 (O'Connell), states
that the decision of the California Supreme Court in the case of
Santa Clara County Local Transportation Authority v. Guardino only
shall apply prospectively, and shall not have any force or effect
upon any tax imposed prior to December 14, 1995; (2) In a manner
similar to SB 2143 (Hurtt), provides that public utilities and
other service suppliers shall not be liable for collecting,
validating, or refunding taxes imposed by another public entity;
and (3) In a manner similar to SB 1958 (Mello), expands the taxing
authority of all 58 counties.
The Senate amendments:
SB 1590 (O'Connell)
1) Decree in statute that the decision of the California Supreme
Court in the case of Santa Clara County Local Transportation
Authority v. Guardino shall not be applicable to and shall not
control any action or proceeding in which the validity of a tax
or tax increase is contested, questioned or otherwise in issue,
if the ordinance or resolution imposing or increasing that tax
was adopted prior to December 14, 1995.
2) Provide that in no event shall any action or proceeding
contesting, questioning, or otherwise placing in issue the
validity of any portion of the newly created section of law
detailing the effective date of Guardino decision on any
grounds be filed any later than January 31, 1997.
SB 2143 (Hurtt)
1) Provide that public utilities and other service suppliers shall
not be liable for collecting, validating, or refunding taxes
imposed by another public entity.
2) Provide that a utility is held harmless to any customer for
collecting taxes on behalf of a tax imposing local government
and it is not responsible for investigating the validity of a
tax or assisting in the refunding of an improperly imposed tax.
3) Require the Public Utilities Commission, PUC, to allow water
corporations to use the proceeds from the sale of unnecessary
assets prior to January 1, 1996, to reinvest in water
infrastructure within an eight year period.
AB 3222
Page 2
4) Make Legislative declarations and findings stating that public
policy will be served by clarifying the duties and
responsibilities of public utilities and other service
suppliers.
SB 1958 (Mello)
1) Authorizes the board of supervisors of any county to place on
the ballot a transactions and use tax of 1/8% for library funding.
2) Requires that the ordinance placing the library tax on the
ballot be approved by a 2/3 vote of the county supervisors, and
specifies that the new tax must be approved by a 2/3 vote of the
people at a local election consolidated with a general election at
which presidential electors are chosen.
3) States that the 1/8% tax is imposed for a period not to exceed
16 years.
4) Dedicates the proceeds of the tax for funding public library
programs and operations within the county which collects the tax.
Clarifies that the new money cannot be used to supplant existing
funding for the support of public libraries. Specifies that the
money shall be distributed equitably among county, city, and
special district library jurisdictions.
5) Provides a definition of public library.
General Provisions
1) State that the provisions of this bill are severable. State if
any provision of this act or its applications held invalid,
that invalidity shall not affect other provisions or
applications that can be given effect without the invalid
provision.
2) Add a reimbursement direction.
3) Add a crimes and infractions disclaimer.
FISCAL EFFECT:
SB 1590 (O'Connell)
No state or General Fund revenue impact.
The financial question at issue in this measure stems from two
factors: First, the potential for taxpayer refunds stemming from
the declaration that literally hundreds of local taxes (some which
have been in effect for nearly a decade) were enacted illegally,
and; Second, the degree to which the inability to continue to
levy these same taxes impacts ongoing local government revenues.
Both of these issues will be discussed at greater length below, in
the respective sections entitled "Limitations Upon Refunds of
Taxes Paid" and "Potential Refunds and Revenue Discussion."
AB 3222
Page 3
SB 1243 (Hurtt)
Unknown, probably minor, costs to local governments to provide
notices and information.
SB 1958 (Mello)
According to the Board of Equalization staff revenue estimate,
this measure has the ability to raise $366 million annually in
additional revenue if every county approved such an ordinance.
EXISTING LAW:
1) Per Article XI of the State Constitution, provides that a
charter city may enact any tax that is not unconstitutional or
is not pre-empted by the Legislature. Further provides that
general law cities and all counties require Legislative
authorization to levy a tax that is not unconstitutional or is
not pre-empted by the Legislature; that authority was granted
to general law cities by the Legislature in 1982, but is not
available to counties.
2) Per Article II, Section 9(a) of the state Constitution, states
that, "The referendum is the power to approve or reject
statutes or parts of statutes except...statutes providing for
tax levies..."
3) Per Article II, Section 10(a) of the state Constitution, states
that, "An initiative statute...approved by a majority of votes
thereon shall take effect the day after the election unless the
measure provides otherwise." Article II, Section 10(c) further
states that, "The Legislature...may amend or repeal an
initiative statute by another statute that becomes effective
only when approved by the electors unless the initiative
statute permits amendment or repeal without their approval.
4) Per Article XIIIA, Section 4 of the state Constitution, states
that, "Cities, counties and special districts, by a two-thirds
vote of the qualified electors of such district, may impose
special taxes on such district..."
5) Makes public utilities and corporations guilty of a
misdemeanor for violating the Public Utilities Act.
6) As of January 1, 1996, allows water corporations to use the
proceeds of the sales of specified assets, no longer necessary or
useful, to reinvest in water infrastructure.
7) Imposes a 6% state sales tax.
8) The Bradley-Burns Uniform Sales and Use Tax Law was enacted in
1955 to standardize sales tax rates at which local governments
collect taxes. Currently, this act allows counties to set a
local sales tax of 1 1/4%. All California counties have
adopted a 1 1/4% sales tax under this law.
AB 3222
Page 4
9) Cities, of which there are 469 in the state, receive an offset
from the
1 1/4% county imposed sales and use tax with a limit of 1%.
10)Together the city and county may not exceed a cap of 1 1/4% for
their respective sales and use tax.
11)The Transactions and use Tax Law permits counties, with voter
approval, to also impose a transactions and use tax rate of
1/4%, or a multiple of the 1/4% up to 1/2% with an overall
limit of 1 1/2% for the combined rate of these taxes.
12)In a similar manner to this measure, current law allows various
local governments to raise transactions and use taxes for
certain purposes. Examples include: Calexico (1/2%); Lakeport
(1/4% for streets and roads); Clearlake (1/4% or 1/2% for
public safety services); Fort Bragg (1/4% or 1/2% for city
streets and roads); San Joaquin County (1/8% for county
libraries); Truckee (1/2% for streets and roads).
AS PASSED BY THE ASSEMBLY, this bill provided that any person who
loiters about any school or public place at or near where children
attend or normally congregate and who, among other things,
re-enters that school or place within 12 months after being asked
to leave by a school official, is a vagrant, punishable by a fine,
not exceeding $1,000 and/or imprisonment in county jail for not
more than six months.
BACKGROUND: The Senate amendments delete the Assembly version of
this bill and insert the language of several other bills: (1) SB
1590 (O'Connell); SB 2143 (Hurtt); and, SB 1958 (Mello). This
bill contains language that has never been heard in any Assembly
policy committee.
SB 1590 (O'Connell) has been in the Assembly Committee on Revenue
and Taxation since May 24, 1996, was set for hearing on five
separate occassions, and has never been taken up by the author.
As such, this language has never been heard in any Assembly policy
committee.
SB 2143 (Hurtt) passed the Assembly and was referred to the Senate
Committee on Local Government pursuant to Senate Rule 29.10.
SB 1958 (Mello) passed the Assembly, but was denied concurrence in
the Senate. This bill is currently in conference (Assembly file
item #242). NOTE: SB 1958 passed the Assembly with a provision
that would require any jurisdiction seeking to place a tax
authorized by pursuant to SB 1958 on the ballot to also place
before the voters any existing tax that was imposed without a vote
of the people in a manner consistent with the holding of the
California Supreme Court in the case of Santa Clara County Local
Transportation Authority v. Guardino (1995), 11. Cal 4th 220 and
Proposition 62. This bill does not contain that provision of SB
1958.
AB 3222
Page 5
SB 1590 (O'Connell)
Overview: This bill in many respects represents the latest
chapter in an 18-year "debate" stemming from the enactment of
Proposition 13 in June of 1978. While the Guardino decision at
issue in SB 1590 was itself decided on the basis of Proposition 62
-- and in fact breathed new life into an initiative which was
viewed by many to be all but moribund prior to the Court decision
-- the issues underlying the introduction of SB 1590 find their
genesis in the enactment of Proposition 13 and the legacy of State
Supreme Court and appellate court cases construing that landmark
effort.
At first glance, SB 1590 appears to be a simple, straightforward
proposal. By establishing via legislative statute an effective
date for a State Supreme Court decision (something which the Court
has itself approved in prior cases), the bill's fate would seem to
turn on the policy considerations underlying its enactment. These
may be reduced to two key concerns: 1) An effort to avert fiscal
chaos for any number of local governments by "grandfathering"
hundreds of tax increases which were enacted without a popular
majority vote, and thereby ensuring the uninterrupted continuation
of these revenues in future years without the prospect of voter
rejection of these taxes, and; 2) Foreclosing any option for
taxpayer refunds stemming from the determination that the taxes in
question and subject to the provisions of Proposition 62 were
levied and collected in an invalid manner. As the following
analyses of the underlying constitutional, statutory and case law
will show, however, the issues before this Committee in the form
of SB 1590 are far more complex.
Propositions 13 and 62: In June of 1978, the state's voters
overwhelmingly
enacted Proposition 13, the cornerstone of which was a two-thirds
vote requirement for "special taxes," as that term was added to
the State Constitution in Article XIIIA, Section 4. In the
ensuing 18 years, not only have a host of major court actions
sought either to define or construe what it was the language of
that landmark initiative actually meant, but a series of
subsequent initiative measures seeking to expand, clarify or
"restore" the meaning of language in the original Proposition 13
have been introduced.
In November of 1986, the voters again adopted a far-reaching
taxpayer initiative in the form of Proposition 62, and did so
with a convincing 58 percent voter approval. Indeed, the Court's
decision in the Guardino case states that "...the evident intent
of the drafters of Proposition 62 was to close by legislation what
they perceived were court-made "loopholes" in Proposition 13."
Like Proposition 13 before it, Proposition 62 was subject to
immediate attack in the courts, for reasons as diverse as claiming
that the measure established an unconstitutional "referendum" on
tax measures, to whether or not its "window period" provisions
were applicable, and to whether the initiative applied to charter
cities, (NOTE: Unlike Proposition 13, Proposition 62 was not an
AB 3222
Page 6
initiative constitutional amendment, but rather a statutory
initiative). Before reviewing the many lower court precedents
upon which the supporters of SB 1590 are said to have based their
"good faith reliance," however, it must be noted that the
initiative was under appeal and continued review at all times, and
every counsel and elected local government official had to admit
of even the slightest possibility that Proposition 62 might again
become "good law." The briefest review of the key cases at issue
with respect to Proposition 62 prior to the Guardino decision
include:
City of Westminster v. Orange (1988): The Fourth District Court
of Appeals (DCA) held unconstitutional the section of Proposition
62 which required majority vote approval of any local taxes
imposed during a 16-month "window period" preceding the effective
date of the measure's enactment. The State Supreme Court refused
to review the case.
Schopflin v. Dole (1988) decertified 5/18/89: Upheld a trial court
validation of a 2% increase in a transient occupancy tax enacted
by the Sonoma County Board of Supervisors without a vote of the
people. This case was decertified by the State Supreme Court
Woodlake v. Logan (1991): The Fifth District Court of Appeals
ruled that Proposition 62's popular vote requirement for future
local taxes constituted an unconstitutional referendum on tax
levies (thereby expanding on the reasoning of the Westminster
court). The DCA overturned the decision of the Superior Court,
which had found that the tax in question -- a utility users tax
adopted by the Woodlake City Council without a vote of the people
-- was in violation of Proposition 62. At the time, the State
Supreme Court refused to review the case; however, the Guardino
decision expressly overrules the Woodlake decision, stating that
"...the decision in City of Woodlake v. Logan is erroneous, and it
is hereby disapproved."
Rider v. County of San Diego (1991): State Supreme Court decision
stating that "...every tax levied by a "special purpose" district
or agency would be deemed a "special tax." Equally important for
the purposes of considering SB 1590, in the concurring opinion in
the Rider case, Justices George and Panelli declared that the tax
at issue also was invalid under the provisions of Proposition 62.
In the eyes of at least two State Supreme Court justices, then,
Proposition 62 was hardly a dead letter and a settled issue,
despite the
holding of a lower court in Woodlake. (NOTE: Richard Rider, the
plaintiff in this case, was recently appointed by Assembly Speaker
Curt Pringle to the California Constitution Revision Commission.)
The Guardino Decision: In 1992, the County of Santa Clara placed
a 1/2 cent sales tax proposal (Measure A) before the voters; the
proceeds of this tax were to benefit specified projects of the
Santa Clara County Local Transportation Authority, which projects
in turn would be funded by the issuance of bonds payable from the
revenues of the tax. Measure A was approved by 54.1 percent of
the voters -- a majority, but not a two-thirds vote. Once a
AB 3222
Page 7
lawsuit was joined, the County invoked a writ of mandate
proceeding in an effort to expedite hearing of the case.
It is easy to see how the State Supreme Court could have chosen to
invalidate the Measure A tax at issue in the Guardino case on
" Rider grounds," a fact the Guardino court stated in Footnote 6 of
its opinion. However, the Court specifically chose NOT to invoke
Rider as controlling in the Guardino case, and instead sought to
resolve the question of Proposition 62's constitutionality. In
the words of the court in Guardino:
"...in its brief on the merits petitioner (Santa
Clara County Local Transportation Authority)
expressly "requests this Court to enter a definitive
ruling on Proposition 62. Local governments issue
bonds secured by taxes, and until this Court rules
on the constitutionality of Proposition 62, there is
a cloud hanging over those bonds. That cloud adds
an element of risk which, obviously, compels
investors to demand higher interest to compensate
for that risk."
"...Equally important, the question is ripe for
decision: the parties have raised the issue of the
constitutionality of section 53722 [enacted by
Proposition 62] at every stage at this proceeding
[and] To decide the issue at this time will thus
serve the policy of "resolving concrete disputes if
the consequence of a deferred decision will be
lingering uncertainty in the law, especially when
there is widespread public interest in the answer to
a particular legal question."
As is clear from the above excerpts from the Guardino case, as
well as the Superior Court ruling in the Woodlake case and the
High Court decertification in the Schopflin case, the issue of
Proposition 62 was far from definitively settled at any stage
prior to the final decision of the State Supreme Court in the
Guardino case. Furthermore, while SB 1590 cites additional
reliance by local governments upon the 1995 case of Rossi v.
Brown, the action of the Rossi court (also a State Supreme Court
case) was to uphold prospectively an initiative which repealed a
utility users tax which was already in effect, and to bar the
local legislative body from adopting such a tax in the future.
Indeed, the Guardino court cites the reasoning in the Rossi case
as "...equally applicable to the issue before [it]". This is
hardly a precedent upon which to argue that Proposition 62 was a
legislative nullity.
Issues Surrounding Legislative Action: With the High Court's
decision in the Guardino case, and the "reinstatement" of the
provisions of Proposition 62 as binding law, the question raised
by the introduction of SB 1590 is twofold: 1) Should the
Legislature seek to make the decision of the Court prospective,
and; 2) Can it actually do so by passage of a statute?
AB 3222
Page 8
As to this latter point (the former being the purview of the
members of the Committee), the answer hinges upon yet another
question: Is a statute which specifies the effective date of a
court decision in fact making a change in the effective date of
the initiative. Proponents of SB 1590 say the answer is "NO,"
while opponents vehemently disagree. What is at stake is nothing
less than the constitutionality of SB 1590.
According to a Legislative Counsel Opinion sought by Senator
Quentin Kopp (#7226), "A substantive amendment by the Legislature
of Proposition 62 would not be effective without a vote of the
people....Because Proposition 62 expressly permits its amendment
upon a vote of the electorate...its provisions may only be amended
or repealed by another statute that is enacted by the Legislature
and approved by the voters."
The Legislative Counsel Opinion goes on to state that, "An
amendment of the operative date of Proposition 62 would require
approval by the voters. An initiative statute takes effect the
day after the election at which it is approved by the voters,
unless the measure provides otherwise....thus, Proposition 62
became effective on November 5, 1986, and applies to all taxes
imposed on or after that date."
By contrast, proponents of SB 1590 state that they are not
changing the effective date of the initiative, but only the
effective date of the Guardino decision. Furthermore, they state
their reliance upon the 1960 State Supreme Court case of Forster
Shipbuilding Co. v. Los Angeles, which states that "...the
California Constitution permits an appellate court to apply an
overruling decision prospectively only...[and] the Legislature is
no less competent to evaluate the hardships involved and decide
whether considerations of fairness and public policy warrant the
granting of relief [found in prospective application of a court
decision]."
According to opponents of SB 1590, however, and particularly the
California Taxpayers Association, "This argument may be flawed,
however, and Forster may be irrelevant to this case. Forster did
not deal with a voter-approved initiative statute [that
necessarily requires similar voter approval for any change in
effective date, and]...the fact that Guardino deals with a
voter-approved initiative adds a whole new dimension that Forster
did not address...."
Far from being a mere arcane legal dispute, this is a real
distinction with a difference. Although many of the letters
received by the Committee on SB 1590 -- on both sides of the issue
-- speak to the "Proposition 62 implementation date," if a court
decides that SB 1590 is in fact making a change in the effective
date of Proposition 62, it will all but certainly strike the bill
down as violating the state Constitution.
Finally, as a last word concerning the prospective application of
a State Supreme Court case, the Senate Local Government Committee
analysis of SB 1590 states that, "In the past decade, the
AB 3222
Page 9
California Supreme Court strongly cautioned against implementing
its rulings prospectively only. In 1989, the Court determined
that, "...the hardship on parties who would be saddled with an
unjust precedent if the [decision] was not made retroactive
ordinarily outweighs any hardship on those who acted under the old
rule or any benefits that might be derived from limiting the rule
to prospective operation." ( Newman v. Emerson Radio Corp. (1989))
Limitations Upon Refunds of Taxes Paid:
Much of the concern surrounding the Guardino decision stems from
the prospect of being forced to provide refunds of taxes which
were spent long ago by local jurisdictions. While there is no
definitive statutory law governing this area, a realistic -- but
not definitive -- assessment of existing statutes and case law
paints a very different picture than what many would imagine.
First, the 1992 State Supreme Court decision in the case of
Woolsey v. State of California precludes class actions in tax
refund cases unless specifically provided for by statute. Thus,
absent an act of the Legislature, each taxpayer will have to
proceed on their own in an effort to obtain a refund.
Furthermore, the Woolsey court held that because the California
Constitution vests the Legislature with plenary control over the
manner in which tax refunds may be obtained (CA Constitution,
Article XIII, Section 32), a taxpayer must show strict, rather
than substantial, compliance with the administrative procedures
established by the Legislature. This will include adherence not
only to any applicable Revenue and Taxation Code requirements
pertaining to refunds (e.g., Sections 5096 and 5097), but also
adherence to all applicable administrative claims provisions of
the Tort Claims Act (Gov. Code Section 810 et seq.), as well as
those applicable sections of the California Code of Civil
Procedure. Taken together, these are significant limitations to
wholesale refunds of collected tax revenues, particularly the
limitations on the Tort Claims Act, when viewed in light of the
1972 State Supreme Court case of Volkswagen Pacific v. City of Los
Angeles -- which applied a one-year claim period to a challenged
tax.
One must also consider the constraints presented by any and all
applicable statutes of limitations. First, one must look to any
stated statute of limitation included within the local tax
ordinances themselves. For example, pursuant to Public Utilities
Code Section 140274, a six-month statute of limitations was
included in the authorization of the tax at issue in the Guardino
case and enacted by the Santa Clara County Traffic Authority. If
similar statutes are found (and they are not uncommon) within an
ordinance, they would certainly already have tolled.
Additionally, California Code of Civil Procedure Sections 338 and
343, respectively, provide for three- and four-year statutes of
limitation for the filing of claims. This is consistent with both
state and federal tax law on the subject of refunds, which limits
the period in which an individual may bring an action or claim.
AB 3222
Page 10
Finally, both the equitable "doctrine of laches," which states
that a person may not reserve a claim or action for an indefinite
period of time, as well as those provisions of both the state and
federal Constitutions respecting the impairment of contracts (when
applied to bonds and other obligations which are provided for by
tax revenues subject to refund) provide additional avenues by
which the potential scope of refunds may be limited.
Local Voter Approval of Proposition 62 Taxes:
Much of the concern surrounding the Guardino decision stems from a
view that if local governments are forced to seek voter approval
of the taxes which were enacted without a vote of the people,
these measures are certain to be defeated. Recent elections,
however, suggest a much brighter outcome than some might think:
Fully 71 percent of all "Guardino taxes" placed on the March
primary ballot (10 of 14) received the 50 percent vote requirement
sought by the Howard Jarvis Taxpayers Association to retain the
tax in question. Similarly, a June 12 column in the Sacramento
Bee noted that of 28 school bond and school tax increase measures
on local June ballots across the state, fully 100 percent of them
received at least 55 percent of the vote, and 21 of 28 (or 75
percent) received the requisite two-thirds vote for enactment.
Two final points concerning voter approval of non-voted taxes.
First, the Howard Jarvis Taxpayers Association has stated that it
will undertake legal proceedings only if a non-voted tax is not
placed before the voters on the November general election ballot.
Finally, if SB 1590 were to be enacted into law, there is every
chance that those cities which failed to receive voter approval
for their taxes would seek to keep the taxes in place...despite
the expressed will of the voters. In fact, the May 1996 issue of
Debt Line, published by the California Debt Advisory Commission,
states that two affected local governments each will continue to
impose a defeated business license tax despite their rejection by
the voters on March 26th.
Potential Refunds and Revenue Discussion:
While the disposition of SB 1590 and the decision in the Guardino
case have no fiscal effect upon state government, there are
important local government impacts to consider. According to
information provided by the League of Cities and California State
Association of Counties, the aggregate total of retroactive
obligations is in the area of $500 million ($400 million for
cities and $100 million for counties) and $300 million annually in
continued revenues. However, information requested and received
by the Committee from the League of California Cities states that,
"If you assume a three-year statute of limitation, the amount of
potential payback [attributable to cities] is approximately $120
million [down from $400 million]." Furthermore, given the 70
percent approval rate of all "Guardino taxes" placed on the March
26th ballot, and the fact that the Howard Jarvis Taxpayers
Association has stated that if a tax is placed before the voters
and approved by a simple majority vote, there will be no action
AB 3222
Page 11
either for refund or to limit the prospective application of the
tax, the specter of either wholesale refunds or terminated revenue
streams must be viewed in a new light.
SB 2143 (Hurtt)
The Legislature has given general law cities and all counties,
special districts, and school districts authority to impose taxes.
Under existing law, the state's public utilities and other service
providers are required to collect and to transfer taxes due to
local jurisdictions.
In 1995, the California Supreme Court declared Proposition 62
constitutional ( Santa Clara County Local Transportation Authority
v. Guardino (1995)). Clearly, Proposition 62, validated by
Guardino, requires that any new tax or increase in existing tax be
approved by the jurisdiction's voters.
In a follow-up complaint an individual business owner has filed a
lawsuit including tax administrating utility co-defendants
(Southern California Edison, SoCal Gas Company, Pacific Bell,
Paragon Cable, Southern California Water Company). He alleges
that there was a violation of Proposition 62 because of the lack
of the necessary two-thirds vote. The major issue is whether the
Supreme Court decision applies retroactively to all taxes imposed
in the interim period between the lower court decisions and the
high court ruling.
In addition to utility user taxes, questions arise as to the
legality of business license taxes and transient occupancy taxes
(hotel/motel taxes) also imposed since Proposition 62, without the
constitutionally required voter approval. This bill deals only
with utility users taxes which alone have generated $273 million
in city revenues and $75 million in county revenues.
This bill requires that if a local jurisdiction repeals a tax,
reduces an existing tax rate, changes the tax base, or makes any
other changes to the tax that would affect the collection and
remittance of the tax, the local jurisdiction shall submit a
written notice and supply all requisite information to the public
utility or service supplier, in accordance with the procedures of
the public utility or service supplier. This bill is sponsored by
the Telecommunications Energy Utility Roundtable, a consortium of
energy and telecommunications companies that were brought together
by Cal-Tax.
This bill also addresses instances in which the culpability of a
utility might be shown. For example, representatives of citizens
improperly taxed and living just outside the city boundaries of
Vallejo and Stockton have reportedly contacted staff of the
Assembly Utilities and Commerce Committee. When incorrect
boundaries are used, (ZIP codes instead of precise city
boundaries) taxes are improperly collected from citizens living
outside the taxing jurisdiction of a city. Language clarifies the
maintenance of the current liability of a utility or service
AB 3222
Page 12
provider (cable company) in those instances in which the utility
was itself responsible for erroneously collecting a tax (e.g.,
using an invalid city boundary).
This bill also requires the PUC to follow recent law allowing a
water company to reinvest proceeds from unnecessary assets for new
infrastructure.
SB 1958 (Mello)
At present, there are 31 special taxing districts in the state.
The tax rates vary from district to district, with San Francisco's
being the highest at 1 1/4%. Two districts have requested and
received additional authorization above the cap.
ARGUMENTS IN SUPPORT:
SB 1590 (O'Connell)
According to the League of California Cities, "The goal behind
this legislation is to definitively place into law the
non-retroactive effect of the [ Guardino] Supreme Court decision
and erase the specter of litigation that now hangs over taxes
passed by city officials to support essential city services."
"It is our argument that the approach taken...is the only
reasonable conclusion that can be reached given the development of
the law over the last nine to ten years and the potential
disruption of essential public safety services if any other
approach were followed.
"...The taxes enacted by city officials since 1986 were enacted in
good faith based on a legal consensus as to the authority of
cities to enact the taxes. Multiple appellate court rulings
declared Proposition 62 unconstitutional. The Supreme Court was
asked to review these appellate court decisions and declined to do
so. The legal advice given to city officials was prudent and
cautious, based on the only appellate law available.
"...The safety of city residents is measurably threatened by the
Santa Clara/Guardino decision. This is because the magnitude of
the financial cuts needed to comply with the most likely scenario
under the decision can only result in serious reductions in police
and fire personnel. In most communities in this state, these
public safety services are already marginal
when compared to community needs or demands. On a statewide
basis, the total amount of taxes threatened by the decision is
approximately $200 million in on-going revenues and a a one-time
$400 million loss, if repayment of taxes already collected is
required."
According to the Coalition to Support SB 1590, "SB 1590
establishes an effective "start" date of 12/14/95 for the Supreme
Court ordered restoration of Prop 62 -- a measure that would
prevent cities from enacting taxes without a majority vote of the
electorate. Without SB 1590, there could be an absolutely
AB 3222
Page 13
devastating effect on the ability of local governments to provide
residents with police and fire protection and other local services
... SB 1590 only serves to clarify the prospective application of
the court decision. It does not amend or weaken Prop 62 in any
way. Nothing in SB 1590 is unconstitutional. The courts have
held that the [L]egislature has the power -- and the duty -- to
establish a start date if the Court fails to do so. With nearly
$750 million in property taxes and other revenue shifted from
local municipalities to the state in recent years, SB 1590 is not
a luxury but a necessity. SB 1590 will have absolutely no effect
on the State's General Fund. The safety of City residents from
cuts in police or fire services is threatened unless SB 1590 is
adopted. SB 1590 will at long last bring fairness, practicality
and common sense to a situation that has been unresolved for far
too long."
According to the Dinuba Police Officers' Association, "[T]his
legislation is necessary as the California Supreme Court did not
provide sufficient direction in the Santa Clara/Guardino decision
to clarify its application of taxes already enacted by cities -
taxes that currently pay for police and fire protection in our
City."
The Dinuba Police Officers' Association further states that, "We
recognize that the Santa Clara/Guardino decision establishes that
any future general taxes are subject to the majority vote
requirement of Proposition 62. This was the law established in
the Santa Clara/Guardino decision and we are prepared to live with
that law. The issue addressed in SB 1590 is the ability to
continue collecting taxes passed by cities during the period when
the law of California had declared Proposition 62
unconstitutional. SB 1590 validates taxes passed during that
period."
According to the Chief of Police of Baldwin Park, "While SB 1590
has no impact on the State's general fund, there could be an
absolutely devastating effect on the ability of local governments
to fund local services if this bill does not get approved ... The
City of Baldwin Park depends heavily upon the utility tax to
provide many important services to our community. These services
include paving our streets, offering 'after school' programs at
our Community Center, and providing for police protection for the
citizens of the City of Baldwin Park ... We believe that SB 1590
is a step in the right direction in keeping our cities and
communities financially strong. SB 1590 will allow us to continue
to fund important local services."
Finally, according to the Mayor of the City of Brea, "SB 1590 does
not amend or weaken Proposition 62 or any provision of that
measure. It simply serves to clarify the prospective application
of the State Supreme Court decision to taxes levied and collected
after the Court's December 14, 1995 ruling. ... The City of Brea
acknowledges and accepts the Court's action. However, like many
other cities, Brea acted in good faith under the legal consensus
opinion prevalent prior to the court decision, and implemented a
transient and occupancy tax in 1989 to help offset the revenue
AB 3222
Page 14
losses experienced as a result of actions by the State to balance
its budget. Revenues generated from
this transient and occupancy tax have helped to protect essential
local police and fire services. Once again this year, we are
struggling with a deficit budget situation. A retroactive
implementation of the Santa Clara/Guardino decision would result
in a devastating loss of approximately $1 million and the ongoing
loss of $200,000 per year in revenues. ... Without SB 1590,
hundreds of local government agencies will be thrown into chaos or
default for actions taken in good faith reliance on several court
conclusions that Proposition 62 was unconstitutional."
SB 2143 (Hurtt)
This bill seeks to ensure that local utility providers are not
punished for the potentially illegal acts of the local agencies
who imposed the taxes. Investor owned "public" utilities and
cable providers are sponsoring this bill. This bill will help
protect utility suppliers by exempting them from legal actions,
clarifying that they are not liable for refunding illegal tax
proceeds unless compensated, and giving them adequate time to make
any new adjustments to their collections.
In the water company provisions the PUC appears not to have
followed the explicit policies of the Legislature.
SB 1958 (Mello)
The California Library Association supports this measure saying,
"[c]ounty libraries, particularly those libraries heavily
dependent on the property tax, were severely devastated by
Proposition 13 and again in recent years when their remaining AB 8
property tax was taken to balance the State Budget."
The California State Association of Counties argues that, "[i]t is
our belief that SB 1958 provides flexibility to local entities to
dedicate transactions and use tax funds for library programs and
operations. We believe this flexibility may be of assistance to
some counties during a time in which libraries have been subject
to other substantial funding reductions."
ARGUMENTS IN OPPOSITION:
SB 1590 (O'Connell)
According to the Howard Jarvis Taxpayers Association, "This
proposal would undercut the rights of California taxpayers. ... By
attempting to alter a Supreme Court decision, as well as amend a
validly adopted statewide initiative, Senate Bill 1590 is also
blatantly illegal. First, Proposition 62 was adopted by the
People of the State of California in 1986. Under the terms of the
measure, as well as the clear provisions of Article II, Section 10
of the California Constitution, Proposition 62 became effective
immediately. Any effort now to alter when Proposition 62 becomes
"effective" runs directly contrary to the will of the People.
AB 3222
Page 15
"...Second, any purported legislative attempt to "apply" Guardino
in a manner exempting hundreds of local taxes from the validly
adopted provisions of Proposition 62 ignores the very nature of
court decisions. Court decisions, absent clear language stating
otherwise, are deemed fully retroactive....Why should taxpayers
currently saddled with hundreds of illegal taxes be denied the
rights they voted for, and enacted, in 1986?
"...In addition, after the Supreme Court issued the Guardino
decision on September 28, 1995, hundreds of local governments
submitted requests to the
high court to make its ruling expressly prospective. The Supreme
Court refused and its decision became final on December 14, 1995.
Having lost in one forum, government associations now beseech the
California Legislature to accomplish the same ill-advised
goal....In sum, HJTA's position is that under the most precious
rights of initiative and referendum reflected in Article II of the
California Constitution, any change in the substantive protections
of Proposition 62 must come from the People, not the California
Legislature."
According to the California Taxpayers' Association (Cal-Tax),
"This bill would establish a double-standard for the retroactive
application of court decisions on retroactive taxes. When a
taxpayer loses a case at the Supreme Court, the taxpayer owes
retroactive taxes, even if the taxpayer won in the lower courts
and relied on those precedents. The Barclays case ( Barclays Bank
International Ltd. v. Franchise Tax Board) is a good example --
when the U.S. Supreme Court agreed with the state that
California's method of taxing foreign businesses was
unconstitutional, those companies that had relied on lower court
ruling were subject to retroactive tax bills. If SB 1590 were
enacted, the state would in effect declare that retroactivity if
fine when it applies to taxpayers but not when it applies to
government. Evidently, California's cities and counties do not
want to play by the same rules imposed on taxpayers.
"...Senate Bill 1590 would deny taxpayers the right to claim
refunds for improperly imposed taxes. Cal-Tax recognizes the
plight of many local governments that were hit hard by the early
1990's recession and property tax shifts, but granting amnesty to
local governments for illegal tax actions is not the answer. Such
a policy could violate taxpayers' rights, particularly when a
large refund is owed.... Refunds are one method to deter
questionable tax policies. Allowing local governments to face no
consequence when their taxes are found invalid encourages more
attempts in the future to 'push the envelope' with new, expansive
tax policies that are harmful to California's business climate and
quality of life.
"...Local government leaders have declared that they acted in
'good faith', believing their tax increases were legal. Yet, they
knew the will of the people and went against it by imposing
hundreds of non-voted tax increases. Although some argued that
the court decisions on Proposition 62 precluded them from allowing
votes on local taxes, they still could have placed advisory
AB 3222
Page 16
measures on their ballots. Deliberately ignoring the public's
will does not sound like 'good faith.' Cities and counties should
not be rewarded for those actions."
According to the California Chamber of Commerce, "The California
Chamber of Commerce OPPOSES SB 1590...The California Chamber's
position is based on the belief that all taxpayers should be able
to rely on the Supreme Court's decision and that decisions of the
court protect both taxpayers and governmental entities. If SB
1590 is approved, those taxpayers who believed that the tax in
question was illegally collected and followed the appropriate
procedures to challenge the tax will be denied a refund. The
Chamber believes that this attempt to limit refunds is in direct
violation of the U.S. Supreme Court's line of cases protecting the
right of taxpayers to receive refunds of illegally collected
taxes....The Chamber supported the position of the Transportation
Authority in the Santa Clara case, but the Chamber is not
positioning on the merits of what is the appropriate vote
requirement for the approval of local taxes."
Finally, according to the California Manufacturers Association, "A
taxpayer who has paid an illegal tax is entitled to a refund, just
as a tax which has
been wrongly withheld must be paid. By attempting to make the
Guardino decision prospective only, SB 1590 is attempting to
circumvent a fundamental right of taxpayers. Furthermore, CMA
feels that, if passed, SB 1590 would ultimately be found
unconstitutional and therefore serves no purpose but to further
confuse an already complex area of the law."
SB 2143 (Hurtt)
None
SB 1958 (Mello)
The Board of Equalization has opposed similar measures which would
permit further alterations in the tax rates. The Board's
rationale for this position is that varying rates add to taxpayer
confusion, retailer compliance problems and increase complexity in
record-keeping. However, the Board has taken an official position
of "neutral" on this measure, while pointing out the problems
enunciated above.
Analysis prepared by: Richard Mersereau / arevtax / (916)
322-3730
FN
030016