A property assessment to fund open space acquisitions in Santa Clara County has been invalidated by the state Supreme Court, which ruled that the assessment violated Proposition 218.
The court found that the assessment on 314,000 parcels spread across 800 square miles provided only general benefits and was therefore a special tax that should have gone before voters. The unanimous court said that property owner's 2001 approval of the Santa Clara County Open Space Authority (OSA) assessment was not legal under the state constitution.
Under the 12-year-old Proposition 218, "a special benefit must affect the assessed property in a way that is particular and distinct from its effect on other parcels and that real property in general and the public at large do not share," Justice Ming Chin wrote for the court. The open space authority, Chin continued, "has failed to meet its burden of demonstrating that the assessment is based only on the special benefits conferred on the particular parcel and is in proportion to those benefits."
The court also made clear that Proposition 218 shifted the burden of proof in litigation over assessments and other levies to the government agency, and said that courts should independently review the levies without deference to the government agency.
"I would call it a landmark decision," said Timothy Bittle, counsel for the Howard Jarvis Taxpayers Association, which helped bring the lawsuit. "The court recognized that taxpayer rights are constitutional rights just like any other rights."
The Pacific Legal Foundation (PLF), which filed an amicus brief urging the court to throw out the assessment, also celebrated the ruling. "The county tried to camouflage a general benefit program as one that would help homeowners uniquely," PLF attorney Harold Johnson said. "This ploy was unconstitutional."
Local government representatives called the decision a blow to government programs ranging from open space acquisition to mosquito abatement to fire protection that have been funded with property assessments for years.
"It may mean that open space acquisitions are very difficult to do in the future," said Michael Coleman, a fiscal policy advisor to the League of California Cities. But, he added, "The kinds of assessments that this decision affects are not widely used."
Michael Colantuono, a municipal attorney who advises local government on fiscal matters, said that while only a handful of agencies levy open space assessments, fire suppression assessments are commonplace. Based on the court's emphasis on the need to prove particular and proportional benefits to a specific parcel, some of those assessments might be difficult to defend, he said. The decision might also bring into question county service area fees that are levied for a variety of general government services, he said.
State legislation created the Santa Clara County Open Space Authority in 1992 to slow the conversion of land to urban uses, encourage agriculture and preserve quality of life. The authority covers all of Santa Clara County that is not within the Midpeninsula Regional Open Space District. In 1994, the open space authority formed an assessment district under the Landscaping and Lighting Act of 1972 and began levying a special assessment on the district's property owners ($12 for a single-family house) that raises about $4 million annually. Taxpayer advocates lost a lawsuit over the 1994 assessment district.
In 2000, the authority considered forming a second assessment district to generate more revenue. By that time, voters had approved Proposition 218, which, as the court described, "tightened assessment requirements and definitions, imposed stricter procedures on agencies, and shifted traditional presumptions that had favored assessment validity."
The authority followed the procedures for levying an assessment — as opposed to a tax — in the new district, which was identical to the one created in 1994. The authority prepared an engineer's report identifying areas for potential acquisition and improvement. The proposed assessment of $20 on a single-family home, and more or less for other properties, would generate $8 million a year, according to the authority, which notified all property owners and conducted an informational meeting and formal public hearing. Property owners received mail ballots and about 15% responded by the December 2001 deadline, with 66.8% favoring the charge. When the ballots were weighted in proportion to the assessment for each parcel, as Proposition 218 requires, the assessment passed with 50.9% support.
The Jarvis organization and Silicon Valley Taxpayers Association filed suit, arguing the assessment violated Proposition 218 for a variety of reasons. A trial court judge upheld the assessment, as did the Sixth District Court of Appeal in a 2-1 ruling. The case then moved to the state Supreme Court.
In his opinion, Justice Chin addressed at length the "standard of review." Prior to passage of Proposition 218, courts afforded deference to government agencies that undertook the quasi-legislative act of forming assessment districts. Such deference was crucial in the pivotal case Knox v. City of Orland, (1992) 4 Cal.4th 132, in which the court upheld creation of a park assessment district even though some assessed parcels were 27 miles from a park.
"The drafters of Proposition 218 specifically targeted this deferential standard of review for change," Chin wrote, citing Knox. "Because Proposition 218's underlying purpose was to limit government's power to exact revenue and to curtail the deference that had been traditionally accorded legislative enactments on fees, assessment and charges, a more rigorous standard of review is warranted."
Because Proposition 218 amended the state constitution, an assessment's validity "is now a constitutional question," Chin wrote. Therefore, the substantive requirements of Proposition 218 "are contained in constitutional provisions of dignity at least equal to the constitutional separation of powers provision."
This portion of the opinion "is huge," said Bittle, the Jarvis organization attorney. "The old days of being confined to the administrative record and the court giving deference to the findings of the legislative body are over — thank god."
But municipal counsel Colantuono called the court's holding "a significant loss for local government autonomy."
"The court abandoned the 100 years of law of judicial deference to legislators on assessments," Colantuono said. "There's been a transfer of power from elected decision-makers to appointed judges."
After making clear the court would exercise independent judgment, Chin turned to the merits. Under Proposition 218, an assessment subject to property owner approval must confer "special benefits" on the property. Notably, Proposition 218, he wrote, "tightened the definition of special benefits and broadened the definition of general benefits."
The OSA's engineer's report identified seven special benefits that would confer on all residents and property owners in the district: enhanced recreational areas, protection of scenery, increased economic activity, expanded employment opportunity, reduced emergency service costs, better quality of life, and improved water quality and flood control. The benefits would accrue equally because the authority proposed to acquire land equally throughout the district, according to the engineer's report. This approach did not satisfy the court.
"All the listed benefits are general benefits in this case, shared by everyone — all 1.2 million people — living within the district. The report does not even attempt to measures the benefits that accrue to particular parcels," Chin wrote.
Proposition 218 requires that assessments be proportionate to the special benefits received. The authority could not meet that requirement here "because the special assessment is based on OSA's projected annual budget of $8 million for its open space program, rather than on a calculation or estimation of the cost of the particular public improvement to be financed by the assessment," the court ruled.
The court did not address the question of whether the authority must refund the $56 million it has accumulated from the now-invalid assessment. Taxpayer advocates say the agency should return the money. They also say nothing prevents the agency from seeking two-thirds voter approval for the levy.
"Call it what it is. Call it a tax and get the voter percentage that is constitutionally required," Bittle said.
The decision has implications for a case involving assessments for a business improvement district (BID) in downtown Pomona. Two years ago, the state high court accepted a case in which a property owner contended the BID assessment was not proportional to the benefits received. The Second District Court of Appeal had upheld the assessment. The state Supreme Court is likely to return the case, Dahms v. Downtown Pomona Property and Business Improvement District, No. S143165, to the Court of Appeal with direction to reconsider in light of the Silicon Valley case.
The Case:
Silicon Valley Taxpayers Association, Inc. v. Santa Clara County Open Space Authority, No. S136469, 08 C.D.O.S. 8920, 2008 DJDAR 10675. Filed July 14, 2008.
The Lawyers:
For the taxpayers association: Tony Tanke, (530) 758-4530.
For the open space authority: James Parrinello, Nielsen, Merksamer, Parrinello, Mueller & Naylor, (415) 389-6800.
