By Tim A. Bittle, Director of Legal Affairs
As the year draws to a close, here are some of the battles for taxpayers that HJTA’s legal team has been fighting:
HJTA v. City of Los Angeles – Our Effort to Overturn Measure ULA Has Reached the Court of Appeal.
Measure ULA, ostensibly enacted by a simple majority of city voters in November 2022, took effect April 1, 2023, imposing a 4% tax on sales of real property over $5 million, and a 5.5% tax on those over $10 million. It is a special tax, as the funds are earmarked exclusively for housing and homelessness services.
HJTA sued to invalidate Measure ULA. Another party filed their own lawsuit as well. The two cases were consolidated by the court. Because an unbroken string of decisions by the Courts of Appeal has recently ruled that special taxes, if proposed by a citizens’ initiative, can be passed by a simple majority of the voters, rather than the two-thirds required by Proposition 13, we did not argue that Measure ULA needed a two-thirds vote. That is, however, the argument in the other party’s case.
We argue that, under the Los Angeles City Charter, local voters by initiative can enact only such ordinances as the City Council itself could enact. This is a provision commonly found in city charters. Its purpose is to prevent the City Council from circumventing legal limits on its own authority by proposing otherwise illegal legislation as a citizens’ initiative. Since, under Proposition 13, the Los Angeles City Council is barred from enacting a real estate transfer tax as a special tax, we argue, the City’s voters were prohibited as well.
The trial court ruled against us and the other party, upholding Measure ULA on all theories. We filed a timely Notice of Appeal. The appeal was fully briefed and oral argument was scheduled for early September. Then we received a notice from the Court of Appeal postponing oral argument and requesting supplemental briefing from all sides on whether the string of other cases correctly decided the two-thirds vote question.
Although the two-thirds vote argument was not the basis of our lawsuit, we seized the opportunity to attack the reasoning of the string of other cases. Everyone’s supplemental brief was filed, and oral argument was set for October 16th. As Taxing Times goes to press, we await a decision from the Court of Appeal.
City of San Jose v. All Persons Interested – California Supreme Court to Decide Whether City Can Issue $3.5 Billion Bond for Pensions Without Consulting Voters!
In this case, HJTA is defending the voters’ constitutional right to approve or disapprove new debt in the form of bonds. San Jose, like many cities, has overextended itself by agreeing to pension and benefit demands from its employee unions that, as a result, have amassed a $3.5 billion unfunded actuarial estimate of future pension liability. The City wants to pay off this potential future liability by borrowing money through the sale of “pension obligation bonds” (POBs), but it wants to do so without voter approval.
The City filed a validation action seeking court approval of its plan. HJTA answered the City’s complaint, just as it has answered many such cases brought by other cities. Most of those cities backed down, rescinded their bond resolutions and dismissed their cases. San Jose, however, dug in its heels and we faced off in court.
The City argued that it qualifies for an exception from the constitution’s voter approval requirement because its pension liability is an “obligation imposed by law.” We countered that argument by showing that no state law requires cities to offer employee pensions; rather, the City voluntarily offered pensions and regularly enhanced their terms. We also showed that the actuarial estimate of future liability is not even a tangible debt because it is based on assumptions that may not prove accurate.
The trial court found for the City, authorizing it to issue the bonds without voter approval. We filed a timely appeal, but the Sixth District Court of Appeal affirmed the trial court’s negative decision. We petitioned the Supreme Court to review the case. Although the high court rarely reviews tax cases, it surprised us by granting review of this case. Oral argument was scheduled to take place in October and we await the Supreme Court’s decision.
HJTA v. City of Pasadena – A New Case Challenging Pasadena’s Unfair Residential Water Rates.
This recently filed action challenges inequitable rate tier breaks for Pasadena’s water customers, based on the cost differences between groundwater (the cheaper supply source) and water purchased from the Metropolitan Water District. The Tier 1 rate reflects the cost of groundwater; the Tier 2 rate reflects a blended cost of groundwater and MWD water, while the Tier 3 rate reflects the cost of MWD water only — notwithstanding the fact that all customers receive blended water, regardless of rate tier.
The inequality arises because commercial customers are allocated cheaper water through preferential tier breaks. For example, multifamily residential customers are charged Tier 2 rates after the first 5 HCF of consumption, while large commercial customers don’t cross over to Tier 2 rates until after the first 850 HCF of consumption. Similarly, multifamily residential customers are charged Tier 3 rates after only 29 HCF, while large commercial customers do not reach Tier 3 rates until they consume more than 5,050 HCF. This scheme benefits commercial customer classes to the detriment of residential customer classes.
We filed the case as a reverse validation action in L.A. County’s Alhambra Courthouse in October 2024. The City, in its first attempt to avoid the merits of our claims, filed a motion to transfer venue to the dedicated writ department at the downtown Stanley Mosk Courthouse. That motion was denied in January. The City next filed a motion to disqualify HJTA and our attorney, Amy Sparrow, as counsel based on Amy’s former employment with a law firm that gave legal advice to Pasadena years ago on an unrelated matter. The City lost the motion but took it up to the Court of Appeal. In June, the Court of Appeal affirmed the trial court’s denial of the motion. The case will now hopefully proceed to a consideration of the merits.
HJTA v. City of Long Beach – Disappointing Loss May Be Eclipsed by Victory in Another Case.
This action challenged an annual fee imposed on the owners of vacant lots in the City of Long Beach ostensibly for increased code enforcement. We argued that this fee was subject to Proposition 218’s voter approval requirement because it is imposed on the parcel, or on the owner as an incident of property ownership.
The City argued that the fee was exempt from voter approval as a regulatory fee for monthly inspections and mid-month responses to neighborhood complaints of vacant lots which accumulate trash, weeds and graffiti. We countered that our clients’ lots did not benefit from these services because they were mowed and picked up weekly, and fenced off. Moreover, we introduced public records showing that the City responded to neighborhood complaints about code violations on developed lots at least as often as vacant lots, yet no charge was imposed on developed lots.
After losing in the trial court, we appealed, but the Court of Appeal affirmed. The Court basically ignored our evidence and ruled that the charge was a regulatory inspection fee, not a property-related fee. Fortunately, the appellate decision was unpublished, which means it does not stand as precedent for other future cases. A request by the League of Cities to publish the decision was denied.
While the Long Beach case is now final, and our file is closed, a new case has arisen that involves a similar issue. San Francisco’s Proposition M, which imposed a “vacancy tax” on unoccupied residential units, was narrowly approved by the City’s voters at the November 2022 election. The tax was challenged in a case called Debbane v. City and County of San Francisco. A San Francisco trial court ruled last year that the tax is unconstitutional and enjoined its enforcement. That case is on appeal and briefing is in progress. HJTA may file an amicus (friend of the court) brief on behalf of taxpayers.
All of this important work is funded by the Howard Jarvis Taxpayers Foundation, a 501(c)(3) nonprofit organization. Donations to the Foundation may be tax-deductible (check with your tax preparer). By supporting the Howard Jarvis Taxpayers Foundation, California taxpayers have the opportunity to reduce their own tax burden while helping to fight for all Californians in the courts.
And that’s a win.