Bldg. Indus. Ass'n of the Bay Area v. City of San Ramon

4 Cal.App.5th 62

208 Cal.Rptr.3d 320

BUILDING INDUSTRY ASSOCIATION OF THE BAY AREA, Plaintiff and Appellant,

v.CITY OF SAN RAMON et al., Defendants and Respondents.

A145575

Court of Appeal, First District, Division 2, California.

Filed October 13, 2016

Paul B. Campos, Damien M. Schiff, Sacramento, for Appellant Building Industry Association.

Allan Robert Saxe, Interim City Attorney, Alicia Poon, Deputy City Attorney, for Respondent City of San Ramon, et al.

Michael G. Colantuono, Los Angeles, Leonard P. Aslanian, for Amicus Curiae League of California Cities in support of Respondents.

Miller, J.

A developer sought approval from the City of San Ramon (City) to build 48 townhouses on two parcels of land. Because an analysis showed that the cost to the City of providing services to the new development would exceed the revenue generated by the project, the City conditioned its approval on the developer providing a funding mechanism to cover the difference. Using California's Mello–Roos Act, the developer petitioned the City to create a “community facilities district” and then, as landowner, voted to approve a tax within the district consistent with the statute to raise the necessary revenue. Plaintiff Building Industry Association–Bay Area (the Association) filed suit against the City in superior court challenging the validity of the tax. After the parties filed cross-motions for summary judgment, the trial court upheld the tax. It is from this judgment that the Association now appeals on multiple grounds: the tax does not provide for “additional services” as required by statute; the tax is an unconstitutional general tax; and the City ordinance authorizing the tax is unconstitutional on its face because it “retaliates” against property owners by ceasing the provision of services funded by the tax if property owners in the district repeal the tax in the future.

We conclude that the tax will provide “additional services” to meet increased demand for existing services resulting from the townhouse development and therefore meets the requirements of the Mello–Roos Act; the tax is a special (and not a general) tax because it is imposed for specific purposes and not for general governmental purposes, and therefore meets the requirements of the California Constitution; and the property owners' constitutional and statutory rights are not burdened by an ordinance explaining that the city services funded by a special tax will not be provided by the city if the tax is repealed. Consequently, we will affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Mello–Roos Act

The Legislature intended the Mello–Roos Community Facilities Act of 1982 (Gov. Code, § 53311 et seq. ), commonly known as the Mello–Roos Act, and here sometimes referred to as “the Act,” to “provide[ ] an alternative method of financing certain public capital facilities and services, especially in developing areas and areas undergoing rehabilitation.” (Gov. Code, § 53311.5.¹ ) “Alternative” methods of financing were needed because four years earlier, in 1978, the voters approved Proposition 13, which added article XIII A to the California Constitution and “severely impaired local governments' ability to raise money through property taxes.” (Friends of the Library of Monterey Park v. City of Monterey Park (1989) 211 Cal.App.3d 358, 376, 259 Cal.Rptr. 358 (Monterey Park ).) Among other things, Proposition 13 restricted the imposition of “special taxes” by local governments. (Cal. Const., art. XIII A, § 4.) Our Supreme Court ruled that the term “special taxes” in Proposition 13 meant “taxes which are levied for a specific purpose rather than ... a levy placed in the general fund to be utilized for general governmental purposes.” (City and County of San Francisco v. Farrell (1982) 32 Cal.3d 47, 57, 184 Cal.Rptr. 713, 648 P.2d 935.)

“Before Proposition 13 was adopted, local governments could usually impose special taxes without any voter approval.” (Curtin, et al., Cal. Subdivision Map Act and the Development Process (Cont.Ed.Bar 2d ed. 2015) Use of Local Government Districts to Provide Facilities and Services, § 6A.27, p. 6A–33 (Curtin), citing Cal. Const., art. XI, § 5, Gov. Code § 37100.5, and Associated Home Builders v. City of Newark (1971) 18 Cal.App.3d 107, 95 Cal.Rptr. 648.) Proposition 13 required that special taxes be approved by a two-thirds vote of the local voters (Cal. Const., art. XIII A, § 4 ), and prohibited local governments from levying special taxes in the absence of state enabling legislation. (California Building Industry Association v. Governing Board (1988) 206 Cal.App.3d 212, 230, 253 Cal.Rptr. 497.) In passing the Mello–Roos Act, the Legislature sought to address the limitations on local governments' ability to raise money by passing enabling legislation that “authoriz[ed] the creation of community facilities districts ... empowered to impose special taxes to pay for specified services and facilities within the district.”

(Monterey Park , supra , 211 Cal.App.3d at p. 376, 259 Cal.Rptr. 358 ; see also Curtin, supra , § 6A.55, pp. 6A–52–6A–54.)

The Act authorizes the creation of community facilities districts by “all local agencies,” defined to include any city. (Gov. Code, §§ 53316 & 53317, subd. (h).² ) These community facilities districts are commonly known as “Mello–Roos districts.” A community facilities district may be established to finance one or more types of specified services (§ 53313) or facilities (§ 53313.5), or both.³ Once a local agency has approved the formation of a district, the agency's legislative body must submit the levy of any special tax to the voters for approval. (§ 53326, subd. (a).) If there are not at least 12 persons registered to vote in the proposed district on each of the 90 days preceding the election, the vote is by the landowners of the real property in the district.⁴ (§§ 53317, subd. (f) & 53326, subd. (b).) In both types of election, approval of the tax requires approval by two-thirds of the votes cast. (§ 53328.)

The Act brought about a sea change in local government financing. (See Monterey Park , supra , 211 Cal.App.3d at pp. 376–377, 259 Cal.Rptr. 358.) “Before enactment of the Mello–Roos Act in 1982, local governments used assessment districts to finance improvements (such as sewer, water, streets, and drainage) that directly benefited a particular parcel of property. Special assessment financing was not disturbed by enactment of Proposition 13, but the use of assessment districts was historically confined to financing local improvements that conferred a special and direct benefit on the assessed property. The Mello–Roos Act liberalized the traditional constraints on local improvement financing and also permitted financing certain facilities and services that benefit the public generally, such as police and fire protection, recreation programs, library services, flood and storm protection services, and park maintenance.” (Curtin, supra , § 6A.55, p. 6A–53, citing Gov. Code, § 53313.) “The main advantage of a Mello–Roos district is that taxes imposed under the Mello–Roos Act are special taxes, not special assessments. Govt C § 53325.3. A district's taxes need not, therefore be apportioned on the basis of benefit to any property. Govt C § 53325.3.” (Ibid. )

In particular, the Act has affected the way in which facilities and services are financed for new developments. (See Monterey Park , supra , 211 Cal.App.3d 358, 259 Cal.Rptr. 358.) “Typically, when facilities have been financed by imposing fees on the project developer, those fees are passed on to purchasers or units in the form of higher sale prices. By using a Mello–Roos district, however, both the local public agency and the developer avoid incurring any general obligation indebtedness to finance the needed improvements or services, because the cost is borne solely by residents of the benefited area.”⁵ (Curtin, supra , § 6A.55, pp. 6A–53–6A–54.)

B. The City Establishes a Community Facilities District and Levies a Tax

In 2013, the City's Planning Commission and the City Council tentatively approved the subdivision of two parcels of land to create a 48–unit townhouse project known as the Acre Development (Acre). The approval process included a fiscal analysis, which determined that the cost of providing services to Acre would exceed revenue generated by Acre, thus creating a negative fiscal impact to the City of about $500 per year for each townhouse. As a condition of approval, the City required Acre's developer to provide a funding mechanism to mitigate the negative fiscal impact.

To satisfy the condition, the landowner-developer petitioned the City Council to initiate proceedings under the Mello–Roos Act to create a community facilities district consisting of the two parcels to be developed. The City Council began those proceedings by adopting a resolution of intention to establish a community facilities district comprised of the two parcels designated for Acre and a “future annexation area” that is essentially co-extensive with the City limits (the District).⁶

In February 2014, the City conducted a public hearing after which it adopted a resolution approving the formation of the district, proposing a tax to be levied on parcels in the district, and describing the facilities and services to be financed. The provision of facilities is not at issue in this appeal. The services to be financed were described as follows:

“The Services shown below (‘services' shall have the meaning given that term in the Mello–Roos Community Facilities Act of 1982^{[7 ]}) are proposed to be financed by the [District], including all related administrative costs, expenses and related reserves for replacement of vehicles, equipment and facilities:

“• Annual operation, maintenance and servicing, including repair and replacement, of police, park and recreational facilities, open space facilities, landscaping facilities, street and street lighting facilities, flood and storm protection facilities

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