City of Scotts Valley v. Cnty. of Santa Cruz

201 Cal.App.4th 1

133 Cal.Rptr.3d 235

CITY OF SCOTTS VALLEY, Plaintiff and Respondent,

v.COUNTY OF SANTA CRUZ et al., Defendants and Appellants.

No. A126357.

Court of Appeal, First District, Division 1, California.

Oct. 26, 2011.

As Modified on Denial of Rehearing Nov. 23, 2011.

Review Denied Jan. 4, 2012.

Rutan & Tucker and William M. Marticorena, Costa Mesa, for Defendants and Appellants.

Thomas M. Tyrrell, Principal Deputy County Counsel and Elizabeth M. Cortez, Assistant County Counsel for California State Association of Counties as Amicus Curiae on behalf of Defendants and Appellants.

Logan & Powell, Kirsten Powell, San Jose, Robert C. Chojnacki ; Jarvis, Fay, Doporto & Gibson, Benjamin P. Fay and Rick W. Jarvis, Oakland, for Plaintiff and Respondent.

Colantuono & Levin, Michael G. Colantuono and Holly O. Whatley, Los Angeles, for the League of California Cities as Amicus Curiae on behalf of Plaintiff and Respondent.

BANKE, J.

I. INTRODUCTION

"There is no equitable way to share property tax revenues, only different degrees of inequity." (Sen. Com. on Local Government, Rep. on Sen. Bill No. 407 (1987–1988 Reg. Sess.) Apr. 20, 1987, p. 2.) This observation is as true today as when it was made during the legislative process more than 20 years ago.

In this case, the City of Scotts Valley (City) claims it has not received all the property tax revenues to which it is entitled. Specifically, the City claims the Auditor-Controller of the County of Santa Cruz (Auditor-Controller) has not properly applied Revenue and Taxation Code section 98, which entitles "no- and low-property tax cities" to a certain percentage of the property taxes paid by their residents. The trial court agreed with the City and granted its petition for a writ of mandate against the County of Santa Cruz and the Auditor-Controller (collectively the County). The court ordered the County to change its allocation methodology and reallocate approximately $2 million in property tax revenues to the City for past fiscal years. The County has appealed, but the trial court's order did not finally dispose of all claims in the case. Accordingly, the parties urge us to deem the County's appeal an original writ proceeding. Given the nature and importance of the property tax allocation issues presented by this case, we conclude it is appropriate to do so. We also conclude the trial court was correct, in part, and incorrect, in part, and therefore grant limited writ relief to the County.

II. BACKGROUND

A. Overview of Relevant Statutes

The factual and procedural background of this case can only be understood with some knowledge of the real property tax system that has given rise to the allocation issues in this case. This system has its roots in the voter's enactment of Proposition 13 in 1978 imposing a 1 percent cap on real property tax rates, their enactment of Proposition 98 in 1988 imposing a state funding mandate for public education, and negative economic conditions that have since periodically pummeled the state's economy. To say this system is dense, prolix and arcane is an understatement.

1. Basic Property Tax Allocation

The passage of Proposition 13 (Cal. Const., art. XIII A) fundamentally altered the state's property tax system. Whereas local governmental entities had previously imposed their own property tax rates, Proposition 13 set the tax rate for all real property statewide at 1 percent of assessed value. The proposition directed counties to collect the property tax and allocate it among local governmental entities as determined by the Legislature. ( Cal. Const., art. XIII A, § 1, subd. (a).)

The Legislature immediately enacted "bailout" legislation to provide state funding to replace local property tax revenues lost as a result of Proposition 13. (Governor's Off. of Planning & Research, Enrolled Bill Rep. on Sen. Bill No. 1361 (1993–1994 Reg. Sess.) July 20, 1994, p. 1 (hereafter Governor's Enrolled Bill Report on Senate Bill 1361); Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 617 (1991–1992 Reg. Sess.) as amended Aug. 22, 1992, p. 7.) It also enacted a temporary allocation system for the next fiscal year (fiscal year 1978–1979). (Stats.1978, ch. 292, § 24, p. 606.) County auditors were generally directed to allocate property tax revenues among local governmental entities in proportion to their tax rates in the preceding fiscal year (i.e., the year prior to the passage of Prop. 13). ( Gov.Code, § 26912, subd. (b).)

The following year, the Legislature enacted what is called the "A.B. 8" allocation system (after the applicable Assem. Bill), now codified as Revenue and Taxation Code sections 96 and 96.5 (originally enacted as § 98 [Stats.1979, ch. 282, § 59, pp. 1028–1029] ).¹ "Under AB 8, each fiscal year a local government receives property tax revenues equal to what it received in the prior year (base), plus its share of any increase in revenues due to growth in assessed value within its boundaries. Each year, this increment growth is added to the previous year's base, and together becomes next year's base amount." (Governor's Enrolled Bill Report on Sen. Bill 1361, p. 1.) Assembly Bill No. 8 (1978–1979 Reg. Sess.) (Assem. Bill 8) "did not eliminate the ‘bailout’ support. ‘Bailout’ was made a permanent feature of the state-local fiscal relationship by means of the permanent shift of the school property tax base to local agencies and state ‘buyout’ of certain county health and welfare program costs." (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Sen. Bill No. 617 (1991–1992 Reg. Sess.) as amended Aug. 22, 1992, p. 7.)

Specifically, section 96 directed county auditors to determine the "tax base" for each local taxing entity for the 1979–1980 fiscal year. This was determined by allocating to each entity within a tax rate area,² the same amount of property taxes it received from that tax rate area in the previous fiscal year. ( § 96, subd. (a).) Then, under section 96.5, the "tax increment"—the increased (or decreased) tax revenues received in the current tax year—was allocated to the local entities in proportion to their "base." ( §§ 96, subd. (c), 96.5.) Accordingly, local governmental entities that had higher pre-Proposition 13 tax rates relative to other entities, continued to receive a higher proportion of the property tax revenues generated pursuant to the 1 percent tax rate.

Since the 1980–1981 fiscal year, the A.B. 8 allocation system has been implemented through sections 96.1 (originally enacted as § 97 [Stats.1979, ch. 282, § 59, p. 1028] ), 96.2 (originally enacted as § 97.5 [Stats.1980, ch. 801, § 9, p. 2511] ) and 96.5. This statutory allocation process is similar to, and based on, the process for the 1979–1980 fiscal year. First, the tax base is determined, i.e., in each tax rate area, each local governmental entity is allocated the same amount of property tax it was allocated the preceding year. ( § 96.1, subd. (a)(1).) Second, the annual tax increment is allocated under section 96.5 in accordance with the same proportions applicable to the base. ( §§ 96.1, subd. (a)(2), 96.5.) In this way, the proportional allocations established in the first fiscal year following the passage of Proposition 13, as modified for the following fiscal year, are perpetuated year after year, unless modified by the Legislature.

2. Tax Equity Allocation (TEA )

In 1987, nine years after the passage of Proposition 13, the Legislature addressed what had become a politically charged dispute over a perceived inequity in the A.B. 8 allocation system. Under the A.B. 8 allocation system, cities that had levied no property tax before the passage of Proposition 13 received none of the property tax being paid by their residents, even though their residents were paying the same 1 percent property tax eTery other property taxpayer in the state was paying. (Assem. Com. on Judiciary, Analysis of Assem. Bill No. 1197 (1987–1988 Reg. Sess.) as amended Aug. 31, 1988.) Similarly, some "newly incorporated cities" (i.e., cities incorporated after Prop. 13) received a very small tax base and thus commensurately received a very small percentage of property tax revenues.³ (Joint Conf. Com. Rep. on Assem. Bill No. 1197 (1987–1988 Reg. Sess.) & Sen. Bill No. 612 (1987–1988 Reg. Sess.) p. 26; see Stats.1988, chs. 944 & 945, pp. 2977–3025 [Brown-Presley Trial Court Funding Act ( Gov. Code, § 77000 et seq. ].) To help alleviate this disparity in the receipt of property tax revenues, the Legislature enacted TEA, now codified as section 98 (originally enacted as § 97.35 [Stats.1987, ch. 1211, § 47.7, p. 4329]).⁴

The legislative historyreflects the difficulty of the problem: "There is no equitable way to share property tax revenues, only different degrees of inequity. Officials from the no-property-tax cities point out that their constituents pay the same 1% tax rate as everyone else, but their cities receive nothing. County officials note that reallocating revenues benefits the residents of those cities at the expense of countywide health, welfare, and justice programs.... The allocation of property tax revenues is a ‘zero-sum game,’ in which there must be a loser for every winner.... Rather than searching for perfect equity, the Committee may need to balance the different forms of inequity."⁵ (Sen. Com. on Local Government, Rep. on Sen. Bill No. 407 (1987–1988 Reg. Sess.) Apr. 20, 1987, p. 2.) Indeed, in the 1987–1988 legislative session, 10 different bills were introduced to address the tax revenue situation of no- and low-property-tax cities. (Joint Conf. Com. Rep. on Assem. Bill No. 1197 (1987–1988 Reg. Sess.) & Sen. Bill No. 612 (1987–1988 Reg. Sess.) pp. 27–28.)

TEA is viewed as "a minimum property tax entitlement for each city incorporated before June 5, 1987." (Joint Conf. Com. Rep. on Assem. Bill No. 1197 (1987–1988 Reg. Sess.) & Sen. Bill No. 612 (1987–1988 Reg. Sess.).) Section 98 thus specifies: "Except as otherwise...