Appeals court imposes restrictions on parcel taxes
Dec 20, 2012 | By John Fensterwald | 1 Comment
Democrats in the Legislature are poised to help make it easier for school districts to pass parcel taxes, but a court ruling this month – if it withstands an appeal – will narrow the scope of what parcel taxes can tax.
The First District Court of Appeals overturned Alameda Unified’s parcel tax, passed in 2008 and lasting three years, that set different tax rates for owners of residential and commercial property. In Borikas vs Alameda Unified, the court said that it violated a state law that requires parcel taxes be uniform. The potential ramifications of the decision are significant as districts look to local property owners for one of the few sources of money outside of state revenue.
Over the past decade about a dozen school districts, mainly in the Bay Area, have adopted parcel taxes similar to Alameda Unified’s in an effort to ease the burden on the average homeowner while raising additional taxes from businesses and other types of properties. Just last month five districts in Los Angeles County, including Centinela Valley Union High School District, joined together to pass a parcel tax that charged 2 cents per square foot for residential properties and 7.5 cents per square foot for other classes of property. San Leandro Unified passed a measure taxing single-family, multi-family and business properties at different rates.
That model, which other districts have considered, is now in jeopardy. As for Alameda Unified, it may have to reimburse businesses several million dollars that Measure H raised illegally during the three years it was in effect. And a professor at the UC Hastings College of the Law who specializes in civil cases said that taxpayers in other districts with similar taxes could sue to overturn their parcel taxes, too.
That is, if the ruling stands. The five-member school board in Alameda, with one dissenter, voted last week to appeal the case to the California Supreme Court. Because of the potential impact of the decision, “the chances are high that the court will agree to hear the case,” said David Levine, the Hastings law school professor.
The Legislature could also intervene and amend the statute in question to permit the form of tax that Alameda and other districts adopted. Democratic leaders, heady with a two-thirds supermajority, have already indicated that they would support a constitutional amendment asking voters to lower the threshold to pass a parcel tax from 66.7 percent to 55 percent, the same as it is for school construction bonds. Dennis Meyers, assistant executive director for governmental relations with the California School Boards Association, said this week that he has spoken with staff of Democratic Sen. Mark Leno of San Francisco, sponsor of the 55 percent parcel tax legislation (SCA 3), about the need to also respond to Borikas vs Alameda Unified. Changing a law would require only a majority vote of the Legislature, while placing the 55 percent threshold on the state ballot in 2014 would require approval of two-thirds of the Legislature.
Stepchild of Proposition 13
About 10 percent of the state’s nearly 1,000 school districts have passed parcel taxes. Because of Proposition 13, which banned new taxes based on a property’s value, most parcel taxes are flat dollar amounts. Most have been under $100 per parcel for a finite number of years – generally four to six – although a few have inflation indexes. In some wealthy communities, parcel taxes are hundreds of dollars ($589 in Palo Alto and $927 in Mill Valley, with the passage of a supplemental tax last month), and, in handful of districts more than $1,000 ($1,169 in San Marino).
Some districts have passed variations of a flat fee, in an effort to try to make the parcel tax less regressive without running up against Proposition 13’s restrictions. A few have taxed properties by their size (but not assessed value). In fact, Alameda’s current parcel tax, passed last year, does just that. It charges residential and commercial property owners 32 cents per square foot of a building, with a maximum tax of $7,999 per parcel. Owners of properties with no buildings pay $299. Property owners end up paying different amounts, but because the square-foot rate is the same, last year an Alameda County Superior Court judge ruled that the parcel tax was legal. The property owners who filed suit over Measure A didn’t appeal.
The latest Appeals Court decision pertains to Measure H, the earlier parcel tax from 2008. Alameda Unified ran into trouble because it distinguished between commercial and residential properties. Measure H levied $120 per parcel for residential and small commercial properties, and 15 cents per square foot of commercial properties larger than 2,000 square feet, up to a cap of $9,500 per year.
At issue was a 1986 statute adopted in conjunction with the passage of an initiative (Proposition 62) that was intended to clarify Proposition 13. The statute said parcel taxes must “apply uniformly to all taxpayers or all real property within the” particular district. Alameda Unified argued, and the district court agreed, that parcel taxes had to be the same for each class of taxpayers (single-family homes, apartment complexes, vacant land, developed land) but could vary among types of property: commercial and residential in this case. They argued that districts need flexibility to respond to local situations and needs.
But the First Appellate District ruled that uniform means uniform, and the Legislature a quarter century ago intended a strict, not a loose definition “as a constraint on the extent of the taxing authority delegated to local governmental entities.” It voided all but the $120 per parcel charge for all property owners.
To the Supreme Court or the Legislature
Both Levine and a colleague at UC Hastings College of Law specializing in taxation, Professor Darien Shanske, agree that the 38-page decision by the three-judge panel was a well-researched, solid ruling. But they also said the Supreme Court could be persuaded by a credible argument, which they can envision, to reverse it.
Shanske said that in lieu of a Supreme Court ruling, the Legislature could apply its own fix, by deleting the word “uniform” and a subsection of the law in dispute. This should allow tiered parcel taxes. Legislators could also explicitly give districts the authority to create any formula for parcel taxes that doesn’t violate the state or federal constitutions.
Individuals normally have up to 60 days to challenge the results of an election. But Levine said that in two cases California courts ruled that taxpayers could file suit over taxes that were passed years before. As a result, school districts that passed parcel taxes like Alameda Unified’s may be vulnerable to being sued, even though the statute of limitations has passed.
Trustees in Piedmont Unified, a wealthy district adjoining Oakland, aren’t taking any chances. The district has a complicated multi-tiered tax based on parcel size, distinguishing residential, commercial and undeveloped properties, single-family and multi-family residences, and raising between $1,900 and $3,400, the highest parcel tax in the state. Last week, they voted to scrap that and ask voters in March to pass a uniform (jaw-dropping) parcel tax of $2,406.
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