California Socy of Municipal Finance Officers February 24 2011 February 13 2011 2 MICHAEL G COLANTUONO Colantuono amp Levin PC 11406 Pleasant Valley Road Penn Valley CA 959469024 ID: 694915
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February 13, 2011
1
Update on the Law of Public Revenues
California Soc’y of Municipal Finance Officers
February 24
, 2011Slide2
February 13, 2011
2
MICHAEL G. COLANTUONO
Colantuono & Levin, PC
11406 Pleasant Valley Road
Penn Valley, CA 95946-9024
(213) 542-5739 (voice)
(530) 432-7359 (voice)
(530) 432-7356 (fax)
MColantuono@C
LLAW.US
WWW.CLLAW.USSlide3
February 13, 2011
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Utility Users Taxes
Ardon v. City of LA, McWilliams v. Long Beach, Granados v. County of LA
Class action challenges to UUTs on telephony due to IRS Notice 2006-50
TracFone v. City of LA, TracFone v. County of LA
Individual challenge on same theory by phone card seller
Trial court found no standing, Court of Appeal reversed in both casesSlide4
Utility Users Taxes (Cont.)
LA County v. Superior Court (Oronoz)Allowed class action challenges to local taxes & feesDisagreed w/ other Courts of Appeal, like
Batt v. SF2nd DCA changed its mind in Los Angeles v. Ardon
, now pending in Cal. S. Ct.
February 13, 2011
4Slide5
Utility Users Taxes (cont.)
Federal Legislation Proposed to Bar New or Amended Cell Taxes above 1% for 5 yearsHR 1521 (Lofgren, D-San Jose)S 1192 (Wyden, D-OR)
25 CA co-sponsors on House bill at end of last session
February 13, 2011
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Property Tax Administration Fees
R&T 97.75 allows Counties to recover “actual cost” to implement Triple Flip & VLF SwapMany counties are recovering more than the marginal cost to do so47 Los Angeles County cities and 7 Fresno County cities sued to test this issue
LA victory pending in S. Ct.; Fresno victory pending in 5th DCA
February 13, 2011
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Special Parcel Taxes
Sacks v. City of Oakland (2010) 190 Cal.App.4th 1070
Deferential review of City’s implementation of special parcel and parking tax measureCourt interprets measure practically and flexibly to attain its purpose to fund police servicesCourt looked to City Att’y opinion & Council reso. adopted after dispute arose to interpret measure
February 13, 2011
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Under-Collection of Bed Tax by Online Resellers
Resellers are subject to bed tax as sellers of hotel nightsHotels pay tax on wholesale rent reseller pays hotel, reseller collects tax on retail rent from customer and pockets the differenceClass action counsel pursuing this issue for LA, San Diego, Anaheim & W. Hollywood
February 13, 2011
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Under Collection of TOT by Online Resellers (Cont.)
Industry pursuing lots of litigationUse of contingency fee counsel (S. Ct. upheld)Duty to pay before litigating (DCA loss for cities)
Judicial review of administrative tax determinations (Anaheim loss / San Diego win)Litigation around USA: San Antonio won $20m federal jury verdict
Risk of legislative “fix”
February 13, 2011
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Constitutional Challenge toProp. 13: Young v. Schmidt
Former UC Chancellor argues requirement for 2/3 vote of Legislature for taxes is a Constitutional revision which cannot be accomplished by initiative
LA trial court gave HJTA judgment on pleadings
Appeal likely
February 13, 2011
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Fee to Administer Tax is a Tax
Weisblad v. City of San Diego, 4th DCA 2009Fee imposed to recover cost of recovering Rental Unit Business Tax invalidated as tax
Many business license taxes include fees for copies of licenses, replacement licenses, etc.Increasing fees requires care; tie to costs imposed by individual taxpayers; avoid fees imposed on all taxpayers
February 13, 2011
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Tax Rates May Turn on Ability to Pay
Jensen v. Franchise Tax Bd. (2d DCA 2009)Prop. 64 income tax increase on millionaires to fund mental health services upheld
Tax distinctions subject to minimum rationality reviewThe wealthy are not a suspect class (“discrete and insular minority”) requiring judicial protection
February 13, 2011
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Taxpayer Challenge Cannot Enjoin Collection of Tax
Chiatello v. CCSF (2010) 189 Cal.App.4th
169 (1st DCA)Non-taxpayer could not challenge payroll tax on profit distributions to
employee/owners
of business organizations
CCP 526a not an and-run around anti-tax-injunction and pay-first-litigate-later rules
February 13, 2011
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Business License Taxes
Silvers v. SBE (2010) 188 Cal.App.4th 1215 (2d DCA)
Unlicensed surplus line insurers are not subject to tax imposed for doing business in CaliforniaProvides support by analogy for meaning of “doing business” within a City for purposes of local business license taxes
February 13, 2011
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Fines are not Taxes
Cal. Taxpayers Ass’n v. Franchise Tax Board (2010) 190 Cal.App.4th 1139 (3rd
DCA)20% penalty on late corporate taxes raising $1.4b not a tax requiring 2/3 vote of LegislatureDistinguishing characteristics: label, revenues diminish over time, triggered by violation
No need for findings or good faith defense; post-payment remedy sufficient
February 13, 2011
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February 13, 2011
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Bighorn-Desert View Water Agency v. Verjil
, 39 Cal.4
th
206 (2006)
Metered rates for water (sewer & gov’t-provided trash) are property related fees under Prop. 218
Art. 13D,
§ 6(a) requires 45-day notice of old-fashioned majority protest in which silence equals consent
Art. 13D, § 6(c) exempts water, sewer and trash fees from majority-property-owner election or ⅔-voter election required for other property related feesSlide17
February 13, 2011
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Implications of Bighorn
Solid waste services
Gov’t services are treated like water & sewer
Private services should be exempt
Who provides service?
Who bills for the service?
Does agency set or merely regulate rates?
Emde v. Pacifica
– claim that fees set by franchise subject to Prop. 218 – demurrers overruled in 12/10Slide18
More Implications of Bighorn
A.B. 2882 and tiered water ratesDetailed requirements for rates within this safe harborSupplements other authority to impose such rates
May be best to have cost justification for such ratesA.B. 3030 - CPI adjustments and wholesale pass-throughs okay for 5 years
February 13, 2011
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Minimum monthly account charges
Paland v. Brooktrails Township CSD (DCA, 2009)upheld minimum monthly account chargesfound fees on meter locked for non-payment not standby charge required to be approved as assessment
February 13, 2011
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February 13, 2011
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How to Fund Storm Water & NPDES Programs
General & special taxes w/ voter approval
Assessments if special benefit can be shown
Property-related fees w/ Prop. 218 election
Non-property related fees (regulatory fees)
Transfers from utility funds?
But cf.
HJTA v. Salinas
(2002) (property-tax-roll fee was subject to Prop. 218; storm drains not “sewers” under 13D, 6(c))Slide21
Groundwater Extraction Charges
Pajaro Valley Water Mgmt Auth. v. AmrheinSubject to Prop. 218Are they “water” fees exempt from election requirement?
Pending in 6th DCA3
rd
DCA case dismissed as
moot
Subsidy of agriculture plainly violates 218’s proportionality requirement
February 13, 2011
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Flood Control & Water Quality Fees
Greene v. Marin County Flood Control District (CA S. Ct. 2010)Ballot secrecy does not apply to 218 elections on property-related fees for things other than water, sewer and trash
218 Omnibus Act is good authorityDeference to local procedural rules on property-related fees
February 13, 2011
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APCD Indirect Source Rule Not AB 1600 Fee
California Building Industry Ass’n v. San Joaquin APCD (5th DCA 2009)
Air quality fee on development in lieu of mitigationBIA claimed AB 1600 compliance requiredVery conservative DCA upheld fee
Affected by Prop. 26
February 13, 2011
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AB 1600 Fees
Homebuilders Ass’n v. Lemoore (DCA, 2010)AB 1600 fees can be based on service standards rather than CIPQuimby Act doesn’t preempt park fees
Fees can repay general fund loansFees can be used for trash trucks & bins
February 13, 2011
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Development Impact Fees
AB 1084 (Adams, R-Hesperia)GC 66019: 14-days notice of new or increased development impact fees to those who request itGC 66023: if requestor pays for audit of AB 1600 fee, agency must conduct audit and implement its recommendations
February 13, 2011
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Emergency Response Fees
SB 49 (Strickland, R-Simi Valley)Would prohibit all local governments, including charter cities, from imposing a fee to recover the expense of emergency responses by police, fire, and ambulance crews without statutory authorization (like the DUI
fee)Referred to Comm. on Public Safety
Prop. 26 issue re exemption for residents
Controversy re Sacto’s fee
February 13, 2011
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Prop. 26
Overturns Sinclair PaintAll fees are taxes unless exception applies
February 13, 2011
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Prop. 26 Exceptions Limited to Cost of Service or Regulation
Specific Benefit / Privilege (permits, franchises)Specific Service / Product (utility charges, park & rec. fees)Reasonable Regulatory Fees for licenses & permits (permits, inspections)
February 13, 2011
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Prop. 26 Exceptions not limited to Cost Recovery
Fee for entry, use or purchase of gov’t property (park & rec entrance fees, equipment rental, some franchises)Fines & penalties
February 13, 2011
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Other Prop. 26 Exceptions
Fees imposed as a condition of property development (limited to cost by other law)Assessments & property-related fees subject to Prop. 218 (limited to cost by 218)
February 13, 2011
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Major Impacts of Prop. 26
Non-property-based BIDsPark & Rec. service feesDiscounts & free passes for fees excepted as benefit/privilege or service/product
Scope of recoverable regulatory costsApp’n to voluntary payments (development agreements, e.g.
)
In-lieu fees
February 13, 2011
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More Impacts of Prop. 26
Some good newsFish & Game FeesBooking FeesProperty Tax Administration Fees
February 13, 2011
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Prop. 26 To-Do’s
Get legal advice before adopting or increasing feeReview Existing FeesConsidering segregating discretionary from non-discretionary fee proceeds
Consider fees by agreement rather than by ordinance or ruleStay tuned!
February 13, 2011
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Pre-Prop. 26 Fee Case Sheds Light on Proportionality Requirement
Equilon Enterprises v. SBE (2010) 189 Cal.App.4th 865
Upheld regulations dividing lead fee between gasoline and paint industries burden b/c it was reasonable to base fee on industry’s contribution to environmental lead contamination rather than childhood health impactsDeferential review of agency determination of proportionality of fee to contribution to problem
February 13, 2011
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Assessments
Silicon Valley Taxpayer’s Ass’n v. Sta. Clara Co. Open Space Authority (2008)Independent judicial review of assessment decisionsTighter definition of special benefit
Open space and other services that benefit public broadly harder to justifyProportionality requirement unclear
February 13, 2011
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Assessments (Cont.)
Dahms v. Downtown Pomona PBID (2009)Allowed exemption of residential property from assessment for security, streetscape maintenance & marketing
Allowed discounted assessments for non-profitsAllowed use of front-street frontage for apportionment, along with lot and bldg size
Very generous to agency; further cases may be less so
February 13, 2011
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Assessments (Cont.)
Tiburon v. Bonander (DCA 2010)No general benefit for utility undergroundingCourt can look outside agency’s own record
Invalidated allocation of assessment and establishment of zones of benefit
February 13, 2011
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Assessments (Cont)
Beutz v. Riverside Co. (DCA 2010)Park M&O can be 100% assessment financed b/c capital provided with other $Agency must always prove special benefit and proportional allocation even if challenger doesn’t raise these points
Questions use of cost to allocate benefit
February 13, 2011
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Assessment Legislation
SB 321 (Benoit) (effective 1/1/10)Assessment ballots mailed in envelopes marked “Official Ballot Enclosed”Assessment ballots must be counted in public if counted by agency staff or consultant who worked on assessment
Information used to weight ballots is disclosable public record once tallying begins
February 13, 2011
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Fiscal Ballot Measures
Vargas v. Salinas (2009)Balanced public education at public expense okay; express advocacy and other campaign-like efforts are notSta. Barbara County Coalition Against Automobile Subsidies v. SBCAG
(2008)Can use public funds to draft a ballot measure
February 13, 2011
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Annexation Issues
Open Question Since 218 whether annexation triggers need for voter or property owner approval of annexing agency’s taxes, assessments & feesAG concluded “no” in 1999AG Op. No. 09-305 (12/20/10): consolidation of 4 school districts & leveling bond obligations is consistent w/ Prop. 13
February 13, 2011
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Audit Legislation post-Bell
5 bills announced 2/8/11:SB 186 (Kehoe, D-San Diego)Authorize Controller audits at city expense “to
ensure compliance with state law, grant agreements, local ordinances, and to determine fiscal viability.”Pending proposal by Sen. Pavley (D-Agoura Hills)
Authorize Controller to audit agency facing insolvency
Committee from Controller, Treasury and DOF to provide advice & assistance
No language or bill number as of mid-February
February 13, 2011
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More Audit Legislation
AB 229 (Lara, D-South Gate)Increase Controller’s quality-control reviews of local government auditors
Must hire from list of auditors approved by ControllerMust change auditors after 5 yrsMust w/hold 10% of fee till Controller certifies audit; half of 2
nd
yr fee if 1
st
yr not certified
Must cancel multi-year contract if auditor de-listed
Controller access to audit work papers
February 13, 2011
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Still More Audit Bills
AB 253 (Smyth, R-Sta. Clarita)Controller to prescribe uniform accounting
& reporting proceduresComm. on City Accounting Procedures appointed by and serving at pleasure of Controller5 CFOs
3 City Managers
2 Councilmembers
Assigned to Comm. on Bus., Professions & Consumer Protection
February 13, 2011
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One Last Audit Bill
AB 276 (Alejo, D-Salinas)Double or triple penalties for late filed
audited financial reports with ControllerExtend filing duty to JPAs that issue conduit financings
February 13, 2011
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February 13, 2011
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Questions?