Utilities Excluded From Key Portion of Prop. 13 : Not Entitled to Rollback of Property Taxes, High Court Rules; Counties Saved From Refunds

The state Supreme Court ruled Thursday that a key portion of Proposition 13 does not apply to California’s 175 public utilities, a decision that saves the state’s counties from millions of dollars in property tax refunds.

The high court unanimously held that the tax-cutting benefits of the 1978 initiative were aimed primarily at homeowners, not utilities.

Among the utilities affected by the decision are railroads, electric companies, telephone companies and oil companies with pipelines in the state.

Had the decision gone the other way, county governments across the state would have been forced to roll back taxes on utilities and refund millions of dollars. There was no consensus on how much was at stake, but the estimates ran to the hundreds of millions.

$52 Billion Assessed Valuation

Bud Florence, a spokesman for the State Board of Equalization in Sacramento, said the assessed valuation for all utilities in the state is $52 billion.

Proposition 13 limited property tax rates to 1% of value, with certain exceptions; reduced the power of state and local governments to raise other taxes, and rolled back property assessments to their values in 1975-76--before the major assessment increases. Annual increases were to be limited to 2% except for new or newly sold property.

The issue Thursday was whether utilities, besides enjoying a lowered tax rate, also should benefit from a rollback of assessed valuation of their property to 1975-76 levels.

The court said utilities should have no such rollback, because unlike homeowners and others, whose property is assessed by counties, the State Board of Equalization assesses utilities.

The court cited wording in the proposition to back its position. The initiative said property value for purposes of the rollback should be determined by a “county” assessor.

“There is, of course, no county assessor’s valuation of state-assessed property. Thus, by its terms, the provision appears inapplicable to such property,” the court said in an opinion by Justice Stanley Mosk.

The state assesses utilities because it is better able to gain a broader perspective on the worth of their holdings than would an individual county.

“Ten miles of telephone wire,” the court explained, “or one specially designed turbine would have a questionable value, other than as scrap, without the benefit of the rest of the system as a whole.

”. . . Rather, its (a utility’s) value depends on the interrelation and operation of the entire utility as a unit.”

In San Francisco, the defendant in Thursday’s case, officials said the decision would free $3 million that had been impounded by the city after claims of overtaxation by utilities, Deputy City Atty. John J. Doherty said.

Los Angeles County Auditor-Controller Mark Bloodgood said there had been no similar impoundment of tax funds in Los Angeles County. Nor was there any impoundment in Orange County, according to Auditor-Controller Steven E. Lewis.

Jarvis Reaction

Howard Jarvis, co-sponsor of the Proposition 13 initiative, called the decision “improper.”

“I’m not in love with the utilities, but I think that under the state Constitution they have the same rights as anybody else,” Jarvis said in a telephone interview from Los Angeles.

The ruling was not, however, welcomed by utilities.

“The ruling means simply that the utilities are going to continue paying higher taxes,” said Robert L. Dunne, the lawyer of ITT World Communications, plaintiff in the lawsuit, “and that will be passed on so that consumers will pay slightly higher utility bills.”

Dunne added that he doubted there would be an appeal.

Jack D. Emerson, spokesman for Southern California Edison Co., pointed out, however, that the tax-cutting effect of Proposition 13 was not entirely lost to utility companies. Although assessments were not rolled back to 1975-76 levels, the tax rates applied to utilities dropped to about $1 per $100 of assessed valuation, the level set for all property owners under the initiative. Emerson said his company will pay $98 million in 1984 property taxes, an amount slightly less than what it paid before Proposition 13’s passage.

The issue resolved Thursday has been in the courts since shortly after the initiative passed. Pacific Gas & Electric Co., along with Southern California Edison and San Diego Gas & Electric first brought a suit. But in 1980, the high court ruled against the utilities on procedural grounds.

Soon after that, ITT World Communications, a subsidiary of ITT Corp. of New York, brought what amounted to a test case (ITT World Communications Inc vs. San Francisco, S.F. 24721). For ITT, the ruling meant roughly a $100,000 loss.

But the San Francisco-based company, which deals in international communications, is relatively small. The potential for all utilities was much greater. In all, utilities will pay more than $570 million in taxes for 1984.

Some of the major losers are Pacific Bell, which had a 1984 assessed valuation of more than $14 billion, and paid approximately $154 million in unitary property taxes, a Board of Equalization spokesman said.

Another big loser was Pacific Gas & Electric, which had an assessed valuation of $12.4 billion in 1984. Railroads, oil companies and other utilities had lesser amounts involved.

Board of Equalization member Conway Collis hailed the ruling, saying that it “is consistent with the letter and the spirit of Proposition 13.”

“Californians wanted to protect homeowners, locally owned businesses. . . . They did not intend it for the large utilities and railroads.”