Westminster Wins Tax Case; Prop. 62 Voided

A state appellate court in Santa Ana ruled Thursday that Proposition 62, an initiative sponsored by Howard Jarvis in 1986 that requires all taxes imposed by local government to be approved by voters, is unconstitutional.

Holding that the Westminster City Council has the authority to impose a utility users’ tax without a citywide vote, the 4th District Court of Appeal unanimously reversed a decision by a Superior Court judge who in January declared Proposition 62 “constitutional and enforceable.”

The appeals court said, in an opinion written by Justice Thomas F. Crosby Jr., that requiring city governments to obtain voter approval for tax proposals would be a “gross interference with the fiscal responsibility of local governments.”

Proposition 62 requires local agencies to stop collecting a new tax imposed after July 31, 1985, unless it is approved by voters by Nov. 5, 1988--or face the loss of an equivalent amount of property tax revenue.

45 Cities Faced Loss

Westminster is among 45 cities in California that faced a potential loss of property tax revenue under the initiative, according to state and county officials.

Westminster City Manager Murray Warden said the ruling could mean an extra $2.5 million a year in city revenue. Like some other smaller Southern California cities, Westminster has been financially strapped this year and has had to dip into its reserve funds to prevent any reduction in city services.

“We need the money,” Warden said.

A spokesman for the California Tax Reduction Movement, which continued the campaign for passage of Proposition 62 in November, 1986, after Jarvis died of a blood disease Aug. 12, 1986, said: “It’s a sad day for the California taxpayer.”

Joel Fox, president of the Los Angeles-based anti-tax group, said Thursday’s decision will be appealed to the California Supreme Court. The Tax Reduction Movement participated in the Westminster case as a intervenor.

“We will consult with other groups in California, like the California Taxpayers’ Assn., and if the Supreme Court chooses not to consider our appeal, we will certainly not close the door on mounting another initiative campaign,” he said.

Fox said two cities in Los Angeles County, Lynwood and South Gate, have tax proposals on their November ballots in accordance with Proposition 62.

But South Gate City Counsel Bruce Boogaard, who recommended placement of a police telephone users’ tax on the city’s ballot, said, “We’re going to have to reevaluate this” when told of the ruling on Thursday.

What effect the ruling will have statewide is still uncertain. In March, a Sonoma County Superior Court judge ruled that Proposition 62 was unconstitutional; that decision has been appealed to the 1st District Court of Appeal in San Francisco.

Opposite Rulings

“It’s possible that one district court could rule one way and another district court rule another,” said Sonoma County Counsel Jim Botz.

Botz added that if there were such a “split decision,” it would increase the chances of a hearing before the Supreme Court to finally resolve the issue.

“Proposition 62 was, in a sense, part of Proposition 13 (the statewide initiative passed in 1978 that sharply curtailed property taxes) because it protected voters from higher taxes,” Fox said. “What we were trying to do with Proposition 62 was give people a say in the tax decisions that affect them. That’s what 62 is all about.”

In his written opinion, Justice Crosby said the proposition was defective because the “requirement of local voter ratification violates the California Constitution.”

Though the constitution permits the use of a statewide initiative to repeal statewide tax laws, Crosby wrote, it is a “well-established proposition that municipal referendum and initiative powers may not be used to invalidate municipal tax measures.”

“The major thrust of Proposition 62, at least as it was presented to the voters, was the fatally defective attempt to shift control of local taxation to the local electorate,” the opinion stated.

Jarvis’ Last Hurrah

The 1986 initiative was the last hurrah for tax crusader Jarvis. In the months before he died, Jarvis drafted Proposition 62, saw to it that it qualified for the ballot and then campaigned for its passage. At the time, he said it was needed to plug a gaping hole driven into Proposition 13 by the California Supreme Court.

Specifically, Proposition 62 requires a two-thirds vote of a local governing body, such as a city council, and approval by a majority of the voters in a general election before new or increased local taxes can be imposed.

Westminster challenged the portion of Proposition 62 that says taxes enacted after July 31, 1985, may be collected only if endorsed by the voters.

When Superior Court Judge William McDonald ruled that the city’s 5% utilities tax, imposed by the City Council in September, 1986, could not be collected after the Nov. 5 date unless it had been approved by the voters, the city appealed.

About 500 Westminster residents, outraged over the City Council’s decision to impose the utilities user tax, have refused to pay the tax.

In July, Westminster sued Orange County, which collects such local taxes and distributes the revenue to the appropriate cities, in a bid to keep the tax money it might lose under Proposition 62. At the time, city officials said the lawsuit between agencies “was friendly,” but that the officials needed a quick resolution for revenue-forecasting purposes.

Concurring in the appellate court’s 3-0 ruling Thursday were Justices Harmon Scoville and Edward J. Wallin.