Cities Mount Their Own Tax Revolt : Temple City, Others Sue to Get Property Tax Revenues Denied Them by Prop. 13 Laws

Temple City residents paid $7.5 million in property taxes in 1986-87, but the city received none of that revenue.

The city is not alone in that plight.

About 33 of Los Angeles County’s 85 cities either did not have a property tax or were not yet incorporated when Proposition 13 was passed in 1978, according to Sam Olivito, executive director of the California Contract Cities Assn. Under state legislation enacted to implement the proposition, such cities do not qualify for a slice of the property tax pie.

“We were excluded forever” from receiving benefits, Temple City Manager Karl Koski said of his community, which has never levied a property tax.

Joined by Compton, El Segundo, Carson and Rancho Cucamonga, Temple City has taken the issue to court.

Charging that their residents are being taxed without receiving due benefits, the cities filed a suit with the state Supreme Court challenging the constitutionality of the current system of tax revenue distribution.

Although the Supreme Court last Friday declined without comment to hear the case, John Sturgeon, the attorney for the petitioners, said he will file the suit Friday in San Bernardino Superior Court.

The suit is being filed there, he said, because Rancho Cucamonga is the biggest loser from the current system among the five cities.

The suit was originally filed with the state’s highest court because the issue is constitutional and the decision could shift millions of dollars among city coffers statewide, Sturgeon said. He had urged the court to act quickly because cities have to begin planning their 1989-90 budgets soon.

Temple City Councilman Ken Gillanders, who initiated the research leading to the suit, was not perturbed by the action by the Supreme Court.

“It’ll just take a little longer to resolve, but the constitutional issues are the same,” he said. “It will ultimately find its way to the Supreme Court.”

The cities want the court to invalidate legislation adopted to implement the landmark tax-cutting initiative.

The suit charges that the legislation unfairly penalizes cities that levied low property taxes, or none at all, before Proposition 13. If successful, it would benefit 270 cities statewide, Olivito said. His organization, which has written to the court in support of the action, represents 65 California cities, 46 of them in Los Angeles County.

However, not every city would gain.

For example, six cities in the San Gabriel Valley, including Pomona and Pasadena, would stand to lose hundreds of thousands of dollars each year.

Proposition 13 limited property taxes to 1% of a parcel’s assessed value and restricted increases in assessments to 2% annually. Although taxpayers pay at the same rate regardless of where they live, revenues have been distributed among cities according to how high their tax rates were before Proposition 13 was passed.

“The Legislature’s scheme allocates property taxes without regard to who paid them,” attorney Sturgeon stated in the suit, which was filed with the Supreme Court last month. He said this “completely arbitrary” formula punishes cities that had shown fiscal restraint before Proposition 13 by imposing low taxes, while rewarding those with high taxes.

The suit asks the court to order Los Angeles and San Bernardino counties to correct these inequities. The counties were named as respondents in the suit because they collect residents’ property taxes and distribute them to cities.

The suit suggests that a fairer distribution system would rely on the total value of properties in a city to determine what proportion of the tax-revenue pie it should receive.

Temple City would have gained about $1.46 million in revenues in fiscal 1986-87 under the proposed system.

The biggest winner among the petitioners would be El Segundo, which would have received $7 million more that year. The city had a property tax of 0.15% in 1987.

Pomona, which had a 2.56% property tax, would be hurt more than any other city in the San Gabriel Valley, Olivito said. Under the proposed formula, it would have received about $1 million less than it did in 1986-87.

Pasadena, South Pasadena, San Marino, Sierra Madre and La Verne also would get less.

Larger Picture

Expressing disappointment that other cities are seeking a solution that would penalize his city, Pomona City Manager A. J. Wilson said the larger picture of who needs the money most should be examined. Each city’s per capita spending also needs to be considered, he said.

“We’re not going to give away the resources of our community,” Wilson promised, adding that Pomona is exploring its legal grounds for a countersuit.

Pasadena City Manager Donald McIntyre acknowledged that the petitioning cities have a legitimate concern but said it was their choice not to levy higher taxes initially.

South Pasadena City Manager John Bernardi agreed: “I certainly feel for them, but I don’t know why South Pasadena should suffer for (their) not imposing a property tax. We can’t afford to lose any more than we’ve already lost.”

The suit alleges that the current revenue allocation system violates a provision in the state Constitution requiring that taxpayers directly benefit from the taxes they are paying.

Cities with high pre-Proposition 13 tax rates receive more than their fair share of revenues, violating another constitutional provision mandating uniform taxation, the suit says.

L.A. Profited Most

Los Angeles, which had the county’s highest property tax, 2.76%, in 1978, is cited as profiting the most from the current system. The city received at least $117 million more in property tax revenues than its residents paid in the 1986-87 fiscal year, said Rodney Smith, economic consultant for the petitioners.

Los Angeles would bear 95% of the losses under the proposal, Smith said. Besides the six San Gabriel Valley cities, Long Beach and Hermosa Beach would be the only other ones in the county to suffer if the court agrees that changes should be made.

Smith stressed that county tax revenues are in a separate pool from the cities’ revenue and would not be affected by the outcome.

Olivito said the petitioning cities have long felt that “something just wasn’t right” and have repeatedly approached the state Legislature about the problem.

Limited Services

“We’ve been trying to find a solution for the last 10 years, and we haven’t received a dollar,” he said. “The issue just kept snowballing.”

The lack of tax revenues has limited the services the petitioning cities have been able to provide their residents, the suit alleges. For example:

* Inadequate flood control facilities were a main reason for Rancho Cucamonga’s incorporation, yet the city has been unable to afford community-level flood control projects.

* Compton has been forced to put off several youth programs and cannot fund Neighborhood Watch projects.

* Carson cannot afford to rehabilitate four toxic chemical sites and 20 abandoned landfills.

* Temple City has postponed implementing a school drug awareness program and cannot afford a senior center. Law enforcement levels have not been increased to keep up with growth since 1978.

‘Spending Our Money’

“We’re struggling to keep our heads above water, and other cities are spending our property tax money,” said Temple City’s Gillanders. As a property owner, Gillanders is also named as a petitioner in the suit.

As mayor in 1984, Gillanders began consulting with Smith, also director of the Lowe Institute of Political Economy at Claremont McKenna College, about the validity of the allocation policy.

The following year, the City Council commissioned Smith to research the issue. “In 1986 I discovered the constitutional flaws,” said Smith, who now serves as an independent consultant.

The other cities decided to join in the suit within the past year, Koski said.

ALLOCATIONS OF PROPERTY TAX REVENUE A suit filed by five Southern California cities attacks the way that property tax revenue is allocated to cities. Their suit challenges the constitutionality of the distribution system that was enacted to implement Proposition 13. If successful, the suit could shift millions of dollars among city coffers statewide. The following is a breakdown of the tax revenue received by cities in the San Gabriel Valley under the existing system and the distribution under the proposed reforms.

City Tax Allocation Tax Allocation Net Gain/Loss ‘86-’87 Under Reform Alhambra 3,208,157 4,165,905 957,748 Arcadia 2,270,910 4,286,206 2,015,296 Azusa 1,516,148 1,770,992 254,844 Baldwin Park 1,189,902 1,868,425 678,523 Bradbury 49,038 138,058 89,020 Claremont 1,483,982 1,947,367 463,385 Covina 1,993,700 2,764,395 770,695 Duarte 317,020 1,090,900 773,880 El Monte 2,182,081 3,413,810 1,231,729 Glendora 1,502,031 2,465,006 962,975 Industry 1,093,276 4,091,062 2,997,786 Irwindale 205,996 1,312,356 1,106,360 La Habra Heights 356,077 674,269 318,192 La Puente 0 1,058,852 1,058,852 La Verne 1,704,533 1,702,298 -2,235 Los Angeles 349,442,366 232,469,181 -116,973,185 Monrovia 1,912,565 2,077,497 164,932 Monterey Park 3,268,509 3,695,737 427,228 Pasadena 11,112,852 10,449,859 -662,993 Pomona 6,683,688 5,625,223 -1,058,465 Rosemead 0 2,121,042 2,121,042 San Dimas 905,918 2,058,290 1,152,372 San Gabriel 1,067,742 1,680,749 613,007 San Marino 2,332,270 1,851,540 -480,730 Sierra Madre 878,418 715,839 -162,579 South El Monte 0 1,044,497 1,044,497 South Pasadena 2,277,149 1,633,666 -643,483 Temple City 0 1,464,720 1,464,720 Walnut 206,539 1,514,302 1,307,763 West Covina 3,613,468 4,954,207 1,340,739 Whittier 1,995,959 4,468,752 2,472,793

Source: California Controller’s Annual Report