Cities’ Suit Over Prop. 13 Funds Dismissed

A lawsuit challenging property tax distribution to cities in the wake of Proposition 13 has been dismissed by a Riverside Superior Court judge.

The suit, filed last April by Compton, Temple City, El Segundo, Carson and Rancho Cucamonga, challenged the constitutionality of the current system, in which a city’s share of property tax revenues are determined by pre-Proposition 13 rates.

The petitioners charge that some cities unfairly benefit from the system because they had high tax rates on the books before Proposition 13 was passed in 1978, whereas cities that levied low property taxes, or none at all, lose out.

Compton, for example, had a relatively low tax rate before Proposition 13 and Los Angeles had a much higher rate. That means that in 1986-87, Compton residents paid $14.9 million in property taxes but the city got back only $1.58 million--about 14 cents on the dollar. By comparison, Los Angeles got back about 36 cents on the dollar.

An attorney for the cities said they would file a request for reconsideration. If the suit, which proposes a new revenue allocation formula, is ultimately successful, Compton could get as much as $1.4 million more a year in property tax revenue.

Even cities that are not party to the suit could get more money. Under the proposed formula, Lakewood, for instance, would get as much as $3 million more a year in revenues.

Other cities such as Long Beach and Los Angeles, however, would lose. In Long Beach’s case, the loss could be around $7 million a year.

In deciding against the cities, Judge John H. Barnard said in an opinion Jan. 17 that the laws being attacked are constitutional and that the cities’ “contention that the allocation scheme is unfair must be addressed to the (state) Legislature.”

Councilman Ken Gillanders of Temple City, which initiated the suit, said he wasn’t surprised by the judgment.

“This is what we expected in the preliminary stages,” he said. “This is ultimately going to be decided in (state) Supreme Court.

“There’s no point attempting to resolve it with legislation,” he added. “The big spenders are going to protect their sources of revenue. Let’s face it, they’ve got more representatives in Sacramento.”

Temple City is one of the biggest losers under the post-Proposition 13 allocation formula. The city did not have a property tax at the time Proposition 13 passed, so, it does not get any revenues back now, even though its residents pay millions of dollars in property taxes every year.

The current allocation system, said John Sturgeon, attorney for the cities, is a “completely arbitrary” formula. “It’s a gross inequity,” said City Manager Karl Koski of Temple City. “Our residents receive no benefit.”

The petitioners suggest that a fairer allocation method would rely on the total value of properties in a city to determine what proportion of tax revenue the city would receive. Under such a formula, Temple City would have gained about $1.46 million in revenues on the $7.5 million in property taxes its residents paid in 1986-87.

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, said Sam Olivito, executive director of the California Contract Cities Assn., which is supporting the suit. Pomona stands to lose more than any other city in the San Gabriel Valley under the proposed method, but Los Angeles, which had the county’s highest property tax in 1978, would be hurt the most.

Named in the suit are the counties of Los Angeles and San Bernardino, which have the responsibility of collecting and distributing the tax money to cities. Also named are the cities of Los Angeles and Redlands, which the petitioners charge are unfairly benefiting from the system.

The state Supreme Court declined to hear the case without comment last March, and the suit was filed with the San Bernardino Superior Court in April.

That court was selected because Rancho Cucamonga is the biggest loser in the current system. The case was transferred to Riverside after Redlands requested a change of venue to a neutral court.

Times staff writer Michelle Fuetsch also contributed to this article.