Subway Tax Plan Rejected by Court : Metro Rail: The proposal to have commercial property owners finance a portion of the transit project is ruled unconstitutional.

The state Court of Appeal has invalidated a Southern California Rapid Transit District plan to have commercial property owners pay a small part of the construction costs for the first leg of the $3.6-billion Metro Rail subway.

If the far-reaching ruling handed down Tuesday goes unchallenged, it would eliminate the benefit assessment tax districts created by the RTD to raise $130 million, about 11% of the $1.25-billion cost for Metro Rail’s first 4.4 miles under downtown Los Angeles.

The ruling may also invalidate similar assessment districts now being set up to pay for a part of the $1.4-billion second phase of the subway that will reach from MacArthur Park another 6.8 miles to Hollywood Boulevard and Vine Street.

The rationale for these special taxing districts is the premise that Metro Rail will greatly enhance property values within walking distance of the subway stations. Rail promoters say it is only right that property owners within a mile of the stations share in the costs.

While many downtown landowners agreed, there was some powerful dissent. Led by the Atchison, Topeka & Santa Fe Railway Co., several firms filed suit, contending that the taxes were being unfairly levied only on commercial property. Residential properties had been excluded.

The appellate justices--overturning a lower court decision--ruled that the RTD had no authority to exclude residential property from the districts. The panel also found that the sole means by which property owners could protest this taxation was by a referendum election process that did not follow constitutional one-person, one-vote guarantees.

“As a result, the statutory scheme in its entirety must fall as unconstitutional,” Justice Lynn D. Compton wrote for a unanimous three-judge panel including Justices Donald N. Gates and Lester William Roth. This language, if left unchallenged, means the state law authorizing the formation of such assessment districts is invalid.

“We are elated,” said businessman Andrew Miliotis, chairman of the Committee Opposing Metro Rail Taxation, a group of Wilshire-area property owners. “We feel that the decision vindicates our position that assessments are unfair and inequitable.”

When the RTD put the first two districts together, Los Angeles--one of the Metro Rail funding partners--insisted that residential properties be excluded. The RTD board agreed, even though it now appears it didn’t have the power to make such an exclusion.

RTD attorneys said they will appeal the decision.

If the ruling stands, RTD officials said it would mean the Los Angeles County Transportation Commission--funding authority for all rail projects-- would have to pick up the $130 million in unpaid construction costs, using local transit dollars earmarked for other projects.

“If we can’t collect (the benefit tax), the commission is the banker of last resort,” said RTD board member Marv Holen. The funding agreement with the federal government requires the commission to complete the project.

The federal Urban Mass Transit Administration is putting up $695 million for the first phase, the state share is $214 million and the county is contributing $177 million from local transit sales taxes. Los Angeles’ share is $54 million and the benefit tax on commercial property was to fund the sale of $130 million in construction bonds.

Tuesday’s decision precludes such a bond sale, district officials said.

In addition to appealing this decision to the state Supreme Court, the district and the commission will probably ask the state Legislature to pass a bill giving the RTD new authority to re-establish the assessment districts. However, any attempt to exclude residential properties will likely ignite a political firestorm, officials said.

Tuesday’s decision does not undermine the basic idea that most commercial property owners on the subway route are willing to share some of the costs, said Neil Peterson, the county Transportation Commission’s executive director.

“There’s been no change in this basic concept,” Peterson said. “But we may have to refashion the mechanism (for creating benefit assessment districts).”