State Justices OK Exception to Gann Limit : Financing: Ruling allows support of state-mandated programs by imposition of local user fees.

In a sharp setback for cities and counties, the California Supreme Court ruled Monday that the state government need not pay for programs it imposes on local communities that can be funded by local user fees.

The justices unanimously upheld a state statute that is being used with increasing frequency by the state during lean budgetary times to finance scores of state-required local programs involving millions of dollars.

The statute provides an exception to the 1979 Gann initiative, a tax-limitation measure that generally required the state to reimburse local governments for new programs or services mandated by the state. That requirement, the statute says, does not apply when the programs can be funded by local “service charges, fees and assessments.”

The high court, ruling in a Fresno County case, rejected contentions by dozens of cities and counties that the fee provision was being used as a smoke screen for new taxes, violating the spirit of the Gann initiative and subjecting local authorities to political disfavor from fee-paying constituents.

Justice Stanley Mosk, writing for the court, said the language of the initiative required state reimbursement only for local expenses resulting from “taxes,” but not fees or service charges. “Sources other than taxes,” wrote Mosk “ . . . are outside the scope of the requirement.”

Lawyers for the counties and tax-reform groups claiming the statute was unconstitutional denounced the ruling.

Pamela A. Stone, senior deputy Fresno County counsel, called the decision “tremendously bad news for the counties.” Stone noted that fee requirements were being imposed not just for routine uses such as dog licenses but increasingly to finance state-mandated regulatory programs, such as hazardous waste disposal plans.

“It makes counties politically unpopular when fee-payers don’t see anything for their dollars,” she said. “We may have a situation where businesses decide not to locate in California because of the economic environment.”

Jonathan M. Coupal of the Pacific Legal Foundation, attorney for Paul Gann’s Citizens Committee, said the Legislature was violating the aim of the initiative by “imposing all kinds of programs on the counties, as is its wont, and then not providing the funding.”

State Assistant Atty. Gen. N. Eugene Hill, who defended the law in court, welcomed the ruling, saying it provided lawmakers with important flexibility in financing new programs. “If we had not won the case, it certainly would have imposed limitations on the Legislature,” Hill said.

The case arose after the Legislature enacted a law in 1985 requiring local governments to prepare plans for emergency responses to the release or threatened release of hazardous materials. To cover the costs of implementing the program, the law authorized localities to collect fees from those who handle such materials.

Fresno County authorities filed a test case, seeking reimbursement of such costs from the state, rather than imposing local fees. The state Commission on State Mandates, a quasi-judicial agency established to hear such claims, rejected the county’s contention.

Last year, a state Court of Appeal in Fresno upheld the commission ruling, saying the reimbursement provisions of the Gann initiative did not apply to state programs that can be funded through local fees or service charges.

Fresno County attorneys appealed the ruling to the state Supreme Court, winning backing from dozens of cities and counties filing “friend of the court” briefs in the Fresno case and a related dispute from San Bernardino County.

The counties noted that the Gann initiative had been passed, in part, to prevent the Legislature from shifting the burden of state program costs to local governments in the wake of Proposition 13, the property-tax reform measure passed in 1978. State lawmakers, they said, should not be permitted to create exceptions to the rule established under the 1979 initiative.