San Diego County Sales Tax Hike Overturned : Special districts: State high court says the ballot measure to build new courts and jails violates Prop. 13.

The California Supreme Court on Thursday rejected a 1988 San Diego County ballot measure that levied a half-cent sales tax to build courts and jails, throwing into confusion $330 million already collected and threatening public works projects around the state.

The court ruled that a majority vote simply was not enough to make the measure legal. In its complex 5-2 ruling, the court said the measure violates the requirement set forth in Proposition 13, the landmark 1978 property tax-cutting initiative, that special taxes must receive a two-thirds vote for approval.

Other California counties had watched the case closely for guidance on financing needs--for criminal justice, transit and other programs. And financially strapped San Diego County’s loss threatens dire consequences for programs funded by special taxes elsewhere in the state, officials said, potentially including measures in Los Angeles and Orange counties.

Around the state, scores of tax agencies--called special districts--have sprung up in recent years as counties, scraping for funds, have sought a way around the fiscal squeeze brought on by the tax-limiting provisions of Proposition 13.

The court’s ruling directly affects only San Diego County’s Proposition A, which passed in 1988 with 50.6% of the vote, and was designed to raise $1.6 billion over 10 years. Officials said the potential loss of $1.6 billion meant nothing less than a fiscal and criminal justice catastrophe. The court told a lower court, the 4th District Court of Appeal, to figure out how to rebate the mountain of money already sitting in an interest-bearing bank account.

“It’s a heartbreak,” said Rich Robinson, director of San Diego County’s Office of Special Projects, which plans for new courts and jails.

In a biting dissenting opinion notable for its frank language, Justice Stanley Mosk said the highly technical ruling “is likely to wreak untold financial havoc on countless local entities.”

The court majority said that any taxing agency that is “essentially controlled” by a city or county must comply with the rigid two-thirds rule of Proposition 13 when it comes to raising special taxes--those levied for a limited use, not for “general governmental purposes.”

The two-thirds rule is designed to limit the ability of local governments to sidestep the 1978 initiative’s limit on property taxes by simply imposing a different kind of tax.

The number of agencies that could now be stuck is significant--and the dollar figures at stake are immense.

Including the San Diego agency, there are at least eight “justice facility” districts in the state, according to the Supreme Court.

There also are about 20 special district transit agencies, Mosk said. Of those 20, 16 had won voter approval of sales taxes that are expected to raise nearly $6 billion by 1995 alone. Backed by those taxes, investors have bought more than $1.5 billion in bonds, he said.

In Orange County, voters last year approved a measure to boost the sales tax by half a cent to raise $3.2 billion over 20 years for traffic improvements. In that same election in Los Angeles County, voters backed a half-cent transit measure to raise $400 million a year.

Neither got a two-thirds backing, and both are the subject of current court challenges.

But doom may not be imminent, said lawyers and county officials. It will be years before the courts sort out the ramifications of what “essentially controlled” means, or who that phrase applies to.

The Los Angeles measure, for instance, was issued by the Los Angeles County Transportation Commission, which was created in 1976--two years before Proposition 13 was enacted.

In 1982, the state Supreme Court approved a 1980 half-cent measure floated by that agency, which still raises $400 million annually. Though the measure came after Proposition 13, the agency was created before Proposition 13 and obviously did not have to worry about evading it, the court said.

“It’s not at all clear that (the ruling) sounds the death knell for every newly created special-purpose agency in California,” said Steve Mayer, a San Francisco lawyer who filed a friend-of-the-court brief in the case on behalf of 15 California counties urging approval of the San Diego measure.

The Supreme Court ruling “obviously will mean tremendous financial uncertainty for many counties for many years,” Mayer said. But he added, “I think there’s going to be years of litigation to see how it all shakes out.”

In San Diego, with the legal limbo finally at an end, the import was clear.

“The county and the courts and the sheriff were all counting on this to resolve our facilities problems for the next 20 years,” said Judith McConnell, presiding judge of the San Diego Superior Court, who said that without it, there is “absolutely no money” for anything but small projects.

Financially strapped San Diego County intended to use the Proposition A money to alleviate its longstanding jail crowding--some of the worst in the nation, according to the U.S. Justice Department--and a badly overextended court system.

“This is a tremendous setback for the criminal justice system in San Diego County,” said Sheriff Jim Roache.

“We are in the midst of a recession,” Roache said. “We have no resources to build jails. We are in the middle of our most violent year ever. And we have the public demanding that we take back our streets. This is disheartening.”.

In June, 1988, voters approved Proposition A, and the pennies slowly turned to millions. A suit challenging the measure was filed a month later by activists linked to the local chapter of the Libertarian Party.

Before the Supreme Court acted Thursday, the two earlier judicial steps had produced a legal split.

In March, 1989, Riverside County Superior Court Judge Gordon Burkhart sided with opponents in striking down the tax.

But in September, 1990, the 4th District Court of Appeal in San Bernardino reversed that ruling, saying that a bare majority was legal.

In a letter, Gov. Pete Wilson urged the justices to uphold the tax, saying their decision could affect local government finance “for decades to come.”

The Supreme Court majority, in an opinion signed by Chief Justice Malcolm M. Lucas, said Thursday it was “sympathetic to the plight of local government.”

But Lucas said the court had to apply the two-thirds vote requirement strictly because Proposition 13 is a constitutional mandate. To permit a majority vote, the electorate would have to modify it.

In the San Diego case, Lucas said, there was strong evidence that the agency was created to raise funds for “county purposes” and thus circumvent the two-thirds vote requirement.

The agency’s seven-member board includes two county supervisors, Lucas said. Its actions had to comply with county plans. Its boundaries match the county’s. And it was under orders to convey land titles to the county upon request of the county board, he said.

Lucas’ opinion was joined by Justices Armand Arabian, Marvin R. Baxter and Ronald M. George. Significantly, the court left open whether the decision will require other districts to refund taxes they have collected.

In a separate concurrence, George, joined by Justice Edward A. Panelli, emphasized that the justices were obligated to follow what they saw as the law, even when it “imposes formidable obstacles to the government’s financial ability to meet pressing public needs.”

That brought a pointed response from Mosk, who, in his dissent, said the remark “revealed a callous indifference for the consequences” of a ruling that is “likely to produce a devastating effect on the economy (and) potentially the existence of numerous public agencies.”

Mosk accused the majority of ignoring previous high court rulings that upheld similar tax increases. Justice Joyce L. Kennard issued a brief separate dissent, saying she believed the San Diego tax was valid.

Abrahamson reported from San Diego and Hager reported from San Francisco.

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