Half-Cent Sales Tax Invalidated by State High Court : Funding: Ruling on Prop. A stems from the two-thirds vote requirement of Prop. 13. In San Diego County, officials say the decision spells disaster.

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

The court ruled that a majority vote approving the measure simply was not enough to make it legal. Proposition A, designed to raise $1.6 billion over 10 years, passed with 50.6% of the vote.

In a complex 5-2 ruling issued at its headquarters in San Francisco, 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.

“It’s a heartbreak,” said Rich Robinson, director of San Diego County’s office of special projects, which plans for new courtrooms and jails.

The ruling directly affects only San Diego County, where officials said the loss of $1.6 billion means nothing less than a fiscal and criminal justice catastrophe. The Supreme 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.

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

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.”

However, 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.

Nevertheless, around the state, scores of tax agencies--called “special districts”--have sprung up in recent years as counties, scraping for funds, have sought an end-around the fiscal squeeze brought on by Proposition 13.

The number of agencies that could now be stuck is significant--and the scope of the dollars involved immense.

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

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

In Orange County, voters last year approved a measure that increased 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, adding that it will be years before the courts sort out the ramifications of what “essentially controlled” means or whom that phrase applies to--mostly because things are not always the way they seem when it comes to tax issues.

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 upheld a 1980 half-cent measure floated by that agency, which still raises $400 million annually. Though the measure was created after Proposition 13, the agency was not--and an agency created before Proposition 13 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 of the ruling was clear.

“There is absolutely no money available for courts and jails other than some very small projects,” said Judith McConnell, presiding judge of the San Diego Superior Court. “The county and the courts and the sheriff were all counting on this to resolve our facilities problems for the next 20 years.”

The half-cent sales tax was expected to generate $1.6 billion for new jails and courts over its 10-year life. The fiscally troubled county intended to use the cash to alleviate its longstanding problems of jail crowding and a badly overextended court system.

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

“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.”

Without the sales tax money, Roache has an empty 1,500-bed medium-security jail in East Mesa that he isn’t sure he can open. Plans for a second 1,500-bed facility next door and a 2,750-bed jail for those awaiting trial are now on hold. Both were to be completed by 1996.

San Diego County has one of the most crowded jail systems in the nation, according to the U.S. Department of Justice.

About two years before Proposition A was put to voters, a similar five-year tax for jails failed when it drew a 50.7% majority, far short of the two-thirds rule.

In 1988, the county tried again. It created Proposition A, and a separate agency, the San Diego County Regional Justice Facility Financing Agency. Because that board, rather than the county, would spend the money for courts and jails, a simple majority vote would be enough for passage, county officials claimed.

In June, 1988, voters approved Proposition A by the 50.6% vote, and the pennies slowly turned to millions. A suit challenging the measure was filed a month after the vote by activists linked to the local chapter of the Libertarian Party.

“The only bright spot to this lawsuit is that the supervisors did wonders for the Libertarian Party,” because it brought reams of publicity, said Dick Rider, a past president of the chapter.

“They did nothing for taxpayers,” Rider said. “Nothing for the safety of San Diegans. They did nothing to help solve the jail problem. They did help the Libertarian Party. And for that we are thankful.”

The two judicial steps before the Supreme Court had produced a legal split.

In March, 1989, Riverside County Superior Court Judge Gordon Burkhart sided with opponents in striking down the tax. The case was heard in Riverside County because of San Diego judges’ conflict of interest in a matter affecting courtroom space.

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

Gov. Pete Wilson, in a letter to the Supreme Court, had urged the justices to uphold the tax, saying their decision could affect local governmental finance “for decades to come.”

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

But, Lucas said, the court had to strictly apply the two-thirds vote requirement of Proposition 13, because it is a constitutional mandate--unless and until modified by the electorate itself, an action that would require only a majority vote.

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 the question of 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 from San Francisco. Times staff writer Mark Platte in San Diego also contributed to this story.