S.D. County Sales Tax Increase Ruled Invalid : Public works: State Supreme Court says levy to build courts and jails violates Prop. 13’s two-thirds vote rule.

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.

Orange County officials were among those sent reeling by the decision. Some feared it could derail the county’s transportation tax, approved by voters in 1990 and projected to deliver $3.2 billion for highway and transit projects.

Members of the Orange County Transportation Authority remained optimistic that the local tax, known as Measure M, will be upheld. But its opponents said that Thursday’s ruling marked a tremendous victory for their side and predicted that Measure M will soon be held unconstitutional.

“There’s no question in my mind that this means we’ll win eventually,” said Tom Rogers, a San Juan Capistrano rancher and one of the plaintiffs in a lawsuit challenging Measure M’s constitutionality. “Measure M was nothing but a subterfuge.”

In evaluating the San Diego case, 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.

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 that amount 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 lays plans for the 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.

Orange County does not have such an agency. County voters last May considered and rejected a half-cent sales tax for jail construction.

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.

At the same time that Orange County was approving Measure M last year, Los Angeles County, voters backed a half-cent transit measure to raise $400 million a year.

Neither the Orange County nor the Los Angeles County measure got a two-thirds backing, and both are the subject of current court challenges.

If Orange County’s Measure M also is overturned, a host of road, highway and transit projects would be scrapped or postponed. Among the most notable are the planned improvements for the heavily congested El Toro Y, the addition of car-pool lanes on several highways and the construction of several “super-streets.”

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.

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.”

Abrahamson reported from San Diego and Hager reported from San Francisco, with Times staff writers Jeffrey A. Perlman and Jim Newton contributing to this report from Orange County.

ROADBLOCK: Orange County’s Measure M is also put in jeopardy. A39

Is Measure M Next?

The state Supreme Court struck down a San Diego County sales tax hike Thursday, in the process casting a shadow over a spate of Orange County transportation improvements approved by county voters last year as part of Measure M. Orange County transportation officials remain confident that their plan will pass muster, but opponents believe they will prevail. If they do, some projects could be affected.

PROJECTS AT RISK

Santa Ana Freeway: Right-of-way purchases from the Garden Grove Freeway (22) to the Riverside Freeway (91) could be delayed.

El Toro Y: Confluence of the Santa Ana (5) and San Diego (405) freeways is scheduled to be rebuilt with sales tax money. Without Measure M money, it would almost certainly be delayed or scrapped.

Commuter Rail: New locomotives and rail cars for more daily commuter trains to Los Angeles have not yet been purchased, and probably could not be without the sales tax.

Others: Plans for car-pool lanes on the San Diego and Santa Ana freeways could be delayed or canceled. Same for “super-street” projects across the county, intersection improvements, street repairs and commuter rail.

PROJECTS THAT SHOULD SURVIVE

Old Pacific Electric Rail Line: Land has already been purchased.

Beach Boulevard: Project to build turn pockets, better signals and other improvements already is under way, paid for with bonds issued on the transportation authority’s reserve. North of Lincoln Avenue in Anaheim, this project could still be affected.

Orange Freeway: Car-pool lane work has begun, and should be finished in the spring.