Justices Seem Favorable to Prop. 13 at Hearing

Most Supreme Court justices appeared skeptical Tuesday of claims that California’s Proposition 13 violates the Constitution because it forces new home buyers to pay more in property taxes than longtime owners of similar homes.

Rather, most of the court’s nine members, during an hourlong session, seemed to agree with arguments that California’s system is a “rational” way to protect homeowners from inflation.

“We don’t throw out taxing schemes because a large group of people are hurt,” Chief Justice William H. Rehnquist told a lawyer challenging Proposition 13. In general, the high court does not strike down taxing systems, he added, unless “no reasonable person could conclude it is a rational system.”

Only Justice John Paul Stevens appeared troubled by what might be, he said, an inherent unfairness in the law.

At stake in the case is a California method of taxing property that is unique among the states. Owners who acquired their property before 1978 pay taxes based on the 1975 assessed value, while more recent owners pay taxes based on the purchase price.

Should the court find Proposition 13 unconstitutional--which appears less likely now--state lawmakers would have to dramatically restructure the system used to collect $16 billion a year in property taxes.

Los Angeles County officials, in defending Proposition 13, said an obvious rationale existed for the landmark 1978 initiative. The voters who approved the measure that changed the California Constitution were seeking to protect longtime homeowners from being “taxed out of their homes” because of soaring real estate values.

“Why isn’t that perfectly rational?” the chief justice asked at one point.

In comments and questions during the oral arguments, Justices Antonin Scalia, Sandra Day O’Connor, Anthony M. Kennedy and David H. Souter also suggested that they found Proposition 13 to be reasonable.

Scalia noted that the Supreme Court does not insist that states and counties devise a tax system that is “perfect” or entirely fair. Of Proposition 13, he quipped: “It’s rough and ready . . . close enough for government work.”

Lawyers for Baldwin Hills homeowner Stephanie Nordlinger, who filed the suit that ultimately brought the case to the Supreme Court, contended that the state’s taxing method violates the constitutional guarantee of “equal protection of the laws” by forcing new home buyers to pay sharply higher taxes than longtime neighbors with similar homes.

Carlyle W. Hall Jr., Nordlinger’s attorney, argued that Proposition 13 is both discriminatory and irrational. “They set up two groups of taxpayers,” he said, a “favored” group that owned property before 1978 and a “disfavored” group that must pay taxes on the current value of their holdings.

Furthermore, the state has not explained, Hall said, why longtime owners of California homes and businesses deserve a tax break more than new buyers. “You get these enormous disparities” in tax bills, Hall said. “It is simply irrational.”

In court briefs, the attorneys for Nordlinger submitted evidence showing that a Beverly Hills mansion valued at nearly $4 million has a smaller tax bill than a cramped Venice residence valued at less than $400,000. One Palos Verdes peninsula home with an ocean view is assessed about the same as a tiny house in Watts.

In expressing his concern over the taxation method, Stevens told former U. S. Solicitor Gen. Rex Lee, who represented Los Angeles County Assessor Kenneth Hahn: “You get neighbors who receive the same benefits but pay much lower taxes.”

Stevens also noted more recent changes in the state’s tax laws, which permit parents to pass on their old, 1975 tax assessments to a child who purchases their home or business.

“It creates a sort of class of nobility in California,” Stevens said. “This tax break passes from generation to generation.”

U. S. Sen. John Seymour, former Gov. George Deukmejian and 12 members of the California Legislature--all Republicans--came to court Tuesday morning to hear the arguments. Afterward, most state officials and supporters of Proposition 13 said that they were relieved.

“I think we will prevail. I’m confident based on what I heard,” said Joel Fox, president of the Howard Jarvis Taxpayers Assn., named for the late activist credited with initiating the tax law.

Nordlinger, who is also a lawyer, said she was excited to hear the high court argument but offered no prediction on the outcome.

The justices will meet privately Friday morning to discuss the case (Nordlinger vs. Hahn, 90-1912) and cast their votes. It will probably be at least two months and perhaps until early July before a decision is announced.

From the beginning of this case, the lawyers have been puzzled by Rehnquist’s 1989 opinion in a West Virginia coal company case. Then, the court struck down on a 9-0 vote a so-called “welcome stranger” system of taxes whereby the county assessor forced only new buyers to pay taxes on the actual value of their property. Longtime owners of similar land paid as little as one-thirtieth as much per acre compared to the newcomers.

But rather than dismiss this as reckless policy by a minor county official, Rehnquist laid out a broad rule of law: The Constitution demands “a rough equality in tax treatment of similarly situated property owners,” he wrote. Those words spurred the legal challenge to Proposition 13.

Even Los Angeles County’s attorney conceded Tuesday that California had adopted a novel system of assessing property that had similarities to the outlawed system in Webster County, W. Va.

“This is the first time in history that any jurisdiction has unhitched itself from the current value system” of assessing property, Lee told the justices. Under Proposition 13, Californians pay taxes on the “acquisition value” of their property, not on its current market value.

But Lee argued that the U. S. Constitution gives California wide latitude to set property taxes and nearly all the justices appeared to agree.

Justice Harry A. Blackmun noted that Californians understand how the system works. “She knew what she was getting into,” Blackmun said of Nordlinger.

Justices Byron R. White and Clarence Thomas did not speak during the oral argument.

Perhaps the key part of the argument came in the opening moments. When attorney Hall cited Rehnquist’s opinion in the West Virginia coal case, the chief justice quickly leaned forward to interrupt.

In all but the rarest instances, state taxing methods are presumed to be constitutional, Rehnquist commented. The West Virginia case “was quite different,” he added, “because there was no justification for it.”

The chief justice left little doubt that he believed Proposition 13 had an adequate justification.