City Lawsuit Challenges State’s Right to Local Taxes : Revenue: Legal action widely supported by the county and other cities after governor again plans to take property levies from municipalities to support California schools.

To the cheers of local government leaders across California, Alhambra is taking on Gov. Pete Wilson in a potentially significant lawsuit that could change the way the state takes and gives tax money.

Alhambra is the only city to legally challenge the state after it took $1.3 billion in property tax dollars from local governments to fund public schools last year.

For the city, that meant a loss of $1.2 million. And this year, Alhambra officials fear they could lose another $2.6 million, based on Wilson’s proposal to take $2.6 billion more from local government for schools.

Faced with either increasing local taxes or slashing services to make up the difference, Alhambra filed suit. The city claims the state does not have the legal power to divert property tax revenues and redevelopment monies from cities, counties and special districts to meet its legal obligation to fund schools.

The lawsuit asks the courts to order the return of the money already paid and bar further transfers--effectively ending the way the state has balanced its budget.

“It’s our right and duty to protect our local residents from crime, to fight fires and fix potholes. Without local tax revenue we cannot do that,” Mayor Mike Blanco said.

“The bottom line here,” City Manager Julio Fuentes said, “is the state is shifting its constitutional responsibility to fund schools to the cities.”

More than 70 cities and the Los Angeles County Board of Supervisors agree. They have asked the state’s highest courts to hear Alhambra’s case.

Despite the pleas, the state Supreme Court and Court of Appeal kicked the case down to Los Angeles Superior Court, where a hearing date has yet to be set.

State officials argue that they can no longer afford to give the cities the property tax funds because of the recession and a constitutional requirement that prevents the state from cutting funding for schools.

“Our view is that the shift as it was done is permissible and the state has the authority to do that,” said H. D. Palmer, assistant director of the state Department of Finance.

Before voters approved Proposition 13 in 1978, California schools got more of their funding from the local property tax than from the state’s general fund. But when Proposition 13 slashed property taxes, the state shifted some of what was left of property tax revenues from schools to local governments and used a big surplus in its general fund to help schools replace what they had lost.

But last year legislators decided it was time to end what they saw as the state’s 15-year-long bailout of local governments. Meanwhile, cities had grown to depend on the property tax funding. And when the state took back a portion of property taxes, cities across the state faced financial turmoil.

For Alhambra, the shortfall in state funding has meant reducing department budgets by 15%, closing a city branch library and a swimming pool. And this year the City Council is planning to cut five staff positions and trim all city departments across the board.

Other cities and their redevelopment agencies that are in the same boat have taken up Alhambra’s cause.

The board of the California Redevelopment Assn., which represents 280 California cities, has set up a legal defense fund to help Alhambra pay the legal bills for its suit. Arcadia has already chipped in $410.

Bill Carlson, the association’s executive director, said the group is soliciting cities hurt by cuts to write legal briefs supporting Alhambra.

“The issues at stake in the lawsuit are the key issues for the future of local government,” Arcadia City Manager Donald Duckworth said. “Citizens take for granted local self-government. We are losing it.”

The League of California Cities estimates that since 1981, the state has taken $3.7 billion from the cities. In the last few years, the cities have lost prisoner booking fees, traffic fines, cigarette tax revenue, redevelopment fund monies and 9% of property tax revenue.

Based on Wilson’s proposed 1993-94 budget, the league estimates cities will lose 21.7% of their property tax revenues, bringing the total lost in two years to more than 30%. Property tax revenue makes up nearly 30% of Alhambra’s $35-million budget.

Perhaps the most dramatic illustration of what is at stake is the loss of revenue Los Angeles County is facing. If the Legislature approves Wilson’s budget proposal, the county would lose $858 million and has planned to make a 25% across-the-board budget cut.

County officials say that could mean fewer sheriff’s deputies, closing a third of county fire stations and 72 county parks, shutting down several county hospitals and immunization clinics, and laying off 25,000 employees.

“If the state is successful in confiscating the county’s property tax, law enforcement won’t be able to perform its responsibility to protect citizens,” said county Supervisor Mike Antonovich, who has voted to support Alhambra and calls the state’s revenue shift “taxjacking.”

Lead by Antonovich, the Board of Supervisors has tentatively decided to declare an emergency and not give the state additional money if the Legislature approves Wilson’s budget.

In an unusual twist, the county, one of Alhambra’s most important supporters, is named as a defendant in Alhambra’s suit because it parcels out property taxes to the cities. But that hasn’t stopped the county from preparing court papers supporting the city’s lawsuit.

David Muir, a top county counsel official, said, “We’ll file an answer saying the city is correct.”