Oceanfront Tax Ruling Clouds City Finances

For the second time in nine months, the city of Port Hueneme may be forced to return hundreds of thousands of tax dollars that courts ruled were collected illegally.

Ten days ago, a Superior Court judge ordered the city to repay more than 1,200 oceanfront residents who have been assessed about $600,000 since 1991 to pay for a portion of the city’s beach maintenance cost--a so-called “view tax” that attracted national attention when it was levied. The City Council decided Wednesday to appeal the ruling.

Last December, the city discovered it also may have to refund the $600,000 to $700,000 it has generated each year since late 1994 from a utility tax. A judge, reviewing a similar tax in Northern California, threw the legality of Port Hueneme’s tax--intended to help pay for the city’s 21-officer police force--into doubt.

Two measures on the city’s fall ballot will give residents an opportunity to reaffirm the utility tax’s legality. Until then, the city is collecting--but not spending--the money.

But this city of nearly 22,000, which is perpetually short of cash, is again forced to add up the cost of a money-raising plan gone awry.

“It would not bankrupt the city, but it would certainly hurt,” City Manager Dick Velthoen said of the latest court decision. “The failure of those [upcoming ballot] measures--coupled with this--would be disastrous in terms of maintaining a hometown police service. It would not be possible, frankly.”

Such comments provoke little sympathy from the members of the eight homeowners associations that filed suit against the city’s beach assessment district shortly after it was enacted.

“They’ve been preaching doom and gloom and budget deficits for years. It’s political rhetoric to scare the council and to scare the people,” said Ernie Brown, a former council candidate and president of one of the homeowners associations. “If they did more astute city budgeting and planning . . . they wouldn’t need all these additional sources of revenue.”

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Indeed, it was a $150,000 budget shortfall that threatened the jobs of several part-time city employees that convinced the council to institute the Hueneme Beach Maintenance Assessment District.

Operating on the theory that people who lived closest to the municipal beach derived the most benefit from it, the city asked those residents south of Hueneme Road to pay $66 to $184 annually for beach upkeep.

Because the official who designed the district originally mentioned “view” as a factor in charging the assessment--though subsequent reports omitted the word--it was quickly dubbed a “view tax.”

City officials maintain the assessment had nothing to do with views and was not a tax, because the money was used specifically for the beach and not general purposes.

Nevertheless, a nerve was struck and the term stuck.

The unprecedented assessment prompted the largest audience for a city public hearing in two decades as outraged residents gathered to protest it five years ago. The Ventura County assessor called it “double taxation” at the time, because the desirability of living near the beach was already factored into property values. A state Senate committee, worried that Port Hueneme might be abusing the 1972 law on which it based the assessment district, voiced concern that the city’s action might set a trend. And the national media descended en masse on the city as a tax-weary public wondered just what governments would find to tax next.

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Finally, hoping to make their assessment more politically palatable, the city in 1994 merged the beach maintenance district with a citywide park district to help raise money for recreational facilities. Owners of property near the beach and close to four parks were still charged more than other city residents, but the monetary difference was not as pronounced.

Nevertheless, homeowners near the beach continued to seek compensation to recover the years of higher assessment fees they had paid.

They finally prevailed. On Aug. 1, Ventura County Superior Court Judge Ken W. Riley decided homeowners near the beach received no additional benefit from it than the general public, as residents had argued all along. Therefore, Riley ruled the assessment was actually a tax, because paying the money conferred no special benefit upon their property, and homeowners should be compensated accordingly.

“Shifting 40% of the total cost of maintaining a 52-acre beach park, used by thousands of people, to some 1,252 residential properties is grossly disproportionate to the benefit received by these homeowners,” the judge said.

But the city’s lawyers said they believe Riley’s decision contains several factual errors that will lead it to be overturned by the appellate court.

Councilwoman Toni Young, a vehement critic of the beach maintenance assessment district, voted with the rest of the council to appeal the judgment. An appellate ruling is expected as early as next spring. Young said she wants to safeguard against the city’s financial weakness because of its potential exposure on the utility tax issue.

“The appeal gives us time to look and find the money,” she said. “I would like to see us prepared for any outcome.”

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Danny Greenstreet, 50, president of the Surfside III Homeowners Assn., which with 309 units is the largest of the coastal neighborhood groups involved in the lawsuit, said few residents are jubilant about winning the suit.

“When we’re fighting the city, they’re fighting us with our money,” he said. “Even when we win we lose, so it’s hard to find joy in that.”

Greenstreet maintains that another revenue-generating project the city tried unsuccessfully to push on residents was the catalyst behind the assessment district’s creation. Oceanfront residents fought an attempt to develop a municipally owned recreational vehicle park on the beach, he noted. When the city withdrew the project, it instituted the assessment district as a substitute money-making scheme, he contended.

“If we had all the money back in our general fund that the city has thrown away on defending these ill-conceived taxes and projects, we would not have a shortage in our general fund right now,” he said. “We would not be in danger of losing our police right now.”

Velthoen is also concerned with how residents’ perceptions of the lawsuit will affect the utility tax measure in November.

“The city’s financial stability has always been an issue, and that’s why the assessment district was formed in the first place,” he said. “If this has any negative impact on the ratification of the utility tax, it will really be a tragedy.”