Smallest Cities in Biggest Jam Over Taxes

Four of Orange County’s smaller cities are pondering how to balance their budgets after a recent state high court ruling that made certain taxes vulnerable to lawsuits.

The California Supreme Court ruled last month that local government taxes that were not voter approved are unconstitutional and open to challenge. As a result, municipalities must stop collecting the taxes, get voter approval or wait for a lawsuit.

Now, La Habra, La Palma, Seal Beach and Stanton are scrambling to deal with the decision. While almost all the affected cities statewide plan to place their taxes--generally, event admission taxes, utility user taxes and hotel room taxes--on the ballot this fall, some have begun making cuts in anticipation of losing the revenue.

Stanton, for instance, recently postponed Summerfest, an annual September festival that costs the city about $20,000 to stage. Council members said other cuts loom.

“This is the first of many hard decisions we’ll have to make . . . and it comes at the worst possible time” as the city begins to implement its new budget, Councilman David John Shawver said.

The state Supreme Court’s decision invalidates non-voter-approved taxes imposed since 1986’s Proposition 62. The initiative said cities must get approval from the majority of their voters before introducing new taxes.

The proposition was struck down on appeal in 1991, and many cities and counties passed new taxes shortly afterward, often tacking them on to utility bills.

The League of California Cities estimates that nearly 100 municipalities and as much as $130 million in taxes could be affected. The league has assembled a team of lawyers to advise the cities.

While many urban planners say they are unsure how far-reaching the decision will be, one said smaller cities would probably be the hardest hit.

“My hunch is the poorer, smaller jurisdictions will be hurt more by this because they depend on those taxes as a major source of revenue,” said Paul Shigley, managing editor for the California Planning & Development Report, a monthly newsletter for city and county planners.

Stanton fits Shigley’s profile. The city, with a population of 37,400, operates on a nearly $8-million budget and stands to lose nearly $1.7 million in utility taxes.

It’s on the Ballot, but Just in Case . . .

The council plans to put the tax on the ballot this fall but is preparing for the worst-case scenario.

In addition to delaying Summerfest, the city renewed its contract with the county-run Community Service Program only through November and for just $27,000. The city normally signs a one-year, $65,000 contract.

While the city could also drastically slash staff and police services, council members were especially reluctant to cut funding for the community program, which provides counseling for troubled youth.

In the 1980s and early ‘90s, Stanton struggled with crime, most notably gang activity and prostitution along Beach Boulevard. According to the Sheriff’s Department, major crime in Stanton dropped significantly during the last decade. For example, there were 77 aggravated assaults in 2000, compared with 252 in 1990, a nearly 70% drop.

City leaders credit increased police presence and preventive efforts such as the Community Service Program for much of the drop.

“That’s where we cut off crime before it happens,” Shawver said.

Meanwhile, similar-sized La Palma could lose $1.2 million from its $7-million annual budget. Seal Beach could lose $1.8 million from its $16.7-million budget, and La Habra, $4 million from its $26-million budget.

But leaders in some charter cities, such as Seal Beach, believe they are exempt from the court decision because their charters give them control over local taxes. Even the Howard Jarvis Taxpayers Assn., which brought the suit against the taxes, says it is unclear if the decision applies to charter cities as well as general law cities, according to President Jon Coupal.

Small cities such as Seal Beach have a greater need for the taxes than larger municipalities, argued City Manager John Bahorski.

“I look at the utility tax as the premium for living in a small coastal city,” he said. “There’s a cost for living in paradise.”

But Coupal said his association could file suits against charter cities.

“At this point, we’re not ruling out anything.”