Cities Fear Tax Ruling’s Effects

Four of Orange County’s smaller cities are considering how to balance their budgets following a 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 approved by voters are unconstitutional and open to challenge. As a result, municipalities must either 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. Although almost all the affected cities statewide plan to place the taxes--generally, event admission taxes, utility user taxes and hotel room taxes--on ballots 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.

“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, said Councilman David Shawver.

The state Supreme Court’s decision invalidates non-voter-approved taxes imposed since Proposition 62 in 1986. The initiative said cities must get approval by 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.

The League of California Cities estimates that nearly 100 municipalities and up to $130 million in taxes could be affected.

“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 of the newsletter California Planning & Development Report.

Stanton, which has a population of 37,400, operates on a nearly $8-million budget and stands to lose nearly $1.7 million in utility taxes.

The City Council plans to put the tax on the ballot this fall but is preparing for the worst.

In addition to Summerfest, the city renewed its county-run community service contractonly through November and for just $27,000. The city normally signs a one-year, $65,000 contract.

In the 1980s and early ‘90s, Stanton struggled with crime. But according to the Orange County Sheriff’s Department, major crime has dropped significantly. For example, there were 77 aggravated assaults in 2000, compared with 252 in 1990, a nearly 70% drop.

City leaders give increased police presence and preventive programs like the Community Service Program, which provides youth counseling, much of the credit.

La Palma faces losing $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 some charter cities, such as Seal Beach, believe they are exempt from the court decision.