Huntington Beach to Try Replacement Tax

Just as Huntington Beach City Hall prepares to send refund checks to property owners because of an illegally collected tax, it has decided to levy another tax for similar purposes -- and this time, the city says, it is legal.

The tax, enacted by the City Council late Monday night, will help cover the costs of the city’s employee pension program.

The assessment was approved by voters in 1966 and again in 1978 -- just before the passage of Proposition 13, the popular tax revolt that capped property taxes at 1% -- and has been collected off and on over the years as needed to help pay pension costs.

But critics say the city, which courts ruled had illegally taxed residents from 1997 to 2001, may again be treading a slippery slope with this assessment.

The contested tax was designed to cover enhancements to the city’s pension program. Because it was enacted after 1978, it was deemed illegal.

The city had been braced to refund as much as $27 million to property owners but now estimates it owes them about $20 million.

The tax approved Monday will cost the homeowners an average of $6.96 per $100,000 of a home’s assessed value, city officials said.

Resident Chuck Scheid, who initiated the lawsuit that successfully challenged the city over its post-Proposition 13 tax, contends that the latest one is illegal as well.

“They think they’re right, and I think I’m right,” said Scheid. “The last time I argued with the city, it ended up costing the city $27 million.”

Meanwhile, in a related action, the council voted to begin the process of issuing a bond to finance the tax refund and to include the bond’s debt service in next year’s general fund budget.

Councilman Dave Sullivan voted against the measure, saying he thought the council should consider alternatives to a bond, including bankruptcy, selling surplus property or offering tax credits in lieu of refunds.

“It’s too fast to rush into this,” Sullivan said.

“It’s too big a subject, too much money.”

Mayor Connie Boardman said that the city needed to show a decisive response to the refund issue because Standard & Poor’s had put the city on a credit watch.

Although the city’s A+ rating has not been downgraded, the watch is notice that it may go down because of a financial setback, such as the tax ruling. A lesser rating would make a bond the city issued less appealing to investors.

“Bankruptcy is not an option,” Boardman said. “If you sold all the surplus property, you still wouldn’t have the money you needed. And some of that property generated revenue for us.”