2 Little-Known Rebels Fight Big-Stakes Revenue Battles

Their lawsuits may cost state and local governments a staggering $20 billion, but these two Orange County activists don’t share the name recognition of tax rebels Howard Jarvis or Paul Gann.

Rob Pool of Seal Beach is a teacher-turned-attorney. He filed a lawsuit attacking a Proposition 13 interpretation after Orange County refunded him $100 in property taxes and then demanded it back. If he prevails, qualifying property owners may get as much as $10 billion in refunds and interest.

Thom Babcock of Fullerton operates a company that services medical equipment. He’s trying to stop California from issuing a $10.7-billion bond to rescue the state’s budget.

The two don’t know each other, but their strategies of attacking government through the courts are tried and true.

Pool, a Bellflower tax attorney, is in court over a 25-year-old interpretation of Proposition 13, which restructured how the state values property and limited annual tax increases. He argued in 1998 that Orange County’s assessor, along with assessors statewide, routinely violated the 1978 voter initiative when they increased taxes on property by more than 2% a year, the limit established by Proposition 13.

In December 2001, an Orange County Superior Court judge agreed with Pool and granted the case class-action status; the state appeals court has scheduled oral arguments in December.

The Orange County assessor has argued that if a property’s value remained flat or decreased for one or more years, it was legal to collect more than 2% in following years when the property regained value. The practice was merely recouping the annual 2% increase that had gone uncollected, the assessor said.

If Pool’s victory stands, it could trigger $10 billion in property tax refunds and interest, officials with the California Department of Finance have estimated.

Babcock and his group, the Fullerton Assn. of Concerned Taxpayers, launched their assault last month. The group is the plaintiff in a lawsuit by Sacramento’s Pacific Legal Foundation challenging the state’s plan to issue a $10.7-billion “deficit” bond to balance the budget. The suit alleges that without voter approval, the Constitution allows financing only up to $300,000, and only for a specific project or emergency.

Lawmakers say the deficit bonds do not violate the Constitution because they will have to vote to approve the repayment to bondholders every year.

Babcock got good news as he prepared to fly to Sacramento to announce the suit: A Superior Court judge there invalidated a smaller state bond as unconstitutional on the same legal grounds.

Both men are following a purely American path, said Jack Pitney, professor of government at Claremont McKenna College. French political philosopher Alexis de Tocqueville, Pitney said, observed that there was “scarcely a political question in the United States that didn’t sooner or later become a judicial one.”

“This is an old tradition,” Pitney said. “The American political system has many doors through which citizens can walk. Many of these cases end up changing the law.”

Neither Pool, 50, nor Babcock, 58, considers himself a rebel. And neither is sure he’ll win against twin armies of government attorneys on the defensive.

Other than that, the two don’t share much in common.

Pool is a member of the Green Party, a self-described “child of the ‘60s” for whom law was a second career after teaching Spanish to high school students.

Pool didn’t even start his own fight. Orange County sued him.

In 1998, he was startled by his property tax bill, which showed a 4% increase in the assessed value of his Seal Beach home. A tax attorney since 1994, Pool knew that Proposition 13 allowed values to increase by up to 2% a year or decrease. He figured the assessor had added an extra year’s worth of tax because his property value had stayed flat the previous year -- a process called recapturing.

“I wondered if they could legally do that,” he said. “I knew no case had ever been tested [in court]. I figured all they could do is say no.”

Pool appealed his assessment, and to his surprise, won before a hearing board. He got his $100 refund and went home happy. He didn’t think about it again until six months later, when a process server appeared at his door.

The county tax collector was suing him to get the $100 back that had been authorized by the appeals board.

That’s when he got mad.

“I was irritated that county government, with all the other pressing needs it had, would fight me over a hundred bucks,” he said. “I thought it was a nuisance. But after I calmed down a few days, I figured, maybe there’s an opportunity here.”

Babcock’s path to court was more direct.

Several weeks ago, a fellow member of the Fullerton tax group, cofounder Bruce Whitaker, suggested the association should challenge the state deficit bonds, a historic attempt to engage in what members called “credit-card financing.”

They unanimously agreed to work with Pacific Legal Foundation attorney Harold Johnson. The foundation files lawsuits on behalf of taxpayers.

“At some point, somebody had to get involved,” Babcock said.

A hearing date hasn’t yet been scheduled on the lawsuit, which will be heard by the same judge who invalidated the smaller state bond issue.