The U.S. Supreme Court has been asked to decide whether a city can impose a special tax on new home owners on top of property taxes to fund basic city services and then threaten to withdraw police protection if taxpayers try to repeal it.
The case reached the high court after lower-court judges saw no issue with a special assessment on only some properties by the city of San Ramon. Nor did the lower courts find that it was improper for the city to threaten the property owners by declaring that anyone mounting a challenge would be “deprived of basic municipal services,” for which they were already paying through property taxes.
According to the Pacific Legal Foundation, which is representing Building Industry Association Bay Area in its challenge against the city, San Ramon is violating both First Amendment and due process rights.
The legal team, which has a successful record at the U.S. Supreme Court and regularly takes on some of the most complicated property rights cases in the country, said the new tax provides no new services.
“Instead, it is used for existing city costs and services (including pensions) – budget items that property owners already fund through pre-existing taxes,” the group said.
“Under a ‘poison pill’ in the facilities tax measure, anyone who objected to this inequitable tax scheme, and succeeded in limiting or overturning it by ballot initiative, would be penalized with a targeted reduction – or, potentially, full cutoff – in city services,” they reported.
“If those who have to pay this unfair tax used the initiative process to repeal it at the polls, they would be punished by having police protection and other municipal services taken away,” said PLF Senior Attorney Tony Francois. “Alternatively, the law threatens, vaguely yet ominously, that they would be hit with direct liability for the cost and functioning of public safety services.
“In short, taxpayers will be subject to payback if they exercise their freedom to engage in the political process,” Francois continued. “PLF and local home builders challenged this preemptive attack on First Amendment and due process rights in state court, but local judges failed to recognize how the tax law’s poison pill is deeply unconstitutional. Now, we are taking our case to the highest court in the land, asking the justices to step in and step up on behalf of San Ramon residents and their fundamental freedoms.”
At issue is the city’s Community Facilities District No. 2014-01, which city council approved in February 2014.
It imposes the special tax on more than 2,500 properties around the city.
The foundation argument continued, “California’s Mello Roos Act, which governs the creation of special property tax districts, mandates that a new special tax must be used for new services that benefit property owners.”
And, the foundation said the new tax also violates Proposition 218, enacted by voters in 1996 which defines taxes for general government purposes as “general” taxes and requires that they receive voter approval.
“San Ramon has tried to do an end-run around the voters by creating a new tax for general purposes, but camouflaging it as a special property tax,” said the PLF’s Damien Schiff. “This is unfair to the property owners who are singled out to shoulder the cost of general government services. And it violates the rights of all voters, because they’re the ones who are supposed to approve any new taxes for the general fund.”
Bob Glover, the chief of the Building Association, added: “If the city is concerned about the revenue generated through the existing property tax structure, this is actually an issue of distribution, not amount. The city’s real complaint is with state politicians who have diverted large portions of the property taxes generated by newly built homes away from the approving city to fund other state priorities such as education.
“BIA has long supported allowing cities to keep more of the property taxes generated by each new house and will continue to advocate for that change. But we will not allow long festering state and local budget decisions and pension shortfalls to be balanced on the backs of new residents.”
The petition to the high court explains that the special tax is at least $595 per residence for each new home and in perpetuity for all subsequent owners to pay.
That’s in addition to the “base property tax which they will pay at the same rate as” other owners.
But the city added a Section H, which includes technical language, but essentially says if someone challenges the special tax, it might be overturned, but then the city no longer would offer the typical services that normally would be funded by ordinary property taxes, which owners still would have to pay.
“If the levy of the special tax is repealed by initiative or any other action participated in by the owners … the city shall cease to levy the special tax and shall cease to be obligated to provide the authorized facilities and authorized services for which the special tax was levied. The obligations to provide the authorized facilities and authorized services previously funded by the repealed special tax shall become the obligations of any property owners association … and if there is no such association, they shall become the obligations of the property owners.”
The brief to the high court suggests it was the city’s own fault for having a revenue shortfall.
“In 2013 the city of San Ramon determined that a recent expansion of its police department would leave a shortfall when ‘developed service levels’ were extended to newly developed parcels, if new homeowners only paid the base property tax. This presented a quandary. The city could do one of three things: (1) provide a reduced level of service to existing property owners in order to evenly spread a level of service that would be supported by everyone’s base property tax; (2) impose an additional tax on all preoprty owners in the city (present and future), to fund the extra cost of providing services; or (3) find a way to cllect additional revenue only from the eventual owners of newly developed property.”
But the city is using the special taxes paid by owners “on top of their base property taxes,” “to pay for uniform citywide police and other services, the same services for which the prior, non-district, homeowners pay only the base property tax.”
To protect its revenue stream, the foundation said, the city adopted the second provision that “explicitly threatens to retaliate against the special district homeowners, by either withdrawing police and other city services from the district homeowners, or imposing the cost of providing police and other services directly on them.”