Appellate Panel Says County Can reapportion Property Tax Revenue
A Santa Barbara County special district had no standing to sue over the apportionment of property taxes from a resort development within the district's boundaries, the Second District Court of Appeal has ruled. And even if the district did have standing, its claim was filed after the 60-day statute of limitations for challenging a government agency's action under the Cortese-Knox Local Government Reorganization Act, the court held.
At issue in the case was tax revenue from a hotel and resort that Santa Barbara County approved for a 73-acre coastal site north of Santa Barbara. The property lies within the Embarcadero Municipal Improvement District (EMID), a special district that provides or has provided wastewater treatment, parks and recreation, drainage, trails, emergency services, trash collection and other services starting in 1960. From 1980 through 1998, EMID received 17.6% of property taxes generated within its boundaries.
When the Board of Supervisors approved the hotel, it required that the parcel be annexed to the Goleta West Sanitary District — which provides sewer service to the project — and to the Santa Barbara Metropolitan Transit District. In October 1997, those two districts and the county adopted joint resolutions that divided tax increment from the hotel as follows: 10.26% for the county, 6% to the sanitary district, 0.354% to the transit district, and 1% to EMID. Because the EMID board did not adopt a similar resolution, the county approved EMID's allocation — a move apparently allowed by Revenue & Taxation Code § 99.01 subdivision (a)(4).
After annexation was completed and upon further negotiation, the county raised EMID's share of property tax revenue to 6% and cut the county's portion to 5.26%. However, the sanitary district refused to give up its 6% cut.
In October 1999, EMID sued, claiming that it was not given proper notice of the tax allocation negotiations and that county officials had colluded to reduce EMID's rightful share of tax revenue. Superior Court Judge Thomas Anderle held that the tax allocation was "inextricably intertwined" with the annexation approval, and, therefore, was subject to the 60-day statute of limitations in Code of Civil Procedure §6.
A unanimous three-judge panel of the Second District, Division Six, upheld that ruling. But before getting to the statute of limitations issue, the appellate court tackled the issue of whether EMID could sue at all. Writing for the court, Justice Paul Coffee cited two cases that suggested the answer was no. San Miguel Consolidated Fire Protection Dist. v. Davis, (1994) 25 Cal.App.4th 134, and Sacramento County Fire Protection Dist. v. Sacramento County Assessment Appeals Bd., (1999) 75 Cal.App.4th 327.
In San Miguel, a fire district challenged the early 1990s property tax transfer to schools, known as ERAF. The court ruled that special districts have no "vested right" to property tax revenues and no "property interest" in those revenues "because as against the state, the county [or district] has no ultimate interest in the property under its care." In the Sacramento case, a fire district challenged the lowering of an assessed valuation because it would require the refunding of millions of dollars the district had already spent and would reduce future levels of service. But the court held that the district had "neither a ‘vested right' nor a ‘property interest' in a particular assessed valuation for particular property."
In the case at hand, Coffee wrote: "If the district in Sacramento County Fire Protection Dist. had no beneficial interest in taxes it had already received and spent, then EMID certainly can have no property interest in any portion of a future tax increment generated by new development to which it did not provide services in the past, nor intend to provide services in the future. The tax allocation agreement does not take away funds that were specifically appropriated for EMID's use. The agreement maintains EMID's historic 17.6% share in the property tax revenues generated from the area in which it provides services, and in the event EMID begins providing services to the 73-acre property, the County is bound to renegotiate EMID's allocation.
"The statutory scheme," Coffee continued, "gives the County unfettered discretion to determine EMID's allocate share if EMID refused to agree."
Robert Goodwin, EMID's attorney, said that portion of the ruling was particularly troubling because the applicable law, Revenue and Taxation Code §99.01, does not address what happens when a county and a special district cannot agree on apportioning tax revenue.
"The court cites no authority for that proposition. Our position was that it [the county] had to negotiate with us," Goodwin said.
He also noted that the issue of standing was never raised at the trial court level. "None of us ever had any doubts about the ability of EMID to sue another government entity over this or anything else," Goodwin said.
The district was trying to enforce its post-Proposition 13 allocation of local property tax revenue, he said. The decision allows counties to unilaterally change that allocation formula, which was established by a state law commonly known as AB 8.
Even though the appellate court ruled that EMID lacked standing to file suit, the court still addressed the statute of limitations question. The court noted there is a 60-day statute of limitations regarding public agency actions of this type. The special district was challenging an intermediate step in such an action, and Cortese-Knox and case law "make clear that EMID cannot challenge an intermediate step in the annexation process long after the validity of the annexation itself has become conclusive."
Goodwin said EMID was not challenging the annexation, it was challenging the distribution of property taxes, which is subject to at least a three-year statute of limitations.
Goodwin was unsure if the tiny special district would ask the state Supreme Court to review the case.
Embarcadero Municipal Improvement District v. County of Santa Barbara, No. B141893, 01 C.D.O.S. 3325, 2001 Daily Journal, D.A.R. 4057, filed April 25, 2001.
For EMID: Robert Goodwin, Goodwin & Associates, (925) 443-0840.
For the county: Alan Seltzer, chief deputy county counsel, (805) 568-2950.
For Goleta West Sanitary District and Santa Barbara Metropolitan Transit District: Stanley Roden, Hatch & Parent, (805) 963-7000.