In the latest in a long line of cases challenging the constitutionality of San Francisco's hotel conversion laws, the Ninth U.S. Circuit Court of Appeals has sent one hotel owner back to state court. The case involves the longstanding attempt by the owners of the San Remo Hotel to have the city officially recognize their hotel as a tourist hotel. San Francisco has had strict restrictions against the conversion of residential hotels to tourist use in place for almost twenty years. When the first "hotel conversion ordinance" was passed in 1979, the San Remo Hotel in North Beach was operating as a tourist hotel. However, when Thomas and Robert Field began operating it in 1984, it was classified as a residential hotel. Under a 1987 zoning law for North Beach, new tourist hotels require conditional use permits, while existing tourist hotels were classified as non-conforming uses. In 1990, the Fields requested under the hotel conversion ordinance that their hotel be officially re-classified as a tourist hotel. Because of the 1984 classification, however, the San Remo was never listed by the city as a non-conforming use and therefore the Fields were required to obtain a conditional use permit under the North Beach zoning ordinance. Field first contended before city administrative agencies that he did not need a conditional use permit because his property was a non-conforming use that pre-dated the 1987 zoning ordinance. However, the Board of Permit Appeals rejected this argument, claiming that Field was bound by the residential classification under the hotel conversion ordinance and therefore required a conditional use permit. In 1993, the Planning Commission approved Field's request for a conditional-use permit, provided that Field paid 40% of the cost of replacement units to make up for the loss of the 62 residential units and that Field offered lifetime leases to existing long-term tenants. Field then sued the city in federal court under 42 U.S.C. 1983, the federal civil rights law, claiming that the hotel conversion ordinance (as amended in 1990), was unconstitutional both on its face and as applied in this case and seeking damages. Field also argued that the 40% fee was a violation of both procedural and substantive due process. In 1996, U.S. District Court Judge Lowell Jensen ruled against Field and also refused him permission to amend the complaint to state an equal protection claim, reasoning that it would be futile. Field later dropped the due process claims but appealed Jensen's ruling on the constitutionality issues. In addition, the Fields argued on appeal that under the so-called "Pullman abstention", the federal courts should refrain from deciding the takings question - a strategy usually undertaken by government agency defendants seeking to avoid federal court, rather than plaintiffs. On appeal, the Ninth Circuit panel ruled against the Fields on both the facial and as-applied takings cases - ruling that the case was not ripe for federal review under Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172 (1994). Regarding the facial challenge, the court wrote: "Field has not filed an inverse condemnation action in state court, and therefore has not been denied compensation by California. It follows that Field's facial takings claim - insofar as it alleges the denial of the economically viable use of his property - is unripe." This is especially true, the court said, in light of the famous First English Evangelical Lutheran Church v. County of Los Angeles case, 482 U.S. 304 (1987), which re-established inverse condemnation claims in California state courts. Similarly, on the as-applied taking claim, the Ninth Circuit concluded that the claim was not ripe because the Fields had not pursued an inverse condemnation claim in state court. Regarding Judge Jensen's denial of Fields' attempt to add an equal protection claim - which arose after the Fields conceded defeat on the due process claims - the court concluded that such an amendment would have been futile under Younger v. Harris, 401 U.S. 37 (1971). Finally, the court granted the Fields unusual request - unusual for a plaintiff, at least - that the federal courts abstain from deciding the takings issue under Railroad Comm'n v. Pullman, 312 U.S. 496 (1941). The Pullman abstention requires the plaintiff to require a definitive ruling in state courts regarding state law before returning to federal court. It is typically used by government agencies that are defendants as a mechanism for removing cases from unsympathetic federal courts. "Unsurprisingly," the Ninth Circuit panel wrote, "the City views Field's request for abstention as an outrageous act of chutzpah, and argues that Field should be stuck with the federal forum he chose. Although we have some sympathy for the city's position, we agree with Field that a plaintiff may raise Pullman abstention just as a defendant may, and he may do so for the first time on appeal." However, the court concluded that the Pullman abstention "does not exist for the benefit of either of the parties but rather than for the rightful independence of the state governments and for the smooth working of the federal judiciary....There is no reason why federal defendants should have a monopoly on preserving the harmonious functioning of the federal and state court systems." On the merits of the Pullman issue, the court concluded that the case hinges on an interpretation of the city's ordinance - specifically, "the meaning of a prior non-conforming use under state law," which the Ninth Circuit concluded is properly a question for California state courts. The Case: San Remo Hotel v. City and County of San Francisco, No. 96-16843, 98 Daily Journal D.A.R. 5827 (issued June 3, 1998). The Lawyers: For San Remo Hotel and the Fields: Andrew M. Zacks and Paul F. Utrecht, (415) (821-0347 For City and County of San Francisco: Andrew Schwartz, Deputy City Attorney, (415) 554-3800.

In a move that promises to bring a planning commission back to Kern County, the county board of supervisors voted 3-2 on June 17 on a measure directing planning staff to recommend ways to reinstitute the long-disbanded body. The decision was applauded by activists who had complained that the public had not received adequate notice of public hearings, nor provided enough input into projects in their early stages. The county's planning director also welcomed the decision, which he said would assist in exploring new policy directions, including the update of the county's general plan and a new system to rate the importance of agricultural land. County staff is expected to deliver a response to the supervisors on August 3. "It was a good policy decision to bring it back," chief of staff for Kern County Supervisor Jon McQuiston, who spearheaded the June 21 vote. "We are only one of two counties that did not have a planning commission, and the other county is 99% trees." The county disbanded its former planning commission in 1981 in the name of streamlining. In 1992, however, the county took the half-measure of instituting a seven-member "planning advisory board," to evaluate the San Emidio new town just north of Grapevine and subsequent major projects. The advisory board meets only occasionally to consider major projects. "With the growth that is continuing to occur, people want to know what is going, and they want to understand. They want more access to the process," said Ronald Brummett, executive director of the Kern County Council of Governments. In recent years, he added, there have been "several incidents, at the county and Bakersfield and COG (i.e. council of government) levels, where there have been projects about which people in the greater community wanted to have their voices heard, to be able to state their opinion." One "incident" that galvanized support for a planning commission was an amendment to the metropolitan Bakersfield general plan that won approval after a very limited public hearing. The property at issue was a 1,300-acre unincorporated area in the city's sphere of influence, known as the Coberly-Etcheverry property. County supervisors voted 5-0 in October to approve the change in land-use designation, which changed the zoning from agriculture to residential, and also certified a negative declaration on the requirement for an EIR. Despite his support for the general plan amendment, McQuiston proposed a motion in October, approved 5-0, that authorized the planning department to report back to the board on the advisability of reinstituting the planning commission. Craig Peterson, McQuiston's chief of staff, said McQuiston's decision was motivated both by a respect for a more inclusive public process, as well as a feeling that the supervisors were getting bogged down in examining the minutiae of projects. McQuiston, he said, had "wound up spending more time on Coberly-Etcheverry than he had spent on major problems, like our financially troubled medical center." The supervisor, Peterson added, "said his time should be spent on policy-making decisions, as opposed to handling planning-commission issues." Also supporting a new planning commission was a community group known as Smart Growth Coalition, which has a mailing list of 150 households. The group favors development in existing urbanized areas and opposes urban sprawl and leap-frog development but stops short of urban-growth boundaries, according to president John Fallgatter, a Bakersfield insurance agent. He said a planning commission was needed to facilitate public comments on projects. "We felt that the lack of a planning commission prevented adequate information getting to the public in a timely fashion. And so the real push was to allow more public input in to what was going on," he said. The existence of a commission, in fact, "helps the developer," he said. Rather than invest years of work in a project, only to see it killed by public outcry at the last minute, the planning commission process would include public hearings earlier in the development process, and allow the developer to make the changes that will render the project politically acceptable, according to Fallgatter. "The way it was structured here, a project got basically one shot in front of a public entity way down the road," Fallgatter said. Fallgatter was critical of the planning advisory board, however, saying it met too seldom to provide policy leadership in planning issues. "It typically met twice a year, if that often," he said. Maintaining consistent and complimentary policy is a badly needed role that could be filled by a planning commission, according to Fallgatter. County supervisors have approved major projects in unincorporated county areas, without regard to the metropolitan Bakersfield general plan, he claimed. "There was a 2010 Plan, and it has been chewed up. There is no consistency here," Fallgatter said. "The developer goes in and says. 'This is a crap shoot.' More often than not, they get their way. I am not knocking the development community. It's using the system as it is set up." The concept of a new planning commission is not universally supported. Earlier this year, the planning advisory board held four public hearings on the question of whether a planning commission should be convened, The county Planning Advisory Commission in May recommended against reinstating the commission, and forwarded a series of recommendations to the supervisors intended to improve the public-hearing process, such as earlier notification and expanding the radius of property owners to be notified beyond the 300 feet currently required by county law. The local Board of Realtors, an organization which often sides with the building industry in opposing development guidelines, holds that "county's existing planning staff and process are highly responsive to citizens' concerns, and do an excellent job of public outreach in general," according to Sheila Henderson, president of the group, in a letter to the Planning Advisory Committee. And, surprisingly, the Kern County Grand Jury, concluded in January that the county's method of evaluating projects was adequate and did not need a planning commission. Ted James, the county's Planning Director, seemed ebullient about the possibility of a more coordinated planning policy made possible by a planning commission. He said he was pleased particularly because the planning commission could participate in the upcoming update of the county's general plan. Part of that plan is to devise a policy about the preservation of farmland, which is one of the most debated issues in Kern County. James said one possibility was to emulate the "point" system developed by Tulare County to rate the importance of farmland. Properties that receive high rankings as prime "ag" land in a county "survey" remains zoned for agriculture. James said his recommendations to the board on the new planning commission would also propose some new guidelines on public-hearing notification, including an expansion of the current 300-foot limit on property owners to be notified. In addition, he plans to recommend different methods of appointing the planning commissioners, possibly allowing each supervisor to appoint one commissioner, plus an alternate commissioner to ensure a quorum. That approach worried Fallgatter of the Smart Growth Coalition about the commission's independence, however. "We don't want the planning commission to be a carbon copy of the Board of Supervisors," he said. Contacts: Ted James, director, Kern County Planning Department, (805) 861-2099. Ronald Brummett, executive director, Kern County Council of Governments, (805) 861-2191. Craig Peterson, chief of staff to Jon McQuiston, Kern County Supervisor, (805) 363-8463. John Fallgatter, President, Smart Growth Coalition, (805) 868-3650.

The federal Bureau of Reclamation violated the Endangered Species Act by renewing Friant Dam water contracts prior to completing required consultations with the U.S. Fish & Wildlife Service and the National Marine Fisheries Service, the Ninth U.S. Circuit Court of Appeals has ruled. The court has also overturned District Court Judge Lawrence Karlton's decision that environmentalists' challenges to the renewal of the water contracts under the California Fish & Game Code were moot. The case involves the Bureau's decision to continue renewing water contracts with local irrigation districts in the San Joaquin Valley after the passage of the Central Valley Project Improvement Act in 1992 - a law that imposed new environmental requirements on CVP water contractors. The Bureau had begun renewing CVP water contracts in 1988, but when the CVPIA was passed four years later half of the 28 water contracts were still pending. The CVPIA imposed several new requirements on the Bureau. Among other things, it restricted water contracts to 25 years in length rather than 40, and it required the Bureau to prepare an environmental impact statement on the contract renewals. Among the complicating factors in the water contract renewals was the listing of the winter-run chinook salmon as endangered. The Natural Resources Defense Council and other environmental groups who sued the Bureau claimed that the Bureau violated the federal Endangered Species Act by not concluding satisfactory consultation with the two agencies that deal with endangered species, the National Marine Fisheries Service and the U.S. Fish & Wildlife Service. In response to the lawsuit, Judge Karlton rescinded the contracts issued after the winter-run chinook was listed. NMFS has jurisdiction over the winter-run chinook. Rather than consult initially with the agency, the Bureau of Reclamation independently concluded that the renewal of the water contracts would not harm the winter-run chinook and then sought NMFS's concurrence. NMFS responded by disagreeing with the Bureau of Reclamation's conclusion, but also by adding that it did not believe a consultation was necessary under the species law. In the appellate ruling, the Ninth Circuit concluded that both agencies were wrong. "The Bureau had an affirmative duty to ensure that its actions did not jeopardize endangered species, and the NMFS letter clearly disagreed with the agency's determination of no adverse impact," the Ninth Circuit wrote. "Under those circumstances, regardless of the NMFS position that a formal consultation was 'unnecessary', the Bureau had a clear legal obligation to at least request a formal consultation." By not doing so, the court wrote, the Bureau "acted arbitrarily and capriciously and not in accordance with the law". For that reason, Judge Karlton was correct in rescinding the contracts. The Ninth Circuit found a similar flaw in the Bureau's consultation with the Fish & Wildlife Service, which has jurisdiction over several other protected species in the Friant Dam area. In this case, although information consultation had take place over a two-year period, the formal consultation was not requested until after a number of the contracts had been renewed. "Even where there is a 'no jeopardy' biological opinion, the service may make non-binding conservation recommendations," the court wrote. "The failure to respect this process mandated by law cannot be corrected with post-hoc assessments of a done deal". In other aspects of the ruling, the court also concluded that: o Individual circumstances involving a number of local irrigation districts did not require the court to set aside Judge Karlton's contract rescissions in those situations. o While the Bureau of Reclamation may have violated the National Environmental Policy Act by not preparing an environmental assessment or EIS as required by the CVPIA, this question was rendered moot by Judge Karlton's action of rescinding the contracts. o Judge Karlton erred in ruling that the environmentalists' challenge to the water contract renewals under California Fish & Game Code §5937 was not ripe. This section requires that dams allow sufficient water to pass in order to keep fisheries in good condition. Judge Karlton ruled that this challenge was not ripe because the question of whether the federal government must abide by §5937 is in dispute. However, the Ninth Circuit concluded that the section is not pre-empted by federal law in its face, and therefore the court remanded this challenge to Judge Karlton for further action. The Case: NRDC v. Houston, No. 97-16030, 98 Daily Journal D.A.R. 5872 (issued June 24, 1998). The Lawyers: For NRDC and other environmental groups: Philip F. Atkins-Pattenson, Sheppard, Mullin, Richter & Hampton, 415) 434-9100. For Friant Water User Authority: Gregory K. Wilkinson, Best, Best & Krieger, (909) 686-3958. For Bureau of Reclamation: Louis J. Schiffer, U.S. Department of Justice.

In a major victory for environmentalists, Unocal has agreed to a settlement that will clean up 400,000 gallons of petroleum contamination in Avila Beach, an unincorporated area south of San Luis Obispo. The June settlement is being called the largest Proposition 65 settlement in state history and is believed to be the first time a company has been forced to remove contamination and rebuild a community. "This is the biggest cleanup since Love Canal," said Richard Drury, legal director of the environmental group Communities for a Better Environment in San Francisco. The action came after years of wrangling on the issue, with pressure applied from a lawsuit filed by CBE, the local Avila Alliance and the Environmental Law Foundation. The California Attorney General's office, the county, and the Regional Water Quality Control Board later joined in the suit, which charged violations of state and federal Clean Water laws, as well as of Proposition 65 for illegal discharges to a source of drinking water. Unocal has had a marine loading facility in Avila Beach for about 100 years, according to Ken Alex, a deputy attorney general for the state. Pipes connect the facility to 14 storage tanks on a hill above the town, and those pipes leaked into the groundwater. A small amount of the pollutants has leached from the soil and is flowing into the Pacific Ocean, he said. Unocal covered the beach with thousands of pounds of sand to keep the oil from surfacing during recent winter storms. Among the petroleum products found to have been spilled were gasoline, diesel, crude oil and MTBE, according to an analysis done by CBE. The analysis found significant levels of benzene and toluene, which are considered toxic. Many people familiar with Proposition 65 think of it as solely a toxic warning statute. But the law, passed by California voters in 1986, has a second provision which prohibits the discharge of toxic chemicals to potential sources of drinking water. Drury, CBE's legal director, said that the provision is also being used to challenge other groundwater contamination problems in the state, including lawsuits against Rocketdyne in Simi Valley in Ventura County and Aerojet in Sacramento County. Under the Avila Beach agreement, Unocal will pay an $18 million penalty to local and state groups, with much of the money being used for environmental restoration in Avila Beach. A half million dollars will go to the State Oil Prevention Spill Fund, and $1.5 million to attorneys for the environmental groups. Additionally, the agreement calls for the oil company to excavate contamination from huge chunks of the small town - about 40 parcels of land that include a small business district and residences. Many of the buildings will be torn down and rebuilt. That project is expected to take over a year and cost between $70 million and $200 million. Drury described Avila Beach as a low income community, with a large portion of residents living in mobile homes. About 350 people live in the community. Dennis Lamb, Unocal's manager on the project, said he is uncertain as to how the rebuilding will look, since the county has not yet prepared a specific plan for the area. Current plans are to complete the work by the year 2000. Alex Hinds, the county's planning director, described Avila Beach as a "very eclectic group of buildings" or "1950s California coastal funk," that hadn't changed much in 40 years. Some historic buildings, such as the yacht club, will be saved, he said. Hinds said the consensus at this point is that residents don't want the town to look like just another modern coastal community. As part of the settlement, Unocal will also donate land in Avila Beach valued at $1.5 million to the county. Originally, Unocal officials had opposed excavation, and instead promoted biosparging, which is a technique involving the injection of oil-eating bacteria into the contaminated area. Lamb called it a "high-tech, less intrusive method." But it was opposed because it would take an estimated 75 years to clean the spill, according to CBE officials. Other lawsuits by Avila Beach residents are still pending against Unocal. Cotchett & Pitre, a Burlingame law firm, recently filed about 20 lawsuits based on negligence and nuisance claims. The settlement agreement provides funds for a number of restoration projects for the town, including: o The $ 6 million Avila Beach Restoration Trust, with $2.5 million to be used for studies and restoration of injuries to animal and plant life due to the contamination, and another $3.5 million for restoration of public facilities affected by the oil release. The trust will be administered by the National Fish and Wildlife Foundation. o A $1 million endowment fund for water quality improvements The recent settlement does not cover the contamination at Unocal's tank farm, a hilly area in Avila Beach where storage tanks stood until recently. The tank farm served at times as a refinery and as one of the West Coast's major oil distribution facilities. A study by Unocal showed that nearly a foot of pure petroleum products had accumulated on top of the groundwater in some spots, according to the San Luis Obispo Telegram-Tribune. Unocal is working with the regional water quality control board on an assessment plan on the contamination, Lamb said. Unlike the other contamination in the town, the tank farm which is on 90 acres, is all on private property, he said. There's no information that contamination from the tank farm is migrating anywhere, he said. Drury of CBE and Saro Rizzo, attorney for the Avila Alliance, are expected to file another lawsuit on the tank farm contamination soon. The contamination problem in Avila Beach was discovered in 1989, when a local resident was digging a basement and hit oil, Drury said. About the same time, fumes from the pollution in another basement caused an explosion. Contacts: Ken Alex, Deputy Attorney General, (510) 286-1219. Dennis Lamb, Manager of Avila Beach affairs for Unocal, (805) 595-7657. Steve Williams, Cotchett and Pitre, (650) 697-6000. Richard Drury, legal director, Communities for a Better Environment, (415) 243-8373. Saro Rizzo, Avila Alliance, (805) 783-2050. Case Name: Avila Alliance, et al. v Unocal Corporation, et al., case no. CV 079728

Reiterating earlier court decisions stating that "neither the public nor a public service corporation could tolerate as many standards and policies as there were towns, cities, or boroughs through which they operated," the Fourth District Court of Appeal has ruled that the City of Carlsbad may not require San Diego Gas & Electric Co. to remove dredged sand from its beach. San Diego Gas & Electric has dredged the Agua Hedionda Lagoon in Carlsbad ever since the early '50s, when it first constructed the Encina Electrical Generating Plant. The dredging is required to permit sea water to be used for cooling the plant's electrical generating units. The dredging spoils are typically piped westward to an adjacent beach owned by the State Lands Commission and operated by the California Department of Parks & Recreation. The beaches in the Carlsbad area have undergone severe erosion in recent years. Ten years ago, Carlsbad adopted its floodplain management ordinance, which requires a special use permit for any structure in floodplain areas. SDG&E resisted compliance with this ordinance but agreed, under protest, to a five-year special use permit for dredging in 1993. Two years later, the city ordered SDG&E to place the spoils on a different beach about a mile north of the typical location to which SDG&E spoils are pumped. SDG&E did not appeal the conditions of the permit, but began dredging in violation of the permit. City ordered work stopped. In response, SDG&E appealed unsuccessfully to the Carlsbad City Council and then sued. Carlsbad cross-complained and also obtained an advisory opinion from the state Public Utilities Commission staff stating that the city would not be pre-empted from its jurisdiction over where to place the sand. However, SDG&E won a motion for summary judgment in the trial court, which concluded that the ordinance represented a thinly disguised attempt to regulate a public utility in violation of state law. On appeal, the case boiled down to a contest between state public utilities law and state planning law. The state has clearly pre-empted public utilities regulation by local government. But the city argued that the floodplain ordinance represented an area of that is not specifically regulated by the PUC and therefore is not pre-empted. But the Fourth District disagreed. "Here, City's regulation of a special use permit for dredging, placing conditions on the exercise of SDG&E's right to dredge, on its face places a significant physical and economic burden on SDG&E's operation and maintenance of its facilities," the court wrote. "...This form of regulation goes beyond City's police power into a field that is significantly and fully occupied by the state in such a manner as to indicate clearly that a paramount state concern will not tolerate further or additional local action." In addition, the court rejected the city's argument that the trial judge should have specified whether the floodplain ordinance violated the state constitutional provisions covering public utilities facially or as applied. Clearly, the court said, this was an as-applied challenge and the trial judge was not required to deal with a facial challenge. Carlsbad also contended that the city was permitted to impose the floodplain regulations pursuant to the Coastal Act and that regulatory mechanisms that appear to conflict can co-exist so long as they serve different purposes. But the court rejected this argument as well. "Essentially," the court wrote, "the floodplain ordinance adds another layer of regulation to the operation and maintenance of the utility plat," creating an illegal "checkerboard of regulation by local governments". The court also rejected a proposal by many cities that filed as amici curiae to establish standards permitting local regulation if no state or PUC regulation exists. These standards "disregards the rule of implied pre-emption and would promote endless litigation," the court wrote. The Case: San Diego Gas & Electric co. v. City of Carlsbad, No. d027407, 98 Daily Journal D.A.R. 6042 (issued June 9, 1998). The Lawyers: For San Diego Gas & Electric: Jeffrey A. Chine, Luce, Forward, Hamilton & Scripps, (619) 699-2545. For City of Carlsbad: Ronald R. Ball, City Attorney, (619)434-2891.

An appellate court has overturned a significant ruling by a trial judge in San Bernardino County that sought to adjudicate conflicting claims on groundwater in the Mojave River Basin. The Fourth District Court of Appeal, Division 2, ruled in favor of farmers who will likely be forced to change their water usage as a result of the sweeping decision issued in 1995 by Superior Court Judge E. Michael Kaiser. In the ruling, Kaiser consolidated a series of conflicting water claims and sought to make an "equitable apportionment" of water rights to all water users in the basin. But in overturning portions of Kaiser's decision, the Fourth District ruled that the judge had erroneously ignored the farmers' "overlying" water rights. However, the Fourth District stopped short of overturning the entire ruling. Rather, the court called upon all parties to stipulate to a new agreement that recognizes the farmers' water rights. The Mojave River Basin litigation emerged from the conflict between rapid urban development and continued agricultural cultivation in a groundwater basin that is already overdrafted. The adjudication overseen by Judge Kaiser began with a suit brought by the City of Barstow against the City of Adelanto, the Mojave Water Agency, and a series of other upstream users. The water agency then filed a broad-ranging cross-complaint that opened the door for a full adjudication. The Mojave River basin water rights issue was complicated because thousands of well owners, including farmers and municipalities, used a wide variety of legal theories in order to assert their claims. Instead of sorting through these claims one at a time, however, Judge Kaiser chose to take the bold step of applying a doctrine known as "equitable apportionment." Refusing to grant legitimacy to any individual water claim, he concluded that all users were at fault because virtually all development in the region has taken place since the overdraft problem first arose in the 1950s. Therefore, he ordered all parties involved to share in water cuts and named the Mojave Water Agency to serve as "water master" of the region. Under Kaiser's plan, all water users in the basin are required to participate in a "rampdown," reducing their water usage over a period of several years until the overdraft is eliminated. Water users that use more water than called for in the rampdown plan will pay assessments to the Mojave Water Agency, which will use the money to buy water rights from other water users in the basin or from the State Water Project. The ruling was expected to drive some farmers out of business and thus facilitate urban development. Some lawyers predicted that alfalfa farmers, who use large amounts of water, may not be able to survive with less water and probably can't afford to pay the assessments required to maintain current levels of water use. Thus, it appears likely that many of them will sell their water rights to the Mojave Water Agency, which will fund the purchases with the overdraft assessments. The ruling was challenged by Manuel Cardozo and a group of alfalfa farmers, who argued that their rights should have been considered in the ruling. After a lengthy review of California water law, the Fourth District recognized that while Kaiser's ruling may invoke "general equitable principles to achieve practical allocation of water to competing interests," it may not "ignore or eliminate the rights of riparian or overlying property owners over their objections." (Though it did not require changes in engineering and diversion practices, Kaiser's ruling fell within the general category of "physical solutions" to water problems because it required a re-allocation of already developed water. The Fourth District's ruling built on previous rulings involving "physical solutions".) The Mojave Water Agency argued in court that the Cardozo family and another property owner, Jess Ranch, had not proven in court that they actually held water rights. But the Fourth District ruled otherwise. The water agency argued that the land transfer records indicate that the Cardozos' purchase agreements did not specifically grant the Cardozos water rights as well as land ownership. However, the Fourth District concluded that these same documents provided "no substantial evidence that the Cardozo Appellants did NOT have overlying rights." The Fourth District also concluded that agricultural cultivation is a "beneficial use" under state water law and therefore the Cardozos did have rights that Judge Kaiser should not have ignored. "Here," the Fourth District wrote, "the trial court did not attempt to determine the priority of water rights, and merely allocated pumping rights based on prior production. This approach elevates the rights of appropriators and those producing without any claim of right to the same status as the rights of riparians and overlying owners. The trial court erred in doing so." Instead of overturning the entire ruling, the Fourth District concluded that Kaiser's ruling should be amended to respect the Cardozos' water rights. In a somewhat different situation, the court also overturned Judge Kaiser's decision not to permit the property owners of Jess Ranch, which uses recirculated water to stock trout ponds, to participate in the final agreement. Judge Kaiser concluded that Jess Ranch's previous usage had failed to establish that the ranch's historical use of about 18,000 acre-feet of water is "reasonable and beneficial" under state law. The judgment permitted the ranch to continue to use the water for the trout ponds but did not permit the ranch to use the water for any other purpose or sell it. The Fourth District ruled that the Jess Ranch landowners should have been permitted to participate in the final judgment, thus allowing them to sell their water as part of the overall settlement. The Case: City of Barstow v. Mojave Water Agency, Nos. E18023 and E18681, 98 Daily Journal D.A.R. 5717 (issued June 1, 1998). The Lawyers: For the Cardozo Family: Robert E. Dougherty, Covington & Crowe, (909) 983-9393. For Jess Ranch: Calvin House, Gutierrez & Preciado, (818) 449-2300 For City of Barstow: Arthur G. Kidman, McCormick, Kidman & Behrens, (714) 755-3100. For Mojave Water Agency: William J. Brunick, Brunick, Alvarez & Battersby, (909) 889-8301.

El Dorado County Voters rejected a measure that would restrict housing density levels and force public referendums on three proposed major residential developments. Measure A: No, 54.5% Marin County City of Fairfax Voters turned down a proposal to rezone the site of the Marin Town and Country Club to allow the construction of 45 homes and the creation of a 14.5 acre park site. Measure C, No: 77.9 %. San Diego County City of San Diego Voters overwhelmingly approved a plan to finance a $216 million expansion of the city's Convention Center. Measure A: Yes, 62%. City and County of San Francisco Two ballot measures in San Francisco were seen as attempts to rein in Mayor Willie Brown's power. Measure F requires city employees to return to City Hall after it is refurbished; Measure K set rules on conflicts of interest and competitive bidding on the Treasure Island Development Authority, and would not allow casino or card gambling on the island. Measure F: yes, 59.3% Measure K: yes, 55.5% Santa Clara County City of Santa Clara Voters approved plans for Sun Microsystems to enter into an agreement with the city to develop the former Agnews Developmental Center into a high-tech campus. Measure D: Yes, 64%. Sonoma County City of Rohnert Park A move to widen the city's urban growth boundary was handily defeated. The measure would have allowed the development of an additional 1,520 acres, and would have given the city council the power to annex land outside the boundary for residential uses without voter approval. Measure A: No, 67.6 % Sutter County A 1/2 cent sales tax to finance additional levee repairs failed by a slim margin to garner a 2/3 majority vote. Measure ii: No, 34.8%

The June 1998 election featured only eight land use and environmental measures throughout the state, the lowest since 1986 according to a CP&DR analysis of election returns. Seven of the eight measures were on the ballot in Northern California cities and counties. In the only Southern California ballot measure, voters in San Diego overwhelmingly approved a measure to finance a $216 million expansion of the city's convention center. That expansion had been fought by opponents of downtown redevelopment, who had earlier brought a lawsuit to challenge a different financing plan proposed by the city (See CP&DR, February 1997). The lawsuit is currently pending before the California Supreme Court, which heard oral arguments on the case in June. In San Francisco, Mayor Willie Brown's plans to use City Hall after its remodeling and redevelop the former Naval facility at Treasure Island were reined in by voters. Brown had originally said he wanted to move only 700 of the 1,300 city employees back to City Hall when its earthquake renovations were completed, but voters disagreed. Later plans called for moving 1,100 employees back. Brown's plans for the redevelopment of Treasure Island are now affected by Measure K, which places rules on conflict of interest and competitive bidding on the project and prohibits casino and card club gambling on the site. The measures were sponsored by political consultant Clint Reilly and State Senator Quentin Kopp, both of whom are considered political challengers to Brown in 1999. In El Dorado County, which has seen fierce battles in recent years over development issues, a measure to limit housing density and give voters a chance to weigh in on three large projects was defeated. (See related story). One ballot measure in the Central Valley failed by the narrowest of margins. Measure ii in Sutter County would have raised the sales tax by a 1/2 cent to finance additional repairs of levees. The agricultural county was hard hit by floods during the winter of 1997, and the federal funding has not covered all the desired repairs. The measure needed 66.7% percent yes votes to pass, but garnered only 65.2%. A similar measure may be placed on the county's November ballot. Santa Clara city voters agreed with their city council and voted to allow Sun Microsystems to build on the site of a former state mental facility that contains historic buildings. Sun plans to restore four of the historic buildings of the Agnews Developmental Center, but opponents wanted more of the buildings preserved. The opponents are expected to continue with a legal challenge to stop the center. In Marin County, Fairfax voters turned down plans to build 45 homes on the site of a former country club. The developer had also promised to donate 14.5 acres of the site for a city park. The land is currently zoned for parkland, and is the only large undeveloped parcel in the city of 7,100. In Sonoma County, Rohnert Park voters refused to change the city's urban growth boundary, which was adopted for a four-year period by a narrow margin in 1996.

Overturning a trial judge in Idaho, the Ninth U.S. Circuit Court of Appeals has ruled that the U.S. Forest Service erred in not preparing an environmental impact statement for a proposed timber sale in Idaho. U.S. District Court Judge B. Lynn Winmill had ruled that the Forest Service's environmental assessment and subsequent findings of no significant impact were adequate. But a three-judge panel of the Ninth Circuit disagreed, saying that the Forest Service had not adequately examined the impact on water quality, fisheries, and the cumulative impact of the proposed sale and another, larger sale nearby that was proposed subsequently. The dispute arose over the Forest Service's proposal to permit the harvesting of 3.1 million board-feet of timber from two sub-watersheds in Idaho - the Miners Creek and West Camas Creek sub-watersheds. Both are inhabited by brook trout, which is considered a management indicator species in Targhee National Forest. In 1993, the Forest Service prepared an environmental assessment relying on water quality reporters from 1985 and 1990 and issued a Finding of No Significant Impact, or FONSI. The Idaho Sporting Congress and other outdoor and environmental groups appealed this decision to the Regional Forester, who upheld it. In 1996, the Forest Service proposed the sale of 7.2 million board-feet of timber in the Camas Creek watershed, of which the West Camas Creek sub-watershed is a part. Again the Forest Service prepared an EA, and it did not supplement the earlier EA to reflect the cumulative impact of this later timber sale. Idaho Sporting Congress and other groups sued, claiming that the Forest Service should have prepared an environmental impact statement under the National Environmental Policy Act and alleging violations under the National Forest Management Act and the Clean Water Act. After Judge Winmill ruled in favor of the Forest Service, the Idaho Sporting Congress appealed to the Ninth Circuit. The Ninth Circuit focused much of its attention on the 1985 and 1990 water quality reports. Idaho Sporting Congress had argued that the 1990 report did not contain the necessary analytical data required for any public challenge to the proposed sale. The Forest Service argued - and Judge Winmill agreed - that these defects could be remedied in the EA by referring to the 1985 water quality report, which had been prepared by the same hydrologist. The three-judge panel of the Ninth Circuit disagreed, however. Among other things, the Ninth Circuit found that the 1985 report did not cover the Miners Creek area, but only the West Camas Creek area. Second, the Ninth Circuit found that the two reports contained "factual differences". The panel also rejected the Forest Service's arguments that the impact on water quality will be minimized by mitigation measures. " ince the effects of the sale will not be known until the EIS is prepared," wrote Judge Betty Fletcher for the unanimous panel, "we cannot know whether the mitigation measures are sufficient." She added: "Without analytical data to support the proposed mitigation measures, we are not persuaded that they amount to anything more than a 'mere listing' of good management practices." The court also took the Forest Service to task on several other items, especially the cumulative impact of the subsequent proposed sale. While acknowledging that the Forest Service did do a "sparse" cumulative impact analysis in its 1993 environmental assessment, Judge Fletcher concluded that a more extensive analysis in the EIS is necessary. The court also addressed the Idaho Sporting Congress's claims under the Clean Water Act and the National Forest Management Act, but brought both those claims back to the EIS question. The Congress claimed that the Forest Service violated the State of Idaho's "anti-degradation" policy on water quality, which federal agencies are required to follow because it was prepared in conformance with the federal Clean Water Act. While suggesting sympathy with the Forest Service's contrary viewpoint, the Ninth Circuit stated that without an EIS "we lack sufficient facts" to determine whether the state statute had been violated. The NFMA claims focused on the Forest Service's obligation to monitor and report on changes in the trout population. The Ninth Circuit concluded that the Forest Service could properly use trout habitat as a substitute for trout populations in its analysis, but stated that the EIS should address the adequacy of the trout habitat. The Case: Idaho Sporting Congress v. Thomas, No. 97-35339, 98 Daily Journal D.A.R. 4999 (issued March 4, 1998; amended May 13, 1998).

The Ninth U.S. Circuit Court of Appeals has ruled that Seattle's tenant relocation ordinance does not constitute a taking even though it requires landlords to pay a portion of moving expenses for low-income residents. The court noted that the plaintiffs had stipulated that ordinance neither "physically invades their property, nor denies them all economically viable use of their property." The three-judge panel criticized the plaintiffs, a group of landlords, for failing to produce necessary economic evidence to support their claims. In an opinion by Judge Melvin Brunetti, the court said: "We have been forced to uphold Seattle's relocation assistance ordinance in large part because of the way plaintiffs have chosen to litigate this case. We do not uphold the ordinance because we find it a wise solution to a difficult problem." Brunetti was joined in his opinion by U.S. District Court Judge Spencer M. Williams, who was sitting by assignment. Ninth Circuit Judge Diarmuid F. O'Scannlain dissented on the taking questions. The ordinance was adopted in 1990 under the terms of the state's growth management act. Known as the Tenant Relocation Assistance Ordinance, or TRAO, it required landlords to pay $1,000 and the city to pay another $1,000 for relocation costs of low-income tenants displaced by various gentrification activities. Those figures were based on expenses for such things as moving, deposits on new units, and increased rents for the first year. No one spoke against the ordinance when the city council held a public hearing in June of 1990. Chief Presiding Judge Barbara J. Rothstein of the federal district court had granted Seattle's motion for summary judgment in the matter, while rejecting the plaintiffs' request for a similar ruling. The court found that TRAO was reasonably related to a legitimate state interest, and also rejected the plaintiffs' substantive due process claim. The appeal looked at the denial of the takings claim and the lower court's discovery orders compelling the plaintiffs to produce financial documents, and the sanctions that followed after they failed to produce them. The appellate panel upheld Judge Rothstein's decision. Judge Brunetti's opinion based its regulatory taking analysis on Agins v. City of Tiburon, 447 U.S. 255 (1980), where the court "must engage in an ad-hoc, factual inquiry to determine whether the governmental regulation goes too far." The court rejected the landlords' request that its taking analysis be based on Dolan v. City of Tigard, 512 U.S. 374 (1994), and Pollen v. California Coastal Commission, 483 U.S. 825 (1987). The court found that by refusing to share economic data about its property before and after enactment of TRAO, they had failed to show the type of "extreme circumstances" necessary to sustain a regulatory takings claim, citing United States v. Riverside Bayview Homes Inc., 474 U.S. 121, 126 (1985). "Plaintiffs have not met their burden of providing evidence that the enactment of TRAO effected a taking or harmed them at all," the court concluded. "We find the absence of any evidence of the economic impact of TRAO dispositive." The court said that it found no support for plaintiff's taking claim based on either the Dolan or Pollen cases. The court applied a three-part test from these two cases: whether government imposition of an exaction is a taking; whether the government has a legitimate purpose in demanding the exaction (the "essential nexus" test); and whether the exaction demand is roughly proportional to the government's legitimate interest (the "rough proportionality" test). The majority on the panel said the current case wasn't an "as-applied" challenge," so it didn't need to determine TRAO's effect on each parcel of land. "Because in a facial claim we do not analyze the exactions, Dolan's test for when the exaction costs too much does not apply," Judge Brunetti wrote. The court said that "neither Pollen nor Dolan" look at the question of whether imposing a $1,000 per-tenant fee is a taking. "It is this first step in the analysis that plaintiffs have entirely ignored in litigating this case." In the dissenting part of his decision, Justice O'Scannlain disagreed with the majority's dismissal of the claims under Pollen and Dolan analyses. He noted that $391 of the $1,000 went toward actual moving costs and utility hookups and deposits. " he landlords' $1,000 share of each payment is assuredly not 'related both in nature and extent to the impact of the proposed development.' Dolan, 512 U.S. at 391," he wrote. " he exactions in this case are impermissible because they are not roughly proportional to the harm caused by the landlords, regardless of the total amount of the exactions." Finally, Justice O'Scannlain argued that "because the TRAO is not a 'user fee', but rather a device for compelling landlords to bear a public burden, the TRAO cannot pass constitutional muster." The Case: Garneau v. City of Seattle, No. CV-94-00914-BJR, 98 Daily Journal D.A.R. 4562 (issued March 4, 1998). The Lawyers: For Garneau: Eric R. Hultman, (206) 223-0990. For Seattle: Sandra M. Watson, City Attorney's Office, (206) 684-8200.

Proposition 13's legacy to California cities has been a destructive one. One ill effect of the tax-revenue shortfall has been the construction of many unnecessary office buildings, hotels, and shopping malls - all intended by local governments as a means to recapture lost revenues. The result has been overbuilding, a weakening of the real estate market, and regional competition where there might otherwise have been cooperation. All this is well known. But if, by some imaginary power, we had the power to let the "good" projects go forward, and stop the "bad" projects in their tracks, how would be would be able to sort them out? In other words, how would we determine which projects are worthwhile, that is, those that are both economically viable and serve a public purpose, from those that are wasteful and redundant cash cows that are not worth building? Call it the Santa Rosa Problem. As it turns out, it's not that easily solved. The City of Santa Rosa is a city of 120,000 people in Sonoma County, best known to tourists as part of Wine Country. The city's sole redevelopment area is an eight-acre parcel that easily qualifies as blighted: the former location of a tannery and a brewery, the land is currently a city-owned parking lot, with a negative assessed value. For this site, Santa Rosa's redevelopment agency recently selected a developer to build the Vineyard Creek Hotel and Conference Center, a 156-room hotel, together with a 18,000-square-foot conference center intended for business meetings. Even by redevelopment standards, the Santa Rosa hotel proposal has been slow going. The city formed a redevelopment project area in 1984, and cleared the site five years later. From 1990 to 1996 the city decontaminated the site. In 1995, a consulting report from PKF Consulting said a stand-alone conference center was not feasible, and recommended construction of a full-service hotel. The city's visitor and convention bureau concurred, reporting local hotel occupancies in the high-70-percent range, which is considered strong. The City Council certified a supplemental environmental impact report for the project in 1996. In January 1996, the city granted an exclusive-right-to-negotiate to a developer, Innkeeper Associates Inc. In January, the city and the develop signed a pre-development agreement in January. The financial agreement between the city and developer is a sophisticated deal that seems to contain many safeguards for the city. The construction budget is $18.5 million. The city's contribution to the deal consists of up to $6 million for the parking structure, the conference center, and miscellaneous costs. The developer, for its part, will invest a sum equal to 40% of the city's share in the deal, or a maximum $2.4 million. The developer will operate the hotel and lease the hotel site for 55 years, for $250,000 a year, which escalates to $500,000 in the 10th year. The developer has the option to buy the land for $3.2 million. The city is entitled to rent participation when total gross revenues hit $9.5 million, starting at 0.5% in the first year and rising to 3% in the sixth year. The developer will repay the Agency's contribution at an interest rate of 7.01%, starting the year after hotel sales pass the $9.5 million mark. The hotel is supported by long-standing public policy that seeks to buttress Santa Rosa's primacy as the business center of Sonoma County, according to Jocelyn Lundgren, assistant director of the city's Housing and Redevelopment Agency. This project looks worthwhile to me. But just before we pose for the ground-breaking pictures, let's look at the project from a regional perspective. It's a little scary. At least three other cities in the county - including Petaluma, Healdsburg and Sonoma City - are also proposing hotels. For that reason the cities are in a four-way race for financing. According to Lundgren, the first facility to be built will capture the market. And despite the current hot demand by Wall Street-backed investors and REITs for hotels, nobody is beating a path to Sonoma County yet. The area is considered a "secondary market" by investors, according to Lundgren. And possibly to Santa Rosa's detriment, the conference center is disproportionately large for a hotel of 156 rooms, at least by standards of conventional lenders, and that variance may prove to be a hindrance to obtain a construction loan. The ultimate question, of course, is would the Santa Rosa hotel and conference center have been built without Proposition 13? Lundgren's answer is an unequivocal yes ``With or without Prop 13, there is still such a thing as blight," she says. More than that, with out without Prop 13, most center-city areas need public investment and public subsidies to survive and prosper. And that's the point where it gets hard to separate the "good" projects from the "bad". I have not researched the competing proposals in depth. But let us assume, for the sake of argument, that their need for development is as compelling as that of Santa Rosa's, or nearly so. If that is the case, we have four proposed hotels that make good sense from a local perspective, but do not make sense from a regional perspective, if all are built. True, it's not hard to find bad projects that seem unrealistic, have unqualified developers, or otherwise have little reason to exist. And it is undeniable that Prop 13 plays some role in the motivation of local governments to pursue these projects. But I suspect that a great many projects, perhaps a majority, are like the Santa Rosa hotel: carefully thought-out projects that represent investment in declining downtown areas-in other words, the things cities would, or should, do with or without Prop 13. I suppose the whole exercise of trying to figure which projects are worthwhile, and which are not, is fruitless. One city's redevelopment is another city's overbuilding. It's that simple and that complex. There are too many projects; some of them would not get built even if Proposition 13 did not exist, but perhaps not as many. If you can figure out how to discourage the unworthy projects - other than the obvious ones, like the power centers and the Wal-Marts - please write me a letter and let me know, because ,I can't figure it out. And if an ordinary citizen can't figure this out, what are all those former used car dealers in the California Legislature going to do? I'm going home and wrapping my head in a hot towel.

It is not too much of an overstatement to suggest that the California planning and development landscape as we know it today was created by Proposition 13 when it was passed by the voters 20 years ago this month. Prop. 13 didn't invent most of the impulses at work in California's communities today, of course. Fiscal zoning and competition between municipalities for tax revenue is nothing new. Neither is the vigorous political jockeying within any community over who pays for new growth, nor the slow-growth desire to "pull up the drawbridge", nor even the practice of requiring two-thirds voter approval for local school bonds. All these things existed before 1978. But all were accelerated by the passage of Proposition 13. And just as important, Proposition 13 created an intensified, crisis-oriented atmosphere among local governments - a kind of a hothouse - within which all these trends have baked together to create California's peculiar approach to building and financing communities. Part of Proposition 13's intent, of course, was to reduce the size of government by reducing the amount of tax revenue available. What Proposition 13's drafters couldn't predict, however, was that instead of reducing their size, government agencies - especially at the local level - would intensify their competition with one another for the revenue sources available. Proposition 13 created a "zero-sum culture" among government agencies. And because local government revenues sources are so closely tied to land and real estate development, the zero-sum culture was quickly translated into tangible changes on the urban landscape, many of which were tied to post-Proposition 13 revenue-raising strategies. The "auto mall" is now common throughout the United States, but it was invented in California - not by the auto industry trying to sell cars, but by local governments trying to capture sales taxes. The plethora of outlet malls, entertainment retail centers, and regional malls is also partly the result of Proposition 13. So is the boomlet in the creation of new cities in the last twenty years - because for the first time in history, a California community could incorporate by transferring money out of the county treasury rather than raising taxes. Many of California's sprawling regional development patterns are the result of Proposition 13 also. Well-located cities have been able to cherry-pick retail centers, high-end housing, and other tax "winners". Meanwhile, starter homes and other tax "losers" have been relegated to distant locations on the metropolitan fringe, often in unincorporated areas, where county leaders are desperate to generate any types of revenue they can get. As to the benefits of Proposition 13, they are unquestionable - even if local governments officials are rarely willing to admit it. By reducing property taxes and keeping them low, Proposition 13 reduced California's overall tax burden. Sales and income taxes are still high by national standards, but the low property tax means that overall California's tax burden falls somewhere in the middle nationally - rather than at the high end, as was the case prior to Proposition 13. This tax situation is especially important to property-intensive businesses, making California more competitive for businesses than it might otherwise be. Proposition 13 also made real estate a better investment for most Californians. Every dollar not used for property taxes was another dollar available to pay the mortgage. Thus, the average homebuyer could qualify for a higher mortgage - and this fact permitted real estate prices to continue going up even after the passage of Proposition 13. Perhaps most important, Proposition 13 eliminated the unpredictability of property taxes for millions of California homeowners. Traditionally, property owners had been vexed by two different types of unpredictability - the property assessment and the property tax rate. The assessment was traditional in the hands of the county assessor, while the tax rate was in the hands of myriad local government agencies with the power to levy property tax. Keeping property taxes down required taxpayers to fight a war on several fronts at once. With one stroke, Proposition 13 ended that war. "The lasting legacy for taxpayers," wrote Larry McCarthy of the California Taxpayers Association in a recent op-ed piece, "is the protection against surprise increases in assessed value. Taxpayers know what to expect in property taxes when they buy property and what they will owe 10 years down the road." The End of the Crooked Assessor A citizen initiative placed on the ballot by taxpayer activists Howard Jarvis and Paul Gann, Proposition 13 contains three critical provisions that have become political bedrock in California over the past two decades: o Property may be reassessed only when it is sold. o The total property tax rate may not exceed 1%. o New property-based taxes may be imposed only by a vote, with a majority vote required for "general" taxes and a two-thirds vote required for "special" taxes. To understand why Proposition 13 passed - and why it remains popular today - it is important to understand the problem that Proposition 13 was trying to address: a system of property assessment and taxation that was arcane and unpredictable at its best and scandalously corrupt at its worst. In his new book PARADISE LOST, a chronicle of the Proposition 13 era, author Peter Shrag points out that until the 1960s, California - like most other states - was rife with shady assessment practices that led to jail time for more than a few local assessors. California's first attempt to deal with the property assessment problem came in the 1960s, when a new law was passed that required all property to be reassessed every three years at 25% of market value. The irony, according to Shrag, was that even the crooked assessors had always been smart enough to assess residential property too low and business property too high. Such a skew was only good politics, because voters were far more likely to be homeowners than business owners. By standardizing assessment practices, however, the new law ended this favoritism and shifted the taxation burden away from businesses toward residences. Little wonder that in San Francisco and elsewhere a popular bumper-sticker of the time read: BRING BACK THE CROOKED ASSESSOR. When real estate prices skyrocketed in the 1970s, the tax burden on residential property only became more of a political target. Millions of middle-income homeowners saw their home values and their property assessments increase 30% per year or more. As a result, many property-tax bills doubled virtually overnight, quickly outstripping the ability of salaried workers and retired homeowners to pay them. It was this phenomenon - the portrait of the retired widow forced to sell her house to pay the property-tax bill - that captured the public's imagination. Proposition 13 was popular partly because of the salesmanship of its co-author Howard Jarvis, a longtime political activist who was himself 75 years old at the time. But the annual fight with the assessor was only half of the reason that property taxes were politically vulnerable, because the assessed value of any individual's house is only part of the equation that yields the final property tax bill. Just as important - though harder to combat for the average taxpayer- was the question of the property-tax rate, which was set every year by local officials. This was especially true in suburban areas - including most of California - where the typical homeowner might be subject to a separate property tax rate from the county, the city, the school district, the water district, the park district, the fire district, and three or four other taxing districts. Each government agency set its own rate, but no one was politically accountable for the "bottom line". Typically, no single agency imposed a property-tax rate of more than one-half of 1%, but the cumulative total could easily add up to 2.5% or 3% - on an assessment that, in the late 1970s, was rising dramatically every year. That's why the 1% cap on the property-tax rate was just as important as the reassessment provisions. During the run-up to the June 1978 election, Proposition 13 was opposed by almost every element in the state's political and business establishment - not just public unions and government officials, but also the state Chamber of Commerce and the California Taxpayers Association. (Most backed a competing ballot measure, Proposition 8, that would have permitted a split roll taxing owner-occupied residential property at a lower rate.) Nevertheless, Proposition 13 was approved by approximately 65% of the state's voters in the June 1978 election. Throughout the country, Proposition 13 is widely viewed as the bellwether event in what became a widespread and enduring nationwide revolt against high taxes. Ronald Reagan quickly picked up on Proposition 13's themes in shaping his successful presidential campaign in 1980. Most other states now have some form of property-tax limit. And the rhetoric of limited taxes and limited government is now a staple of American politics. The Zero-Sum Culture While Proposition 13 has become an icon of America's political culture, it has also become an important lesson in the politics of unintended consequences. Like most citizen initiatives, Proposition 13 was not finely crafted legislative surgery. It was a harsh blow with a blunt instrument. As such, it sent California government - and, by extension, California planning and development trends - spinning in unpredictable directions. The immediate impact of Proposition 13 was pretty much as predicted. All local government agencies had less money. But over time, the unintended consequences emerged, and they had a major impact on the distribution of political power and governmental resources. For the vantage point of planning and development, Proposition 13 had two major impacts that were not foreseen at the time of its passage. o First, it transferred a great deal of power from local governments to the state government in Sacramento. o And second, it led local governments on an endless quest for forms of revenue other than property tax - a quest that has benefited some local agencies (such as cities and redevelopment agencies) far more than others (such as counties and special districts dependent on property tax.) It is difficult to imagine that either Howard Jarvis or Paul Gann intended to remove power from local governments and give it to the state. Yet that is what Proposition 13 did. In placing a cap on the overall tax rate, the initiative raised the question of who should allocate the property-tax revenues. Proposition 13 answered that question with a single sentence delegating that responsibility to the state government. Coincidentally, Proposition 13 passed only two years after the second of the two Serrano v. Priest decisions, which required the state to "equalize" the operating budgets of school districts across the state. Prior to the Serrano cases, a school district with a large property tax base had more money per student than a school district with a small property tax base. After the court rulings, the state had to make up the difference. The net effect of Proposition 13 and Serrano together was to convert the property tax into a state revenue source. Under Serrano, the state was required to commingle its own funds with school property-tax revenue to reach a statewide equilibrium. Under Proposition 13, the state had the power to allocate property taxes among local agencies however it wished. In 1979, when the state was flush with cash, it allocated most of the property taxes to cities and counties and made up the difference by increasing state outlays to schools. So perhaps it was inevitable that when the state ran into financial trouble in the early 1990s, the legislature would reverse the trend. In the 1992-93 and '93-94 budget years, the state did just that - shifting approximately 25% of the funds away from cities and counties back to school districts in order to balance the state's own budget. In this kind of environment, it is not surprising that local governments have become active lobbying groups in Sacramento. Under Proposition 13, one of their major revenue source depends far more on their lobbying ability in Sacramento than on their relationship with their own local residents and taxpayers. By restricting property tax, Proposition 13 also changed the strategic importance of all revenue sources in local government. Sales tax became far more important - especially for cities - and development fees and property assessments emerged as critical revenue generators. All these trends had an impact on urban development patterns. Proposition 13 essentially rewarded cities and counties for developing retail land uses, which generated sales tax, and punished them for developing land uses that generated only property tax - essentially, all low- and moderate-income housing. This is one of the main reasons for today's "fiscalized" urban landscape, with its plethora of shopping centers and auto malls and its paucity of balanced housing developments. While retail developments were subsidized because of their tax attractiveness, housing developments were essentially charged a premium in the form of development fees, which were required to pay for new infrastructure no longer obtainable through the increased property tax flows. Among other things, these trends have made local government budgets subject to far more volatility. Retail sales transactions and real estate development activity fluctuate wildly depending on market conditions, while property assessments are traditionally more stable. Many of the revenue-raising measures that resulted from Proposition 13 created their own backlash. For example, after the 1992-93 property tax shift, counties and special districts turned to assessment districts as an important source of replacement revenue - especially since districts could be formed and assessments levied without a vote. This trend led directly to Proposition 218, the 1996 taxpayer initiative that required, in essence, two-thirds approval from property owners for new assessments. And all across the board, local governments have taken advantage of complicated legal loopholes to gain an advantage in the "zero-sum culture". When Proposition 13 passed, for example, most experts assumed that declining property taxes spelled the end of redevelopment in California - because redevelopment finance plans depended heavily in increased property-tax flows. But redevelopment enjoyed a scandalously successful renaissance in the 1980s because it was an important zero-sum tool: Clever cities could use it to capture property-tax dollars that would otherwise have to be shared with counties, school districts, and special districts. Widespread use of redevelopment as a zero-sum tool led directly to the redevelopment reforms of 1993. Similarly, Proposition 13 sparked a renaissance in new city incorporations because cityhood could also be used as a zero-sum tool. Incorporations had waned in the late '60s and '70s because of opposition from taxpayers, who assumed creation of a new city also meant higher taxes. But with property tax increases "outlawed" by Proposition 13, political resistance to incorporations lessened. And cityhood proponents realized that incorporation was a good way to take property and sales tax revenue from a distant county treasury and return it to their community. Not surprisingly, this trend produced its own backlash: The so-called "revenue neutrality" bill, passed in 1992 at the insistence of counties, which has stifled incorporations by requiring that counties be made financially whole by new cities. Returning to Equilibrium? Curiously, after two decades, the world of local planning and development may be reaching a strange kind of equilibrium. Calls to repeal Proposition 13 used to be common among liberals and local government leaders. Now they're so rare they seem anachronistic. For example, Bill Press, the former state Democratic Party chair and current CNN "Crossfire" host, made just such an appeal last fall at the California Chapter, American Planning Association, conference last fall. And while he received a hardy round of applause, the audience's appreciation seemed more nostalgic than realistic. Everyone appeared to recognize that Press was giving a 1970s speech in the 1990s. Most local government officials in California seem resigned to working within the basic tenets of Proposition 13: the 1% cap, the reassessment on sale, and the two-thirds vote requirement. This acceptance has forced them to try to achieve traditional goals within the more rigorous framework of public acceptance that Proposition 13 imposes - and, in the process, they have begun to restore the faith of at least some voters in at least some government activities. Local school bonds backed by increased property taxes were originally banned under Proposition 13. Now they are permitted with a two-thirds vote - the same requirement that existed prior to 1978. And even though the percentage of voters who are public school parents today is only half what it was in the 1960s (20% versus 40%), most school bonds are now winning. School districts have made the case that good school facilities help everyone in the community. And in the process, oddly enough, they have reinforced the assumptions contained in the Proposition 13 culture. Attempts to lower the vote requirement in Sacramento (to 60%, 58%, or a simple majority) are met with strong resistance. Why lower the rate when the bonds are already passing at two-thirds? The local school bond, however, represents a rare instance in the post-Proposition 13 world where local voters can engage in the traditional task of determining whether what they are getting is worth paying for. If there is one lingering problem that results from Proposition 13, it is that the process of raising government revenue has been severed from the process of spending it - which isn't doing much to restore faith in government. Property tax revenues are received more or less automatically by local governments as the result of political decisions in Sacramento. Other revenue comes, essentially, from taxing either newcomers (development fees) or outsiders (sales taxes). For these reasons, the revenue base is simply an assumption, and the only political discussion that occurs in most California communities is how to spend the money. For better or worse, in the old days, the political debate had to do with both revenue and expenditure and with the relationship between the two. As UC Davis Professor Alvin Sokolow has so eloquently pointed out, prior to Proposition 13 the typical local budget debate focused on how much property taxation was politically tolerable - and this was inevitably tied to the question of who would benefit from spending the proceeds. In other words, localities controlled the entire debate, instead of only half of it, and they were able to debate the question in terms of the value received for the political pain inflicted. These days, local officials, homebuilders, open-space advocates, school leaders, and others involved in planning and development in California frequently debate the question of what the ultimate "fix" for Proposition 13 should be. After the property-tax shift of 1992-93, many local officials advocate running some kind of initiative that would guarantee local governments a certain share of the property tax - similar to Proposition 98 for schools. Indeed, Assemblyman Fred Aguiar, R-Chino, recently introduced ACA 42, a bill sponsored by the League of California Cities, which calls for just such a solution. This solution may be the best political alternative; it is clearly in keeping with California's budgeting trends of the last two decades. But it doesn't address Professor Sokolow's basic point about the need to have the revenue debate at the same political level as the expenditure debate. In a certain way, it simply gives local governments more "free" money - free in the sense that they need not engage in difficult political debates over how much money should be raised, or from whom. If local governments don't get a Proposition 98-type solution, then California is at a crossroads on the question of how to finance local government. Either the expenditure decisions will have to up to the state level, where revenue is allocated, or the revenue allocation decisions will have to come down to the local level where the expenditure decisions are currently made. Indeed, this is the guts of the debate that has occurred in Sacramento over the last year: Should the state government provide more money to local governments - but dictate what it should be used for? Or should the Proposition 13 system be reformed so that local officials (cities, counties, schools, special districts) can decide for themselves how to divvy up the available tax revenue? At first glance, this question may seem to be a long way from the question of planning and development, but the experience of the last 20 years suggests that it is not. Local land-use decisions will always be driven to some extent by revenue concerns. And it is clear that the more tangled local government finance has become over the last 20 years, the more difficult it has been for California's communities to engage in rational land-use planning. Neither of the two solutions described above may be ideal. On the one hand, a Sacramento-driven solution may strip local governments of much of their remaining power; on the other hand, the locals may not be able to work together well enough to allocate their own resources. But any solution that breaks the grip of the zero-sum culture on California's communities is better than nothing.