CITY COUNCIL OF CITY OF SAN JOSE v. SOUTH (1982)

The principal issue in this case is whether a nonvoted special assessment levied on real property within a certain maintenance district of the City of San Jose is an “ad valorem tax” limited by article XIII A, sections 1 and 4 of the California Constitution.   We are also asked to determine whether the special assessments are “proceeds of taxes” as defined in article XIII B of the California Constitution and subject to the limitations contained therein.   For the reasons discussed below we find that the special assessments levied by the City of San Jose are subject to the one percent (1%) property taxation limitation contained in article XIII A, sections 1 and 4.

On June 6, 1978, the voters of this state adopted Proposition 13 (now art. XIII A of the Constitution), which placed limitations on the taxation powers of the state and local governments.

Section 1 provides:  “(a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property.   The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.  [¶ ] (b) The limitation provided for in subdivision (a) shall not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any indebtedness approved by the voters prior to the time this section becomes effective.”

Section 4 provides:  “Cities, Counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district.” ¹

Following adoption of Proposition 13, the City Council of the City of San Jose (collectively referred to as the City), on May 15, 1979, adopted Ordinance No. 19651 which amended Chapter 6A of Article II of the Municipal Code by adding a new Part 14 which described the procedures for creating and funding maintenance districts.  (San Jose Mun.Code § 2600.194 et seq.)   That ordinance was primarily patterned after the provisions contained in chapter 26 of the Improvement Act of 1911, “Maintenance Districts” (Sts. & Hy.Code, § 5820 et seq.).   Under the state statute, assessments were levied on an ad valorem basis.

On July 3, 1979, pursuant to the provisions of the ordinance, the City tentatively approved a resolution to establish Maintenance District No. 5A, a district composed of some 13 contiguous lots.   The purpose of the district was to operate and maintain “landscaped median islands including plants, lawns, sprinklers, shrubs, water, power, labor, supervision and all other necessary works and appliances” on the public streets within the district.

As a response to the ad valorem taxation limitations contained in article XIII A, the City adopted a different method of levy.   It required that assessments on a particular parcel be made “in the ratio that the area of each parcel to be assessed for said costs of maintenance and operation bear to the total area of all parcels of property within said maintenance district to be assessed therefore [sic].”   The theory of the assessment was that it was being levied proportionate to the “estimated benefit” that each parcel within the district would receive from the maintenance of the streets.

The estimated maintenance cost for the 1979–1980 fiscal year was $35,000.   Under this “pro rata” formula each parcel was assessed a charge equivalent to $420.73477 per acre.   There were no oral or written protests from the affected property owners to the creation of the maintenance district or to the levy of the special assessment.   On July 17, 1979, the City formally adopted the resolution creating Maintenance District No. 5A.

In November 1979, the voters passed article XIII B of the California Constitution by initiative as Proposition 4.  Article XIII B placed a limit on the growth of appropriations on the state and local level and prescribed procedures for returning to the taxpayers appropriations received in excess of the established limit.²

On March 6, 1980, the City filed a petition for validation of Maintenance District No. 5A.   Appellant Kent South, finance director for the City, filed an answer challenging the creation of the maintenance district and the levy of assessment, contending (1) that the general state statute relating to maintenance districts preempted the field and directed the City to levy assessments on an ad valorem basis;  (2) that the special assessment is an ad valorem tax subject to the limitations of sections 1 and 4 of article XIII A;  (3) that the special assessment is a “special tax” which must be approved by a two-thirds vote of the affected property owners as required by section 4, article XIII A;  and (4) that the special assessment is subject to the appropriations limitation contained in article XIII B.

On October 21, 1980, the trial court entered judgment in favor of the City, specifically rejecting each of appellant's contentions.   Appellant realleges these same arguments in this appeal.

1. Preemption

In support of his first argument, appellant asserts that the Improvement Act of 1911, specifically Streets and Highways Code sections 5821 and 5830, requires the City to levy special assessments on an ad valorem basis.³  We disagree.   As mentioned above, under the state statute special assessments were levied on an ad valorem basis.   Nevertheless, the City was empowered under its “home rule” power to employ any method of levy it determined would equitably distribute the burden of payment among the affected property owners.

 At all relevant times, the City of San Jose operated under a charter which provides for “home rule” pursuant to article XI, sections 3–7 of the California Constitution.⁴  (See Bishop v. City of San Jose (1969) 1 Cal.3d 56, 60, 81 Cal.Rptr. 865, 460 P.2d 137.)   Under the principle of “home rule” the City has the power to control and finance all “municipal affairs,” without interference from general state laws and subject only to limitations contained in the state Constitution and the Charter itself.  (Cal.Const., art. XI, § 5; ⁵  Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 224–225, 149 Cal.Rptr. 239, 583 P.2d 1281;  Rivera v. City of Fresno (1971) 6 Cal.3d 132, 135, 490 P.2d 793.)

 Where, as here, there is a conflict between the state and the local legislation, the courts must decide whether the matter regulated is a state or a municipal affair.  (See Bishop v. City of San Jose, supra, 1 Cal.3d at p. 62, 81 Cal.Rptr. 865, 460 P.2d 137;  Alioto's Fish Co. v. Human Rights Com. of San Francisco (1981) 120 Cal.App.3d 594, 603, 174 Cal.Rptr. 763;  cf. Professional Fire Fighters, Inc. v. City of Los Angeles (1963) 60 Cal.2d 276, 294, 32 Cal.Rptr. 830, 384 P.2d 158.)

It cannot be seriously disputed that the operation and maintenance of the landscaped median islands and their appurtenant areas is strictly of local interest.  (See Raisch v. Myers (1946) 27 Cal.2d 773, 778–779, 167 P.2d 198;  City of Redwood City v. Moore (1965) 231 Cal.App.2d 563, 577–578, 42 Cal.Rptr. 72 [disapproved on other grounds in Bishop v. City of San Jose, supra, 1 Cal.3d at p. 63, fn. 6, 81 Cal.Rptr. 865, 460 P.2d 137].)   Those improvements do not affect the regulation of traffic or communication.  (See Rumford v. City of Berkeley (1982) 31 Cal.3d 545, 550, fn. 3, 183 Cal.Rptr. 73, 645 P.2d 124;  Pac. Tel. & Tel. Co. v. City & County of San Francisco (1959) 51 Cal.2d 766, 771–776, 336 P.2d 514.)

Appellant concedes that the construction of this improvement is a municipal affair, but asserts that the ongoing maintenance is not.   Appellant fails to cite any cases upholding this distinction and we fail to see any logic to it.   If the erection and operation of the improvement is deemed to be a municipal affair, a fortiori, its maintenance must also be a municipal affair.   Further, both the state statutes and the city ordinance expressly permit the City to levy assessments for the operation and maintenance of the local improvements.

 Accordingly, we find that the City was free to levy a “pro rata” special assessment for maintenance regardless of inconsistent provisions of the general state statute.

2. Applicability of California Constitution Article XIII A

Appellant next argues that the framers of Proposition 13 intended to include special assessments on property within the limitation of ad valorem property taxes of article XIII A, sections 1 and 4.   Appellant relies on the ballot summary and the arguments and analyses in the ballot pamphlet to support this claim.

The City responds that the special assessments levied herein are materially different from ad valorem taxes and are not subject to limitation under sections 1 and 4 of article XIII A.   The City relies on two recent decisions, Solvang Mun. Improvement Dist. v. Bd. of Supervisors (1980) 112 Cal.App.3d 545, 169 Cal.Rptr. 391, and County of Fresno v. Malmstrom (1979) 94 Cal.App.3d 974, 156 Cal.Rptr. 777.   In Solvang, the city levied a special assessment to service and redeem assessment bonds used to create three public parking lots.   In Malmstrom, the county levied assessments in order to service and redeem assessment bonds for local improvements under the Improvement Act of 1911 (Sts. & Hy.Code, § 5000 et seq.) and the Municipal Improvement Act of 1913 (Sts. & Hy.Code, § 10000 et seq.)

Both courts concluded that the special assessments were not ad valorem taxes within the meaning of article XIII A, sections 1 and 4.  (Solvang, supra, 112 Cal.App.3d at pp. 550–557, 169 Cal.Rptr. 391;  Malmstrom, supra, 94 Cal.App.3d at pp. 981–982, 156 Cal.Rptr. 777.)   Relying principally on Malmstrom, the Solvang court reasoned that the “overriding concern of article XIII A was directed against general governmental spending and general real property taxes levied to finance such spending.”  (Solvang, supra, 112 Cal.App.3d at p. 556, 169 Cal.Rptr. 391;  Malmstrom, supra, 94 Cal.App.3d at p. 985, 156 Cal.Rptr. 777.)   Ad valorem taxes, the court concluded, are general taxes levied on all taxable property to pay for general expenditures.  (Solvang, supra, 112 Cal.App.3d at p. 552, 169 Cal.Rptr. 391;  Malmstrom, supra, 94 Cal.App.3d at p. 981, 156 Cal.Rptr. 777.)   In contrast, the court determined that special assessments are charges against property to pay for local improvements which specially benefit the affected property.  (Solvang, supra, 112 Cal.App.3d at pp. 552–553, 169 Cal.Rptr. 391;  Malmstrom, supra, 94 Cal.App.3d at p. 981, 156 Cal.Rptr. 777.)

For the reasons discussed below we must reject the City's argument.

In upholding the validity of California Constitution article XIII A in general, our Supreme Court recognized it as being “imprecise and ambiguous” in several respects.  (Amador Valley, supra, 22 Cal.3d at p. 245, 149 Cal.Rptr. 239, 583 P.2d 1281;  Los Angeles County Transportation Com. v. Richmond (1982) 31 Cal.3d 197, 201, 182 Cal.Rptr. 324, 643 P.2d 941.)   One such area of confusion is the meaning of the term “special assessment.”

In order to resolve the ambiguity, we turn first to the language of the provisions, and then to the ballot pamphlet and to any contemporaneous legislative construction.  (City and County of San Francisco v. Farrell (1982) 32 Cal.3d 47, 52, 184 Cal.Rptr. 713, 648 P.2d 935;  Amador Valley, supra, 22 Cal.3d at pp. 245–246, 149 Cal.Rptr. 239, 583 P.2d 1281.)

The incongruity arises when the two subdivisions of section 1 are read together;  “(a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property.   The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.  [¶ ] (b) The limitation provided for in subdivision (a) shall not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any indebtedness approved by the voters prior to the time this section becomes effective.”  (Emphasis added.)

The confusion arises because of the reference to special assessments in subdivision (b) but not in subdivision (a).   As discussed above, the Solvang and Malmstrom courts resolved this incongruity in favor of the governmental entity, concluding that a special assessment was wholly different from an ad valorem tax.  (Solvang, supra, 112 Cal.App.3d at pp. 552–554, 169 Cal.Rptr. 391;  Malmstrom, supra, 94 Cal.App.3d at pp. 980–982, 156 Cal.Rptr. 777.)

Neither of these cases cited subsequent legislative enactments for guidance, although the Solvang court could have been assisted by Streets and Highways Code section 5832.8 which was enacted six months prior to the time the decision was filed.  (Added by Stats. 1980, ch. 126, § 1, urgency eff. May 23, 1980.)   That statute carved out an exception to article XIII A, permitting the town of Portola Valley to levy a special tax to finance much needed street improvements.⁶

Importantly, in section 2 of the statute, the Legislature expressly found and declared that “the special assessment tax authorized by [Streets and Highways Code section 5800 et seq.] is an ad valorem tax and as such is subject to the limitations of Article XIII A of the California Constitution.”

The Legislature is primarily responsible for implementing the provisions of article XIII A.   Its construction of the term special assessment tax is therefore entitled to great weight.  (Amador Valley, supra, 22 Cal.3d at p. 245, 149 Cal.Rptr. 239, 583 P.2d 1281.)

It is reasonable to presume that the Legislature knew of the Malmstrom case, filed July 12, 1979, when it enacted Streets and Highways Code section 5832.8.   Accordingly, there is a strong presumption that by enacting the statute the Legislature expressly disapproved of the judicial construction creating a distinction between special assessment and ad valorem tax.  (Cf. Kaplan's Fruit & Produce Co. v. Superior Court (1979) 26 Cal.3d 60, 73, 160 Cal.Rptr. 745, 603 P.2d 1341;  Evartt v. Superior Court (1979) 89 Cal.App.3d 795, 800, 152 Cal.Rptr. 836.)

Nothing in the ballot summary or arguments and analyses suggests that the Legislature's construction of the term “special assessment” is an improper one.   Nowhere in the ballot pamphlet is the term “special assessment” defined.  (See generally Ballot Pamp., Proposed Amends. to Cal.Const., Primary Elec. (June 6, 1978), pp. 56–60.)

The Legislative Analyst described the background of the initiative and its fiscal impact.   He stated:  (1) that it would place a limit on the amount of property taxes collected by local governments;  and (2) that it would restrict the ability of local governments to impose new taxes in order to replace the property tax revenue losses.  (Ballot Pamp., supra, at p. 60.)

The proponents of Proposition 13 broadly refer to it as a response to “the Legislature's failure to enact a meaningful property tax relief and reform bill.”  (Ballot Pamp., supra, at p. 58.)   Perhaps the closest reference to special assessments is contained in the Arguments in Favor of Proposition 13.   Quoting from a “tax expert,” the proponents argue that:  “ ‘A 1% limit would still leave property tax revenue far above the level required to pay for property-related governmental services, street lighting maintenance, sewers, trash collection and POLICE AND FIRE PROTECTION.’ ”  (Second and third emphases added.)   However, even this reference raises questions as to whether the framers meant to include local as well as general public improvements.

 Nevertheless, the Legislature has spoken clearly and unequivocally that the special assessments levied to fund maintenance districts are limited by the one percent ad valorem taxes on property contained in article XIII A, section 1.   We therefore consider ourselves bound by that construction.

We find no material distinction that the special assessments were levied by the City pursuant to its own charter, rather than pursuant to the general state law.  (Sts. & Hy.Code, § 5820 et seq.)   The intent behind article XIII A, as expressed by the Legislature, was to limit special assessments on property regardless of the source of the levying power.   A contrary view would create an artificial distinction between “home rule” cities which operate pursuant to a charter and “general law” cities which are empowered to levy special assessments by the state statute.  (Sts. & Hy.Code, § 5820 et seq.)

There is another reason for concluding that the special assessments are subject to the property taxation limitation of California Constitution article XIII A.   If we validated the City's special assessment scheme, it could result in the wholesale avoidance of the purposes of article XIII A.   As appellant correctly points out, one of the effects of article XIII A is to restrict a local government's ability to replace property tax revenue lost under article XIII A.  (Ballot Pamp., supra, at pp. 57, 60;  Los Angeles County Transportation Com., supra, 31 Cal.3d at pp. 205–206, 182 Cal.Rptr. 324, 643 P.2d 941;  Amador Valley, supra, 22 Cal.3d at p. 231, 149 Cal.Rptr. 239, 583 P.2d 1281.)

Appellant asserts, without contradiction, that absent the special maintenance district, the expense for maintaining these local improvements would be paid from the City's general operating fund.

Thus, in a real sense, the establishment of the maintenance districts and the levy of the special assessments generate additional revenue to replace that property tax revenue lost under article XIII A.

If the City's program is validated, the effect would be to countenance evasion of the stated purpose of article XIII A “to assure effective real property tax relief.”  (Amador Valley, supra, 22 Cal.3d at p. 231, 149 Cal.Rptr. 239, 583 P.2d 1281.)   The City would be free to draw boundaries throughout the entire city, label these areas “maintenance districts,” and then levy assessments for all “local improvements” within that district.   These “local improvements” would not be limited to routine street repairs and maintenance.   Conceivably, the “local improvements” would include what once were general governmental services such as fire and police protection, neighborhood schools and libraries, trash collection and street light maintenance, all of which could now be said to specifically benefit the property situated within the carefully drawn boundaries of these maintenance districts.  (Cf. Los Angeles County Transportation Com., supra, 31 Cal.3d at p. 213, 182 Cal.Rptr. 324, 643 P.2d 941 [dis. opn. of Richardson, J.];  County of Fresno v. Malmstrom, supra, 94 Cal.App.3d at p. 981, 156 Cal.Rptr. 777.)   The City would then be able to accomplish indirectly what it could not accomplish directly, namely:  (1) generate revenue without being subject to the property taxation limitation contained in section 1 of article XIII A;  or (2) impose special taxes without the two-thirds vote of the electors in such district as required by section 4 of article XIII A.

For the foregoing reasons, we conclude that the special assessments levied by the City are subject to the one percent (1%) ad valorem property tax limitation contained in article XIII A, section 1, of the California Constitution.   We necessarily conclude that these special assessments are deemed “appropriations subject to limitation” within the meaning of article XIII B of the California Constitution.   It is unnecessary to address appellant's remaining contention.

The judgment is reversed.

FOOTNOTES

1.   Sections 2 and 3 of article XIII A are not relevant to this appeal.

2.   Article XIII B provides in pertinent part:“Sec. 1.  The total annual appropriations subject to limitation of the state and of each local government shall not exceed the appropriations limit of such entity of government for the prior year adjusted for changes in the cost of living and population except as otherwise provided in this Article.“Sec. 2.  Revenues received by any entity of government in excess of that amount which is appropriated by such entity in compliance with this Article during the fiscal year shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years.”

3.   Streets and Highways Code section 5821 provides:“The board of supervisors may, in its resolution declaring its intention to order work done or improvements made or by separate resolution, declare its intention to order that the expenses of maintaining and operating any or all of said improvements or any or all other improvements such as are permitted to be constructed herein, including the cost of necessary repairs, replacements, fuel, power, electrical current, care, supervision, and any and all other items necessary for the proper maintenance and operation thereof, shall be assessed, either partly or wholly, upon the real property or upon the land only lying within the district to be benefited by and to be assessed to pay the cost of the construction of said improvement, or upon such district as the board of supervisors shall determine will be benefited by the maintenance and operation of the improvements proposed to be maintained;  the amounts so assessed to be levied and collected in the same manner and by the same officers as taxes for county purposes are levied and collected.”Streets and Highways Code section 5830 provides:“The board of supervisors shall thereafter, in each year, prior to the time of fixing the county tax rate, estimate the cost of maintaining and operating the improvements to be maintained and operated within the maintenance district during the ensuing year.   The board of supervisors shall decide whether or not the cost of maintaining and operating the improvement shall be borne wholly or partially by the maintenance district and shall, in addition to all other taxes, fix a special tax rate for the real property within the maintenance district, or for lighting purposes levy an assessment on each parcel of real property within the maintenance district on the basis of the estimated benefit to the parcel, sufficient to raise an amount of money to cover the expense of maintaining the improvements during the ensuing year, or such portion of the amount as the board of supervisors shall determine shall be borne by the maintenance district, and the board of supervisors shall levy a special assessment tax or, for lighting purposes, an assessment each year upon the real property in the maintenance district sufficient to pay such expense, or the portion thereof, which shall be paid by the maintenance district.”  (Emphasis added.)

4.   Section 200 of the City Charter provides:“GENERAL POWERS, the City of San Jose shall have the power to make and enforce all laws and regulations in respect to municipal affairs, subject only to such restrictions and limitations as may be provided in this Charter and in the Constitution of the State of California.   The City shall also have all other rights, powers and privileges which are not prohibited by, or in conflict with, the State Constitution or the Charter which it would be proper to specifically set forth in this Charter even though such are not herein set forth.   It shall also have the power to exercise any and all rights, powers and privileges heretofore or hereafter established, granted or prescribed by any law of the State, by this Charter or by other lawful authority, or which a municipal corporation might or could exercise under the Constitution and laws of the State of California.“The enumeration or specification in this Charter of any particular power shall not be held to be exclusive of or any limitation upon the generality of the foregoing provisions.”

5.   Article XI, section 5, provides in pertinent part:“(a) It shall be competent in any city charter to provide that the city governed thereunder may make and enforce all ordinances and regulations in respect to municipal affairs, subject only to restrictions and limitations provided in their several charters and in respect to other matters they shall be subject to general laws.   City charters adopted pursuant to this Constitution shall supersede any existing charter, and with respect to municipal affairs shall supersede all laws inconsistent therewith.”   (Emphasis added.)

6.   Section 5832.8 provides in pertinent part:“(a) The board of supervisors may adopt an ordinance proposing the imposition of a special tax for the purpose of maintaining improvements.   Such ordinance shall be submitted to the voters of the maintenance district and shall take effect upon approval of two-thirds of the voters of the district voting on the ordinance.   The approval of the voters may be secured at a district or countywide election, or by a ballot mailed to each registered voter in the district.   The election shall be conducted pursuant to the provisions of the Elections Code.“(b) The ordinance submitted to the voters for approval pursuant to the provisions of subdivision (a) shall specify the terms of the special tax to be imposed which shall include the manner in which the obligation of each taxpayer is determined, when the special tax is to be levied, and the method of collection.   The ordinance may also specify that the special tax imposed by the ordinance may be adjusted annually by the percentage change in the total appropriations subject to limitation of the local government for purposes of Article XIII B of the California Constitution.“(c) Upon approval of the voters under subdivision (a), the board may levy the special tax as authorized by the ordinance, until superseded by a new ordinance adopted pursuant to the provisions of subdivision (a), or until repealed pursuant to an ordinance adopted by the board.“(d) The provisions of this section shall apply only to maintenance districts located wholly within the Town of Portola Valley.”

FEINBERG, Associate Justice.

WHITE, P.J., and BARRY–DEAL, J., concur.