PATTON v. CITY OF ALAMEDA (1984)

 In this case we hold that a city charter provision mandating the funding of the operating expenses of a city department by the imposition of a specified minimum tax rate does not create an indebtedness and is not exempt from the property tax limitation imposed by Proposition 13.

Plaintiff L.A. Patton resides and owns property in the City of Alameda (city).   Plaintiff's 1982–1983 fiscal year property tax bill included a .07 percent property tax override of $7.26 for the city's libraries.   Plaintiff paid the taxes under protest to the County of Alameda.   Plaintiff's “class claim” for refund of the library tax was denied by the County of Alameda.

Plaintiff filed a complaint on behalf of himself and all others similarly situated for refund of the library tax and for a declaration that the tax was subject to the 1 percent limit established by California Constitution, article XIII A, section 1.   Judgment was entered in favor of defendant, and plaintiff appeals contending that section 16–2 of the Alameda City Charter, under which defendant levied the .07 percent tax override to fund public libraries, did not create an indebtedness within the meaning of article XIII A, section 1, subdivision (b) of the California Constitution.   We agree and reverse.

On April 29, 1937, the people of Alameda adopted City Charter section 16–2, which provides:  “On or before the second Monday in May of each year, the Library Board shall submit to the Council an itemized budget of the amount of money necessary for the administration of the Library System of the City during the next ensuing fiscal year.   To the extent of seven cents on each one hundred dollars of assessed valuation, the Council shall, and as to any excess thereover [sic] set forth in such estimate the Council may, include in the next succeeding tax levy and apportion to the Library Fund as received moneys [sic] for the purposes set forth in such budget.” ¹  The charter establishes a separate library fund and a library board to administer the library.   In 1937, the voters of Alameda mandated an appropriation to assure annual funding of the library.   The library board, established to administer the system, annually submitted its budget, and the council included the funds in the tax levy to the extent of 7 cents on each $100 of assessed valuation.   Unlike general revenue used to support Alameda's ordinary operating expenses, the council has no discretion to refuse this appropriation.

On June 6, 1978, Californians adopted, by initiative, Proposition 13 which added article XIII A, section 1 to the state Constitution, providing:

“(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․  [¶] (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 1 became effective on July 1, 1978.  (See Cal. Const., art. XIII A, § 5.)

 The issue thus becomes whether the library tax contained in the city's charter is an “indebtedness” within the meaning of California Constitution, article XIII A, § 1, subdivision (b).   We conclude that it is not an exempted indebtedness, but an appropriation to carry out the day-to-day operating expenses of the city's library system.   The city's obligation to its library board is simply a ministerial duty to provide minimum funding for library services.   It is an internal obligation owed to a department of the city and not an indebtedness owed to third persons.   In Carman v. Alvord (1982) 31 Cal.3d 318, 182 Cal.Rptr. 506, 644 P.2d 192, the court held that where a city had contracted with the Public Employees' Retirement System to provide a pension plan for its city employees pursuant to voter approval, the funding of this contractual obligation was an “indebtedness” exempted under article XIII A, section 1, subdivision (b).  (Id., at pp. 324–333, 182 Cal.Rptr. 506, 644 P.2d 192.)   However, that court also recognized that the exemption “provides no authority for governments to tax beyond the set limit for their day-to-day expenses.”  (Id., at p. 334, 182 Cal.Rptr. 506, 644 P.2d 192.)

The other cases which have exempted funding from the limitations of Proposition 13 did so because of contracted obligations approved by local voters prior to the passage of Proposition 13.   In County of Shasta v. County of Trinity (1980) 106 Cal.App.3d 30, 165 Cal.Rptr. 18, the court held that voter approval of a junior college district to be jointly operated with other counties, which authorized an annual charge to defray obligations of the prior district, authorized an indebtedness exempt from the limitations of Proposition 13.   The court reasoned that Proposition 13 could not impair the power of the district to levy those taxes which were necessary to fulfill previously existing contractual obligations.   Likewise, in City of Fresno v. Superior Court (1984) 156 Cal.App.3d 1137, 202 Cal.Rptr. 313, the court held that the financial obligation to fund employee pension plans approved by the city's voters prior to passage of Proposition 13 created an indebtedness, and thus the city could increase property taxes beyond the one percent limitation of Proposition 13 to meet this obligation.

There is no dispute that the library is a department of the city and, aside from the minimum funding mandated by the city charter, it operates just like other city departments:  e.g., police, fire, street, planning, engineering, etc.   The mandatory appropriation amounts to no more than a charter imposed guarantee of a minimum portion of ad valorem property tax for this specific city service.

We emphasize that our decision does not relieve the city council from complying with the mandate of the charter for funding library services, however, it must do so from ad valorem taxes within Proposition 13 limits.   These funds, constituting a commitment to expend a specified portion of ad valorem taxes for library services, provide for payment of the ordinary expenses of operating a city department.   For this reason, we conclude that the mandated funding for library purposes is not exempted “indebtedness” within the meaning of article XIII A, section 1, subdivision (b), and is subject to the 1 percent property tax limitation of article XIII A.

The judgment is reversed.

I respectfully dissent.   The library tax override contained in the city's charter is an “indebtedness” to the same degree as the voter-approved tax to fund a city's obligations to its employees' retirement systems, which was found to be exempt in Carman v. Alvord (1982) 31 Cal.3d 318, 182 Cal.Rptr. 506, 644 P.2d 192 and City of Fresno v. Superior Court (1984) 156 Cal.App.3d 1137, 202 Cal.Rptr. 313.   The term “indebtedness” is to be broadly construed;  it “ ‘․ has no rigid or fixed meaning, but rather must be construed in every case in accord with its context.’  [Citations.]  It can include all financial obligations arising from contract (see, e.g., [Gov.Code,] § 23231, defining indebtedness in county boundary-change proceedings), and it encompasses ‘obligations which are yet to become due as [well as] those which are already matured.’  [Citation.]”  (Carman v. Alvord, supra, at pp. 326–327, 182 Cal.Rptr. 506, 644 P.2d 192.)

The court in Carman rejected the notion that California Constitution, article XIII A, section 1, subdivision (b) seeks to exempt only traditional, fixed, long-term debt for borrowed funds.  (Id., at p. 325, 182 Cal.Rptr. 506, 644 P.2d 192.)   A debt may be created not only by a bond instrument, but by contract, statute or charter approved by the voters.  (See, e.g., City of Fresno v. Superior Court, supra, 156 Cal.App.3d at p. 1143, 202 Cal.Rptr. 313.)   By approving section 16–2 of the city's charter, the citizens of Alameda voted to undertake a continuing obligation to create and establish funds for a library.¹  This was a commitment by the citizens pledging their monetary support to “provide free information, education, recreation, reference and research,” ² now and for future generations.   Plaintiff has not proffered any persuasive rationale which compels the conclusion that this obligation is somehow less an indebtedness than a contractual obligation to contribute to a municipal employees' retirement system.  City of Fresno, supra, is instructive in this regard.   There, the voters approved the 1957 City Charter which provided for establishment of funds to meet the obligations of the city's fire/police retirement fund, and the city's employees' retirement fund.   In 1983, the City of Fresno enacted an ordinance imposing a property tax to fund these retirement systems.   The City of Fresno filed a complaint to litigate the validity of the 1983 property tax in light of article XIII A.   The trial court entered summary judgment for defendant taxpayers, holding that the retirement fund obligations do not constitute a voter-approved indebtedness within the meaning of section 1, subdivision (b) of article XIII A.   (Id., at p. 1142, 202 Cal.Rptr. 313.)   In reversing the judgment, the appellate court ruled that the voter-approved obligation to contribute to the pension funds constituted an “indebtedness” which was exempt from the limitation of article XIII A.  (Id., at p. 1143, 202 Cal.Rptr. 313.)   In its holding, the court concluded that an indebtedness can arise from financial obligations from many sources.  (Id., at p. 1146, 202 Cal.Rptr. 313.)

Similarly, in County of Shasta v. County of Trinity (1980) 106 Cal.App.3d 30, 165 Cal.Rptr. 18, one county could not withhold its share of payments to a multi-county joint junior college district, the creation of which had been approved by the voters in 1967.   Under this reorganization, the county was obligated to pay an annual charge to the old district for the use of the old district's property in an amount equal to the amount necessary to pay interest and redemption on the old school district's bonds.   This was no bonded obligation, but an annual charge for the use of the property.  (Id., at p. 38, 165 Cal.Rptr. 18.)   Nevertheless, the court held that this tax was an “indebtedness approved by the voters” and exempted under section 1, subdivision (b) of article XIII A.  (Id., at pp. 39–40, 165 Cal.Rptr. 18.)

Plaintiff attempts to distinguish these cases by contending that the city's obligation to its library board is merely part of its ministerial duty to provide minimum funding for routine city services;  that it is an internal obligation owed to a department of the city, as opposed to a contractual obligation owed to a third party.   As discussed above, “any indebtedness” may be created by means other than the usual debt instruments.  (See Carman v. Alvord, supra, 31 Cal.3d at p. 329, 182 Cal.Rptr. 506, 644 P.2d 192.)   Further, the obligation to pay funds to government employees' retirement systems seems to be as much a “departmental” function as the maintenance of the library.

The distinction is not so much what services are provided, but how these services were created.   The creation and funding of the library was a voter-approved annual charge, wholly separate from the city's general operating fund, and which amount could not be reduced by acts of the city council.   As with a bonded obligation, the size of the library tax override remains constant, regardless of the amount of the city's revenue or the size of its deficit.   Should the obligation become too burdensome, then the voters have it within their power to amend the charter accordingly.

The purpose of subdivision (b) of article XIII A, section 1, is to prevent the impairment of contracts and other municipal obligations approved by the voters.  (See Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 238–239, 149 Cal.Rptr. 239, 583 P.2d 1281.)   The enactment of section 16–2 occurred during the depths of the Depression, more than forty years ago.   With great foresight, the city voters agreed to obligate a small portion of their property taxes expressly to ensure the continued existence of their public library.   This was a valid exercise of their home rule power.  (See generally, id., at pp. 224–225, 149 Cal.Rptr. 239, 583 P.2d 1281.)   It would be inequitable to permit those disgruntled city residents, under the guise of article XIII A, to reach back in time and erase this commitment from the city's charter.   If the city's residents strongly feel that .0175 percent of their property tax bill is too much to devote to library services, they may call for a special election to amend the charter.   The decision to fund the city's library should be made by those persons who are most likely to use it and not by the state electorate at large.

I would find that the library tax override falls within the exemption for “any indebtedness” approved by the voters prior to July 1, 1978.   Subdivision (b) recognizes “a concern that irrevocable, long-term obligations, solemnly approved by local electorates and entered on faith in taxing powers then available, not be frustrated by a revolutionary tax limitation imposed from outside the community.  [Citation.]”  (Carman v. Alvord, supra, 31 Cal.3d at p. 328, 182 Cal.Rptr. 506, 644 P.2d 192.)   In 1937, defendant's voters guaranteed that its libraries would be financed through a specific tax;  the limitation in California Constitution, article XIII A, section 1 was not intended to frustrate this continuing obligation.

FOOTNOTES

1.   Section 16–2 of the city's charter authorized a tax of “seven cents on each one hundred dollars of assessed valuation.”   When section 16–2 was adopted in 1937, assessed valuation was 25 percent of fair market value.   Now, article XIII A, section 1, subdivision (a) places a ceiling of 1 percent of “full cash value,” which is 100 percent of fair market value.   Accordingly, that portion of the library tax is now reflected on property tax bills at a rate of .0175 percent.

1.   The history of section 16 has not been provided us and our independent research gives little guidance.   In 1937, Alameda voters were approving an entire charter.   The library in Alameda is a “Carnegie Library,” not different from many others given by Andrew Carnegie to cities throughout the nation.   Andrew Carnegie was “unyielding” in an annual maintenance pledge.  “I do not think that the community which is not willing to maintain a Library had better possess it.   It is only the feeling that the Library belongs to every citizen richest and poorest alike, that gives it a soul, as it were.   The Library Buildings which I am giving are the property of all the members of the community which maintain them.”   An annual pledge to maintain the library was common to cities receiving the Carnegie Library Building gift.  (See Bobinski, Carnegie Libraries, Their History and Impact on American Public Library Development, (1969 American Library Assn.) p. 43.)

2.   The complete “Mission Statement” is as follows:  “To provide free information, education, recreation, reference, and research to the community of Alameda and to residents of the East Bay through the cooperative resources of the Bay Area Library Information System, to serve as guardian of intellectual freedom, combat all attempts at censorship, and encourage the open mind and respect for others, to promote educational, intellectual and cultural growth, enlighten and enrich the lives of its users, and to stimulate individual improvement, advancement, and fulfillment.”

KING, Associate Justice.

HANING, J., concurs.