City of Sacramento v. State of California

Decision Date22 May 1984
CourtCalifornia Court of Appeals Court of Appeals
PartiesCITY OF SACRAMENTO, et al., Plaintiffs and Respondents, v. STATE of California, et al., Defendants and Appellants. Civ. 22196.

George Deukmejian and John K. Van de Kamp, Attys. Gen., Richard D. Martland, N. Eugene Hill, Asst. Attys. Gen., Jeffrey J. Fuller, Deputy Atty. Gen., for defendants and appellants.

James P. Jackson, City Atty., Sacramento, William P. Carnazzo, Deputy City Atty., Sacramento, for plaintiffs and respondents.

Steven R. Meyers, City Atty., San Leandro, Elizabeth Hassard Silver, Asst. City Atty., San Leandro, amici curiae on behalf of plaintiffs and respondents.

CARR, Associate Justice.

The question tendered by this appeal is whether costs incurred by local governments in complying with the provisions of chapter 2, Statutes 1978 (Chapter 2), which required public employees be covered by the state unemployment insurance law, are " 'costs mandated by the state' " for which reimbursement is required by constitution (Cal. Const., art. XIIIB, § 6) and statute. (Rev. & Tax.Code, § 2231, subd. (a).) We answer this question in the affirmative, as did the trial court, and accordingly, shall affirm.

BACKGROUND

Plaintiffs City of Sacramento and County of Los Angeles filed individual claims with the State Board of Control (Board) seeking reimbursement for the costs of providing unemployment insurance to their employees as required by Chapter 2. The Board, after a hearing, denied these claims, holding that Chapter 2 was an enactment required by federal law, not a "state mandate" subject to reimbursement. Pursuant to Revenue and Taxation Code section 2253.5, 1 the plaintiffs sought relief in the Sacramento County Superior Court, where the actions were consolidated for hearing. The trial court found Chapter 2 was a state-mandated local program, granted the petition for writ of mandate and directed the Board to hold another hearing to determine the amount of plaintiffs' claims. To better understand the contentions on this appeal, we journey back to the beginnings of unemployment compensation law and trace the developments which led to the present controversy.

During the great depression, the ranks of unemployed persons rose to unprecedented heights. The individual states were reluctant to provide comprehensive assistance, however, for fear of placing themselves in a position of economic disadvantage as compared with their neighbors. (Charles C. Steward Mach. Co. v. Davis (1937) 301 U.S. 548, 588, 57 S.Ct. 883, 891, 81 L.Ed. 1279, 1291.) The result was the Social Security Act of 1935, the initial federal unemployment compensation program. The current version of that program is the Federal Unemployment Tax Act. (26 Prior to 1976, inclusion of public employees in the state unemployment insurance system was not a condition for certification of the state law and receipt of the tax credit. In that year, however, Congress enacted Public Law No. 94-566, which amended the Federal Unemployment Tax Act to make inclusion of public employees a prerequisite of certification. (Pub.L. No. 94-566 (Oct. 20, 1976), § 115(a) 90 Stat. 2667; 26 U.S.C. §§ 3304(a)(6)(A), 3309(a)(1)(B).) Public employers remained exempt from the federal tax following the enactment of Public Law No. 94-566, but those states which did not include public employees in their unemployment insurance law were subject to the risk of losing the tax credit which benefitted the private employers in the state.

                U.S.C. § 3301 et seq.)   The federal act imposes a tax upon private employers (who meet certain minimum standards) equal to 3.4 percent of the total wages paid during the calendar year.  (26 U.S.C. §§ 3301(1), 3306(a).)   Government employers are exempt from the tax.  (26 U.S.C. § 3306(c)(7).)   Just as the 1935 act, the present law provides an inducement to states to provide their own unemployment insurance programs.  (See Gillum v. Johnson (1936) 7 Cal.2d 744, 754, 62 P.2d 1037.)   Employers in states which have an unemployment compensation law which meets certain standards (26 U.S.C. §§ 3303, 3304), are eligible for a credit based on taxes paid to the state unemployment insurance system of up to 2.7 percent of the 3.4 percent federal tax.  (26 U.S.C. § 3302(b).)
                

California quickly responded to Public Law No. 94-566 and the Legislature enacted Chapter 2 as an urgency measure, effective January 30, 1978. (Stats.1978, ch. 2, § 108, p. 52.) The effect of Chapter 2 was to require all local governmental employers, including plaintiffs, to pay into the state unemployment insurance system on behalf of their public employees. (Stats.1978, ch. 2, §§ 24, 31, 36, 36.5.) In making this change the Legislature stated: "Unless California enacts this act to be operative not later than January 1, 1978, California's unemployment insurance program will be out of conformity with the mandates of federal law under Public Law 94-566. This would seriously disrupt California's economy by the imposition of burdensome federal taxes on California employers and imperil the payment of unemployment benefits by the denial of federal funds to pay for the administration of the payment of such benefits to unemployed claimants in California. In order to preserve California's unemployment insurance system and assure uninterrupted payment of unemployment benefits in the interest of the public peace, health, or safety, it is necessary that this act take effect immediately." (Stats.1978, ch. 2, § 108, p. 52.)

The question of reimbursement had its genesis in the "Property Tax Relief Act of 1972." (Stats.1972, ch. 1406, § 1, p. 2931.) That act, generally known as "SB 90", provided for a system of limitations on local governments' power to levy property taxes, with the concomitant requirement of reimbursement to such local governments for costs mandated upon them by the state in the form of increased levels of services or programs. The "SB 90" process is currently embodied in Revenue and Taxation Code section 2201 et seq. (See Stats.1973, ch. 358, § 3, p. 779.) Revenue and Taxation Code section 2231, subdivision (a) provides in part: "The state shall reimburse each local agency for all 'costs mandated by the state', as defined in section 2207." That section states: " 'Costs mandated by the state' means any increased costs which a local agency is required to incur as a result of ...: [p] (a) Any law enacted after January 1, 1973, which mandates a new program or an increased level of service of an existing program; ..." (Rev. & Tax.Code, § 2207, subd. (a).) "Costs mandated by the federal government," on the other hand, are not subject to reimbursement, and local governments are permitted to levy taxes in addition to the maximum property tax rate to pay such costs. (Rev. & Tax.Code, § 2271.)

On November 6, 1979, California voters determined to make a limitation--reimbursement system similar to "SB 90" a Faced with the ballooning problem of reimbursing local governments for the cost of all state-mandated programs, the Legislature devised two paper solutions. First, "[s]oon after the enactment of SB 90 in 1972, the Legislature began to insert 'disclaimers' into bills which mandated costs on local government. Generally a disclaimer states that the sections of the Revenue and Taxation Code requiring reimbursement are not applicable to the bill for a specified reason." (Legislative Analyst, State Reimbursement of Mandated Local Costs: A Review of the Implementation of Chapter 1135, Statutes of 1977 (February 1980) p. 23; hereafter referred to as the Legislative Analyst's 1980 Report.) 2 Such legislative disclaimers appeared in Chapter 2. In sections 106 and 107 of that act, the Legislature provided "[t]his act is necessary to implement Public Law 94-566, which is hereby deemed to be a 'federal mandate' within the meaning of Sections 2206 and 2271 of the Revenue and Taxation Code" (Stats.1978, ch. 2, § 106, p. 51); and "[t]here are no state-mandated local costs in this act that require reimbursement under Section 2231 of the Revenue and Taxation Code because this act merely affirms for the state that which has been declared existing law through action by the federal government." (Stats.1978, ch. 2, § 107, p. 51.)

                part of the constitution.  By initiative measure at the special statewide election on that date, the voters enacted Proposition 4, thereby adding article XIII B to the California Constitution (hereafter referred to as article XIII B).  The so-called "Spirit of 13" initiative provided for limitations on the ability of all California governmental entities to appropriate funds for expenditures.  (Cal. Const., art.  XIII B, §§ 1, 8, subds.  (a), (b).)   As relief to local governments, section 6 of article XIII B provides:  "Whenever the Legislature or any state agency mandates a new program or higher level of service on any local government, the state shall provide a subvention of funds to reimburse such local government for the costs of such program or increased level of service, except that the Legislature may, but need not, provide such subvention of funds for the following mandates:  [p] (a) Legislative mandates requested by the local agency affected;  [p] (b) Legislation defining a new crime or changing an existing definition of a crime;  or [p] (c) Legislative mandates enacted prior to January 1, 1975, or executive orders or regulations initially implementing legislation enacted prior to January 1, 1975."
                

Following enactment of article XIII B, the Legislature enacted a second method of avoiding reimbursement of costs incurred by local government as a result of state mandates. This method was to expand the definition of nonreimbursable " 'costs mandated by the federal government' " as contained in Revenue and Taxation Code section 2206, to include "costs resulting from enactment of a state law or regulation where failure to enact such law or regulation to meet...

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