County v. Commission

• Citation: 101 Cal.Rptr.2d 784,84 Cal.App.4th 1264
• Court: California Court of Appeals Court of Appeals
• Decision Date: 21 November 2000
• Parties: (Cal.App. 1 Dist. 2000) COUNTY OF SONOMA et al., Plaintiffs and Respondents, v. COMMISSION ON STATE MANDATES et al., Defendants and Appellants. A089524 Filed

101 Cal.Rptr.2d 784 (Cal.App. 1 Dist. 2000)

COUNTY OF SONOMA et al., Plaintiffs and Respondents, v. COMMISSION ON STATE MANDATES et al., Defendants and Appellants.

A089524

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA, FIRST APPELLATE DISTRICT,

DIVISION ONE

Filed 11/21/00

(Sonoma County Super. Ct. No. SCV221243)

Trial Judge: Honorable Laurence K. Sawyer

Attorneys: Steven M. Woodside, County Counsel, Kathleen A. Larocque, Deputy County Counsel, Sally B. McGough, Deputy County Counsel County of Sonoma

(Attorneys for Respondents/Plaintiffs - County of Sonoma et al., N. Eugene Hill,

Deborah B. Caplan, Lance H. Olson, Olson, Hagel, Leidigh, Waters & Fishburn

(Attorneys for Appellant/Defendant - Commission on State Mandates) Bill Lockyer, Attorney General, Manuel M. Medeiros, Senior Assistant Attorney General, Andrea Lynn Hoch, Supervising Attorney General, Kenneth R. Williams, Supervising Attorney General, Daniel G. Stone, Deputy Attorney General, Office of the Attorney General

(Attorneys for Appellants/Defendants - State of California, Department of Finance, and Director of Finance) Trevor A. Grimm, Jonathan M. Coupal, Timothy A. Bittle, Howard Jarvis Taxpayers Association,

(Attorneys for Amicus Curiae - Howard Jarvis Taxpayers Association) David W. McMurchie, Vicki E. Hartigan, McMurchie, Weill, Lenahan, Lee & Slater

(Attorneys for Amicus Curiae - California Special Districts Association, California Association of Recreation and Park Districts, California Association of Public Cemeteries and Mosquito and Vector Control Association of California)

Leland C. Dolley, Burke, Williams & Sorensen

(Attorney for Amicus Curiae - California Cities)

CERTIFIED FOR PUBLICATION

Marchiano, J.

In response to a budget crisis in 1992, the Legislature reduced the share of property taxes previously allocated to local governments and simultaneously placed an equal amount of property tax revenues into Educational Revenue Augmentation Funds (ERAFs) for distribution to school districts.¹ The County of Sonoma (the County) then sought reimbursement pursuant to article XIII B, section 6 of the California Constitution (section 6), contending that the ERAF legislation amounted to the imposition of a state mandated program or higher level of service.² The Commission on State Mandates (Commission) determined that section 6 does not apply to this reallocation of tax revenues. The superior court disagreed and issued a writ of mandate ordering the Commission to conduct further proceedings to determine the amount of reimbursement due to the County. The issue raised by this appeal is whether enactment of the ERAF legislation resulted in costs to the County for a state mandated new program or higher level of service, thereby requiring reimbursement pursuant to section 6.

We conclude that the state is not obligated to reimburse local governments for this change in the allocation of property tax revenues. The reallocation of revenue resulting from the challenged legislation does not result in reimbursable "costs" within the meaning of section 6. Furthermore, shifting the percentage of responsibility for a program that was jointly funded by state and local governments at the time section 6 became effective, is not the imposition of a "new program or higher level of service." We reverse the trial court's judgment.

BACKGROUND

The challenged legislation added section 97.03 to the Revenue and Taxation Code. The legislation reduced the amount of property tax revenue to be allocated to local government pursuant to a specified formula and allocated an equal amount of revenue to the ERAF for distribution to county school districts.³ (Rev. & Tax. Code, 97.2.) At the same time, the Legislature enacted Senate Bill No. 766, which added section 41204.5 to the Education Code. The new Education Code provision had the effect of decreasing the amount of the State's contribution to the constitutionally mandated minimum funding level for education in the amount of the allocation to the county ERAFs.⁴

Our resolution of the issues presented by this appeal is aided by a review of the changes in the state's role in school finance, including the Serrano cases, Proposition 13 and the post-Proposition 13 legislative scramble to replace property tax revenues in the state budgetary scheme. Understanding who had the responsibility for funding education on July 1, 1980 when section 6 became effective is necessary for an analysis of the issues raised in this case. The legislative action in 1992 did not spring up full grown like Venus from the sea, but rather grew out of decades of developments in school funding and tax restrictions. Placing the issue in the proper historical context makes it clear that school finance has always been a partnership involving state and local financing buffeted at times by the external forces of initiatives, variable economic conditions in California, and court decisions interpreting constitutional provisions.

After reviewing the litigation, legislation, initiative measures and the specific events leading to this appeal, we proceed to an analysis of the purpose and requirements of subvention for state-mandated programs and conclude that neither a cost nor a new program has been created by the ERAF legislation. We begin with a historical review of the fluid nature of school funding in California.

The 1960s: State and Local Roles in School Funding

In the late 1960s, California public schools derived over 90 percent of their financial support from local taxes on real property, supplemented by the State School Fund.⁵ (Serrano v. Priest (1971) 5 Cal.3d 584, 591 & fn. 2 [Serrano I].) The Legislature authorized local governments to levy taxes on real property to meet the needs of the district's schools. Most of the balance of a school district's revenue came from the state. (Id. at p. 592.) Specifically, in this pre-Serrano I and pre-Proposition 13 period, 55.7 percent of school revenues came from local property taxes and 35.5 percent from state aid.⁶ (Serrano I, supra, at p. 591, fn. 2.) During this time the Legislature determined the manner of school financing shared by local government.

1971-1976: The Serrano Litigation

The disparity created by reliance on the value of a district's real estate was challenged in 1971 on constitutional grounds in Serrano I. The court determined that the system of school financing impermissibly discriminated based on the wealth of the district. (Serrano I, supra, at pp. 598, 614-615.) The result was that the quality of a child's education was irretrievably tied to the wealth of the residents of the district. (Id. at pp. 599-601.) The Serrano I court remanded the case for a trial on the merits. (Id. at p. 619.)

During the trial of the remanded Serrano I case, the Legislature passed new legislation that increased the amount of state aid to schools, limited expenditures and tied the limitations to inflation adjustments so that districts with higher local revenues received smaller upward adjustments. (Serrano II, supra, 18 Cal.3d at pp.736-737, 742-743.) At this juncture in school funding, financial responsibility was still primarily with local government, with the state supplying aid in an attempt to remedy the deficiencies identified by the Supreme Court. The Legislature continued to determine the manner of school financing.

In Serrano II, the court again determined that the state's school finance structure violated the California Constitution despite the legislative attempts to remedy the perceived discrimination. (Serrano II, supra, 18 Cal.3d at p. 768.) The court found that the system impermissibly "renders the educational opportunity available to students of this state a function of the taxable wealth [per pupil] of the districts in which they live . . . ." (Id. at p. 769.)

After Serrano II, the Legislature passed Assembly Bill No. 65 to increase the ability of poorer districts to raise funds by providing state assistance if actual revenues fell below a scheduled amount. In addition, specified "squeeze" formulas served to decrease the inflation adjustment for wealthier districts and to transfer revenues from high to low wealth districts. (Stats. 1977, ch. 894, 16.5, p. 2681; Comment, Inequalities in California's Public School System: The Undermining of Serrano v. Priest and the Need for a Minimum Standards System of Education (1999) 32 Loyola L.A. L.Rev. 583, 599.) It has been said that the Legislature's attempt to respond to the Serrano decisions resulted in "a true 'power equalizing' system whereby local property tax revenue was to be redistributed from tax-rich to tax-poor districts." (Comment, Educational Financing Mandates in California: Reallocating the Cost of Educating Immigrants Between State and Local Governmental Entities (1994) 35 Santa Clara L.Rev. 367, 392.) School finance remained, however, a jointly funded system.

1978: Proposition 13 and the Legislative Response

Before Assembly Bill No. 65 could take effect, the voters passed Proposition 13 in 1978, which fundamentally restricted the ability of local governments to raise funds to finance schools through local property tax revenues. Proposition 13 involved several elements, including limitations on the tax rate on real property and on increases in the assessed value of real property. The measure also limited any future changes in state taxes to those passed by two-thirds of the Legislature and changes in local tax increases to those imposed by a two-thirds vote of the electors. (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 220 (Amador Valley).)

The consequences of Proposition 13 were perceived as catastrophic. "Although California is renowned for its earthquakes, no tremor of high Richter-scale proportion has shaken it quite like the enactment of Proposition 13. Every local entity in the state feared potential economic collapse in the aftershock of that momentous decision...