Howard Jarvis Taxpayers v. County of Orange

• Decision Date: 30 July 2003
• Docket Number: No. G029292.,G029292.
• Citation: 2 Cal.Rptr.3d 514,110 Cal.App.4th 1375
• Court: California Court of Appeals Court of Appeals
• Parties: HOWARD JARVIS TAXPAYERS ASSOCIATION et al., Plaintiffs and Respondents, v. COUNTY OF ORANGE et al., Defendants; City of Huntington Beach, Real Party in Interest and Appellant.

2 Cal.Rptr.3d 514

110 Cal.App.4th 1375

HOWARD JARVIS TAXPAYERS ASSOCIATION et al., Plaintiffs and Respondents, v. COUNTY OF ORANGE et al., Defendants City of Huntington Beach, Real Party in Interest and Appellant.

No. G029292.

Court of Appeal, Fourth District, Division 3.

July 30, 2003.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Steven L. Mayer, San Francisco; Gail Hutton, City Attorney, and Scott F. Field, Assistant City Attorney, for Real Party in Interest and Appellant.

Trevor A. Grimm, Los Angeles, Jonathan M. Coupal, Sacramento, and Timothy A. Bittle, for Plaintiffs and Respondents.

No appearance for Defendants.

OPINION

RYLAARSDAM, J.

Proposition 13 amended the California Constitution by prohibiting the imposition of ad valorem property taxes in excess of one percent of the cash value of property. It contains an exception allowing excess taxes or special assessments "to pay the interest and redemption charges on any ... [¶] (1) [indebtedness approved by the voters prior to July 1, 1978." (Cal. Const., art. XIII A, § 1, subd. (b)(1).) The issue in this case is whether passage of a new city charter by the voters of real party in interest City of Huntington Beach (City) in July 1978 constitutes prior voter approval of excess taxation for retirement benefits added after 1978. That charter (1) mandates City's participation in "a retirement system"; (2) gives the city council discretion to "establish such reasonable compensation and fringe benefits as are appropriate [for City employees] by ordinance or resolution"; and (3) expressly provides for an excess tax "sufficient to meet all obligations of the City for the retirement system in which the City participates." We agree with the trial court that excess taxation for the added retirement benefits violates Proposition 13 and affirm the judgment.

FACTS

The parties stipulated to the facts. The voters of the City approved a charter in 1966. Section 1100 of that charter, entitled "RETIREMENT," provides: "Authority and power are hereby vested in the City, its City Council and its several officers, agents, and employees to do and perform any act, and to exercise any authority granted, permitted, or required under the provisions of the State Employees' Retirement Act, as it now exists or hereafter may be amended, to enable the City to continue as a contracting City under the State Employees' Retirement System. The City Council may terminate any contract with ... the State Employees' Retirement System only under authority granted by ordinance adopted by a majority vote of the electors of the City...."

Section 1207 of the former charter stated: "(a) The City Council shall not levy a property tax for municipal purposes in excess of One Dollar annually on each One Hundred Dollars of the assessed value of taxable property in the City, except as otherwise provided in this Section .... [¶] (b) There shall be levied and collected at the same time and in the same manner as other property taxes for municipal purposes are levied and collected, as additional taxes not subject to the above limitation if no other provision for payment thereof is made: [¶] ... [¶] 2. A tax sufficient to meet all obligations of the City under the State Employees' Retirement System, the Federal Insurance Contributions Act, or other plan, for the retirement of City Employees, due and unpaid or to become due during the ensuing fiscal year."

In 1976, City's voters approved amendments to the charter prohibiting the city council from taking any action which had "the effect of increasing the amount of tax payable" unless approved by a vote of at least three-fourths of the council. The amendments expressly excluded from this supermajority vote requirement increases in the retirement tax.

In June 1978, City's voters approved a new charter. Some of the provisions which the city council considered "controversial" were presented to the voters as distinct propositions. The remaining provisions of the proposed charter, including those relating to the retirement system and its funding, were combined in "Proposition D." The "City Attorney's Impartial Analysis" described Proposition D as follows: "The existing City Charter contains a number of `housekeeping' provisions which will be streamlined by approval of Proposition `D.' The controversial measures, Proposition `E,' `F,' `G,' `H,' and `J,' are in no way affected by the vote on Proposition `D.' There is insufficient space in this analysis to describe in detail each provision of the existing Charter which will be amended by the adoption of Proposition `D' and therefore, a close reading of the text of the proposed amendments is recommended."

The 1978 charter changed the prior charter by no longer mandating participation in the State Employees' Retirement System, now the Public Employees' Retirement System (PERS). Instead, the new charter merely provides: "The City shall participate in a retirement system." Additionally, the new charter requires that the council "establish such reasonable compensation and fringe benefits as are appropriate by ordinance or resolution for ... offices, officials and employees except as herein provided." Consistent with the 1966 charter, the new charter specifies that City may impose excess taxes sufficient to meet all its obligations "for the retirement system in which the City participates, due and unpaid or to become due during the ensuing fiscal year." As did the earlier one, the new charter imposes a general requirement that increases in taxes must be approved by 75 percent of the council, but again excludes the retirement tax from the super-majority vote.

Some of City's employees have been members of PERS since 1945; all of them have been members since 1966. Benefits under the plan are funded by a combination of contributions from the public agency employers, contributions from employee members, and earnings from investments made by PERS. The employee contribution rates are set by the Legislature as a percentage of the employee's salary, while the employer contribution rates are set annually, as determined by actuarial valuations based on the employer's retirement formula, the makeup of employee groups, and PERS's earnings on investments.

Since the early 1970's, virtually all City employees have been represented by employee associations; the associations and City have entered into collective bargaining agreements, known as memoranda of understanding (MOU's), which establish employee wages, hours, and working conditions, including retirement benefits.

Between 1970 and the adoption of the 1978 charter, City made several changes liberalizing benefits under the PERS contract. It added survivor's benefits for the families of employees who died prior to retirement, provided for up to four years of military service to count toward PERS benefits, and allowed certain employees' PERS benefits to be based on the employee's single highest year of compensation, rather than an average of the employee's highest three years.

City continued to change its retirement package even after the adoption of its 1978 charter and the passage of Proposition 13. The first of the post-charter changes became effective the same date as Proposition 13. On July 1, 1978, pursuant to previously negotiated MOU's, City began paying part of its employees' portion of retirement contributions. During the ensuing years, as part of new MOU's, City gradually increased the percentage of the employee's portion of contributions it paid until the point where it now pays the employees' full PERS contribution.

In 1987, City also added two new benefits: A "Self-Funded Supplemental Retirement Benefit," initially provided for all employees, now applies only to employees hired before July 1998. A "Medical Insurance Retirement Fund" permits an employee to continue participating in City's health insurance program after retirement, with a portion of the premiums subsidized by City.

In 1999, PERS notified City that its retirement plan was "super-funded," meaning "the actuarial value of assets exceeds the present value of benefits." As a consequence, PERS substantially reduced City's employer contribution for fiscal year 1999-2000. Subsequently, PERS advised City that its employer contribution for fiscal years 2000-2001 and 2001-2002 would be zero. But City remained obligated for the other provisions of its negotiated retirement packages, and it continued to fund at least a portion of those other benefits through the retirement tax override contained in the 1978 charter.

Plaintiffs Howard Jarvis Taxpayers Association and one of its members, Charles Scheid, filed this suit. Scheid is a Huntington Beach resident who paid the property tax override under protest. The complaint seeks a refund of that portion of Scheid's fiscal year 1999-2000 tax override payment that is attributable to retirement benefits, and a declaration prohibiting Huntington Beach from levying a tax override for retirement benefits not already being provided to employees in June 1978.

After trial, the court ruled in plaintiffs' favor, concluding that the voters of Huntington Beach did not intend their approval of the retirement provisions of the 1978 charter "to commit the City to an indebtedness for future enhancements in the type or level of city employee retirement benefits beyond those to which city employees were entitled at the time of the election." (Italics added.) The court explained that "[t]he indebtedness approved by Huntington Beach voters prior to July 1, 1978, when they adopted Measure D, was an indebtedness to continue providing all retired, current, and future city employees with the retirement benefits to which city employees were entitled at the time of the election, either through PERS or some other singular retirement system, subject of course to any requirements imposed from time to time by the State Legislature. At the time of the election, the City was providing...