By statute, counties are responsible for the administration of local property taxes by assessing and collecting them and then disbursing the revenue to the various cities, special districts, schools, and other entities within the county. Some of the revenue, however, must be allocated to each county's "Educational Revenue Augmentation Fund" (sometimes referred to as ERAF) — a state-created fund that reallocates portions of local property tax revenue to fulfill the state's constitutional obligation to fund education at specified levels. In order to cover county costs in administering the property tax system, a county is statutorily authorized to impose a property tax administration fee on each city or other entity within its borders. The property tax administration fee is based on an apportionment of the amount of property tax revenue allocated to the city or other entity. But any revenues allocated from these cities and entities to the county's ERAF are exempt from this fee. At issue here is a dispute between Los Angeles County (County) and 47 cities (Cities) within the county regarding how County calculates and imposes property tax administration fees on Cities for their share of County's costs in administering the property tax system. In 2004, two different budgetary measures were enacted diverting local property tax revenue that would have been deposited into each county's ERAF to instead fund various state budget gaps, but the state otherwise made whole each county's ERAF contribution through the allocation of other state funds. A dispute arose after the enactment of these measures when County included in the calculations for the administration fees it imposed on Cities the tax revenue that had been earmarked for the County ERAF but was diverted by the 2004 budgetary measures.
County takes the position that these two budgetary measures allowed it to impose property tax administration fees on the diverted local property taxes because they no longer funded the County ERAF, but were instead used to fund state budget gaps and thus have lost their exempt status. The effect of County's position allowed it to withhold from Cities an additional $4.8 million in fiscal year 2006-2007 and $5.3 million in fiscal year 2007-2008 in property tax administration fees. Cities, however, take the position that the ERAF exemption from the fee still applied under the 2004 legislation and that Revenue and Taxation Code section 97.75, enacted as part of the 2004 legislation, prohibited County's method of calculating the property tax administration fee. We agree with Cities' position, and we affirm the judgment of the Court of Appeal, which reached the same conclusion.
In 2008, Cities
Counties are responsible for administering the property tax system by assessing, collecting, and allocating ad valorem property tax revenues from property owners within their borders. In general, the counties manage the property tax accounting system for the various local entities
Following the passage of Proposition 13, the property tax allocation system has been governed by article 2 of chapter 6 of part 0.5 of division 1 of the Revenue and Taxation Code, section 96 et seq., primarily sections 96.1, 96.2, and 96.5. Under these statutes, in every current fiscal year, each local entity receives property tax revenues equal to what it received in the prior year (also referred to as its base) (§ 96.1, subd. (a)(1)), plus its proportional share of any increase in revenues due to growth in assessed value within its boundaries, which is defined as the "`annual tax increment'" (§ 96.1, subd. (a)(2); see §§ 96.2, 96.5). The sum of these two amounts — the prior year base plus the current year's proportional share of the tax increment — becomes each jurisdiction's new base amount for the following year's calculations. (§§ 96.1, subd. (a)(1), 96.5.) Named after the Assembly bill that originally enacted the fundamental structure of this statutory scheme, this system is commonly referred to as the "A.B. 8" allocation system, with section 96.1 as its principal statute. (City of Scotts Valley v. County of Santa Cruz (2011) 201 Cal.App.4th 1, 8-9, 49 [133 Cal.Rptr.3d 235].) Under this statutory allocation system, "the proportional allocations established in the first fiscal year following the passage of Proposition 13, as modified for the following fiscal year, are perpetuated year after year, unless modified by the Legislature." (Id. at p. 9.)
The Legislature did not address the funding for property tax administration until 1990, when it enacted the first statute that allowed counties to bill cities for their proportionate share of the costs of property tax administration. (Former § 97, subd. (e), as amended by Stats. 1990, ch. 466, § 4, pp. 2043-2045; Arcadia Redevelopment Agency v. Ikemoto (1993) 16 Cal.App.4th 444 [20 Cal.Rptr.2d 112].) As will be discussed in greater detail post, the Legislature subsequently amended this provision numerous times in the early 1990's. Relying on section 96.1 allocations as the basis of apportionment, section 95.3, as last amended in 1996 (Stats. 1996, ch. 1073, § 2, p. 7206), currently governs how a county annually apportions the costs of property tax administration among the local entities within its borders.
In 1992 and 1993, the state was in the midst of a budget crisis, and in order to meet the state's minimum guaranteed education funding requirements
The enactment of the ERAF's permanently modified the A.B. 8 allocation system by reducing the property tax base for each city and county by the amounts specified by the implementing statutes for ERAF I and ERAF II. (§§ 97.1, subd. (a)(1)-(2), 97.2, subds. (a)(1), (b)(1) & (c)(1), 97.3, subds. (a)-(c).) The permanent base shifts required by ERAF I and ERAF II became self-perpetuating for future fiscal years through the A.B. 8 process with each ERAF effectively becoming another entity receiving its share of local property tax revenues through the annual A.B. 8 allocation system.
Because of the exemption for property tax revenues "determined with respect to a school entity or ERAF" (§ 95.3, subd. (b)(1)), counties do not recoup all of their annual costs of property tax administration and instead generally must absorb these unrecovered costs. As we will explain, over the years the Legislature has created several programs and has made various pronouncements concerning property tax administration, but has addressed the significance of this exemption for property tax revenues allocated to ERAF's only in one narrow circumstance.
In light of escalating property values in the early 2000's, property tax revenues appeared to be less volatile than other sources of tax revenue such as sales taxes and vehicle license fees. Accordingly, in 2004, the Legislature passed Senate Bill No. 1096 (2003-2004 Reg. Sess.), which contained two different budgetary measures that again tapped local property taxes to substitute for other revenue sources.
In 2004, the voters approved Proposition 57, the Economic Recovery Bond Act, which allowed the state to sell up to $15 billion in bonds to close the state budget deficit. (Gov. Code, § 99050.) In order to create a dedicated revenue source to guarantee repayment of these bonds without raising taxes, the Legislature had already passed section 97.68, a temporary revenue measure that shifts revenue in a three-stage process known as the "Triple
Also in 2004, the Legislature reduced the annual vehicle license fee (VLF) from 2 percent of a vehicle's market value to 0.65 percent of market value. (Stats. 2004, ch. 211, §§ 30-31, pp. 2332-2333; see Guillen v. Schwarzenegger (2007) 147 Cal.App.4th 929, 937 [55 Cal.Rptr.3d 87].) Because the VLF had been a significant source of local revenue, the Legislature passed section 97.70, also known as the "VLF Swap," which diverted property tax revenue to fully compensate each city and county for the VLF revenue that it otherwise would have received. This diverted property tax revenue, which otherwise would have been allocated to each county's ERAF, is placed in a "Vehicle License Fee Property Tax Compensation Fund" established in each county's treasury, and the county then distributes the fund to each city in lieu of the lost VLF revenue. (§ 97.70, subds. (a), (b).)
As part of the same legislation that created the VLF Swap and made technical corrections to the Triple Flip statute, the Legislature also enacted section 97.75. (Stats. 2004, ch. 211, §§ 20.5, 21, 26, pp. 2307-2318, 2326-2327.) The Court of Appeal in the present case relied heavily on the meaning of section 97.75 in determining whether County's calculation of the disputed property tax administration fee is lawful.
Section 97.75 reads: "Notwithstanding any other provision of law, for the 2004-05 and 2005-06 fiscal years, a county shall not impose a fee, charge, or other levy on a city, nor reduce a city's allocation of ad valorem property tax revenue, in reimbursement for the services performed by the county under Sections 97.68 [(the Triple Flip)] and 97.70 [(the VLF Swap)]. For the
In response to this legislation, the California State Association of County Auditors prepared informal guidelines to implement the Triple Flip, VLF Swap, and section 97.75. Those guidelines, which do not have the force of law, contain a model schedule to implement the changes brought by the above described budgetary measures. The model schedule did not change the calculation of the property tax administration fee for fiscal years 2004-2005 and 2005-2006, but beginning with fiscal year 2006-2007, the model schedule imposed a higher property tax administration fee on each city and relevant local entity. Without explanation, the fiscal year 2006-2007 model schedule included in the cities' bases those funds that would have been placed in the county ERAF, but were not deposited as a result of the Triple Flip and VLF Swap, in calculating each local entity's administrative cost apportionment factor. This method would result in a higher property tax administration fee for each city and local entity.
Beginning in fiscal year 2006-2007, County followed the informal guidelines and no longer treated the property tax revenues diverted by the Triple Flip and VLF Swap as ERAF funds exempt from the property tax administration fee. Instead, County added these diverted revenues to Cities's bases for purposes of apportioning property tax administration costs. Thus, County withheld from Cities an additional $4.8 million, as property tax administration fees for fiscal year 2006-2007 and an additional $5.3 million as property tax administration fees for fiscal year 2007-2008. County's actual annual cost, however, in administering the Triple Flip and VLF Swap with regard to all 47 cities was approximately $35,000. Unless ordered by a court to do otherwise, County has stated its intention to continue to withhold the disputed property tax administration fee in the same manner in each subsequent fiscal year. We refer to County's method of calculating the fee as to those property tax revenues diverted by the Triple Flip and VLF Swap as the "disputed administration fee."
Cities argue that section 97.75 narrowly authorizes County to charge only the $35,000 actual annual cost of "services" for administering the Triple Flip and VLF Swap and that nothing in the 2004 budgetary measures or their legislative histories dictate that those property tax revenues diverted as a result of the Triple Flip and VLF Swap can be included in property tax administration fee calculations for Cities. Cities claim that the plain language of section 97.75 does not support a broader reading that would permit the County to collect the disputed administration fee.
We conclude that the Court of Appeal correctly held that section 97.75 does not authorize County's collection of the disputed administration fee. The Court of Appeal, however, did not fully analyze the distinct issue of whether the Legislature nevertheless intended that funds diverted by the Triple Flip and VLF Swap remain exempt from a property tax administration fee, either implicitly or through section 95.3. As we explain, post, our review of the pertinent statutes shows that the Legislature included provisions to ensure that the 2004 budgetary measures did not alter the basic allocation of property tax revenues to local entities. Thus, in the absence of any contrary evidence we conclude that in enacting the 2004 budgetary measures, the Legislature did not intend to change the effect of the ERAF exemption from the property tax administration fee or to authorize County to add the diverted property tax revenues to Cities' allocation for purposes of distributing administrative costs.
Because the parties advance no factual dispute and the matter presents a purely legal question, we independently review the relevant statutory law. (Professional Engineers in California Government v. Kempton (2007) 40 Cal.4th 1016, 1032 [56 Cal.Rptr.3d 814, 155 P.3d 226].)
We first examine the threshold issue, whether section 97.75 authorizes County's collection of the disputed administration fee.
We agree with the Court of Appeal that section 97.75 is not ambiguous and does not authorize County's method of calculating the disputed administration fee in light of the 2004 budgetary measures.
As previously noted, section 97.75 reads: "Notwithstanding any other provision of law, for the 2004-05 and 2005-06 fiscal years, a county shall not impose a fee, charge, or other levy on a city, nor reduce a city's allocation of ad valorem property tax revenue, in reimbursement for the services performed by the county under Sections 97.68 [(the Triple Flip)] and 97.70 [(the VLF Swap)]. For the 2006-07 fiscal year and each fiscal year thereafter, a county may impose a fee, charge, or other levy on a city for these services, but the fee, charge, or other levy shall not exceed the actual cost of providing these services." (Italics added.)
At issue is the interpretation of the word "services" as used in section 97.75's two sentences. If the term "services" broadly encompasses all of a county's property tax administrative duties, then this interpretation would expressly authorize County's method of calculating the disputed administration fee. But if "services" is narrowly limited to only the new, incremental costs associated with the accounting mechanisms and compensation funds created by the Triple Flip and VLF Swap, then authority for the County's method of calculating the disputed administration fee does not emanate from section 97.75. The plain language of the statute supports only the latter interpretation.
Section 97.75 refers to "services" three times, with the latter two qualifying the term as "these services." It is therefore reasonable to assume that the two references to "these services" refer back to the first use of the word
More importantly, "services," as used in section 97.75 makes no reference to property tax administration fees, the statute governing how the property tax administration fee must be calculated (§ 95.3), or to the county administration of the property tax system as a whole. The Legislature also placed section 97.75 in the same article of the Revenue and Taxation Code as the implementing statutes for the Triple Flip and VLF Swap and not under the "Definitions and Administration" article where the property tax administration fee statute, section 95.3, resides. Additionally, section 97.75's preface states that it applies "[n]otwithstanding any other provision of law ...." This further reinforces the conclusion that it is a stand-alone fee-for-services provision that merely authorizes counties to demand from cities payment for only the actual cost of administering the Triple Flip and VLF Swap and nothing more.
Although we have determined that section 97.75 does not authorize County to collect the disputed administration fee at issue here, this does not end our inquiry. The Court of Appeal concluded and Cities believe that if section 97.75 authorized County to bill Cities for only the additional administrative costs of implementing the Triple Flip and VLF Swap, then County also was foreclosed from collecting the disputed administration fee. But answering the issue of how County should be recompensed for its services for performing the additional administrative duties in implementing the Triple Flip and VLF Swap under section 97.75 is a separate question from the issue of County's calculation of the disputed administration fee. The issue here is whether the Legislature intended to alter section 95.3's property tax administration fee calculations by eliminating the ERAF exemption from the property tax administration fee for those monies designated for an ERAF but diverted by the Triple Flip and VLF Swap. County posits that section 97.75 simply does not address the status of this exemption from the property tax administration fee. It reasons that in enacting the 2004 budgetary measures, the Legislature
Accordingly, County argues, notwithstanding a narrow definition of the term "services" in section 97.75, the 2004 budgetary measures authorized its collection of the disputed administration fee under section 95.3. County contends that despite the absence of any express legislative pronouncement concerning the disputed administration fee in enacting the 2004 budgetary measures, the Legislature has, since 1990, clearly and repeatedly expressed a "pro-recoupment intent" concerning collection of the disputed administration fee. As County sees it, the 2004 budgetary measures reflected the Legislature's attempt to restore property tax administration fees to levels that existed before the creation of the exemptions applicable to property tax revenue directed to schools and the ERAF's. Furthermore, although the implementing statutes for the Triple Flip and VLF Swap do not directly refer to the property tax administration fee, County notes that the respective statutes establish that the diverted property tax revenues are never deposited into an ERAF. County reasons, therefore, that the exemption from property tax administration fee calculations no longer applies to those funds, and that if the Legislature had intended otherwise, it would have amended section 95.3 to explicitly maintain the status quo for the exemption.
Cities assert that the Legislature expressed a "revenue-neutral" intent as to the 2004 budgetary measures that sought to maintain the status quo for total tax revenues that would be made available to both the cities and counties, and it did not intend a stealth multimillion-dollar annual shift of property tax revenues from the cities to the counties. Cities argue that portions of the implementing statutes for the 2004 budgetary measures provide evidence of this revenue-neutral intent.
As explained post, we conclude that Cities have the better argument. Although the Legislature did not address directly the effect of the 2004 budgetary measures on the exemption status of ERAF monies diverted by the Triple Flip and VLF Swap, it did express the intent that the diversions (or
At first glance, this combination of circumstances would appear to resolve the disputed administration fee in favor of County. If the principal A.B. 8 property tax revenue allocation statute, section 96.1, incorporates the article 3 allocation adjustments for the Triple Flip and VLF Swap, then the property tax administration fee statute's reliance on those section 96.1 allocations would tend to suggest that the property tax administration fee should be calculated after the adjustments required by the Triple Flip and VLF Swap are applied. But the statutory provisions of the Triple Flip and VLF Swap suggest a contrary, revenue-neutral intent to maintain the status quo of A.B. 8 allocations.
These circumstances strongly suggest the Legislature intended to broadly protect the status quo of property tax revenue growth. But County's withholding of the disputed administration fee appears to be inconsistent with this intention. In the absence of explicit legislative authorization, County has assigned property tax administration fees to those funds diverted by the Triple Flip and VLF Swap resulting in the annual withholding of additional millions of dollars in revenue from Cities. Thus, if the A.B. 8 allocation system in a given fiscal year grew the property tax bases of Cities by allocating to them millions of dollars in tax increment, that gain would be reduced or eliminated by County's method of withholding additional property tax administration
Furthermore, the existence of these measures also suggests that the Triple Flip and VLF Swap adjustments — even though they happen to be derived from property taxes — are not intended to replace the property taxes earlier diverted from Cities under the ERAF shifts of the 1990's, or in any sense as part of a city's annual share of countywide property tax revenues. Instead, the measures indicate a legislative intent to maintain the A.B. 8 allocation system as it existed following the enactments of ERAF I and ERAF II.
Consequently, under the revenue-neutral principles of the Triple Flip and the VLF Swap, County should be no better, or worse, off in recouping its costs of property tax administration as a result of the adjustments required by those 2004 budgetary measures. The calculation of Cities' property tax administration fees remains unchanged, despite the adjustments required by the Triple Flip and the VLF Swap, and County continues to absorb any proportional administrative costs attributable to property tax revenues that were first assigned to the ERAF, even if some of those revenues are eventually redirected to Cities for other tax revenues these 2004 budgetary measures have diverted from Cities.
Finally, although it is true that the Legislature intended to alleviate counties' financial burden of administering the property tax system by enacting the property tax administration fee statute, we find nothing in the legislative history of section 95.3 to support County's assertion of a "pro-recoupment intent" for the collection of the disputed administration fee.
The Legislature has made many declarations during its history of legislating property tax administration. As noted, ante, in 1990, the Legislature enacted Senate Bill No. 2557 (1989-1990 Reg. Sess.), which amended former section 97 to allow counties, for the first time, to bill cities an annual property tax administration fee. (Stats. 1990, ch. 466, § 4, p. 2043 [amending former § 97, subd. (c)]; see now § 96.1, enacted by Stats. 1994, ch. 1167, § 3, pp. 6906, 6912; Arcadia Redevelopment Agency v. Ikemoto, supra, 16 Cal.App.4th 444.) In enacting this change, the Legislature expressly recognized that since the adoption of Proposition 13, "county governments have borne an unfair and disproportionate part of the financial burden of assessing, collecting, and allocating property tax revenues for cities." (Stats. 1990, ch. 466, § 4, pp. 2043, 2045 [amending former § 97, subd. (e)(5)].) A year later, the Legislature added a provision to exempt school and community college
In 1992, the Legislature enacted Senate Bill No. 1559 (1991-1992 Reg. Sess.), which changed the collection of property tax administration fees from a billing system to a withholding system under which counties annually calculate and deduct each local entity's share of the property tax administration fee from that local entity's property tax revenue allocation prior to the county's disbursement. (Stats. 1992, ch. 697, § 13, pp. 3048, 3049 [amending former § 97.5, subd. (d)]; see Arcadia Redevelopment Agency v. Ikemoto, supra, 16 Cal.App.4th 444.) In effecting this change, the Legislature again acknowledged that subsequent to the adoption of Proposition 13, counties had "borne an unfair and disproportionate" financial burden concerning property tax administration and declared that this new method of recoupment "is intended to fairly apportion the burden of collecting property tax revenues and is not a reallocation of property tax revenue shares or a transfer of any financial or program responsibility." (Stats. 1992, ch. 697, § 13, pp. 3048, 3050, italics added [amending former § 97.5, subd. (d)(6)].)
But these actions and pronouncements from 1990 through 1992 did not specifically address any perceived unfairness created by the property tax administration fee statute's exemption for revenues directed to education.
As noted earlier, in 1992 and 1993, a state budget crisis resulted in the creation of the county ERAF's. Initially, the Legislature allowed the counties to collect some property tax administration fees "with respect to a school entity," and this language apparently also covered the newly created county ERAF's. (Stats. 1992, ch. 697, § 14, pp. 3049-3050, eff. Jan. 1, 1993 [amending former § 97.5, subd. (d)(2), (3)].) But the Legislature reinstated the full exemption for school entities less than six months later. (Stats. 1993, ch. 66, § 35.5, pp. 925-927, eff. June 30, 1993.) The Legislature made no declaration specifically related to this reinstatement.
In 1994, the Legislature repealed and reenacted chapter 6 of part 0.5 of division 1 of the Revenue and Taxation Code. (Stats. 1994, ch. 1167, §§ 2, 3, p. 6906 et seq.) It also made technical, nonsubstantive changes in light of the ERAF measures and renumbered the property tax administration fee statute, section 95.3. (Stats. 1994, ch. 1167, § 6, p. 6961.) That same year, the Legislature appropriated $25 million in state grants to counties to pay for property tax administration "based on each county's share of the amount of
In its 1995-1996 session, however, the Legislature considered a proposal to reimburse counties for lost property tax administration fee revenue associated with school entities and ERAF's. (Assem. Bill No. 1055 (1995-1996 Reg. Sess.) as introduced Feb. 23, 1995, § 1.) But the bill as enacted did not appropriate money to compensate counties for lost property tax administration fee revenues as a result of the exemption for school entities and ERAF's. (Stats. 1996, ch. 1073, p. 7206.)
Instead, the legislation addressed the financial pressure being placed on counties stemming from declining property values and backlogged property assessment appeals filed by property owners by expressly including those costs in the annual calculation of the property tax administration fee.
In sum, nothing in the legislative history concerning the property tax administration fee negates our conclusion that the Legislature enacted the Triple Flip and VLF Swap with the intent to preserve generally the status quo of the A.B. 8 allocation system. The implementing statutes of these 2004 budgetary measures suggest a revenue-neutral intent that is inconsistent with County's policy of annually withholding from Cities additional millions of dollars in property tax administration fees merely because of the adjustments required by the Triple Flip and VLF Swap. A contrary interpretation of the relevant statutes would permit the statewide multimillion-dollar annual shift of property tax revenues from the cities to the counties and would run afoul of the implementing statutes for the Triple Flip and VLF Swap which forbid interference in "the manner in which ad valorem property tax revenue growth from fiscal year to fiscal year is determined or allocated in a county." (§ 97.68, subd. (f)(3); see § 97.70, subd. (f)(3).) Should the Legislature disagree with our conclusion, it of course remains free to expressly authorize a different result. (See People v. Latimer (1993) 5 Cal.4th 1203, 1213 [23 Cal.Rptr.2d 144, 858 P.2d 611].)
Kennard, J., Baxter, J., Werdegar, J., Chin, J., Corrigan, J., and Liu, J., concurred.
Moreover, placing aside subdivision (f)(3) of both budgetary measures (§§ 97.68, 97.70), nothing in the statutory provisions for the Triple Flip or VLF Swap expressly affect the annual proportional allocation of tax increment as calculated by section 96.5 or 96.1.
