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HomeMy WebLinkAbout1998-01-27 - AGENDA REPORTS - PROP 218 (2)l/ City Manager Approval / Item to be present6d by: Carl Newton CONSENT CALENDAR DATE: January 27, 1998 SUBJECT: PROPOSITION 218 COMPLIANCE REPORT DEPARTMENT: City Attorney RECOMMENDED ACTION Receive and file. BACKGROUND At the Council meeting of December 9, 1997, the Council requested a report regarding the City's compliance with Proposition 218. The attached letter reviews in detail the Proposition 218 issues which apply to the City since its adoption by the voters of the State on November 5, 1996 and the responses by the City. It is the City Attorney's opinion based upon information provided to our office that the City is in full compliance with the requirements of Proposition 218. ALTERNATIVE ACTIONS Direct that further research be pursued. FISCAL IMPACT None ATTACHMENT Letter of January 21, 1998 from Burke, Williams & Sorensen to the City Council. Agnrpt\pmp218.gb pP�,;�p �i�A 0 Agenda ltesw—g— LAW OFFICES BIIRKE, WI mms & SORENSEN, LLP LOS ANGELES OFFICE 3200 PARK CENTER DRIVE, SUITE 750 VENTURA COUNTY OFFICE 611 WEST SIXTH STREET COSTA MESA, CALIFORNIA 92626-7149 2310 PONDEROSA DRIVE SUITE 2500 SUITE 1 LOS ANGELES, CALIFORNIA 80017-3102 Tel: (714) 545-5559 CAMARILLO, CALIFORNIA 1130104747 Tel: (213) 238-0800 Fax: (714) 755-5648 Te1: (805) 887-3468 1.: 12131236-2700 Fuc: 1806) 482-8834 January 21, 1998 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA 23920 Valencia Boulevard, Suite 300 Santa Clarita, California 91355 Re: Santa Clarita's Compliance With Proposition 218 Dear Mayor Heidt and Members of the City Council: This letter is provided to you in response to your request that the City Attorney's Office analyze the compliance of the City of Santa Clarita ("City") with Proposition 218. On November 5, 1996, the California electorate approved Proposition 218, the "Right to Vote on Taxes Act" (sometimes referred to herein as the "Act"). The Act, which became.effective November 6, 1996, adds Articles XIIIC and XIIID to the California Constitution. While municipal attorneys throughout the State of California disagree about the precise meaning and method of implementation of the Act, it is clear that its intent was to make profound changes to local government finance law. It appears that certain provisions of Proposition 218 may be resolved only through legislation and litigation over the next several years. In the meantime, the City of Santa Clarita ("City") must continue to implement the measure. This letter addresses both the general effects of the Act on existing taxes, assessments, fees and charges, and the specific effects of the Act on the City's taxes, assessment districts and fees and charges. The factual statements contained herein are based upon information provided to this office by City staff. If any of the information is incorrect, please inform me at your first convenience, as such could change the analysis and conclusions provided. I. SUMMARY With respect to taxes, this letter analyzes the impact of Proposition 218 on the City's business license fee and transient occupancy tax and the City's compliance with the Act. We conclude that the City's business license fee is in the nature of regulatory fee and thus is not IAX2:19PA7.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 2 subject to Proposition 218. The City's transient occupancy tax received voter approval under' the electorate's vote on incorporation. Thus, it appears that the transient occupancy tax is in compliance with Proposition 218. With respect to assessments, this letter analyzes the potential for asserting one or more of the various "exemptions" under the Act and the ability of the City to conduct the annual levy of its district assessments without complying with the procedures of Proposition 218. The conclusions of this correspondence are that the City's fifteen (15) assessment districts qualify for one or more of the exemptions from the Act and, thus, are in compliance with Proposition 218. With respect to fees and charges, this letter analyzes the effects of the Proposition 218 on the City's storm water utility fee. It is our understanding that the Storm Water Utility Fee does not exceed the funds required to provide the storm water service nor does the amount of the Storm Water Utility Fee imposed upon any parcel or person exceed the proportional cost of the storm water service attributable to the parcel. We further understand that the Storm Water Utility Fee has not been increased since the voters adopted Proposition 218. Thus, we conclude that the City's Storm Water Utility Fee conforms with Proposition 218. II. TAXES A. Overview of Santa Clarita's Business License Fee and Transient Occupancy Tax The City annually levies a business license fee on businesses operating within the City. It is our understanding that the amount of the fee does not exceed the reasonable cost of providing the service or regulatory activity for which it is charged and that it is not levied for general revenue purposes. Thus, under Government Code Section 50076, the business license fee is not a tax and is not subject to Proposition 218. The business license fee was implemented by.ordinance of the City Council, pursuant to voter approval of the -Local Agency Formation Commission ("LAFCO") order relating to the City's incorporation. Furthermore, we understand that the City Council implemented a transient occupancy tax by ordinance pursuant to voter approval of the LAFCO order relating to the City's incorporation. LAX2:198447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 3 B. The Effect of Proposition 218 on Taxes Article XIIIC, section 2(b) of the Act prohibits a local government from imposing, extending or increasing any general tax unless and until such tax is submitted to the electorate. A majority vote of the electorate is necessary to impose, extend or increase any general tax. (Cal. Const., Art.'XIIIC, § 2(a).) Furthermore, the election on a general tax must be consolidated with a regularly scheduled general election for members of the governing body of the local government. (Id.) The Act provides an exception from this scheduling requirement in cases of emergency declared by a unanimous vote of the governing body. (Id.) The unanimous vote of a governing body means the unanimous vote of the members of the governing body present. (See Tidewater Southern Railway Co. v. Jordan (1912) 163 Cal. 105.) It does not mean the unanimous vote of all the members of the governing body. (Id.) The drafters of the Act have acknowledged this interpretation and raised the concern that the nature of an emergency might keep some members from attending the meeting at which action is taken. The Act provides that a general tax shall not be deemed to have been increased if it is imposed at a rate not higher than the maximum rate approved by the voters. (Cal. Const., Art. XIIIC, § 2(a).) This provision indicates that a local government may propose a tax rate higher than it wishes to levy. If such a rate is approved by the voters, under the Act, the local government may levy a lower rate of tax than that approved by the voters and subsequently increase the rate without seeking a voter approval, provided such increase does not exceed the original amount approved by the. voters. Likewise, a local government may . propose an automatic escalator based on a formula. If such an escalator is approved by the voters, it appears that under the Act, the automatic increases pursuant thereto would be permissible. The Act contains a provision requiring any general tax imposed, extended or increased, without voter approval, by any local government on or after January 1, 1995, and prior to November 6, -1996, be approved by a majority vote of the voters voting in an election on the issue of imposition. (Cal. Const., Art. XIIIC, § 2(c).) Such election must be held no later than November 6, 1998, and must be consolidated with a regularly scheduled general election for members of the governing body of the local government, except in cases of emergency as declared by a unanimous vote of the governing body. C. The Effects of Proposition 218 on Santa Clarita's Transient Occupancy Tax (TOT). The City's TOT was approved by the voters pursuant to the LAFCO order relating to the City's incorporation in 1987. The TOT rate has remained constant since incorporation. IAX2:198447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 4 The Act. applies to "any general tax imposed; extended or increased, without voter approval, by any local government on or after January 1, 1995 and prior to November 6, 1996." The City's TOT has not been imposed, extended or increased on or after January 1, 1995. Furthermore, the TOT received voter approval as part of the incorporation election. Thus, the City's TOT appears to be in compliance with Proposition 218. III. ASSESSMENTS A. Overview of the Santa Clarita's Assessment Districts The City annually levies and collects special assessments in order to maintain the improvements that provide a benefit to properties within its fifteen (15) assessment districts. The City currently has the following districts: 1. Landscape Maintenance District No. 1 2. Landscape Maintenance District No. 2 3. Landscape Maintenance District No. 3 4. Landscape Maintenance District No. 4 5. Landscape Maintenance District No. 5 6. City Landscape Maintenance District No. 1 (including Zones 1, 2, 3, 4, and 5) 7. Landscaping and Lighting Assessment District No. 2 (including Zones 1, 2, 3, 4, 5, 6, 7, 8, 9, 17, 23, 23A, 23B, 29, 31, 42, 42A and 46) 8. Assessment District No. 92-2 (Golden Valley) 9. Community Facilities District No. 92-1 (Valencia Town Center) 10. Soledad Canyon Integrated Financing Assessment District No. 92-4 11. San Fernando Road Underground Utility District No. 91-1 12. Drainage Benefit Assessment Area No. 3 LAx2:198447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 5 13. Drainage Benefit Assessment Area No. 6 14. Drainage Benefit Assessment Area No. 18 15. Via Dona Christa Assessment District 1. Description of Services. Landscape Maintenance District Nos. 1, 2, 3, 4 and 5, Zones 1-5 of the City Landscape Maintenance District and Landscaping and Lighting Assessment District No. 2 provide for the maintenance, servicing and operation of landscaping improvements within public easements and public rights-of-way, parks, open spaces and appurtenant facilities throughout the districts. Soledad- Canyon Integrated Financing Assessment District No. 92-4 and Via Dona Christa Assessment District provide for the capital costs for the construction of street improvements. San Fernando Road Underground Utility District No. 91-1 provides for the capital costs of undergrounding utilities in the area of San Fernando Road.. Drainage Benefit Assessment Area Nos. 3, 6 and 18 provide for the capital cost, maintenance and operation for drainage systems. Assessment District No. 92-2 (Golden Valley) provides for the capital costs of certain public improvements. Community Facilities District No. 92-1 (Valencia Town Center) also provides for the capital costs of public improvements. B. The Effect of Proposition 218 on Existing Assessments Article XIIID, Section 2 (b) defines "assessments" as any levy or charge upon real property for a "special benefit" conferred upon the propertyY The subsection goes on to listmanyterms and variations under California law for assessments, including special assessments and maintenance assessments. 1. The TimingFor or Applying Proposition 218 To Assessments Although Article XIIID became effective on November 6, 1996, Section 5 provided for a delayed date of July 1, 1997, for applying its provisions to assessments. This effective date of July 1, 1997, allowed local governments a limited period of time in which to conduct 1 Cal. Const. Art. XIIID, Sec. 20l defines "special benefit" as "a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large. General enhancement of property value does not constitute a 'special benefit'." I.AX2:198447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 6 elections and to otherwise bring existing, new or increased assessments into compliance by the beginning of the 1997-1998 fiscal year. Presumably, actions to bring assessments into compliance must be performed according to the new procedures of the Act. 2. Certain Existing Assessments Are Exempt From Proposition 218, Article XIIID, Section 5, sets forth four (4) categories of assessments which, if they existed on November 6, 1996, are exempt from the procedures and approval process set forth in Section 4: a. Assessments imposed exclusively to finance the capital costs or maintenance and operation expenses for sidewalks, streets, sewers, water, flood control, drainage systems or vector control; and Assessments imposed pursuant to a petition signed by 100% of the owners of parcels subject to.the assessments; and C. Assessments "exclusively" used to repay bonded indebtedness; and d. Any assessment previously receiving majority approval in an election. It is important to note, however, even as to the exempt categories of assessments, increases in such exempted assessments "except for bonded indebtedness", are required to be approved as provided in the procedures set out in Proposition 218. C. Are the Santa Clarita Assessment Districts Exempt From Proposition 281? 1. Landscape Maintenance Districts and Landscaping and Lighting Assessment Districts The effect of Proposition 218 on Assessment District No. 1 is potentially profound, depending upon the ability of the City to articulate an exemption or exemptions from the procedures and approval process of Section 4 of Article XIIID. As stated above, assessments which were "existing" on November 6, 1996, and which fall into one of four categories identified in Section 5 of Article XIIID are exempt from the Act. Except for assessments which are levied to pay bonded debt, increases in the assessment are subject to the procedures and approval process of Article XIIID; Section 4. LAX2:19VA7.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 7 Section 5 of the Proposition is silent as to whether an assessment existing on November 6th that is levied on an annual basis, continues to be an assessment existing on the effective date after it is reimposed the annual levy, and thereby eligible to be exempt from the ratification requirement. However, Section 54954.6 provides that the term "new or increased assessment" does not include an ongoing annual assessment if it is imposed at the same or lower amount as any previous year. (Gov't Code § 54954.6.) With these caveats in mind, this letter will analyze the exemptions which the City may assert to establish that the City's assessment districts are not covered under Proposition 218 at the current time. The "exemptions" which appear to relate to Landscape Maintenance District Nos. 1, 2, 3, 4, and 5; City Landscape Maintenance District No. 1; Landscaping and Lighting Assessment District No. 2; Soledad Canyon Integrated Financing Assessment District No. 92-4; San Fernando Road Underground Utility District No. 91-1; Drainage Benefit Assessment Area No. 3; Drainage Benefit Assessment Area No. 6; Drainage Benefit Assessment Area No. 18; and Via Dona Christa Assessment District are as follows: a. An assessment imposed exclusively to finance the capital costs or maintenance and operation expenses for sidewalks, streets, sewers, water, flood control, drainage systems or vector control. It appears that existing assessments in the Landscape Maintenance District Nos. 1, 2, 3, 4, and 5; City Landscape Maintenance District No. 1; Landscaping and Lighting Assessment District No. 2; Soledad Canyon Integrated Financing Assessment District No. 92-4; San Fernando Road Underground Utility District No. 91-1; Drainage Benefit Assessment Area No. 3; Drainage Benefit Assessment Area No. 6; Drainage Benefit Assessment Area No. 18; and Via Dona Christa Assessment District are exempt from the compliance requirements. The nature of the improvements being maintained will be determinative on the question of exemption. For example, existing assessments for median and parkway landscaping within streets rights-of-way are more likely to be found exempt than assessments for landscaping within parks, playing fields or around public buildings. Assessments used for drainage improvements and the actual capital costs of constructing and maintaining a street clearly qualify for the exemption. Street landscaping is not expressly listed among the improvements in this exemption. However, an argument can be made that such landscaping is an integral part of "streets" and therefore, exempt from the compliance requirements as an assessment for the maintenance LAX2998447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 8 and operation of the streets. However, the assessment must be used "exclusively" for the capital costs and maintenance and operation of the qualified projects. b. Any assessment imposed pursuant to a petition signed by the persons owning all of the parcels subject to the assessment at the time the assessment is initially imposed. City Landscape Maintenance District No. 1, Zones 1, 2, 3, 4 and 5, and Landscaping and Lighting Assessment District No. 2, Zones 6, 7, 8, 9, 17, 23, 23A, 23B, 29, 31, 42, 42A and 46 were all formed pursuant to a petition signed by the persons owning all of the parcels subject to the assessment at the time the assessment was initially imposed. Thus, it appears that these Zones are exempt from the compliance requirements pursuant to California Constitution Article XIIID, Section 5(b). C. Any assessment which previously received majority voter approval from the voters in an election on the issue of assessment. Landscaping and Lighting Assessment District No. 2, Zones 1. 2, 4, 4, 5, 6, 7, 8, 9 and 42, and Landscape Maintenance District, Zones 1, 2, 3, 4 and 5 all received majority voter approval from the voters pursuant to the LAFCO order relating to the.City's incorporation. Thus, it appears that the aforementioned Zones are exempt from the compliance requirements pursuant to California Constitution, Article XIIID, Section 5(d). 2. Assessment District No. 92-2 (GoldenValla)and Community Facilities District No. 92-1 (Valencia Town Center) It is our understanding that the assessments levied and collected in Assessment District No. 92-2, formed on April 21, 1992, pursuant to the Municipal Improvement Act of 1913 and Community Facilities District No. 92-1, formed on July 14, 1992, pursuant to the Mello -Roos Community Facilities Act of 1982, secure bonds that were issued as part of the formation process of these districts. Accordingly, the "exemption" which appears to relate to Assessment District No. 92-2 and Community Facilities District No. 92-1 is as follows: Any assessment the proceeds of which are exclusively used to repay bonded indebtedness of which the failure to pay would violate the Contract Impairment Clause of the Constitution of the United States of America. Thus, the application of Proposition 218 to the bonds issued in connection with Assessment District No. 92-2 and Community Facilities District No. 92-1 would severely 11R:y.1ICF:ZE}B4 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 9 impair the covenant of the City to levy and collect the assessments pledged as security for the bonds. Moreover, because the law in effect at the time of issuance of the bonds did not permit the initiative power to be used to repeal or reduce assessments, one may argue that an attempted repeal or reduction of the security for the bonds, pursuant to Proposition 218, would violate the Impairment of Contract Clause of the U.S. Constitution. Therefore, it appears that the assessments levied and collected in Assessment District No. 92-2 and Community Facilities District No. 92-1 are exempt from the provisions of Proposition 218 pursuant to the bonded indebtedness exemption contained in the Act. IV. FEES AND CHARGES A. The Effect of the Act on Fees and Charges. Before dealing specifically with Santa Clarita's fees and charges, set forth below is a general overview of the Proposition and its effect upon local government fees and charges. The issues include: the types of fees and charges covered by the Act; the Act's application to existing fees; the timing for compliance on new, increased and existing fees; substantive requirements of the -Act which the City must meet; and the procedural requirements the City must meet. The Act's Application to Existing Fees and Charges. The text of Proposition 218 is not clear on whether it should apply to existing fees . and charges. Clearly the Act applies to both new or increased fees, but is ambiguous on existing fees. The uncertainty for existing fees as of the effective date of the Act (November 6, 1997) results from the language regarding the restrictions on fees which are set forth at Article XIIID, Section 6(b). That Section is entitled "Requirements for Existing, New or Increased Fees and . Charges," while the text of the section simply provides that the restrictions apply to fees or charges that are. "extended, imposed or increased" by the City. The text does not define the term "extended," nor does it state whether the restrictions of Section 6(b) apply to fees that "existed" on November 6, 1996. One reading of the term "extended" requires that positive legislative action beyond simply allowing a fee to exist and continue may be necessary to "extend" the fee. In other words; fees or charges that are "extended" might require some action on the part of the City Council, rather than the passivity of allowing the fee to continue. An example of such a positive, non -passive act would be the repeal of an otherwise effective sunset clause. LAX2:198447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 10 On the other hand, there is a statutory indication that Proposition 218 applies to existing fees. Section 6(d) provides that, "beginning July 1, 1997, all fees and charges shall comply with this section." The use of the term "all" will likely be construed to mean both new and existing fees. However, it is important to note that this language differs from the language which is used in Proposition 218 regarding the effective date of assessments. Article XIIID, Section 5, provides that, "beginning July 1, 1997, all existing, new or increased assessments shall comply with this article." The lack of a specific reference to "existing" fees, in the fee discussion, when contrasted with the language on assessments, gives rise to an argument that Section 6(d) does not apply to existing fees. Given the ambiguity, it is helpful to examine the ballot materials which were presented to the electorate in connection with this measure. The ballot pamphlet for Proposition 218, the official title and summary prepared by the Attorney General, and the analysis and ballot arguments do not directly address whether existing fees or charges are subject to the procedural requirements of the measure. However, with respect to the substantive requirements of Section 6(b), the Legislative Analyst makes no distinction between existing or new fees but states that the measure requires "all property -related fees" to comply with these requirements by July 1, 1997. Additionally, the Legislative Analyst, when addressing the fiscal impact of the initiative, states that "by July 1, 1997, local governments would be required to reduce or repeal existing property -related fees ... that do not meet the measure's restrictions on (1) fee .. . amounts or (2) the use of these revenues." These statements strongly support the interpretation that Proposition 218 applies the substantive requirements of the Act to existing fees and charges. Finally, it is important to note that Section 5 of the Act provides that the provisions of the initiative "shall be construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent." Therefore, it is likely that the word "extended" will be construed to apply to those fees and charges which are allowed to continue beyond the July 1, 1997 date. As a result, the restrictions set forth in Section 6(b) of Article XIIID will likely be interpreted by the courts to apply to existing fees, as well as new or increased fees. 2. When Does Proposition 218 Apply To Fees? Article XIIID, Section 6(d) provides that "all fees or charges" shall comply with the Act beginning July 1, 1997. As discussed above, it appears that this effective date' as well as the substantive provisions of the Act apply to existing fees as well as new or increased fees. IAX2:198447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 11 An interesting issue is whether or not, prior to the effective date, existing fees or charges can be increased or new fees or charges adopted without having to comply with either the substantive or procedural requirements of the Act. One possible interpretation is that a "window period" exists during which the requirements of Section 6, both the substantive and procedural provisions, need not be followed provided that increases to the existing fees or charges are enacted prior to July 1, 1997. If there is such a "window period," a local government might be able to adopt increases and new fees or charges prior to July 1, 1997, without providing the type of detailed notice described in Section 6(a)(2) or obtaining approval of the voters as required by Section 6(c) of Article XIIID. However, it is important to note that any such fees or charges that are increased or adopted will certainly be considered "existing' on July 1, 1997, and will need to meet the substantive requirements of the Act at that time. A more conservative view would be that the "window period" does not allow for the adoption of new fees or increases of fees without following the procedural requirements. This more cautious interpretation would mean that the procedural requirements of Section 6 must be complied with for new or increased fees as of the effective date of the Act, which was November 6, 1996. Additionally, fees or charges which are to be revised in order to comply with the substantive provisions of the Act may -also need to follow the procedural requirements under the more conservative view. The Analysis of New and Existing Fees and Charges The following analysis should be followed in reviewing the effect of the Act on any fees and charges: a. Is the type of fee or charge subject to the Proposition? b. Is the fee or charge, if it is subject tor the Act, structured in a way so as to satisfy the substantive requirements as set forth in Section 6(b)? C. What are the procedural requirements for imposing the fee or charge? (1) Does the fee or charge need to go through the notice and hearing process set forth in Article XIIID, Section 6(a)? (2) Does the fee or charge require voter approval as required by Article XIIID, Section 6(c)? ]AX2:199447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 12 . 4. What Types of Fees or Charges Are Covered? The Act indicates that there are only four categories of property related levies for public agencies to use. The first three are (1) ad valorem taxes; (2) special taxes (it was probably a drafting error, but this portion of the Act fails to recognize general taxes as property related levies); and (3) assessments. The fourth category includes "fees or charges for property related services." (Article XIIID, Section 3(a).) The Act specifically excludes from the covered fees and charges developer fees, and fees which are for the provision of electrical and gas services. (Article XIIID, Section 3(b).) However, "property -related fees and charges" are not defined within the Act. The Act does define the terms "fee" and "charge" as follows: "'Fee' or 'Charge' means any levy other than an ad valorem tax, a special tax or assessment, imposed by an Agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property -related service." (Article XIIID, Section 2(e).) Further, "property ownership" is defined as: "'Property Ownership' shall be deemed to include tenancies of real property where tenants are directly liable to pay the assessment, fee or charge in question." (Article XIIID, Section 2(g).) "'Property -related service' means a public service having a direct relationship to property ownership." (Article XIIID, Section 2(h).) The Act also provides that reliance: by an agency on a parcel map, including an assessor's parcel map, may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership for purposes of the article. (Article XIII, Section 6(b).) Central to the application of the Act to many fees and charges by the local government is the meaning of the phrases "upon a parcel or upon a person as an incident of property ownership." There are at least two (2) views. One view is that these phrases mean that the fee must be paid solely because that person owns property, and for no other reason. Therefore, such a position argues that fees and charges which are imposed for using a service or purchasing a commodity, such as water, are not subject to Proposition 218. However, another position is that Proposition 218 is intended to cover fees for services that are normally delivered to real property or a permanent location, including water LAX2:199447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 13 and sewer services. This broader position is, in the opinion of Burke, Williams and Sorensen, supported by the language of the Act. The Proposition defines fees and charges to include "user fees or charges for a property -related service." Article XIIID, Section 3, provides that the only fees and charges which may be "assessed" on property or on a person as an incident of property ownership are those for "property -related services. As noted above, Proposition 218 defines "property -related service" as a public service having a direct relationship to property ownership. It is also important to note that the Act expressly excludes from the category of fees and charges imposed as an "incident of property ownership" fees for the provision of electric or gas service. This explicit exemption for electrical and gas service implies that similar services, which are not mentioned, are included in the definition. Similar property -related charges include those for the provision of water and waste water services. Additionally, the procedural requirements of Proposition 218 (described in detail below) specifically exempt from the poll election process those fees which are for water, sewer and refuse collection. This express exemption of water, sewer and refuse implies that these .services are "property -related," for the purposes of the Act. The exemption applies only to the poll election requirement. Presumably the other substantive and procedural provisions of the Act still apply to charges for these services. Finally, it is important to note that Section 5 of the Act provides that "the provisions of this Act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent." In the event of an ambiguity as to the application of the Act to water and sewer services, a court is likely to use this section to resolve the uncertainty in favor of covering these services. 5. Substantive Restrictions on Property -Related Fees and Charges. The Act requires that certain substantive requirements be met for the imposition of fees and charges. The following five requirements are placed on all covered fees and charges: a. Revenues derived from the fee or charge must not exceed the funds required to provide the property -related service. (Article XIIID, Section 6(b)(1).) LAX2198447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 14 b. Revenue from the fee or charge must not be used for any purpose other than that for which the fee or charge is imposed. (Article XIIID, Section 6(b)(2).) C. The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership must not exceed the proportional cost of the service attributable to the parcel. (Article XIIID, Section 6(b)(3)•) d. The fee or charge may not be imposed for service unless the service is actually used by, or immediately available to, the owner of the property in question. Fees or charges based on potential or future use of a service are not permitted. Standby charges must be classified as assessments and shall not be imposed without compliance with the requirements for assessments. (Article XIIID, Section 6(b)(4).) e. No fee or charge may be imposed for general governmental services such as police, fire, ambulance or libraries, where the service is available to the public in substantially the same manner as it is to property owners. (Article XIIID, Section 6(b)(5).) Further, the Proposition provides that in any legal action contesting the validity of a fee or charge, the burden is on the City to demonstrate that it has complied with Proposition 218. (Article XIIID, Section 6(b)). 6. Procedural Requirements For Fees and Charges. The Act imposes specific procedural requirements for the approval of any property - related fee or charge. These procedures, which are established in Article XIIID, Section 6, resemble some of the procedural requirements for the adoption and levy of assessments. The procedures cover three (3) general areas: a. - The notice which must be sent to all property owners; b. The public protest hearing on the fee or charge; C. Except for water, sewer and refuse fees, the mandatory election following the City Council's adoption of the fee. I.AX2:199447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 15 7. The Notice Required For a New or Increased Fee, Under Article XIIID, Section 6(a)(1), the local government must identify the fee, calculate the amount of the fee proposed to be imposed upon each parcel, and mail to the record owner of each identified parcel upon which the local government proposes the fee a detailed written notice. That mailed notice must specify the amount of the fee to be imposed upon the parcel, the basis upon which the amount of the fee was calculated, the reason for the fee, and the date, time and location regarding the public hearing to be conducted on the fee. 8. The Public Hearing Requirement. Article XIIID, Section 6(a)(2) provides that the local government must conduct a public hearing on the proposed fee no sooner than forty-five (45) days following the mailing of the notice to the record owners of the affected parcels. At the hearing, the local government must consider all protests against the proposed fee. If written protests against the proposed fee are presented by a majority of the owners of the affected parcels, the local government may not impose the fee. Article XIIID, Section 6(a)(2) does not indicate whether the government should count protests filed against a proposed fee in terms of individual owners or individual parcels. Under one interpretation, the City must count as one protest, any number of protests filed by an individual who owns one or more parcels of land effected by the fee. Under a second interpretation, the City must count as separate protests each objection filed by an individual on behalf of each parcel owned by that person. The language of the Proposition does not provide clear guidance on this issue. However, it would appear that a local government should count as a protest an objection filed by an individual on behalf of a specific parcel, even if that individual may cast a number of votes by virtue of owning several parcels. This interpretation of the Act comports with what appears to be the intent of its drafters, to control or limit the imposition of fees on a parcel, or on a person as an incident of ownership of that parcel. 9. The Election Following the Protest Hearing, Following the protest hearing, if a majority of the affected parcels do not protest the fee, Article XIIID, Section 6(c) requires that the local government conduct an election to confirm the imposition of the fee. The election must be conducted no sooner than forty-five (45) days following the protest hearing on the fee. Until the fee has been confirmed or authorized by the election, the fee may not be imposed or increased. 11,(2:198447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 16 The City may conduct an election of the affected property owners or of the resident electorate. If the local government conducts the fee election as an election of the affected property owners, the fee must be approved by a majority vote of the property owners subject to the fee. If the government conducts the election for the resident electorate, the fee must be approved by a 2/3rds vote of the "electorate" residing in the affected area. There is no procedure in the Act to govern the conduct of elections. However, the Act does indicate that the City may adopt procedures "similar to those for increases in assessments." The Proposition does not provide a rule for the allocation of voting rights between property owners in an election to confirm fees. Under Article XIIID, Section 6(a)(2), a majority protest exists if a majority of "owners of the identified parcels" cast protests. However, a fee is confirmed if it is approved by a majority vote of the "property owners of the property subject to the fee ...." This difference in language may support an argument that each individual property owner receives one vote, regardless of the number or size of parcels owned. However, because the basic intent of the Act was to relate the effect of fees, taxes and assessments on individual parcels, the better position is that a property owner may have a number of votes, based upon the number of parcels owned by the individual. B. Effect of the Act on Santa Clarita's Storm Water Utility Fees. The following is an analysis of the.effect of the Act on the City's Storm Water Utility Fee. Again, the factual statements contained herein are based. upon information provided to this office by City staff. If any of the information is incorrect, please inform me at your first convenience, as such could change the analysis and conclusions provided. The City operates a storm water utility that was formed pursuant to the Revenue Bond Law of 1941 (the "Bond Law"). The utility operates and maintains a storm water drainage system that provides drainage for storm water runoff from each property within the City. The Bond Law authorizes an agency to prescribe, revise, and collect charges for the services, facilities, or water furnished by the enterprise. (Gov't Code § 54344.) The City prescribes and collects storm water utility charges from all property owners within the City. It is our understanding that the City uses the assessor's tax rolls as a primary source of information together with additional sources to determine the owners of property within the City, who are then assessed the charges. Proposition 218 defines a fee or charge as "any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property related service." (Cal. Const., Art. XIII D, § 2 (e).) Proposition 218 provides further that IAX2:19SU7.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 17 "[r]eliance by an agency on any parcel map including, but not limited to, an assessor's parcel map, may be considered a significant factor in determining whether a fee or charge is imposed as incident of property ownership for purposes of [Proposition 218]. (Cal. Const:, Art. XIII D, § 6 (b).) The City's storm water utility charge appears to be imposed by the City upon each parcel or owner of a parcelasan incident of property ownership. The storm water utility service provided by the City also appears to have a direct relationship to property ownership as persons who own no real property within the City are not assessed the charges. Moreover, the City relies primarily on the assessor's tax rolls to determine who is subject to the charges. Accordingly, the City's storm water utility is probably subject to the provisions of Proposition 218 relating to fees and charges. Nonetheless, the City's existing storm water utility charges are not subject to voter approval. The voter approval provisions apply, if at all, to new or increased charges. (Cal. Const., Art. XIII D, § 6 (c).) It is our understanding that the City's storm water utility fee has not been increased since Proposition 218 became effective. It our further understanding that the City's Storm Water Utility Fee complies with the requirements that (1) existing charges not exceed the funds required to provide the storm water. service, (2) the amount of the Storm Water Utility Fee imposed upon any parcel or person must not exceed the proportional cost of the storm water service attributable to the parcel, (3) the Storm Water Utility Fee must only be used to provide storm water services, and (4) the Storm Water Fee must not be imposed for service unless the service is actually used by, or immediately available to, the owner of the property in question. Thus, we conclude that the Storm Water Utility Fee is likely in compliance with Proposition 218. V. CONCLUDING COMMENTS Please call me at (213) 236-0600 or Robert Messinger at (714) 545-5559 if you have any questions relating to this or any other matter. - cerely, CARL K. NEWTON of BURKE, WILLIAMS & SORENSEN, LLP LAX2:199447.2 Mayor Janice Heidt and Members of the City Council CITY OF SANTA CLARITA January 21, 1998 Page 18 c: George Caravahlo, City Manager Ken Pulskamp, Assistant City Manager/Community Development Director Anthony J. Nisich, Director of Building & Engineering Services Steve Stark, Director of Administrative Services Robert Messinger, Esq. LVC2:199447.2