CITIZENS FOR FAIR REU RATES v. CITY OF REDDING

Amicus Curiae Brief of Glendale Coalition for Better Government

Cal.August 12, 2015

SUPREME COURT COPY IN THE SUPREME COURT SUPREME COURT OF THE STATE OF CALIFORNIA FILED AUG 12 2015 Frank A. MeGuire Clerk Deputy CITIZENS FOR FAIR REU RATES, $224779 et al 3rd Civil No. C071906 Plaintiffs and Appellants, cyasta S.C. Nos. 171377 and 172960 vs. CITY OF REDDING,et al Defendants and Respondents. APPLICATION OF GLENDALE COALITION FOR BETTER GOVERNMENT FOR AMICUS CURAIE AND AMICUS CURAIE BRIEF Arthur Jarvis Cohen, Esq. (CSB #50301) Harry Zavos, esq. (CSB #51873) 2 Venture, Suite 120 Irvine, California 92618 Telephone: (949) 766-3075 Facsimile: (949) 766-3041 E-mail: ajcohenlaw@gmail.com Attorneys for Amicus Curaie IN THE SUPREME COURT OF THE STATE OF CALIFORNIA CITIZENS FORFAIR REU RATES, S$224779 et al 3rd Civil No. C071906 Plaintiffs and Appellants, | oyasta S.C. Nos. 171377 and 172960 vs. CITY OF REDDING,etal Defendants and Respondents. APPLICATION OF GLENDALE COALITION FOR BETTER GOVERNMENT FOR AMICUS CURAIE AND AMICUS CURAIE BRIEF Arthur Jarvis Cohen, Esq. (CSB #50301) Harry Zavos, esq. (CSB #51873) 2 Venture, Suite 120 Irvine, California 92618 Telephone: (949) 766-3075 Facsimile: (949) 766-3041 E-mail: ajcohenlaw@gmail.com Attorneys for Amicus Curaie APPLICATION OF GLENDALE COALITION FOR BETTER GOVERNMENT To: TO FILE AMICUS CURIAE BRIEF IN SUPPORT OF CITIZENS FOR FAIR REU RATES THE HONORABLECHIEF JUSTICE AND ASSOCIATE JUSTICES OF THE SUPREME COURT OF CALIFORNIA Yourapplicant is the Glendale Coalition for Better Government, a nonprofit corporation (hereinafter “Glendale Coalition”). It is the Petitioner in the case of Glendale Coalitionfor Better Government v City ofGlendale, Los Angeles Superior Court Case No. BS147376. The proposed amicus curaie brief was authored by Harry Zavos, attorney at law, and Arthur Jarvis Cohen, attorney at law, both of whom representthe Glendale Coalition in the aforementioned case. The amicuscuraie brief was prepared without a monetary contribution from any party. The instant case entails an interpretation of Proposition 26. The ruling of this Supreme Court will directly impact the Glendale Coalition case which also pertainsto an interpretation of Proposition 26. It should be noted that counsel for the city of Redding in the case at bar is also counsel for the city of Glendale in the Glendale Coalition case. The instant case has reached this Supreme Court on the unexamined assumption that “tax” as used in California Constitution, Article XIIIC (1)(e) refers to the PILOT.It is the position of the Glendale Coalition that this assumption is simply wrong. The Glendale Coalition submitsthat “tax”refers to the fees chargedto rate payers for providing electric services and not how those fees are ultimately expended. The Glendale Coalition recognizes that this court has requested briefing on three issues. This amicus curaie brief primarily addressesthefirst of those three issues which asksif the transfer of fundsfrom thecity utility to the general fundis a “tax.” The purposeof this amicus curaie brief is to encourage this Supreme Court to take a fresh lookat the actual language andintent of Proposition 26. The Glendale Coalition submits that once that is done, this court will find that the position of the Glendale Coalition stated above is correct and that the parties to the instant case as well as the courts below have misconstrued Proposition 26. The Glendale Coalition submits that this Supreme Court will find that when California Constitution, Article XIIC (1)(e) refers to “tax,” it refers to the charges paid by ratepayers and notto the transfer of funds. July 29, 2015 Harry Zavos, Attorney at Law Arthur JarvisCohen, Attorney at Law ur Jarbis Cohen, Attorney at Law TABLE OF CONTENTS PAGE TABLE OF CONTENTS1.00.cc ccecssssessesessessssevescsesesecsesssessseccaesacscasscvesens i TABLE OF AUTHORITIES 000... ceeccccsssssssssssscecscecsesessescsescsevsveesaesasavansesages li I. INTRODUCTION... ooo ceeceseseeseseesesesesesesssessesesesssesassesessasseeseavees I. THE TAX IS THE ELECTRIC RATES CHARGED TO RATEPAYERS;IT IS NOT THE PILOT (Supreme Court Issue #1)............ccccc ccc eceecesecesseeeeeeceasersussnees2 A. THE MEANING OF THE WORD “TAX”....coccccccescesccsscesseeee. 2 B. THE HISTORY OF PROPOSITION26........ccccceccscssssesessesesees 3 C. ITIS RATE CHARGED, NOT THE TRANSFER, WHICH CONSTITUTES THE TAX....0.. 0... cccccceccececeesececeeacaeeuseuens4 III. REASONABLE COST EXCEPTION (Supreme Court Issue #2)............ 7 IV. PROPOSITION 26 AND RETROACTIVITY (Supreme Court Issue #3)..............ccccccceeseceeeesenteeeseesceseecees 8 V. CONCLUSION....00.. 0.0 ecec ce cee cece eee a eeeceeaeeeeesseseeeneeeneinnees 8 TABLE OF AUTHORITIES CASES PAGE American Microsystems, Inc v. City ofSanta Clara (1982) 137 Cal.App.3™ 1037, ..ccccsecssessseesesssssssssstesseseeesearssseveeseseescecs, 2 Citizensfor Fair REURatesv. City ofRedding (2015) 233 Cal.App.4" 402, 182 Cal.Rptr.3d 722 v....cesecesceccsccseccoseececs., 1 Legislature v. Eu (1991) 54 Cal.3™ 492 oo esseeecssssscssssseseesssssssesssssssssssssssssssntatsrecestssssseecescc.. 6 CALIFORNIA CONSTITUTION Article XUDD Coo. eessesesessssesesesessscesessssssusscssavavavevavstsasatstesssecceesce, Passim Proposition 13 vo.eeecceeeseseseseseeecsssssssesssssevevavavsvecasecusatetsuessesesecesececes, 3,4 POPOSItION 26 0.2... ceseecececccsseeesesesesesesssesesecsssvsesssvevstststasasansterstecseseseesces Passim PrOpOSItiON 218 oo. eeecececeeesesesescsesesssesssscsssesestsvststssasatasstertievessesesseesccce. 3,4 MISCELLANEOUS Official Ballot Pamphlet for Proposition 26 .........cccccsssssescecssesescececcess., 6 Proposition 26 Implementation Guide of the League of California Cities. ..6 li AMICUS CURIAE BRIEF OF GLENDALE COALITION FOR BETTER GOVERNMENT IN SUPPORT OF CITIZENS FOR FAIR REU RATES I. INTRODUCTION The City of Reddingtransfers a portion of the monies received from electric ratepayers fromits electric utility fund (hereinafter “REU”) to the city general fund. This transferis in lieu of property taxes andis referred to as the PILOT. The parties and courts below have proceeded upon the assumption that the PILOT is what maybethe “tax” as defined in California Constitution, Article XIIIC (1)(e). The following is from the majority opinion of the Court of Appeal in Citizensfor Fair REURatesv. City of Redding (2015) 233 Cal.App.4" 402, 414, 182 Cal.Rptr.4" 722, 732: Accordingly, we conclude the PILOT constitutes a tax under Proposition 26 unless Redding proves the amountcollected is necessary to cover the reasonable costs to the city to provide electric service. (Art. XIII C, § 1, subd.(e).) The Glendale Coalition submits that the above conclusionis wrong as a matter law. It is the rate charged, not the PILOT, which mayconstitute the tax. This is consistent withthe following from the dissenting opinion in the City ofRedding case at page 425, (740): Theelectric rates set by Redding may be increased by the PILOT transfer, but that is only one factor the city council considers in setting rates. That is, an increase in the amountof the PILOT(e.g., through acquisition of new propertybythe utility) does not raise rates; rates are set by the city council. (See American Microsystems, supra, 137 Cal.App.3dat pp. 1042-1043, 187 Cal.Rptr. 550.) Thus, the PILOTis notofitself a “levy, charge, or other exaction” (Cal. Const., art. XIII _C, § 1, subd. (e)) imposed on ratepayers. The Glendale Coalition will now address this issue in detail. All references to Articles and Sections are to the California Constitution Article XIIIC unlessotherwise indicated. II. THE TAX IS THE ELECTRIC RATES CHARGED TO RATEPAYERS: IT IS NOT THE PILOT (Supreme Court Issue #1) A. THE MEANING OF THE WORD “TAX” The answerto the following question is the very foundation upon which the resolution of the instant case rests: To what does the word “tax”’ refer as used in Article XTIHC, Section I(e)? Is the answerthe rates charged to the ratepayersin exchangefor electric service subject to a stated exception or is the answer how thoserates, once collected, are used? Put another way: within the meaning of Section 1(e), is the PILOT only evidentiary in determining whetherthe fees chargedis the tax or is the PILOT, itself, the tax. In spite of how basic the resolution of this questionis to this case, the majority opinion below did not addressit. Rather, the Court of Appeal merely proceeded on the unexamined assumption that the word “tax” as defined by Section I(e) refers to the transfer ofREU receipts to the general fund; it did not consider whether“tax”refers to the chargeto ratepayers’ forelectric service. Amicus submits that the latter is correct. That this is not a mere esoteric quibbleis illustrated by the following hypothetical: There are twocities, Alpha and Omega. Each ownsits utilities. Both cities have the same numberofcustomers who, on a monthly basis, use the same amountofelectricity and are charged $100 a month. Both cities transfer $15 ofthe $100 to the generalfund. The $15 is not reasonably necessary to provideelectric service. Upon the effective date ofProposition 26, these charges constitute a tax. Acknowledging that Proposition 26 is prospective, not retroactive, this tax would not require a voteofthe electorate to be valid. It would be “grandfathered in.” However, an increasein the tax subsequentto the effective date ofProposition 26 would require a vote. Now assumethat subsequentto the effective date ofProposition 26, Alpha increasesthefee chargedforelectric servicefrom $100 to $120 a month, but leaves the transfer to the generalfund unchanged. Omegaretains the $100per monthfee, but increases the transferfrom $15 to $20. Which city is required to submit its action to a vote ofthe electorate? Underthe majority opinion in the instant case, it would be only Omega, not Alpha. Amicus submits, contra, that a “tax” within the meaning ofArticle XIIIC would require a vote ofonly Alpha, not ofOmega. B. THE HISTORY OF PROPOSITION 26 In Section 2 of Proposition 218, the people declared that Proposition 13 (passed in 1978) was intendedto require voter approval of tax increases by local government, but that local governments have subjected taxpayers to excessive taxes, assessments, fees and charge increases thatfrustrated the purposes of voter approval. 3 Forthat reason, Proposition 218 added Article XIIIC to the State Constitution.It requires local government to submit the imposition, extension or increase of any general tax to the electorate for approval by a majority vote. However, as added by Proposition 218, Article XIIIC did not define the word “tax.” In 2010, the people passed Proposition 26. In section1(e) of Proposition 26, the people declared that local governments have disguised new taxesasfees in order to extract even more revenue from taxpayers without having to abide with the constitutional voting requirements. In Section 1(f) the people declared they were defining “tax”in orderthat local governments may not circumventvoting requirements by simply defining new or expandedtaxesasfees. In addition, Proposition 26 expressly shifted the burden of proofto local government on whethera levy, charge or other extraction by local governmentis a tax Beginning with Proposition 13 and ending with Proposition 26, we have a history of struggle between the people seeking a voice in local government’s passage of revenue raising measures and local government inventing devicesto silence that voice. It is against this backdrop that this Supreme Court mustresolvethis case. C. ITIS THE RATE CHARGED, NOT THE TRANSFER, WHICH CONSTITUTES THE TAX It is the rate charged to ratepayersfor electric service that can be a tax under Article XIJIC, as amended by Proposition 26; that portion of those rates that are collected and transferred to the general fundis not a tax. Section1(e) unmistakably equates the word “tax” with the word “charge.” Section 1(e) begins “...‘tax‘ means any levy, charge orextraction of any kind imposed by local governmentexcept...[seven listed exceptions]” The last paragraph of Section 1(e) reads “...local governmentbears the burden ofproving...that a levy, charge or other extraction is not a tax.” The three nouns,“levy,” “charge” and “extraction,” do not describe how a governmentdecides to employits funds, once collected. Rather, the three nouns describe how a governmentcollects the funds which it subsequently employs. In the instant case,it is the REU that collects the funds, i.e., the charges paid by ratepayers. Whenwelookat the second exception to the word “tax” (the one on which the city relies), it is evident that “tax” refers to the fees paid by ratepayers. The exception states, in pertinent part: ...'tax’ meansany...charge... imposed by a local government, except the following... (2) A charge imposedfor a specific government service or product provided directly to the payorthat is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product.” At bar, the only charge imposed for a specific governmental service or product provided directly to payors is that of the electric rates charged in exchangefor providing electric power and service. Oncecollected, the city determines how to allocate those funds. It is transfering a portion to the general fundjust as it uses a portion of the funds to pay salaries, for equipment, for electric power, and other electric needs. It should be noted that all seven listed exceptions, except the last, use the word “charge.” All seven of the exceptionsrefer to the fees imposed upon the payor. None of the exceptions refer to the transfer of monies. In sum,the tax is the fee charged to and paid by the ratepayer. The transferis not the tax. Under the exception of Section 1(e)(2), the city has the burden to showthat the amount charged does not exceed the reasonable costs of providing the electric service or product. Thus, the city must prove how that portion of the fundsit transfers to the general fund is used. Thetransfer is simply evidentiary;it is not, in and ofitself, a tax. While Amicus respectfully submits the word “tax” in Article XIIIC unambiguously refers to rates charged to ratepayers, should there be any ambiguity, our courts will look to the official ballot pamphlet. (Legis/ature v. Eu (1991) 54 Cal. 3d 492,504) Theofficial ballot pamphlet for Proposition 26 contains a legislative analyst section onthe definition of State or Local Tax. It makesit clear that “tax”is the fee paid by ratepayers;it is not how that fee, oncecollected, is used. The legislative analyst states: This measure broadensthedefinition of...local tax to include many paymentscurrently considered to be fees or charges. The changein the definition of taxes would not affect most user fees,...This is because these fees and charges generally comply with Proposition 26’s requirements already, or are exemptfrom its provisions. In addition, most other fees or charges in existence at the time of the November 2, 2010 election would not be affected unless: The...local governmentlater increases or extends the fees or charges.(In this case, the ...local government would have to complywith the approval requirements ofproposition 26) [see Ballot Pamphlet, General Election ( November2, 2010), Analysis of Proposition 26 by Legislative Analyst, p. 58] In the instant case, the only userfee is the fee paid by REU ratepayersfor the use of REU electric power and service. A transfer is not a user fee. The April 2011 Proposition 26 Implementation Guide of the League of California Cities is instructive on this issue.It states at page 24: Accordingly, gas and electric service fees imposed by public utilities constitute taxes under Proposition 26 unless they: * Are imposedpursuantto legislation which predatesits adoption; or * Comply with oneof its exceptions, such as the exception of § 1(e)(2) for “[a] charge imposedfor a specific government service or product provided directly to the payorthat is not provided to those not charged, and which does not exceed the reasonable costs to the local governmentof providing the service or product.” Arguably, transferring funds from a gasorelectric utility to a local government's general fund withouta costjustification to do so is evidence the fees exceed the reasonable cost to provide service and therefore constitute taxes under Proposition 26’s definition of the term. Based uponthe foregoing, Amicus assertsthat, as a matteroflaw, by the enactmentof Proposition 26, the people intendedthatit is the rate charged thatis the tax, notthe transfer of the fees collected. The people passed Proposition 26 to ensure they would have a voice when governmentimposes, extendsor increases charges they must pay whensuch chargesare a vehicle for raising revenuerather than being restricted to defraying costs. Ill. REASONABLE COST EXCEPTION (Supreme Court Issue #2) Amicus concurs that the reasonable costof service exception in Section 1 (e)(2) is a question of fact and that the burden is uponthe city. The parties before this court havefully briefed this issue. Amicus agreeswith the position of the plaintiff. Amicus will address oneparticular argumentput forth bythecity in its opening brief. The city argues that the PILOT is a compelled cost like the costs associated with the greenhouse mandate of 2000's A.B.32 or with the safety requirementsof the Federal Occupational Safety and Health Administration. The comparisonis not apt. The costs associated with greenhouse mandatesand safety requirements are impositions external to the city. They are imposed to achieve regulatory ends. The city has no say in their imposition. The PILOT,on the other hand,is self-imposed by the city for the purposeofutilizing revenue for general purposes.It has no regulatory basis. It is the very purposeof Proposition 26 to insure that whena city increases fees to be usedfor general purposes,the electorate is to have a voice. IV. PROPOSITION 26 AND RETROACTIVITY (Supreme Court Issue #3) Amicus submits that the issue of retroactivity is irrelevant to the PILOTin the case at bar. As set forth hereinabove, Amicus contendsthatit is the charge that constitutes the tax;it is not the transfer. V. CONCLUSION This is the first Supreme Court decision considering Proposition 26. It will be the foundation upon whichthe law shall evolve. A sound foundation requires this court to critically examine whatthe word “tax” meansas usedin California Constitution, Article XIHC. Amicus respectfully submits that the Courts below have not yet done so and have proceeded upon an unexamined assumption. Respectfully submitted, July 29, 2015 Harry Zavos, Attorney at Law Arthur Jarvis,Cohen, Attorney at Law By . ur Jakis Cohen, Attorney at Law CERTIFICATE OF LENGTH [RULE 8.504(d)(1)] I, Arthur Jarvis Cohen, amicus counsel for Glendale Coalition for Better Government, hereby certifies that this brief was produced on a computerandthatthe numberof wordsin the brief is 2,223. July 29, 2015 |flGfe-_ | Arthur Javis Cohen, Attorney at Law VERIFICATION STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I have read the foregoing and knowits contents. CHECK APPLICABLE PARAGRAPHS oO I am a partyto this action. The matters stated in the foregoing documentare true of my own knowledge exceptas to those matters which are stated on information and belief, and as to those matters I believe them to betrue. OC Iam (_] an Officer [] a partner (1) a Board Member ofGLENDALE COALITION FOR A BETTER GOVERNMENT.a party to this action, and am authorized to makethis verification for and onits behalf, and I makethis verification for that reason. [X] I am informed and believe and onthat groundallege that the matters stated in the foregoing documentare true. [_] The mattersstated in the foregoing documentare true of my own knowledge, exceptas to those matters which are stated on information andbelief, and as to those matters I believe them to betrue. CT I am oneofthe attorneys for a party to this action. Such party is absent from the county ofaforesaid where such attorneys havetheir offices, and I makethis verification for and on behalf of that party for that reason. I am informed andbelieve and onthat groundallege that the matters stated in the foregoing documents are true. Executed on July , 2015, at Glendale, California. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct, Printed Name Signature PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF ORANGE Tam employed in the county of Orange, State of California. I am overthe age of 18 and nota party to the within action; my business addressis: 2 Venture, Suite 120, Irvine, California 92618. On,July 30, 2015, I served the foregoing document described as APPLICATION OF GLENDALE COALITION FOR BETTER GOVERNMENT FOR AMICUS CURAIE AND AMICUS CURAIE BRIEFoninterested parties in this action (X] by placing the true copies thereof enclosed in sealed envelopes addressedasstated on the attached mailinglist: {X] by placing oe the original[_] a true copy thereof enclosed in sealed envelopes addressedas follows: California Supreme Court 350 McAllister Street San Francisco, California 94102 XJBY MAIL ] *I deposited such envelopein the mailat , California. The envelope was mailed with postage thereon fully prepaid. (XJ As follows: I am “readily familiar” with the firm’s practice of collection and processing correspondencefor mailing. Under that practice it would be deposited with U.S. postal service on that same day with postage thereonfully prepaid at Irvine, California in the ordinary course of business. I am aware that on motionofthe party served, serviceis presumed invalid if postal cancellation date or postage meter date is more than one dayafter date of deposit for mailing in affidavit. Executed on July 30, 2015,at Irvine, California. [_] **(BY PERSONAL SERVICE)I delivered such envelope by handto the offices of the addressee. Executed on , at , California. (XJ (State) I declare underpenalty ofperjury underthe lawsofthe State of California that the aboveis true and correct. (-] (Federal) I declare that I am employedin the office of a memberofthe bar of thig courts at whose direction the service was made. Sonia Awalt; — Printed Name “YV Signature *(BY MAIL SIGNATURE MUSTBE OF PERSON DEPOSITING ENVELOPEIN MAIL SLOT, BOX OR BAG) **(FOR PERSONAL SERVICE SIGNATURE MUSTBE THAT OF MESSENGER) A U N e e e h e e SERVICE LIST Walter P. McNeill, Esq. Law Offices of Walter P. McNeill 280 Hemsted Drive, Suite E Redding, CA 96002 Michael G. Colantuono, Esq. Colantuono, Highsmith & Whatley, PC 11364 Pleasant Valley Road Penn Valley, CA 95946 Honorable William D. Gallagher Shasta Superior Court Dept. 09 1500 Court Street Redding, CA 96001 Clerk, Court of Appeal 3" Appellate District 914 Capitol Mall, 4" Floor Sacramento, CA 95814 California Supreme Court 350 McAllister Street San Francisco, CA 94102-4797 [13 Copies]