By Dave Lanferman

Silicon Valley Taxpayers Ass’n v. Santa Clara County Open Space Authority (July 14, 2006, Case No. S136468) ___ Cal.4th ___.

The California Supreme Court declared that Proposition 218 “changed the law governing assessments” in this unanimous decision issued on July 14, 2008, and applied the “new law” to invalidate assessments levied by a special district to fund the acquisition of unspecified “open space.” The opinion lays out the new rules for the establishment, and judicial review, of assessments under the new substantive and procedural standards mandated by Proposition 218. Since these new requirements were added to the State constitution (Articles XIII C and D), the Court explained that the determination of the validity of an assessment “is now a constitutional question” subject to a more rigorous “independent judgment” standard of judicial review. The Court held that Prop. 218 shifted the burden of proof to the assessing agency. Then, applying its “independent judgment,” the Court found the agency had not met its burden of proof and these open space assessments were fatally deficient in at least two respects: (a) the assessments did not meet the new requirements that they be limited to “special benefits” enjoyed by the assessed properties; and (b) the assessments did not meet the new requirements that the amounts assessed to parcels be “proportional” to the special benefits conferred on the assessed properties.

The opinion traced the history and significance of the passage of Proposition 218 in November 1996, as an attempt to prevent governmental subversions of the tax and revenue-raising limitations of 1978’s Proposition 13 (previously explained in other opinions, e.g.,  Apartment Ass’n of Los Angeles County v. City of Los Angeles (2001) 24 Cal.4th 830.)  In its new Silicon Valley Taxpayers decision, the Court noted that Proposition 218 had apparently been inspired, at least in part, by its 1992 decision that had applied a “deferential” standard of review to affirm the validity of a local park maintenance assessment even though some of the assessed parcels were 27 miles from the parks.  The Court’s 1992 decision had applied the traditional standard of review, which presumed that legislative approval of assessments was valid and put the burden on the challenger to show that the record “clearly” did not support the underlying determinations of benefit and proportionality. That decision rejected arguments that the burden of proof should be on the government to demonstrate the validity of the assessments, as in the case of challenges to development fees, and found no basis for changing the traditional burden of proof and deference to assessments as legislative enactments.

Now, however, as the Court emphasized, Art. XIII D, sec. 4, specifically places the burden of proof on the government to demonstrate that (1) the assessed property receives a “special benefit” over and above the benefits conferred on the public at large; and (2) the amount of the assessment is “proportional to, and no greater than, the benefits conferred” on the assessed properties.   The Court concluded that these provisions not only impose new substantive burdens of proof on agencies seeking to impose assessments, but also require a new, less-deferential standard of judicial review.  “Because Proposition 218’s underlying purpose was to limit government’s power to exact revenue and to curtail the deference that had been traditionally accorded legislative enactments on fees, assessments, and charges, a more rigorous standard of review is warranted.”  The Court explained that Proposition 218 had made assessments, and the limitations thereon, a matter of constitutional import, and that judicial deference to statutory assessments based on “separation of powers” notions was no longer appropriate.  Instead, the Court declared that the determination of the validity of assessments is subject to a court’s “independent judgment.” The “independent judgment” standard of review is ordinarily reserved for governmental action deemed to affect “fundamental vested rights” requiring more rigorous judicial review. The Court expressly rejected the more common “substantial evidence” standard of review typically applied for most local government decisions, as being “too deferential” to satisfy the constitutional mandate.

The Santa Clara County Open Space Authority included nearly all of Santa Clara County (over 800 square miles and 1.2 million residents).  The Authority conducted a poll which reported that 55% of the respondents would be willing to pay up to $20 per year for un-specified “open space” acquisitions. The Authority then approved a report stating that “special benefits” would accrue to the assessed properties (all of the nearly 400,000 parcels in the district) and set an assessment at — surprise! — $20 per year for each single family home.  15% of the mailed ballots were returned and produced a narrow majority (50.9%) in favor of the assessment.  The plaintiff taxpayers association challenged the assessments on procedural grounds as well as substantive grounds under Proposition 218.  The trial court granted summary adjudication in favor of the government.  The Sixth Appellate District affirmed, in a 2-1 vote, with Justice Bamattre-Manoukian dissenting.  The Supreme Court cited her dissent at several points, found the assessments to be invalid “for failing to meet the requirements of Proposition 218” and reversed the appellate court decision.

The Court’s opinion provides a template for judicial review of such assessments:

 (1)       First, the assessing agency must separate the general benefits of the program to be funded with the proposed assessments from the “special benefits” ostensibly conferred on the parcel(s) subjected to the assessment.  “Only special benefits are assessable.”  The Court pointed out that Proposition 218 “made several changes to the definition of ‘special benefits.’ “  Formerly, case law did not demand a strict distinction between “special” and “general” benefits.  No more.  Under Art. XIII D, sec. 2, a special benefit must affect the assessed parcel “in a way that is particular and distinct from its effect on other parcels” which is not shared by other property or the public at large.  The Authority here failed to do so, and failed to adequately describe or distinguish any “general benefits” from the ostensible special benefits. The Court pointed out that the government had not identified any specific “open space” to be acquired or improved, and therefore could not show any “special benefits” to the assessed parcels based on their direct relationship to the ‘locality of the improvement.’ 

(2)        Second, the Authority had made no attempt to “apportion” the special benefits of proposed (but vague) future acquisitions of unidentified open space to particular parcels or areas paying the assessments, as required by Prop 218.  The Court pointed out that the defective assessment failed to identify with sufficient specificity the “permanent public improvement” that the assessment would finance, failed to estimate or calculated the cost of any such improvement, and failed to directly connect any proportionate costs or benefits from the improvement to the specific assessed properties.  “An assessment that works backward by starting with an amount taxpayers are likely to pay and then determines an annual spending budget based thereon does not comply with the law governing assessments . . . .”

This decision will likely trigger immediate review of other local assessments and fees that may suffer from similar deficiencies.  It provides guidance to local agencies considering the funding of public programs by means of assessments, with regard to more clearly distinguishing special benefits, which may be funded through assessments, from more general benefits shared by the community at large. The higher standard of judicial review and shifted burden of proof may result in more detailed assessment engineer’s reports, including more evidence and analysis of “special benefits” and rationalization for proposed allocations of program costs through proportionality analysis. Finally, the opinion may serve as a warning to other agencies, which may occasionally be tempted to “work backwards” by figuring out how to spend the proceeds of assessments or fees only after first seeing how much revenue they might raise from the tax or fee payers.

Authored by:

David P. Lanferman

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