San Ramon pension tax under fire

san ramon pension tax businessA new law suit says that San Ramon is violating the law by creating a new property tax district that doesn’t provide any new services. The Pacific Legal Foundation (PLF), representing the Building Industry Association — Bay Area (BIA-Bay Area) says forcing property owners to pay for existing expenses in the city’s general budget, such as public pensions is an illegal tax that also violates the U.S. Constitution’s Due Process clause with a provision to punish anyone who successfully challenges the tax.

San Ramon pension tax violates Mello Roos Act:  A new tax — but no new services

Filed in Contra Costa County Superior Court, the lawsuit targets the Community Facilities District No. 2014-1, which the City Council approved for formation on February 25, 2014.  The district is authorized to annex more than 2,500 parcels citywide, and to levy a special tax on parcels once they’re annexed.

“Property owners will have to pay a new tax, but they won’t get any new or enhanced services in return,” said PLF Principal Attorney Damien Schiff.  “Instead, the money will be used for existing municipal services — services that property owners already pay for under existing property taxes.

“The effect will be to free up city money to help cover heavy pension costs and other budget commitments,” Schiff continued.  “Therefore, the scheme could be called a ‘pension tax, or a ‘pay something but get nothing’ property tax. Either way, it’s unfair — and illegal.”

Californias Mello Roos Act, which governs the creation of special property tax districts, mandates that a new special tax must be used for new services that benefit property owners.

“A special tax on homeowners and other landowners can’t be used to treat them as cash cows for general city purposes,” said Schiff. The burden of the new San Ramon property tax could fall especially hard on buyers of new homes.  This is because the district may focus on new construction by annexing parcels when building permits are sought.

San Ramon PensionTax violates Proposition 218:  A general-purpose tax without a vote of the people

The new tax also violates Proposition 218 (California Constitution, Article XIIIC, section 2(a)), enacted by voters in 1996. Proposition 218 defines taxes for general government purposes as “general” taxes — and requires that they receive voter approval.

“San Ramon has tried to do an end-run around the voters by creating a new tax for general purposes, but camouflaging it as a special property tax,” said Schiff.  “This is unfair to the property owners who are singled out to shoulder the cost of general government services. And it violates the rights of all voters, because they’re the ones who are supposed to approve any new taxes for the general fund.”

San Ramon pension tax punishes property owners who object

“Our lawsuit also targets a ‘poison pill’ plank that punishes people for objecting to these new taxes,” Schiff continued.  “Any property owner who successfully challenges the applicability of the tax to his or her parcel — or the legality of the tax in general — could be hit with what amounts to an ongoing fine.  Specifically, that property owner would be deprived of basic municipal services unless he or she paid for them out of pocket.  This is an outrageous threat to deter people from exercising their First Amendment right to speak up and challenge government — and to retaliate against them if they refuse to be deterred.”

Statement by BIA-Bay Area on Sam Ramon Pension Tax

“BIA-Bay Area is grateful to Pacific Legal Foundation for working with us to challenge an ill-conceived tax plan that undermines the rights of all property owners and all voters in San Ramon,” said Bob Glover, Executive Officer with Building Industry Association of the Bay Area.  “It should be noted that litigation was not the route that BIA-Bay Area wanted.  We filed suit only after the city declined our offer to work cooperatively to identify a fair and legal approach to its general fund concerns.

“If the city is concerned about the revenue generated through the existing property tax structure, this is actually an issue of distribution, not amount,” Glover continued.  “The city’s real complaint is with state politicians who have diverted large portions of the property taxes generated by newly built homes away from the approving city to fund other state priorities such as education.

BIA has long supported allowing cities to keep more of the property taxes generated by each new house and will continue to advocate for that change.  But we will not allow long festering state and local budget decisions and pension shortfalls to be balanced on the backs of new residents.”

More information, including the complaint, may be found on the PLF case page Building Industry Association — Bay Area v. City of San Ramon, et. al.

About Pacific Legal Foundation

Donor-supported Pacific Legal Foundation (www.pacificlegal.org) is a legal watchdog organization that litigates for limited government, property rights, and free enterprise in courts nationwide. PLF represents all its clients without charge.

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Comments

  1. S says

    I remember Abrham Wilson running around the district, while campaighing for State Assembly, telling everyone that would listen San Ramon had “ZERO” pension debt, and that other cities should come to his city to learn how to solve their problem. Of course it wasn’t true and he didn’t get the endorsement of the Contra Costa Times because he didn’t understand why it wasn’t true (The Times Editorial Board provided the video of the interview). This banker apparently didn’t understand that selling Pension Obligation Bonds was merely a reclassification of the unfunded liability with extended payment terms (dangerous because cities that have engaged the P.O.B.’s. rarely address the underlying issues that helped create the problem in the first place, while also extending payment terms out 26-30 years).

    If you want to find the San Ramon pension debt you will need to look for the Pension Obligation Bonds and add that to any remaining CalPERS unfunded liability.

  2. Tripitz says

    How exactly does the CFD 2014-1 become titled pension tax? In reading the article I did not see the nexus between the CFD and pensions? Upon going online and reviewing the City of San Ramon’s budget, it doesn’t appear they have fiscal issues or pension issues.

    The title of the article caught my eye, but the substance linking CFD and pensions I just couldn’t find. Is there a more that I am missing because as it is written, it almost smacks of sensationalism to attract attention to the article. Is the issue CFD, pensions, or taxation?

    Or is the intent to create a reaction? If it’s the later I might recommend a better title such as “Tort filed to prevent San Ramon from using CFD funds to build Death Ray Drones”. That might get attention too. However, there may not be a nexus between the CFD and the drones.

    • says

      There is no sensationalism here. Just reporting the facts about the litigation. We’re not sure your eyes are wide open as unpaid pension liabilities may not be shown on the budget, as many cities have hidden this expense for decades. But new GATT legislation requiring government agencies to report these liabilities is just coming online.

      There is no sensationalism as San Ramon did pass the CFD for the purpose of backfilling its general budget so it could begin to meet these liabilities while keeping existing services intact the best they can. That it did not connect one to the other is the reason for the litigation.

      There is no sensationalism. Your inability to find a “connection” between the CFD, “pensions, or taxation” is exactly the point by the way. The fact that SR Council did create a special tax district without any defined benefit without approval of voters is in violation of the law.

      Other Cities in Contra Costa County, have addressed this issue with a shade more transparency by passing sales tax measures or some other use fee (tax) for specific purposes, such as Concord’s Measure Q.

      Sensationalism is not the issue. I submit the more curious question is your unwillingness to connect the dots.