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Standard of Review

Standard of Review-Whether assessments that local agencies impose violate article XIII D-Independent judgment-Silicon Valley Taxpayers v. Santa Clara Co. OSA

I.  Discussion

Plaintiffs contend that because state constitutional provisions now govern assessments, courts should apply an independent standard of judicial review to determine their validity.  They claim that, in this case, the $20 flat-rate levy is an invalid assessment because it fails to satisfy several provisions of article XIII D, section 4, and that the levy is in essence a “special tax.”  They argue further that, because OSA neither sought nor obtained the mandatory two-thirds voter approval for a special tax as required by Proposition 13, the $20 flat-rate levy violates both Propositions 13 (Cal. Const., art. XIII A) and 218.  In discussing these claims, we first discuss the nature of special assessments before the enactment of Proposition 218, their relationship to Proposition 13 taxes, and how Proposition 218 changed the law governing assessments.  As explained below, we agree with plaintiffs’ contentions.

We explained the nature of a special assessment in Knox v. City of Orland (1992) 4 Cal.4th 132, (Knox), a pre-Proposition 218 case.  A special assessment is a “ ‘ “ ‘compulsory charge placed by the state upon real property within a pre-determined district, made under express legislative authority for defraying in whole or in part the expense of a permanent public improvement therein . . . .’ ”  [Citation.]’  [Citation.]  In this regard, a special assessment is ‘levied against real property particularly and directly benefited by a local improvement in order to pay the cost of that improvement.’  [Citation.]  ‘The rationale of special assessment[s] is that the assessed property has received a special benefit over and above that received by the general public.  The general public should not be required to pay for special benefits for the few, and the few specially benefited should not be subsidized by the general public.  [Citation.]’  [Citation.]. . . .

“A tax, on the other hand, is very different. Unlike a special assessment, a tax can be levied ‘ “without reference to peculiar benefits to particular individuals or property.” ’  [Citations.]  Indeed, ‘[n]othing is more familiar in taxation than the imposition of a tax upon a class or upon individuals who enjoy no direct benefit from its expenditure, and who are not responsible for the condition to be remedied.’  [Citations.]. . . .

“Therefore, while a special assessment may, like a special tax, be viewed in a sense as having been levied for a specific purpose, a critical distinction between the two public financing mechanisms is that a special assessment must confer a special benefit upon the property assessed beyond that conferred generally.”  (Knox, supra, 4 Cal.4th at pp. 141-142.)

We explained the history of Proposition 218 in Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles  (2001) 24 Cal.4th 830 (Apartment Assn.):  “ ‘Proposition 218 can best be understood against its historical background, which begins in 1978 with the adoption of Proposition 13.  “The purpose of Proposition 13 was to cut local property taxes.  [Citation.]”  [Citation.]  Its principal provisions limited ad valorem property taxes to 1 percent of a property’s assessed valuation and limited increases in the assessed valuation to 2 percent per year unless and until the property changed hands.  (Cal. Const., art. XIII A, §§ 1, 2.)

“ ‘To prevent local governments from subverting its limitations, Proposition 13 also prohibited counties, cities, and special districts from enacting any special tax without a two-thirds vote of the electorate.  (Cal. Const., art. XIII A, § 4; Rider v. County of San Diego (1991) 1 Cal.4th 1, 6-7 [2 Cal.Rptr. 2d 490, 820 P.2d 1000].)  It has been held, however, that a special assessment is not a special tax within the meaning of Proposition 13.  (Knox v. City of Orland (1992) 4 Cal.4th 132, 141 [14 Cal.Rptr.2d 159, 841 P.2d 144], and cases cited.)  Accordingly, a special assessment could be imposed without a two-thirds vote.

“ ‘In November 1996, in part to change this rule, the electorate adopted Proposition 218, which added articles XIII C and XIII D to the California Constitution.  Proposition 218 allows only four types of local property taxes: (1) an ad valorem property tax; (2) a special tax; (3) an assessment; and (4) a fee or charge.  (Cal. Const., art. XIII D, § 3, subd. (a)(1)-(4); see also [ id.], § 2, subd. (a).)  It buttresses Proposition 13’s limitations on ad valorem property taxes and special taxes by placing analogous restrictions on assessments, fees, and charges.’  (Howard Jarvis [Taxpayers Assn. v. City of Riverside (1999)] 73 Cal.App.4th 679, 681-682.)”  (Apartment Assn., supra, 24 Cal.4th at pp. 836-837.)

Proposition 218 restricts government’s ability to impose assessments in several important ways.  First, it tightens the definition of the two key findings necessary to support an assessment:  special benefit and proportionality.  An assessment can be imposed only for a “special benefit” conferred on a particular property.  (Art. XIII D, §§ 2, subd. (b), 4, subd. (a).)  A special benefit is “a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large.”  (Art. XIII D, § 2, subd. (i).)  The definition specifically provides that “[g]eneral enhancement of property value does not constitute ‘special benefit.’ ”  (Ibid.)  Further, an assessment on any given parcel must be in proportion to the special benefit conferred on that parcel:  “No assessment shall be imposed on any parcel which exceeds the reasonable cost of the proportional special benefit conferred on that parcel.”  (Art. XIII D, § 4, subd. (a).)  “The proportionate special benefit derived by each identified parcel shall be determined in relationship to the entirety of the capital cost of a public improvement, the maintenance and operation expenses of a public improvement, or the cost of the property-related service being provided.”  (Ibid.)  Because only special benefits are assessable, and public improvements often provide both general benefits to the community and special benefits to a particular property, the assessing agency must first “separate the general benefits from the special benefits conferred on a parcel” and impose the assessment only for the special benefits. (Art. XIII D, § 4, subd. (a).)

Second, as described above, Proposition 218 established strict procedural requirements for the imposition of a lawful assessment.  (Ante, at pp. 3-4.)

A.  Standard of Review

Before Proposition 218 was passed, courts reviewed quasi-legislative acts of local governmental agencies, such as the formation of an assessment district, under a deferential abuse of discretion standard.  (Knox, supra, 4 Cal.4th at pp. 145-149; Dawson v. Town of Los Altos Hills (1976) 16 Cal.3d 676, 684-685 (Dawson).)  Because it was recognized that “the establishment of a special assessment district takes place as a result of a peculiarly legislative process grounded in the taxing power of the sovereign,” the scope of judicial review of such actions was “quite narrow.”  (Dawson, supra, at pp. 683-684; id. at p. 684 [“ ‘The board of supervisors is the ultimate authority which is empowered to finally determine what lands are benefited and what amount of benefits shall be assessed against the several parcels benefited . . . .’ ”].)

Accordingly, the standard of review was as follows:  “A special assessment finally confirmed by a local legislative body in accordance with applicable law will not be set aside by the courts unless it clearly appears on the face of the record before [the legislative] body, or from facts which may be judicially noticed, that the assessment as finally confirmed is not proportional to the benefits to be bestowed on the properties to be assessed or that no benefits will accrue to such properties.”  (Dawson, supra, 16 Cal.3d at p. 685; see also Knox, supra, 4 Cal.4th at p. 146.)  Under the Dawson/Knox standard of review, courts presumed an assessment was valid, and a plaintiff challenging it had to show that the record before the legislative body “clearly” did not support the underlying determinations of benefit and proportionality.  (See also Lent v. Tillson (1887) 72 Cal. 404, 429 [judicial interference is warranted only “when the courts can plainly see that the legislature has not really exercised this judgment at all, or that manifestly and certainly no such benefit can or could reasonably have been expected to result”].)

The drafters of Proposition 218 specifically targeted this deferential standard of review for change.  Article XIII D, section 4, subdivision (f), provides: “In any legal action contesting the validity of any assessment, the burden shall be on the agency to demonstrate that the property or properties in question receive a special benefit over and above the benefits conferred on the public at large and that the amount of any contested assessment is proportional to, and no greater than, the benefits conferred on the property or properties in question.”

In determining the effect of article XIII D, section 4, subdivision (f), we apply the familiar principles of constitutional interpretation, the aim of which is to “determine and effectuate the intent of those who enacted the constitutional provision at issue.”  (Richmond v. Shasta Community Services Dist. (2004) 32 Cal.4th 409, 418.)  “The principles of constitutional interpretation are similar to those governing statutory construction.”  (Thompson v. Department of Corrections (2001) 25 Cal.4th 117, 122.)  If the language is clear and unambiguous, the plain meaning governs.  (People v. Lopez (2003) 31 Cal.4th. 1051, 1056.)  But if the language is ambiguous, we consider extrinsic evidence in determining voter intent, including the Legislative Analyst’s analysis and ballot arguments for and against the initiative.  (People v. Canty (2004) 32 Cal.4th 1266, 1281; People v. Rizo (2000) 22 Cal.4th 681, 685.)

Article XIII D, section 4, subdivision (f), states that the agency has the burden of demonstrating special benefit and proportionality in any legal action contesting the validity of any assessment.  Although it is clear that the voters intended to reverse the usual deference accorded governmental action and to reverse the presumption of validity by placing the “burden” on the agency, the provision does not specify the scope of that burden.  Because the language imposing a “burden” on the agency is somewhat imprecise, we look to the ballot materials as further indicia of voter intent. 

The Legislative Analyst explained to the voters that Proposition 218 was designed to “constrain local governments’ ability to impose . . . assessments . . . .” and to “place extensive requirements on local governments charging assessments.”  (Ballot Pamp., Gen. Elec., supra, analysis of Prop. 218 by the Legis. Analyst, p. 73.)  Addressing the burden of demonstration language of proposed article XIII D, section 4, subdivision (f), the Legislative Analyst explained:  “Currently, the courts allow local governments significant flexibility in determining fee and assessment amounts.  In lawsuits challenging property fees and assessments, the taxpayer generally has the ‘burden of proof’ to show that they are not legal.  This measure shifts the burden of proof in these lawsuits to local government.  As a result, it would be easier for taxpayers to win lawsuits, resulting in reduced or repealed fees and assessments.”  (Ballot Pamp., Gen. Elec., supra, at p. 74.)  Or stated another way, Proposition 218 was intended to make it more difficult for an assessment to be validated in a court proceeding.

As the dissent below points out, a provision in Proposition 218 shifting the burden of demonstration was included in reaction to our opinion in Knox.  The drafters of Proposition 218 were clearly aware of Knox and the deferential standard it applied based on Dawson, supra, 16 Cal.3d 676.  The argument in favor of Proposition 218 referred to a “growing list of assessments imposed without voter approval” after Proposition 13 that are in fact special taxes.  As one example of several named abuses of the assessment process, it specified that “[i]n Northern California, taxpayers 27 miles away from a park are assessed because their property supposedly benefits from that park.”  (Ballot Pamp., Gen. Elec., supra, argument in favor of Prop. 218, p. 76.)  The reference to 27 miles was based on the facts of Knox, which involved an assessment to raise funds to maintain five existing parks serving four school districts.  We upheld the assessment, deferring to the City of Orland’s determination that the property owners were “uniquely benefited by the proximity of these facilities to their properties” (Knox, supra 4 Cal.4th at p. 149), although the assessment district contained 42,300 acres of land and geographically consisted of the entire city and portions of outlying areas in Glenn County.  (Id. at p. 137, fn. 5.)

Also, in Knox, we declined a request to reevaluate the Dawson deferential standard of review for special assessments, finding “no basis” for requiring the assessing agency to bear the burden of proof “in the context of benefit assessments.”  (Knox, supra, 4 Cal.4th at p. 147.)  The Knox plaintiffs argued that, as in Beaumont Investors v. Beaumont-Cherry Valley Water Dist. (1985) 165 Cal.App.3d 227, 235, the local agency should bear the burden of proof in establishing the validity of a special assessment, and we should reassess the traditional standard of review that we reaffirmed in Dawson.  (Knox, supra, 4 Cal.4th at pp. 146-147.)  In rejecting the argument, we distinguished benefit assessments from the development fees in Beaumont, noted the different statutory contexts, and refused to change the deferential standard of review.  (Ibid.)  Thus, it appears that the inclusion of the burden of demonstration language was intended to supply the “basis” found lacking in Knox, and that the drafters of Proposition 218 particularly targeted Knox.

As further evidence that the voters sought to curtail local agency discretion in raising funds, Proposition 218’s preamble includes an express statement of purpose:  “The people of the State of California hereby find and declare that Proposition 13 was intended to provide effective tax relief and to require voter approval of tax increases.  However, local governments have subjected taxpayers to excessive tax, assessment, fee and charge increases that not only frustrate the purposes of voter approval for tax increases, but also threaten the economic security of all Californians and the California economy itself.  This measure protects taxpayers by limiting the methods by which local governments exact revenue from taxpayers without their consent.”  (Ballot Pamp., supra, text of Prop. 218, § 2, p. 108; Historical Notes, supra, p. 85; People v. Canty, supra, 32 Cal.4th at p. 1280 [“In considering the purpose of legislation, statements of the intent of the enacting body contained in a preamble, while not conclusive, are entitled to consideration”].)  In passing Proposition 218, the voters clearly sought to limit local government’s ability to exact revenue under the rubric of special assessments.

The Court of Appeal majority below recognized that the voters intended to change the deferential standard of review:  “[B]y placing the burden to demonstrate special benefit and proportionality on the agency the new law must now require that which Lent held was not necessary, i.e., that the record contain affirmative evidence of the two substantive bases for the assessment.”  Nevertheless, the majority maintained that courts should continue to give deference to the local agency’s assessment decision (an act of a legislative body) for two reasons.  First, “the constitutional separation of powers demands that we give it deference.  (Cal. Const., art. III, § 3; [citations].)”  Second, if the challenged assessment was levied according to Proposition 218’s procedural requirements, courts will continue to accord the final legislative determination substantial deference.  Otherwise, “invalidating an assessment that received the support of a majority of the property owners would frustrate the will of those property owners.”  The majority concluded that the scope of judicial review was “limited.” 

Accordingly, the majority stated the new standard of review as follows:  “A special assessment finally confirmed by a local legislative body in accordance with applicable law will not be set aside by the courts so long as the local legislative body demonstrates, by reference to the face of the record before that body, that the property or properties in question will receive a special benefit over and above the benefits conferred on the public at large and that the amount of any contested assessment is proportional to, and no greater than, the benefits conferred on the property or properties in question.  In all other respects, such an assessment shall not be set aside by the courts unless it clearly appears on the face of the record before the legislative body, or from facts which may be judicially noticed, that the assessment constitutes a manifest abuse of discretion.”

Under the majority’s standard, an assessing agency’s determinations regarding whether benefits are special and proportional under the state Constitution must be affirmed if substantial evidence supports them.  Although the substantial evidence standard is less deferential than the Dawson/Knox standard of review, it nevertheless is still highly deferential.  (Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429 [power of appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, to support conclusions below]; Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660 [reviewing court views the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor].)  The majority’s choice of the deferential substantial evidence standard comported with its emphasis on the constitutional separation of powers doctrine, the legislative character of the assessment determinations at issue, and the consent of the weighted majority of property owners in the district.

However, a valid assessment under Proposition 218 must not only be approved by a weighted majority of owners under the procedural requirements in article XIII D, section 4, subdivisions (c), (d), and (e), but must also satisfy the substantive requirements in section 4, subdivision (a).  (Art. XIII D, § 4, subds. (a), (c)-(e).)  These substantive requirements are contained in constitutional provisions of dignity at least equal to the constitutional separation of powers provision.  (Cal. Const., art. III, § 3.)  Before Proposition 218 became law, special assessment laws were generally statutory, and the constitutional separation of powers doctrine served as a foundation for a more deferential standard of review by the courts.  But after Proposition 218 passed, an assessment’s validity, including the substantive requirements, is now a constitutional question.  “There is a clear limitation, however, upon the power of the Legislature to regulate the exercise of a constitutional right.”  (Hale v. Bohannon (1952) 38 Cal.2d 458, 471.)  “ ‘[A]ll such legislation must be subordinate to the constitutional provision, and in furtherance of its purpose, and must not in any particular attempt to narrow or embarrass it.’ ”  (Ibid.)  Thus, a local agency acting in a legislative capacity has no authority to exercise its discretion in a way that violates constitutional provisions or undermines their effect.

We “ ‘ “must . . . enforce the provisions of our Constitution and ‘may not lightly disregard or blink at . . . a clear constitutional mandate.’ ” ’ ”  (State Personnel Bd. v. Department of Personnel Admin. (2005) 37 Cal.4th 512, 523.)  In so doing, we are obligated to construe constitutional amendments in a manner that effectuates the voters’ purpose in adopting the law.  (Howard Jarvis Taxpayers Assn. v. City of Salinas (2002) 98 Cal.App.4th 1351, 1355.)

Proposition 218 specifically states that “[t]he provisions of this act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent.”  (Ballot Pamp., supra, text of Prop. 218, § 5, p. 109; Historical Notes, supra, p. 85.)  Also, as discussed above, the ballot materials explained to the voters that Proposition 218 was designed to:  constrain local governments’ ability to impose assessments; place extensive requirements on local governments charging assessments; shift the burden of demonstrating assessments’ legality to local government; make it easier for taxpayers to win lawsuits; and limit the methods by which local governments exact revenue from taxpayers without their consent.  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.  We construe article XIII D, section 4, subdivision (f) — the “burden . . . to demonstrate” provision — liberally in light of the proposition’s other provisions, and conclude that courts should exercise their independent judgment in reviewing local agency decisions that have determined whether benefits are special and whether assessments are proportional to special benefits within the meaning of Proposition 218.  (Redevelopment Agency v. County of Los Angeles (1999) 75 Cal.App.4th 68, 74 [courts exercise independent judgment in matters involving constitutional interpretation]; see People v. Cromer (2001) 24 Cal.4th 889, 894 [courts use independent, de novo review for mixed questions of fact and law that implicate constitutional rights].)

Defendants argue that because a weighted majority of property owners approved the assessment, it furthers Proposition 218’s emphasis on voter consent, and we should accord deference to those voting owners’ wishes.  However, voter consent cannot convert an unconstitutional legislative assessment into a constitutional one.  Under Proposition 218, all valid assessments must both clear the substantive hurdles in article XIII D, section 4, subdivision (a) and be approved by a weighted majority of owners under section 4, subdivisions (c), (d), and (e).  Moreover, Proposition 218 was designed to prevent a local legislative body from imposing a special tax disguised as an assessment.  (Apartment Assn., supra, 24 Cal.4th at p. 839 [“The ballot arguments identify what was perhaps the drafter’s main concern:  tax increases disguised via euphemistic relabeling as ‘fees,’ ‘charges,’ or ‘assessments’ ”].)[5]  The judicial invalidation of an assessment does not thwart the objective of taxpayer consent; under Proposition 13, two-thirds of the voters must still approve the proposed revenue source (i.e., a special tax).  (Cal. Const., art. XIII A, § 4; art. XIII D, § 3, subd. (a)(2).)   Neither the separation of powers nor property owner consent justifies allowing a local legislative body or property owners (both bound by the state Constitution) to usurp the judicial function of interpreting and applying the constitutional provisions that now govern assessments.

Courts are familiar with the process of determining the constitutionality of the taxes, fees, and assessments that local governments impose.  (See Richmond v. Shasta Community Services Dist., supra, 32 Cal.4th at pp. 418-428 [determination whether charge that water district imposed violated article XIII D restrictions required de novo review]; Howard Jarvis Taxpayers Assn. v. City of Roseville (2002) 97 Cal.App.4th 637, 647-650 [court found that in-lieu fee that city imposed was unconstitutional under article XIII D]; Howard Jarvis Taxpayers Assn. v. City of Riverside, supra, 73 Cal.App.4th 679, 684-690 [question whether existing streetlight assessment was subject to Proposition 218 limitations involved court’s de novo interpretation of the constitution and voters’ intent]; Howard Jarvis Taxpayers Assn. v. City of Salinas (2002) 98 Cal.App.4th 1351, 1354-1359 [court independently interprets constitutional amendments contained in article XIII D to determine whether water fee was a property-related fee requiring property owners’ vote]; Graber v. City of Upland (2002) 99 Cal.App.4th 424, 429 [question whether local ordinance violated constitutional provisions relating to tax increment financing was subject to de novo review].)

Accordingly, courts should exercise their independent judgment in reviewing whether assessments that local agencies impose violate article XIII D.[6]

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