GILROY
– City Council is pressing its lawyers to pursue solutions to
its budget struggles by taking the state to court.
Over the past week, councilmen Russ Valiquette and Craig Gartman
publicly called for Gilroy to file its own lawsuit against
California, seeking a freeze on Sacramento’s habit of using local
revenue to fund state budget deficits.
GILROY – City Council is pressing its lawyers to pursue solutions to its budget struggles by taking the state to court.
Over the past week, councilmen Russ Valiquette and Craig Gartman publicly called for Gilroy to file its own lawsuit against California, seeking a freeze on Sacramento’s habit of using local revenue to fund state budget deficits.
The League of California Cities – a coalition aimed at protecting the interests of municipal governments – and various cities and counties are considering a similar class-action lawsuit.
However, Valiquette and Gartman are ready to take action sooner than later.
“If we don’t take action ourselves, then how can we expect someone to take action for us?” Gartman said.
City Administrator Jay Baksa is recommending a more cautious approach toward legal solutions. He told Council last week that suing the state over its current budget proposals – which could take nearly $1.4 million from the city in 2004-05 – is tricky because the Legislature has not passed the budget yet.
“It’s hard to sue someone over something that didn’t happen yet,” Baksa said.
He encouraged Council to wait and follow the lead of the League of California Cities.
“We’re not talking about waiting months, we’re talking about waiting days or weeks,” Baksa said.
Valiquette told staff he wanted them to be ready for whatever final budget decisions the state Legislature makes over the next few months as it hammers out a complicated, revenue-depleted 2004-05 spending plan.
“I just want to make sure if the governor or the Legislature does something (that would hurt Gilroy), it’s not going to take three to four months to get something (a lawsuit) started,” Valiquette said.
“I think what you’re hearing is how frustrated our elected officials are with the state, but working alone in these cases isn’t necessarily the best strategy,” Baksa said. “By strength in numbers it adds strength to the suit. This is not going to be a quick issue. This is not going to be settled in trial court. I can almost guarantee it will have to be settled by the state Supreme Court.”
At last week’s Council session, Baksa told Council that Gilroy could throw the first stone, but it would be the most expensive one to throw.
According to City Attorney Linda Callon, Council could request its legal counsel to work pro bono (for free until a settlement is reached) on the case. Callon also said Council could hire a lawyer other than the city attorney, if it wanted to save money and Callon’s firm would not work pro bono.
At a Council retreat Jan. 16 and 17, Valiquette asked the city attorney to research the legal ramifications of keeping local tax revenue in Gilroy before sending the state its portion. The technique – if even doable – would make it impossible for the California Legislature to use city revenues to fund state spending.
Valiquette’s request followed a budget presentation by Baksa, who said Gilroy – since the early ’90s – has lost $16 million of local revenue to help bail out the state.
“If someone keeps digging into my pocket and I sit back and say I can’t do anything about it, then I’ve given up,” Valiquette told his fellow Council members.
At the retreat, Callon said Gilroy could file a so-called validation action with the court. This would request a judge to determine if keeping local taxes in Gilroy – typically they are sent to the county and the state before coming back to city coffers – would be legal.
Council has not yet directed staff to file the validation action.
Callon, at Tuesday’s meeting, told Council her staff is contacting City of Cerritos officials to discuss the status of its lawsuit against the state.
The Cerritos City Council voted Dec. 8 to file a lawsuit challenging the State of California’s plan to take a portion of cities’ sales tax revenue.
The state plans to present California voters at the March 2 election with a $15 billion deficit bond financing package that would wipe away much of California’s budget shortfall. If the bond is approved by voters, the state would take one-quarter of every city’s sales tax revenue to pay off the bond over 15 years.
The state has promised to pay back the funds with future property tax proceeds, but has not offered a constitutional guarantee to reimburse cities’ losses with an equivalent amount of property tax.
Due to past experiences, cities are not confident the state will pay back the funds.
Baksa is as wary of the state’s methods as anyone. He spent roughly a half-hour at the January retreat spelling out how much money the state has taken from Gilroy.
In the early ’90s, the state reduced Gilroy’s share of property tax by a third. In the 2004-05 budget, Gov. Arnold Schwarzenegger is calling for another 1 percent to be taken from the cities’ portion of property tax, a loss of $336,000 to Gilroy, Baksa said.
Also in the ’90s, the California Legislature shifted six types of revenue from city to the state, such as alcohol beverage fees. The state also began charging cities for more services, such as jail booking fees and property tax collection.
“Not only are they taking our property tax, they’re making us pay for the person who collects it from us,” Baksa said. “If Arnold doesn’t think the wheels are coming off of this thing, he’s sadly mistaken.”
As for future budgets, Baksa told Council to brace itself for another critical loss, nearly $800,000 of car tax revenue.
The money, which was due in fiscal year 2003-04 for the months of July through December, is not mentioned in the governor’s car tax pay-back plans. Schwarzenegger reduced the state’s car tax when he took office, but promised to repay cities for the bulk of what they had budgeted before the repeal.
Gilroy could tag on to Cerritos’ suit, but that would only address the sales tax loss resulting from passage of the $15 billion bond. It would not address the car tax gap nor the property tax hit.
Baksa also told Council it must consider ending economic stimulus packages in future years if those programs do not result in increased tax revenue.
For instance, waiving development impact fees for big box retailers could increase overall city revenue, if the stores bring in a certain amount of sales tax.
However, waiving those same fees for downtown businesses which typically do not bring in massive sales tax dollars, could result in a loss for the city.
Mayor Al Pinheiro argued against that black-and-white scenario.
“There’s an indirect and positive future impact when your downtown is revitalized and it’s a place people want to go,” Pinheiro said.
