Secession advocates pushing for a 2002 ballot initiative on a municipal divorce may have to ask voters for permission to levy taxes at the same time. In a report released by the city attorney’s office last week, Assistant City Attorney Fred Merkin suggests that residents of a new Valley city may have to approve the transfer of taxes from the old city to the new one even if those taxes remain unchanged. The report was released in conjunction with a highly critical 925-page report released by the city, its first formal response to the initial fiscal analysis on secession released in March by the Local Agency Formation Commission (LAFCO). The issue hinges on interpretation of a relatively new tax law, Prop. 218, and whether a straight transfer of taxes should be treated the same as the imposition of new levies. City officials say they aren’t positive the law applies, but it could present a potential minefield for secessionists and open them up to possible litigation. Secessionists and LAFCO representatives say it’s a non-issue because there are no increases in taxes being proposed in their secession application. Nevertheless, they plan to err on the side of caution. They say they will likely include language pertaining to the transfer of taxes in a secession initiative package, should it end up on the ballot in 2002. “We believe that Prop. 218 does not require that the current taxes be re-voted on,” said Richard Close, chairman of Valley VOTE, the group spearheading the drive for a municipal divorce. “It’s not a new tax, it’s existing taxes. It’s like saying that all the laws and the ordinances of the city would have to be approved (again), and that’s not the case.” The Right to Vote on Taxes Act, or Prop. 218, was approved by state voters in 1996. Under the law, a majority vote is required for approval of a general tax increase and a two-thirds vote is required for so-called special taxes, or assessments. But neither the language in the original ballot proposition, nor that in the enabling legislation that followed, clearly addresses the issue of whether a transfer of revenues and taxes under reorganization constitutes the imposition of a new tax. In his report, Merkin states that the California Legislative Counsel and the California Attorney General disagree on how the proposition should be interpreted. The attorney general does not believe it’s relevant, but the legislative counsel believes a reorganization of city boundaries would qualify as the establishment of a new tax structure. As a result, Merkin suggests that LAFCO comply with Prop. 218, or run the risk of a lawsuit. Although Sandor Winger, assistant executive director for LAFCO, disagreed with Merkin about the interpretation of the bill, he said his agency was already aware of the law and had planned to present the issue to the voters just to be safe. “We kind of have to,” said Winger. “But the bottom line is Prop. 218, by all standards, will be invoked anyway because we are not creating new taxes here.” Nevertheless, Close said the city is simply using the issue to make it more difficult for his group to garner voter support. “The city is searching for as many obstacles to keep the issue from being approved as they can,” said Close. “But the general belief in the legal community over this issue is that no action is needed. Beyond that, even if it turns out to be a serious issue, it is one that is easily solved.” Close, also an alternate LAFCO commissioner, said the agency’s ballot measure would likely not ask voters to approve new taxes outright, as Prop. 218 implies, but instead ask them to approve the continuation of existing taxes. “That would have the same effect,” said Close. “It eliminates the question so, if the city is right, it solves the problem.” City Councilwoman Cindy Miscikowski, head of a special ad hoc council committee on secession, said a lawsuit against the new city over Prop. 218, or any other issue, could take a bite out of its cash reserves, which would, in turn, impact Los Angeles. LAFCO has proposed the new Valley city start out with a $5.7 million reserve fund in its $1.5 billion budget, or 0.539 percent of the budget. Miscikowski said she was concerned that if the new Valley city were to be hit financially while trying to defend itself in court, it could affect the Valley’s ability to make a planned alimony payment (now set by LAFCO at $68 million a year) to Los Angeles. “All it takes is one disaster or lawsuit to wipe out a reserve fund of that size,” she said. Close said city officials have consistently tried to convince the public that secession would mean tax increases for the new city’s residents. “There is no plan in the study to increase taxes and no need to increase them,” said Close. “So it’s the city of L.A.’s big lie to say taxes are going to increase even though they know it’s not likely and can’t happen legally.” Regardless, if a recent survey of 800 residents of the San Fernando Valley is any indication, taxes do not appear to be a factor. The survey, conducted by the Rose Institute at Claremont McKenna College (which did include a handful of residents in non-secession areas of the Valley), shows that of the 41 percent of respondents who said they would support a breakup, almost half said they would still want to secede even if their taxes increased by 10 percent, compared to 25 percent who said they would change their minds. City Councilman Nick Pacheco said the city is not trying to derail the secession movement. On the contrary, although personally opposed to secession, he supports the idea of enveloping the Prop. 218 question in a secession package to avoid future challenges that could hold up the process. “This is about creating new boundaries,” said Pacheco. “And, when you create a new boundary, then you have created a new entity with a new taxing authority. And once you do that, I believe the prudent thing to do is follow (Prop. 218) so that no one can come down the line five years later and challenge the whole secession vote.” Even Pacheco acknowledged that those in favor of secession are likely to understand that, along with the formation of new government, come shifts in the tax structure and how services are funded. “Most people who want to break away from L.A. know that there is responsibility in self-government,” said Pacheco. “And I would be very surprised if they didn’t consider (the issue of taxes) as part of the package.” The tax transfer question is just one of many challenges presented to LAFCO by the city that the agency will now have to address over the next few weeks. Close reiterated that this was LAFCO’s first report and that many of the complicated questions raised by the city will be addressed down the road. “Remember, this is their initial report, and there’s a reason for that,” said Close. LAFCO is expected to issue its comprehensive fiscal analysis on secession sometime this fall. Public hearings on the matter are expected to follow before LAFCO determines whether to put a secession initiative on the ballot.
