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California Supreme Court Rules for Cities in How Payment to Counties is Calculated

November 20, 2012

Yesterday the California Supreme Court issued a unanimous decision in City of Alhambra v. County of Los Angeles, handing California cities an important victory.

 

The court agreed with 47 plaintiff cities in Los Angeles County, rejecting a calculation method used by many county auditors across the state that has resulted in tens of millions of dollars in excessive Property Tax Administration Fees (PTAF) charged annually to cities.

In 2004, the Legislature instituted both the Sales Tax “Triple Flip” and the “Vehicle License Fee (VLF) Swap” under the tax laws. The Triple Flip reimburses cities with property tax proceeds to compensate for reduced city sales tax revenue, instead sending the quarter of a cent sales tax to pay off Proposition 57 state fiscal recovery bonds. The VLF Swap provides cities with additional property tax share to compensate for the related cut in the VLF tax rate and revenue. The Legislature stipulated that counties could not charge additional fees to cities for the first two years of the Triple Flip and VLF Swap implementation, and that thereafter, charges to cities could not exceed the actual cost of providing the services.

However, commencing in FY 2006-07 and following guidelines developed by the County Auditors Association, some counties altered PTAF charges by counting the Triple Flip and VLF Swap amounts as increased base property tax revenue to cities. This resulted in PTAF increases far in excess of the actual additional cost of administering the Triple Flip and VLF Swap. Los Angeles County alone withheld an additional $4.8 million in FY 2006-07 and $5.3 million in FY 2007-08 in PTAF from the plaintiff cities. The county’s actual annual cost in administering the Triple Flip and VLF Swap was $35,000.

The Supreme Court affirmed in City of Alhambra that the calculation approach used by Los Angeles County is unlawful and that county fees are limited to the actual annual cost of administering the Triple Flip and VLF Swap.

The League thanks Benjamin P. Fay and Rick W. Jarvis of Jarvis, Fay, Doporto & Gibson, LLP for authoring the amicus brief on the League’s behalf in this case.



 
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