If you ask the voters to reinstate a tax after it’s been thrown out by the courts, it’s a new tax. But if you beat the courts to it — by convincing voters to approve a slightly lower tax before the higher one is invalidated — is it a tax “reduction”?
Yes, says Mayor Antonio Villaraigosa, who is pitching a ballot initiative that would ask voters to approve a 9 percent tax on cell-phone and land-line calls. That’s slightly lower than the 10 percent residents currently pay — an illegal tax on Los Angeles residents that Villaraigosa and the City Council never should have collected because voters did not approve it, according to recent court rulings.
If those court decisions are upheld, there’s a good chance the phone tax — one of the highest in California — will be wiped out. To keep collecting the estimated $270 million per year now reaped off Angelenos’ phone bills, officials engaged in some head-scratching tactics leading up to Tuesday’s City Council vote on the issue. That day, Villaraigosa got the unanimous vote he needed from the 15-member City Council, which placed the tax on the presidential primary ballot next February 5 by declaring an “emergency.” Between now and February, Villaraigosa and the council hope to convince voters that their phone bills should be taxed by the city.
But the mayor faces an image problem: Only if voters are presented with his 9 percent tax before the slow-moving courts halt the probably illegal 10 percent tax can he attempt to paint his new tax as a “reduction.” If the courts wipe out the old tax before Villaraigosa gets the new one on the ballot, then it can be more easily slammed as a stiff, new phone tax.
Villaraigosa’s pollster has reportedly determined that pitching the tax as a reduction would win it more support. The mayor’s spokesman, Matt Szabo, argues that characterizing the tax as a reduction is accurate because the 10 percent rate has not yet been halted by the courts. “As it stands now, the tax is at 10 percent,” says Szabo, who insists that Villaraigosa is now giving voters “an opportunity” to reduce that rate.
Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, has another view of City Hall’s graciousness: “In any other situation, what they’re doing would be called lying,” Vosburgh says, “but in politics and government, it’s just standard operating procedure.”
Legal experts believe the tax — which the Los Angeles City Council was repeatedly warned was illegal but dramatically increased in 2003 anyway — could be invalidated by one of three lawsuits. The case that is furthest along was filed by wireless companies challenging the city’s decision to collect taxes on portions of cell-phone bills that had previously gone untaxed.
The city insisted the new tax was in response to new federal laws and was not a tax hike — which would require voter approval. Then City Hall promptly began using the tens of millions of dollars from its vast new revenue source to support an ever-expanding city budget.
A Los Angeles trial judge — and many critics — disagreed with City Hall. Then in May, a state appeals court upheld the trial judge’s decision, saying the city violated Proposition 218, California’s hard-fought 1996 constitutional amendment requiring voter approval for such tax increases.
“The Proposition 218 voters rebelled against local government taxes that are moving targets,” Justice Judith Ashmann-Gerst wrote for the unanimous three-judge panel. The lawsuit she ruled on challenged just the city’s tax on cell phones — not on land lines. But losing the cell-phone tax alone could cost the city $162 million a year, according to a memo from City Administrative Officer Karen Sisson. Other lawsuits are challenging the entire tax, which is expected to net the city $270 million this year.
Getting the replacement tax on the ballot by February — presumably before a judge has a chance to throw the tax out for good — required some special wrangling: City Hall had to once again get around Proposition 218, which requires phone taxes to appear on the ballot only during a regular municipal election. The next one of those is a very long way off for Villaraigosa — April of 2009.
Forcing cities like Los Angeles to await a general election before suggesting new taxes was designed to end cities’ common and clever practice of proposing new taxes during special elections — events in which cities found it easy to turn out special-interest groups to approve taxes on the wider population.
There is, however, an “emergency” exception. If the City Council votes unanimously that an emergency exists, the city can put the tax on the ballot before 2009. Villaraigosa said dire consequences would occur if the tax were allowed to lapse, including a possible halt to the buildup of the police department and other cuts. “There would be draconian cuts, massive cuts to critical services,” Szabo claims.
The taxpayers association, which drafted Proposition 218 and wrote the language about “emergencies,” says a city’s desire to avoid budget trims is not the “emergency” that exception was meant for. “We were thinking, perhaps naively, in terms of an earthquake or a flood or a natural disaster,” Vosburgh says.
