October 2, 2009
Issue #38-2009
IN THIS ISSUE:
Page 4: RTAC Report Recommends ARB Base Emission Reduction Targets
Page 5: Register Now for to Attend on of the League’s 2009 Legislative Briefings
Page 6: Rural Cities Should Register Now for Energy Efficiency Block Grant Workshops
More on ARRA Section 1512 Reporting Requirements
Page 7: League Releases Final Report on 2009 Annual Conference Resolutions
LEAGUE, CSAC, AND CSDA URGE THE STATE SENATE TO PASS SB 67 BY OCT. 15
637 Local Agencies, Totaling $1.3 Billion, Awaiting Action
The failure of the Senate to pass SB 67 (Committee on Budget and Fiscal Review) has left
hundreds of local governments in limbo. SB 67 contains critical clean-up language to the
Proposition 1A property tax securitization provisions that will enable California Communities –
the joint powers authority sponsored by the League and the California State Association of
Counties (CSAC) – to move forward. For more, see Page 2.
••••••••••••••••••••••••••••••••••••
STATE DROPS APPEAL IN 2008 REDEVELOPMENT CASE, UPHOLDS RULING THAT $350
MILLION STATE RAID OF REDEVELOPMENT FUNDS WAS UNCONSTITUTIONAL
CRA Moves Forward with Lawsuit to Fight $2.05 Billion Taking in FY 2009-10 Budget
The State of California has dropped its appeal of a Sacramento Superior Court ruling that found
the unconstitutional the provision in the FY 2008-09 state budget that seized $350 million in
redevelopment funds. The state’s abandonment of the appeal means the Superior Court ruling in
favor of the California Redevelopment Association (RDA) is final and binding.
For more, see Page 3.
••••••••••••••••••••••••••••••••••••
TAX COMMISSION FINISHES WORK, RELEASES
REPORT OUTLINING REFORM RECOMMENDATIONS
This week, the California Commission on the 21st Century Economy (COTCE) issued its much
anticipated report on reform of the state taxation system. Spending nearly a year on the process,
COTCE held 10 public meetings before releasing its report which includes a set of
recommendations supported by nine of the commission’s 14 members. The full report is online at
www.cotce.ca.gov/documents/reports. For more, see Page 3. 2
‘Budget’ Continued from Page 1…
With time of the essence, the League, CSAC, and the California Special Districts Association
(CSDA) have been working together to urge the state Senate to reconvene to complete business
that should have been addressed prior to the official end of the 2009 legislative session on Sept.
12.
The associations have sent several joint letters to Senate leadership in recent weeks which have
been posted on the League’s Web site.
• Sept. 15, 2009 www.cacities.org/resource_files/28360.SenateLetter91509.pdf
• Sept. 23, 2009 www.cacities.org/resource_files/28361.SenateLetter92309.pdf
To date, 637 local agencies have enrolled in California Communities’ the program to securitize
the state’s repayment obligation, comprised of:
• 51 counties;
• 260 cities/towns; and
• 326 special districts/other.
The estimated enrollment dollars for cities and counties totals $1.314 billion. This amount does
not include special district volume which is still being estimated. Please see information on the
California Communities Web site about the Prop. 1A Securitization Program.
https://www.psacommunities.org/fs/apps/?app=22
All that is necessary for SB 67 to pass is for the Senate to reconvene, take up the matter under
reconsideration, pass it with 27 votes and send it to Gov. Arnold Schwarzenegger. SB 67
obtained 26 votes the last time it was voted on prior to the close of the session with all 25
Democrats and Sen. Abel Maldonado (R-Santa Maria) voting in support. (This number was just
one shy of what was needed to pass.) The remaining Senate Republicans withheld all votes on
measures requiring a two-thirds vote over an unrelated dispute with Senate President Pro Tem
Darrell Steinberg (D-Sacramento).
The news media recently reported that the Senate may return to conduct business Oct. 13-15,
but there has been no official announcement. It has also been reported than some legislators are
currently traveling abroad.
Take Action
City officials are encouraged to urge their senators to return to complete their unfinished
business, including the passage of SB 67 prior to Oct. 15. The League, CSAC and CSDA have
prepared a fact sheet/talking points with information about how the failure of the Senate to pass
SB 67 by Oct. 15 would be devastating to both state and local governments.
This document, 15 Days to Keep a Commitment, has been posted on the League’s Web site.
www.cacities.org/resource_files/28362.DaystoCommitment100109.pdf
When Speaking With Senate Democrats and Republican Sen. Abel Maldonado:
• Please thank Democratic senators and Sen. Abel Maldonado for their prior vote in
support of SB 67. Encourage them to vote for SB 67 again when it comes up for
reconsideration.
For Remaining Senate Republican Members
• Emphasize the importance to your city of securitizing the state’s repayment obligation
pursuant to Prop. 1A.
• Explain some of the additional impacts that the Prop. 1A borrowing of 8 percent of local
property taxes will mean for local services and programs, absent securitization.
• Ask your senator if he/she will vote for SB 67 when it comes up for a vote under
reconsideration. Ask for a commitment!
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The League will keep city officials informed of any additional developments on this important
topic.
_____________________________________________________________________________
‘Lawsuit’ Continued from Page 1…
Though this action now closes the first case, CRA v. Genest, CRA will have to file a second
lawsuit against the state challenging its $2.05 billion redevelopment raid included in the FY 2009-
10 state budget passed in July 2009. CRA contends the second state budget raid is no different
than the first raid in 2008 that was ruled unconstitutional. CRA expects to file this subsequent suit
in the next few weeks.
“While we’re pleased that the state dropped the appeal of its FY 2008-09 raid, we must head
right back to court to block an even more drastic raid this year. Not only are these raids illegal, but
they’re terrible public policy. Given our shaky economy, you’d expect lawmakers to be doing
everything possible to support programs like redevelopment that put people to work and generate
tax revenue,” said CRA Executive Director John Shirey.
The FY 2009-10 budget passed in September 2008 included a provision to take $350 million in
redevelopment funding to use to fund state obligations. This action was a clear violation of Article
XVI, Section 16 of the California Constitution which states that redevelopment tax increment
funds can only be used for specified redevelopment activities, specifically “to finance or refinance
… the redevelopment project.”
CRA in December 2008 and in April 2009, Sacramento Superior Court Judge Lloyd Connelly
ruled in favor of redevelopment agencies and invalidated the 2008 legislation finding that it
“violates the intent of section 16 [of the State Constitution], to allocate the tax increment to the
financing of redevelopment projects.” The State of California originally filed papers to appeal the
decision but dropped that appeal last week.
Despite the clear unconstitutionality and the Superior Court ruling, just three months after Judge
Connelly’s ruling, in July 2009, legislators and the Gov. Arnold Schwarzenegger approved budget
bill ABX4-26. This bill authorizes a $2.05 billion raid of local redevelopment funds, including $1.7
billion in FY 2009-10 and another $350 million in FY 2010-11.
While legislative staff and lawyers tinkered with the wording of the 2009 legislation in an attempt
to get around the state Constitution and Superior Court Ruling, the raid in the FY 2009-10 raid is
also unconstitutional. It is still an attempt to redirect redevelopment funds to pay off the State’s
obligations – clearly a violation of the Constitution.
The second lawsuit will be filed shortly, also in Sacramento Superior Court. Because payments
from redevelopment agencies are due in May 2010, CRA will seek a Superior Court ruling before
that time.
Although CRA anticipates that the 2009 raids will be found unconstitutional, this irresponsible
action by legislators and Governor forces redevelopment agencies to set aside funding now and
put necessary projects on hold in case the ruling goes against them. That unavoidably delays
economic development and job creation, directly harming local communities and stalling
economic recovery.
_____________________________________________________________________________
‘Tax Commission’ Continued from Page 1…
In brief, COTC made the following recommendations:
1. Eliminates the state corporation tax and the franchise minimum tax.
2. Cuts and restructures the personal income tax (PIT) across all income levels, especially
upper tiers.
a. Moves from six tax rate categories to two.
b. Eliminates PIT deductions except for charitable contributions, mortgage interest
and property taxes. Categories no longer deductable would include medicines, 4
retirement account interest, and medical and retirement benefits. Tax credits
including those for child care and dependent care tax credits eliminated.
3. Eliminates the state general purpose sales and use tax (SUT) rate.
a. Leaves all rates allocated to locals in place including the Bradley Burns, Prop.
172, county health and welfare rate, and local voter approved add-on rates.
b. Leaves the state SUT on gasoline and diesel fuels that is allocated to Prop. 42
state and local transportation programs and the public transportation account.
4. Establishes a new Business Net Receipts Tax (BNRT). This is a kind of subtraction
based value added tax that would apply to a broad base of economic activity including
goods and services such as food, entertainment, medical, dental, utilities, legal, real
estate and housing. The report recommends that government and nonprofit activities be
exempted from paying the BNRT. A reduced BNRT rate would apply to financial services.
5. Establishes a new Rainy Day Reserve Fund.
Higher Sales and Use Tax Administration Costs
The COTCE proposes to eliminate the 5 percent general purpose state sales and use tax rate,
(currently 6 percent until April 2011) and leave local rates and the state rate applied to gasoline
and diesel fuels.
Total state and local sales and use tax collections would fall by over 55 percent. Assuming that
Board of Equalization (BOE) administration costs do not change significantly, and assuming
these costs would be re-spread to the remaining revenue allocations, BOE administrative charges
to local agencies would more than double.
The Legislature’s Concern for Sales & Use Tax Will Decline
The structural problems with California sales and use tax have been well documented for many
years and indeed were part of the discussion of the COTCE. Although California has the highest
states and use tax in the nation, the base to which it applies is narrower than any other state.
Because of its narrow application in California, taxable sales continue to fall behind population an
inflation growth. COTCE recommendations would leave the existing sales and use tax in place
with no reform. However, it would withdraw the state as a recipient of any sales and use tax
revenues except for state transportation program allocations from the Prop. 42 sales tax on
gasoline (about $600 million per year). Sales and use taxes going to the state general fund–
currently about $33 billion – would be phased out.
With so much less at stake in the sales and use tax, the Legislature will have less interest in
broadening the sales and use tax base to make it more sustainable, less interest in ensuring that
the costs and efficiency of tax administration is kept reasonable, and less concern about the
revenue impacts of the myriad of requests for tax exemptions in law that it receives each year.
What Lies Ahead
The Governor is expected to call a special session of the Legislature to examine the COTCE
recommendations. With such a potential major change in tax policy, the proposal has a number of
policy, legal and technical problems and uncertainties. The COTCE proposal is unlikely to survive
in its current form yet it is likely to be the basis for continued discussions and efforts at reform of
the states troubled fiscal structure.
The League will continue to analyze the potential impacts of this proposal on cities, participate in
and monitor legislative discussions, and alert cities of any important developments.
_____________________________________________________________________________
RTAC Report Recommends ARB Base Emission Reduction
The Regional Targets Advisory Committee (RTAC), the committee created by SB 375 to advise
the California Air Resources Board (ARB) how to set regional green house gas (GhG) emission
targets, has released its report in time to meet its Sept. 30 statutory deadline.
5
The report recommends that ARB set a statewide per capita goal based on a 2005 base year.
The committee believes that the per capita metric will allow fast and slow growing regions alike to
reach a proportional amount of emissions reduction. RTAC, in setting 2005 as the base year,
would allow regions that have adopted policies over the last four years to take credit for their
actions.
Additional reports worth noting in the report include:
• The per capita metric to be set by ARB will be done through a process that involves
extensive collaboration with the Metropolitan Planning Organizations (MPOs).
• RTAC is also recommending a process for regions to seek a variance (of sorts) on the
statewide metric if conditions suggest it is necessary.
• Although RTAC expects that all MPOs will use their transportation demand models to
show some of the ways that GhG's will be used, the committee is also recommending the
development of a non-exclusive list of accepted best management practices that regions
can use to show how they will meet the targets.
ARB has yet to set the actual targets. It will consider RTAC's report at its November meeting.
The draft targets are due to the regions by June 30, 2010 and will be made final be Sept. 30,
2010.
The League will prepare and release a summary of RTAC’s Report. City officials who are
interested in reading the full report can find it on ARB’s Web site at
www.arb.ca.gov/cc/sb375/rtac/report/report.htm.
_____________________________________________________________________________
Register Now for to Attend on of the League’s 2009 Legislative Briefings
For the first time, the League will be holding its annual November legislative briefings in two
formats: in person in both Northern and Southern California as usual and via the Web. The live
webinar will allow attendees to listen to the legislative briefing information while limiting travel
costs.
The legislative briefings provide an overview of upcoming legislative issues and information
regarding new laws for 2010 and the impact on cities. The goal is to help city officials stay up to
date and in compliance with the law.
Northern California meeting:
Tuesday, Nov. 17 from 9 a.m. – 12 p.m.
League Office,
1400 K Street, Sacramento
Southern California meeting:
Wednesday, Nov. 18 from 9 a.m. – 12 p.m.
Paradise Pier Hotel
1717 S. Disneyland Drive, Anaheim
Webinar:
Tuesday, Nov. 17 from 2 – 3 p.m.
Session Topics include:
• Surviving the 2009 state budget crisis;
• Climate change, SB 375 implementation, and water;
• Keeping track of state agency consolidation;
• AB 155/SB 88 (Municipal Bankruptcy);
• Pension reform efforts, workers’ comp., and elections;
• Changes to state corrections policies;
• Efforts to reform state governance and protect local revenue; and
• Other legislation of interest to city officials.
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Registration is $50. The deadline to register is Oct. 30 and can be done online through the
League’s Web site at www.cacities.org/events.
The event announcement has additional information about the legislative briefing. It has been
posted on the League’s Web site.
www.cacities.org/resource_files/28353.2009%20Legislative%20Briefings.pdf.
_____________________________________________________________________________
Rural Cities Should Register Now for Energy Efficiency Block Grant Workshops
The Regional Council of Rural Counties (RCRC) will be hosting workshops for rural counties and
any cities within those counties on Energy Efficiency Block Gants. The Energy Efficiency and
Conservation Block Grants (EECBG) are being offered through the California Energy
Commission and funded by the American Recovery and Reinvestment Act of 2009 (ARRA).
The EECBG are reserved for small cities and counties in California. More information on the
EECBG can be found at: www.energy.ca.gov/recovery/blockgrant.html
The purpose of these workshops is to inform city and county officials of the amounts that are
available for projects, the type of projects that are eligible for these funds and the application
process and other procedures that must be followed to access and use these funds.
The workshops will be presented by staff from the California Energy Commission, private energy
contractors and invited participation by the local utility. Please contact RCRC staff via email
(rcrc@rcrcnet.org) to register for any one of the following workshops.
_____________________________________________________________________________
More on ARRA Section 1512 Reporting Requirements
On Sept. 28, Gov. Arnold Schwarzenegger sent a letter to all grant recipients regarding the
upcoming reporting requirement. His letter reminded grant recipients that if they are receiving
federal funds passed through state agencies, then they must report to that agency:
“In communicating with your state agency, ensure that you know what information you
are required to report, when it is needed and in what format the information must be
provided. The California Recovery Task Force is collecting data from state departments
Time Location
Monday, Oct. 5
9:30 a.m. – 1 p.m.
Redding
Shasta County Board of Supervisors Chambers
1450 Court Street, Suite 263
Redding, CA
Wednesday, Oct. 7
9:30 a.m. – 1 p.m.
Placerville
El Dorado County Board of Supervisors
Chambers
330 Fair Lane
Placerville, CA
Wednesday, Oct. 14
12 – 3:30 p.m.
Sonora
Tuolumne County Board of Supervisors
Chambers
2 Green Street
Sonora, CA
Monday, Oct. 19
9:30 a.m. – 1 p.m.
Sacramento
Regional Council of Rural Counties Board Room
1215 K Street, Suite 1650
Sacramento, CA 7
and its sub-recipients into one system, which will then be submitted to the federal
government.
“Depending on how many ARRA funding awards you have received, you may have
obligations to report some funds directly to the federal government and some to the state.
I encourage you to register as necessary and make sure you meet all federal reporting
requirements.”
“Pay particular attention when reporting the number of jobs created and saved. Congress
requires the reporting of the number of direct jobs created and saved, and is looking for
an auditable, verifiable number. While federal ARRA job projections include the number
of jobs created and saved indirectly, federal ARRA reporting does not include such
information.”
For more information on ARRA, see the League’s City Funding Book at
www.cacities.org/federalstimulus.
For more information on submitting reports to the state, please contact Jennifer Grutzius with the
California Recovery Task Force at (916) 324-7728 or via email at
jennifer.grutzius@recovery.ca.gov.
ARRA Q&A’s
On Sept. 24, the Office of Management and Budget (OMB) posted additional ARRA Section 1512
recipient reporting questions and answers on its Web site. The new Q&As are designated with an
asterisk and can be found at www.whitehouse.gov/omb/recovery_faqs.
Housing
The Department of Housing and Urban Development (HUD) has developed a consolidated list of
program-specific support information, mainly sample reporting templates, for Section 1512
recipient reporting requirements. The list can be accessed at
http://portal.hud.gov/portal/page/portal/RECOVERY/Reporting
HUD also wants agencies to know that they must submit reports on compliance with the National
Environmental Policy Act (NEPA). In some cases, grantees will have to submit their NEPA
information directly to a HUD-created system known as the Recovery Act Management and
Performance System (RAMPS). The system is available at the HUD Recovery portal at
www.hud.gov/recovery/reporting
HUD Recovery Act recipients in most programs will also need to access RAMPS to submit NEPA
compliance reports. HUD program staffs are organizing this registration process, and guidance
on this requirement is being shared with grantees on a program by program basis.
Recipients can obtain further information at www.hud.gov/recovery/reporting. Please see the
Section 1609 Overview page.
New Recovery.gov Web site
The Obama Administration this week unveiled a revised www.recovery.gov Web site that includes
a feature to search for projects in a specific area by ZIP Code.
The site, created by the Recovery Accountability and Transparency Board, was revamped
through the use of $9.5 million in stimulus funds. It provides easier-to-use tools, such as a ZIP
Code search that shows stimulus projects in specific communities. The government also has set
up a toll-free hot line (1-877-FWA-DESK) for reporting fraud, waste and abuse.
Critics complain, however, that the site does not include complete data on recipients’ of stimulus
money, and users face significant hurdles to accessing the information that is available.
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The government is set to release comprehensive data about recipient contracts on Oct. 15 and
will post grant and loan information Oct. 30. The board on Monday also unveiled an account on
Twitter (http://twitter.com/RecoveryDotGov) and a YouTube video featuring Chairman Earl
Devaney speaking directly to the public (www.youtube.com/watch?v=In1DWKkJZaQ).
_____________________________________________________________________________
League Releases Final Report on 2009 Annual Conference Resolutions
Four resolutions were presented for consideration by the General Assembly during the 2009
Annual Conference which was held in San Jose, Sept. 16-18. This week, the League released its
2009 Resolutions Final Report. Sent to all mayors, city managers and clerks in non-manager
cities, the report has also been posted on the League’s Web site at www.cacities.org/resolutions.
Annual Conference Resolution Results
• Resolution 1: Resolution Regarding Social Host Liability – Approved
• Resolution 2: Resolution Regarding Divesting from Banks and Others That fail to
Cooperate With Foreclosure Prevention Efforts – Withdrawn by Sponsor
• Resolution 3: Petitioned Resolution: Resolution Concerning Additional Constitutional
Protection of Local Government Revenue – Approved
• Resolution 4: Resolution in Opposition to Rule Modifications to Accommodate Southern
California Edison Company’s Initiative to Install Above-Ground Equipment. – Approved
Background
Each year at the League’s annual conference voting delegates representing are asked to
consider resolutions which shape League policy. The resolution process is one mechanism
through which issues facing California cities are debated and a policy direction for the
organization is established. Resolutions for consideration at the annual conference can be
approved by the board or petitioned by a resolutions delegate.
_____________________________________________________________________________
October 9, 2009
Issue #39-2009
IN THIS ISSUE:
Page 3: Ninth Circuit Concludes City’s Mobile home Rent Control Ordinance Constitutes a “Taking” Under the
Constitution
Ninth Circuit to Consider Retiree Benefit Case
SENATE EXPECTED TO RETURN TO SACRAMENTO NEXT WEEK: SB 67, 65,
OTHER ISSUES REMAIN IN BALANCE
The Senate is expected to return to session on Tuesday, Oct. 13, close to a month after the
official end of the 2009 legislative session. The goal is to address a number of items, including
two of critical importance to local agencies. SB 67 contains clean-up language to the Proposition
1A property tax provisions that will enable California Communities to move forward with the
securitization program benefiting more than 700 local agencies. SB 65 contains necessary clean
up to the Highway User Tax Account (HUTA or gas tax) deferral language. For more, see Page 2.
••••••••••••••••••••••••••••••••••••
LEAGUE SUMMARIES OF RTAC REPORT NOW AVAILABLE
Last week, the Regional Targets Advisory Committee (RTAC) released its report advising the
state Air Resources Board (ARB) on how to set regional targets for transportation related
greenhouse gas emissions from cars and light trucks under SB 375. For more, see Page 2.
••••••••••••••••••••••••••••••••••••
STATE’S RAID ON TRANSIT FUNDS RULED ILLEGAL
State Supreme Court Rejects State’s Request for Review
The California Supreme Court last week rejected the state’s request to review a lower court’s
ruling that the recent seizures of transit funding were illegal. Earlier this year, the Third District
Court of Appeal ruled that the state violated statutory and constitutional amendments enacted by
voters since 1990. By not accepting the state’s petition for review, the high court upheld the lower
courts ruling. For more, see Page 3. 2
‘Budget’ Continued from Page 1…
SB 67, SB 65 and approximately 20 other bills were previously stalled the night of Sept. 11, when
Senate Republican members refused to vote for any measure that required a two-thirds vote due
to a dispute with Senate Pro Tem Darrell Steinberg (D-Sacramento) over unrelated items.
Over the past month, city, county and special district officials have attempted to educate
Republican legislators on the importance of passing SB 67 and SB 65, and asked them set aside
differences and demonstrate the necessary leadership to get these bills passed.
As the weekend approaches, legislative leadership continues to attempt to put together a
comprehensive package on water, while Gov. Arnold Schwarzenegger withholds action on more
than 700 bills as leverage to encourage an agreement. He must decide to sign or veto all bills by
midnight on Sunday, Oct. 11. Speculation continues over possible legislative reactions should the
Governor choose to veto large numbers of bills as punishment for failure to complete a water
deal.
As reported in the Oct. 2 edition of City Advocate Weekly, all that is needed for SB 67 to pass is
for the Senate to reconvene, take up the matter under reconsideration, pass it with 27 votes and
send it to the Governor for signature. The bill received 26 votes in the last vote prior to the end of
the session. All 25 Democrats were in support as well as Sen. Abel Maldonado (R-Santa Maria).
Take Action Immediately
City officials are encouraged to urge their senators pass SB 67 and 65 when they reconvene on
Tuesday. It is imperative that this happens so that cities can continue to provide critical services
to residents. Call your senator and emphasize the importance of securitizing the state’s
repayment obligation pursuant to Prop. 1A.
Please explain the impacts in your community that will ensue from the state borrowing 8 percent
of your city’s property tax. Ask your senator if he or she will vote for SB 67 when it is brought up
for reconsideration. Tell them it’s critical that they take this action immediately.
California Communities has produced a list of the local agencies that have enrolled in its Prop. 1A
Securitization Program by Senate District.
It’s been posted on the League’s Web site so city officials can use it as a resource when
contacting their senators.
www.cacities.org/resource_files/28370.Prop1ASecuritizationEnrollmentList.pdf
_____________________________________________________________________________
‘RTAC’ Continued from Page 1…
RTAC’s report includes details about the form of the target (a statewide per capita metric), the
process in how the target will be set, and how ARB will review the regional plans for achieving the
target. League staff has prepared two documents to help local officials and their staff sort through
the details.
The first document is a two page, 12 point summary highlighting the main findings included in the
report. This summary is posted on the League’s Web site at
http://www.cacities.org/resource_files/28373.RTAC12PointSummary.pdf.
League staff has also prepared a more technical 11 page abridged summary, for those interested
in more detail but do not want to the entire 47 page RTAC report. The abridged summary is also
posted on the League’s Web site at
http://www.cacities.org/resource_files/28374.RTACExtendedSummary.pdf.
While neither of these summaries is a perfect substitute for reading the entire RTAC report,
League staff has prepared these summaries as a means of helping its membership understand
the findings and participate in the process as it moves forward.
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Finally, RTAC’s report is not the final word. The ARB Board will consider the Committee Report at
its November meeting.
_____________________________________________________________________________
‘Transit’ Continued from Page 1…
The California Transit Association reports that the state has seized or diverted nearly $5 billion in
transit funding in the last decade. With the Supreme Court’s review denial, the case now returns
to the Third District Court of Appeal to decide how and when the state will repay the diverted and
seized funds.
Please visit the California Transit Association Web site for more information about the case at
www.caltransit.org.
_____________________________________________________________________________
Ninth Circuit Concludes City’s Mobile home Rent Control Ordinance Constitutes a
“Taking” Under the Constitution
Local governments were dealt a blow last week when the Ninth Circuit Court of Appeal issued its
opinion in Guggenheim v. City of Goleta. A three-judge panel of the court concluded in this case
that the city’s mobile home rent control ordinance constitutes a “taking” under the United States
Constitution, for which the government must pay “just compensation.” This decision follows an
equally disappointing decision by a federal district court last August, MHC Financing v. City of
San Rafael, which likewise concluded that the city’s mobile home rent control ordinance
constituted a taking.
The ordinances in the two cases are fairly similar; both limit mobile home park owners’ ability to
increase rents on the “pads” (or plots of land) where mobile homes rest. The ordinances also limit
park owners’ ability to raise rents on a pad when a mobile home is sold to a new party.
Many municipalities have enacted similar ordinances in an effort to protect tenants from
exorbitant rent increases due to housing shortages. Mobile home pad tenants are seen as
vulnerable in light of the high cost of moving mobile homes.
The Guggenheim decision is particularly disturbing in light of the fact that the Guggenheims
purchased the property 18 years after mobile home rent control limits were introduced in the
county. The county’s original rent control ordinance was enacted in 1979 and amended in 1987.
When the city incorporated in 2002, it adopted the county’s ordinance by reference. The
Guggenheims purchased the property in 1997 and sued the city over the ordinance in 2002 – just
one month after the city incorporated.
By concluding that Goleta’s ordinance constitutes a taking, the Ninth Circuit concluded that the
ordinance impermissibly transfers wealth from park owners to tenants. Specifically, the ordinance
caused the Guggenheims to rent their property at a rate less than the going market rate. Tenants,
on the other hand, benefited from a “transfer premium” that allowed them to sell their homes at a
higher price than that which they would normally garner absent rent control.
Goleta will be petitioning the Ninth Circuit for rehearing. The League will file a letter, drafted by
Andrew Schwartz of Shute, Mihaly & Weinberger, in support of the city’s petition. The League is
also set to file an amicus brief in the MHC Financing case, drafted by Henry Heater of Endeman,
Lincoln, Turek & Heater, depending on the outcome of the Guggenheim case.
____________________________________________________________________________
Ninth Circuit to Consider Retiree Benefit Case
The League filed an amicus brief with the Ninth Circuit Court of Appeal earlier this week in
Retired Employees Association of Orange County v. County of Orange. The district court in this
case concluded that the county is not required to subsidize retiree health benefits absent an
express commitment by the Board of Supervisors, which was never given. Unhappy with the
lower court’s decision, the retiree association has appealed to the Ninth Circuit. In this era of
rising healthcare costs and fiscal instability, the court’s decision will have consequences for local
governments throughout the state. 4
The facts of the case are simple. In 1966, the county began providing health care benefits to its
retired employees. In 1985, the county began “pooling” the retired employees with the active
employees in the rate-setting process. Pooling the two groups allowed retirees to pay lower
premiums and receive greater coverage than they otherwise would (pooling benefit). In 2006,
after determining its employee health plans were underfunded and needed adjustment, the
county decided to “split the pool,” creating different premium pools for active and retired
employees. Under the new system, retirees pay higher premiums then they paid while receiving
the pooling benefit.
The retirees assert they have a vested right to the pooling benefit. The district court disagreed.
As the League’s brief explains, the power to set retiree benefits rests with the agency’s governing
body and its acquiescence cannot be implied. To conclude otherwise would deprive the public of
an opportunity to weigh in on a significant undertaking that would ultimately affect taxpayers.
The League wishes to thank Jonathan Holtzman, Steve Cikes, and Kerry O’Donnell of Renne
Sloan Holtzman Sakai for drafting the League’s brief.
The League will continue to report on this decision as more information becomes available.