This afternoon we received the disappointing news that the California court of appeal has upheld the City of San Ramon’s “special” tax on new development within its territory. Our lawsuit, Building Industry Association — Bay Area v. City of San Ramon, challenged the tax on several grounds. First, the tax violates the statutory requirement that such levies may be used to pay only for services “in addition to” those already available before the tax was levied. San Ramon’s tax will not be used for any new or enhanced service, but instead will be used to pay for the cost of meeting an expected increased demand for pre-existing services. Second, the tax violates the California Constitution’s prohibition on “general” taxation, because the tax’s proceeds will be used to pay for a disparate menu of municipal services otherwise paid for out of general fund revenues. And third, the ordinance levying the tax unconstitutionally retaliates against tax-paying property owners, by threatening to cut off municipal services if the taxpayers are successful in obtaining the tax’s repeal.
In response to these arguments, the court of appeal held: (i) the tax will be used to pay for additional services because meeting an increased demand provides an additional service; (ii) the tax is special, not general, because it cannot be used for any and all legitimate municipal expenses, and because its revenue will be placed in a dedicated separate fund; and (iii) the levying ordinance does not retaliate, because the loss of any service is simply the result of there being no money to pay for the service, not municipal animus.
A petition for review to the California Supreme Court would be due by the end of next month.