City to refund taxpayers

Jenny Marder

Within the year, Huntington Beach will begin paying back as much as

$27 million in property taxes that it collected illegally between

1997 and 2001.

The City Council on Monday night accepted an appellate court

decision that upheld a 2001 Superior Court ruling that a tax the city

had collected to pay for employee pensions violated state law.

The verdict comes as a harsh blow to the cash-strapped city,

coming just days after the state budget trimmed $2.5 million from the

city’s funds and only weeks after the council cut $11.1 million from its 2003-04 budget by cutting programs and laying off 37 employees.

The council voted 5 to 2 to accept the decision, with Cathy Green

and Gil Coerper opposed.

Property owners will have until mid-December to file refund

claims. The city will collect the requests and review them to ensure

that they are valid. Only people who owned a house in Huntington

Beach between 1997 and 2001 are eligible, and refunds will be for

taxes collected in those four years.

More than 15,000 people have already filed refund requests with

the city clerk.

“It could reach $10 million, $15 million, $20 million, $25

million,” Asst. City Administrator Bill Workman said. “It all depends

on how many refund requests we get.”

City Administrator Ray Silver predicts that the city will know the

total amount of claims by January. The city hopes to begin

distributing refunds in the spring, he said.

“Worst case is about a year from now,” he said.

The city is considering refunding the tax through a general bond

issue, Silver said.

“Once we know the size of the bond issue, we’ll know the annual

debt service repayment,” Silver said.

The lawsuit was filed by the Howard Jarvis Taxpayer’s Assn., which

claimed the city violated Proposition 13, a landmark initiative

passed overwhelmingly by voters in 1978 that capped the property tax

cities could levy at 1% of its assessed value.

For about 40 years, the city charged an additional 0.5% “override”

tax to pay retirement benefits for its employees. City attorneys

argued that the city was not subject to the cap and cited an

exception that allowed cities to override the limit for preexisting

debts incurred before Proposition 13 was passed. The city stopped

imposing the tax in June 2001.

“I think that [not appealing] was a fiscally sound decision,” said

Tim Bittle, director of legal affairs for the Howard Jarvis

Taxpayer’s Assn. “I don’t think a petition to the Supreme Court would

have gone anywhere. There are huge obstacles the city would have to

overcome to convince the [state supreme court] that the court of

appeal was in error. It’s just not worth the expense of going through

the process.”

The four-year court battle cost the city $285,000, said Councilman

Dave Sullivan, who has been pushing for years to refund the

taxpayers.

Sullivan went into Monday’s closed session meeting prepared to

fight a delaying action, he said.

“It blew me out of my chair,” he said of the council’s decision.

“It was unbelievable.”

Huntington Beach is one of 26 cities that collected retirement tax

overrides after the passage of Proposition 13.

The City Council will discuss how to deal with the reimbursement

at an Aug. 18 budget workshop.