Jacks v. City of Santa Barbara
219 Cal. Rptr. 3d 859
Cal.2017Background
- Santa Barbara and Southern California Edison (SCE) negotiated a 1999 30-year franchise ordinance (Ordinance No. 5135) under which SCE would pay 2% of gross receipts for use of City rights-of-way: 1% as an initial franchise fee and an additional 1% "recovery portion" (surcharge) to be billed to customers if the PUC approved.
- The PUC approved SCE’s request to show the recovery portion as a separate customer surcharge; SCE began billing it in November 2005. Initially surcharge revenues were split (general fund / undergrounding), but later all were deposited to the general fund.
- Plaintiffs (Jacks and Rove Enterprises) sued in 2011 claiming the separately stated 1% surcharge is an unlawful tax requiring voter approval under Proposition 218 (Cal. Const., art. XIII C).
- Trial court held franchise fees are not taxes under Prop. 218 and that Proposition 26 did not retroactively apply; it granted the City judgment on the pleadings. The Court of Appeal reversed, treating the surcharge as a tax. Supreme Court granted review.
- Supreme Court held: charges that are compensation for use of government property are not subject to Prop. 218’s voter-approval requirements, but such charges must bear a reasonable relationship to the value of the property interest conveyed; any excess is a tax.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the separately stated 1% surcharge is a tax requiring voter approval under Prop. 218 | The surcharge is effectively a tax on ratepayers for general revenue and was imposed without voter approval | The surcharge is part of negotiated franchise compensation for City rights-of-way (a property sale/lease), historically not a tax | The surcharge is a fee for use of City property if it reasonably relates to the franchise's value; amounts exceeding reasonable value are taxes requiring voter approval |
| Whether franchise fees are categorically excluded from Prop. 218 | Franchise fees should be treated as taxes when they produce general revenue and burden ratepayers | Franchise rights are property; government may sell/lease property and spend proceeds freely, so franchise fees are not taxes | Franchise fees are not taxes per se; but they qualify as fees only to the extent they reasonably relate to the value of the property interest conveyed |
| Whether SCE’s placement of the surcharge on customer bills alters character of the charge | Because customers pay the surcharge but receive no franchise rights, the charge is a tax on them | Utilities are conduits allowed to pass costs to customers; form (who bills) should not control characterization | Characterization depends on substance: passing a valid franchise fee through a regulated utility does not convert it to a tax; focus remains on relationship to franchise value |
| Whether plaintiffs established entitlement to summary adjudication that the surcharge is a tax | The surcharge’s primary purpose is revenue and plaintiffs submitted facts to show lack of reasonable relationship to franchise value | City contends negotiated compensation need not be cost-based and raises triable factual issues about valuation/negotiation | Trial court erred granting judgment on the pleadings for City; but plaintiffs did not carry burden on summary adjudication because they failed to prove the surcharge lacked a reasonable relationship to franchise value — remand for further proceedings |
Key Cases Cited
- Sinclair Paint Co. v. State Bd. of Equalization, 15 Cal.4th 866 (1997) (distinguishes taxes from fees by reference to relationship between charge and benefit or cost)
- Knox v. City of Orland, 4 Cal.4th 132 (1992) (assessments must reflect special benefit to assessed properties)
- Tulare County v. City of Dinuba, 188 Cal. 664 (1922) (franchise payment characterized as contractual compensation, not a tax on franchisee)
- Santa Barbara County Taxpayer Assn. v. Board of Supervisors, 209 Cal.App.3d 940 (1989) (franchise fees not treated as "proceeds of taxes" for appropriation limits)