WASHINGTON -- The U. S. Supreme Court yesterday upheld the constitutionality of California's Proposition 13 by ruling that the properly tax system is grounded in a legitimate state interest.
In an 8-to-1 ruling in Nordlinger v. Hahn, the high court said the state's so-called acquisition value properly tax system does not violate the Constitution's equal protection clause, which generally prohibits state governments from treating similarly situated citizens differently.
Under Proposition 13's reassessment provisions, properly is reassessed up to current appraised value only upon new construction or a change in ownership. Consequently, long-term residents can pay much lower taxes than newcomers,, even for virtually identical homes.
The majority opinion, delivered by Justice Harry A. Blackmun, said the reassessment provisions of California's property tax system were justified by the state's "legitimate interest in local neighborhood preservation, continuity, and stability.
"The state therefore legitimately can decide to structure its tax system to discourage rapid turnover in ownership of homes and businesses, for example, in order to inhibit displacement of lower income families by the forces of gentrification or of established, ~mom-and-pop' businesses by newer chain operations," Justice Blackmun wrote.
By allowing longer-term residents to pay less in taxes than new owners of comparable properties, Proposition 13 "rationally" furthers the state's interest in neighborhood stability, he added.
In so ruling, Justice Blackmun rejected a plea from local resident Stephanie Nordlinger that Proposition 13 should be subjected to heightened judicial scrutiny because it infringed on her constitutional right to travel and settle where she wished.
In general, the court upholds state laws against equal protection claims as long as the state demonstrates the laws promote legitimate interests. However, if the laws jeopardize fundamental individual rights, the court holds states to a higher standard.
But because Ms. Nordlinger lived in a Los Angeles apartment before buying a home in Los Angeles County, the court concluded that she had not been impeded from traveling or settling in California. As a result, the court said Ms. Nordlinger lacked standing to assert a right to travel as a basis for heightened review.
Justice John Paul Stevens dissented. "Similarly situated neighbors have an equal right to share in the benefits of local government," he wrote. "It would obviously be unconstitutional to provide one with more or better fire or police protection than the other; it is just as plainly unconstitutional to require one to pay five times as much in property taxes as the other for the same government services."
Justice Clarence Thomas concurred with the court majority in the outcome, but warned that the ruling "has left our equal protection jurisprudence in disarray."
Public finance participants in California said the court's decision removes at least one cloud looming over state and local finances.
"From a municipal market point of view, there's an absence of the uncertainty" now compared to what would happen if state lawmakers had to overhaul a key aspect of Proposition 13, observed Roger Davis, chairman of the public finance department at the law firm of Orrick, Herrington & Sutcliffe.
Given the state's severe budget problems and overall economic malaise, it would have been "an inhospitable environment in which to recast the property tax system of the state of California," Mr. Davis said.
A spokeswoman in the state Department of Finance underscored that sentiment, nothing yesterday, "It's one less thing that we have to worry about."
Local officials already are grappling with other taxing uncertainties, including a state supreme court decision in December that has raised some doubt about the ability of countries to increase sales tax rates with voter support of a simple majority rather than two-thirds.
Said Sid Delgado, an assistant to Los Angeles County Assessor Kenneth Hahn, "We're happy that the [Nordlinger] decision came out that way" because it supports a system that has been in place for many years and offers properly owners some tax predictability.
If any amendments are needed to reform Proposition 13, Mr. Delgado noted, they will now "be done by the state Legislature or the voters rather than the courts."
Nancy Morton, chief deputy treasurer and tax collector for Los Angeles County, said the decision also removes uncertainty for local officials from an operational standpoint.
"We are glad that the [case] has been settled," she said. "Our operations will basically stay status quo" by virtue of having the current assessment system upheld.
In Los Angeles County's preliminary official statement for its $1.5 billion tax and revenue anticipation note issue sold this week, the county said a partial invalidation of Proposition 13 could produce "one possible outcome" of reduced property tax assessments. The county continued, however, that "any remedy, would be limited to prospective relief" and therefore the county could not provide any estimate of liability.
The uncertainty over the case stemmed partly from fears that a decision might be applied retroactively if reassessment provisions were overturned. Legal analysts had predicted potential political chaos in the state capital if lawmakers faced an overhaul of the reassessment provisions.
Although the court's decision removes uncertainty about the case's outcome, it also means that California remains burdened with a taxing system that has caused stress in governmental finances, said Steve Zimmermann, a managing director of Standard & Poor's Corp.
He noted, for example, that much of the fiscal stress facing California "is due to the existence of Proposition 13," especially since the law transferred a larger burden of local funding responsibilities to the state. "The condition will continue to exist" unless the state considers reforms on its own, he said.