The Fight Over Property Taxes Continues: School District Entitled to Larger Share of Property Tax Increment
By Cori Badgley
Los Angeles Unified School District v. County of Los Angeles (2010) __ Cal.App.4th __ involved a tug-of-war between a county and a school district over a share of the property tax increment distributed by redevelopment agencies. In the wake of Proposition 13, property tax revenues are limited and their allocation is coveted by local government, special districts and school districts. Under redevelopment law, redevelopment agencies must give a portion of the incremental increase in property tax revenues to local entities, including schools, based on the percentage of property tax revenue received by the entity in that fiscal year. In this case, the Los Angeles Unified School District argued that it was entitled to a larger share of the property tax increment than it had been allocated because defendants, which included multiple redevelopment agencies, the County of Los Angeles and the City of Los Angeles (collectively “county”), failed to take certain property taxes received by the school district into account. The trial court disagreed with the school district, and the appellate court reversed.
The argument in this case centered around the overlap between two statutes: the pass-through legislation under Health & Safety Code section 33607.5 and the Educational Revenue Augmentation Fund (Rev. & Tax Code, §§ 97.2, 97.3) (“ERAF”). The legislature enacted ERAF to require the distribution of a portion of property taxes, along with other funds, to schools, to the detriment of county and city coffers.
Health & Safety Code section 33607.5 deals with the allocation of the property tax increment. The property tax increment is the increase in property tax revenues resulting from the redevelopment of property. In order to ensure that local entities are not financially burdened by the adoption of redevelopment plans, the legislature enacted pass-through legislation (Health & Safety Code, § 33607.5) whereby redevelopment agencies must “share or pass-through a portion of the property tax increment to local taxing entities, including schools.” This portion of the property tax increment is based on the proportion of property taxes allocated to the entity in the same fiscal year that the property tax increment is allocated.
In this case, the county did not take into account the amount of property taxes received by the school district through ERAF when calculating the percentages of property taxes received by each local entity. This meant that the percentage allocated to the school district was smaller because the percentage of property tax revenue received by the school excluded the additional ERAF amount. The school district sued the county on the grounds that the ERAF funds had to be included in the calculation.
On appeal, the Court of Appeal, Second Appellate District held that the county acted unlawfully in excluding the ERAFs. According to the court, subdivision (d)(5) of sections 97.2 and 97.3 of the Tax & Revenue Code clearly and unambiguously includes ERAFs as property tax revenue, and therefore, “any property tax revenue deemed allocated to ERAFs under subdivision (d)(5) necessarily qualifies as property tax revenue to the school that received it.” The court did point out that any money allocated through the ERAF to the school that was not property tax revenue should be excluded from the calculation.
Thus, the court concluded that the county’s calculations were unlawful and remanded the matter to the trial court to determine the right to reimbursement.
Cori M. Badgley is an associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.
The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.