Financial Blog

President's weekly report — May 27, 2016

PLF testifies before Senate Subcommittee

PLFs Damien Schiff testified before the Senate Subcommittee on Fisheries, Water, and Wildlife concerning agency abuses of private property owners under the Clean Water Act.  (PLFs testimony begins at minute 26:25 here).  We focused on a number of recent and ongoing PLF cases challenging EPA's and the Corps' expansive and aggressive assertions of the authority despite the federal courts' stay on the agencies' WOTUS rule-making.  One of those cases was Tin Cup, LLC v. US Army Corps of Engineers, our recently filed challenge to the Corps' attempted regulation of permafrost.  That issue was of keen interest to the Subcommittee's chairman, Senator Sullivan of Alaska. Also of note are the questions from Senator Whitehouse. In 2001 PLF won Palazzolo v. Rhode Island, a case argued by Whitehouse who at the time was Rhode Islands attorney general.

Challenge to California cap and trade continues

As the press picks up on the faltering cap and trade scheme in California, a faltering that may hurt the not-so-high high speed train boondoggle, see here and here, we filed this supplemental brief in our own challenge, Morning Star Packing Company v. California Air Resources Board. This scheme, which forces some emitters of carbon dioxide to pay for allowances in order to operate their existing businesses is either a tax in violation of Californias Proposition 13 or its a fee that violates Proposition 218. For more see our video and blog post.

Tort reform mixed decision from the California Supreme Court

The California Supreme Court issued this mixed decision in Webb v. Special Electric. Here Special Electric brokered the sale of asbestos from South Africa to Johns-Manville that incorporated it into some pipe which it then sold to a pipe supply company that sold the pipe to another pipe supply company. When the latters employee, Webb, developed lung disease, he sued. The question is how far up the supply chain can such liability run and to whom did the original broker have a duty to warn about the dangers of asbestos? A jury awarded Webb $900,000 against Special Electric. We had filed this amicus brief in the Supreme Court arguing that the learned intermediary doctrine should be applied, meaning that because Johns-Manville was itself an expert on asbestos, Special Electric did not have a duty to make an unnecessary warning.  Nevertheless, the Supreme Court has now upheld that verdict. The court ruled that Special Electric was liable because while it was clear that Johns-Manville knew in general about the dangers of asbestos (and thus the learned intermediary doctrine applies) Special Electric didnt prove that Johns-Manville knew about the particular dangers of this particular type of South African asbestos. That lack of proof negated the doctrine in this case. For more detail and analysis of the decision, see our blog post here.

Oral argument set in long-running anti-discrimination lawsuit

Nearly two years after briefs were submitted, the Court of Appeal has set Coral Construction and Schram Construction v. City and County of San Francisco, for argument on the Citys motion to dismiss the case. Argument will be in the First District Court of Appeal on July 12. This case alleges that San Franciscos race and gender-based contracting policies violate Proposition 209. The trial court ruled that the case is moot because the City rescinded the ordinances in question. However, it is clear that the City would have reinstated the preferences if and when the City won the lawsuit and the injunction was lifted.

Will Californias tax-limitation Propositions 13 and 218 go up in smoke?

We filed this amicus letter brief in California Cannabis Coalition v. City of Upland asking the California Supreme Court to take up the case.  Here, the appellate court determined that local taxes adopted by initiative are not subject to the requirements of Proposition 218, which was intended to cover all new local taxes.  Proposition 218 also requires that all new general taxes be decided by a majority of the voters in a general election.  PLF argued that the voters sought the right to vote on all new taxes by adopting three initiatives, all of which were added to the State Constitution.  The voters likely did not differentiate between taxes imposed by local government and those imposed by initiative, and none of the literature submitted to the voters regarding Proposition 218 addresses that distinction

Berkeley voters could face dueling Robin Hood tax measures

The BRHCs basic dream and hope is probably that with two competing measures, there would be a whole bunch of people that would vote no on anything and both measures would lose because they would split the (pro) vote, said CSAH Co-chair Stephen Barton, a former Berkeley housing director.

Not so, countered BRHC Executive Director Krista Gulbransen.

Were putting it on the ballot because we feel our measure is equitable, its simple, and its fair, she said.

BRHC wants to address Berkeleys affordability challenges, she said, adding,

We know most importantly that a lot of the nonprofit developers are not getting the matching funds that they need in order to move forward with their projects, so we drafted our initiative ordinance because we wanted (to address) those challenges. Defending the CSAH measure, Barton said, Given that permanently affordable housing is very expensive, what could be fairer than having the landlords who are enjoying enormous windfall profits share a modest percent of that to help mitigate the effects of what theyre doing.

Depending on the business license tax rate increase, the CSAH measure would fund 40 to 70 units annually, while BRHCs would pay for just 12, Barton added.

The measures also differ on exemptions.

The apartment owners measure raises taxes on every rental housing unit currently taxed.

Gulbransen says the lack of exemptions makes their measure more equitable.

The CSAH measure exempts tax increases on low-rent units housing tenants living under rent control since 1998, units rented under federally subsidized programs and permanently affordable inclusionary units in newer buildings.

Both measures would be general taxes that can win approval with 50 percent plus one vote. General tax revenue is placed in the general fund.

To assure voters the funds would be spent on affordable housing, both measures include oversight bodies.

If both receive more than 50 percent, the one with the most votes will win.

No other city has enacted a similar law, Barton said, noting, This will be another Berkeley first.

Town council passes its 2016 operational budget, sets tax rates

The Towns 2016 tax rates have been set and its operational budget approved, following the passing of two motions at councils May 9 meeting.

The budget was balanced at roughly $5.7 million.

Residential mill rates were set at 9.53 mills and the non-residential mill rate was set at 14.63 mills.

Residential properties will bring in more than $1.6 million while non-residential properties will bring in $597,635.

Farmland mill rates were set at 9.53 mills, residential-country at 5.76 mills, commercial country at 9.14 mills, and farmland-country at 9.59 mills. They will bring in $432, $341, $422, and $637, respectively.

The Alberta School Foundation Fund (ASFF), established by the provincial government in 1994 to make certain the education property tax was accounted for separately from general revenues, was set at 2.324 mills for residential and farmland, 3.32 mills for non-residential, 2.413 mills for residential-country, 3.973 mills for commercial-country and 2.413 for farmland-country.

Senior Foundation mill rates were set at 0.155 for residential, commercial, industrial and farm, and 0.1387 for residential-country, commercial-country and farmland-country.

The Towns tax rates for physician recruitment and the fire department have been set at 0.166 and 0.636, respectively.

Total expenses for the year have been estimated at $5,703,330, an increase of $302,203 from 2015. Total revenue for the year is estimated at $5,703,330, an increase of $302,181 from 2015.

Revenue from general taxes and fees is forecast at roughly $2,885,875 for 2016, up roughly $165,151 from 2015. Expenses incurred from general taxes and fees are estimated at $32,451 for 2016, down $3,549 from 2015.

Revenue from school taxes are estimated at $512,925 for 2016, a $53,575 decrease from 2015. Expenses from school taxes for 2016 are estimated at $540,000, down $26,500 from 2015.

Legislative expenses are forecast to cost $127,900 in 2016, up $4,900 from 2015.

General administration revenue for 2016 is estimated to bring in $25,110, down about $858 from 2015. General administration expenses are forecast to cost $747,168 in 2016, up about $6,888 from the previous year.

Firefighting expenses this year are estimated to cost $134,323, up roughly $700 from 2015.

Emergency services expenses are estimated to cost $11,000 in 2016, up $3,500 from the previous year.

Bylaw revenue is forecast to increase significantly in 2016, bringing in an estimated $33,000, up $26,500 from the previous year. Bylaw expenses are also estimated to increase, costing roughly $122,391 this year, up $5,991 from 2015.

Common services expenses are expected to be down $42,755 this year from 2015, totalling roughly $222,112.

Revenue from roads and streets is estimated to be slightly lower this year than last, bringing in a total of about $10,137, a $709 drop from 2015. Expenses incurred from roads and streets are also down this year, estimated to cost a total of $389,595, down $40,518 from 2015.

Airport expenses are forecast to cost $8,000, the exact same as 2015.

Water treatment revenue is estimated at $240,000, staying exactly the same as it was in 2015. Water treatment expenses are expected to increase, up $28,548 from 2015, for a total of about $190,539.

Storm expenses are estimated at about $21,310, up $770 from 2015.

Revenue for Family and Community Support Services (FCSS) is expected to be $178,389 this year, up $12,446 from 2015. FCSS expenses for the year are forecast to cost about $191,076, up $14,168 from 2015.

Revenue from the cemetery is expected to remain the same as it was in 2015, at $8,000. Expenses from the cemetery are estimated to increase slightly, up about $940 from 2015.

Revenue from planning development and safety are estimated to increase by $1,200 in 2016, for a total of $4,800, up from $3,600 in 2015. Expenses for planning development and safety is expected to remain roughly the same in 2016 as it was in 2015, at $119,608.

Subdivision revenue for 2016 is expected to be the same as it was in 2015, forecast at $10,200. Subdivision expenses in 2016 have dropped significantly from 2015, roughly $54,600 lower than the previous year, for a total of about $20,780.

Expenses for economic development are expected to increase roughly $12,106 from 2015 for a total of $95,938.

Recreation revenue has dropped significantly from 2015, by about $50,702, for a total revenue of roughly $124,455. Recreation expenses have also dropped from the previous year, by about $40,128, for a total of $203,311.

Golf course loan expenses are expected to remain unchanged since 2015, at $84,864.

Parks revenue is forecast to nearly double this year from 2015, bringing in an estimated $62,723, up $28,934 from 2015. Parks expenses are forecast to be slightly higher than 2015, up about $2,958, for a total of $106,785.

Swimming pool revenue is estimated to bring in $129,539 this year, an increase of $4,989 from 2015. Expenses for the swimming pool are up roughly $190,940 this year from last year, for a total of $409,930.

Revenue from the arena is forecast to drop slightly, down $2,501 from 2015, for a total of $120,394. Arena expenses are estimated to increase by about $8,998 in 2016, for a total of $210,788.

Culture revenue is expected to increase significantly in 2016, up $10,200 from 2015, for a total of $14,400. Culture expenses are forecast to increase, up about $9,021 from 2015, for a total expenditure of roughly $133,406.

Revenue from the tourist centre is estimated to remain the same as it was last year, bringing in an estimated $14,400. Tourist centre expenses have increased slightly, up roughly $2,148 from 2015, for a total of about $115,026.

Water revenue is forecast at $780,000 this year, an increase of roughly $140,867 from 2015. Water expenses are also estimated to increase, costing roughly $203,196 more than last year, for a total of about $771,053.

Sewer revenue is expected to increase slightly in 2016, up $1,870 from 2015, for a total of $168,870. Sewer expenses are estimated to cost roughly $282,822, up $7,301 from 2015.

Garbage revenue is forecast to increase this year, up $18,369 from 2015, bringing in a total of $380,112. Garbage expenses will also increase, costing roughly $7,183 more than 2015, for a total expenditure of $387,580.

Nassau County's New "Disputed Assessment Fund" is Likely to Raise Tax Rates

Commercial property owners in Nassau County take note: tax rates for your properties are likely to increase.

For years, when property owners successfully challenged their real property assessments in Nassau County, the County refunded overpaid taxes by dipping into its general fund. Since these refunds totaled millions of dollars each year, this created significant budgetary pressures on the County. The County has now enacted a new process in an effort to address this, but there may be some unintended consequences.

The County recently enacted section 6-41.0 of the Nassau County Administrative Code, which creates a Disputed Assessment Fund (DAF) for class four commercial property owners in Nassau County that grieve their property tax assessment for their school and town/county/general taxes. (Class Four properties are all commercial properties other than residential co-ops and condos or utility property.) The DAF will place the burden for refunds for class four properties solely among class four properties, and not spread among the other three property tax classes.

Essentially, when a commercial property owner challenges the assessment, the County Assessor will set aside some of the taxes that are paid for potential refunds. The assessor will determine what percentage of a propertys assessment will be allocated to its traditional school/town/county/general taxes and how much will be allocated to the DAF.The DAF will initially appear on the 2017 general tax bill in January 2017 as a separate charge. It will only appear on class four properties that grieved their 2016/17 assessment.

For example, if the property assessment is $10,000 and the property is seeking a 20% reduction, the assessor may determine the property tax liability and the DAF as follows:

  • Property tax liability: $8,000 (80% of the property assessment) multiplied by the applicable tax rate
  • DAF: $2,000 (20% of the property assessment) multiplied by the applicable tax rate

The assessor has discretion in determining which portion of the assessment will go towards the property tax liability and the DAF (eg, the assessor may determine that 85% should go towards the property tax liability and 15% towards the DAF.) A property owner will not be double-taxed under this new law.

While this new law will reduce Nassau Countys burden in refunding property taxes from its general treasury, the local jurisdictions-- school, town, county, etc.-- still need to be properly funded to meet their budgets. In order to account for this reduction in property tax revenue and funding of the DAF, the local jurisdictions will be forced to increase tax rates for all class four properties, regardless of whether an appeal was filed for a specific parcel. We do not know how much of an increase there will be for property tax rates, but we expect rate increases of at least 10% or more.

If the 2016/17 property tax appeal has been resolved by July 22, 2016, the property owner will not be required to pay into the DAF. If the property appeal has been resolved or if the property did not file an appeal, the 2017 general tax bill will not have a separate charge for the DAF.

While many commercial property owners are vigilant in reviewing their property tax assessments, this new law in Nassau County provides an even greater incentive for commercial property owners to appeal their assessment. All class four property owners will likely see an increase in their property tax liability beginning in January 2017 due to an increase in property tax rates. Failure to file an appeal by the appropriate deadlines will leave the property owner with no potential recourse against Nassau County. By filing an appeal, the property owner will have the opportunity to offset some of its tax liability incurred by these likely higher tax rates.

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