Opinion ID: 2634942
Heading Depth: 1
Heading Rank: 9

Heading: Transferred funds

Text: HIC further argues that the assessments at issue fail the third prong of the San Juan Cellular test, because the $2,000,000.00 that was transferred from the IRF in 2002 and the $1,500,000.00 that was transferred from the CRF in 2003 (the transferred funds), in accordance with the legislature's decrees in 2002 Haw. Sess. L. Act 178, § 40 at 793 and 2003 Haw. Sess. Laws Act 178, §§ 28, 66 at 407, 412 (the transfer bills), were used for a general purpose by being deposited in the general fund. In countering HIC's position, the State asks us to focus on the fact that the transferred funds at issue were, in the first instance, solely designated for the insurance division's use and were shifted to the general fund over the strong opposition of the insurance commissioner and the director of the DCCA. The State cites Apodaca v. Wilson, 86 N.M. 516, 525 P.2d 876 (1974), in support of its contention that an assessment's initial designation should define its character forevermore. In Apodaca, the Albuquerque City Commission adopted two ordinances, one that increased sewer and water service charges and another that, inter alia, indicated that water and sewer revenues had increased and that a large portion of the revenue increase would therefore be appropriated to the city's general fund. Id. at 878. The plaintiffs sought to enjoin the city from collecting the increased charges and to invalidate the ordinance increasing the charges on the ground that the charges were an illegal tax. Id. at 879. The New Mexico Supreme Court held that, `[s]ince the rate charged is not a tax in its inception, ultimate use of surplus funds derived therefrom for the support of municipal government will not convert it into taxes or cause it to assume the nature of taxes.' Id. at 885 (quoting City of Niles v. Union Ice Corp., 133 Ohio St. 169, 12 N.E.2d 483, 489 (1938)). The State's reliance on Apodaca is misplaced. That decision dealt with a municipality's ability to collect charges and then subsume the charges within its own general fund. The Apodaca decision relied heavily on the fact that the city was acting in a business or proprietary capacity rather than in a governmental capacity. Id. at 884. With that in mind, the New Mexico Supreme Court held that, `when engaged in business,' a municipality does not tax, but instead charges `a price at which and for which the public utility service or product is sold.' Id. at 885 (quoting City of Niles, 12 N.E.2d at 489). This is a far cry from the insurance division's role in the present matter, being neither engaged in business nor selling a product for profit. We are not presently addressing whether a municipality that is engaged in selling a `commodity' such as water, see id. at 886 (quoting Twitchell v. City of Spokane, 55 Wash. 86, 104 P. 150, 151 (1909)), can use the profits as it sees fit. Furthermore, for reasons discussed below, we do not agree with Apodaca's general conclusion that a fee assessment's initial designation dictates its character perpetually. The State also asserts that a levy placed directly into a general fund may sometimes constitute a valid regulatory fee, citing Southview Co-Operative Housing Corp. v. Rent Control Board of Cambridge, 396 Mass. 395, 486 N.E.2d 700 (1985). Southview Cooperative involved landlords who brought suit to challenge the rent control board's ability to assess fees against them in connection with petitions for rent adjustments. Id. at 701. The landlords asserted that the assessments constituted impermissible taxes. Id. In concluding that the fees were lawful, the Massachusetts Supreme Judicial Court stated the following, upon which the State relies in the present matter: The plaintiffs are not helped by the fact that the collected fees were deposited in the general fund of the city, as the law requires, or by the fact that the challenged fee schedule was established to make up for a [budget] shortfall.... Every fee charged by a regulatory agency will reduce the amount of funding that must come from general government revenues, and thus will substitute for funds that would otherwise have to be raised through taxes. But, clearly, all such regulatory charges are not taxes. Id. at 706. Southview Co-Operative is not applicable to the present matter for the crucial reason that the rent control board was not self-sufficient, whereas the DCCA and its insurance division are mandated by law to be so. Specifically, in Southview Co-Operative, [t]he board submitted a budget ... with a financing plan in which approximately seventy per cent of the budget would be supported by intergovernmental revenues and approximately thirty per cent would be supported by charges for services. Id. at 702. By contrast, in the present matter, the DCCA became wholly financially self-sufficient in 1999, receiving no general fund monies with which to operate. The question before the court in Southview Co-Operative  whether monies from a fund that commingled both assessments and intergovernmental revenues, which ostensibly were supplied by taxes, could eventually revert to a general fund  is simply not before us. We deal solely with the question whether monies from a fund made up entirely of assessments, fees, fines, penalties, and reimbursements can be transferred to a general fund. We blanch at the State's basic contention that a user or regulatory fee, if initially assessed as such, can be transferred to a general fund when the same assessment would have been invalid had it been assessed initially with the express understanding that the funds would be transferred to the general fund. If we adopted such a position, seemingly nothing would bar the legislature from dipping into the fees collected by any state regulatory agency that were deemed to be in excess of the requirements of the fund. See 2002 Haw. Sess. L. Act 178, § 40 at 793. San Juan Cellular speaks clearly on this score, noting that courts, in distinguishing a regulatory fee from a tax, have tended ... to emphasize the revenue's ultimate use, asking whether it provides a general benefit to the public, of a sort often financed by a general tax, or whether it provides more narrow benefits to regulated companies or defrays the agency's costs of regulation. 967 F.2d at 685; see also Robinson Protective Alarm Co. v. City of Philadelphia, 581 F.2d 371, 376 (3d Cir.1978) (holding that a city-assessed charge to fire and burglar alarm companies was a tax because moneys collected are added to the [general fund], rather than applied exclusively to contractual services owed central alarm station companies (emphasis added)); Bloom v. City of Fort Collins, 784 P.2d 304, 311 (Colo. 1989) (holding that provision of transportation utility fee ordinance that authorized city council to transfer excess revenues from fee to any other city fund render[ed] the ... fee the functional equivalent of a tax); Health Servs. Med. Corp. of Cent. New York v. Chassin, 175 Misc.2d 621, 668 N.Y.S.2d 1006, 1009-10 (1998) (holding that a portion of payments mandated by statute by HMOs to hospitals that were deposited in the state's general fund represented an unconstitutional tax); Radio Common Carriers of New York, Inc. v. New York, 158 Misc.2d 695, 601 N.Y.S.2d 513, 515-16 (1993) (holding that a special fee on paging devices enacted by state was a tax because the proceeds were added to the state's general fund). After viewing the transferred funds through the lens of San Juan Cellular by emphasizing [the assessment's] ultimate use, 967 F.2d at 685, while bearing in mind our maxim that `the nature of the tax or charge that a law imposes is not determined by the label given to it but by its operating incidence,' Medeiros, 89 Hawai`i at 366, 973 P.2d at 741 (quoting Stewarts' Pharmacies, 43 Haw. at 144) (brackets omitted), for the reasons stated in the following section, we hold that the regulatory fees were transferred unlawfully, inasmuch as they were available for general purposes, as if they were derived from general tax revenues, after being transferred to the general fund. See San Juan Cellular, 967 F.2d at 686. The State's argument that the insurance division neither foresaw nor condoned the legislature's transfer of its monies to the general fund is unavailing, because the insurance division's conduct is not at issue here. Our focus is instead on the legislature's attempts via the transfer bills to lateral the transferred funds from the insurance division to the general fund. The transfer bills must be scrutinized for any violation of the separation of powers doctrine.