Court Opinion

ID: 9794108
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:59:39.987373+00
Date Added: 2024-06-11T08:11:49.879593
License: Public Domain

EDMONDS, J., Dissenting.
I agree with the conclusion that the ordinance of the city of Arcadia did not require the city council to follow the requirements of section 3714 of the Political Code in levying its assessment for the fiscal year 1937-38 but, in my opinion, the allegations of the plaintiff’s complaint clearly show that the council levied taxes at a rate designed to produce more revenue than was required for governmental purposes during the ensuing fiscal year and that such levy is void as to the excess.
In considering the validity of a tax levy, the courts will *327consider two important elements: (1) whether the power exists to make the levy; and, (2) whether that power has been exercised within statutory limitations. “The authority of the judiciary is confined to an inquiry into the jurisdictional question, and if it appears that the political or legislative body has kept within the limits of its authority, the judiciary must pause there and admit its incompetency to inquire into wrongs which, within those limits may have been committed.” (San Christina etc. Co. v. San Francisco, 167 Cal. 762 [141 Pac. 384, 52 L.R.A. (N.S.) 676]; 4 Cooley’s Taxation, 4th ed., p. 3218.) Unlike the sovereign state, counties and other municipal subdivisions possess no inherent power of taxation. The Constitution itself does not grant them the taxing power, but the Legislature is authorized to “. . .by general laws, vest in the corporate authorities thereof the power to assess and collect taxes. ...” for county, city, town, or other municipal purposes. (Const, art. XI, § 12.) Pursuant to this constitutional authority, the Legislature has authorized the council of a city of the sixth class “To levy and collect annually a property tax, which shall not, without the assent of two-thirds of the qualified electors of such city voting at an election to be held for that purpose exceed one dollar on each one hundred dollars. . . .” (Stats. 1935, p. 2070; Deering’s Gen. Laws, 1937, Act 5233, § 862.11.)
By the same statute, “The city council shall have the power, and it shall be its duty, to provide by ordinance a system for the assessment, levy and collection of all city taxes not inconsistent with the provisions of this chapter. Nothing herein shall prevent the city council from exercising the power granted by general laws of the state relative to the assessment and collection of taxes by county officers.” (§ 871.)
The specifically mentioned general limitations upon municipal power to tax are (1) that the municipal levy be annual; (2) that in the absence of special election, the maximum levy shall not exceed one dollar for each one hundred dollars assessed value; and (3) that a system shall be established by ordinance for the assessment, levy and collection of such taxes.
But in addition to these express provisions is the limitation inherent in the nature of the taxing power itself, that is, public necessity. “Taxes are defined to be burdens or charges imposed by the legislative power upon persons or property, *328to raise money for public purposes. The power to tax rests upon necessity, and is inherent in every sovereignty.” (Cooley’s Constitutional Limitations, vol. 2, 8th ed., p. 986.) And as an eminent authority on municipal corporation law has stated: “. . . the substantial foundation of the power is political, civil, or governmental necessity. ...” (Dillon, Municipal Corporations, vol. 4, 5th ed., pp. 2313, 2314.)
This inherent limitation upon the taxing power of municipal corporations has been recognized by the courts of this state and stated in one case as follows: “The power of government to exact from the citizen a part of his property in way of taxation is indeed vast, but it is not unlimited. It may be exercised only for the public good and for a public purpose.
“Cooley’s definition of taxes as ‘enforced contribution levied for public needs’ states concisely both the nature and limitation of taxes. Taxes are the property of the citizens demanded and taken by the government to enable it to discharge its functions. In his work on Tax Titles, Blackwell defines taxes as ‘burdens imposed by the legislative power upon persons or property to raise money for public purposes. ’
“The needs of the government constitute then both the occasion and limitation of the taxing power. To take from the citizen a dollar beyond the needs of government is not taxation; it is extortion.” (Madary v. City of Fresno, 20 Cal. App. 91, 97 [128 Pac. 340, 343].)
In a more recent case, the county of Los Angeles contended that a levy which produced considerably more money than its budget requirements was not pro tanto invalid in the absence of arbitrary or capricious action. Following the Madary case and Redman v. Warden, 92 Cal. App. 636 [268 Pac. 686], this court decided to the contrary and held that where the taxing body, either through inadvertence or design, excludes from its computations amounts which will be available to the municipality during the period then being provided for, an excessive levy resulting from such action is invalid. (Otis v. Los Angeles County, 9 Cal. (2d) 366 [70 P. (2d) 633].) Although that determination was reached in an attack upon an assessment which was levied in a county operating under the provisions of section 3714 of the Political Code, the reasoning of the court is applicable to the present controversy. All of the authorities support the rule that where there has been an official determination of governmental need by the legis*329lative body, an assessment levied at a rate which will produce a return substantially in excess of that previously determined need is, to the extent of that excess, invalid. As stated in Madary v. City of Fresno, supra, at p. 98, and approved in Otis v. Los Angeles County, “It seems eminently just that this money collected by the city in excess of its needs as determined by the constituted authorities, should be returned to those upon whom the unnecessary burden was imposed, and no merely technical objection should stand in the way.”
As the basis of its cause of action, the appellant in the present action alleged: “That the needs and requirements of the city general fund, being the fund for current operating expenses and general government purposes, for the fiscal year 1937-1938 was the sum of $141,061.14; that the taxing officials and taxing body of said city determined and fixed such needs, requirements and appropriations in such amount on or about the 7th day of September, 1937; that on said date resolution No. 878 of the city of Arcadia, entitled, ‘A resolution of the city council of the city of Arcadia adopting budget for the fiscal year 1937-1938,’ was adopted and by such resolution the needs, requirements and appropriations for said fund for said fiscal year were fixed and determined in the aforesaid amount of $141,061.14. . . .” This resolution constituted the official determination of the city’s governmental need, as specified in a budget, so far as its current operating expenses and general governmental purposes were concerned, entirely independent of any unappropriated money in its treasury, and there is no basis for any judicial implication that the council considered the cash on hand as a necessary reserve. Such an implication would invade the discretion vested in the city council.
The complaint also includes these additional facts upon which the appellant relies: “That at the beginning of said fiscal year there was cash on hand on deposit in the designated depositories, belonging to the credit of said fund for said fiscal year, in the sum of $92,720.13; that there were no legal or valid outstanding claims, warrants, liabilities or obligations against said cash or fund balance . . . that the said cash or fund balance was available for the purpose of meeting the said appropriations, needs or requirements aforesaid . . . that at the beginning of said fiscal year, as well as at the time of levying said tax, the taxing officials of said city knew and *330were charged with knowledge of such cash or fund balance, and knew and were charged with knowledge of the availability thereof to meet the said needs, requirements and appropriations aforesaid; that, however, the said cash or fund balance was not considered either in the adoption of said budget nor in the computation, fixing and levying of said tax, but was arbitrarily omitted.”
Other allegations of the complaint are that there was miscellaneous income and revenue belonging to said fund for the fiscal year in question of $56,334.58, against which there were no outstanding obligations, warrants or liabilities. And the appellant has pleaded that no part of the cash on hand or the miscellaneous income and revenue was considered either in the adoption of the budget or in the computation of the tax rate.
The doctrine that taxation is based upon necessity rejects the authority of the legislative body to accumulate unnecessary surpluses from taxes collected by municipal corporations, and requires that they confine their levies to the amounts actually needed to be determined annually. (People v. Baltimore & O. R. Co., (1941) 376 Ill. 393 [33 N. E. (2d) 604, 605].) This principle was recognized in Stuart Arms Co. v. San Francisco, 203 Cal. 150 [263 Pac. 218], where the court, in effect, held that any excess funds collected during one fiscal year should be carried over into the next fiscal year and considered in the computation fixing the rate for such year. The controversy decided by that case arose in connection with the levy made by the city and county of San Francisco for the fiscal year 1925-1926. At that time there were no mandatory budget provisions in section 3714 of the Political Code. Since two and one-half fiscal years had intervened subsequent to the filing of the action, said this court, the question was moot by lapse of time. “If there was an excess for the year 1925-1926 the presumption is that it was carried over into the next year and entered into the computation of the fixing of the rate for said following year. No presumption of irregularity or failure to perform official duty may be indulged against municipal or public officers. ’’
The Supreme Court of Washington has also held taxing authorities to the same rule, saying: “It is to be considered also that, apart from the creation of sinking funds to meet outstanding funded obligations, there is no need for the accumulation of a surplus, since the resource of taxation is *331always available within the limitations fixed by law to meet the current needs of the county. In short, any considerable surplus represents money taken from the taxpayer in advance of its need.” (Weyerhaeuser Timber Co. v. Roessler, 2 Wn. (2d) 304, 311 [97 P. (2d) 1070, 1073, 126 A. L. R. 882, 886].)
Accepting the determination of the city council as to the-gross amount required for general and library purposes during the fiscal year, so far as the complaint shows, there is no reason why the unappropriated money and incoming revenues should not have been taken into consideration by the city council in fixing the tax rate. Reserves are justified by sound business practices and recognized by law. But for a municipality to tax its citizens for the purposes of government while having in its treasury unappropriated money available to meet its needs and revenues presently available is economically unsound and governmentally unjust.
Turning to the allegations relating to the levy for bond purposes, it appears that the city has six bond issues outstanding and maintains a separate fund for the payment of interest and principal payments accruing on each of them. The complaint sets out in detail the amount of cash in each of these funds and the incoming revenue creditable during the fiscal year 1937-1938. According to the complaint, neither the cash nor the incoming revenue was considered by the city council in fixing the tax levy and, for the reasons which have been stated, the appellant’s complaint, in my opinion, states a good cause of action upon that ground.
In urging that the city exceeded statutory limitations in its levy, the appellant relies upon the Municipal Bond Act of 1901 which provides that a municipal legislative body has power to levy and collect “a tax sufficient to pay the annual interest on such bonds, and also such part of the principal thereof as shall become due before the time for fixing the next general tax levy.” (Stats. 1901, p. 27; Deering’s Gen. Laws, 1937, Act 5178, § 7.) The statute also provides that the taxes levied and collected for the purpose of meeting interest and sinking fund requirements on bond issues shall be used “for no other purpose than the payment of said bonds and accruing interest. ” (§ 7.)
Unquestionably these limitations upon the authority of the city were enacted for the protection of both the property owner and the bond holder. Taxes may be levied for the pur*332pose of paying interest and instalments of principal upon the bonds, but that money may not be diverted into other channels. I believe that the appellant’s allegations of fact showing a violation of this statute state a cause of action.
For these reasons, as I read the authorities, the judgment should be reversed with directions to overrule the demurrer and allow the respondent to answer.