City’s Transfer Of Building Fee Revenue To Departments Performing Related Services Is Within City’s Authority And Not A New Tax

Issue

In Collier v. City and County of San Francisco, (— Cal.Rptr.3d —, 2007 WL 1675695, Cal.App. 1 Dist., June 12, 2007), a California Court of Appeal considered a challenge to the transfer of fees and other revenues collected by a city department to other city departments performing related services.

The court ruled that the transfers neither violated the terms of the City Charter and Administrative Code, which specify that the funds are to be used exclusively to defray the costs of the department’s services, nor Proposition 13, which requires a two-thirds vote of the public for imposition of new local taxes.

Facts

The City and County of San Francisco (“City”) regulates building construction through its Department of Building Inspection (“DBI”). DBI collects regulatory fees from building permit applicants, as well as fines and penalties for code violations, and these funds are placed in the Building Inspection Fund (“BIF”). The City’s Administrative Code states that money in the BIF is to be used by DBI “exclusively to defray the costs” of its operations.

In fiscal years 2003-04 and 2004-05, the BIF held surpluses while the City faced sizeable general fund deficits. In both years, the City helped balance its budget by transferring surplus BIF funds to the Planning Department and the Fire Department, which performed services pertaining to zoning and building safety that were related to DBI’s services.

Stephen Collier and others filed suit protesting the transfers, alleging that they violated the terms of the City’s Administrative Code, as well as Proposition 13’s requirement that special taxes be approved by two-thirds of the city’s voters. The trial court ruled that the transfers were legal, and Collier appealed.

Decision

The court first considered whether the transfers amounted to a “special tax,” which would require a two-thirds vote of the public under Proposition 13. Government Code Section 50076 specifies that a special tax does not include any fee “which does not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged and which is not levied for general revenue purposes.”

The court rejected Collier’s contention that the transfers were used to fund unrelated operations of other departments. Analyzing the operations of DBI and the Planning and Fire departments, the court found that all three provided services necessitated by building construction, and therefore were reasonably related to the service for which the fee was charged. “As such, San Francisco did not deem the transferred BIF revenues as revenues in excess of actual cost” in weighing its department’s budgetary needs, the court said. Therefore, there is no basis for Collier’s claim that the City had established a special tax.

The court then rejected Collier’s claim that the City had violated the terms of its Charter and Administrative Code. The Charter acknowledges that other laws might create the duty to hold unspent funds for specific purposes, but does not specify the laws or duties, the court said, and Collier had not made any such specific allegation. Further, the Administrative Code’s language that BIF money must be spent solely to defray DBI’s actual costs was rendered inconsequential by the City’s adoption of its 2003-04 and 2004-05 budget ordinances, which effectively served as amendments providing a limited repeal of any prior, contrary ordinances.

The court ruled the transfers were proper and within the City’s authority and not contrary to Proposition 13. The judgment was affirmed.