City Council to discuss court setback
Publication Date: Friday Nov 17, 1995

EAST PALO ALTO : City Council to discuss court setback

East Palo Alto stands to lose 19 percent of its General Fund budget

The East Palo Alto City Council is about to begin the process of figuring out how to cope with losing one-fifth of its General Fund budget.

A recent court ruling struck down the city's 6-year-old parcel tax, setting off what could be a difficult financial crisis for the city.

Mayor Rose Jacobs Gibson said the main purpose of a meeting Monday night will be to set up a schedule of getting community input on how the city should respond to the crisis. Although this is intended to be mainly a planning meeting, she said there probably will be some discussion of the issues.

City officials were dismayed Oct. 31 when San Mateo County Superior Court Judge Clarence Knight tossed out the tax in ruling on a lawsuit from a group of taxpayers. The taxpayers claimed that the city's excise tax, passed by the voters in 1989 and 1994, was really a property tax and thus illegal.

Knight has not issued any further rulings about when the city must stop collecting the tax or whether the city will also have to refund taxes paid since 1979.

The tax amounts to $900,000 annually for the city, out of a General Fund budget of $4.7 million.

Gibson indicated that she would like "full community involvement" before the Council makes any decision in response to the court ruling.

The city has 30 days, from Oct. 31, to respond to Knight's ruling in the form of a judgment memorandum which will spell out how the decision should be implemented.

After the city submits its memorandum to Knight, it will then have 60 days to decide whether to appeal Knight's ruling.

"We want to make sure the Council is clear on the options," said City Manager Jerry Groomes, who will be making a report on those options Monday night.

"We'd have to look at some significant changes," Groomes said, which would involve either reducing services or finding ways to increase revenue to replace the tax. "We'll have some hard choices to make," he said.

The lawsuit claimed that the tax was a property tax because it was charged to property owners. City officials argued that the tax was an excise tax because it charged residents for city services.

Knight ruled for the plaintiffs because the law was charged only to property owners and at a flat rate--$175 a year per homeowner--and thus was not a tax on using city services.

The passage of Proposition 13 in 1978 requires that any property tax increase be approved by a two-thirds majority. The city's tax was passed by East Palo Alto voters twice, but by simple majorities, not a two-thirds margin.

--Don Kazak

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