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The City Wins Big Judgment Over The County In A Rare Tax Case
Saratoga will collect some $730,000 from county
Money was not budgeted
By Steve Enders
The city of Saratoga has emerged victorious in a first-of-its-kind legal dispute with Santa Clara County and stands to collect more than $730,000, based on the amount lost when Saratoga voters failed to renew the city's utility-user tax in 1996.
Last week's decision will provide the city with a healthy dose of always-needed cash, since the loss of the tax in 1996 prompted city officials to hack away at the city budget, in turn reducing staff and many city services provided when the tax was in effect.
Money to be collected by the city from the judgment was not budgeted this year, so what Saratoga will do with it remains to be seen.
Former City Attorney Mike Riback, who provided legal services because of his knowledge of the city tax, and the other attorneys handling the case are still working out details on the final amount the city will get. That will depend on how much interest will be owed.
Saratoga has lost out on money it should have received from the county because it qualifies as a "no-low" property tax city. Because the city does not collect a great deal of property taxes from residents it has depended on an annual tax equity allocation (TEA)--a vestige of Prop. 13--from the county since 1989 to compensate for the small amount in taxes it receives.
To make up for the low tax rate, the city enacted the utility- users tax, a 3.5 percent tariff on residents' PG&E bills.
Tax laws say that when a city's voters eliminate a tax, as Saratogans did in 1996, the amount that's not collected should be subtracted from subsequent TEA money given by the county. Because the utility-user tax failed at the polls, the city lost about $730,000 and its ability to collect a larger portion of TEA money in the future.
Although it was clear that the city was legally entitled to the money, what was unclear was in which fiscal year the TEA reduction should first be applied. The city contended that it should apply for the 1998-99 fiscal year, while the county said it should have applied during 1997-98.
Because of this, the schedule of reduction was also under dispute. When the city raised the question as to which year the reduction should start, the county threatened not to phase in the funds.
Instead, the sides chose arbitration and a panel of three judges agreed with the city and that the money should be paid in phases.
Rather than getting the money in one lump sum, the city will receive one third of the $730,000 with interest dating from the 1997-98 fiscal year, another third plus interest coming from 1998-99 and the final third will come from the 1999-00 fiscal year.on the final amount the city will get. The final amount depends on how much interest will be owed.
Saratoga has lost out on money it should have received from the county because it qualifies as a "no-low" property tax city. Because the city does not collect a great deal of property taxes from residents Saratoga has depended on an annual tax equity allocation (TEA)--a vestige of Prop. 13--from the county since 1989 to compensate for the small amount in taxes it receives.
To make up for the low tax rate, the city enacted the utility- users tax, a 3.5 percent tariff on residents' PG&E bills.
Tax laws say that when a city's voters eliminate a tax, as Saratogans did in 1996, the amount that's not collected should be subtracted from subsequent TEA money given by the county. Because the utility-user tax failed at the polls, the city lost about $730,000 and its ability to collect a larger portion of TEA money in the future.
Although it was clear that the city was legally entitled to the money, what was unclear was in which fiscal year the TEA reduction should first be applied. The city contended that it should apply for the 1998-99 fiscal year, while the county said it should have applied during 1997-98.
Because of this, the schedule of reduction was also under dispute. When the city raised the question as to which year the reduction should start, the county threatened not to phase in the funds.
Instead, the sides chose arbitration and a panel of three judges agreed with the city and that the money should be paid in phases.
Rather than getting the money in one lump sum, the city will receive one third of the $730,000 with interest dating from the 1997-98 fiscal year, another third plus interest coming from 1998-99 and the final third from the 1999-00 fiscal year.
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Saratoga, California Since 1955
