Order Field 2/13/14
APPEAL from a judgment of the Superior Court of Fresno County, No. 08CECG03535 Jeffrey Y. Hamilton, Jr., Judge.
Freeman, D’Aiuto, Pierce, Gurev, Keeling & Wolf, Thomas H. Keeling; Kevin Briggs, County Counsel, Arthur G. Wille and Peter J. Wall, Deputy County Counsel, for Defendant and Appellant.
Jennifer B. Henning for California State Association of Counties as Amicus Curiae on behalf of Defendant and Appellant.
Jarvis, Fay, Doporto & Gibson, Benjamin P. Fay and Rick W. Jarvis; Colantuono & Levin, Michael G. Colantuono and Jon R. DiCristina for League of California Cities as Amicus Curiae on behalf of Plaintiffs and Respondents.
McCormick, Kabot, Jenner & Lew, Nancy A. Jenner for Plaintiffs and Respondents.
ORDER MODIFYING OPINION AND DENYING REHEARING
IT IS ORDERED, pursuant to California Rules of Court, rule 8.264(c)(1), that the published opinion filed in this appeal on January 16, 2014, be modified in the following particulars. The page numbers in this order refer to the pagination of the slip opinion.
1. Delete the first sentence of the first paragraph on page 5. Replace it with the following:
On September 30, 2013, after briefing was completed, the Legislature enacted legislation addressing interest awardable against local government entities in certain types of cases.
2. Delete the second paragraph on page 5 (beginning “In other words.…).
3. On page 19, in the first paragraph of subsection B., delete the final sentence.
4. Delete the last paragraph on page 20. Replace it with the following:
The new legislation applies to interest in the present action beginning January 1, 2014.
5. Delete the first paragraph of the Disposition. Replace it with the following:
The judgment is modified to reflect that, effective January 1, 2014, the rate of interest to be awarded in this action is controlled by section 3287, subdivision (c). The judgment is affirmed in all other respects.
6. Delete footnote 6.
The alternative request for rehearing contained in the letter filed by the City and County of San Francisco on February 5, 2014, is denied. Except for the modifications set forth, the opinion previously filed remains unchanged. These modifications include a change in the judgment, as reflected in the modified Disposition.
Oakley, J. [*]
The City of Clovis and six other Fresno County cities (cities) sued the County of Fresno (county) over the calculation of a fee the county withholds for the service of collecting property taxes from property owners and distributing the proceeds to the cities. In other litigation raising the same fee-calculation issue, the California Supreme Court rejected the county’s position and required use of the methodology advocated by the cities. (City of Alhambra v. County of Los Angeles (2012) 55 Cal.4th 707 (Alhambra).) The trial court in this case anticipated Alhambra. It ordered the county to apply the methodology advocated by the cities and to issue refunds to the cities. It also ordered the county to pay prejudgment and postjudgment interest.
The county appeals. It does not challenge the orders to use the Alhambra methodology and issue refunds. It appeals only from the order to pay prejudgment and postjudgment interest, an issue the Alhambra opinion does not address.
As we will explain, the relevant statutes were amended on September 30, 2013, effective January 1, 2014. Having ordered supplemental briefing on the new law, we conclude that we must address it because it will be in effect at the time when the judgment in this case becomes final. As we will explain, interest was awardable even under the law in effect at the time of trial. Under the new law, interest is likewise awardable, though at different rates. The new law changes the applicable rates of interest.
We will affirm the trial court’s judgment insofar as it awards prejudgment and postjudgment interest, but we will reverse with respect to rate of interest on and after January 1, 2014.
FACTUAL AND PROCEDURAL HISTORIES
The Alhambra opinion explains the legal issue behind the parties’ primary dispute. To compensate counties for administrative costs incurred in their role as tax collectors, counties are authorized to charge cities a property tax administration fee (PTAF). (Alhambra, supra, 55 Cal.4th at p. 714.) A county withholds the PTAF from the tax revenues distributed to the cities. (Id. at p. 715.) The PTAF for each city is based on the ratio of the taxes collected on its behalf to the total property taxes collected by the county. (Ibid.) Excluded from this calculation, however, are taxes collected on behalf of cities and deposited into the county’s Educational Revenue Augmentation Fund (ERAF). (Id. at pp. 713-714, 715.) The county ERAF’s were created by the Legislature in 1992 to help resolve a budget crisis. Property tax revenue is diverted from local government to each county’s ERAF to maintain funding levels for education in the face of declining contributions from the state general fund. (Id. at p. 714.) Since property tax revenues diverted to ERAF’s are not included in the calculation of the PTAF’s withheld by the counties, each county must absorb the cost of administering those revenues and is not reimbursed for it by cities. (Id. at p. 715.)
In 2004, in response to another budget crisis, the Legislature diverted ERAF money to cover various budget gaps. This diversion took two forms. The first, known as the “Triple Flip, ” caused local sales tax revenue to be diverted to repay state bonds. ERAF funds were then used to replace the lost sales tax revenue, and state general fund money was used to compensate for the lost ERAF funds. (Alhambra, supra, 55 Cal.4th at pp. 715-716.) The second diversion involved the state Vehicle License Fee (VLF) and is called the “VLF Swap.” The VLF was reduced from two percent of a vehicle’s market value to 0.65 percent. This change resulted in a reduction of revenue to local governments. The VLF Swap diverted property tax revenue from the ERAF’s to local governments to compensate for the loss. (Id. at p. 716.)
Under the Triple Flip and the VLF Swap, property tax revenue that formerly went to the ERAF’s now goes to cities, compensating them for lost sales tax and VLF funds. The California State Association of County Auditors prepared informal guidelines for use by counties implementing the statutory changes. According to these guidelines, the PTAF for each city should now be calculated on the basis of distributions, including the amount that formerly went to the county’s ERAF, instead of excluding that amount as before. (Alhambra, supra, 55 Cal.4th at p. 717.) This means the administrative costs associated with collecting and distributing those funds would be shifted from counties to cities. (Ibid.) Los Angeles County followed the guidelines (ibid.), as did Fresno County and some other counties.
In Alhambra, our Supreme Court rejected these counties’ interpretation of the statutory changes that resulted in the Triple Flip and the VLF Swap. The court concluded that counties “should be no better, or worse, off in recouping [their] costs of property tax administration as a result of” the statutory changes. (Alhambra, supra, 55 Cal.4th at p. 725.) Los Angeles County’s method of calculating the PTAF was held to violate the law. (Id. at p. 729.)
In the present case, the cities initiated mandate proceedings against the county on grounds that, as the parties agree, are essentially identical to those on which the cities in Alhambra sued Los Angeles County. Before the Supreme Court’s decision in Alhambra was issued, the trial court in this case anticipated that decision by holding the county’s method of calculating the PTAF unlawful. It ruled that the county could withhold “the actual incremental costs to implement the Triple Flip and VLF Swap in lieu payments” but could not increase the basis on which the PTAF was calculated by including the ERAF revenue. The county was required to refund the difference to the cities for each year in which it had applied its erroneous new formula. The judgment also includes the following: “Petitioners are awarded costs of suit, prejudgment interest and postjudgment interest at the rate of 7% per annum as set forth in Civil Code section 3287 and article XV, section 1 of the California Constitution.”
As the Supreme Court noted, the county’s appeal in this case was stayed during the pendency of Alhambra in the Supreme Court. (Alhambra, supra, 55 Cal.4th at p. 712, fn. 3.) After Alhambra was decided, the county filed its opening brief challenging only the award of prejudgment ...