A homebuilders group has sued Santa Rosa to block a new special property tax surcharge imposed on people who buy new homes.
Paul Campos, general counsel for the Homebuilders Association of Northern California, said the City Council?s formation of a special taxing district last November requires developers to join the district, thus obligating those who buy the homes to pay a property tax surcharge of $430 a year.
If the builder refuses to sign up, the city will not grant them a permit to build.
?Projects are being held hostage,? said Campos said, who contends the requirement is tantamount to coercion.
?The city is literally requiring someone applying for a governmental permit to vote in a certain way,? he said.
City Manager Jeff Kolin, however, said the state Mello-Roos Act on 1982 allows cities to establish special districts ?and levy special taxes approved by the voters to provide municipal services.?
In the case of proposed subdivisions, the only voter often is the owner of the vacant land, who usually also is the developer. The people who eventually buy the new homes who have no say in the matter.
City officials floated the tax district proposal two years ago. Kolin said the issue arose when environmental impact reports on several large residential projects said those projects would not generate enough property tax revenue to reimburse the city for services, particularly police and fire.
City Attorney Caroline Fowler said under state law ?a city can impose new regulations on new development particularly when it puts an added strain on services.?
As a mitigation factor, the environmental reports suggested the city require the developer to obligate those who buy their homes, condominiums and apartments to pay the extra surcharge.
The city estimates that 14,000 new homes, condominiums and apartments will be built by 2020. The surcharge on those residences would generate $4.8 million a year when all were built.
The council in August 2007 rejected the idea arguing the tax would create ?two classes of citizens.? Community Development Director Chuck Regalia said at the time the proposal ?is not a fix-all or entirely fair? but agreed it is a way to help close the city budget gap.
The council changed its mind last November, voting unanimously to create the tax district as it faced a projected budget deficit that by then had grown to $20 million. It now stands at $23 million.
The annual surcharge currently is set at $430 for homes and $310 on multi-family units.
Campos contends the California constitution ?requires real voter approval,? and argues that it should be up to those who own the units to decide if they want to tax themselves ? a scenario most agree would be unlikely.
Campos said his group is suing Santa Rosa because it is the first city in the Bay Area to adopt such a fee. Kolin, however, said Vacaville and Elk Grove have created similar districts under state law provisions.
Fowler, the city attorney, said the lawsuit was filed in Sonoma County Superior Court Jan. 30 but the city has not been served. Until the documents are served, the city is not obligated to respond and the suit remains dormant.
Campos said the issue serving the city with legal notice is one of ?logistics? while Fowler said the filing, which asks court to toss out the new law, most likely was done to preserve the homebuilder?s legal deadline to eventually pursue action against the city.
The special district surtax is not a new concept at City Hall. In about a half-dozen cases, based on environmental studies, the city has required individual developers to propose special tax districts for their properties.
The new system, however, requires all new developments, big or small, to join a city-wide taxing district.
Although the city-wide district was formed last November, city officials said no one has joined it because the economic downturn has stalled development.
Kolin said if developers join, the extra property taxes they generate will be tracked in case the city loses the legal challenge and must reimburse homeowners.
That scenario, Kolin said, ?will create a bigger (financial) gap that we will have to find other ways to address.?
Campos said the property tax surcharge aggravates the poor economic situation for homebuilders.
?Our members everywhere are being decimated. We?re facing the worst conditions in recorded history and the idea the industry can sustain additional taxes of this magnitude is totally misguided,? he said.
You can reach Staff Writer Mike McCoy at 521-5276 or mike.mccoy@pressdemocrat.com.
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