City attorney and council call it a surcharge

The City of San Diego is asking the California Supreme Court to overturn an appellate court ruling that found a 1 percent utility surcharge paid for by Santa Barbara residents was in fact a tax. The case has major implications on San Diego's assessment districts as well as the hotel occupancy tax, which are currently being challenged in court.

On April 21, the city council approved a request from the city attorney's office to write a letter in support of the City of Santa Barbara's utility fee and to urge that the Supreme Court "review the Court of Appeals decision," according to the city-council minutes from a closed-session meeting.

An appellate court in February of this year found that the 1 percent franchise fee that Santa Barbara residents paid — which helped pay for essential city services — was illegal because voters never approved the tax at the ballot. Proposition 218 of the state constitution prohibits municipal governments from enacting taxes without first getting approval from voters.

"...[T]he distinction between taxes and fees is frequently 'blurred,' taking on different meanings in different contexts," reads the February 26 appellate-court ruling. "In general, taxes are imposed for revenue purposes, rather than in return for a specific benefit conferred or privilege granted."

The City of San Diego has some dogs in the fight. The city is currently fighting a costly legal battle over the use of Maintenance Assessment Districts, business improvement districts, and the hotel tax. A ruling against the "franchise fee" in Santa Barbara could hurt the city's arguments for assessment districts and other special fees.

In 2011, the city lost a similar lawsuit when residents of Golden Hill sued for what they believed was an illegal assessment district. In that lawsuit, residents attacked the claim that their assessments benefitted those — and only those — people paying; a judge and later an appellate court sided with residents. The maintenance assessment was later invalidated and a small percentage were refunded their money.

Despite the loss, the city kept the improvement district program alive. Last year, attorney Cory Briggs for San Diegans for Open Government sued the city. Briggs and his group also sued the Tourism Marketing District and the city for tacking a tourism tax on to hotel bills that would be used to pay to promote the region. Both cases are expected to be heard in coming months.