Because They Can: Judicially Excising the People from the Definition of “County” in the Hawaii Constitution

[This article was originally published in Vol. 31 of the State & Local Law News by the ABA Section on State & Local Government (Spring 2008).  ABA members can access it here.  More on the case here.]

The Hawaii Constitution empowers “the counties” to determine property taxes.[1] On issues of local concern, the Constitution’s home rule provisions also give county voters the freedom to initiate amendments to their charters, propose ordinances, or refer council-enacted ordinances to the electorate for confirmation.[2]  In County of Kauai ex rel. Nakazawa v. Baptiste,[3] the Hawaii Supreme Court invalidated a voter-approved county charter amendment that rolled back property taxes on the island of Kauai to 1998 levels, and capped future increases at 2% per year. The court acknowledged that establishment of property tax policy is a home rule power delegated exclusively to “the counties.” However, the court concluded the delegation came with strings: the people of the counties do not have the power to directly amend their charters regarding property taxes because the term “counties” in Hawaii Constitution means “county councils.”

To reach the merits, the three-justice majority sua sponte and after oral argument rearranged the parties and arguments to confer standing upon the plaintiff to prosecute the lawsuit on behalf of a defendant. The case had been initiated by the County Attorney, who sued the Mayor, the County Council, and the County finance director, seeking a declaratory judgment that the voter-approved charter amendment was void as beyond the power of the voters. The court acknowledged that the suit was, as filed, collusive and nonjusticiable, but remedied the problem by dropping the County Council as a defendant and attributing its claims to the plaintiff.

The dissenting justices excoriated the opinion, accusing the majority of factual manipulations and procedural sleight-of-hand,[4] suggesting the majority’s decision to define “county” as “county council” and preclude popular votes on property taxes was more driven by politics and the majority’s notions of good policy than by a principled analysis of the law.

The Baptiste decision attracted scant attention beyond Hawaii’s shores,[5] but it is important for two reasons. First, it granted Hawaii government officials the power to seek advisory opinions whenever they disagree with a voter-enacted measure. Second, and more troubling, the decision excluded the people of Hawaii’s counties from the definition of “county” under the state constitution.

Hawaii’s home rule property tax regime

Before 1978, the real property taxation power in Hawaii was vested solely in the State.[6] “Home rule” was a major concern of the 1978 Hawaii constitutional convention, and the resulting amendments to the constitution directed the counties to govern themselves on matters of local concern, and to frame, adopt, and amend charters governing their internal structure. Among the delegated local powers was the power to tax real property:

The taxing power shall be reserved to the State, except so much thereof as may be delegated by the legislature to the political subdivisions, and except that all functions, powers and duties relating to the taxation of real property shall be exercised exclusively by the counties. . . [7]

Soaring property taxes

Fueled by retiring mainland baby boomers flush with cash and sensing a dwindling supply of a slice of paradise, and by speculators willing to pay top dollar, the price of homes across Hawaii has soared from merely exorbitant, to astronomical.[8] In recent years, the median value of Kauai homes soared to nearly $700,000, and since 1998, the average Kauai homeowner  experienced a nearly 50% increase in property taxes.[9] These tax increases have been felt most intensely by long-time homeowners, particularly those who have no intention of selling and who realize no benefit from a hyperactive real estate market unless they consider selling their homesteads and leaving Hawaii for more affordable locales.   

Property tax revolt

Pursuant to the home rule powers delegated to the counties by the Hawaii Constitution, the charter of the County of Kauai allows for direct democracy in one of three ways: initiative, referendum, and charter amendment. In November 2004, the people of Kauai County, after years of attempting to convince their elected representatives to curb spending and to provide meaningful property tax relief, exercised their home rule powers by adding Article XXXI to the Kauai Charter by popular vote. The homeowners who researched and drafted the language, circulated the petitions, and submitted the measure were Kauai residents and property taxpayers.   

Under the charter amendment, property taxes for owner-occupied homes were capped at 1998-1999 amounts for taxpayers who purchased their homes in 1998 or earlier, and capped at the amount paid in the year of purchase for homes purchased after 1998. The measure also limited tax increases to 2% per year. It was designed, like other property tax limitations such as

California's Proposition 13, to bring a measure of certainty and predictability to residential real property taxes, as homeowners would know from year-to-year their maximum tax liability, and county officials would know how much tax revenue to expect from resident homeowners.[10]

The charter amendment was placed on the November 2004 ballot, and in the run-up to the vote, virtually every Kauai elected official attacked the measure, with the Mayor and the members of the County Council leading the charge. They claimed rolling back property taxes and capping increases would hamstring their ability to deliver government services and would limit the County’s expenditures on the public worker’s union.[11] However, since 1998, the Kauai budget had risen 50%, and the 2005 budget had increased 25% over the previous year’s alone. With Kauai government spending at a record $123 million, the officials’ cries apparently rang hollow with voters: in spite of the organized and well-financed opposition, in November 2004 the voters of Kauai approved the measure by a nearly two-to-one margin.

County vs. County

The County officials did not accept the political defeat lightly, and instituted what can only be described as a “friendly” lawsuit. The Kauai County Attorney sued the Mayor, the County Council, and the Finance Director, claiming the Hawaii Constitution grants county councils a monopoly on the property tax issue; the voter-enacted measure was void because the term “counties” in the Constitution means “county councils.” The county vs. county lawsuit was, to say the least, a novel procedure: the County Attorney represented both the plaintiff and the defendants, and the litigation was funded by a $250,000 war chest of taxpayer money, budgeted by the defendant County Council to hire Hawaii’s largest private law firm to represent the plaintiff to attack the charter amendment.[12]  Not unsurprisingly, the answer by the “defendants” to the complaint virtually confessed judgment.  

Homeowner intervention

As there was no party actually defending the charter amendment or the people of the County, four local homeowners intervened in the officials-against-themselves case. They asserted the plaintiff lacked standing and the complaint sought an advisory opinion, and that government officials should not be able to manufacture a lawsuit in which they were both the plaintiff and the defendants, fund the case with public money, and represent both sides in litigation.

The Kauai county trial court disagreed, held the case was justiciable, and voided the charter amendment, ruling that only county councils may set property tax policy, and the people have no right to vote to amend the county charter regarding property taxes. The homeowners’ appeal to the Hawaii Supreme Court presented two major issues. First, whether such a case was was capable of judicial review or sought an advisory opinion, and second, whether the delegation of property tax power to “the counties” in the Hawaii Constitution precluded the voters of a county from exercising that power by vote.

Judicially manufacturing a controversy

Although not subject to the Article III limitations of federal courts, the jurisdiction of the Hawaii courts generally is limited to “cases of actual controversy,”[13] and standing to sue in Hawaii courts is held out as a prudential doctrine of judicial self-restraint grounded in separation of powers, designed to insulate the courts from entanglement in politics. Standing is measured by whether the plaintiff was “injured in fact” by the defendant.[14]  In Baptiste, the plaintiff County did claim it was injured by the enactment of the charter amendment, and the only injuries alleged in the complaint by the plaintiff were allegedly suffered by the defendants (loss of their exclusive property tax power as members of the county council). These justiciability hurdles seemed nearly insurmountable, and the standing defects presented a threshold issue of subject matter jurisdiction that would be difficult to unravel.[15] 

The court’s majority, however, found its Rosetta Stone in Rule 21 of the Hawaii Rules of Civil Procedure, characterizing the friendly lawsuit as a mere misjoinder problem. The majority used a two-step process to mold the case into a justiciable controversy. First, the court agreed that the plaintiff County was not asserting its own injury but was asserting the claims of the defendant County Council, which was the real party in interest. This conclusion is at odds with the usual rule that municipal corporations may only bring suit in their own corporate name, and not on behalf of their elected and appointed officials.[16] Second, having the plaintiff County argue on behalf of the defendant County Council placed the County Council on both sides of the issue and destroyed whatever illusion may have been left that the plaintiff and the defendants were adversaries, so the court applied Rule 21 to drop the County Council as a defendant: 

[P]laintiff-County, by asserting that the Charter Amendment usurps the taxing authority of the County Council, has asserted an injury on behalf of the Council. A review of the first amended complaint clearly demonstrates that the entity identified as having been injured throughout the complaint is the County Council. Thus, by dropping the County Council as a defendant an actual controversy exists.[17]

The Baptiste decision effectively grants government officials desiring to challenge a voter-approved measure the ability to institute lawsuits in Hawaii courts without having to find an injured party willing to act as plaintiff, and demonstrates that Hawaii courts do not adhere to the principle that courts exist to resolve actual disputes between adversarial parties.  Hawaii courts may now provide local government officials what amounts to legal counsel.[18]

The dangers of unreviewable sua sponte decisions are well known,[19] and the Baptiste decision exemplifies that risk because the majority charted its own path without the benefit of the argument of the parties.[20] Baptiste continues the Hawaii Supreme Court’s slide towards de facto advisory opinions in cases of the court’s choosing.[21]

“County” means “county council”

Having disposed of the procedural roadblocks, the Baptiste majority addressed the merits, and held that the term “counties” in article VIII, section 3 of the Hawaii Constitution means “county councils.”[22] The majority abandoned the court’s usual rule of constitutional construction which requires initial reliance on the “plain meaning” of constitutional terms.[23] In the absence of ambiguity, the express language in the constitution should be applied as it reads.[24] The court rejected the argument that the term “the counties” means political subdivisions, not “county councils,” and that allocation of the taxation power within the county is a matter of internal structure and governance. The court, however, failed to square its decision with earlier cases in which it held the language of article VIII was unambiguous,[25] and that in matters of property taxes, the counties “may act as they see fit.”[26]

The court also paid little heed to the fact that other provisions in the constitution define “counties” as “political subdivisions,” without further requiring the counties to adopt a particular form of government.[27] There is no requirement in the Hawaii Constitution that the counties govern through representative bodies on matters of local concern. For example, Hawaii does not permit statewide initiative and referendum, but the counties are free to enact or repeal county laws with direct democracy. On local matters – and real property taxation is the most local of local concerns – Hawaii’s home rule provisions allow the counties to decide how to implement the delegated power.[28] The framers of the home rule provisions in the 1978 constitutional amendments were not concerned with how the counties implemented the delegations of authority on local matters. It was simply a question of passing such authority from the state to the counties. And whatever might have been included within its meaning, the term “county” certainly could not have been read explicitly to exclude the people of the county from self-government, a power expressly reserved to the people by constitution and in their charter.[29]

Conclusion

The friendly lawsuit represented county officials’ cynical political belief that decisions on issues such as property taxes are simply too sensitive to be trusted to the voters. A majority of the Hawaii Supreme Court agreed, and because of the tortured procedural path the Baptiste majority utilized to reach the merits, its conclusion that the term “county” excludes the people of the county and means only “county councils” is subject to the criticism that it more represents a philosophical and political judgment than a principled legal conclusion.

---

Footnotes

[1]. Haw. Const. art. VIII, § 3.

[2]. Haw. Const. art. VIII, §§ 1-3. Hawaii law does not permit state-wide initiative or referendum.

[3]. 165 P.3d 916 (Haw. 2007).

[4]. Baptiste, 165 P.3d at 949 (Acoba, J., dissenting) (“With all due respect, our role is to protect the judicial process, not to subvert it.”).

[5]. But see Malia Zimmerman, This Side of Paradise, The Wall Street Journal (Sep. 1, 2007).

[6]. See State ex rel. Anzai v. City & County of Honolulu, 57 P.3d 433, 436 (Haw. 2002).

[7]. Haw. Const. art. VIII, § 3 (emphasis added).

[8]. See, e.g., Associated Press, Mainlanders Pinch Housing, Honolulu Star-Bulletin, Sep. 6, 2005 (“A survey says that one-fifth of Maui and Kauai owners are mainland residents.”).

[9]. See County of Kauai Dep’t of Taxation, County of Kauai Real Property Tax Valuation for Fiscal Year 1998-99.

[10]. See, e.g., Nordlinger v. Hahn, 505 U.S. 1, 13 (1992) (Under California’s Proposition 13, new owners have full information about future tax liability at the time of purchase and can decide not to buy, whereas an existing homeowner “already saddled with his purchase, does not have the option of deciding not to buy his home if taxes become prohibitively high. To meet his tax obligations, he might be forced to sell his home or to divert his income away from the purchase of food, clothing, and other necessities. In short, the State may decide that it is worse to have owned and lost, than never to have owned at all.”)

[11]. Hawaii’s public schools are not funded by property taxes.

[12]. Cf. City of Riverside v. Stansbury, Nos. E040125 & E040973, 2007 WL 2966507 (Cal. Ct. App. Oct. 12, 2007) (city sued proponents of initiative asserting an eminent domain measure was reserved to the state, and therefore beyond a city’s home rule powers).

[13]. Haw. Rev. Stat. § 632-1 (2003). Statutes conferring advisory jurisdiction clearly state so. For example, compare section 632-1 with Haw. Rev. Stat. § 37D-10 (2004).

[14]. State of Hawaii ex rel. Bronster v. Yoshina, 932 P.2d 316, 321-22 (Haw. 1997) (quoting Bush v. Watson, 918 P.2d 1130, 1135 (Haw. 1996)).

[15]. See, e.g., Amantiad v. Odum, 977 P.2d 160, 167 (Haw. 1999) (“Questions regarding subject matter jurisdiction may be raised at any stage of a cause of action.”).

[16].  17 McQuillin Municipal Corporations § 49:16 (3d ed. 2007).

[17]. Baptiste, 165 P.3d at 936. Haw. R. Civ. P. 21 provides “Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just.”

[18]. Cf. Kona Old Hawaiian Trails Group v. Lyman, 734 P.3d 161, 165 (Haw. 1987) (mootness principles avoid issuing advisory opinions which are prohibited by “the prudential rules of judicial self-governance founded in concern about the proper – and properly limited – role of the courts in a democratic society”); Sierra Club v. Hawaii Tourism Auth., 59 P.3d 877, 920 (Haw. 2002) (Moon, C.J., and Levinson, J., dissenting) (plurality’s discussion of the merits was nothing more than an advisory opinion, and “ill-advised”); City of Santa Monica v. Stewart, 24 Cal. Rptr. 3d 72 (Cal. Ct. App. 2005). In that case, the city sought declaratory relief against its own city clerk after the Clerk refused to implement a voter-approved tax relief measure. The court of appeals held that the action was not justiciable. Id. at 85-86.

[19]. See, e.g., Adam A. Milani & Michael R. Smith, Playing God: A Critical Look at Sua Sponte Decisions by Appellate Courts, 69 Tenn. L. Rev. 1 (2002) (listing arguments against courts making sua sponte decisions without party input).

[20]. For example, the majority based its refusal to dismiss the case on speculation regarding future actions of the parties if the case were remanded rather than affirmed: “If this court were to remand this case with instructions that the first amended complaint be dismissed, it is highly likely that the County will simply re-file its case with the proper alignment of parties and minimal revisions to its complaint. The focus will remain the validity of the Charter Amendment, which has already been extensively briefed; nothing will have changed, except for the absence of the County Council as a defendant.” Baptiste, 165 P.3d at 936. If the case had been remanded and dismissed, there is no telling what Kauai officials might have done, especially with county elections on the near horizon and an overwhelming majority of voters in favor of the charter amendment.

[21]. Baptiste, 165 P.3d at 950 (Acoba, J., dissenting) (“Under these circumstances, there are no manageable limits to the approach employed by the majority-moving a party from one position to another position in the same lawsuit allows this court to decide what case will be deemed justiciable at its own behest.”). See also Life of the Land v. Land Use Comm’n, 623 P.2d 431, 439 (Haw. 1981) (Hawaii courts will avoid dismissing certain cases for lack of standing if required by “the needs of justice”). Cf. City of Santa Monica v. Stewart, 24 Cal. Rptr. 3d 72, 93 (Cal. Ct. App. 2005) (“An otherwise nonjusticiable action may not be entertained simply because it involves issues of public concern.”).

[22]. Haw. Const. art. VIII, § 3.

[23]. Blair v. Harris, 45 P.3d 798, 800-801 (Haw. 2002) (text should be followed because constitutions derive their power and authority from the people, whose intent is found “in the instrument itself;” error for a court to base its ruling on its perception of the intent of the framers).

[24]. In re Janklow, 530 N.W.2d 367, 370 (S.D. 1995). See also Malyon v. Pierce County, 935 P.2d 1272, 1281-82 (Wash. 1997) (appropriate state constitutional analysis begins with the text and, for most purposes, should end there as well).

[25]. Gardens at West Maui Vacation Club v. County of Maui, 978 P.2d 772, 779 (Haw. 1999) (language of article VIII, section 3 is “plain”).

[26]. State ex rel. Anzai v. City & County of Honolulu, 57 P.3d 433, 436 (Haw. 2002).

[27]. Haw. Const. art. VIII, §§ 1, 2.

[28]. See Haw. Const. art. VIII, § 2 (on matters of local concern, county laws supercede conflicting state law); Gardens at West Maui Vacation Club v. County of Maui, 978 P.2d 772, 779 (Haw. 1999) (county real property tax law supercedes state statute).

[29]. See Haw. Const. art. I, § 1; Kauai Charter art. I, § 1.01; Kauai Charter art. XXIV, § 24.01. The Kauai Charter defines “the county” as “the people of the county of Kauai,” and contains no prohibition against the voters amending the charter to address property taxes. See Kauai Charter art. XXIV (the charter may be amended by the people, with no limitation on the provisions that may be amended).