inversecondemnation.com

Missouri Federal Court: No Compensation Owed When Property Is Taken By The Tax Power

Yes, the government took your property. But it wasn't an exercise of its eminent domain authority. When you don't pay your tax bills, the government can foreclose on your property, and sell it. Which it did. Inverse condemnation complaint dismissed.

Epice Corp. v. Land Reutilization Auth. of the City of St. Louis, No. 4:07CV00206 (E.D. Mo., Aug. 17, 2010) ("The Court agrees with these courts in finding that the foreclosure of a tax lien
involves the taxing power, not the eminent domain of the government.").

PropertyProf's Summary Of The SCOTUS Beachfront Takings Case

In What's At Stake in Stop the Beach Renourishment, Lawprof D. Benjamin Barros posts a comprehensive summary of "judicial takings" case accepted for review by the US Supreme Court, Stop the Beachfront Renourishment, Inc. v. Florida Dep't of Environmental Protection, No. 08-11 (cert. granted. June 15, 2009). Raises several interesting points and worth a read.

Further Thoughts On Property Taxes And Voting

I've received a few interesting comments and e-mails on an earlier post ("Why Hawaii Can't Vote On Property Taxes") about the Ohana Kauai property tax charter amendment and how it was declared unconstitutional by a 3-2 Hawaii Supreme Court.

Here's one that I thought was worth moving from the below-the-fold comment section:

I know you're addressing strict legal interpretations here at inversecondemnation.com, but I feel compelled to mention that giving the direct power to tax to the electorate does not necessarily mean that it will be exercised fairly and wisely. To deprive the electorate of ability to directly set tax policy through charter amendments does not deprive them of the ample power they have to effect tax policy through their choice of elected representatives and their ability to remove unresponsive representatives. It also permits elected representatives to make wise and balanced decisions fair to all taxpayers many of which have no right to vote. These decisions may then also be enacted with an eye to economic consequences which are often overlooked by the electorate. My primary concern over the Ohana Kauai charter amendment was that it would tend to shift the property tax burden to non-owner occupants such as owners of rental units who in turn must pass this along in rent increases to their non-home owning, less affluent tenants. 

I recall talking to a less than affluent renter I know who voted for the amendment because he wanted to prevent tutus from being forced to sell their homes due to rising property taxes. This was one of the several heart-wrenching and effective pleas that were voiced during the public debate regardless of their factual validity. He had no clue that by voting for the amendment, he might just as likely be voting to indirectly increase his own rent. As we all know, government is reluctant to reduce spending in the face of lower revenues when it can increase them simply by raising taxes, especially when the heavier financial burden is shifted to non-voters, the uninformed and minority classes of taxpayers.

It's true that the voters are not presently without remedies, and that reasonable people can differ regarding whether establishing or amending property tax policy by direct democracy is a good idea from a philosophical or political standpoint. At issue in the Baptiste case, however, was not whether a property tax cap or whether allowing voting on taxes was a good idea or not, but but whether judges are the ultimate arbiters of that question. In the end, the 3-2 majority of the Hawaii Supreme Court held they are.

Why Hawaii Can't Vote On Property Taxes

Faced with a budget shortfalls and declining revenue projections (and what level of government these days isn't?), the Honolulu City Council voted today to raise property taxes and eliminate a property tax credit that would have softened the raise for some homeowners. See the reports here and here. It also voted to raise the bus fare from $2 to $2.50 for a single fare (with corresponding increases in monthly pass fares), up the vehicle weight tax 25% this year and an additional 25% next year (Hawaii taxes automobiles by weight, not by age as California does), and quadruple parking rates at the Honolulu Zoo.

There's been a lot of rumbling lately from Hawaii taxpayers about decreasing government expenditures and controlling property tax rates, but a few years ago, after years of pleading with their elected representatives for relief, Kauai voters actually did something about it. They voted to amend the Kauai Charter themselves to establish a baseline property tax rate and cap yearly increases. That charter amendment -- known on Kauai as the "Ohana Kauai" amendment after the grassroots citizens' group that drafted the proposal and gathered enough signatures to put it on the ballot -- passed by an overwhelming margin.

[Before we go further, a disclosure: I was the pro bono appellate lawyer for the four members of Ohana Kauai who defended the charter amendment in court.]

Under the Ohana Kauai 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 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.

To a Californian, voting on property taxes probably does not seem like that big of a deal. More than 30 years ago, the people passed Proposition 13, a statewide initiative that capped taxes and limited increases to 2% annually. After it was challenged on equal protection grounds, the U.S. Supreme Court upheld its constitutionality in Nordlinger v. Hahn, 505 U.S. 1 (1992), noting it was rational for the voters to have believed that Proposition 13 would give new homeowners full information about future tax liability at the time of purchase, whereas an existing homeowner was captive to the whims of the tax man, and didn't have that same choice:

[A]lready saddled with his purchase, [the existing homeowner] 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.

Id. at 13. 

Kauai's similar experiment in citizen-initiated property tax revolts would have a different outcome. After the Ohana Kauai amendment was placed on the November 2004 ballot, 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 advanced the predictable claims: rolling back property taxes and capping increases would hamstring their ability to deliver vital government services such as police and fire (they took the usual approach of threatening police and fire services first and not last) and, most importantly, claimed the amendment would limit the County’s expenditures on the public worker’s union. 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.

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 (her boss), the County Council (who finance her office), and the Finance Director, claiming the Hawaii Constitution -- which provides that "counties" may establish property tax law -- grants county councils a monopoly on that issue. In other words, the people of Kauai were without the legal authority to amend their county charter on the subject of property taxes -- only the County Council could set and change property taxes. The County vs. County lawsuit asserted the voter-enacted measure was void because the term "counties" in article VIII, section 3 of the Hawaii Constitution really means "county councils." The 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.

Four Ohana Kauai homeowners intervened in the collusive lawsuit -- somebody had the defend the charter after all. 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.

Up to the Hawaii Supreme Court the homeowners went, arguing first that the officials-versus-themselves lawsuit sought a nonjusticiable advisory opinion, and the case should have been dismissed before the court reached the merits. The second issue raised was whether the Hawaii Constitution delegated the property tax power to county councils when it said it delegated the property tax power to the "counties."

In the end, a sharply divided Hawaii Supreme Court ruled 3-2 that the case was justiciable and government officials have standing to manufacture a lawsuit, the county attorney may represent both the plaintiff and the defendant, and the county council could take a quarter million dollars of taxpayer money and spend it on private lawyers to assist in the anti-citizen lawsuit. On the merits, the majority struck down the Ohana Kauai charter amendment as unconstitutional, holding only county councils have the property taxation power. See County of Kauai ex rel. Nakazawa v. Baptiste, 165 P.3d 916 (Haw. 2007).

As the lawyer who ended up with the short stick, I naturally preferred the opinion of the two dissenting justices who excoriated the opinion in unusually strong terms (check it out here), accusing the majority of factual manipulations and procedural sleight-of-hand, suggesting the majority’s decision to define "county" as "county council" and preclude popular voting on property taxes was more driven by politics and the majority’s notions of good policy than by a principled analysis of the law.

But a dissenting opinion is by defintion a minority report and not the law, so even though we fought the good fight and (I continue to believe) had the better arguments, those arguments did not carry the day. The Hawaii Constitution, according to the three-justice majority of the Hawaii Supreme Court, gives county councils a property tax monopoly.

And that, dear reader, is why Hawaii voters do not have a direct say in property taxes.

----------------------------------------------------
For more about this case, visit our summary page, which includes links to a Wall Street Journal report on the decision, an article with a legal focus I wrote for the ABA State and Local Government Law News, an op-ed I wrote for the Honolulu Advertiser, all the briefs of the parties and amici, oral argument transcripts, and on and on.

Coming Soon To A City Near You: "We Want To Emphasize That This Is In People's Interest" - Berkeley To Mandate $34k+ Draconian Energy Efficiency

University Avenue in Berkeley, California -- the main entry to the city hosting the flagship campus of the University of California system -- is not exactly a grand introduction:  the street is rutted with potholes (a trip west of San Pablo Avenue can be especially bone-jarring), the median strip was revamped as a "xeriscape" a few years ago at a six-figure cost but still looks mostly like a weed patch (ok, a water efficient weed patch), and vacant storefronts with semi-permanent homeless encampments in their doorways line the street. And University Avenue is not unique. The city's other main drags - Shattuck, MLK, Jr. Way, Ashby, Sacramento, Telegraph, and College are in similar (or worse) condition.

I guess these basic issues must be getting fixed, because the city fathers and mothers have moved on to more pressing issues: from the San Francisco Chronicle comes word that Berkeley is on the verge of requiring the owners of the city's nearly 50,000 residential buildings to hire an "energy auditor" and based on the results of the audit make changes to meet "city standards," such as a new roof, new windows, new appliances, and other repairs projected to cost tens of thousands.  In "Hot debate ahead on Berkeley's energy plans," the Chron reports:

The classic Berkeley home - a creaky Victorian with drafty windows, a Wedgewood stove and musty furnace - will undergo a drastic makeover under the city's aggressive new plans to fight global warming.

Within the next few years, the city is likely to mandate that all homes meet strict energy standards. In many cases this would mean new double-paned windows, insulation in the attic, walls and floors, a new white roof that reflects heat, a forced-air furnace and high-efficiency appliances.

The cost: upward of $33,800.

"The improvements will not only save energy, they'll make the home less drafty and more comfortable," said Billi Romain, the city's sustainability coordinator. "There are many benefits not just for the city, but for the homeowner."

No telling how this squares with Berkeley's landmarks ordinance; I doubt that vinyl windows and a "new white roof" is what Julia Morgan had in mind. The proposal isn't just an aspirational suggestion -- the regulations come with teeth: 

In the beginning, the city will offer incentives, such as rebates and financial assistance, for homeowners to comply. But within a few years, the city will start imposing penalties for those who don't meet the standards, said Timothy Burroughs, the city's climate action coordinator.

"We want to emphasize that this is in people's interest," he said. "If we're serious about reducing our emissions, it's only possible if virtually every building achieves significant improvements in energy efficiency."

No deadlines or specific standards have been set yet. But the city's goal is for all of Berkeley's 23,000 homes and 25,000 duplexes and apartment units to reduce energy use by 35 percent by 2020.

The city's "sustainability coordinator" apparently has a different definition of "inexpensive" than we do: 

In some cases, the standards can be met relatively inexpensively, [Billi] Romain said. Caulking, sealing, insulation and new appliances - an investment of under $10,000 - can reduce energy use by more than 25 percent.

Don't forget that Berkeley has one of the most restrictive residential rent-control ordinances in the country, so property owners will most likely have to absorb these costs themselves, despite the promise of "financial assistance" from the cash-strapped city.

But that's OK because "this is in people's interest." 

Not to worry, Berkeley homeowners, you can always work a second job as an "energy auditor," "sustainability coordinator," or "climate action coordinator."

HAWSCT: Separation of Powers Prohibits Legislative Transfer of Agency's Regulatory Fees to General Fund

How often in an appellate opinion does the court use the term "glom?" 

[The Appellee] gloms onto the "police power" aspect of the definition [of regulatory fees] in arguing that "Medeiros plainly concern[ed] the 'police power' of 'criminal investigative services,' not a user fee as suggested by [the state]."

No matter what you may think of the phraseology of Hawaii Insurers Council v. Lingle, No. 27840 (Haw. Dec. 18, 2008), the decision is important because who can take your money,  how they go about doing it, and what happens to your money afterwards, matters. As Chief Justice John Marshall famously wrote in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), "the power to tax is the power to destroy," and that may be even more true today where the power to regulate and impose fees may be the same thing.

Under Hawaii law, only the state Legislature and the various County Councils can impose taxes: the Legislature has the general taxation power, and the Councils have -- at least according to a recent decision by the Hawaii Supreme Court -- the exclusive power to determine property taxes. In Hawaii Insurers Council, the Hawaii Supreme Court held that assessments imposed by the state Insurance Commissioner were not unconstitutional "taxes" when imposed -- they were "regulatory fees" -- but the Legislature's transference of $3.5 million of the collected funds into the general fund violated separation of powers. 

The facts of the case are relatively straightforward and are set out in the opinion, so we won't repeat that effort. Read the slip opinion for the details. The short story is that the State of Hawaii no longer funds the Department of Commerce and Consumer Affairs from the general fund, but by user fees and fees imposed on regulated industries, including the insurance industry. The Insurance Regulation Fund contained the monies collected by the Insurance Commissioner. By statute, the money in the IRF could not be transferred to the state's general fund. Included in the insurance division's budget was a "reserve of surplus funds" to be used to cover expenses and contingencies that may  arise in the insurance industry (the rehabilitations, insolvencies, etc., we have all become very aware of recently on a national level). In 2004, the Legislature decided to change the statute and transfer $4 million of this money into the general fund, but that amount was cut by the Governor's line-item veto to $2 million. The following year, the Legislature transferred an additional $1.5 million to the general fund.

A lawsuit by the Hawaii Insurers Council followed, and eventually the Intermediate Court of Appeals held, among other things, that the assessments were "taxes" because they were not allocated to defraying the costs of providing services to the insurance industry and were not proportionate to the benefits received. See Hawaii Insurers Council v. Lingle, 117 Haw. 454, 459-60, 184 P.3d 769, 775 (Haw. Ct. App. 2008). The Hawaii Supreme Court partly agreed, and partly did not. The court first discussed its earlier opinion in State v. Medeiros, 89 Haw. 361, 973 P.3d 736 (1999), which identified two permissible types of fees: user fees (those charged for the use of an item of facility), and regulatory fees which include those imposed by an agency to cover the expenses of regulating an industry. At the end of the day, the Hawaii Supreme Court disagreed with the ICA and held that the fees imposed by the DCCA were not illegal "taxes" or "user fees," but were constitutional "regulatory fees" Ben Lowenthal does a good job of summarizing the court's reasoning here.

The most interesting part of the opinion, however, is not the minutiae of the different legal tests for taxes or user fees or regulatory fees, but the court's conclusion that the transfer of the funds by the Legislature to the General Fund violated the separation of powers doctrine. The court recognized that "separation of powers" is not formally a part of the Hawaii Constitution, but is an implied requirement, and concluded:

The legislature's promulgation of the transfer bills amounted to an impermissible blurring of the distinction between the executive power to assess regulatory fees and the legislative power to tax for general purposes. We therefore hold that the transfer bills unlawfully sought to transform $3,500,000 of legitimate regulatory fees into general tax revenue....As such, the $3,500,000 that was moved into the general fund pursuant to the transfer bills must be returned to the CRF so that they may be used for the regulation or benefit of the parties upon whom the assessments were imposed.

Slip op. at 41-42 (footnote omitted). While the opinion does not expressly say so, what seems to animating the court's decision is that the Legislature's raid of the funds crossed some indistinct and not-quite-defined line because when the IRF funds were placed into the General Fund, they could be spent in the same way as collected taxes. The court established a bright-line rule: agencies collect fees and legislatures tax, and never the twain shall meet. In other words, if the government collects a fee in order to regulate an industry, it better use the money collected to regulate the industry.

Finally, the court easily disposed of the equal protection class-of-one disparate treatment claim, holding there was a rational basis for requiring a regulated industry to pay for the costs of regulation. The court also rejected the State's claim that HIC did not exhaust administrative remedies, holding that the administrative process cannot make constitutional determinations, and consequently, there were no administrative remedies to exahust. 

New Article Published: "Because They Can: Judicially Excising the People from the Definition of 'County' in the Hawaii Constitution"

The ABA Section on State & Local Government has published my article "Because They Can: Judicially Excising the People from the Definition of “County” in the Hawaii Constitution" in the State & Local Government Law News (Spring 2008). 

The article is a summary and analysis of County of Kauai ex rel. Nakazawa v. Baptiste, 165 P.3d 916 (Haw. 2007), the 3-2 decision in which the Hawaii Supreme Court creatively overcame justiciability problems to hold that the term "the counties" in the Hawaii Constitution's provisions regarding property taxes means "county councils."  In doing so, the court invalidated a voter-enacted Kauai charter amendment that would have rolled back property taxes to 1998 levels, and set a yearly cap on increases.  The dissenting justices accused the majority of "subverting the judicial process," and would have dismissed the case for lack of standing. 

The article is posted on the ABA's web site here.  For those of you who are not section members and don't receive a copy in the mail, the article is reposted here.  More on the case, including the majority and dissenting opinions, a Wall St. Journal story about the decision, and the briefs and oral arguments, is posted here.   

Commentary on Kauai Real Property Tax Charter Amendment Decision

California's Flash Report posted my op-ed "Hawaii Government Sues Itself to Quash Property Tax Relief -- And Wins" about the Kauai real property tax charter amendment appeal. 

2007 in Review: Hawaii Supreme Court Rewrites the Constitution

In August, by a 3-2 vote, the Hawaii Supreme Court determined that the term "county" in article VIII, section 3 of the Hawaii Constitution means "county councils."  The majority held that only county councils may establish property tax policies, and that voters of the county have no power to do so directly by amending their county charter. 

The majority first determined that it was perfectly acceptable for government officials to be both the plaintiffs and the defendants, and sue each other in a friendly lawsuit in which the County Attorney represented both sides.  The majority also approved of the county council hiring a private law firm to prosecute the case in which it was a defendant, with $250,000 of public funds.

The dissenting justices accused the majority of "subverting the judicial process" by ignoring standing and justiciability requirements by rearranging the parties after oral arguments, and by attributing the arguments of the defendants to the plaintiff.  Disclosure: I had a dog in this hunt, as I was counsel for the homeowners/intervenors who challenged the collusive lawsuit. 

Here are all the inversecondemnation.com posts on the case: opinion, briefs, oral argument transcripts, commentary, and the Wall Street Journal's take on the case.

▪ SLAPP Suits, Ballot Measures, and Curbing Eminent Domain Abuse

A "SLAPP suit" is a "strategic lawsuit against public participation," and many states have statutes designed to thwart retaliatory lawsuits to protect the public's willingness to exercise First Amendment rights.  For example, California's statute defines SLAPP suits as:

lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances.

Cal. Code. Civ. Proc. § 425.16 (emphasis added).  Hawaii's anti-SLAPP statute is codified at Haw. Rev. Stat. ch. 634F, and defines a SLAPP suit somewhat differently than California:

"SLAPP" means a strategic lawsuit against public participation and refers to a lawsuit that lacks substantial justification or is interposed for delay or harassment and that is solely based on the party's public participation before a governmental body.

Haw. Rev. Stat. § 634F-1 (emphasis added).

In City of Riverside v. Stansbury, Nos. E040125 & E040973 (Cal. Ct. App. Oct. 12, 2007), the California Fourth District Court of Appeals held that a lawsuit by a local government against the proponents of an initiative was not an anti-SLAPP suit.  The court held that the lawsuit, which sought a declaratory judgment that an initiative designed to curb eminent domain abuse was not a proper subject for voters.  The lawsuit was not a SLAPP because it was "directed not at protected conduct, as required under the anti-SLAPP statute, but rather, at the validity of the proposed initiative." 

After citizens placed an initiative on the local ballot that would have curtailed the city's eminent domain power, the city sued the proponents of the measure.  The initiative was apparently in reaction to the US Supreme Court's decision in Kelo v. City of New London, 545 U.S. 469 (2005), which held that the use of eminent domain for "economic development" did not always violate the Fifth Amendment's Public Use Clause. The measure mandated that "neither this City nor any of its subdivisions shall use eminent domain to take private property without the consent of the owners to be used for economic development."  It also limited how the City could dispose of property taken by eminent domain, and prohibited the City from undertaking "a contractual obligation to use its powers of eminent domain."  More on the case and some interesting background from Eminent Domain Watch here.

The City sued the person who submitted the measure as well as the group that backed it, claiming that the initiative was beyond the power of the city's voters, since in California initiatives are limited to matters of local concern, and eminent domain is a matter of statewide concern.  In response, the defendant filed an anti-SLAPP motion, which the trial court granted. 

The court of appeals reversed, holding that the lawsuit went to the validity of the initiative, and did not arise out of protected first amendment activity:

By its declaratory relief action, the City was simply asking for guidance as to the constitutionality of the proposed initiative. Indeed, the City did nothing to limit respondents’ activities in connection with the initiative, nor did the City, by its action, otherwise impact respondents’ First Amendment rights.  Moreover, it was proper for the City to initiate its declaratory relief action as a means of
disputing, in a preelection challenge, the validity of the initiative.

Slip op. at 11.  Anti-SLAPP statutes are designed to prevent lawsuits against citizens that are meant to chill expression of first amendment rights, and it certainly seems like the City's lawsuit would have that effect -- it would take a very committed citizen to propose an initiative if she knew that by doing so, she would be subject to being named as a defendant.  The court held that the lawsuit did not implicate Stansbury's petition rights because "there is no constitutional right to place an invalid initiative on the ballot.  Slip op. at 13 (emphasis original).  This seems like circular logic because it assumes the initiative is invalid, the very cause of action that forms the basis for the City's complaint. 

What appears to have driven the court's result is its belief that if the lawsuit were to be barred by the anti-SLAPP statute, local governments would not be able to bring pre-election lawsuits challenging the constitutionality of initiatives.  Slip op. at 2 ("if the trial court’s ruling is allowed to stand, no one could ever challenge an initiative’s constitutionality prior to the election").  Why this is a bad thing is not explained.      

Maybe they should just move to Hawaii: the Stansbury case is reminiscent of the recent "Ohana Kauai" property tax charter amendment case, County of Kauai ex rel. Nakazawa v. Baptiste, 115 Haw. 15, 165 P.3d 916 (2007).  In that case, when county officials claimed to doubt the constitutionality of a voter-approved charter amendment capping property taxes, they didn't sue the proponents of the measure as in Stansbury.  Instead, they sued themselves.  When government officials sue each other to strike down a law they disagree with, of course no one is going to raise an anti-SLAPP defense.  The County Attorney (Nakazawa) sued the Mayor (Baptiste), the County Council and the County Finance Director, seeking a declaratory judgment that the charter amendment was beyond the power of county voters.  The Hawaii Constitution delegates property tax power to "the counties," and the county officials argued that term meant "county councils."  The Hawaii Supreme Court agreed after first holding that the "county vs. county" lawsuit was procedurally proper. 

Hat tip to the California Public Law Blog for bringing the Stansbury case to our attention.  Tom Caso adds his thoughts about the decision in his blog post "City’s pre-election challenge to initiative not a SLAPP."

▪ Court Strikes Delegation of Eminent Domain and Reimbursement to Private Party

You can read the court's Findings of Fact, Conclusions of Law, and Order here.

I won't be commenting on this decision since my colleagues Ken Kupchak, Mark Murakami and I are the attorneys for the property owner, but the statement of the family that owns the land is below.

# # # #

Circuit Judge Ronald Ibarra has decided in favor of a local Kona family, ruling that the County of Hawaii illegally sold its power of eminent domain to Scottsdale, Arizona-based luxury developer Hokulia.  In the County-Hokulia Development Agreement, the County allowed Hokulia to control what property would be seized, permitted Hokulia's lawyers to threaten the Richards Family and its neighbors, and forced the County to bring lawsuits against its own citizens to take their property. 

The court ruled that the County-Hokulia Development Agreement violated state law because it illegally transferred the County's power to take the property by eminent domain to Hokulia.  The Richards Family's property was targeted by the developer for its "Hokulia Bypass," a road connecting the "luxury golf course real estate development project" to Mamalahoa Highway. 

 

The court struck down the first of the County's multiple attempts to take a portion of the Richards Family's property for the Bypass because the County "did not have a proper public purpose."  The court found "[i]f the government attempts to delegate its power of eminent domain to a private party in an agreement whereby the developer controls what property is taken and pays for all expenses, and the private party is able to demand the government institute eminent domain proceedings against other private property owners, then the attempted delegation is illegal and void." 

 

The court also invalided the portion of the County-Hokulia agreement that would have required the Richards Family and their Onouli neighbors to reimburse Hokulia for the cost of the road. 

 

Under the judge's ruling, however, the County will be able to build the Bypass since a second attempt to take the property did not suffer the same legal defects as the first.  The court awarded the Richards Family over $200,000 in compensation for the taking of their land.

 

"These cases were never about whether another road is needed in Kona," said Richards Family spokesman Charles Coupe.  "Our family fought for our rights and the rights of our neighbors because we couldn't believe that the County could sell governmental powers to the highest bidder.  It didn't seem right that the County could agree to allow Hokulia to take our property for Hokulia's road, and then pass back the cost of the road to us." 

 

After Hokulia directed the County to start eminent domain process in October 2000, the Richards Family called upon Kenneth Kupchak, Robert Thomas, and Mark Murakami, the legal team at Honolulu-based Damon Key Leong Kupchak Hastert (www.hawaiilawyer.com), to protect their rights in court. 

 

"It has been a long fight, but it has been worth it," said Coupe, "Our family knew this wasn't right, and we would stand up for our rights and our neighbors' rights again, if necessary."

 

▪ Getting the Government They Deserve — "Ohana Kauai" Solution Proposed

"In a democracy, the people get the government they deserve" states the old dictum.  That pretty much sums up one response to The Wall Street Journal story This Side of Paradise about the "Ohana Kauai" property tax charter amendment case.  A WSJ reader proposes: "It's Simple: Vote Them Out."

The need to restrain local taxation in Kauai may be compelling; but there is another, and undiscussed, option. Vote out the recalcitrant mayor and/or governing council and replace them with officials for whom controlling the level of taxation is a high priority. Who knows? Faced with the broader issues of local government, Ohana Kauai's voters may be able to impel all manner of improvements in local policy and administration.

Full story here. 

He's got a point, of course.  Removing unresponsive elected officials from their positions, either by voting for the other guy in the next election or by recall (the Kauai Charter provides in Article XXVII for the recall of any elective officer serving a four-year term) theoretically is always an option to the people of Kauai dissatisfied with their representatives' judicial engineering of the Baptiste litigation (with the taxpayers' money, no less).  The theory, however, is far removed from the reality, especially in incumbent-friendly Hawaii, where elected officials possess a distinct advantage and rarely vacate their offices involuntarily. 

Perhaps de Tocqueville's statement that "[a] democratic government is the only one in which those who vote for a tax can escape the obligation to pay it" is more appropriate.

▪ National Spotlight on the "Ohana Kauai" Property Tax Charter Amendment Case — Wall Street Journal: "This Side of Paradise"

The Wall Street Journal posts "This Side of Paradise," about the "Ohana Kauai" property tax Charter Amendment case, County of Kauai ex rel. Nakazawa v. Baptiste, No. 27351 (Aug. 6, 2007). 

In that 3-2 decision, the Hawaii Supreme Court over a vociferous dissent, held that friendly government officials have standing to manufacture lawsuits against each other to challenge a charter amendment enacted by a vote of the people, and that the Hawaii Constitution delegates property tax power exclusively to "county councils."

The Pacific Legal Foundation's Robert Thomas stepped in, arguing the case before the Hawaii Supreme Court on Feb. 15, 2007, on behalf of four property owners. Honolulu attorney Gary Slovin, for the county, countered that allowing people to vote on taxes would create "chaos." A few members of the County Council publicly agreed. The Hawaii Government Employees Association, fearing government jobs held by union members might be cut, issued a statement to say that giving residents power over taxes was an "absurd proposition."

Full article here.  One WSJ reader's response here.

▪ Article on the Kauai Property Tax Decision

Kauai's newspaper posts "Ohana amendment decision the result of classic Hawaii politics," a commentary by Walter Lewis, one of the Kauai homeowners who intervened in the County vs. County lawsuit, an effort by county officials to strike down a voter-enacted property tax relief charter amendment.

The typical lawsuit involves a real controversy between the plaintiff and the defendant or defendants with actual or threatened injury to the plaintiff. These fundamental conditions did not exist in the Ohana measure case. Ever. The plaintiff and all the defendants wanted the same result and, as we all know, had no dispute among them and prosecuted this lawsuit with over $250,000 of taxpayer money to get political cover. And the County was unable to point to anything in the Ohana measure that was or would be injuring it.

Complete commentary here.  [Note: I represent the homeowners.] 

Sunday update:  Charley Foster's letter to the editor responding to the commentary.

▪ Podcast: Radio Interview on Kauai Property Tax Charter Amendment Case (mp3)

My thanks to Sandy Brodie and Karlos deTreaux for having me on their "Kauai Soapbox" program today on KKCR-FM 92.7, where we discussed the "Ohana Kauai" property tax charter amendment case and recent decision by the Hawaii Supreme Court.

Stream the podcast here (1 hr):

Or download the podcast here (52mb mp3).

▪ Kauai Property Tax Case: KKCR Radio

Tune in on Tuesday, Aug. 21, at 4 pm Hawaii Standard Time to the "Kauai Soapbox" radio show on radio KKCR (live streaming audio available). 

I'll be a guest, speaking about the "Ohana Kauai" property tax charter amendment case.  Hope you can listen in.

▪ County of Kauai ex rel. Nakazawa v. Baptiste: Kauai Property Tax Decision Summary Page

Here is a summary of all the posts on the "Ohana Kauai" Charter Amendment case, in which the Hawaii Supreme Court in a 3-2 decision held that friendly government officials have standing to institute lawsuits against each other to challenge a charter amendment enacted by a vote of the people, and that the Hawaii Constitution delegates property tax power exclusively to "county councils." 

▪ Podcast: Rick Hamada Show Commentary on Kauai Property Tax Decision (mp3)

The Rick Hamada show (KHVH 830-AM) discussed the Kauai property tax decision with Hawaii State Senators Colleen Hanabusa (Senate President, D-Waianae) and Sam Slom (R-East Oahu) earlier this week, and has posted a podcast of the radio show (23mb mp3) at HonoluluTownPodcast here.

Discussion begins at the 12 minute mark and ends at the 19 minute mark.  An excerpt:

SEN. SAM SLOM: The interesting thing about this -- of course it's a blow to taxpayers -- and a blow to voters, and a blow to those of us that really believe in home rule.  But the interesting thing about the ruling in this case, was the 3-2 ruling.  And the fact that ...

SEN. COLLEEN HANABUSA: We've had a lot of those...

SEN. SAM SLOM: All of a sudden.  I mean remember when everything was 5-0?

RICK HAMADA: Everything was 5-0.

SEN. COLLEEN HANABUSA: Oh it hasn't been for a long time on the supreme court.

SEN. SAM SLOM: Not for a while.  But the interesting makeup here was Acoba -- Justices Acoba and Duffy, who voted in the minority -- which actually is the right decision -- and boy, did Acoba slam the chief justice Moon.  And rightfully so.  The words that he used -- and I read the briefs -- I read the opinions -- he used the word "manipulate" three times.  And that's exactly what the chief justice did in reaching their ruling.  I mean, they took two ends of the same defendants and made them into plaintiffs, you know, in the appellate process.  As if, you know, they were opposing parties.  But they were both on the same side.  And they really dissed the idea that the taxpayers can have something to do with this.  The facts of the case are not in dispute.  The fact that the counties have the power is not in dispute.  But this has tremendous ramifications not only for Kauai, but for Let Honolulu Vote, and for any opportunity for taxpayers to get a handle on real property taxes, and other taxes by "the counties." 

SEN. COLLEEN HANABUSA: You know, I think the interesting thing was that -- I didn't read this opinion, I read the Ninth Circuit opinion on the other case we are going to talk about [the challenge to OHA].  On this one, when you look at it, it seems to be on the same basic issue, which is standing.  Because I think what the minority, or dissenting opinion, was going to say, was trying to say, was that we don't have a controversy.  So we shouldn't even cover this.

SEN. SAM SLOM.  Create one.

SEN. COLLEEN HANABUSA:  And therefore, it should -- the lower court's ruling should stand is really what it is.  And the issue of standing -- who can come forward to even challenge it --  and you had, from what I can understand, it's the council, its kind of split on both sides...

SEN. SAM SLOM:  Right.  Right.  Kauai Council.

SEN. COLLEEN HANABUSA:  And they are fighting each other.  And they don't really care, because they voted -- I would guess -- to put this on the charter amendment, or something along those lines.  And then, let it go accordingly.  So to create a dispute -- and even Baptiste isn't saying there is a true controversy -- the question is at what point does the judiciary then step in. 

SEN. SAM SLOM:  Instead of ruling on something versus making -- not only making the law -- but rearranging the people.  That's what -- I mean that was a really sharp dissent by Acoba.  I was really surprised, quite frankly. 

SEN. COLLEEN HANABUSA:  This is an interesting grouping, because you know that Duffy has all those -- Governor Lingle put Duffy on.  Duffy has always been Ben Cayetano's choice.  Because when Mario Ramil was put on, he just went ballistic on it.  And he said it should have been Duffy. 

* * * *

SEN. SAM SLOM: But, you've got to take your hat off to Pacific Legal Foundation and Robert Thomas who has done such a yeoman's job, and he is one of the top attorneys in the country in terms of eminent domain and property rights and all that -- and if you go back to the origins of this case on Kauai, the government officials laughed and pooh-poohed at this group of citizens and property owners that they weren't going to get anywhere at all.  Not only did they get anywhere, they won their case and everything else.  And that's why it takes certain members of the state supreme court to, you know, unlawfully and inappropriately interfere with the judicial process.  And thank god the CJ will be forced to retire, when, in two years?  Three years?

SEN. COLLEEN HANABUSA:  No, his term is 2010.  September 2010.

Download mp3.

▪ More Commentaries on Kauai Property Tax Decision

LegalNewsline posts "Paradise doesn't include setting own tax rates, Hawaii SC rules."

"Because [it] usurps the county government's/county council's 'functions, powers and duties relating to the taxation of real property,' we hold that the Charter Amendment is unconstitutional," wrote Chief Justice Ronald Moon, with Justices Steven Levinson and Paula Nakayama.

But dissenting Justice Simeon Acoba, joined by Justice James Duffy accused the minority of "manipulating the lawsuit so as to create a controversy that did not in fact exist."

"The only way the merits in this case are reached by the majority is through the manipulation of the parties and the lawsuit -- a course that, in my view, fosters unwise and dangerous precedent," Acoba wrote.

Ohana Kauai (OK), the group that brought the original charter, charged the County with pulling legal fast ones to bring the case to the Supreme Court, the Honolulu Advertiser reported. 

"Kauai officials sued each other to invalidate [the charter], with the county attorney representing both sides of the case," OK attorney Robert H. Thomas of Pacific Legal Foundation told the Advertiser. "We're disappointed the court allowed this fabricated lawsuit to go forward."

The Hawaii Reporter went further, slamming the opinion as "anti-democratic" in a column last week. "The Court decided that the voters are not the proper or appropriate authority to make that decision," the author wrote.

Smittie's Ramblings posts "Kauai Property Tax Revolt: Government Sues Itself and Wins" and includes some personal observations, and

A friend of mine who lives on the mainland says, "there's no sense living in paradise when you have to work like hell." Recent increases in property values and the associated increase in property taxes have only served to make this worse. What is interesting to me is that the state and county governments of Hawaii do not seem motivated to do anything significant to help the state's residents.

. . . .

The suit was essentially filed by the county of Kauai, against the county of Kauai. So, the county sued itself and won. Image that! Kauai is not the only place where voters are fighting back against local government attempts to cash in on the recent raise in property values. This article recounts similar actions across the country.

The Poinography blog posts "Kauai wins, natch!," which contains links to many of the media reports on the case, and concludes:

Predictably, much ado is made, especially in the dissent, about the County playing both sides of the case and the resulting lack of “actual controversy.” Not a proud moment for the Court, even though this decision comes as no surprise.

Mel's Internet Universe Weblog posts "People Lose on Kauai Tax Cap Issue," which includes links to other reports:

So what happened is this. Back in 2004 the people on Kauai overwhelmingly voted to support a property tax cap. Nearly 3 years later the Surpreme Court turns over a decision made by the people. This is sad, so very sad. When are we going to be able to stop government from running over us when a branch of that same government now says "your vote doesn't count."

▪ Kauai Property Tax Charter Amendment: Star-Bulletin Editorial Misses The Real Story

The editorial in today's Honolulu Star-Bulletin, "Court right to reject Kauai tax referendum," reflects a pretty gross misunderstanding of the issues in the Kauai property tax decision, and of the limited role of the courts in a democratic society.

First, the editorial blows right by the fact that the case was manufactured by county officials in order to get what is in essence an advisory opinion from the courts. What does the editorial say about the most critical issue in the case, the question of whether government officials who disagree with the people's vote can create a fictional lawsuit, funded by public money, to attack the vote in court?  Merely that it was a speedbump on the road to a politically wise result: 

Kauai Mayor Bryan Baptiste and the County Council both opposed the initiative, and the county attorney brought it to court by suing the mayor, the Council and the county's finance director. Two high court justices cast dissenting votes in the absence of disagreement among the officials.

But, as the dissenting opinion by Justices Acoba and Duffy vociferously points out, the "county officials vs county officials" case was faulty from the start, and should never have survived a motion to dismiss, much less reached a decision on the merits:

In sua sponte[*] deleting Defendant-Appellee Kauai County Council (County Council) as a defendant in this case and adding it back as the putative plaintiff in order to create a supposed controversy between the County Council and Defendant-Appellee Mayor of Kauai (Mayor) and Defendant-Appellee Finance Director of Kauai (Finance Director), the majority does exactly that, manipulating the lawsuit so as to create a controversy that did not in fact exist when the suit was filed, when it was decided by the Circuit Court of the Fifth Circuit (the court), when it was appealed to this court, and when it was argued by the parties before us.

[*sua sponte = the court of its own initiative]

The passage above reflects that Justices Acoba and Duffy were particularly disturbed that the majority opinion by Chief Justice Moon and Justices Levinson and Nakayama based its conclusion on arguments not raised by the parties, and which were never tested by the adversarial process:

The majority's formulation of a controversy does not comport with any rule, statute or legal doctrine. It is not unanticipated then, that the County has not argued that it is acting "on behalf" of the County Council, or that the County Council has not maintained that it should be dropped as a defendant from the suit under HRCP Rule 21, or that the parties have not contended realignment in the manner imposed by the majority is an appropriate remedy. Nor is it unexpected that the majority does not cite to any case in which an appellate court has engaged in the methodology the majority employs in this case in order to engender a controversy.

The first sentence in Acoba's and Duffy's opinion asserts that by rearranging the parties and attributing to each arguments that were not made in court, the majority undermines the legal process (and, in effect, its own legitimacy):

With all due respect, our role is to protect the judicial process, not to subvert it.

Those are very strong sentiments, but were totally ignored by the editorial. 

Second, the editorial concludes that the majority opinion is right because it "protects" the people from "California-style" politics:

Except for amendments to the state Constitution and state charters, voters have no direct control over state or county lawmaking, leaving that job to elected officials at those levels. Such a representative form of government protects Hawaii from the disastrous free-for-all style of California politics.

The editorial further relies on a "protectionist" philosophy when it concludes:

the state Supreme Court has acted to protect the county from a potential budget nightmare by ruling that the initiative was unconstitutional.

The issues in the court appeal should have had nothing to do with the question of whether it is a good idea for the people to have the opportunity to directly set property tax policy, or need to be "protected" from themselves.  That is a philosophical and political question, ultimately left up to the people when they enacted the current form of article VIII of the Hawaii Constitution.  Justice Acoba and Duffy pointed out that courts should avoid making such decisions because "not all wisdom resides in the judiciary" -- 

In the absence of a controversy, the case should be dismissed. Assuming arguendo any alleged "practicality" or judicial efficiency applies (even in contradiction to the cases relied on by the majority itself), neither can be a proper justification for deciding cases outside the expressed prescription in the declaratory judgment statute that an actual controversy or real antagonistic interests must exist in the case as presented to us. With all due respect, the torturous route taken by the majority to reach the merits suggests an intrusiveness beyond the appropriate and reasoned exercise of judicial power.
 
Moreover, not all wisdom resides in the judiciary. In our democracy, governance is a tripartite function. We may decide the legal limits within which the parties may act, but what choices they should make within those limits and what would be in their best interest to effectuate once the law is applied, is prudently and lawfully committed to them. Accordingly, I would dismiss the appeal.

Full editorial here.

▪ Commentary on Kauai Property Tax Decision

Charlie Foster posts "County sues self.  Wins!" at his Planet Kauai blog:

However, the Supreme Court agreed with the lower court that the amendment violated the state constitution. Article VIII, Section 3 of the Hawai`i Constitution states that "all functions, powers and duties relating to the taxation of real property shall be exercised exclusively by the counties." The county argued, and the court accepted, that by "counties" the constitution means "county councils" or "county governments."

This strikes me as an arbitrary reading of the constitution - though the court does dress it up in "original intent" garb, claiming that committee notes reveal that the true meaning of "counties" is something more specific than what the document actually says.

Here we have a case in which the county did in fact properly exercise its power concerning the taxation of real property - in this case by a ballot initiative amending the county charter. In order to take the win away from the voters of Kaua`i County, the court has invented a rule. It has said that, while the constitution says counties have the exclusive power to regulate property taxes, what the constitution really means is county councils have that power.

I think the court's reasoning is flawed and its conclusion wrong. And I base this not on any opinions I have regarding the political issues involved. I actually have no strong feelings one way or another about the tax policy that would result from the amendment and that was ultimately blocked by the court. I have no idea which would result in the best policy. Instead, I'm offended at the arbitrary (one almost suspects result-oriented) reasoning by which the court created ambiguity in the constitutional text where none really existed.

It's worth reading his whole analysis.

▪ Latest News on Kauai Property Tax/Standing Appeal

• Honolulu Advertiser: High Court: Voters can't set tax rates at ballot box:

A Supreme Court majority of Justices Ronald Moon, Steven Levinson and Paula Nakayama allowed the suit. But in a minority opinion, Supreme Court Justices Simeon Acoba and James Duffy chided the majority for "manipulating the lawsuit so as to create a controversy that did not in fact exist."

Acoba and Duffy argued that the case should have been dismissed because there is no difference of opinion between the county officials who are suing and those who are being sued.

"There is no actual controversy among the parties to the amended complaint because they all agree that the subject Charter Amendment is 'invalid,' " they wrote. They argued that the appeal should have been dismissed.

"We're disappointed that the court allowed this fabricated lawsuit to go forward," said Thomas, who filed the appeal for the 'Ohana Kaua'i leadership, made up of Gordon G. Smith, Walter S. Lewis, Monroe F. Richman and Ming Fang.

Full article.

• Honolulu Star-Bulletin: State's high court strikes Kauai's tax cap:

A bid to cap property taxes through a Kauai County Charter amendment was declared unconstitutional by the state Supreme Court this week.

The court's 3-2 ruling also bars anyone but government officials from setting tax policy, eliminating the possibility of voter-initiated tax relief measures in any county, said one lawyer involved in the proceedings.

"This decision represents a real loss to the people of Kauai," said lawyer Robert Thomas, of the Pacific Legal Foundation, which lost the appeal. "It has told them that their votes don't count."

The decision stems from a Kauai County Charter amendment, dubbed the "Ohana Amendment," that would have rolled back property taxes for resident homeowners to their 1998 levels, and capped increases at 2 percent per year.

Voters responding to exponential increases in property taxes overwhelmingly supported the measure in 2004.

Full article.

• Pacific Business News: High court rules voters can't change taxes:

"Thus, because the charter amendment usurps the county government's/county council's 'functions, powers and duties relating to the taxation of real property,' we hold that the charter amendment is unconstitutional" under the Constitution, Justices Ronald Moon, Steven Levinson and Paula Nakayama wrote in the majority opinion.

Full article.

• KHNL (AP): Kauai charter amendment ruled invalid by high court:

The state Supreme Court has ruled a Kauai County charter amendment approved by voters in 2004 to roll back property taxes is invalid.

The high court held the state constitution prevents citizens from changing property tax policy through the ballot box.

The charter amendment would have rolled back property taxes to 1998 levels for those who have lived in their homes since then.

• KITV: Court Nixes Kauai Homeowner Control of Property Taxes:

The State Supreme Court killed an effort by Kauai homeowners to control property taxes.

The homeowners won an islandwide vote to limit taxes in the county charter. A lower court overturned the results.

Homeowners appealed, but on a 3-2 vote, the state's highest court ruled voters in Hawaii are not allowed to change tax laws.

Full article.

▪ Whose "County" is it, Anyway?

I'm reposting an op-ed published by the Honolulu Advertiser last year regarding the implications of the Kauai property tax case.

Whose county is it, anyway?

According to Kaua'i government officials, how much property tax homeowners pay is an issue too important to be trusted to the people who pay them.

In recent years, the median value of Kaua'i homes has soared to nearly $700,000, a 48 percent increase this past year alone. The staggering prices are the product of a hyperactive market fueled by speculation, and investors flush with cash willing to pay top dollar for modest properties.

A rise in market value has little benefit to those who have no intention of selling. When a neighbor's home sells, or is upgraded by a new owner, all of the properties in the neighborhood see an increase in assessed value, which the tax collector uses to justify increased property taxes.

There is little a homeowner can do, except challenge the assessment through the often byzantine maze of local bureaucracy, with only a slight chance of success.

Since 1998, the average Kaua'i homeowner experienced a nearly 50 percent increase in property tax, and county coffers are bulging. But middle-class families of longtime Kaua'i residents, seniors and others on fixed incomes are in danger of being taxed out of their homes.

After years to trying to convince their elected officials to provide tax relief, the people of Kaua'i exercised their right to change the system themselves. Local homeowners proposed an amendment to the Kaua'i Charter to roll back property taxes to 1998 levels for owner-occupied homes.

For those who bought their homes after 1998, property taxes are based on the assessment at the time of purchase. Yearly tax increases for all resident homeowners are capped at 2 percent.

Under this system, resident homeowners are not at the mercy of an unpredictable and volatile housing market and are able to plan their property-tax liability from year to year and to budget accordingly.

And there is no surprise to the new purchaser, who is able to factor future property-tax liability into the decision to buy.

The charter amendment was placed on the November 2004 ballot, and in the run-up to the vote, virtually every Kaua'i elected official attacked the measure, with the mayor and the County Council leading the charge.

They claimed it would adversely affect their ability to provide services. However, since 1998, the Kaua'i budget has risen 50 percent, and the current budget increased 25 percent over last year's alone. Kaua'i government spending is now a record $123 million.

In spite of the organized and well-financed opposition, the people of Kaua'i approved the measure by a nearly 2-to-1 margin. Instead of accepting this decisive political defeat, Kaua'i officials went to court.

Against themselves.

The Kaua'i county attorney sued the mayor, the finance director and the County Council. The claim: the County Council has a monopoly on property-tax policy, and the people of the county had no right to propose and vote on the charter amendment.

To top it off, the county attorney represents both sides in the lawsuit. The litigation is backed by a $100,000 war chest of taxpayer money, budgeted for private lawyers hired to attack the charter amendment.

Four local homeowners intervened in the officials-against-themselves case. They argued that government officials should not be able to concoct a lawsuit, in which they are both the plaintiff and the defendant, in order to gain court approval for their claimed real-property-tax policy monopoly.

The Kaua'i Circuit Court voided the charter amendment, ruling that only county councils may set property-tax policy, and the people have no right to do it themselves by amending their charter.

The homeowners have now appealed to the state Supreme Court because the people — not just local politicians — have the right to vote and decide on how property taxes are imposed.

Until now, this case has received scant attention beyond Kaua'i's shores, but Honolulu property owners should take notice.

With similar market forces at work and an average 26 percent increase in property value, Honolulu homeowners are beginning to rethink whether property taxes should be tied to an unpredictable housing market that penalizes long-term owners for not selling their properties.

Would Honolulu's politicians consider enacting a measure like Kaua'i's? If the Kaua'i case is any guide, it is doubtful.

Property-tax relief only comes when government officials understand that if they don't provide it, the people will. Or when the people — fed up with inaction of government officials — do it themselves.

If the arguments of Kaua'i officials prevail on appeal, however, the right of the people to directly set property-tax policy will be lost forever. If this occurs, any incentive for government officials to reform the current property-tax system will drop dramatically.

In the end, this case will determine whether "we the people" determine how much property tax we are willing to bear, or whether the politicians alone have control.

Original article here.

▪ Reports of Kauai Property Tax/Standing Appeal

• Court backs county in 'ohana case - The Garden Island's report:

The Hawai‘i Supreme Court has invalidated a voter-approved charter amendment its proponents say was intended to save millions in tax bills for thousands of property owners who own their homes and live in them.

In an Aug. 6 ruling, the court permitted the county to file a lawsuit to prevent Mayor Bryan Baptiste, then-finance director Michael Tresler and the Kaua‘i County Council from implementing the Ohana Kaua‘i measure, which was approved in the November 2004 General Election.

The court also ruled the charter amendment violated a provision of the Hawai‘i Constitution that gives exclusively taxing authority to the county councils from each island.

But Ohana Kaua‘i won on one count — that its measure didn’t violate the county charter, as contended by the county.

Full article.

• HawaiiReporter's take on the decision:

Pacific Legal Foundation Managing Attorney Robert Thomas presented oral arguments in County of Kauai v. Baptiste on Feb. 15, asking the Hawaii Supreme Court to support a Kauai taxpayer-driven county amendment that rolls back island property taxes to 1998 rates and caps the annual property tax hike at 2 percent.

Five months later on Aug. 6, 2007, 3 of 5 justices in a majority report authored by Chief Justice Ronald Moon, ruled against the Kauai taxpayers.

But it was how the chief justice went about crafting his 70-page majority decision that has Justice Simeon R. Acoba, Jr., and Justice James E. Duffy, Jr. peeved and engaged in a harsh exchange of words with Moon over what they are calling an “unwise and dangerous precedent.”

Full article.

• State's top court throws out Kauai taxpayer challenge in the Honolulu Advertiser:

The Hawai'i Supreme Court has ruled that the state constitution prevents residents of a county from changing property tax policy through the ballot box.

The court ruled that the "'Ohana Kaua'i" charter amendment approved by Kaua'i voters in 2004 was invalid. The court said in its decision that the state constitution delegates property taxation authority to the county government, not to the people.

"This decision says that it is government officials who have the exclusive say on property taxes, not the people who pay them," said Robert Thomas, attorney with the Pacific Legal Foundation, which represented 'Ohana Kaua'i leaders Gordon G. Smith, Walter S. Lewis, Monroe F. Richman, and Ming Fang.

▪ HAWSCT: Dissenting Opinion in Kauai Property Tax Appeal

Hawaii Supreme Court Justice Acoba, joined by Justice Duffy, filed an extensive dissenting opinion in yesterday's decision in County of Kauai ex rel. Nakazawa v. Baptiste (or, as it should now be called Kauai County Council v. County of Kauai), on the issue of standing that's worth reading:

---

DISSENTING OPINION BY ACOBA, J.,
WITH WHOM DUFFY, J., JOINS

With all due respect, our role is to protect the judicial process, not to subvert it.

In sua sponte deleting Defendant-Appellee Kauai County Council (County Council) as a defendant in this case and adding it back as the putative plaintiff in order to create a supposed controversy between the County Council and Defendant-Appellee Mayor of Kauai (Mayor) and Defendant-Appellee Finance Director of Kauai (Finance Director), the majority does exactly that, manipulating the lawsuit so as to create a controversy that did not in fact exist when the suit was filed, when it was decided by the Circuit Court of the Fifth Circuit (the court), when it was appealed to this court, and when it was argued by the parties before us.

In accomplishing the alteration of this lawsuit, the majority misconstrues the amended complaint, in effect substituting the County Council in place of Plaintiff-Appellee County of Kauai (County) as the plaintiff, and misapplies the rules of court, in this case Hawai`i Rules of Civil Procedure (HRCP) Rule 21, in order to drop the County Council as a named defendant. HRCP Rule 21 was never intended to authorize a realignment of the parties in order to birth a controversy, but is applied in the cases when an underlying controversy exists in the first place. But most tellingly, there cannot be a controversy between two sides of a lawsuit where, as in this case, "both [sides] desire precisely the same result." Moore v. Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 47, 48 (1971) (per curiam).

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. If it can do that in this case, then the majority can do the same in any case. The only way the merits in this case are reached by the majority is through the manipulation of the parties and the lawsuit -- a course that, in my view, fosters unwise and dangerous precedent.

(Emphasis added).  And that's just the first page-and-a-half of thirty-one total pages.

The complete dissenting opinion is published here.

▪ HAWSCT: Decision in Kauai Property Tax Appeal

The Hawaii Supreme Court has issued its opinion in the Kauai property tax case, County of Kauai v. Baptiste (No. 27351, Aug. 6, 2007).  A collection of posts on the case here.  [Note: I represent the Appellants.]

Bottom line: judgment affirmed in all significant respects.  First: government officials possess the power to manufacture and fund a lawsuit against themselves.  Second: the Ohana Kauai property tax measure (a voter-enacted amendment to the county charter) violated the Hawaii Constitution, because it grants the power to set property tax policy only to county "governments." 

The score: 3-2.  Majority opinion by Moon, C.J., joined by Justices Levinson and Nakayama.

Justice Acoba authored the dissenting opinion, which was joined by Justice Duffy. 

▪ Kauai Official: "The lawsuit was set up to get a court determination on the ballot issue" — More on Kauai's Property Tax Charter Amendment Appeal

Kauai's newspaper, The Garden Island, has posted a story "Legal funds approved for Ohana Kauai battle."  The appeal, summarized in the story, was argued in February 2007, and is awaiting a decision from the Supreme Court of Hawaii.

Ohana Kauai, a citizens group, helped put the tax relief measure on the November 2004 General Election ballot because it felt property tax reform was needed in light of skyrocketing assessments and huge county budgets.

The measure passed with 75 percent of the voters in support of it.

A subsequent charter amendment proposed lowering homeowner property taxes to 1998 levels and limiting yearly increases to 2 percent.

But the county challenged the measure’s validity, questioning whether the amendment should be able to override the county’s state-approved taxing authority.

Attorneys for Ohana Kauai said citizens also have that right, by law.

In order to prevent the amendment from taking effect, the county attorney filed a lawsuit against the council.

Fifth Circuit Judge George Masuoka later sided with the county’s arguments, which Ohana Kauai appealed to the high court.

Robert Thomas, an attorney with the Pacific Legal Foundation, based in Sacramento, Calif., represents Ohana Kauai.[*]

Prior to yesterday’s action, the council had approved more than $100,000[**] for outside counsel representation on the court case.

The approved funds will be used to continue pay for the services of Honolulu law firm Goodsill Anderson Quinn & Stifel.

Councilwoman JoAnn Yukimura said the approval of the funds was justified.

“The lawsuit was set up to get a court determination on the ballot issue,” she said. “And (the council) is sworn to uphold the law. So in order to know what the law is, whether the law is a valid law or not, we have to go to the courts.”

The legal issues in the appeal, summarized in these posts, deal with whether government officials can sue each other to strike down in court laws which they do not want to implement, and whether the Hawaii Constitution delegates the power to tax real property to the counties to "exercise how they see fit."

Full story here.

++++++++++++++++++++

[*] I represent four individual Kauai property taxpayers (who are members of Ohana Kauai), but I don't represent the organization itself.

[**] In fact, more than $230,000 of public money was previously budgeted. 

▪ Government's Creative Assault on Property Tax Relief

California Political Review has posted an op-ed about the Kauai real property tax appeal, currently awaiting a decision by the Hawaii Supreme Court.

Californians will recall that Proposition 13, with its promise of relief from crushing property taxation, was opposed by most of the state’s political establishment. Even after its approval by voters at the polls, various forces fought a rearguard campaign against full implementation.

But no strategy to undercut tax-limitation in California has been quite so brazen as what has happened in Hawaii, where local government officials on one island have actually sued themselves in an audacious effort to smother a voter-approved measure to aid hard-pressed homeowners. It is a reminder of how creative government can be when bureaucrats see their self-interest at risk. Government officials on the Island of Kauai evidently think the amount of property tax homeowners pay is a decision too important to be trusted to the people who pay the tax.

Full article here.

▪ Transcript of Oral Arguments in Kauai Property Tax Appeal

Here is the unofficial transcript of the Feb. 15, 2007 oral arguments in County of Kauai ex rel. Nakazawa v. Baptiste, the appeal challenging the "Kauai v. Kauai" intragovernmental lawsuit involving 2004's Ohana Kauai property tax Charter Amendment.  The recording of the arguments is posted here.

▪ Oral Arguments in Kauai Property Tax Appeal (mp3)

The recording of the Feb. 15, 2007 oral arguments in County of Kauai ex rel. Nakazawa v. Baptiste, the appeal challenging the "Kauai v. Kauai" intragovernmental lawsuit involving 2004's Ohana Kauai property tax Charter Amendment is now available, in three parts:

• Appellants' opening argument (20mb)

• Appellee's argument / Appellants' rebuttal (at 14:45) (27mb)

• Appellee's rebuttal (5mb)

Summaries of the arguments here and here (Hawaii Public Radio report).

    

▪ Correcting Misperceptions of Prop 13

A letter to the editor of the Honolulu Advertiser (scroll down to "Analysis of Prop. 13's Effect Missed the Mark") by the president of the Howard Jarvis Taxpayer Association correcting the article Echoes of California's Prop. 13 in Kauai's tax case:

California is still a high tax state — we rank sixth in per capita taxation — but by making taxes predictable, Proposition 13 provides to all homeowners the security of knowing their future tax liability, which allows them to budget accordingly.
    

▪ KHPR Report on Kauai Tax Appeal (mp3)

Hawaii Public Radio (KHPR) has posted a report on last week's County of Kauai ex rel. Nakazawa v. Baptiste appeal arguments here (2mb mp3).

▪ Echoes in Kauai Tax Appeal

The Advertiser's Jerry Burris writes Echoes of California's Prop. 13 in Kauai tax case with thoughts about the County of Kauai ex rel. Nakazawa v. Baptiste appeal:

There are some interesting legal niceties in this case that will become fodder for law school classes for years to come.

The first is the oddity that the complainant in this case is the County of Kaua'i, which effectively sued itself to block implementation of the charter amendment. County officials argued that the budgetmaking process would be in chaos if property tax collections (which provide the lion's share of the budget) were arbitrarily limited. Pacific Legal Foundation lawyers essentially said, come on, county lawyers should be defending this new law, not attacking it.

The other legal complexity is that there is confusion about who is "the county" when it comes to deciding how property taxes should be imposed. Is it the council and the administration, or is it the residents and taxpayers of Kaua'i?    

more...

▪ Another Report on HAWSCT Property Tax Arguments

Another summary of yesterday's arguments.

    

▪ More on Supreme Court Property Tax Arguments

More reports on yesterday's HAWSCT arguments in County of Kauai ex rel. Nakazawa v. Baptiste, the appeal challenging the "Kauai v. Kauai" intragovernmental challenge to 2004's Ohana Kauai property tax Charter Amendment.

• Supreme Court hears Kauai v. Kauai (The Garden Island 2/16/2007)
• Kauai property taxes, voters get day in court (AP/Honolulu Advertiser 2/16/2007)
• Kauai tax rollback fight goes before Hawaii Supreme Court (KHNL-TV8, 2/15/2007)
• High court weighs Kauai tax case (AP/Honolulu Star-Bulletin 2/16/2007)

   

▪ Supreme Court of Hawaii Hears Property Tax Arguments

The Supreme Court of Hawaii heard arguments today in the appeal involving 2004's property tax Charter Amendment from Kauai.  Details of the case and issue here.

Coverage of today's arguments:

• Property tax control may hinge on court case (KHON-TV2, 2/15/2007)
• Supreme Court: Can Kauai Voters Decide on Taxes? (KITV-4, 2/15/2007)

Past coverage of the appeal:

• Attorneys prep for Kauai vs. Kauai (The Garden Island, 2/7/2007)
• High court to hear arguments on Kauai tax rollback (Associated Press/Honolulu Advertiser, 2/8/2007)
• Court to decide on tax revolt (Honolulu Advertiser, 2/8/2007)
• State high court to hear Kauai property tax suit (Honolulu Star-Bulletin, 2/11/2007)

   

▪ Property Tax Appeal Argument Preview

On February 15, 2007 from 9:00 - 10:00 a.m., the Supreme Court of Hawaii will hear oral arguments in County of Kauai ex rel. Nakazawa v. Baptiste, the appeal involving 2004's "Ohana Kauai" charter amendment. 

The hearing will be held in the Supreme Court courtroom in the Judiciary Building on King Street in Honolulu.  The proceedings are open to the public.

The facts of the case are straightforward.  In November 2004, the people of the County of Kauai overwhelmingly approved an amendment to their county Charter addressing property taxes.  The Charter Amendment provided that property taxes should be restored to 1998 levels for owner-occupied homes of residents who had owned their properties since at least 1998.  For homeowners who purchased after 1998, the tax level is based on purchase price. Future tax increases for all resident homeowners could not exceed 2% per year.

The Mayor and members of the County Council vehemently opposed the measure, publicly urging a "NO" vote, but the people of the County thought otherwise and approved the measure by a nearly two-to-one margin. 

After the election, however, the County Attorney sued the Mayor, the Council, and other county officials.  The County Attorney claims the county council alone has the authority to determine property tax policy.  The County Attorney represents both the plaintiff and the defendants in the lawsuit, and the litigation has been backed with an allocation of $230,000 of taxpayer money, earmarked to hire private lawyers to attack the amendment. 

Several local homeowners were forced to intervene, asserting among other things that the friendly lawsuit was not a true controversy since government officials were both the plaintiff and the defendants, with both sides represented by the same lawyers.  The homeowners argued the officials should be implementing and defending the Charter Amendment, not initiating lawsuits to strike down in court what they could not achieve in the political arena.  The trial court dismissed their objections and ruled in favor of the County Attorney. 

I represent the homeowners on appeal.  There are three issues in the appeal, as noted in the briefs:

• When the plaintiff and the defendants in a lawsuit do not actually disagree with each other and are represented by the same lawyers, is there a genuine justiciable controversy for a court to resolve?  In other words, does the court have jurisdiction to entertain a lawsuit created by government officials in order to strike down a law they politically disagree with? 

• Article VIII, section 3 of the Hawaii Constitution says that "the counties," not the State, have the exclusive authority to determine property tax policy.  The County Attorney argues that the term "the counties" means exclusively "county councils," and thus the people of Kauai had no authority to amend their Charter.
  

• The Charter Amendment is conspicuously labeled a Charter Amendment, and was proposed, passed, and certified by election officials as a charter amendment pursuant to the Kauai Charter's amendment process.  The County Attorney, however, argues that the Charter Amendment was intended to be an initiative or a referendum measure (the Kauai Charter prohibits initiatives or referenda that "levy or repeal" a tax). 

Media coverage:

• Attorneys prep for Kauai vs. Kauai (The Garden Island, 2/7/2007)
• High court to hear arguments on Kauai tax rollback (Associated Press/Honolulu Advertiser, 2/8/2007)
• Court to decide on tax revolt (Honolulu Advertiser, 2/8/2007)
• State high court to hear Kauai property tax suit (Honolulu Star-Bulletin, 2/11/2007)

More details on the case here, and here are the briefs of the parties, all in Adobe Acrobat (pdf) format:

• Opening Brief of four Kauai homeowners who intervened (2.5mb)
  • Appendix to Opening Brief (2.3mb)
• Answering Brief of Kauai County Attorney (2.3mb)
• Answering Brief of Kauai Mayor et al. (300kb)
• Reply Brief of the homeowners (1.6mb)

The appeal has also generated amici interest:

• Amicus brief of Reason Foundation et al. (750kb)
• County Attorney's Reply to Reason amicus (600kb)
• Amicus brief of Hawaii Gov't Employees Ass'n (600kb)
• Homeowners' Reply to HGEA amicus (600kb)

For more information, email me.

 

▪ Property Taxes and Eminent Domain

Both eminent domain and property taxes are hot topics of the moment. 

Eminent domain because the recent approval by the Honolulu city council of the multibillion dollar mass transit project will require the taking of private property.  Home and business owners are rightly concerned about their options if the transit system, where ever it is eventually located, will run through or near their property. 

Property taxes are in the headlines because in Honolulu, property values, according to the City, rose an average of 15% since last year, and property tax bills are expected to increase accordingly.  Also, in February 2007, the Hawaii Supreme Court will hear arguments in an appeal on how the counties structure their property tax systems that may have lasting impact statewide.

These two issues intersect in an obscure statute that property owners who are contemplating appealing their tax assements should know about.  Generally, in eminent domain proceedings, a landowner's testimony regarding the value of her property is admissible as evidence of the property's fair market value under Haw. Rev. Stat. § 101-12:

In addition to rules of evidence otherwise provided by law, in all proceedings brought under this part the valuation claimed by the taxpayer shall be taken into account.

That statute also provides that if an owner disputes the county's valuation of the property in a tax assessment appeal, the owner's claim of value is admissible in any eminent domain action:    

The valuation claimed by the taxpayer in any appeal regarding the assessment of real property tax shall be admissible in evidence as an admission of the fair market value of the real property as of the date of assessment irrespective of the fact that the assessed value from which the taxpayer appealed is adjusted to one hundred per cent fair market value

Thus, there are two competing dynamics at play.  On one hand, in a tax appeal, a property owner is claiming their property has been overvalued by the government, and therefore overtaxed, because it is worth less than the government claims.  In eminent domain proceedings, on the other hand, the property owner should seek to maximize the fair market value of the property, and seek to prove that it is worth more than the government claims.   

What section 101-12 tells a property owner is be careful if you intend to challenge the tax assessment if you believe that your property may be subject in the near future to condemnation.  Because if so, your claims that your property is worth less "can and will be used against you in a court of law."

 

▪ HAWSCT Oral Arguments - Feb. 15, 2007 @ 9 am

The Supreme Court of Hawaii has scheduled rare oral argument in the Kauai Charter Amendment property tax appeal.  The issues include standing of government officials to sue themselves to obtain declaratory judgments, and the constitutional role of the counties in establishing real property tax policy.  Details of the case, including links to the merits briefs here. 

Arguments will be held in the Supreme Court courtroom in the Judiciary Building on Thursday, February 15, 2007 beginning at 9:00 a.m.  Each side is allowed one-half hour for argument.  The proceedings are open to the public and the media.

    

▪ HAWSCT to Hear Oral Arguments in Kauai Property Tax Appeal

UPDATE: Oral arguments are scheduled for 9:00 - 10:00 am on Thursday, February 27, 2007 at the Supreme Court chambers.

The Supreme Court of Hawaii issued an order reversing its earlier denial of oral arguments in the appeal about the legality of the Kauai Charter amendment relating to property taxes.  Details of the appeal are posted here, and our briefs in the case can be found here or from the links on your right under "Briefs - Ohana Kauai Property Tax merits/reply brief." 

The facts of the case are straightforward: the people of the County of Kauai approved an amendment to their Charter addressing property taxes, but after the election, the County Attorney sued the county Mayor and other county officials asserting the amendment is illegal.  The County Attorney represents both sides in the lawsuit, and the litigation was backed with a $100,000 war chest of taxpayer money, earmarked to hire private lawyers to attack the amendment. 

No one was defending the legality of the Charter Amendment, so several local homeowners were forced to intervene, but the trial court dismissed their objections and ruled in favor of the County Attorney/Mayor.  I represent the homeowners on appeal. 

There are three issues in the appeal:

1.  Standing/justiciability:  May the County Attorney dispense entirely with the injury and controversy requirements for standing to sue, and is she entitled to “inherent” standing merely by virtue of her office? 

2.  Hawaii Constitution:  By delegating real property tax power to “the counties,” did the people of Hawaii in article VIII, section 3 of the Hawaii Constitution grant the power only to county councils, to the exclusion of the people of the counties acting in accordance with their charter?

3.  Charter Amendment:  Can an amendment to a county’s charter violate the existing charter, when the amendment was proposed, certified, labeled, and passed as a charter amendment?    

   

▪ Whose County is it, Anyway? Property Taxes, Charter Amendments, and the People's Right to Vote

An earlier version of this commentary was published in the Honolulu Advertiser

According to Kaua'i government officials, how much property tax homeowners pay is an issue too important to be trusted to the people who pay them.

In recent years, the median value of Kaua'i homes has soared to nearly $700,000, a 48 percent increase this past year alone. The staggering prices are the product of a hyperactive market fueled by speculation, and investors flush with cash willing to pay top dollar for modest properties.

A rise in market value has little benefit to those who have no intention of selling. When a neighbor's home sells, or is upgraded by a new owner, all of the properties in the neighborhood see an increase in assessed value, which the tax collector uses to justify increased property taxes.

There is little a homeowner can do, except challenge the assessment through the often byzantine maze of local bureaucracy, with only a slight chance of success.

Since 1998, the average Kaua'i homeowner experienced a nearly 50 percent increase in property tax, and county coffers are bulging. But middle-class families of longtime Kaua'i residents, seniors and others on fixed incomes are in danger of being taxed out of their homes.

After years to trying to convince their elected officials to provide tax relief, the people of Kaua'i exercised their right to change the system themselves. Local homeowners proposed an amendment to the Kaua'i Charter to roll back property taxes to 1998 levels for owner-occupied homes.

For those who bought their homes after 1998, property taxes are based on the assessment at the time of purchase. Yearly tax increases for all resident homeowners are capped at 2 percent.

Under this system, resident homeowners are not at the mercy of an unpredictable and volatile housing market and are able to plan their property-tax liability from year to year and to budget accordingly.

And there is no surprise to the new purchaser, who is able to factor future property-tax liability into the decision to buy.

The charter amendment was placed on the November 2004 ballot, and in the run-up to the vote, virtually every Kaua'i elected official attacked the measure, with the mayor and the County Council leading the charge.

They claimed it would adversely affect their ability to provide services. However, since 1998, the Kaua'i budget has risen 50 percent, and the current budget increased 25 percent over last year's alone. Kaua'i government spending is now a record $123 million.

In spite of the organized and well-financed opposition, the people of Kaua'i approved the measure by a nearly 2-to-1 margin. Instead of accepting this decisive political defeat, Kaua'i officials went to court.

Against themselves.

The Kaua'i county attorney sued the mayor, the finance director and the County Council. The claim: the County Council has a monopoly on property-tax policy, and the people of the county had no right to propose and vote on the charter amendment.

To top it off, the county attorney represents both sides in the lawsuit. The litigation is backed by a $100,000 war chest of taxpayer money, budgeted for private lawyers hired to attack the charter amendment.

Four local homeowners intervened in the officials-against-themselves case. They argued that government officials should not be able to concoct a lawsuit, in which they are both the plaintiff and the defendant, in order to gain court approval for their claimed real-property-tax policy monopoly.

The Kaua'i Circuit Court voided the charter amendment, ruling that only county councils may set property-tax policy, and the people have no right to do it themselves by amending their charter.

The homeowners have now appealed to the state Supreme Court because the people — not just local politicians — have the right to vote and decide on how property taxes are imposed.

Until now, this case has received scant attention beyond Kaua'i's shores, but Honolulu property owners should take notice.

With similar market forces at work and an average 26 percent increase in property value, Honolulu homeowners are beginning to rethink whether property taxes should be tied to an unpredictable housing market that penalizes long-term owners for not selling their properties.

Would Honolulu's politicians consider enacting a measure like Kaua'i's? If the Kaua'i case is any guide, it is doubtful.

Property-tax relief only comes when government officials understand that if they don't provide it, the people will. Or when the people — fed up with inaction of government officials — do it themselves.

If the arguments of Kaua'i officials prevail on appeal, however, the right of the people to directly set property-tax policy will be lost forever. If this occurs, any incentive for government officials to reform the current property-tax system will drop dramatically.

In the end, this case will determine whether "we the people" determine how much property tax we are willing to bear, or whether the politicians alone have control.

Download the briefs in this appeal: Merits Brief | Reply Brief