L.A. Assessor Suit Over Courthouse Puts Court Budget at Further Risk
(CN) - A muddled and controversial deal to spend $2.3 billion for a gleaming new courthouse in Long Beach has attracted critics to its finances likes moths to a flame. Now the Los Angeles tax assessor is suing for millions of dollars in property taxes on the building that, if the suit is successful, would wind up being paid from an already beleaguered court budget.
The 31-courtroom building in Long Beach is the first ever in California to be built through a public-private partnership. Developer Long Beach Judicial Partners financed $490 million to build the courthouse and is leasing part of it back to the courts.
The Judicial Council, which votes on court projects and relies on staff from the Administrative Office of the Courts, said California would pay the developer $50 million a year for 35 years. The Legislative Analyst's Office said the total cost for the building over time would add up to $2.3 billion.
The new Long Beach courthouse had its grand opening last Fall accompanied by criticism from lawmakers and trial judges over its expense. Those objections were amplified by the admission from the Judicial Council that the "annual service fee" was coming out closer to $61 million, and by the Legislature's refusal to take the money out of the state's general fund.
That left existing court construction funds as the source of payment, resulting in four other planned courthouses for Fresno, Los Angeles, Nevada County and Sacramento being "delayed indefinitely."
But another of the deal's chickens is now coming home to roost.
The Los Angeles County Assessor filed a lawsuit earlier this month seeking the payment of property taxes on the building, estimated to be somewhere between $4 million and $5 million a year. In the agreement with the developer, the Administrative Office of the Courts promised to cover the taxes, if the developer was not exempted.
In the genesis of the deal four years ago, the administrative office tried to quietly speed the developer's tax exemption through the Legislature as a "trailer bill," a piece of legislation that trails the budget and becomes chit in the frenzied round of trading that accompanies passage of California's massive budget.
At the time, Los Angeles County Chief Executive Officer William Fujioka sent a letter to the Legislature calling the trailer bill "unconstitutional" and "ill-advised." His May 2010 letter eviscerates the policy being pursued by the Administrative Office of the Courts.
"Notwithstanding the assertion to the contrary by the AOC, this proposed legislation does raise a constitutional issue," Fujioka wrote. He added, "If approved, this AOC proposal will further degrade the integrity of the possessory interest component of the property tax system and set a precedent that will invite other interests to pursue similar exemptions."
Fujioka also blasted a bid request put out by the administrative office a year earlier, in which the administrative office promised to assume financial responsibility for any property taxes imposed by the county on that part of the building used by the courts.
"This self-inflicted harm should not be the basis for legislation that will further erode the legal environment governing the taxation of possessory interests," wrote the county executive.
He sent a second letter in June 2010, in which he continued to criticize both the Judicial Council and the Administrative Office of the Courts, saying their push for the exemption would set a terrible precedent. But he also noted a possible compromise.
"The high priority that the AOC and Judicial Council are placing on this legislation as the means of expediting the construction of the Long Beach Courthouse means that there is a very real possibility that legislation exempting the Long Beach Court from possessory interest property tax could be enacted into law," Fujioka wrote.
"This would potentially place the County in the worst possible position since the proposed law would clearly set a precedent which would encourage similar attempts in the future," he wrote.
Fujioka then chose between two evils. He said he would withdraw opposition to the legislation if the AOC was prohibited from making such deals in the future and if the exemption was passed but not put in the books as a codified statute.
The compromise wound up as AB 1341, authored by Assembly member Bonnie Lowenthal, a Democrat from Long Beach.
Since then, the courthouse has been built, had its grand opening in September, judges have moved in and commercial tenants currently are preparing ground floor units for shops such as Subway.
Lowenthal's spokesperson defended the deal, saying by email, "She authored AB 1341 in 2010 to resolve the dispute between the Administrative Office of the Courts and the LA County Assessor. The bill was narrowly crafted to apply only to the Long Beach Courthouse project. Without the bill, the project would have been significantly delayed."
But the tax assessor seems to have no memory of that old compromise and he now wants what he considers his due.
"I have no personal knowledge about that," said Principal Deputy County Counsel Albert Ramseyer, referring to the compromise allowing a one-time exemption for the builder.
"The Legislature does not have the authority to exempt real property from property tax," says the complaint filed by Ramseyer. Pending before Los Angeles Superior Court Judge Richard Fruin, the suit asks for a declaration that the law granting the developer's exemption is "invalid and unconstitutional."
Because the case is pending, no judge is able to comment on the controversy.
However, when the Long Beach courthouse was opened in September, judges freely criticized the deal as wasteful and extravagant, a recurring theme in comments on the administrative office's stewardship of public funds.
In a statement shortly after the building was opened, the Alliance of California Judges, an association of more than 500 judges pushing for reform of the Administrative Office of the Courts, said billions of dollars spent on a few courthouses meant that the desperate need for new courtrooms elsewhere would go unmet.
"Our state may never have these billions to spend, nor will court facilities be the only outdated state facilities needing repair and replacement," said the Alliance statement. "We are concerned that the state will be left with extravagantly funded courthouses in just a few locations, while courtrooms and courthouses throughout the state remain closed and public access remains frustrated."
Throughout its history, the Long Beach courthouse deal has generated steady criticism from lawmakers who did not agree with the Judicial Council's idea that California's general fund would pay for the building.
A legislative staff analysis for the Assembly Committee on Revenue and Taxation in August 2010 notes that because the AOC had already inked the deal with the developer, California taxpayers were locked into covering the property taxes one way or another.
"This bill could result in foregone possessory interest taxes in Los Angeles County of between $4 million and $5 million," said the analysis. "However, the Judicial Council indicates that, in the absence of this bill, the state would be required to pay any possessory interest taxes related to the Long Beach Courthouse on behalf of the nongovernmental entity, which could result in annual General Fund payments of $4 million to $5 million."
The Judicial Council, which relies heavily on the AOC staff for its analysis of legislative issues, had said the annual payments for the building, as well as the property taxes, would come out of the state's general fund rather than the judicial budget.
But that view was not shared by the Legislature. The result is that the money must come out of a court budget that has been already been decimated by cuts.
"It was never intended that the General Fund should pay for it," said Senator Loni Hancock at a hearing last year.
The Democratic senator from Oakland added, "If I lived in Sacramento, or Fresno, or Los Angeles or Nevada City I'd be asking some serious questions. We don't have a dollar to waste and every public dollar needs to be carefully accounted for, and the judiciary system is too important to waste one single dollar."