Tax Increases Require Voter Approval, State Court Says : Government: Justices declare Prop. 62 constitutional. Taxing ability of cities, counties will be restricted.

SAN FRANCISCO — Restricting the taxing ability of local governments, the California Supreme Court upheld the constitutionality Thursday of a 1986 ballot measure that required voter approval of general and special taxes.

Until now, many judges and lawyers assumed that cities and counties could raise taxes for general purposes without voter approval because lower court rulings implied that 1986’s Proposition 62 was unconstitutional. The ballot measure was intended to close loopholes in Proposition 13, the 1978 ballot measure that slashed property taxes.

Under Proposition 62, taxes levied for general purposes must be approved by a majority of voters, and taxes for special purposes must pass by a two-thirds majority.

Orange County officials said Thursday that they weren’t certain how the ruling would affect existing taxes in the county, including a sales tax increase approved in 1990 as Measure M for transportation projects. That special-purpose tax passed by a simple majority.

“We’ll have to take a look at it,” Deputy County Counsel James F. Meade said.

But taxpayer activists, jubilant over the court’s decision, contended that a variety of local taxes in California, including some in Orange and Los Angeles counties, may now be legally suspect. These could include event admission taxes, utility user taxes and hotel occupant taxes passed without voter approval after 1986.

“I believe this is what the people of California wanted: the right to vote on tax increases,” said Joel Fox, president of the Los Angeles-based Howard Jarvis Taxpayer Assn.

However, lawyers on both sides of the case predicted the major impact of the 5-2 ruling will be felt in the future as financially strapped counties and cities try to raise new revenue.

“It is going to make it much tougher for cities to enact taxes for transportation or any other special purpose,” said Santa Ana lawyer Mark Rosen, who has unsuccessfully fought such taxes in the past. “In fact, it probably is going to make it impossible.”

Rosen said Thursday’s decision will give impetus to those who want to divert Orange County’s transportation revenue to the general fund.

Advocates of using that money for other purposes can now argue that the tax was illegal, Rosen said, and can only be used for general needs. He also suggested that Orange County taxpayers may want to apply for refunds for road taxes they have already paid.

Stan Oftelie, head of the Orange County Transportation Authority, said he did not believe the court’s ruling would have an effect on Measure M, which has already successfully undergone legal challenges.

“Measure M has been to the state Supreme Court twice and upheld both times, so I don’t think this will have an impact,” Oftelie said.

Fox said county taxes on hotel beds and utilities and a recently approved levy in Los Angeles County on tickets to Universal Studios and Six Flags Magic Mountain theme parks also may now be vulnerable, depending on a variety of factors. The taxes yield a fraction of total county revenue.

Thursday’s ruling was the state high court’s first in-depth examination of Proposition 62 and follows several lower court decisions that cast strong doubts on the measure’s validity.

Chief Justice Malcolm M. Lucas, in a dissent, predicted that the court’s decision will have devastating consequences for local governments.

“The inevitable effect of the operation of Proposition 62 will be to severely impair the functioning of local government,” wrote Lucas, who dissented in separate opinions with Justice Kathryn M. Werdegar.

Until now, the Supreme Court had declined to review rulings, rejecting challenges to taxes passed in spite of the proposition’s limitations.

But the state high court finally decided to resolve the ballot measure’s future in a case from Santa Clara County. Voters there approved by a 54% margin a 1992 measure authorizing a sales tax increase to pay for transportation improvements.

The county’s auditor-controller feared the tax was illegal and balked, refusing to sign off on $275 million in bonds that would be repaid by revenues from the tax. An appeal court held the tax invalid under Proposition 13. The county appealed, and the California Supreme Court used the case to resolve questions about Proposition 62, declaring the tax illegal under that later proposition.

“Local governments issue bonds secured by taxes,” wrote Justice Stanley Mosk for the majority, “and until this court rules on the constitutionality of Proposition 62, there is a cloud hanging over those bonds.”

Santa Clara County argued that the proposition required a two-thirds voter approval only for levies by districts authorized to charge property taxes. The court held that the measure applied to all districts.

The court also rejected a contention that the state Constitution prohibits laws requiring voter approval of taxes. “There is nothing unusual about such voter approval requirements,” Mosk wrote. “They have a long history in this state.”

Jonathan M. Coupal, director of legal affairs for the Howard Jarvis Taxpayers Assn., said more analysis must be done to determine which current taxes in the state are illegal and must be submitted to voters for approval.

Times staff writer Matt Lait contributed to this story.