Opinion
As Modified Oct. 17, 1990.
Review Granted Dec. 13, 1990.
Page1160
COUNSEL
Louise H. Renne, City Atty., Burk E. Delventhal, Thomas J. Owen, Deputy City Attys., San Francisco, for defendant and appellant.
Page1161
Ronald A. Zumbrun, Anthony T. Caso, Jonathan M. Coupal, Pacific Legal Found., Sacramento, for plaintiff and respondent.
OPINION
LOW, Presiding Justice.
Plaintiff San Francisco Taxpayers Association (Taxpayers) challenge the Board of Supervisors of the City and County of San Francisco for excluding annual appropriations to the city's employee retirement fund from the spending limitations imposed by article XIII B of the California Constitution. We conclude that the city's contributions to the voter-approved retirement fund constitute a legally authorized, contractual "debt service," as defined in California Constitution, article XIII B, sections 8, subdivision (g), and 9, which is expressly exempted from the spending limitations imposed by that article. Accordingly, we reverse the summary judgment and direct the trial court to enter judgment for defendant.
All statutory references hereinafter are to the California Constitution unless otherwise indicated.
Defendant Board of Supervisors (Board) annually allocates monies received from tax revenues to fund the city's employee retirement system. The pension plan had been approved by the voters prior to the 1979 passage of article XIII B as Proposition 4. (See S.F. Charter, §§ 3.674, 8.500 et seq.) Beginning in 1986, the Board changed its fiscal treatment of retirement contributions and began to exclude those contributions from its calculation of "appropriations subject to limitation" under article XIII B. This permitted the expenditure of more revenue than if the retirement appropriations were included in the calculation. Article XIII B generally limits government spending to the level of the prior year with adjustments for changes in cost of living and population.
In October 1988, the controller for the city calculated the city's total "annual appropriations subject to limitation" under article XIII B to be $738,319,965. This amount did not include $40,336,171 in tax revenues allocated to meet the city's ongoing obligation to fund its employee retirement system. On November 14, 1988, the Board approved the annual appropriations budget for fiscal year 1988-1989. Taxpayers filed a timely petition for writ of mandate and for injunctive and declaratory relief to compel the city to include these retirement fund contributions within the constitutional spending limitation. (Gov.Code, § 7910.)
Taxpayers successfully moved for summary judgment, arguing that the retirement fund contribution is expressly classified as an "appropriation subject to limitation" under section 5 of article XIII B.
Page1162
I
Article XIII B, passed by the voters as Proposition 4 on November 6, 1979, followed the passage of article XIII A (Prop. 13) in 1978. Proposition 13 sought to provide real property tax relief (see generally, City and County of San Francisco v. Farrell (1982) 32 Cal.3d 47, 56, 184 Cal.Rptr. 713, ) by limiting the levy of the ad valorem property tax. Article XIII B limited government spending to that amount appropriated in the prior year subject to changes in the population and inflation. (See Gov.Code, § 7900 et seq.) Any excess revenues are required to be returned to the taxpayers within two years. (Art. XIII B, § 2, subds. (a), (b).)
Section 1 of article XIII B provides: "The total annual appropriations subject to limitation of the state and of each local government shall not exceed the appropriations limit of such entity of government for the prior year adjusted for changes in the cost of living and population except as otherwise provided in this Article."
Section 2 of article XIII B provides: "(a) All revenues received by the state in excess of that amount which is appropriated by the state in compliance with this Article, and which would otherwise be required, pursuant to subdivision (b) of this Section, to be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years, shall be transferred and allocated pursuant to Section 8.5 of Article XVI up to the maximum amount permitted by that section. [p] (b) Except as provided in subdivision (a) of this Section, revenues received by any entity of government in excess of that amount which is appropriated by such entity in compliance with this Article during the fiscal year shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years."
Article XIII B excludes from limitation any appropriation for "debt service," which is defined in section 8, subdivision (g), as spending "required to pay the cost of interest and redemption charges, including the funding of any reserve or sinking fund required in connection therewith, on indebtedness existing or legally authorized as of January 1, 1979 or on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity...."
Taxpayers argued successfully below that contributions to the employee retirement system are "appropriations subject to limitation." They relied on section 5 of article XIII B, which reads: "Each entity of government may establish such contingency, emergency, unemployment, reserve, retirement, sinking fund, trust, or similar funds as it shall deem reasonable and proper. Contributions to any such fund, to the extent that such contributions are derived from the proceeds of taxes, shall for purposes of this Article constitute appropriations subject to limitation in the year of contribution." (Italics added.) We conclude that the retirement fund contribution is a legally authorized indebtedness which is not subject to the spending limitations of article XIII B.
Page1163
II
Pointing to section 5, Taxpayers argue that the plain language therein unambiguously establishes that contributions to the employee retirement fund are "appropriations subject to limitation." We disagree. In light of contradictory language in section 8, subdivision (g), and our interpretation of the purpose underlying the legislation, we conclude the language in section 5 is susceptible to more than one meaning. The more reasonable construction is one which exempts the city's contributions to the retirement fund as "debt service."
At the outset, we note that the interpretation of a constitutional provision is a question of law, and summary judgment is a particularly suitable vehicle for that purpose. (See generally, Heckendorn v. City of San Marino (1986) 42 Cal.3d 481, 487, 229 Cal.Rptr. 324, ; Armstrong v. County of San Mateo (1983) 146 Cal.App.3d 597, 608, 194 Cal.Rptr. 294.)
In interpreting a constitutional initiative, our primary objective is to ascertain the intent of the voters so as to effectuate the purpose of the law. (Russ Bldg. Partnership v. City and County of San Francisco (1988) 44 Cal.3d 839, 847, 244 Cal.Rptr. 682, .) We accomplish this by viewing the provision as a whole and attempting to harmonize all related provisions if it is reasonably possible to do so without distorting their apparent meaning. In this effort, we are guided by familiar rules of construction "that an initiative measure should receive a practical construction, that its literal language may be disregarded to avoid absurd results and to fulfill the intent of the framers, and that ambiguities in the wording of the measure may be clarified by reference to the material presented to the voters in the ballot pamphlet and the contemporaneous construction of the measure by the Legislature." ( City and County of San Francisco v. Farrell, supra, 32 Cal.3d at p. 52, 184 Cal.Rptr. 713, .)
Taxpayers argue that the meaning of the provision is straightforward and one need only look to the plain language of section 5 to conclude that the public employee retirement contributions are "appropriations subject to limitation." In support of its position, Taxpayers rely on Santa Barbara County Taxpayers Assn. v. County of Santa Barbara (1987) 194 Cal.App.3d 674, 239 Cal.Rptr. 769. This argument minimizes the city's obligation to its employees, approved by the voters, to pay pensions promised and earned. "A public employee's pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues
Page1164
upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity. [Citation.]" (Betts v. Board of Administration (1978) 21 Cal.3d 859, 863, 148 Cal.Rptr. 158, .) In recognition of this continuing contractual obligation to the city's employees, its voters approved a charter provision authorizing the city to appropriate the necessary revenues to fund the pension obligations. (S.F. Charter, § 8.500 et seq.) In so doing, the voters manifested an intent to bind the city to make the necessary contributions to the pension plans, currently and in the future. We construe this contractual indebtedness to fall within the definition of "debt service" contained in section 8, subdivision (g) of article XIII B.
That section defines "debt service" to mean "appropriations required to pay the cost of interest and redemption charges, including the funding of any reserve or sinking fund required in connection therewith, on indebtedness existing or legally authorized as of January 1, 1979 or on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose."
In Carman v. Alvord (1982) 31 Cal.3d 318, 182 Cal.Rptr. 506, , our Supreme Court was confronted with similar language in determining whether a city's contributions into the Public Employees' Retirement System (PERS) was an "indebtedness" exempt from the 1 percent ad valorem tax limit contained in article XIII A. Section 1 of article XIII A provided: "(a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property.... [p] (b) The limitation provided for in subdivision (a) shall not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on any indebtedness approved by the voters prior to the time this section becomes effective." (Amended June 3, 1986; see Carman, supra, at p. 322, 182 Cal.Rptr. 506, .) The court stated that " '[t]he term "indebtedness" has no rigid or fixed meaning, but rather must be construed in every case in accord with its context.' [Citations.]" (Id., at p. 326, 182 Cal.Rptr. 506, .) It held that the city's PERS contributions constituted "indebtedness" as that term is traditionally understood. (Id., at p. 327, 182 Cal.Rptr. 506, .) The court reasoned that "[s]ubdivision (b)'s focus on voter approval implies a concern that irrevocable, longterm obligations, solemnly approved by local electorates and entered on faith in taxing powers then available, not be frustrated by a revolutionary tax limitation imposed from outside the community. [Citation.] It also implies a recognition that failure to create a 'prior debt' exception might lead to problems under the federal contract clause. [Citations.]" (Id., at p. 328, 182 Cal.Rptr. 506, ; accord, City of Fresno v. Superior Court (1984) 156 Cal.App.3d 1137, 202 Cal.Rptr. 313 [A pension plan
Page1165
adopted by the voters in 1957, which included the establishment of a fund to finance the system, was held to be an indebtedness. The taxes collected were paid to pension funds created by ordinance.].)
A
Propositions 13 and 4 are complimentary fiscal measures designed to limit the government's ability to raise and spend tax revenues for programs and services over which they have budgetary control, e.g., fire and police protection, park and recreation programs, library services, etc. And just as Proposition 13 has been interpreted to exempt a city's contractual indebtedness from the taxing limitations, so too must Proposition 4 be viewed to permit local governments to pay their legally authorized debt obligations.
Support for this interpretation is found in the ballot pamphlet. Paul Gann, the principal author of Proposition 4, was also the co-author of Proposition 13. He described this initiative as "the next logical step to Proposition 13." (Ballot Pamp. Special Elec. (Nov. 6, 1979) p. 18.) In the ballot arguments for the proposition, Gann stated that this "will preserve the gains made by Proposition 13" by, inter alia, "eliminat[ing] government waste by forcing politicians to rethink priorities while spending our tax money.... [p] ... This amendment is a reasonable and flexible way to provide discipline in tax spending at the state and local levels and will not override the desires of individual communities--a majority of voters may adjust the spending limits for local entities such as cities, counties, etc.--it will force return of any additional taxation to voter control!" (Ibid., italics omitted.)
This language reveals an intent to impose fiscal responsibility on our elected officials. But that purpose can only be served for those programs and services over which local government officials have the power to reduce expenditures. Public employee retirement fund contributions are contractual and remain an obligation of the local government currently and into the future. Local officials may alter pension rights only under limited circumstances and not where it would detrimentally interfere with the vested right to an earned pension. (See Betts v. Board of Administration, supra, 21 Cal.3d at p. 864, 148 Cal.Rptr. 158, [" 'To be sustained as reasonable, alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages.' " (Italics omitted.) ].)
B
In addition to the ballot arguments, we consider the views of the legislative analyst. (See Heckendorn, supra, 42 Cal.3d at pp. 486-487, 229 Cal.Rptr. 324, .) In discussing the application of excess revenues, the legislative analyst concluded that
Page1166
"a local government with an unfunded liability in its retirement system could appropriate its excess revenues to reduce the liability, as such an appropriation would be considered a payment toward a legal 'indebtedness' under this ballot measure." (Ballot Pamp. Special Elec. (Nov. 6, 1979) p. 20.) It is reasonable to conclude that the voters had this purpose in mind when enacting the measure. This reading supports our interpretation that the "indebtedness" exempted from the "limitations on appropriations" does not only apply to bonded debt.
Our construction also has the salutary effect of avoiding any claim that inclusion of the employees' pension rights within the "appropriations subject to limitation" would violate the federal contract clause. (U.S. Const., art. I, § 10, cl. 1; see Carman v. Alvord, supra, 31 Cal.3d at p. 332, 182 Cal.Rptr. 506, ; Olson v. Cory (1980) 27 Cal.3d 532, 538, 178 Cal.Rptr. 568, ["Once vested, the right to compensation cannot be eliminated without unconstitutionally impairing the contract obligation. [Citation.] When agreements of employment between the state and public employees have been adopted by governing bodies, such agreements are binding and constitutionally protected."].)
Taxpayers contend that the Board has no "standing" to assert the federal contract clause defense because "[t]he contractual interests at stake are those of employees and retirees, not appellant Board." The Board does have a vital interest in determining if a change in its current method of calculating its retirement contributions violates the federal Constitution. (See generally, 3 Witkin, Cal. Procedure (3d ed. 1985) Actions, § 44, pp. 70-72.) Apart from the serious fiscal impact a negative ruling would have, the Board must adopt procedures which do not fall below the standards set down by the federal Constitution. The Board has a real interest in the ultimate adjudication of this controversy, as evidenced by Carman v. Alvord, supra.
III
We are aware that the court in Santa Barbara County Taxpayers Assn., supra, 194 Cal.App.3d 674, 239 Cal.Rptr. 769, reached a contrary result. That court recognized that "contributions to a governmental pension plan may fall under the general definition of debt service under both articles XIII A and XIII B." (Id., at p. 678, 239 Cal.Rptr. 769.) But the court held that this language does not override the specific language of section 5 which includes retirement contributions within the category of "appropriations subject to limitation." (Id., at pp. 678-679, 239 Cal.Rptr. 769.) The court reasoned that "[s]uch specific constitutional provisions prevail over the general exclusion for debt service of section 9." (Id., at p. 679, 239 Cal.Rptr. 769.)
Further, the court stated it was "sympathetic to the county's desire to maintain the integrity of its pension plan and [was] mindful that to impair pension rights would violate the federal contracts clause." (194 Cal.App.3d at p. 679, 239 Cal.Rptr. 769.) It tried to allay the county's fears by suggesting that the county
Page1167
may be required "to redistribute expenditure allocations to meet these pension obligations." (Ibid.) This is not a solution and is inconsistent with the voters' intent to restrict discretionary spending while exempting voter-mandated debt obligations.
Section 5 is neither clear nor specific. Section 5 identifies as part of the "appropriations subject to limitation" a government's contributions to a "reserve, retirement, [or] sinking fund," if such a fund is created. (Italics added.) A contradiction results when we compare that language to the definition of "debt service" in section 8, subdivision (g), which includes "the funding of any reserve or sinking fund required in connection therewith...." (Italics added.) This conflict between the sections does not give us any confidence that section 5 can be interpreted as a specific limit on contributions to the San Francisco retirement fund. Frankly, we cannot harmonize these two sections and must therefore rely on the fundamental rule of statutory construction that "departure from the literal construction of a statute is justified when such a construction would produce an absurd and unjust result and would clearly be inconsistent with the purposes and policies of the act in question." (2A Sutherland, Statutory Construction (4th ed. 1984) § 45.12, p. 54, fn. omitted.) "An interpretation that renders related provisions nugatory must be avoided; each sentence must be read not in isolation but in the light of statutory scheme; and if a statute is amenable to two alternative interpretations, the one that leads to the more reasonable result will be followed. These rules apply as well to the interpretation of constitutional provisions." (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735, 248 Cal.Rptr. 115, .)
Public employee retirement contributions are already recognized by our Supreme Court as an indebtedness which is not subject to the taxing limitation of the companion amendment, article XIII A. (See Carman, supra, 31 Cal.3d at p. 325, 182 Cal.Rptr. 506, .) The use of similar language in section 8, subdivision (g) of article XIII B should lead to a like result of exclusion from spending limitations. Further, the manifest purpose of the voters in article XIII B, to restrain government spending, is not defeated by interpreting "debt service" to include a city's continuing contractual obligation to fund its employees' pension fund. If we were to adopt Taxpayers' interpretation, this would produce a result inconsistent with the scheme underlying both articles XIII A and XIII B, as well as raise constitutional concerns of impairment of contract. (See Otsuka v. Hite (1966) 64 Cal.2d 596, 606, 51 Cal.Rptr. 284, ["It has long been a cardinal rule, of course, that if a provision of the California Constitution is 'capable of two constructions, one of which would cause a conflict with the federal Constitution, the other must be
Page1168
adopted.' "].) For these reasons, we respectfully decline to follow the decision in Santa Barbara County Taxpayers Assn. v. County of Santa Barbara, supra.
The initiative process is an important part of California's democratic system of government. Unfortunately, legislation proposed without the benefit of public hearings or legislative staff review often fails to detect the conflicting and unclear language that can cause confusion in any enactment. The costly litigation to determine the intent of California voters where there is a conflict in the enactment might be avoided if a proposed proposition were publicly reviewed and evaluated by an impartial agency prior to circulation for signature.
The summary judgment is reversed. The trial court is directed to enter judgment for the Board.
KING and HANING, JJ., concur.