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M 6 0 CONSiT=ONAL AND STATUTORY LIlVUrATIONS ON TAXES AND APPROPRIATIONS e XiIIA of the California C"istitution In 1978, California voters approved Proposition 13, adding Article XIIIA to the California Constitution. Article XIIIA was subsequently amended in 1986, as discussed below. Article XIIIA limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978 and on bonded indebtedness for the acquisition or improvement of real property which has been approved on or after July 1, 1978 by two- thirds of the voters voting on such indebtedness. Article XIIIA defines full cash value to mean "the county assessor's valuation of real property as shown on the 1975 -76 tax bill under "full cash" or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment." This full cash value may be increased at a rate not to exceed 2% per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster. Pending litigation Regarding 2% Limitation. In a Minute Order issued on November 2, 2001 in County of Orange v. Orange County Assessment Appeals Board No. 3, case no. OOCCO3385, the Orange County Superior Court held that where a home's taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the two percent inflation adjustment provision of Article XMA, when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties, including the County, use a similar methodology in raising the taxable values of property beyond 2% in a single year. The State Board of Equalization has approved this methodology for increasing assessed values. On December 27, 2001 the Orange County Superior Court issued an order declaring the practice of "recapturing" to be unconstitutional. That order only applies to one property in Seal Beach. A second issue of "class action" was requested to be reviewed by the court and on December 12. 2002, the Superior Court certified class action status for this case, which could have the effect of extending this ruling to other similar cases. A third issue addressed by the court is related to notification to the taxpayers by the Tax Collector. On January 20, 2003, the Superior Court granted the motion for the Tax Collector to give some type of notice to taxpayers. The court put on hold this order pending final appellate review and a ruling on the "recapture" issue. The court entered a Final Judgment on April 18, 2003 and the case is now released from the local court. In 2002 two local courts (Los Angeles and San Diego) Wiled differently on the "recapture" issue. Therefore, the issues of uniformity and equal protection for each taxpayer statewide must be addressed. When local courts differ, the subject matter is often subject to a uniformity review. Orange County, the Orange County Tax Collector and the Orange County Assessor have appealed the Superior Court ruling to State appellate courts. This appeal process can take 1 -2 years to complete. Article XIIIB of the California Constitution At the statewide special election on November 6, 1979, the voters approved an initiative entitled "Limitation on Government Appropriations" which added Article X1IIB to the California Constitution. Under Article XIIIB, state and local government entities have an annual -18-