Update : Follow-up on the news : Tax Ruling Leaves Cities Guessing

City officials across Orange County are entering 1996 with more than the usual anxieties about balancing budgets and doing more with less.

The cause of their concern is Proposition 62, a voter-ratified measure that requires that all taxes for general purposes be approved by a majority of voters and that all taxes for special purposes be passed by a two-thirds majority.

Until this fall, cities paid little attention to the proposition because a 1986 appeals court ruling found it unconstitutional. But in September, the California Supreme Court reversed that opinion, finding that Proposition 62 could, indeed, become law.

The situation puts a number of cities in a bind. Based on the 1986 ruling, government agencies presumed they had the authority to raise general purpose taxes without a voter referendum.

Many city councils established hotel taxes, utility fees and other levies--without voter consent. And with the recession of the early 1990s and cutbacks in state funding, cities became more reliant on the money generated from those local taxes.

Though the state’s high court clearly legalized Proposition 62, attorneys said, the ruling does not specifically state whether all taxes imposed by councils since 1986 are now invalid. It also remains unclear which agencies are covered by the ruling, they said.

Since September, the League of California Cities and other government groups have been pushing the high court to reopen the Proposition 62 case and clarify the outstanding issues.

In a letter to the court in November, the league suggested that “the facts of this case may have belied the far-reaching and dramatic impact of the court’s decision on cities’ ability to provide essential services to citizens of the state.”

But on Dec. 14, the court refused to reconsider the case. The league is now pushing for state legislation that would allow cities to keep the taxes they imposed before the Supreme Court’s September ruling.

Officials in many Orange County cities said they would be forced to slash a variety of vital services if the court invalidated their taxes. A few cities even hinted they might become insolvent.

“Our fundamental concern is that Proposition 62 could impair government from handling essential functions,” said Janet Huston, executive director of the league’s Orange County division.

Meanwhile, some anti-tax activists have threatened to use the court ruling in an effort to invalidate Measure M, the voter-approved county sales tax increase to benefit transportation projects.

But a county legal review found that Measure M is not threatened by the case.