The Morning Report
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The city of Chula Vista’s leaders have used the threat of litigation as their primary reasoning for hoarding hundreds of thousands of dollars the city is still collecting each month in utility user tax revenues.
The threatened shutoff or take-back of those revenues has also been used to justify the city’s stinging budget cutbacks. Dozens of city workers have been laid off, graffiti abatement crews have been disbanded and library and senior center hours have been decimated, all on the assumption that the city could no longer rely on almost $6 million of annual tax revenue.
But, as I reported last week, the taxes at the center of the debate continue to flow into the city’s coffers. Nobody’s stopped paying. That got me thinking: Is anyone actually likely to stop paying the taxes, and is any individual — or group of individuals — really likely to sue the city to claim back what amounts to a couple of bucks of tax each month added to their cell phone bills?
There are two possible groups that could sue the city of Chula Vista over its utility tax: Cell phone customers who get the taxes added to their bills, and cell phone companies who bill those customers and who also pay taxes on the prepaid cell phone packages they sell to their customers.
Let’s take the customers themselves first:
• I got a call from Larry Breitfelder yesterday. He’s the president of the Chula Vista Taxpayers Association, and he campaigned strongly against Proposition H, the failed measure that would have modernized Chula Vista’s law on utility taxes to ensure that certain cell phone calls could be taxed.
Breitfelder campaigned against Proposition H because he thought it amounted to an expansion of the existing law and was really a sneaky attempt at a money grab by the city. I asked him if he or anyone he knows has considered bringing a class-action lawsuit against the city or otherwise challenging the city’s collection of these taxes on phone bills.
“I don’t have any sense that anyone in our organization has any inclination to do that,” Breitfelder said.
Breitfelder said most of the members of his organization, while opposed to excessive taxation, understand that the city needs a certain amount of money to keep paying for vital services like public safety. He and his members aren’t just against paying taxes for the sake of it, and they wouldn’t be interested in suing the city, he said.
“We’re not monsters,” he said.
• I also called Dan Mogin, a local attorney who specializes in class action lawsuits. Mogin expressed skepticism that a class action lawsuit against the city would get off the ground. For various, complicated reasons, he said, it’s extremely difficult to launch class action lawsuits to challenge tax measures, especially where there’s not a huge amount of money involved.
“It’s significantly harder and the economics can be daunting,” Mogin said. “If you’re going to do it, generally speaking, litigation economics require that there has to be a tremendous amount of money involved — unless you’re some kind of crusader.”
He added: “To most of us, $6 million is a lot of money, but to fight a class action lawsuit where the maximum amount of money you can receive for the class, if everything goes right, is $6 million, is another issue altogether.”
However, if cell phone customers decided, instead of suing the city for levying the taxes, to bring a class-action lawsuit against the companies that wrongfully collected the tax, that could change the calculations, Mogin said. And it’s possible that, if the customers were successful, the cell phone companies could then turn around and sue the city for their losses.
• So, what about the cell phone companies themselves, could they sue the city?
Here’s a section from my blog post Sunday:
The tax is only charged on certain types of phone calls, and it’s impossible for a cell phone company to know how many of the prepaid minutes it sells to customers are going to be used for the types of calls that are taxable.
So, Sprint Nextel, for example, has to estimate that amount and pay it out of the company’s pocket. The company essentially becomes the proxy taxpayer. So, when it comes to the prepaid portion of cell phone services that are being taxed, the telecommunications companies themselves might want to take action, legal or otherwise, against the city, (Sprint Nextel John) Taylor said.
So the city could, conceivably, be sued by cell phone companies that are taxed on their prepaid “bundled” services they sell in Chula Vista.
But the point is that that doesn’t amount to the full $6 million in revenues the city estimates is threatened. I’ve got a call in to the city to figure out how much of that $6 million comes from taxes on prepaid services, but I haven’t heard back yet.
I’ve asked the city clerk to provide me with any threats, legal or otherwise, that the city’s received about the taxes, and I’ve asked the city attorney to send over any documents that back up the contention that this money’s at risk.
It’s hard to imagine a municipal leader not spending money they have at a time like this without good reason. That’s why we’re even more curious to see those documents.
Please contact Will Carless directly at email@example.com or at 619.550.5670 and follow him on Twitter: twitter.com/willcarless.