REDDING – Whether a sales tax by the city to help fund a jail expansion and other county-related services would be considered a gift of public funds depends primarily on whether it would benefit city residents, according to a law professor at the University of California-Davis.
In May, Walt McNeill, a Redding-based attorney, raised a question about the city’s Blueprint for Public Safety, which would impose a half-cent sales tax to pay for, among other things, an expansion of the Shasta County Jail and operating a mental health clinic, claiming it might be challenged as a gift of public funds. Such gifts are barred by the state constitution.
But Darien Shanske, who teaches law and local government at the UC-Davis School of Law, said the provision was mostly meant to stop private businesses from benefiting at the expense of taxpayers.
“Often the common experience was with big industries like railroads in the 19th century that would get governments to buy their stock,” Shanske told the Northern California Record. “They had enormous investment requirements, and the government stood to profit of the railroad succeeded, but of course it was a speculative investment. Lots of governments were convinced to participate with public tax dollars in investing in these large, private infrastructure projects. A lot of times it didn't work, and the public lost money or were left on the hook. That's the classic example of what's supposed to be prevented.”
As time passed, other expenditures were challenged as gifts of public funds, he said, ranging from public assistance to those in poverty to tax breaks and subsidies to attract business investment. While some courts initially agreed that such programs were barred, that is no longer the case, he said.
“Over the 20th century, that became a minority position, and now it's essentially nobody's position,” Shanske explained. “Either state courts changed their minds, or never went down that road. In some cases, like in North Carolina, people were so upset that courts said, 'You can't subsidize local economic development' that they actually amended their constitution.”
Once that became the generally accepted interpretation of the law, courts became far more deferential to public expenditures that benefited private parties, so long as the public benefited as well.
“The government has to reasonably believe that this expenditure is for a public purpose,” he said. “As long as it's a reasonable thing to think, and people now think it reasonable to provide economic incentives, for instance, then it's not going to be considered a gift of public funds.”
Since the city will benefit from the expansion of the jail, as well as from more law enforcement officers and firefighters, Barry DeWalt, Redding’s city attorney, told the council that courts wouldn’t see that as a gift. Shanske agreed and said he knew of relatively few challenges that claim an expenditure is a gift of public funds.
“It's a big world, there are a lot of local governments, but certainly it's not something that's often litigated since it's a fairly deferential standard,” he said. “So unless it was something fairly egregious, like if they were going to give it to a county two counties over or to a private party that wasn't even going to build a factory or do something in the area. I'm sure there are cases out there, but there's nothing I know about in terms of a recent case.”
The question about whether to enact the half-cent tax will appear on the ballot during the November election.