In the first appellate decision on Proposition 26, a California court of appeal has upheld a city ordinance authorizing fees to implement annual inspections of all residential rental properties within city limits. The inspection program had been challenged on numerous grounds, including preemption and equal protection. Griffith v. City of Santa Cruz is the first appellate decision analyzing whether a fee is a tax pursuant to Proposition 26.
A City of Santa Cruz ordinance created a Residential and Rental Dwelling Unit Inspection and Maintenance Program to identify substandard and unsafe dwelling units. Under the ordinance, only residential rental dwelling units that are not owner-occupied are subject to annual inspection by city staff or, if the property is well maintained, self-certification by the property owner. Where the tenant or landlord does not consent to access and the inspector has reasonable cause to believe the unit is so hazardous, unsafe or dangerous as to require immediate inspection to safeguard the public health and safety, the inspector may use any reasonable means required to enter and inspect. The ordinance also establishes fees for annual registration, self-certification, inspection, and re-inspection in amounts established by the city council.
The court found that the ordinance did not alter or modify the standards set by state statutes governing building and housing standards and entry to rental property by landlords. The ordinance merely provided a method to enforce statewide standards. The court found that even if the city's inspection checklists had the force of law, there was no preemption problem because the checklists did not conflict with the general law. The court held that laws governing housing and building standards did not preempt the ordinance because the ordinance did not provide for an abatement proceeding. Further, because the ordinance did not require a landlord to enter rented premises without the tenant's consent, it did not alter or conflict with state law governing such entries. Nor did the ordinance conflict with state law governing inspection warrants.
On the equal protection challenge, the court found that the differential treatment under the ordinance—requiring registration and routine inspections of rental units only—met the rational basis test. The city could plausibly have concluded that regularly inspecting every residence would be overly burdensome on both city staff and most homeowners, and that the more efficient way to promptly detect dangerous and unsanitary conditions would be to routinely inspect only the type of residence where the most egregious violations have previously been detected.
Proposition 26, approved by the voters in 2010, amended California Constitution article XIII C by adding section 1(e) to define the term "tax." Section 1(e)(3) provides that a fee is not a tax if it is imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, and the administrative enforcement and adjudication thereof. The court concluded that because the fees associated with the ordinance were imposed to cover the cost of performing inspections, they were expressly exempted from Proposition 26's definition of "tax."
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