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City and County of Honolulu v. State

Supreme Court of Hawaii

December 20, 2018

CITY AND COUNTY OF HONOLULU; COUNTY OF HAWAI'I; COUNTY OF MAUI; COUNTY OF KAUA'I, Petitioners,
v.
STATE OF HAWAI'I; SCOTT T. NAGO, in his capacity as Chief Election Officer, Respondents.

          ORIGINAL PROCEEDING (CIV. NO. 18-1-1326-08)

          Donna Y.L. Leong Robert M. Kohn Nicolette Winter for petitioner City and County of Honolulu

          Brian A. Bilberry for petitioner County of Maui Laureen L. Martin for petitioner County of Hawai‘i

          Matthew M. Bracken For petitioner County of Kaua‘i

          Russell A. Suzuki Valri Lei Kunimoto Patricia Ohara for respondent

          Thomas Yamachika for amicus curiae Tax Foundation of Hawai‘i

          RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

          OPINION

          POLLACK, J.

         The right of the people to shape the way in which they are governed through free and fair elections is the basis of our democratic society. At no time is this dynamic more pronounced than when the public is called upon to approve revisions to the Hawai'i Constitution, the foundational document on which our state government is based. In order for the electorate to effectively exercise this most basic of rights, however, a ballot must be capable of rendering a knowing and deliberate expression of voter choice. Thus, when a constitutional amendment is presented to the electorate for ratification, both our constitution and statutes require that the question posed to voters must be clear and neither misleading nor deceptive. And it is this court's duty to preserve the integrity of the electoral process by invalidating a question that fails to meet this standard.

         In this case, several counties of the State of Hawai'i challenged a ballot question authored by the state legislature that would approve an amendment granting the State the authority to impose a surcharge on investment real property. The challengers argue that the ballot question was unclear and likely to mislead or deceive an average voter. Upon review, this court determined that the ballot question as written did not comply with the requirement that its language and meaning be clear and not misleading. We accordingly declared the ballot question invalid, stating at the time that this opinion would follow. We now elaborate as to our reasoning.

         I. BACKGROUND AND PROCEDURAL HISTORY

         A. Real Property Taxation in Hawai'i

         From the beginning of statehood until 1980, the Hawai'i Constitution fully reserved the taxing power to the State, delegable to the counties at the Hawai'i legislature's sole discretion. County of Kaua'i ex rel. Nakazawa v. Baptiste, 115 Hawai'i 15, 20, 165 P.3d 916, 921 (2007) (quoting Haw. Const, art. VII, § 3 (1968)). As a result, a hybrid system of real property taxation developed within the state. Although the counties were statutorily authorized to set the specific tax rates applicable to land within their borders, the State retained all other relevant responsibilities, including the creation of exemptions, the administrative adjudication of tax appeals, and the actual collection of tax funds. See Stand. Comm. Rep. No. 42 in 1 Proceedings of the Constitutional Convention of Hawai'i of 1978, at 594-95 (1980). After the State was reimbursed for its administrative expenses, all revenues derived from real property taxes were remitted to the counties for their operations. Id. The counties depended heavily on these monetary transfers for their operating income, and by the time of the 1978 Constitutional Convention, the shared responsibility had become a "sore point between counties and the State." 2 Proceedings of the Constitutional Convention of Hawai'i of 1978, at 247 (1980) .

         Prior to the 1978 Convention, county officials began to express frustration that the patchwork of concurrent authority had created confusion and a lack of accountability between the State and counties, with voters unable to determine "what level of government [was] responsible for the real property tax bite." Id.; accord Stand. Comm. Rep. No. 42 in 1 Proceedings of the Constitutional Convention of Hawai'i of 1978, at 594-95. Further, county officials contended that the counties had differing needs and economic bases that were not fully served by state-wide tax policies, and that it was unfair that the counties were tasked with the full management of local affairs but had little control over their primary source of income. See Stand. Comm. Rep. No. 42 in 1 Proceedings of the Constitutional Convention of Hawai'i of 1978, at 595; 2 Proceedings of the Constitutional Convention of Hawai'i of 1978, at 247-48.

         Responding to these concerns, the delegates adopted a proposed amendment to the Hawai'i Constitution granting the counties exclusive authority over all functions related to the taxation of real property.[1] See 1 Proceedings of the Constitutional Convention of Hawai'i of 1978, at 1198 (setting forth Haw. Const, art. VIII, § 3 as amended). A report from the Committee on Local Government indicates the transfer was intended to grant the counties full control over their finances, eliminate public confusion as to which level of government was responsible for real property taxes, further the democratic ideal of home rule, and allow the counties flexibility in addressing their unique local needs. Stand. Comm. Rep. No. 42 in 1 Proceedings of the Constitutional Convention of Hawai'i of 1978, at 595. The amendment was subsequently approved by Hawai'i voters, and article VIII, section 3 of the Hawai'i Constitution now states in full as follows:

The taxing power shall be reserved to the State, except so much thereof as may be delegated by the legislature to the political subdivisions, and except that all functions, powers and duties relating to the taxation of real property shall be exercised exclusively by the counties, with the exception of the county of Kalawao. The legislature shall have the power to apportion state revenues among the several political subdivisions.

(Emphasis added.) Thus, only the counties currently possess the constitutional authority to levy a tax on real property within the State of Hawai'i.

         B. Senate Bill 2922

         On January 24, 2018, Senate Bill 2922 (S.B. 2922) was introduced in the Hawai'i State Senate.[2] S.B. 2922, 29th Leg., Reg. Sess. (2018). In the section of the bill setting forth proposed legislative findings, the bill stated that article X, section 1 of the Hawai'i Constitution requires the State to provide a system of public education.[3] Id. The bill noted that Hawai'i is unique among the United States in that it funds and administers its public school system at the State level rather than assigning the responsibility to its counties or another local political subdivision. Id. Citing a series of government studies that placed Hawai'i among the lowest ranked states in the nation for teacher salary and education expenditures, the bill asserted that the State was consistently failing to appropriate adequate revenue for education from the state general fund, which undermined the State's mission of providing a quality education to all of Hawai'i's children. Id. The bill concluded, "It is necessary to develop a new means of funding Hawaii's public education system to ensure that the State will be able to prepare children to meet the social and economic demands of the twenty-first century."[4] Id.

         To this end, the bill proposed amending the Hawai'i Constitution pursuant to article XVII, section 3 to authorize "the legislature to establish a surcharge on residential investment property" for the purpose of funding public education.[5] Id. Following a series of revisions by both legislative chambers, S.B. 2922 was passed in late April 2018. In its final form, the act proposed two changes to the Hawai'i Constitution.

         First, the act proposed amending article VIII, section 3 as follows:

TAXATION AND FINANCE
Section 3. The taxing power shall be reserved to the State, except so much thereof as may be delegated by the legislature to the political subdivisions, and except that all functions, powers and duties relating to the taxation of real property shall be exercised exclusively by the counties, with the exception of the county of Kalawao [ . ] !_ provided that the legislature may establish, as provided by law, a surcharge on investment real property. The legislature shall have the power to apportion state revenues among the several political subdivisions.

S.B. 2922, S.D.I, H.D.I, 29th Leg., Reg. Sess. (2018) (proposed deletion bracketed and proposed addition underlined). Second, the bill proposed making the following addition to article X, section 1:

PUBLIC EDUCATION
Section 1. The State shall provide for the establishment, support and control of a statewide system of public schools free from sectarian control, a state university, public libraries and such other educational institutions as may be deemed desirable, including physical facilities therefor. There shall be no discrimination in public educational institutions because of race, religion, sex or ancestry; nor shall public funds be appropriated for the support or benefit of any sectarian or nonsectarian private educational institution, except that proceeds of special purpose revenue bonds authorized or issued under section 12 of Article VII may be appropriated to finance or assist:
1. Not-for-profit corporations that provide early childhood education and care facilities serving the general public; and
2. Not-for-profit private nonsectarian and sectarian elementary schools, secondary schools, colleges and universities.
Funding of public education shall be determined by the legislature; provided that revenues derived from a surcharge on investment real property pursuant to section 3 of article VIII shall be used to support public education.

Id. (proposed addition underlined).

         Lastly, the act set forth the ballot question to be posed to the electorate for a vote on ratifying the proposed amendment, as is required for enactment under Hawaii Revised Statutes (HRS) § 11-118.5 (2011)[6] and article XVII, section 3 of the Hawai'i Constitution. See supra note 5. The ballot question stated as follows: "Shall the legislature be authorized to establish, as provided by law, a surcharge on investment real property to be used to support public education?" S.B. 2922, S.D.I, H.D.I.

         C. The Circuit Court Action (Civ. No. 18-1-1326-08)

         On August 22, 2018, the City and County of Honolulu filed suit in the Circuit Court for the First Circuit (circuit court) against the State of Hawai'i and various state election officials in their official capacities.[7] The action sought declaratory and injunctive relief invalidating S.B. 2922 and enjoining the ballot question from being placed on the November 6, 2018 election ballot. In a second amended complaint filed the following week, the Counties of Hawai'i, Maui, and Kaua'i joined the City and County of Honolulu (collectively, the Counties[8]) as additional plaintiffs. Then, on August 31, 2018, the Counties filed a Motion for Preliminary Injunction.[9]

         In support of their motion, the Counties argued in their submissions that the S.B. 2922 ballot question was misleading and deceptive in violation of HRS § 11-118.5.[10] They argued that the ballot question's use of the term "surcharge" did not accurately reflect the substantive nature and effect of the proposed amendment, which would be to alter a constitutional provision entitled "Taxation and Finance" to grant a new taxation power to the state legislature. The ballot question also did not indicate that the proposed amendment would fundamentally change the allocation of authority between the State and counties by making the counties' authority over real property taxation nonexclusive, the Counties continued. The Counties additionally argued that the phrase "investment real property" was vague and overbroad in that virtually any purchase of real property could be characterized as an investment. And the Counties contended that the phrase "as provided by law" was misleading because voters may believe it indicated that the proposed practice was already authorized under current law, and in any event they would not know which law was being referred to as a limitation on the legislature's new taxing power. Lastly, the Counties argued that the phrase "to be used to support public education" was likely to mislead voters to believe funding for public education would necessarily increase if the proposed amendment were enacted, which the amendment did not actually require.[11] A preliminary injunction was appropriate, the Counties concluded, because they were likely to prevail on the merits and the public interest weighed in favor of protecting the integrity of the election.

         In its responsive arguments, the State contended that every enactment of the legislature is presumptively valid and the ballot question clearly reflected the nature and effect of the proposed amendment. "Surcharge" is a well understood term that often appears in statutes, the State argued, and it was properly used in the amendment and ballot question according to its legal definition: "[a]n additional tax, charge, or cost." (Citing Surcharge, Black's Law Dictionary (10th ed. 2014) .) The State further argued that the proposed amendment would not fundamentally change the allocation of power between the State and counties because it would not restrict the counties' power to tax real property; rather, it would simply authorize the legislature to impose a charge in addition to any real property tax imposed by the counties, which the ballot question appropriately reflected. Further, the State argued, the phrase "as provided by law" simply indicated that the provision was not self-executing and would require subsequent legislation to be implemented. And even if the question and amendment were unclear, the State argued, a preliminary injunction would nonetheless be inappropriate because the Counties could avail themselves of judicial remedies to invalidate the ballot question after the election if the measure were to pass, and thus there was no risk of irreparable harm. In contrast, the State concluded, ordering a change to the ballot would risk derailing the general election and would deprive the public of its right to vote on the proposed amendment, and the public interest therefore favored denial of the injunction.

         The State further clarified its position during a September 7, 2018 hearing on the Counties' Motion for Preliminary Injunction. During the hearing, the State maintained that the surcharge contemplated by the proposed amendment was not itself a tax on real property, but rather an independent tax calculated based on the amount of real property tax imposed by the counties. The legislature is authorized to enact such a fee pursuant to its general taxation power under article VII, section 1 of the Hawai'i Constitution, [12] the State argued, and the term "surcharge" distinguishes this extra fee from a direct tax on real property. There was therefore a "clear, rational basis" for using the word "surcharge" instead of tax, the State concluded, making the choice of language neither deceptive nor unclear.

         On September 20, 2018, the circuit court issued its Findings of Fact, Conclusions of Law, and Order Denying Plaintiff Counties' Motion for Preliminary Injunction, Filed on August 31, 2018 (Order Denying Injunction). The court found that the language of the proposed amendment was not deceptive, noting that HRS § 11-118.5 does not require a constitutional amendment to contain a detailed description of all of the issues and possible effects associated with the change. Although the court acknowledged that the proposed language was not as clear as it could have been, the court found that it was clear enough to satisfy HRS § 11-118.5, reasoning that many of the most important constitutional rights are phrased in general or vague terms. The court thus found that the Counties were not likely to prevail on the merits and, in any event, allowing the public to vote on the ballot question would not cause irreparable harm. The court also found that, because the public has both an interest in not ...


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