California Fed. Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1 , 283 Cal.Rptr. 569; 812 P.2d 916 (1991)

LexRoll.com > LexRoll (CA) > California Supreme Court > 1991 > California Fed. Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1 , 283 Cal.Rptr. 569; 812 P.2d 916 (1991)

California?Fed.?Savings?&?Loan?Assn.?v.?City?of?Los?Angeles?(1991)?54?Cal.3d?1?,?283?Cal.Rptr.?569;?812?P.2d?916

[No.?S013951.?Jul?29,?1991.]

CALIFORNIA?FEDERAL?SAVINGS?AND?LOAN?ASSOCIATION,?Plaintiff?and?Respondent,?v.?CITY?OF?LOS?ANGELES,?Defendant?and?Appellant.

(Superior?Court?of?Los?Angeles?County,?No.?C579296,?Vernon?G.?Foster,?Judge.)

(Opinion?by?Arabian,?J.,?with?Lucas,?C.?J.,?Broussard,?Panelli,?Kennard?and?Baxter,?JJ.,?concurring.?Mosk,?J.,?concurred?in?the?judgment.)
COUNSEL

James?K.?Hahn,?City?Attorney,?Richard?A.?Dawson,?Assistant?City?Attorney,?and?Myrtle?Dankers,?Deputy?City?Attorney,?for?Defendant?and?Appellant.

Louise?H.?Renne,?City?Attorney?(San?Francisco),?John?J.?Doherty?and?Thomas?J.?Owens,?Deputy?City?Attorneys,?Joan?R.?Gallo,?City?Attorney?(San?Jose),?Michael?F.?Dean,?City?Attorney?(Roseville),?Jack?L.?White,?City?Attorney?(Anaheim),?and?William?C.?Marsh,?City?Attorney?(Monterey),?as?Amici?Curiae?on?behalf?of?Defendant?and?Appellant.

Martin?S.?Schwartz,?McKenna,?Conner?&?Cuneo,?McKenna?&?Fitting,?Aaron?M.?Peck,?Michael?T.?Lambert?and?Theresa?A.?Kristovich?for?Plaintiff?and?Respondent.

Christopher?Chenoweth,?Philip?M.?Plant,?Ronald?A.?Zumbrun,?Anthony?T.?Caso?and?Jonathan?M.?Coupal?as?Amici?Curiae?on?behalf?of?Plaintiff?and?Respondent.
OPINION

ARABIAN,?J.

Since?the?addition?of?the?”home?rule”?provision?to?our?Constitution?in?1896,?the?organic?law?of?California?has?granted?charter?cities?[54?Cal.3d?6]?sovereignty?over?”municipal?affairs.”?Although?this?court?and?the?Court?of?Appeal?have?parsed?that?cryptic?phrase?in?literally?scores?of?cases?in?the?95?years?since?the?adoption?of?what?is?now?article?XI,?section?5,?subdivision?(a)?of?the?Constitution,?what?an?early?member?of?this?court?called?those?”wild?words”?have?defeated?efforts?at?a?defining?formulation?of?the?content?of?”municipal?affairs.”?We?granted?review?in?this?case?to?decipher?the?”municipal?affairs”?clause?as?it?governs?conflicting?claims?of?the?Legislature?and?a?charter?city?to?levy?taxes?on?financial?corporations.

  1. Introduction

The?City?of?Los?Angeles?(City)?imposes?an?annual?license?tax?on?most?businesses?within?its?municipal?boundaries.?It?sought?to?collect?the?tax?from?California?Federal?Savings?and?Loan?Association,?petitioner?here,?for?the?1982?through?1984?tax?years?despite?the?Legislature’s?1979?amendment?of?Revenue?and?Taxation?Code?section?23182,?which?declared?that?a?state?income?tax?on?financial?corporations?such?as?petitioner?was?in?lieu?of?all?other?taxes?and?licenses,?including?charter?city?business?license?taxes.

Petitioner?paid?the?business?license?tax?under?protest?and?filed?this?refund?action?in?the?superior?court,?claiming?that?the?state?statute,?as?amended,?nullified?the?City’s?power?to?levy?the?business?license?tax?upon?it.?The?City?defended?on?the?ground?that?its?tax?was?a?local?revenue?measure?to?raise?funds?for?local?expenditure?and?that?as?such?it?qualified?as?a?”municipal?affair”?immune?from?state?legislative?interference?by?virtue?of?article?XI,?section?5,?subdivision?(a)?of?the?Constitution?(hereafter?article?XI,?section?5(a)).fn.?1?Following?a?bench?trial,?the?superior?court?ruled?for?petitioner,?holding?that?the?taxation?of?financial?corporations?is?a?subject?of?”statewide?concern”?rather?than?a?”municipal?affair”?and?that?the?record?before?it?supported?findings?of?the?Legislature?to?that?effect.

The?Court?of?Appeal?disagreed.?Reversing?the?trial?court,?it?concluded?that?unlike?regulatory?matters,?where?state?laws?addressing?subjects?of?statewide?concern?prevail?over?conflicting?charter?city?enactments,?our?decisions?presented?a?distinct?line?of?authority?that?charter?city?tax?measures?are?inflexibly?”municipal?affairs”?and?thus?invariably?are?immune?from?state?legislative?supremacy.?[54?Cal.3d?7]

We?reverse.?Although?municipal?taxation?is?a?”municipal?affair”?within?the?meaning?of?article?XI,?section?5(a),?in?that?it?is?a?necessary?and?appropriate?power?of?municipal?government,?aspects?of?local?taxation?may?under?some?circumstances?acquire?a?”supramunicipal”?dimension,?transforming?an?otherwise?intramural?affair?into?a?matter?of?statewide?concern?warranting?legislative?attention.?In?short,?our?cases?do?not?support?the?distinction?drawn?by?the?Court?of?Appeal;?charter?city?tax?measures?are?subject?to?the?same?legal?analysis?and?accumulated?body?of?decisional?law?under?article?XI,?section?5(a),?as?charter?city?regulatory?measures.?In?the?event?of?a?true?conflict?between?a?state?statute?reasonably?tailored?to?the?resolution?of?a?subject?of?statewide?concern?and?a?charter?city?tax?measure,?the?latter?ceases?to?be?a?”municipal?affair”?to?the?extent?of?the?conflict?and?must?yield.?In?addition,?we?hold?that?under?the?circumstances?of?this?case?the?trial?court?correctly?concluded?that?the?aggregate?intrastate?tax?burden?on?financial?corporations-including?local?taxes?such?as?the?City’s?business?license?tax-is?a?subject?of?statewide?concern.

The?path?to?these?conclusions?requires?our?review?of?the?recent?history?of?California’s?differing?tax?treatment?of?commercial?banks?and?savings?banks?such?as?petitioner?as?well?as?the?development?of?the?”municipal?affairs”?doctrine?in?this?state.fn.?2

  1. The?Regulatory?Setting

 
A.

In?the?idiom?of?banking?law,?petitioner?is?a?”HOLA”?institution,?meaning?it?holds?a?charter?granted?by?the?Federal?Home?Loan?Bank?Board?under?the?federal?Home?Owners’?Loan?Act?of?1933?(12?U.S.C.???1461?et?seq.).?Although?headquartered?in?Los?Angeles,?petitioner?maintains?135?branch?offices?throughout?the?state?as?well?as?a?smaller?number?of?full?service?branches?in?Nevada,?Florida,?and?Georgia.?Together?with?other?commercial?and?savings?banks,?petitioner?participates?in?a?network?that?operates?several?thousand?automatic?teller?machines?across?North?America.?Many?of?petitioner’s?borrowers?and?depositors?reside?outside?of?both?Los?Angeles?and?California.?Much?of?the?real?property?securing?loans?made?by?petitioner?lies?outside?of?Los?Angeles,?and?some?lies?outside?of?the?state.?[54?Cal.3d?8]

California-chartered?counterparts?to?federal?HOLA?institutions?such?as?petitioner?are?known?as?”Division?Two”?institutions,?a?term?derived?from?the?regulatory?locus?of?state?savings?banks?in?division?2?of?the?California?Financial?Code.?In?statutory?origin,?state?and?federally?chartered?savings?banks?are?distinct?from?the?two?major?types?of?commercial?banks?operating?in?California:?national?banks?established?under?the?federal?National?Bank?Act?(12?U.S.C.???21?et?seq.),?and?state?commercial?banks?chartered?and?regulated?under?division?1?of?the?California?Financial?Code.

For?over?60?years,?both?state?and?federally?chartered?commercial?banks?operating?in?California?have?been?subject?to?a?single?state?tax?levied?on?their?net?income?and?imposed?in?lieu?of?all?other?taxes,?whether?state,?county,?or?municipal.?The?Legislature’s?exclusive?power?to?tax?commercial?banks?is?conferred?by?article?XIII,?section?27,?of?our?Constitution,?a?provision?first?adopted?by?the?voters?in?1928?following?a?series?of?decisions?by?the?United?States?Supreme?Court?requiring?in?effect?a?single?state?tax?on?national?banks?in?lieu?of?all?other?state?taxes?and?one?no?higher?than?the?highest?tax?rate?levied?on?nonfinancial?corporations.fn.?3

Although?not?included?within?the?class?of?banks?subject?to?the?exclusive?state?tax?required?by?article?XIII,?section?27?of?the?Constitution,?state?and?federal?savings?banks?also?became?indirectly?entitled?in?1928?to?substantially?equivalent?tax?treatment?through?a?so-called?”offset”?system?effected?by?statute.?Under?the?offset?system,?both?state?and?federal?savings?banks?could?claim?a?credit?against?their?net?state?tax?liability?for?taxes?paid?to?municipalities.?In?effect,?the?offset?system?promoted?a?rough?albeit?indirect?equality?between?the?aggregate?California?tax?burden?on?commercial?banks-whether?state?or?federal-and?on?their?state?and?federal?savings?bank?counterparts.fn.?4?[54?Cal.3d?9]

The?offset?arrangement?continued?in?effect?until?1979.?In?that?year,?the?Legislature?passed?Assembly?Bill?No.?66?(1979-1980?Reg.?Sess.;?enacted?as?Stats.?1979,?ch.?1150),?an?omnibus?tax?measure?that?included?the?statute?at?issue?in?this?case.?[1]?(See?fn.?6.)?Section?14?of?Assembly?Bill?No.?66,?set?out?in?the?margin,fn.?5?amended?Revenue?and?Taxation?Code?section?23182?(further?unspecified?statutory?references?are?to?this?code)?to?abolish?the?offset?system?by?declaring?that?the?in?lieu?feature?of?the?net?income?tax,?formerly?applicable?only?to?commercial?banks,?extended?to?financial?corporations.fn.?6?Effective?January?1,?1981,?except?for?taxes?on?their?real?property?and?miscellaneous?imposts,?section?23182?subjected?both?commercial?and?savings?banks-whether?national?banks?or?federal?HOLA?savings?banks,?state?division?1?commercial?banks?or?division?2?savings?banks-to?a?single?state-imposed?net?income?tax?and?to?no?others.?At?the?same?time?that?it?placed?commercial?and?savings?banks?under?a?unitary?income?tax?regime,?the?Legislature?moved?to?mitigate?the?anticipated?revenue?loss?to?local?governments?resulting?from?the?elimination?of?municipal?taxes?on?financial?corporations.fn.?7?[54?Cal.3d?10]

The?net?effect?of?the?1979?amendment?to?section?23182?was?to?place?savings?banks?and?other?financial?corporations?on?an?equal?footing?with?commercial?banks?as?far?as?their?California?income?tax?burden?was?concerned?by,?among?other?changes?in?tax?treatment,?eliminating?municipal?taxes?on?their?activities.?As?part?of?Assembly?Bill?No.?66,?the?Legislature?made?the?express?findings?in?support?of?the?amendment?to?section?23182?set?out?in?the?margin.fn.?8?In?brief,?the?Legislature?explained?that?the?amendment?sought?to?”insur[e]?competitive?parity?between?banks?and?financial?corporations”?by?imposing?on?both?”an?equivalent?tax?burden.”?Tax?equality,?it?went?on?to?find,?would?promote?the?continued?existence?of?both?types?of?institutions?as?well?as?ensure?that?the?tax?burden?on?both?remained?comparable?to?that?on?nonfinancial?corporations.?In?addition,?the?legislative?findings?in?support?of?the?amendment?asserted?that?local?taxes?on?financial?corporations?were?”divergent?and?competing”?and?”impair[ed]?the?uniform?statewide?regulation?of?banks?and?financial?corporations.”?For?these?reasons,?the?Legislature?declared,?it?had?”preempted”?the?local?taxation?of?financial?corporations?”to?the?same?extent?as?the?state?has?heretofore?preempted?local?taxation?of?banks.”?(Stats.?1979,?ch.?1150,???20,?p.?4220.)fn.?9?[54?Cal.3d?11] B.

Los?Angeles?is?a?charter?city?within?the?meaning?of?article?XI,?section?5,?of?the?California?Constitution.?For?more?than?40?years?the?City?has?assessed?the?annual?business?license?tax?under?the?provisions?of?its?municipal?code?on?financial?corporations?(L.A.?Mun.?Code,???21.00?et?seq.),?including?savings?banks?such?as?petitioner.?The?tax?is?a?gross?receipts?tax?calculated?as?a?percentage?of?the?total?dollar?value?of?the?taxpayer’s?entire?annual?business?activity,?payable?even?in?the?absence?of?net?income?to?the?taxpayer?in?a?given?tax?year.?Evidence?before?the?trial?court?disclosed?that?for?the?1985-1986?budget?year,?City?revenues?derived?from?the?business?license?tax?amounted?to?$186?million,?or?just?under?9?percent?of?the?City’s?$2.1?billion?in?total?revenues.?Of?this?sum,?less?than?10?percent?or?approximately?$17?million?in?revenues?was?derived?from?business?license?taxes?paid?by?savings?banks?and?other?financial?corporations,?a?figure?amounting?to?roughly?0.8?percent?of?the?City’s?total?1985-1986?budget.

Following?enactment?of?Assembly?Bill?No.?66,?the?City?did?not?attempt?to?collect?the?business?license?tax?from?financial?corporations?within?its?jurisdiction?for?the?1981?tax?year.?But?beginning?with?the?1982?tax?year,?after?the?Legislature?failed?to?renew?the?FALA?allocation?established?by?Assembly?Bill?No.?66,?the?City?again?assessed?the?tax?against?petitioner.?As?we?have?noted,?petitioner?paid?the?taxes?due?under?protest,?brought?this?suit?seeking?a?refund,?and?prevailed?in?the?trial?court?before?that?judgment?was?reversed?by?the?Court?of?Appeal.
III.?”Municipal?Affairs”?and?the?Amendment?of?1896

 
A.

The?fulcrum?of?the?Court?of?Appeal’s?opinion?reversing?the?trial?court’s?judgment?was?Ex?Parte?Braun?(1903)?141?Cal.?204?[74?P.?780],?one?of?the?early?decisions?of?this?court?interpreting?the?”municipal?affairs”?clause?following?its?adoption?by?the?voters?in?the?election?of?1896.?In?Braun,?we?considered?a?City?ordinance?imposing?a?license?tax?on?a?variety?of?occupations?solely?for?revenue?purposes.?Braun,?a?wholesale?liquor?dealer?subject?to?the?tax,?resisted?paying?it?on?the?ground?that?the?Legislature?had?forbidden?the?City?to?license?occupations?for?revenue?purposes?by?enacting?a?statute?declaring?that?municipalities?could?impose?license?taxes?for?regulatory?purposes?only.?Braun?was?prosecuted?by?the?City?and?convicted?of?failing?to?pay?the?tax;?he?sought?habeas?corpus?relief?before?this?court.

[2]?We?upheld?the?tax?against?Braun’s?claim?that?the?Legislature?could?determine?by?general?laws?the?tax?policies?of?charter?cities,?ruling?that?the?[54?Cal.3d?12]?recently?adopted?home?rule?provision?was?intended?to?secure?to?such?cities?”the?maintenance?of?…?charter?provisions?in?municipal?matters,?and?to?deprive?the?legislature?of?the?power?…?to?interfere?in?the?government?and?management?of?the?municipality.”?(Ex?Parte?Braun,?supra,?141?Cal.?at?p.?209.)?We?reasoned?that?”the?power?of?taxation?is?a?power?appropriate?for?a?municipality?to?possess”;?that?that?proposition?was?”too?obvious?to?merit?discussion”;?and?that?the?use?of?licensing?statutes?as?revenue?measures?was?”a?well-recognized?exercise?of?the?taxing?power.”?(Ibid.)?Braun’s?effort?to?avoid?paying?a?municipal?tax?on?the?ground?that?the?Legislature?had?forbidden?a?charter?city?to?levy?it?thus?failed.

After?almost?a?century?of?litigation?inspired?by?the?uncertain?meaning?of?”municipal?affairs,”?we?see?no?reason?to?question?the?soundness?of?Ex?Parte?Braun?or?to?depart?from?its?holding.?The?opinion?remains?a?germinal?gloss?on?the?home?rule?provision?of?article?XI,?section?5(a),?and?one?vital?meaning?of?the?doctrine?it?embodies-a?recognition?of?the?affirmative?constitutional?grant?to?charter?cities?of?”all?powers?appropriate?for?a?municipality?to?possess?…”?and?of?the?important?corollary?that?”so?far?as?’municipal?affairs’?are?concerned,”?charter?cities?are?”supreme?and?beyond?the?reach?of?legislative?enactment.”?(141?Cal.?at?p.?207.)

We?had?no?occasion?in?Ex?Parte?Braun,?however,?to?deal?with?a?correlative?dimension?of?the?”municipal?affairs”?doctrine,?namely?those?conditions?under?which?the?obverse?proposition?applies?and?the?Legislature?constitutionally?may?supplant?charter?city?measures?with?its?own?enactments.?No?argument?was?made?in?Braun,?for?example,?that?the?state?statute?purporting?to?dictate?charter?city?tax?policy?was?driven?by?a?widespread?fiscal?crisis?across?the?state,?or?provoked?by?some?other?broad?controversy?of?the?day?making?municipal?tax?policy?an?overarching?issue,?or?by?any?other?extramunicipal?concern?sufficient?to?compel?legislative?action?or?make?its?exercise?appropriate.

Rather,?as?our?opinion?in?Ex?Parte?Braun?noted,?the?effect?of?the?city’s?revenue?measure?was?entirely?local,?”confined?in?operation?to?the?city?of?Los?Angeles,?and?affect[ing]?none?but?its?citizens?and?taxpayers?and?those?doing?business?within?its?limits.”?(141?Cal.?at?p.?210.)?Nor?is?there?any?suggestion?that?Braun?offered?a?defense?to?his?prosecution?based?on?the?claim?that?the?state?statute?was?prompted?by?anything?more?than?an?anchorless?legislative?desire?to?continue?to?assert?plenary?control?over?municipal?governments,?including?charter?cities.fn.?10?Our?opinion?rejected?the?state’s?attempt?as?a?[54?Cal.3d?13]?groundless?invasion?of?a?core?area?of?municipal?concern-the?power?to?tax?in?support?of?local?government-prohibited?by?the?home?rule?provision.?Seminal?as?the?Braun?opinion?was?to?the?evolution?of?the?”municipal?affairs”?doctrine?in?California,?it?necessarily?represents?an?incomplete?analysis,?standing?for?nothing?so?much?as?the?now?unexceptional?proposition?that?levying?taxes?to?support?local?expenditures?qualifies?as?a?”municipal?affair”?within?the?meaning?of?the?home?rule?provision?of?our?Constitution.

In?short,?Ex?Parte?Braun,?supra,?141?Cal.?204,?illustrates?only?one?side?of?the?coin?of?home?rule.?The?clause?affirmatively?grants?charter?cities?sovereignty?over?those?matters?deemed?to?be?”municipal?affairs,”?but?it?also?implicitly?recognizes?state?legislative?supremacy?over?matters?not?within?the?ambit?of?that?phrase.?Although?we?held?in?Braun?that?the?power?to?levy?local?taxes?in?support?of?local?expenditures?is?an?essential?function?of?municipal?government,?secure?against?legislative?usurpation,?we?did?not?address?directly?this?countervailing?dimension.?It?is?one?thing?to?identify?local?taxation?as?an?affirmative?power?of?local?government,?as?we?did?in?Braun,?and?therefore?a?”municipal?affair.”?It?is?a?quite?different?undertaking?to?formulate?the?criteria?by?which?the?choice?is?made?between?conflicting?state?and?municipal?enactments?when?both?stem?from?concerns?rooted?in?their?respective?spheres?of?government.

Subsequent?cases?rounded?out?the?”municipal?affairs”?doctrine?by?taking?up?the?larger?theme?of?the?limits?on?a?charter?city’s?sovereignty?when?aspects?of?its?activities?interfere?with?interests?which?transcend?the?municipality.?In?the?main,?our?later?decisions?reject?a?static?and?compartmentalized?description?of?”municipal?affairs”?in?favor?of?a?more?dialectical?one.?Out?of?these?cases?emerges?the?counterpoint?of?”statewide?concern”?as?a?conceptual?limitation?on?the?scope?of?”municipal?affairs”?and?thus?on?the?supremacy?of?charter?city?measures?over?conflicting?legislative?enactments.

The?Court?of?Appeal?in?this?case?purported?to?distinguish?these?later?”statewide?concern”?cases?on?the?ground?that?they?dealt?exclusively?with?charter?city?regulatory,?rather?than?taxation,?measures.?That?distinction,fn.?11?together?with?the?companion?conclusion?that?our?opinion?in?Ex?Parte?Braun?[54?Cal.3d?14]?made?charter?city?powers?of?taxation?forever?sacrosanct,?led?the?Court?of?Appeal?to?fracture?the?doctrine?of?”municipal?affairs”?and?the?case?law?supporting?it?into?two?halves,?”each?with?uncompromising?language?and?holdings,”?as?the?opinion?put?it.?It?declined?altogether?to?apply?the?concept?of?statewide?concern?as?a?limitation?on?the?power?of?the?City?to?levy?its?business?license?tax?against?petitioner;?in?a?case?such?as?this?presenting?a?taxation?rather?than?a?regulatory?measure,?limits?derived?from?that?notion?were?deemed?”irrelevant.”

As?our?exposition?of?the?Ex?Parte?Braun?holding?suggests,?however,?the?duality?perceived?in?our?opinions?by?the?Court?of?Appeal?is?illusory;?Ex?Parte?Braun,?supra,?141?Cal.?204,?does?not?reject?the?statewide?concern?analysis?as?irrelevant?to?”municipal?affairs”?cases?presenting?local?taxation?issues.?It?simply?predates?the?development?of?that?branch?of?the?doctrine;?more?importantly,?Braun?dealt?with?a?statute?which,?as?we?have?discussed,?sprang?from?an?attempt?to?decree?the?essentials?of?municipal?tax?policy?rather?than?to?further?an?identifiable?interest?of?extramural?dimension.

Nor?is?the?post-Braun?authority?invoked?by?the?Court?of?Appeal?supportive.?None?of?the?half?dozen?of?our?decisions?relied?on?to?shore?up?the?conclusion?that?Ex?Parte?Braun?holds?immutable?the?power?of?charter?cities?to?levy?taxes?considers?the?question?at?issue?in?this?case-whether?a?charter?city?tax?measure?continues?to?qualify?as?a?”municipal?affair”?to?the?extent?that?it?conflicts?with?a?statute?addressing?a?subject?of?statewide?dimension.fn.?12?[54?Cal.3d?15] [3]?Moreover,?we?find?no?reason?in?any?policy?underlying?the?municipal?home?rule?provision?why?the?subject?of?charter?city?taxation?should?merit?treatment?different?from?charter?city?regulatory?measures.?It?is?true,?as?we?pointed?out?in?Ex?Parte?Braun,?supra,?141?Cal.?204,?that?the?power?to?govern-whether?local?or?state-means?little?without?the?coordinate?power?to?tax,?so?integral?is?finance?to?government.?But?that?is?only?a?truism.?It?fails?to?explain?why,?among?all?other?municipal?powers,?the?power?to?tax?should?be?singled?out?as?specially?protectible,?as?uniquely?unyielding?to?transcendent?interests.?The?answer?cannot?be?that?the?Legislature’s?power?to?deprive?a?charter?city?of?its?authority?to?levy?taxes?is?the?power?to?cripple?or?destroy?it,?at?least,?to?borrow?Justice?Holmes’s?phrase,?”while?this?Court?sits.”?(Panhandle?Oil?Co.?v.?Knox?(1928)?277?U.S.?218,?223?[72?L.Ed.?857,?859,?48?S.Ct.?451,?56?A.L.R.?583].)?Our?charge?under?the?Constitution?to?adjudicate?such?disputes?confers?ample?power?to?preserve?the?core?meaning?of?municipal?home?rule?against?legislative?inroads.

Thus?the?problem?set?for?us?by?this?case?is?not?the?one?we?faced?in?Ex?Parte?Braun?of?identifying?the?essentials?of?”municipal?affairs.”?Instead,?it?is?that?of?adjusting?the?conflict?between?the?effects?of?the?City’s?business?license?tax?and?the?Legislature’s?asserted?interest?in?the?uniform?taxation?of?commercial?banks?and?financial?corporations,?including?savings?banks?such?as?petitioner.?That,?rather?than?the?question?whether?the?City’s?status?as?a?charter?city?encompasses?the?power?to?levy?local?taxes?in?support?of?its?expenditures,?is?the?real?issue?before?us.
B.

Concurring?in?the?majority?opinion?in?Ex?Parte?Braun,?Justice?McFarland?wrote?that?the?Constitution?”uses?the?loose,?indefinable,?wild?words?’municipal?affairs,’?and?imposes?upon?the?courts?the?almost?impossible?duty?of?[54?Cal.3d?16]?saying?what?they?mean.”?(141?Cal.?at?p.?214.)?He?predicted-with?foresight-that?this?court?”probably?will?not?undertake?to?give?a?general?definition?of?the?words,?so?as?to?bring?all?future?cases?within?the?two?categories?of?what?is?and?what?is?not?a?municipal?affair.?A?few?cases?…?have?arisen,?and?in?each?of?such?cases?the?court?has?merely?determined?…?whether?the?thing?there?involved?was?or?was?not?within?the?indeterminate?constitutional?words.”?(Ibid.)

[4]?The?idea?that?the?content?of?”municipal?affairs”?is?indefinite?in?its?essentials?is?one?that?has?taken?root?in?our?cases?on?the?subject.?We?have?said?that?the?task?of?determining?whether?a?given?activity?is?a?”municipal?affair”?or?one?of?statewide?concern?is?an?ad?hoc?inquiry;?that?”the?constitutional?concept?of?municipal?affairs?is?not?a?fixed?or?static?quantity”?(Pac.?Tel.?&?Tel.?Co.?v.?City?and?County?of?S.?F.?(1959)?51?Cal.2d?766,?771?[336?P.2d?514]);?and?that?the?question?”must?be?answered?in?light?of?the?facts?and?circumstances?surrounding?each?case”?(In?re?Hubbard?(1964)?62?Cal.2d?119,?128?[41?Cal.Rptr.?393,?396?P.2d?809]).?”No?exact?definition?of?the?term?’municipal?affairs’?can?be?formulated?and?the?courts?have?made?no?attempt?to?do?so,?but?instead?have?indicated?that?judicial?interpretation?is?necessary?to?give?it?meaning?in?each?controverted?case.”?(Butterworth?v.?Boyd?(1938)?12?Cal.2d?140,?147?[82?P.2d?434,?126?A.L.R.?838].)?But?our?decisions?have?also?strived?to?confine?the?element?of?judicial?interpretation?by?hedging?it?with?a?decisional?procedure?intended?to?bring?a?measure?of?certainty?to?the?process,?narrowing?the?scope?within?which?a?sometimes?mercurial?discretion?operates.

In?broad?outline,?a?court?asked?to?resolve?a?putative?conflict?between?a?state?statute?and?a?charter?city?measure?initially?must?satisfy?itself?that?the?case?presents?an?actual?conflict?between?the?two.?If?it?does?not,?a?choice?between?the?conclusions?”municipal?affair”?and?”statewide?concern”?is?not?required.?Our?decisions?in?Bishop?v.?City?of?San?Jose?(1969)?1?Cal.3d?56,?63-64?[81?Cal.Rptr.?465,?460?P.2d?137],?upholding?a?charter?city’s?wage?scale?on?the?ground?that?the?Legislature?did?not?intend?to?subject?it?to?the?prevailing?wage?provisions?of?the?Labor?Code,?and?Weekes?v.?City?of?Oakland,?supra,?21?Cal.3d?386,?upholding?a?”license?fee”?on?all?persons?employed?in?a?charter?city?on?the?ground?that?it?was?not?an?income?tax?prohibited?by?state?law,?are?examples?of?cases-important?perhaps?more?for?their?influential?obiter?than?for?their?holdings-in?which?we?found?no?real?conflict.?And?as?the?summary?of?the?cases?relied?on?by?the?Court?of?Appeal?in?this?case,?ante,?at?footnote?12,?illustrates,?many?opinions?purportedly?involving?competing?state?and?local?enactments?do?not?present?a?genuine?conflict.?To?the?extent?difficult?choices?between?competing?claims?of?municipal?and?state?governments?can?be?forestalled?in?this?sensitive?area?of?[54?Cal.3d?17]?constitutional?law,?they?ought?to?be;?courts?can?avoid?making?such?unnecessary?choices?by?carefully?insuring?that?the?purported?conflict?is?in?fact?a?genuine?one,?unresolvable?short?of?choosing?between?one?enactment?and?the?other.

In?those?cases?where?the?preliminary?conditions?are?satisfied,?that?is,?where?the?matter?implicates?a?”municipal?affair”?and?poses?a?genuine?conflict?with?state?law,?the?question?of?statewide?concern?is?the?bedrock?inquiry?through?which?the?conflict?between?state?and?local?interests?is?adjusted.?If?the?subject?of?the?statute?fails?to?qualify?as?one?of?statewide?concern,?then?the?conflicting?charter?city?measure?is?a?”municipal?affair”?and?”beyond?the?reach?of?legislative?enactment.”?Ex?Parte?Braun,?supra,?141?Cal.?204,?itself?is?the?paradigm?of?a?legislative?effort?to?prescribe?a?core?municipal?activity-local?taxation-without?support?originating?in?identifiable?statewide?concerns.?If,?however,?the?court?is?persuaded?that?the?subject?of?the?state?statute?is?one?of?statewide?concern?and?that?the?statute?is?reasonably?related?to?its?resolution,?then?the?conflicting?charter?city?measure?ceases?to?be?a?”municipal?affair”?pro?tanto?and?the?Legislature?is?not?prohibited?by?article?XI,?section?5(a),?from?addressing?the?statewide?dimension?by?its?own?tailored?enactments.

[5]?The?phrase?”statewide?concern”?is?thus?nothing?more?than?a?conceptual?formula?employed?in?aid?of?the?judicial?mediation?of?jurisdictional?disputes?between?charter?cities?and?the?Legislature,?one?that?facially?discloses?a?focus?on?extramunicipal?concerns?as?the?starting?point?for?analysis.?By?requiring,?as?a?condition?of?state?legislative?supremacy,?a?dimension?demonstrably?transcending?identifiable?municipal?interests,?the?phrase?resists?the?invasion?of?areas?which?are?of?intramural?concern?only,?preserving?core?values?of?charter?city?government.?As?applied?to?state?and?charter?city?enactments?in?actual?conflict,?”municipal?affair”?and?”statewide?concern”?represent,?Janus-like,?ultimate?legal?conclusions?rather?than?factual?descriptions.?Their?inherent?ambiguity?masks?the?difficult?but?inescapable?duty?of?the?court?to,?in?the?words?of?one?authoritative?commentator,?”allocate?the?governmental?powers?under?consideration?in?the?most?sensible?and?appropriate?fashion?as?between?local?and?state?legislative?bodies.”?(Van?Alstyne,?Background?Study?Relating?to?Article?XI,?Local?Government,?Cal.?Const.?Revision?Com.,?Proposed?Revision?(1966)?p.?239.)

In?performing?that?constitutional?task,?courts?should?avoid?the?error?of?”compartmentalization,”?that?is,?of?cordoning?off?an?entire?area?of?governmental?activity?as?either?a?”municipal?affair”?or?one?of?statewide?concern.?Beginning?with?the?observation?in?Pac.?Tel.?&?Tel.?Co.?v.?City?and?County?of?S.?F.,?supra,?51?Cal.2d?at?page?771,?that?”the?constitutional?concept?of?[54?Cal.3d?18]?municipal?affairs?is?not?a?fixed?or?static?quantity?…?[but?one?that]?changes?with?the?changing?conditions?upon?which?it?is?to?operate,”?our?cases?display?a?growing?recognition?that?”home?rule”?is?a?means?of?adjusting?the?political?relationship?between?state?and?local?governments?in?discrete?areas?of?conflict.?When?a?court?invalidates?a?charter?city?measure?in?favor?of?a?conflicting?state?statute,?the?result?does?not?necessarily?rest?on?the?conclusion?that?the?subject?matter?of?the?former?is?not?appropriate?for?municipal?regulation.?It?means,?rather,?that?under?the?historical?circumstances?presented,?the?state?has?a?more?substantial?interest?in?the?subject?than?the?charter?city.

A?corollary?of?that?proposition?is?that?every?decision?sustaining?a?state?statute?over?a?charter?city?measure?does?not?mean?that?if?the?former?were?repealed,?charter?cities?would?remain?incompetent?to?legislate?in?the?area.?Nor?does?a?decision?favoring?a?charter?city?measure?preclude?superseding?state?legislation?in?a?later?case?if?the?fact-bound?justification-the?statewide?dimension-is?subsequently?demonstrated.?To?approach?the?dichotomy?of?”municipal?affairs/statewide?concern”?as?one?signifying?reciprocally?exclusive?and?compartmented?domains?would,?as?one?commentator?has?observed,?”ultimately?all?but?destroy?municipal?home?rule.”fn.?13

[6]?In?cases?presenting?a?true?conflict?between?a?charter?city?measure-whether?tax?or?regulatory-and?a?state?statute,?therefore,?the?hinge?of?the?decision?is?the?identification?of?a?convincing?basis?for?legislative?action?originating?in?extramunicipal?concerns,?one?justifying?legislative?supersession?based?on?sensible,?pragmatic?considerations.?We?must?decide?whether?those?criteria?were?met?in?this?case;?that?is,?whether?the?showing?before?the?superior?court?supports?the?Legislature’s?finding?of?a?need?for?paramount?state?control?over?the?aggregate?income?tax?burden?on?financial?corporations?such?as?petitioner.

  1. Resolving?the?Issue?in?This?Case

 
A.

As?suggested?near?the?outset?of?this?opinion,?ante,?at?page?8,?legislative?efforts?to?achieve?”tax?rate?parity,”?between?federal?and?state?commercial?banks,?between?commercial?banks?and?financial?corporations?(including?savings?banks),?and?between?banks?and?financial?corporations?and?nonfinancial?corporations,?have?been?a?theme?of?California?corporate?tax?law?for?over?[54?Cal.3d?19]?60?years.?The?genesis?of?those?efforts?was?a?series?of?federal?high?court?decisions?in?the?1920’s,?interpreting?the?National?Bank?Act,?which?threatened?to?nullify?entirely?state?taxation?of?national?banks?on?federal?supremacy?grounds.fn.?14

[7]?In?California,?these?decisions?culminated?in?the?addition?to?the?Constitution?of?article?XIII,?section?27,?as?the?means?of?achieving?the?federally?required?tax?equality?between?state?and?federally?chartered?commercial?banks?and?nonfinancial?corporations-a?condition?for?any?state?taxation?at?all?of?national?banks.?The?statutory?scheme?implementing?the?constitutional?provision?sought?to?achieve?tax?parity?between?these?three?kinds?of?corporations,?and?provided?for?an?exclusive?net?income?tax?on?commercial?banks,?in?lieu?of?all?municipal?income?taxes.fn.?15?As?a?matter?of?historical?fact,?then,?since?1928?the?taxation?of?commercial?banks?has?been-de?jure-exclusively?a?topic?of?statewide?concern,?albeit?one?imposed?externally?by?requirements?of?federal-?state?relations?bottomed?on?the?supremacy?clause?of?the?federal?Constitution.

Contemporaneously?with?the?imposition?of?the?exclusive?”bank?tax?in?lieu?shield,”?as?it?is?sometimes?called,?of?section?23182,?savings?banks?were?accorded?indirect?tax?parity?with?commercial?banks?by?means?of?the?statutory?offset?system?of?tax?credits?described?above.?(Ante,?at?p.?8.)?Whether?the?existence?of?the?offset?credit?beginning?in?1928?supports?the?cognate?conclusion?that?the?taxation?of?savings?banks?has?likewise?had?a?statewide?dimension?since?that?time?is?a?question?we?need?not?decide.?For?the?historical?[54?Cal.3d?20]?thread?of?”tax?rate?parity”?surfacing?in?the?1920’s?intersects?with?economic?and?regulatory?forces?affecting?state?and?federal?savings?banks?loosed?in?the?1970’s.?It?is?the?existence?of?these?forces,?of?even?greater?contemporary?urgency,?that?underlie?and?sustain?the?Legislature’s?decision?to?widen?the?bank?tax?in?lieu?shield?to?encompass?financial?corporations?such?as?petitioner.
B.

The?antecedents?behind?the?severe?problems?plaguing?the?nation’s?savings?and?loan?industry?have?been?extensively?documented?in?a?series?of?congressional?reports,?studies?and?recommendations.fn.?16?Financial,?regulatory,?and?economic?experts?for?the?most?part?agree?that?the?present?savings?crisis?originated?in?the?inflationary?and?interest?rate?spirals?of?the?1970’s.?Since?savings?banks?have?for?most?of?this?century?been?the?chief?source?of?long-term,?mortgage-backed?residential?lending,?rapid?increases?in?short-term?interest?rates?had?a?devastating?effect?on?their?historical?”borrow?short,?lend?long”?position.

Locked?into?long-term,?low-yield,?fixed-rate?mortgages,?savings?banks?were?forced?to?compete?for?funds-mainly?savings?deposits-in?the?newly?volatile?short-term?market?of?the?1970’s,?and?to?pay?a?commensurately?high?interest?rate?to?attract?such?funds.?This?interest?rate?differential?led?to?the?phenomena?of?”disintermediation”-massive?withdrawals?by?savings?[54?Cal.3d?21]?depositors?who?sought?higher?interest?rates?in?new?consumer?investment?instruments?such?as?money?market?funds,?for?example-and?a?”negative”?interest?rate?mismatch-the?difference?between?the?high?cost?of?funds?borrowed?by?savings?banks?from?depositors?and?loaned?at?low?rates?of?interest.

These?problems?were?considered?to?be?compounded?by?a?Depression-era?regulatory?system?that?one?congressional?committee?report?described?as?”an?incredibly?complex?inter-locking?arrangement?of?federal?and?state?statutes,?regulations,?and?agencies.”?(H.R.Rep.?No.?98-692,?98th?Cong.,?2d?Sess.,?p.?7?(1984).)?In?brief,?the?regulatory?arrangement?confined?each?species?of?financial?services?provider?to?one?functional?(and?in?some?cases,?geographical)?theater?of?specialization;?commercial?banks,?for?example,?took?demand,?passbook,?and?time?deposits?and?made?loans?to?businesses;?savings?banks?took?passbook?and?time?deposits?and?provided?housing-related?credit;?insurance?companies?collected?premiums?and?paid?annunities,?and?casualty?and?property?claims;?and?investment?banks?and?brokers?underwrote?debt?and?equity?issues.

As?a?result?of?an?ongoing?policy?debate?conducted?through?much?of?the?latter?half?of?the?decade,fn.?17?the?decision?was?taken?by?regulatory?authorities?to?relieve?the?pressures?on?savings?banks?by?pursuing?a?strategy?of?”deregulation”?designed?to?restructure?the?industry,?and?dismantling?legal?barriers?to?enlarged?competition?between?savings?banks?and?other?financial?services?providers,?including?commercial?banks.?In?a?series?of?recommendations?implemented?in?the?late?1970’s?and?early?1980’s,?the?investment?powers?and?the?ability?of?savings?banks?to?compete?for?deposits?were?substantially?expanded.fn.?18?Federal?ceilings?on?interest?paid?to?depositors?were?phased?out?and?savings?banks?were?permitted?to?invest?in?consumer?and?educational?[54?Cal.3d?22]?loans,?commercial?paper,?commercial?real?estate,?corporate?debt?securities,?and?local?government?obligations,?diversifying?their?investment?portfolios.?In?addition,?federally?insured?savings?banks?were?authorized?to?offer?credit?card,?overdraft,?and?trust?and?fiduciary?services,?increasing?their?competitiveness?in?the?financial?markets.

Among?the?array?of?measures?proposed,?a?federal?interagency?task?force?appointed?by?the?President?to?study?the?problems?facing?the?savings?and?loan?industry?and?to?submit?recommendations?to?Congress?urged?state?legislatures?in?1980?to?consider?lifting?taxes?on?savings?banks?”based?directly?or?indirectly?on?deposits,”?noting?that?such?taxes?”are?applicable?even?when?the?institution?has?a?loss?for?the?year”?and?can?”compound?serious?earnings?problems.”fn.?19

We?need?not?further?tally?these?transforming?legislative?changes?to?the?savings?and?loan?regulatory?environment.?It?is?enough?to?note?that?partially?as?a?result?of?them,?savings?banks?increasingly?have?come?to?resemble?commercial?banks?in?both?form?and?function,?competing?in?the?same?sector?of?the?consumer?market?for?deposits?and?offering?much?the?same?financial?”products.”?In?light?of?that?clear?trend,?the?considered?regulatory?impetus?driving?it,?and?underlying?structural?anxieties,?the?Legislature?could?speak?meaningfully?in?1979?of?a?desire?to?ensure?”competitive?parity”?between?commercial?banks?and?savings?banks;?even?more?could?it?find?a?need?to?promote?a?comparable?income?tax?burden?between?commercial?and?savings?banks,?given?historical?efforts?in?California?to?maintain?tax?parity?between?the?two?types?of?institutions.

Finally,?the?increasingly?vulnerable?financial?condition?of?the?savings?and?loan?industry?throughout?the?decade?of?the?1970’s?and?beyond?supports?the?Legislature’s?decision?to?tighten?control?over?the?aggregate?intrastate?tax?burden?on?savings?banks?by?including?them?within?the?bank?tax?in?lieu?shield.?Given?an?emerging?parity?of?function?between?savings?banks?and?commercial?banks?in?the?market?place,?the?case?was?strengthened?for?a?more?exacting?parity?in?the?income?tax?treatment?of?the?two?types?of?institutions.?By?the?same?token,?expert?testimony?before?the?trial?court?confirmed?that?in?the?face?of?increasingly?worrisome?economic?conditions?affecting?the?savings?and?loan?industry,?the?aggregate?tax?burden?on?savings?banks?has?assumed?a?new?and?more?worrisome?dimension.fn.?20?[54?Cal.3d?23] [8a]?Centralized?command?over?the?intrastate?tax?burden?on?savings?banks?thus?provides?an?additional?and?increasingly?important?regulatory?lever,?one?of?several?ways?by?which?government?can?exert?heightened?control?over?conditions?affecting?the?failing?financial?health?of?a?critical?segment?of?the?state’s?economy.?Aggregate?taxes-including?those?imposed?under?the?Los?Angeles?and?like?municipal?tax?schemes-have?thus?acquired?a?regulatory?dimension?they?might?not?possess?under?different?economic?and?competitive?conditions?affecting?the?savings?and?loan?industry.?And?because?the?comprehensive?regulation?of?savings?banks?takes?place?almost?entirely?at?state?and?federal?levels,?these?regulatory?aspects?of?taxation?necessarily?transcend?local?interests;?they?become,?in?other?words,?a?subject?of?statewide?concern.

To?counter?this?line?of?reasoning,?the?City?argues?at?length?that?the?offset?system?worked?well?for?over?60?years?and?that?persuasive?justification?is?lacking?for?the?statutory?amendment?that?led?to?its?discard.?The?evidence?before?the?trial?court,?however,?belies?this?view?and?supports?the?amendment?as?a?rational?response?to?perceived?difficulties?with?the?offset?system,?especially?under?adverse?economic?conditions.?Testimony?before?the?trial?court?and?legislative?findings?in?support?of?the?amendment?to?section?23182?both?noted?inefficiencies?in?the?offset?system,?especially?under?difficult?economic?circumstances.?For?example,?as?the?federal?task?force?report?(see,?ante,?fn.?19)?pointed?out,?tax?levies?calculated?on?the?basis?of?gross?receipts,?such?as?the?City’s?business?license?tax,?apply?even?when?the?taxpayer?has?no?net?income?for?the?tax?year;?they?thus?threaten?to?reduce?the?net?worth?of?already?vulnerable?savings?banks.?In?addition,?the?offset?formula?applied?only?to?the?so-called?”add-on”?component?of?the?state?franchise?tax;?where?local?taxes?exceeded?that?sum,?the?credit?was?unavailable.?Finally,?the?offset?credit?was?only?available?if?the?taxpayer?had?taxable?income.

In?any?event,?the?City’s?argument?proves?too?much.?The?question?is?not?whether?the?amendment?of?section?23182?was?prudent?public?policy?or?whether?the?municipal?tax?burden?on?savings?banks?has?sufficient?impact?on?the?industry’s?financial?health?to?make?the?change?to?a?net?income?tax?system?an?advisable?or?effective?measure.?The?issue?is?whether?the?income?tax?burden?on?financial?corporations,?especially?savings?banks-including?the?[54?Cal.3d?24]?component?imposed?by?municipalities-is?of?sufficient?extramural?dimension?to?support?legislative?measures?reasonably?related?to?its?resolution.?We?conclude?that?it?is,?ending?the?inquiry.?In?so?holding,?we?resort?to?a?principle?of?deference?analogous?to?that?invoked?in?Baggett?v.?Gates,?supra,?32?Cal.3d?at?page?140.?There?we?said?that?”[t]here?must?always?be?doubt?whether?a?matter?which?is?of?concern?to?both?municipalities?and?the?state?is?of?sufficient?statewide?concern?to?justify?a?new?legislative?intrusion?into?an?area?traditionally?regarded?as?’strictly?a?municipal?affair.’?Such?doubt,?however,?’must?be?resolved?in?favor?of?the?legislative?authority?of?the?state.’?[Citations.]”

A?similar?principle?applies?here.?In?this?area?of?complex?financial?and?economic?regulation,?we?defer?to?legislative?estimates?regarding?the?significance?of?a?given?problem?and?the?responsive?measures?that?should?be?taken?toward?its?resolution.?[9]?(See?fn.?21.),?[8b]?It?is?enough?for?the?purpose?of?deciding?the?issue?before?us?that?the?Legislature’s?decision?to?modify?the?tax?system?by?eliminating?local?taxes?on?savings?banks?finds?substantial?support?in?the?regulatory?and?historical?context?summarized?above,?including?specific?recommendations?of?financial?and?regulatory?experts,?and?is?narrowly?tailored?to?resolve?the?problem?at?hand.?(Cf.?D’Amico?v.?Board?of?Medical?Examiners?(1974)?11?Cal.3d?1,?16-17?[112?Cal.Rptr.?786,?520?P.2d?10].)fn.?21

Support?for?the?conclusion?that?the?local?taxation?of?savings?banks?is?at?present?a?subject?of?statewide?concern?is?strengthened?by?the?limited?extent?of?the?incursion?made?by?section?23182.?Among?the?universe?of?municipal?taxpayers?subject?to?the?City’s?business?license?tax,?only?a?small?number?of?corporations?are?affected?by?the?Legislature’s?amendment?of?section?23182?and?our?decision?upholding?it.?As?noted,?these?taxpayers?collectively?contribute?a?comparatively?small?sum?to?the?City’s?annual?budget?revenues;?the?loss?[54?Cal.3d?25]?of?that?revenue?as?a?result?of?the?statutory?amendment?leaves?the?City’s?taxing?authority?fundamentally?intact.?Although?we?decline?for?pragmatic?and?intellectual?reasons?to?adopt?the?view?urged?by?Justice?Richardson?in?his?concurring?opinion?in?Weekes?v.?City?of?Oakland,?supra,?21?Cal.3d?386,?requiring?a?comparative?”weighing”?of?the?competing?interests?of?the?state?and?charter?cities?in?a?given?area,?we?are?mindful?of?his?caveat?that?”the?sweep?of?the?state’s?protective?measures?may?be?no?broader?than?its?interest.”?(Id.,?at?p.?407.)?Here,?the?limited?interference?with?municipal?taxation?wrought?by?section?23182?is?substantially?coextensive?with?the?state’s?underlying?regulatory?interest.

  1. Conclusion

Justice?Richardson?acknowledged?this?court’s?ineluctable?duty?under?the?”municipal?affairs”?clause?to?allocate?political?supremacy?between?the?Legislature?and?charter?cities?”without?the?benefit?of?guidance?from?history,?constitutional?tradition,?or?sharply?delineated?principle.”fn.?22?The?approach?to?that?demanding?task?historically?taken?in?our?cases?has?been?one?of?ad?hoc?intuition?informed?by?pragmatic?common?sense?rather?than?a?rigid?fidelity?to?some?theoretical?model.?In?an?area?of?constitutional?law?so?deeply?marked?from?the?beginning?by?conceptual?uncertainty?and?inherent?factual?ambiguity,?we?should?not?expect?doctrinal?tidiness:?”constitutions,”?as?Justice?Holmes?said,?”are?intended?to?preserve?practical?and?substantial?rights,?not?to?maintain?theories.”?(Davis?v.?Mills?(1904)?194?U.S.?451,?457?[48?L.Ed.?1067,?1072,?24?S.Ct.?692].)

The?judgment?of?the?Court?of?Appeal?is?reversed.

Lucas,?C.?J.,?Broussard,?J.,?Panelli,?J.,?Kennard,?J.,?and?Baxter,?J.,?concurred.?Mosk,?J.,?concurred?in?judgment.

FN?1.?That?section?provides:?”It?shall?be?competent?in?any?city?charter?to?provide?that?the?city?governed?thereunder?may?make?and?enforce?all?ordinances?and?regulations?in?respect?to?municipal?affairs,?subject?only?to?restrictions?and?limitations?provided?in?their?several?charters?and?in?respect?to?other?matters?they?shall?be?subject?to?general?laws.?City?charters?adopted?pursuant?to?this?Constitution?shall?supersede?any?existing?charter,?and?with?respect?to?municipal?affairs?shall?supersede?all?laws?inconsistent?therewith.”

FN?2.?Throughout?this?opinion,?we?use?the?generic?term?”savings?bank”?rather?than?one?of?the?variant?forms?(e.g.,?”thrift?bank,”?”savings?association,”?or?”savings?and?loan?association”)?to?refer?to?financial?institutions?such?as?petitioner,?whether?chartered?under?division?2?of?the?California?Financial?Code?or?the?federal?Home?Owners’?Loan?Act?of?1933?(12?U.S.C.???1461?et?seq.).

FN?3.?As?we?explained?in?Western?States?Bankcard?Assn.?v.?City?and?County?of?San?Francisco?(1977)?19?Cal.3d?208,?215-216?[137?Cal.Rptr.?183,?561?P.2d?273]:?”California’s?in?lieu?tax?scheme?…?was?designed?…?primarily?to?make?possible?state?taxation?of?national?banks.?Until?1973,?[12?United?States?Code]?section?548?…?imposed?severe?restrictions?on?state?taxation?of?national?banking?associations.?Basically,?states?were?allowed?to?levy?one?of?several?specified?taxes,?in?lieu?of?all?others,?and?the?tax?so?levied?could?not?exceed?that?imposed?upon?state?financial?corporations.?To?achieve?tax-rate?parity?between?national?and?state?banking?institutions,?a?prerequisite?for?any?tax?upon?national?banks,?California?adopted?the?federally?designated?in?lieu?tax?on?net?income?and?made?it?applicable?to?all?banks?located?within?the?state.?…?The?end?result?was?that?competing?state?and?national?institutions?received?the?same?benefits?and?paid?taxes?at?the?same?rate.”?(Italics?and?citations?omitted.)

FN?4.?Historically,?the?statutory?scheme?has?also?sought?to?maintain?parity?between?the?taxes?paid?by?commercial?banks?and?financial?corporations?and?those?paid?by?nonfinancial?corporations,?through?the?use?of?a?complex?formula?by?which?a?so-called?”add-on”?component?of?the?in?lieu?tax?is?calculated.?The?add-on?premium?is?intended?to?compensate?for?the?fact?that?nonfinancial?corporations?are?subject?to?taxes?on?their?personal?property?while?commercial?banks?are?exempt?from?such?levies.?(Compare?Rev.?&?Tax.?Code,???23151?with?Rev.?&?Tax.?Code,???23186;?and?see,?post,?fn.?15.)

FN?5.?”Section?23182?of?the?Revenue?and?Taxation?Code?is?amended?to?read:

“23182.?The?tax?imposed?under?this?part?upon?banks?and?financial?corporations?is?in?lieu?of?all?other?taxes?and?licenses,?state,?county?and?municipal,?upon?the?said?banks?and?financial?corporations?except?taxes?upon?their?real?property,?local?utility?user?taxes,?sales?and?use?taxes,?state?energy?resources?surcharge,?state?emergency?telephone?users?surcharge,?and?motor?vehicle?and?other?vehicle?registration?license?fees?and?any?other?tax?or?license?fee?imposed?by?the?state?upon?vehicles,?motor?vehicles?or?the?operation?thereof.

“The?changes?in?this?section?made?by?the?1979-80?Legislature?with?respect?to?sales?and?use?taxes?apply?to?income?years?beginning?on?and?after?January?1,?1980,?and?the?remaining?changes?apply?to?income?years?beginning?on?and?after?January?1,?1981.”

FN?6.?The?California?Revenue?and?Taxation?Code?does?not?furnish?a?statutory?definition?of?”financial?corporations.”?We?said?in?Crown?Finance?Corp.?v.?McColgan?(1943)?23?Cal.2d?280,?284?[144?P.2d?331],?that?the?classification?was?adopted?to?avoid?preferential?tax?treatment?in?favor?of?corporations?”in?substantial?competition?with?…?national?banks.”?Under?the?governing?test,?the?classification?includes?savings?and?loans?as?well?as?other?kinds?of?”moneyed”?corporations?”performing?some?of?the?functions?of?a?national?bank”?(Morris?Plan?Co.?v.?Johnson?(1940)?37?Cal.App.2d?621,?624?[100?P.2d?493])?or?”dealing?in?money?or?financing?in?competition?with?…?activities?of?national?banks?….”?(Marble?Mortgage?Co.?v.?Franchise?Tax?Bd.?(1966)?241?Cal.App.2d?26,?39?[50?Cal.Rptr.?345]).

FN?7.?Another?provision?of?Assembly?Bill?No.?66,?section?16.3,?added?section?26482?to?the?Revenue?and?Taxation?Code.?(Stats.?1979,?ch.?1150,?p.?4216.)?That?section?established?the?Financial?Aid?to?Local?Agencies?(FALA)?fund.?A?portion?of?the?income?tax?revenues?paid?to?the?state?by?financial?corporations?subject?to?the?in?lieu?provision?of?amended?section?23182?was?deposited?in?a?state?account?under?section?26483.?These?funds?were?in?turn?allocated?to?local?governments?according?to?a?statutory?formula.?Thus,?although?section?23182?in?effect?shifted?taxes?paid?by?financial?corporations?from?municipal?treasuries?to?the?State?Treasury,?the?subvention?granted?by?the?establishment?of?the?FALA?fund?virtually?erased-during?its?brief?existence-any?revenue?shortfall?that?otherwise?would?have?been?sustained?by?local?tax?authorities?as?a?result?of?the?change?in?tax?treatment.?However,?the?Legislature?did?not?renew?the?FALA?program?in?1982?or?thereafter.

FN?8.?The?amendment?to?Revenue?and?Taxation?Code?Section?23182?contained?in?this?act?reaffirms?the?Legislature’s?longstanding?purpose?of?insuring?competitive?parity?between?banks?and?financial?corporations?by?subjecting?both?types?of?institutions?to?an?equivalent?tax?burden.?Equal?tax?treatment?of?banks?and?financial?corporations?promotes?the?continued?existence?of?both?types?of?institutions?thereby?affording?a?full?range?of?financial?services?at?competitive?rates.?Moreover,?taxation?of?banks?and?financial?corporations?at?the?rate?determined?under?Revenue?and?Taxation?Code?Section?23186?insures?that?their?tax?burden?will?be?comparable?to?the?combined?state?and?local?tax?burdens?of?nonfinancial?corporations?subject?to?Revenue?and?Taxation?Code?Section?23151.

“The?Legislature?further?finds?that?divergent?and?competing?local?tax?measures?imposed?on?financial?corporations?impair?the?uniform?statewide?regulation?of?banks?and?financial?corporations.?For?this?reason?and?those?earlier?expressed,?the?Legislature?declares?that?the?state,?by?this?amendment,?has?preempted?such?local?taxation?of?financial?corporations?to?the?same?extent?as?the?state?has?heretofore?preempted?local?taxation?of?banks.”?(Stats.?1979,?ch.?1150,???20,?p.?4220.)

FN?9.?Subsequent?legislation?on?this?subject?and?the?findings?in?support?of?it?bear?mention.?In?1984,?the?Legislature?enacted?the?measure?codified?as?section?23184.5.?The?statute?notes?the?pendency?of?litigation?”regarding?the?application?of?Section?23182?with?respect?to?business?license?taxes?imposed?by?charter?cities?on?financial?corporations”?and?directs?reinstatement?of?the?offset?system?if?charter?city?taxes?are?upheld.?It?directs?the?Franchise?Tax?Board?to?issue?proposed?deficiency?assessments?”disallowing?those?offsets?claimed?on?returns?for?income?years?beginning?in?1983?and?thereafter,”?pending?the?outcome?of?the?litigation.?In?support?of?the?enactment,?the?Legislature?reaffirmed?prior?findings?that?the?offset?system?did?not?permit?all?local?taxes?paid?to?be?recouped,?was?”ineffective?to?bring?parity?to?banks?and?financial?corporations,”?and?declared?that?section?23182?was?enacted?to?minimize?differences?in?tax?treatment?between?commercial?banks?and?financial?corporations?by?levying?an?in?lieu?tax?on?the?latter?and?”prohibit[ing],?among?other?things,?charter?cities?from?imposing?business?license?taxes?on?financial?corporations.”?(Stats.?1984,?ch.?1359,???1,?pp.?4792-4793.)

FN?10.?As?our?opinion?in?Braun?pointed?out?(141?Cal.?at?pp.?208-209),?the?historical?impetus?for?adoption?of?the?municipal?home?rule?provision?in?1896?was?in?part?a?series?of?decisions?by?this?court?holding?that?the?power?to?adopt?charters?(and?thus?to?adopt?self-government)?given?cities?by?former?section?8?(repealed?June?2,?1970)?of?article?XI?of?the?Constitution?could?in?effect?be?overridden?by?the?language?of?then?section?6?(now?section?5)?of?article?XI?of?the?Constitution.?It?was?to?ensure?that?city?charters?could?no?longer?”at?once?be?superseded?by?…?general?legislative?enactment”?(141?Cal.?at?p.?209)?that?the?”municipal?affairs”?clause?was?proposed?to?and?adopted?by?the?voters.?(See?Davies?v.?City?of?Los?Angeles?(1890)?86?Cal.?37?[24?P.?771]?and?cases?cited?at?p.?41;?Fragley?v.?Phelan?(1899)?126?Cal.?383,?387?[58?P.?923]?(Garoutte,?J.).)

FN?11.?A?review?of?the?cases?suggests?the?origin?of?the?taxation/regulatory?distinction?in?the?opinion?of?Justice?Richardson?concurring?in?Weekes?v.?City?of?Oakland?(1978)?21?Cal.3d?386,?398-409?[146?Cal.Rptr.?558,?579?P.2d?449].?While?Justice?Richardson’s?views?on?the?doctrine?of?”municipal?affairs”?were?highly?developed?and?well?articulated?in?a?series?of?concurring?opinions-of?which?Weekes?is?the?most?prominent-they?have?commanded?few?adherents.?(See?also?Baggett?v.?Gates?(1982)?32?Cal.3d?128,?146?[185?Cal.Rptr.?232,?649?P.2d?874].)

FN?12.?Ex?Parte?Helm?(1904)?143?Cal.?553?[77?P.?453]?was?a?companion?to?Ex?Parte?Braun.?There?we?extended?our?holding?in?Braun?to?include?a?state?statute?purporting?to?restrict?the?licensing?powers?of?municipalities?to?regulatory?matters.?In?West?Coast?Adver.?Co.?v.?San?Francisco?(1939)14?Cal.2d?516?[95?P.2d?138],?we?in?effect?revisited?Ex?Parte?Braun?by?construing?a?1914?amendment?to?article?XI,?section?5,?of?the?Constitution?as?transforming?a?municipal?charter?from?an?instrument?granting?powers?to?one?limiting?powers?implicit?within?the?home?rule?clause;?no?conflict?with?a?state?statute?was?presented.?And?in?Ainsworth?v.?Bryant?(1949)?34?Cal.2d?465?[211?P.2d?564],?we?held?only?that?the?power?to?”license?and?regulate?intoxicating?liquors”?conferred?on?the?Legislature?by?article?XX,?section?22,?of?the?Constitution?did?not?encompass?exclusive?control?over?the?taxation?of?alcohol,?and?thus?did?not?conflict?with?a?charter?city?excise?tax?as?applied?to?retail?liquor?purchases.

Our?decision?in?City?of?Glendale?v.?Trondsen?(1957)?48?Cal.2d?93?[308?P.2d?1],?held?only?that?a?charter?city?could?enact?a?rubbish?collection?tax?without?specific?authorization?in?its?charter,?a?conclusion?foreshadowed?by?West?Coast?Advert.;?there?was?no?conflict?with?a?state?statute.?In?In?re?Redevelopment?Plan?for?Bunker?Hill?(1964)?61?Cal.2d?21?[37?Cal.Rptr.?74,?389?P.2d?538],?we?rejected?a?claim?that?a?tax?allocation?provision?of?a?City?redevelopment?plan?was?unconstitutional?because?adopted?by?ordinance?rather?than?charter?amendment;?again,?no?conflict?with?state?statute?was?presented.?Finally,?in?A.B.C.?Distributing?Co.?v.?City?and?County?of?San?Francisco?(1975)?15?Cal.3d?566?[125?Cal.Rptr.?465,?542?P.2d?625],?we?again?held,?as?we?had?in?Ainsworth,?that?San?Francisco’s?”payroll?expense?tax”?did?not?conflict?with?the?state’s?regulatory?jurisdiction?over?alcoholic?beverages?conferred?by?article?XX,?section?22,?of?the?Constitution?when?levied?against?employees?of?a?wholesale?liquor?dealer.

(See,?generally,?Professional?Fire?Fighters,?Inc.?v.?City?of?Los?Angeles?(1963)?60?Cal.2d?276,?291-292?[32?Cal.Rptr.?830,?384?P.2d?158].)

At?least?one?Court?of?Appeal?decision?supports?the?contrary?proposition.?In?Century?Plaza?Hotel?Co.?v.?City?of?Los?Angeles?(1970)?7?Cal.App.3d?616?[87?Cal.Rptr.?166],?the?court?enjoined?enforcement?of?a?city?excise?tax?levied?on?retail?sales?of?alcohol?consumed?on?the?premises.?After?finding?a?state?statute?imposing?a?tax?on?the?sale?of?alcohol?in?lieu?of?all?county?and?municipal?sales?taxes?to?be?in?”irreconcilable?conflict”?with?the?charter?city?tax?ordinance,?the?court?identified?substantial?statewide?interests?sufficient?to?justify?legislative?supersession?and?the?negation?of?the?conflicting?charter?city?tax?ordinance.?(Id.?at?pp.?624-626.)

Although?its?evaluation?of?the?strength?of?the?state’s?interests?has?been?criticized?(Sato,?”Municipal?Affairs”?in?California?(1972)?60?Cal.L.Rev.?1055,?1099-1104),?the?methodology?employed?by?the?Court?of?Appeal?in?Century?Plaza?is?the?correct?one;?see,?post,?page?16.

FN?13.?Sandalow,?The?Limits?of?Municipal?Power?Under?Home?Rule:?A?Role?for?the?Courts,?48?Minn.?L.Rev.?643,?663?(1964)?(quoting?McGoldrick,?Law?and?Practice?of?Municipal?Home?Rule?1916-1930?(1933)?at?p.?317).

FN?14.?E.g.,?Merchants?National?Bank?v.?Richmond?(1921)?256?U.S.?635?[65?L.Ed.?1135,?41?S.Ct.?619];?First?National?Bank?v.?Anderson?(1926)?269?U.S.?341?[70?L.Ed.?295,?46?S.Ct.?135];?and?First?National?Bank?of?Hartford?v.?Hartford?(1927)?273?U.S.?548?[71?L.Ed.?767,?47?S.Ct.?462,?59?A.L.R.?1].?Congressional?amendments?to?the?federal?statute?(12?U.S.C.???548),?their?construction?by?the?federal?high?court,?and?California’s?reaction?leading?to?adoption?of?article?XIII,?section?27,?of?the?Constitution?are?analyzed?in?a?notable?series?of?articles?in?the?California?Law?Review?by?a?then?Boalt?Hall?faculty?member,?Roger?J.?Traynor.?(See?National?Bank?Taxation?in?California?(1929)?17?Cal.L.Rev.?83,?232,?456.)

FN?15.?Section?23180?et?seq.?The?statutory?scheme?was?described?in?Citrus?Belt?S.?&?L.?Assn.?v.?California?Franchise?Tax?Bd.?(1963)?218?Cal.App.2d?584,?588-589?[32?Cal.Rptr.?579],?as?one?designed?”to?equalize?the?tax?burdens?of?banks,?financial?corporations?and?nonfinancial?corporations.?The?principal?features?of?the?[scheme]?are?these:?Nonfinancial?corporations,?banks?and?financial?corporations?all?pay?a?basic?franchise?tax?….?(Rev.?&?Tax.?Code,????23151,?23181,?23183?and?23186.)?Nonfinancial?corporations,?however,?such?as?manufacturing?and?mercantile?corporations,?also?pay?personal?property?taxes.?[Citations.]?Banks?are?exempted?from?the?payment?of?personal?property?taxes.?(Cal.?Const.,?art.?XIII,???[27];?Rev.?&?Tax.?Code,???23182.)?[?]?In?order?more?nearly?to?equalize?the?tax?burdens?of?banks?and?nonfinancial?corporations,?banks?are?required?to?pay?an?additional?amount?of?taxes?…?at?a?rate?equivalent?to?the?percentage?of?the?total?net?income?of?nonfinancial?corporations?that?nonfinancial?corporations?pay?as?personal?property?taxes?….?(Rev.?&?Tax.?Code,???23183;?…)”

FN?16.?In?addition?to?several?days’?testimony?by?experts?in?the?fields?of?economics?and?banking?regulation,?the?trial?court?had?before?it?the?following?congressional?reports?and?studies;?we?rely?on?these?materials?for?the?summary?of?the?evolving?economic?and?regulatory?environment?affecting?the?savings?and?loan?industry?presented?in?the?main?text:?the?Depositary?Institutions?Deregulation?and?Monetary?Control?Act?of?1980,?Public?Law?No.?96-221,?Senate?Report?No.?96-368?(1979)?(documenting?substantial?savings?outflow?from?thrifts?and?need?to?expand?investment?portfolios?to?attract?additional?funds);?Report?of?the?Interagency?Task?Force?on?Thrift?Institutions,?House?Committee?on?Banking,?Finance?and?Urban?Affairs,?96th?Congress,?Second?Session?(1980)?(noting?vigorous?competition?between?commercial?and?savings?banks?and?need?to?restructure?the?latter);?the?Garn-St.?Germain?Depositary?Institutions?Act?of?1982,?Public?Law?No.?97-320,?Senate?Report?No.?97-536?(1982)?(detailing?increasing?competition?between?commercial?and?savings?banks?for?funds?and?need?for?restructuring?of?saving?and?loan?industry);?Senate?Conference?Report?No.?97-641?(1982)?(accompanying?Pub.L.?No.?97-320)?(same);?Confusion?in?the?Legal?Framework?of?the?American?Financial?System?and?Services?Industry,?Thirty-Seventh?Report?by?the?Committee?on?Government?Operations,?House?of?Representatives?Report?No.?98-692,?98th?Congress,?Second?Session?(1984)?(description?of?functional?compartmentalization?of?the?financial?services?industry?and?its?breakdown);?”Economic?Report?of?the?President,”?Annual?Report?of?the?Council?of?Economic?Advisers?(1986)?(interest?rate?mismatch?leading?to?negative?net?worth?of?savings?and?loan?industry);?and?the?Financial?Institutions?Reform,?Recovery,?and?Enforcement?Act?of?1989,?Public?Law?No.?101-73,?House?of?Representatives?Report?No.?101-54(I)?(1989)?(tracing?history?of?thrift?industry,?inflationary?pressures?of?1970’s,?regulatory?changes?of?the?1978-1988?era,?and?current?difficulties).

FN?17.?See?generally?the?pioneering?”FINE”?(Financial?Institutions?and?the?Nation’s?Economy)?study?and?hearings.?(Hearings?Before?the?Subcom.?on?Financial?Institutions,?etc.,?House?Com.?on?Banking,?Currency?and?Housing,?94th?Cong.,?1st?&?2d?Sess.?(1975)?(4?vols.).)

FN?18.?Major?federal?legislation?began?in?1978?with?passage?of?the?Financial?Institutions?Regulatory?and?Interest?Rate?Control?Act?(FIRICA),?Public?Law?No.?95-630,?tightening?controls?on?insider?trading?and?interlocking?directorates,?enhancing?regulatory?enforcement?powers,?and?permitting?federally?chartered?savings?banks?to?offer?transaction?accounts?and?alternative?mortgage?instruments?where?state?chartered?savings?banks?were?permitted?to?do?so.?This?was?followed?in?1980?by?passage?of?the?Depository?Institutions?Deregulation?and?Monetary?Control?Act?(DIDMC),?Public?Law?No.?96-221,?phasing?out?interest?caps?altogether,?raising?insurance?coverage?on?savings?deposits,?and?authorizing?savings?banks?to?offer?demand-like?(“NOW”)?accounts?to?facilitate?competition?with?commercial?banks.?In?1982,?Congress?passed?the?Garn-St.?Germain?Depositary?Institutions?Act,?Public?Law?No.?97-?320,?broadly?granting?greater?flexibility?to?savings?banks?in?pursing?investment?policies.?Recently,?Congress?passed?so-called?”bail-out”?legislation,?the?Financial?Institutions?Reform,?Recovery,?and?Enforcement?Act?of?1989?(FIRRE),?Public?Law?No.?101-73,?significantly?modifying?the?existing?federal?regulatory?structure?dating?from?the?1930’s,?and?authorizing?funding?to?resolve?the?problem?of?failed?savings?banks?and?dispose?of?their?assets.

FN?19.?The?Report?of?the?Interagency?Task?Force?on?Thrift?Institutions,?House?Committee?on?Banking,?Finance?and?Urban?Affairs,?96th?Congress,?Second?Session,?Committee?Print?No.?96-14,?pages?48-49?(1980).?See?also?id.,?at?page?257?and?following.

FN?20.?Evidence?before?the?trial?court?showed?that?petitioner?suffered?a?marked?deterioration?in?net?taxable?income?for?the?years?1981?to?1983.?Petitioner’s?net?taxable?income?for?1981?was?minus?$4,480,000;?for?1982,?minus?$55,130,000;?and?for?1983,?minus?$8,960,000.?Evidently,?this?financial?hemorrhage?is?continuing.?(See?Calfed?Is?Expecting?Loss?of?$140?Million,?N.Y.?Times?(Jan.?4,?1991)?p.?C3,?col.?1?[losses?reported?for?the?fourth?quarter,?1990].)

This?negative?performance?coincided?with?savings?and?loan?industry?trends?within?California.?Data?submitted?to?the?trial?court?compiled?by?the?state’s?Franchise?Tax?Board?showed?industry-wide?net?taxable?income?dropping?precipitously?between?1978?($885?million)?and?1982?($38?million).

FN?21.?The?City?complains?that?the?trial?court?erred?in?reviewing?the?Legislature’s?findings?in?support?of?the?amendment?to?section?23182?under?a?”substantial?evidence”?standard;?instead,?it?argues,?the?trial?court?should?have?applied?its?”independent?judgment.”?Although?the?trial?court?did?state?in?its?decision?that?”substantial?evidence”?supported?the?Legislature’s?findings,?it?is?clear?from?the?context?that?the?phrase?was?not?used?in?its?technical?sense,?there?being?in?this?case?no?factual?”record”?submitted?to?the?trial?court?to?which?such?a?limited?scope?of?review?might?apply.?The?trial?court?heard?extensive?testimony?and?took?other?evidence?before?concluding?that?the?amendment?of?section?23182?was?supported?by?an?underlying?statewide?concern.?Its?evaluation?of?the?evidence?was?properly?aided?by?the?principle?of?deference?to?the?Legislature’s?findings?articulated?in?Baggett?v.?Gates,?supra,?32?Cal.3d?128.?Our?statement?in?Bishop?v.?City?of?San?Jose,?supra,?1?Cal.3d?at?page?63,?that?”the?Legislature?is?empowered?neither?to?determine?what?constitutes?a?municipal?affair?nor?to?change?such?an?affair?into?a?matter?of?statewide?concern,”?meant?that?legislative?declarations?that?a?subject?is?one?of?statewide?concern?do?not?ipse?dixit?make?it?so;?we?exercise?our?”independent?judgment”?as?to?that?issue,?giving?”great?weight”?to?legislative?statements?of?purpose?where?they?exist.?(Id.,?at?p.?63,?fn.?6.)

FN?22.?Weekes?v.?City?of?Oakland,?supra,?21?Cal.3d?at?page?404.