Oregon Advisory Opinions August 15, 1979: OAG 79-97 (August 15, 1979)

OAG 79-97.

We are informed that the City of Medford spends $60,000 per year, derived from a hotel-motel tax, on tourist promotion publicity. The funds are actually paid to the Chamber of Commerce, which expends them for that purpose. The arrangement is valid, assuming tourist promotion to be a proper public purpose. See 35 Op Atty Gen 1185 (1972).

The City of Portland spends a much larger amount, also derived from a hotel-motel tax, for similar purposes. The tax is authorized by the city charter, and its use for advertising and promotional purposes is also spelled out in the charter. We assume that many other cities also make promotional expenditures exceeding $10,000 per year.

The problem arises out of ORS 221.480 to 221.500. These three statutes, read together, appear to prohibit any city from spending more than $10,000 annually ". . . for the purpose of advertising and publicity for such city." Furthermore, this expenditure is valid only if 20 percent of the legal voters petition for an election authorizing it and it is approved at the election. The petition and election requirement appears to be applicable each year.

ORS 221.480 authorizes a city to "appropriate out of the general fund of the city a reasonable sum of money, not exceeding $10,000 annually," for "the purpose of advertising and publicity for such city." ORS 221.490 authorizes the levy of a special tax "not in excess of $10,000 for advertising and publicity for such city." ORS 221.500 provides:

"(1) Before any special tax may be levied or appropriation made as provided in ORS 221.480 and 221.490, there shall be filed with the city clerk . . . a petition favoring the appropriation and special tax and containing the signatures of legal voters of the city equal to 20 percent of the number of legal voters at the last municipal election in the city.

". . . .

"(3) At the election, the clerk shall cause the proposition to be printed on the bill, for an election; . . . If it receives the majority of all votes cast for or against the proposition . . . the city legislative body shall levy the tax accordingly and appropriate a sum for those purposes. If it fails to receive a majority, it shall be considered defeated."

Unless for some reason this language is not binding upon cities, it specifies the only manner in which a city may obtain authorization to spend money from its general fund, and the maximum amount which it may spend, for advertising and publicity. But even if these statutes are binding upon cities, it does not necessarily follow that they prohibit spending money received from some other source, not going into a city's general fund, for advertising and publicity.

We first consider the general validity of ORS 221.480 to 221.500, noting that if this opinion had been written as recently as a year ago, it would have held that the statutes were probably invalid. They deal with matters which seem to be of primarily local concern, and under the precedents then available appeared to violate the home rule authority of cities under Or Const art XI, sec 2.

The legislature's power is plenary, and any law which it may enact is valid unless something can be found in the constitution prohibiting it. Straw v. Harris, 54 Or 424, 103 P 777 (1909); Jory v. Martin, 153 Or 278, 56 P2d 1093 (1936). The provision which arguably would have prevented the legislature from imposing the conditions of ORS 221.480 to 221.500 on cities is Or Const art XI, sec 2, providing in relevant part:

"The Legislative Assembly shall not enact, amend or repeal any charter or act of incorporation for any municipality, city or town. The legal voters of every city and town are hereby granted power to enact and amend their municipal charter, subject to the Constitution and criminal laws of the State of Oregon, and the exclusive power to license, regulate, [etc.] . . . the sale of intoxicating liquors therein is vested in such municipality; . . . subject to the provisions of the local option law of the State of Oregon."

This has been held to give cities exclusive control over their own internal affairs. Couch v. Marvin, 67 Or 341, 136 P 6 (1913). Until recently, the leading case was State ex rel Heinig v. Milwaukie, 231 Or 473, 373 P2d 680 (1962). That case held that a state law requiring creation of a civil service system for firemen was not binding upon cities.

The State ex rel Heinig case and other cases set up a test to determine the validity of a state law imposing requirements on a city: if the subject matter was of primarily statewide concern, the law was valid; if of primarily local concern, the law was invalid. Because both statewide and local concerns would often be involved in any particular case, application of the test required balancing of those concerns to determine which was predominant, state or local.

If the State ex rel Heinig approach were still valid, it could persuasively be argued that the amount of lawfully raised and budgeted money (including the manner of its raising) a city chooses to spend to promote itself, is a matter of predominantly local concern. A state statute attempting to regu

late such matters would be invalid. However, given the presumption of constitutionality, and the interest of the state as a whole ( cf the Local Budget Law) in the regularity of local budget processes, a contrary decision would have been possible.

But the Oregon Supreme Court has recently re-examined the home rule question with respect to cities, and has adopted new tests which greatly narrow the area in which a city may exercise its municipal legislative authority free of control and interference by state laws.

In La Grande/Astoria v. PERB, 281 Or 137, 576 P2d 1204, former decision adhered to 284 Or 173, 586 P2d 765 (1978), the court sustained state laws establishing mandatory retirement and insurance benefits for police and firefighters. The court was divided 4-3, but we must accept the case as establishing the rules which are now applicable. The new standards are as follows.

1. The city's charter or ordinance will prevail over a contrary state law when it relates to the city's organization and its procedures.

2. Even then, a statute "addressed to a concern of the state with the structures and procedures of local agencies," therefore impinging on the powers reserved by art XI, sec 2 to voters of the cities, will be sustained if it is

3. Finally, the state law prevails over contrary policies preferred by a local government, if it is

Applying these standards to ORS 221.480 to 221.500, we find that these statutes do not affect the cities' form of government. To some extent they affect local procedures, by requiring not only a vote by the people approving the expenditure, but also by specifying the only way in which the question may be brought before the people. The monetary limitation itself, $10,000 per year, has nothing to do with organization or procedures of cities or their political form.

The statutes were first enacted in 1927 with a $5,000 annual limit, increased to $10,000 in 1949. General Laws of Oregon 1927, ch 249; Oregon Laws 1949, ch 127. The 1927 Legislature apparently concluded as a matter of policy that advertising and promotion expenditures by cities were not per se improper, but that they were questionable enough so that such expenditures should be made only with the consent of the voters, and in any event not more than $5,000 per annum. We suspect that in 1927 even the City of Portland could have bought a lot of advertising for $5,000; for smaller cities, that amount may have been excessive, but the voter approval requirement would have eliminated any possibility that a small town would be tempted to spend most of its budget

for such purposes. The 1949 Legislature in effect reaffirmed the 1927 policy decision, while increasing the limit to reflect population increase and inflation. We suspect that little or no legislative thought has been given to the matter in the succeeding 30 years, while the value of $10,000 eroded.

These legislative policy judgments, outdated though they may be, clearly (in the main) fit within the third standard set forth above. They are addressed to "social, economic and regulatory objectives of the state." It seems clear that the $10,000 annual expenditure limit validly restricts the cities of Oregon, under the holding in La Grande/Astoria v. PERB, supra. The fact that the amount is now unrealistically low makes no difference. So far as we are aware, it remains the legislature's prerogative to amend laws to reflect changing conditions, and inflation has no legislative power itself.

The requirement of an election, not merely an election but an annual election, relates to procedure. It is valid only if justified by a need to safeguard the persons affected, i.e. the citizens of the city. On this point, we conclude that the legislative judgment (even though outdated) will probably be held to be determinative, and that the requirement will be sustained. The citizens are thus safeguarded from imposition of the expenses of advertising, if they do not wish it.

The requirement that the election be held only upon petition of 20 percent of the persons voting at the last election will not be sustained, in our opinion. This too relates to procedures, but we do not see how it serves to safeguard any interests of the citizens. It makes it more difficult to place the question before the voters, and is therefore arguably contrary to their interest. Given the requirement of ultimate approval by the voters, we conclude that the method by which the question is placed before them is a matter of purely local concern.

We temper this conclusion, that the statutes are in the main valid, with a reminder that the new standards for decision of home rule cases were adopted with vigorous dissent by three of the seven members of the court. The legislative policy expressed in ORS 221.480 to 221.500 is such a drastic limitation on authority of cities to undertake activities which could rationally be said to be their own business, that the particular issue (if it reaches the court) could well give rise to modification of the La Grande/Astoria standards. We see no room in the standards, as expressed by the majority, for examination by the court of the wisdom of a legislative policy which impinges on matters previously thought to be of predominately local concern. But a conclusion by even one member of the majority that it is after all appropriate to balance the degree of state interest against the degree of local interest, and that when local interest predominates overwhelmingly the state statute must fall even in the absence of any effect upon local structures or procedures, could give rise to a different conclusion.

Having thus concluded that ORS 221.480 to 221.500 are valid, except for the requirement that the matter can be placed before the voters only on petition of city voters

equal to 20 percent of the number voting at the last municipal election, we go on to consider the scope of the statutes.

The statutes permit an appropriation from the general fund and authorization by the voters of a special levy to fund that appropriation. They do not prohibit an appropriation for advertising and publicity from some other budget resource not in the general fund, and not raised by an ad valorem levy on all taxable property in the city. In 1927, the general fund was the repository of virtually all city financial resources except for streets and local improvements, and with the same exceptions virtually all of those city funds were raised by general and special levies on all taxable property in the city. The same was true in 1949. There were no hotel-motel taxes or payroll taxes; there was little or no federal aid, revenue sharing or otherwise, in the form of categorical or unrestricted grants.

The purpose of the limitation was to protect the general taxpayers of the city from a levy, without their consent or in an excessive amount. If funds for the expenditure come only from a special group of taxpayers, i.e., operators of hotels and motels and their guests, a group which would receive a direct benefit exceeding the general benefit to taxpayers generally, such expenditure would not in any way violate that purpose.

Although not directly in point, it is appropriate to consider Or Const art XI, sec 11, the six percent limitation provision. It now provides:

"(1) Except as provided in subsection (3) of this section, no taxing unit . . . to which the power to levy a tax has been delegated, shall in any year so exercise that power to raise a greater amount of revenue than its tax base . . . ."

This section has uniformly been construed to apply only to ad valorem property tax levies. In Garbade and Boynton v. City of Portland, 188 Or 158, 214 P2d 1000 (1950), increases in the city's business and occupation taxes were attacked on grounds (among others) that they violated art XI, sec 11. After a lengthy historical analysis, the court stated:

"In our opinion sec 11, article XI of the constitution applies only to property taxes. It has no application to the revenue raised from taxes imposed by any of the twenty-two amendatory ordinances here involved. The conclusion here reached is inescapable when we consider the language of sec 11; the argument accompanying its submission to the voters for their approval or rejection; the failure of the voters in 1927 to amend the constitution so that the limitation in sec 11 would apply to both income and property taxes; the construction placed upon that section by the attorney general and the agency of the state which had charge of its administration; and other matters hereinbefore mentioned." 188 Or at 188.

This decision was followed in Barnard Motors v. City of Portland, 188 Or 340, 356, 215 P2d 667 (1950). And in Horner's Market v. Tri-County Met Trans Dist, 256 Or 124, 471 P2d 798 (1970), the court turned back a challenge to authority of Tri-Met, granted by the legislature, to impose a payroll tax without vote of the people, and did not even mention art XI, sec 11.

ORS 221.500 provides:

"(1) Before any special tax may be levied or appropriation made as provided in ORS 221.480 and 221.490. . . ."

Thus there is no state law which limits the amount a city may spend for advertising and publicity, if the funds so spent are not appropriated from the general fund, and if the source of the funds is not a property tax levy. We doubt that the 1927 or 1949 Legislatures gave any thought to the availability in the 1970's of some source other than the general fund and property tax levy for such expenditures, but the possibility that the law might have been drafted more broadly if such changed conditions had been thought of, does not justify construing it beyond its express language. The court will not read into a statute what it does not contain, or remove from it what it does. Speck Restaurant, Inc v. OLCC, 24 Or App 337, 545 P2d 601, appeal dismissed 429 US 803 (1976); Multnomah County v. Rockwood Water District, 219 Or 356, 347 P2d 110 (1960). This is the same reason that the $10,000 limitation remains in effect to the extent that the statutes are applicable, notwithstanding 20 years of inflation.

We accordingly conclude that expenditure by a city for advertising and publicity of more than $10,000 per year is permissible, if (1) its charter permits; (2) the funds are not appropriated from the general fund; and (3) the source of the funds is not a levy on taxable property in the city. Again subject to the charter and to the right of referendum, no voter approval would be required.

We point out that a city does not avoid the effect and limitations of ORS 221.480 to 221.500 simply because its revenue source for the advertising expenditure is a hotel-motel tax, or some other source not a property tax. It may appropriate money from its general fund for advertising purposes only subject to the requirements of these statutes. Thus if the proceeds of a hotel-motel tax go into the general fund, they cannot later be appropriated without limit for advertising, or in fact at all. It is necessary for the city to segregate the funds, or some portion of them, into a special fund or dedicated account as they are received. Once money is in the general fund its source is irrelevant, it is available for any lawful city expenses, and it is a budget resource, to the extent not yet spent or committed, which must be counted in budget preparation and fixing the amount of the next general levy. See ORS 294.381.

Thus if a city derives $100,000 from the hotel-motel tax, which is paid into the general fund, and $1,900,000 from property tax, also paid into the general fund, an appropriation of $50,000 for advertising and publicity does not come from the hotel-motel tax, but from the general fund. It is thus within

the specific language of ORS 221.500(1): "Before any special tax may be levied or appropriation made as provided in ORS 221.480," (i.e. from the general fund) an election is required, and no more than $10,000 may be spent in a year.

In summary, we conclude that ORS 221.480 to 221.500 are valid and binding upon cities, except to the extent that they specify the manner in which the question of spending $10,000 for advertising purposes shall be placed before the voters. However, the scope of the statutes is limited to money raised by a property tax levy, or paid from the city general fund. Subject to charter limitations which may be applicable, a city is free to spend any amount which it wishes for advertising and publicity, if the money comes from a source other than a property tax levy, goes into a special segregated fund and is appropriated from that fund and not the general fund. Voter approval is not required unless the city action is referred by petition or the city council.