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As most Oregon cities should be aware, many portions of the Federal Patient Protection and Affordable Care Act (ACA) become effective January 1, 2014. While not all cities are directly impacted by the ACA (depending on the number of employees), they are impacted by a change to the Fair Labor Standards Act (FLSA), specifically the addition of Section 18B, which was added through provisions in the ACA. Section 18B is designed to enhance employer notice to employees of health care coverage options available through the health insurance exchange or marketplace as labeled by the U.S. Department of Labor (DOL). The marketplace will offer a choice of plans that meet standards for health care coverage and provide information to consumers and employers to assist them in making educated choices about the policies they are purchasing. Background
In May, the DOL issued Technical Release 2013-02, which provides temporary guidance on health care reform notice requirements now contained in the FLSA. All employers covered by FLSA, which includes local governments, must meet the new notice requirements beginning October 1, 2013. These guidelines are temporary until such time as DOL promulgates regulations and/or additional guidance.
The technical release also provides an updated model election notice for group health plans for purposes of the continuation coverage provisions under Title X of the Consolidated Ombnibus Budget Reconciliation Act of 1985 (COBRA) to include additional information regarding health coverage alternatives offered through the marketplace. While COBRA requirements will not change under the ACA, DOL has long provided a model election notice that plans may use to satisfy COBRA requirements and it is this model election notice that has been updated to make qualified beneficiaries (under COBRA) aware of other coverage options that are available in the marketplace.
The Notice Requirements
The required written notice under the new FLSA provisions must be provided to every employee, regardless of whether or not they are enrolled in a health plan of the employer or whether they are a part-time or full-time employee. The notice must inform the employee of the following:
- The existence of the marketplace (referred in the statute as the exchange), including a description of the services provided as well as contact information.
- If the employer plan’s share of the total allowed cost of benefits provided under the plan is less than 60 percent of such costs, the employee may be eligible for a premium tax credit under Section 36B of the Internal Revenue Code if the employee purchases a qualified health plan through the marketplace.
- If the employee purchases a qualified health plan through the marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and all of a portion of such contribution may be excludable from income for Federal Income tax purposes.
Beginning October 1, 2013, employers must provide this notice to each new employee at the time of hire. Current employees as of October 1, 2013 must be given notice before that date.
DOL has created model notice language to comply with the new FLSA provision which can be found at www.dol.gov/ebsa/healthreform. This web page has a model notice for employers who do not offer a health plan and another for employers who offer a health plan to some or all employees. The new COBRA model notice can be found at www.dol.gov/ebsa/cobra.html.
The Impact on Local Governments
It is important to note that these new requirements apply to all local governments regardless of the impact of the ACA because these are new requirements under the FLSA. These requirements will also apply regardless of whether the ACA marketplace is operational by January 1, 2014. Local governments would be wise to begin revising these notices now with the appropriate employer offered health care plan information. It is also advised that cities consult with their plan administrator and city attorney to ensure that any changes to the model notice are appropriate and also to ensure all notices are accurate.
Cities obtain funding for most of their operating budgets from property taxes, and most city officials are well aware of the constitutional limitations placed on these taxes. In these challenging economic times, cities across Oregon have contemplated the use of alternative forms of taxes to assist with funding specific programs. Such taxes, however, come with their own constitutional limitations, and the prohibition on head and poll taxes is one such limitation cities must keep in mind when considering whether to enact these alternative forms of taxation. Background – Poll and Head Taxes
Article IX, section 1a of the Oregon Constitution provides that “[n]o poll or head tax shall be levied or collected in Oregon.” Oregon courts have explained that a poll or head tax is a fixed tax assessed on each eligible person. See City of Portland v. Cook, 170 Or. App. 245, 250-51 (2000) citing Oregon City v. Moore, 30 Or. 215, 217, (1896) (describing “a poll tax of $2 upon each and every person liable therefor”); Salem v. Marion County, 25 Or. 449, 451-52, (1894) (same). In other words, a head or poll tax is imposed and collected on a per capita basis.
The prohibition in Article IX, section 1a was added to the Oregon Constitution in 1910. The amendment's supporters explained that a poll or head tax “is unjust not only because it is collected from very few of the men who are supposed to pay, but also because it bears so unequally on men in proportion to their ability to pay.” See id. citing Voters' Pamphlet, General Election, November 8, 1910, at 24-25.7 The measure's supporters further explained, “[t]he laborer supporting a family on $2 a day pays exactly the same poll tax as the corporation manager with a salary of ten thousand dollars a year.” Id. Accordingly, Oregon courts have concluded that taxes that are imposed on a per capita basis violate the constitutional prohibition on head and poll taxes.
Last November, voters in Portland overwhelmingly enacted the City’s Arts Education and Access Income Tax (Arts Tax), which imposes $35 per person tax to help Portland-area elementary schools provide funding for arts teachers as well as provide grants to local art institutions. A Portland resident, George Wittemyer, sued the City claiming the imposition of the Arts Tax was an unconstitutional violation of the prohibition on imposing and collecting head and poll taxes.
In Wittemyer v. City of Portland, a Multnomah County Circuit Court judge ruled that the Arts Tax was not a head or poll tax and accordingly was not prohibited by Article IX, section 1a. Circuit Court Judge Kelly Skye ruled that "the Arts Tax is not a Poll or Head tax because it is not assessed per capita.” Rather, as Judge Skye explained “[i]n assessing the tax, the City considers a person’s income in three distinct provisions: the tax applies only to (1) income exceeding $1,000, (2) non-exempt income sources, and (3) income of individuals residing in households with income above the federal poverty guidelines.” Due to these exemptions as well as the fact that the Arts Tax applies only to taxpayers 18 years of age or older, Judge Skye concluded that “the practical effect of the tax is to tax income of certain City residents within a certain income range” and accordingly, the Arts Tax is not a per capita tax prohibited by Article IX, section 1a.
Although only a circuit court decision that does not have the same precedential effect as a decision by the Oregon Court of Appeals or Supreme Court, Wittemyer v. City of Portland, provides important guidance to cities that might be considering the imposition and collection of alternative forms of taxation. In order to avoid claims that such taxes are prohibited head or poll taxes, cities must work closely with their city attorneys and finance directors to draft a tax that is not imposed on a per capita basis but rather on specific criteria. Following the guidance provided by Judge Skye’s decision is a helpful first step in that process.
In Koontz v. St. Johns River Water Management District (U.S. Supreme Court No. 11-1447, June 25, 2013), the United States Supreme Court overruled the lower courts and extending the “takings” doctrine under the 5th Amendment to the U.S. Constitution to a broad range of local land use decisions. As a result of the decision, local governments now must justify both the nature and extent of any condition placed on a local land use decision that requires the applicant to either dedicate property for or spend money on public improvements, regardless of whether the local government approves the development. Background – Exactions under Nollan, Dolan and the City of West Linn
The 5th Amendment prohibits taking private real property for public use without compensating the property owner. In Nollan v. California Coastal Comm’n, the Supreme Court reviewed a decision in which the Coastal Commission required the property owner to dedicate a public access easement to the beach in return for a permit for residential construction on the property. The Supreme Court held that that was not a reasonable “nexus” between the public’s need for access to the beach and the property owner’s right to the residential permit – therefore, the condition violated the 5th Amendment. In Dolan v. City of Tigard, the Supreme Court held that a local condition that required the dedication of a pedestrian easement along a stream as a condition of approving a permit to expand a lighting store was disproportionate to the impact of the development. Because the condition was not “roughly proportionate” to the impact of the development, the Court held it violated the 5th Amendment.
For a number of years, the question in land use circles was whether Nollan and Dolan applied to any condition of approval or just those that require the property owner to dedicate an interest in the property. That question was answered in Oregon in West Linn Corporate Park v. City of West Linn, in which the city required the developer to make improvements to an intersection the city already owned. The developer argued the cost of the improvements was not roughly proportionate to the impacts of the development; the city argued that Dolan did not apply because the condition did not require the property owner to dedicate any property. The Oregon Supreme Court and the U.S. Ninth Circuit Court of Appeals agreed with the city, focusing on the 5th Amendment’s prohibition against taking real property, not fungible property such as money. This decision was consistent with earlier Oregon decisions such as Tualatin Hills Park and Recreation District v. Oregon Homebuilders, in which Justice Schuman wrote: “Applying that command to the appropriation of money through fees or taxes yields an incoherent result: Government can take money, but only if it pays for it—that is, only if it gives the money back.”
In Koontz, a Florida property owner applied to develop three acres of a 15-acre property that was substantially constrained by wetlands. The Water District agreed, but only if the property owner mitigated impact to the wetlands by improving other wetlands located nearby that the District already owned. Alternatively, the property owner could limit the development to one acre and dedicate the remainder to the Water District. The property owner rejected both alternatives and the Water District denied the permit. The owner then sued, arguing that the proposed conditions violated the 5th Amendment.
The Florida Supreme Court rejected Koontz’s claims. First, it held that because the permit was denied, no property was ever taken. Second, it held that a requirement to spend money on off-site mitigation did not violate the 5th Amendment, which only applies to taking real property and money is not real property. The U.S. Supreme Court rejected both conclusions and held that the decision to deny the permit violated the 5th Amendment.
With respect to denying a permit, the Court said that it doesn’t matter whether the local government approves or denies the permit. “The principles that undergird Nollan and Dolan do not change depending on whether the government approves a permit on the condition that the applicant turn over property or denies a permit because the applicant refuses to do so.” On the question of whether a requirement to spend money falls under the 5th Amendment, the court found that it does. The Court found that the requirement to spend money burdens the ownership of the land in the same way as a lien against the property. “[We] hold that so-called ‘monetary exactions’ must satisfy the nexus and rough proportionality requirements of Nollan and Dolan.”
The decision in Koontz returns a city to the days before the West Linn case clarified city obligations under Dolan. For years after Dolan was decided in 1994, Oregon cities questioned whether its’ rough proportionality requirement applied to conditions of approval that did not require the dedication of private property, but routinely did the analysis analysis out of caution. In the abstract, returning to this practice may not be overly difficult, but Koontz also places the b burden on the city to demonstrate that a condition of approval is roughly proportionate to the impact of the development; it is not the applicant’s burden to demonstrate that it is not. Moreover, it is not at all clear how a city should apply Nollan and Dolan when it denies a permit, but the answer will undoubtedly involve very carefully drafted findings.
An introduction to the law of annexation and boundary changes, with a focus on public infrastructure financing. Presented by Pam Beery and Chris Crean before the House Land Use and Senate Committee on Rural Communities and Economic Development on June 18, 2013. View Presentation.