Ruling Likely to Spark New Challenge to Measure M : Courts: Cities worry decision could also force them to void local taxes adopted without voter approval.

Anti-tax activists vowed Friday to use a California Supreme Court decision rendered this week to once again challenge Measure M, the 1990 transportation sales tax that generates $130 million a year.

“We are going to do whatever we can to get the court to look at this,” said Bill Ward, a longtime critic of the transportation tax.

Invalidating Measure M could imperil the county’s bankruptcy recovery effort, which is dependent on a diversion of transportation funds.

But a preliminary review conducted Friday by the county counsel’s office found that Measure M is not threatened by Thursday’s ruling, which upheld the constitutionality of a 1986 ballot measure requiring voter approval of general and special taxes.

“I think it’s too late for people to challenge it,” said Chief Assistant County Counsel Lon Watson. The ruling indicates that the Supreme Court would probably not consider challenges to taxes such as Measure M that were approved and settled years ago, he said.

Cities also struggled Friday to assess the impact of the ruling. A number of cities have adopted utility, hotel occupancy and other taxes in recent years to cope with state cutbacks and a sluggish economy. Officials warned of significant cutbacks if they are forced to void the taxes.

The court’s ruling sanctions Proposition 62, a voter-ratified measure requiring that taxes levied for general purposes be approved by a majority of voters, and that taxes for special purposes be passed by a two-thirds majority.

The judgment reverses a 1986 lower court decision, which indicated that Proposition 62 was unconstitutional. As a result of the 1986 ruling, many government officials and judges believed that cities and counties could raise taxes for general purposes without voter approval.

The dispute over Measure M centers on whether it is a “special tax” requiring a two-thirds vote. Voters approved the half-cent tax increase by 54.8% to 45.2%. Measure M funds are used for a variety of transportation projects. Several anti-tax groups unsuccessfully challenged Measure M soon after it was approved and argued it needed a two-thirds majority to pass. A state appeals court rejected their argument and the Supreme Court declined to hear the case.

“They said Proposition 62 didn’t count. Now the Supreme Court says it does. I think that helps our case,” said Ward, a leader of Drivers for Highway Safety and Citizens Against Unfair Taxation, two of the groups that brought the 1990 suit. “We might be finally getting out of this tax-and-spend mentality.”

Ward said he and other anti-tax activists have discussed the case with their attorney and hope to settle on a strategy in the coming weeks. “This decision is a good sign,” he said.

But others disagree and say the ruling could make it harder for government agencies to raise money for needed projects.

“I think a requirement of a two-thirds vote to raise taxes is a tough standard to meet,” said Bill Hodge, director of external affairs for the Orange County Transportation Authority. “It presents for vexing problems.”

The County Counsel’s preliminary review of Thursday’s decision concluded that the high court is unlikely to strike down a tax that had already received a complete review by other courts.

“We believe it is unlikely . . . that Measure M will be successfully attacked at this late date on the basis of this case,” Watson said.

Some experts agreed and said that bonds secured with Measure M revenues don’t appear to be jeopardized because of a statute of limitations that requires challenges to be filed within six months.

“They should be fine,” said Roger Davis, who heads the public finance department at Orrick Herrington & Sutcliffe, a San Francisco law firm.

The impact of the ruling on cities is less clear.

Debbie Thornton, communications director for the League of California Cities, said Friday that the county’s 10 charter cities--including Anaheim, Santa Ana, Westminster and Newport Beach--appear to be exempt from the decision.

Charter cities are governed by an individually crafted set of laws, and as a result, “they have their own ability to implement general taxes,” Thornton said. The county’s remaining 21 “general law” cities, on the other hand, might have to comply with the ruling.

“I think all cities and all agencies need to be concerned and take a look at it,” said Irvine City Manager Paul O. Brady Jr. “It will have an impact obviously on revenues and there may be some things that have to be cut as a result of it.”

League of cities attorneys have yet to determine whether the court decision is retroactive. If it is, cities could be forced to repeal taxes approved by city councils after 1986.

“If we were forced to void the utility tax immediately, I would be concerned about depleting our reserves,” said La Palma Mayor Wally D. Linn.

Like many cities, La Palma turned to a utility tax in the early 1990s in a bid to prevent service cuts. Linn said the City Council probably would have closed its Police Department if it hadn’t approve the tax, which has also allowed the city to build its reserves from $25,000 to $700,000 in about two years.

La Habra Councilman James Flora said his city would be forced to make cuts in police and fire services if the city’s 6% utility tax is invalidated. Utility tax revenues account for more than 20% of La Habra’s general fund budget, he said.

Even though Anaheim is a charter city, officials said they are studying the ruling. The city generates more than $30 million a year in hotel occupancy taxes, and Councilman Lou Lopez said the loss of that money would force “devastating and tremendous budget cuts.”

Times correspondent Russ Loar and Times staff writer Debora Vrana contributed to this report.