$73-Million Property Tax Controversy Has Its Day in OC Superior Court

An Orange County Superior Court judge could soon decide whether county officials need to start slashing their general fund budget.

Judge Robert J. Moss on Tuesday heard arguments in a politically charged lawsuit brought by the state Department of Finance and the chancellor of the state’s community colleges against the Orange County Board of Supervisors over a decision last year to withhold $73 million in property taxes from the state.

County officials argue that Sacramento has erred in how it has allocated property taxes back to the county and should allow the county to keep a greater share. Attorneys for the state, meanwhile, insist that Orange County is trying to achieve in court what it cannot in the Legislature where the dispute belongs.

After hearing arguments from both sides, Moss said he understood the budgetary implications of his decision in Orange County and said he would be issuing a judgment “soon.”

“I understand what that means to the county,” Moss told county attorneys, noting the budgetary implications of the court case and mentioning the “scramble for money” among public agencies in California.

Under state law, Moss has 90 days to issue a judgment.

The argument centers around a decision by Gov. Jerry Brown to take back a chunk of vehicle license fees collected by the county in 2011.

When the county financed its billion-dollar bankruptcy in 1995, state officials allowed them to send a portion of their vehicle license fees directly to bond holders. But in 2007 when the county refinanced its debt, the legislative authorization for the special license fees was not included.

Despite warnings that the authorization should be quickly reestablished, county legislative leaders, lobbyists or staff did not act. The intercept, as its known, was not addressed in any subsequent county legislative platform or by the county’s main lobbyist, Platinum Advisors.

In 2011, Brown’s budget staff discovered the omission and took back the money, prompting an intense reaction from county leaders. Assemblyman Jose Solorio sponsored last-minute legislation to fix the situation for the county, but it failed to make it through both houses of the Legislature.

After the failure of Solorio's bill, county leaders, with the help of several law firms, persuaded then-Auditor-Controller David Sundstrom to ignore Sacramento’s budget allocations on property taxes.

On Jan. 31 before Sundstrom resigned to take a similar position in Sonoma County, he allocated the $73 million to the county instead of to local schools.

State lawyers argue that the state’s legislative leaders and analysts always acknowledged that there would be adjustments that needed to be made for different local jurisdictions when the state realigned tax revenue streams in earlier budget deals that allowed local areas to keep more property taxes instead of vehicle license fees.

Yet because Orange County’s delegation to Sacramento is marginalized because it is largely Republican, it has not been able to obtain the legislative approvals needed.

State attorneys said county leaders then turned to the one Republican officeholder they could count on: Orange County’s auditor-controller.

“If all 58 counties used self-help, it would be chaos,” said Deputy Attorney General Ross Moody.

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