County Girds for Next Tax Battle

OC Supervisors 2013 - Wide Shot (p)

The Orange County Board of Supervisors. (Nick Gerda / Voice of OC)

Orange County government leaders are scrambling to respond to a loss Wednesday in Superior Court, which could mean the county must return more than $140 million in property tax revenue to the state.

If the ruling by Superior Court Judge Robert Moss stands, the revenue loss could potentially blow a hole in the county's budget. The proposed 2013-2014 fiscal year budget is scheduled to be released Monday. 

Already, two members of the county Board of Supervisors are calling for across-the-board cuts, with Todd Spitzer wanting the cut to be 10 percent and John Moorlach saying it should be 5 percent.

The estimate of $140 million is two years of the tax revenue, which now is estimated at $73 million annually. There are indications, however, that the fiscal impact of the ruling might be delayed.

At their regular meeting Tuesday, supervisors will discuss whether the county should appeal the decision.

Meanwhile, state Sen. Lou Correa, D-Santa Ana, said he would approach Gov. Jerry Brown directly with the message that despite the resentment felt in Sacramento for Orange County Republican leaders, any move against the county government would directly affect working families.

“I voted against the first initiative and that first budget because I told the governor this is not right,” Correa said.

“You’re hurting working men and woman of the county,” Correa said, adding that many social and health care programs for the working poor also could be disproportionately affected by such cuts.

“Before this court decision was rendered, I met with the governor’s office — the chief of staff — and tried to arrange a deal, an accommodation, where the pain would be mitigated,” Correa said. But "the governor wanted to wait for the court decision,” Correa said.

Nick Berardino, general manager for the Orange County Employees Association that represents more than 17,000 workers, said labor groups are echoing Correa's message in Sacramento and urging a calm approach from supervisors.

“I have every confidence that the county, which has had one year to prepare for this situation, will not take out their mistakes on working families who just came to work every day.”

The crisis stems from the refinancing in 2005 of the billion-dollar debt resulting from the county's 1994 bankruptcy. The focus at the time was to take advantage of low interest rates and knock a decade off the repayment schedule.

However, a little-known glitch — which did receive some media attention at the time — set up an odd scenario. Previously Sacramento took a chunk of vehicle license fees and sent it directly to bond holders, but that arrangement was not included in the refinancing.

That meant that up to $50 million in vehicle license fee revenue due the county could be in jeopardy if the Legislature didn't re-establish the arrangement.

Despite efforts of the county’s army of legislative advocates and highly paid lobbyists, such as Platinum Advisors, the Legislature never acted to restore the arrangement. In ensuing budgets, counties' share of vehicle license fees was swapped for a greater share of property taxes.

Later in 2009, Orange County was in a unique position with Correa being a critical vote on adoption of the state budget. While Correa did secure an extra $50 million in property taxes for Orange County that year, he said the issue of reconnecting the legislative authorization for the vehicle license fee wasn’t even suggested to him by county legislative advocates.

In 2011, the governor's budget staff discovered the glitch and reallocated the money, arguing that Orange County had received the benefits of the refinancing and should not continue to receive special treatment on vehicle license fees.

Orange County supervisors have never addressed the mistakes publicly. They even recently renewed the contract Platinum Advisors, avoiding county rules requiring rebidding of contracts after five years.

“The people that let it slip through their tickler file are either retired or gone,” said Moorlach, acknowledging that the problem could have been averted.

Spitzer said he has been asking hard questions about how the issue fell through the cracks, given that the county has so many legislative advocates. So far, he said, there are few answers.

“Clearly the county executives who were in charge of the bankruptcy debt refinancing were asleep at the switch, similar to what happened in 1994, said Berardino. Now, just as in 1994, rank-and-file workers may be in line to pay the price, he said.

“It’s one of those torpedoes I’ve been talking about,” Moorlach said, referring to the precarious state of county finances.

County officials delayed the fiscal impacts of the move last year when they persuaded then Auditor-Controller David Sunstrom to ignore Sacramento's property tax allocations and redirect up to $73 million annually away from local schools and back to the county government.

That move triggered a lawsuit by the state Department of Finance, which has given county officials the past year to devise options.

Moorlach added that the advantage of the county’s recent financial stewardship is that reserves also have been built up sufficiently to give county leaders time to assess their options in an intelligent manner.

“We will want to look at all our options,” Moorlach said.

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