OC Loses $73-Million Property Tax Lawsuit Against State

OC Supervisors - Close Up (p)

Orange County Board of Supervisors Chairman Shawn Nelson (right) speaks with fellow supervisors at a regular meeting. (Nick Gerda / Voice of OC)

An Orange County Superior Court judge Wednesday ruled against the county in its lawsuit against the state Department of Finance over more than $73 million in disputed property taxes.

In his decision, Judge Robert Moss ordered Orange County Auditor-Controller Jan Grimes to reverse the allocation of property taxes back to the state.

For the county, the budgetary implications of the ruling are stark. In 2012, supervisors avoided budget cuts, in part by deciding along with former Auditor-Controller David Sundstrom to withhold the disputed property taxes from the state.

County officials argued that Sacramento has erred in how it has allocated property taxes to the county and should allow the county to keep a greater share. Attorneys for the state 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 earlier this year, Moss said he was aware of the budgetary implications of his decision in Orange County.

“I understand what that means to the county,” Moss told county attorneys, making particular mention of the “scramble for money” among public agencies in California.

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

When the county officials financed the 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 and 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 on behalf of 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 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 argued that the state’s legislative leaders and analysts always acknowledged that adjustments would be needed for different local jurisdictions after the state allowed local areas to keep more property taxes instead of receiving vehicle license fees.

Yet because of the sour relationship Orange County’s Republican delegation has with the Democratic majority in Sacramento, it was not been able to obtain the legislative approvals needed.

So, state attorneys argued, county leaders turned to the one Republican officeholder they could count on, their auditor-controller.

“If all 58 counties used self-help, it would be chaos,” Deputy Attorney General Ross Moody asserted in his arguments earlier this year.

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