California’s Department of Finance and with the chancellor of the state’s community colleges have filed suit against Orange County, arguing that the county’s tax grab of $73 million late last year was illegal.

The implications for the county government are stark. Should the state be successful, it would blow a hole in the county’s general fund budget, which would affect mostly the district attorney and the sheriff.

Both have said they cannot sustain further cuts and maintain their constitutionally mandated duties.

After legislation in 2011 changed how the state distributes vehicle license fees, Orange County was left in an unusual situation. Unlike other counties, Orange County still depended on nearly $50 million from that source of revenue.

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 lost.

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

Last year, Gov. Jerry 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, but it failed to make it through both houses of the Legislature.

In the wake of unsuccessful legislative efforts, county leaders reacted to Brown’s move by simply taking the money themselves. After hiring several law firms, they persuaded 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 a whopping $73 million  to the county instead of local schools.

“This action, which the Orange County Auditor-Controller has undertaken, violates both statute and the California Constitution and must be enjoined,” read the state’s lawsuit.

“This is a nice welcome letter to [interrim Auditor-Controller] Jan Grimes,” said John Moorlach, chairman of the Orange County Board of Supervisors. He said the issue will be addressed in closed session on Apr. 17.

Grimes is serving as auditor-controller because supervisors postponed appointing Deputy Auditor-Controller Shaun Skelly the the job earlier this month and he resigned in protest.

Despite the lack of a permanent auditor, Moorlach said he is confident that Grimes is up to the job.

“Jan is a strong, seasoned leader,” Moorlach said. “She understands the issues and understands the department. I’m not worried. She’s been with the county for 32 years. And I don’t think she’ll be intimated by the Department of Finance.”

Other county officials said the lawsuit, filed Thursday in Orange County Superior Court, was not a surprise.

“This is not unexpected,” said Nick Berardino, general manager of the Orange County Employees Association. OCEA and their lobbyists were a key part of the county’s attempt last year to persuade Brown and the Legislature to restore the lost funds.

Berardino, who is known to have a close relationship with Brown, said, “I hold out strong hope that we will all be able to still get together and work out an agreement that will serve the county and the state’s interests.”

County CEO Tom Mauk agreed with Berardino’s point of view but said discussions may be complicated by the lawsuit.

“My hope was the state would have been interested in a discussion and agreement before they filed litigation,” Mauk said. “But now that they’ve filed litigation, we go to court.

“If there’s an interest in talking further, we’re certainly interested in exploring that. But they’ve now taken a legal step and we’ll have to respond.”

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