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A tax on downtown Santa Ana property owners that funds Downtown Inc., the organization charged with promoting and securing the area, is illegal, the Orange County grand jury contends in a report released this week.

The report will very likely add fuel to the ongoing controversy surrounding Downtown Inc., which has faced strident opposition from many Latino merchants, who say the organization’s services are intended to gentrify the area and squeeze them out.

A group of property owners have also been fighting the tax for more than a year, saying that they receive no benefit from Downtown Inc. and that the tax was passed undemocratically.

The grand jury report’s findings are in line with most of the anti-tax property owners’ arguments.

A majority of downtown property owners voted against establishing the tax in 2008. But because votes were allocated to property owners in proportion to the assessed value of their holdings, large property owners, even though in the minority, were able to win the election and enact the tax.

The city government’s property alone was worth more than one-third of the votes in favor of the district. But despite the city’s substantial participation in the vote, the city clerk was assigned to call the election and tally the votes. While the report doesn’t outright state so, it implies that this arrangement was a conflict of interest, making establishment of the tax illegal.

“There is a lack of impartiality, or certainly the appearance of one,” the report asserts.

The report also states that while state law requires equal distribution of benefits for special taxes like Santa Ana’s, Downtown Inc. appears to benefit mainly the downtown restaurants.

Downtown Inc. and city leaders have maintained that the law was set up legally and that the organization’s services are vital to transforming the area into a vibrant commercial area.

Also there appears to be an inappropriately close relationship between an unnamed developer — who by all of the report’s indications is East End property owner Irving Chase — and city staff, according to the report.

The grand jury reached this conclusion based on $765,000 in city funds used to improve the property facades at East End, formerly known as Fiesta Marketplace, and on statements Chase made in a Voice of OC article that he had had a handshake relationship with city staff.

The release of the report comes just as the Santa Ana City Council is tentatively scheduled to consider the tax and Downtown Inc. at next week’s meeting.

— ADAM ELMAHREK

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