OC Supervisors Decide to Appeal Ruling on Property Tax Lawsuit

The Orange County Board of Supervisors voted unanimously Tuesday to appeal a judge’s ruling in the county’s case against the state Department of Finance over more than $73 million in annual property tax revenue.

Supervisors lost their case against the state last week in Orange County Superior Court, and Judge Robert Moss ordered them to return up to $147 million in property tax revenue they persuaded former Auditor-Controller David Sundstrom to allocate to the county instead of to local schools and community colleges in recent years.

The issue is the result of a massive oversight several years ago by supervisors and county legislative staffers, who ignored warnings after they refinanced the 1994 county bankruptcy debt.

At issue was a special legislative authorization granted by Sacramento leaders to Orange County after the bankruptcy that allowed Wall Street investors to be paid directly on bankruptcy bonds. That legislative set-aside was inadvertently omitted in 2005 when supervisors refinanced the bankruptcy debt. Despite warnings, the omission was never corrected.

In subsequent years, Sacramento allocated counties a larger share of property taxes but withdrew vehicle license fees. For years afterwards, however, Orange County continued to routinely receive both.

But in 2011, Gov. Jerry Brown’s budget staff discovered the allocation error and took back a chunk of property tax revenue.

County supervisors avoided any public discussion of the error and instead approached Sundstrom to change the county’s allocation of property taxes, which he did. Local community colleges protested the move and joined the state in their lawsuit against the county.

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