A special allocation of $50 million in property taxes obtained by state Sen. Lou Correa on behalf of Orange County in 2009 has now become a key chip for county leaders in the ongoing negotiations with Sacramento over a disputed annual tax bill of more than $76 million.
“The property tax money I was able to secure for Orange County is now going to be the basis of a new swap to try to get us back into more equitable position, like how every other county is being treated,” Correa said late Tuesday, confirming negotiations between the county, labor leaders and Gov. Jerry Brown.
“What we thought should have been a step toward a bit of gravy is now just a struggle to get back to where we were,” Correa said. “Without that $50 million, we’d be nowhere. There would be nothing to negotiate.”
The dispute has already spurred lawsuits and could trigger steep budget cuts in Orange County if a deal can’t be worked out.
With state legislators back in session, Orange County finance officials Tuesday offered labor leaders and reporters a special update on what the county’s 2014-2015 fiscal year budget might look like when a judge finalizes paperwork on the county’s recent loss in court against the state Department of Finance.
The court decision calls for the county to pay $150 million to the state in three yearly installments of $50 million.
County Finance Director Frank Kim told reporters Tuesday that officials have been bracing to reshuffle their budget to account for $76.5 million dollars lost in annual property tax revenue.
Kim also confirmed that the $50 million Correa property tax allocation is a likely key to a negotiated deal with Sacramento.
“You may to trade an asset you have,” Kim said.
According to budget documents handed out by county officials, as part of the fiscal 2013-2014 budget, county officials already instituted a 5-percent across-the-board cut that netted $24.1 million in permanent, ongoing structural cuts.
They also were able to make $52.3 million in one-time cuts by dipping into reserves, using special loan funds and deferring capital infrastructure and information technology projects.
Now, Kim said, the challenge after the court loss will be to make that $52.3 million a permanent part of the budget moving forward.
The potential of departmental cuts already has county labor leaders poised to fight, with the Orange County Employees Association sending a notice advising workers they are fighting against rank-and-file cuts.
“The County predicts they could bridge the revenue loss with labor reduction, revenue assumptions and non-labor cuts, however any specific and direct impacts are not currently known,” wrote OCEA General Manager Nick Berardino to the 17,000 county workers his labor organization represents after his morning briefing with county leaders.
“We told the County again, as we’ve said many times before, they should first look at the budgets and perks of supervisors and executives before taking any more from you and your families,” Berardino wrote.
On Tuesday afternoon, Kim told reporters that county managers are not looking to layoffs to bridge the funding gap.
Kim said the biggest chunk of permanent cuts for the 2014-2015 budget will come from a similar approach employed in the last fiscal year: a mix of hiking revenue estimates, using short-term loans, dipping into reserves, delaying capital improvements and instituting departmental cuts.
For example, Kim noted on the revenue side the county would use $8.4 million in Teeter revenues, which are short-term loans that are provided to local governments to float operations between biennial deliveries of property taxes from Sacramento, to pay for expenses.
Realignment funds from the state to monitor parolees will also net another $4.4 million in new revenues, county documents showed.
On the expenditure side, Kim noted that nearly $11.5 million in capital and IT projects will be delayed. Another $14 million in department cuts will have to be developed across government departments.
Lastly, reserves carved out from payments to the local retirement board will account for another $10 million, and county general fund reserves will provide $4 million in revenues.
In all, that amounts to $52.3 million in permanent ongoing cuts.
That’s where the Correa bucks come in.
On Tuesday, Kim outlined several scenarios for reporters where the $50 million Correa property tax allocation would be used to structure a political settlement.
The most likely would have the county give up $76.5 million in property taxes and convert the $50 million in Correa bucks to vehicle license fees with the ability to allow the allocation to grow over time.
County leaders have been fighting with Sacramento for several years after Gov. Jerry Brown’s budget staffers identified nearly $50 million in property taxes that could be taken away from Orange County and applied it to the 2012 budget.
The money was left in peril when Orange County supervisors refinanced the 1994 bankruptcy debt and disconnected an important legislative authorization that allowed the county to receive a special share of vehicle licensing fees.
Despite warnings from the media, county supervisors and their army of legislative advocates never reconnected the legislative authorization.
After Brown’s budget staff took the money, supervisors persuaded then county Auditor Controller David Sundstrom to ignore Sacramento’s budget allocations, redirect money from local schools and community colleges and steer more than $73 million back into county coffers.
While statewide propositions forced Sacramento to reimburse local school districts, community colleges lost millions and ultimately filed suit against the county along with the state Department of Finance.
When the county lost the lawsuit earlier this year, Democrat-controlled Sacramento was in no mood to negotiate with one of America’s most Republican counties — a jurisdiction that has made a point of refusing Obamacare federal health care dollars and is the birthplace and financing base for the last decade’s most virulent anti-union ballot measures.
Despite a full-court blitz from local labor leaders and lobbyists working in tandem over the last few years, Orange County leaders have yet to make progress.
Correa described the ongoing negotiations as “a very painful process.”