Deal Close Between Orange County and State in Property Tax Dispute

A deal has apparently been reached between Sacramento officials and Orange County involving more than $73 million in disputed property taxes — a situation termed by some observers as “bankruptcy light,” because the error by county supervisors and their lobbyists has the potential to trigger serious cuts to public services and potential layoffs of county workers.

Orange County supervisors have largely avoided public comment on the ongoing negotiations and are not returning calls for comment on this article.

According to sources, the deal — crafted mainly through the efforts of Assemblywoman Sharon Quirk Silva, D-Fullerton, and state Senator Lou Correa, D-Anaheim — would revive legislation introduced by former  Assemblyman Jose Solorio that would trade the county’s special set-aside of vehicle license fees for property taxes.

Under the negotiations, Correa’s efforts back in 2009 to secure an extra $50 million in property taxes from the state would effectively be traded for its share of vehicle license fees. Yet growth in property tax revenues would allow the county’s share to grow over time.

A long-term payment plan, estimated at six years, would allow the county to pay back $146 million, the two years of property taxes it withheld from the state and local community colleges since the dispute erupted in 2011.

The argument between the state Department of Finance, which successfully sued the county earlier this year, and Orange County is rooted in the 2005 refinancing of the county’s $1-billion bankruptcy debt from 1994.

Orange County supervisors were so eager to refinance the debt in 2005 and thereby eliminate 10 years of payments totaling $100 million that they overlooked that the refinancing effectively eliminated an important legislative authorization giving the county special access to state vehicle license fees. Those fees were part of a 1994 deal with Wall Street investors, who put their money into $1 billion in bonds that paid off the bankruptcy debt.

Most of the supervisors at the time, such as current State Assemblyman Jim Silva, now an assemblyman, successfully campaigned on the issue in ensuing elections.

Yet despite being warned by news media about the legislative disconnect, supervisors and their lobbyists ignored the situation until Gov. Jerry Brown’s budget staff discovered the glitch in 2011 and took back the money — at the time underestimated at $54 million.

Orange County supervisors reacted by persuading then County Auditor-Controller David Sundstrom to ignore Sacramento’s property tax allocations.

Sundstrom then took more than $73 million in property taxes and redirected them from local schools and community colleges and to the county government.

While Proposition 98 forced state officials to pay the lost property tax money to local schools, local community colleges lost their money altogether. Along with the state Department of Finance, they sued the county and later won in Orange County Superior Court.

While Orange County supervisors voted to appeal the case, they have sought a negotiated settlement.

While supervisors met in closed session Friday to discuss the case, they did not publicly announce any decision in public. Talk of an agreement on terms, however, is circulating in the halls of Sacramento against the backdrop of the state legislative session ending early next month.

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