The Irvine City Council Tuesday approved a rebate plan for the city’s massive annual overpayment to the Orange County Fire Authority that represents a big revenue boost to the city but is still only a fraction of what it is overpaying for fire protection.

The fire authority serves 23 cities in the county and the unincorporated territories. The idea is that by combining resources into a regional fire agency, everyone saves money. But because Irvine’s allocation to the fire authority is greater than the typical allocation from a contract city, Irvine ends up subsidizing fire services of other cities by at least $18.4 million annually.

Consequently, Irvine leaders have been grumbling since last year that their taxpayers are stuck in a bad deal.

Under the plan, Irvine would receive an estimated $134 million in total rebates through 2030. Despite the rebates, however, the city would still be overpaying by $341 million over the next 17 years, according to Assistant City Manager Wally Kruetzen.

The picture is clearly lopsided when considering that the cost of fire services for cities is typically about half the size of their police budgets. Yet with nearly $60 million going to the Fire Authority this fiscal year, Irvine is paying more for its fire services than its police department. Some city officials have said they can operate their own fire department for less than $40 million annually.

Irvine is in a joint powers authority agreement with the fire authority but can withdraw in 2020. Under the proposed rebate plan, Irvine would be locked in until 2030.

Fire authority Chief Keith Richter said that if Irvine spent half its contribution to the fire authority on its own fire department, it would not yield the same level of service, given the cost of personnel. Also, there are other costs. The fire authority, for example, owns the fire stations and equipment.

“It’s about response times and the number of units you have on the street,” said Richter. “The math doesn’t work.”

The math certainly wouldn’t work for the fire authority if Irvine pulled out. The other contract cities could not make up for Irvine’s large subsidy, and the fire authority would almost certainly be dismantled.

If that happened, Irvine leaders would have to negotiate with the county Board of Supervisors to recoup its property tax revenue. As cities lost their fire services subsidy and blamed Irvine for the destruction of fire authority, Irvine would face a hostile political environment should it request full recovery of the revenue.

Irvine Councilman Larry Agran said such a hypothetical situation is unlikely to occur but acknowledged that “it would be very contentious.”

Irvine’s overpayments are rooted in the complexities of California’s property tax system. When property tax revenue is doled out to different taxing agencies, the share that goes to the fire authority depends on how many taxing agencies were collecting from the cities before the 1978 passage of Proposition 13, which limits property taxes.

Because Irvine is a relatively new city, it had fewer taxing agencies asking for property tax revenue in the late 1970s, so the county carved out larger allocations toward fire services. The county allocates on average 12.4 percent of Irvine taxpayers’ property tax payments to the fire authority, the largest such disbursement.

Irvine is a structural fire fund city, meaning that the county routes the city’s share of property tax revenue to the fire authority. Other fire authority cities, known as contract cities, pay from their general fund accounts.

Irvine is accustomed to being a donor city; it also subsidizes other cities in the county’s public library system. But as overpayments to the fire authority continued to escalate — Irvine contributed more than 25 percent of the total collected from cities in fiscal year 2010-11 — Irvine officials began demanding a better deal.

Fire authority leaders said they can’t offer a larger rebate, because it can come only from unrestricted revenue such as payments from contract cities, according to Assistant Chief Lori Zeller. The majority of its revenue comes from restricted property taxes.

The Fire authority had previously made a “best and final offer” that included a phase-in that would keep the rebates dramatically lower for the first five years. City officials postponed their decision on that offer at a previous council meeting, and fire authority officials offered a new best and final offer, made possible by revising property tax projections upward. That would eliminate the phase-in, transferring an additional $10.9 million to Irvine.

Councilman Jeffrey Lalloway has argued that one final offer following another final offer shows it is premature to approve the rebate plan. Lalloway wasn’t present at the meeting but made his position known in a memo to the council.

“If someone keeps adjusting their proposals, repeatedly referring to them their final offers, it is clear that you are in an ongoing negotiation — and I believe that it is in the best interest of the taxpayers that we negotiate from a position of strength,” Lalloway’s memo reads.

It’s not a done deal yet. The fire authority board of directors must ratify the plan, and so must at least two-thirds of the member agencies. It then would come back to Irvine for that council’s final vote.

Meanwhile, Irvine has commissioned a cost study of opening its own fire department. And Agran said that while he backs the rebate plan, he expects Irvine to withdraw from the fire authority and open its own fire department when the agreement expires in 2030.

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