LOS ANGELES — California’s local governments often complain about the state balancing its budget at their expense, but the Orange County Board of Supervisors decided to do something about it.
To rectify what they viewed as the illegal taking of $49.5 million in vehicle license fees by state legislators during the budget process in June, county supervisors have decided to keep $73.5 million in local property taxes typically earmarked for public schools.
The supervisors said the intent was not to harm the schools, but just to get back what they believe rightfully belongs to the local government.
“Orange County should not be treated differently than the other 57 counties and this recalculation will allow the county to receive its property taxes comparably to the other counties in California,” said Supervisor John Moorlach.
California will be forced to backfill the school’s money under Proposition 98, an equalization law that requires the state to make up for property tax shortfalls in school districts, said Bill Campbell, chairman of the Board of Supervisors.
State officials took the county’s vehicle license fees in June, saying Orange County was the only municipality still receiving money from that source following a funding shift in 2003, Moorlach said.
In what was termed a “triple-flip,” he said the state traded sales tax and vehicle-license fee revenues going to counties and cities for property taxes to repay $15 billion of bonds issued to pay down the 2003 deficit. The shift meant that property taxes flowed to counties through a vehicle license fee adjustment account.
Orange County, however, had pledged its vehicle-license fee revenues to pay its bondholders as part of the recovery plan stemming from its 1994 bankruptcy. State legislators passed AB 2115 in 2004 stipulating that the county, to comply with its bond documents, would receive $54 million in vehicle license fees and $169 million in property taxes.
The following year, the county refunded its bankruptcy-related debt for savings, but in so doing eliminated the legislative guarantee of VLF funding, which only applied to the original bond issue.
This June, trying to balance the state budget, legislators repealed the section of the state code under which the county received its vehicle license fee set-aside and the county received $49.5 million less than expected.
County supervisors first tried state legislation, but when their lobbying failed, the county hired attorneys.
“Our attorneys told us that what the state did was illegal,” Campbell said. “The way the state took the $49.5 million in June triggered the 2004-05 law related to the triple flip. Under that law, if the state takes money away from you, the county gets to offset that with property taxes.”
County officials are expecting a battle from the state, and they are likely to get one, according to a state spokesman.
“We are expecting a legal challenge well before the January tax comes in,” said David Sundstrom, the county’s chief administrative officer. “The county is not adjusting the budget anticipating the revenue. They have suspended the 250 layoffs planned, because they don’t think a month or so will be critical.”
H.D. Palmer, a spokesman for the California Department of Finance, said the “county’s intended decision to withhold the money owed to the schools is not only misguided, but likely illegal.”
William Habermehl, Orange County’s superintendent of schools, said he sent a letter to Campbell expressing his outrage.
“With everything going on at the state level, and the negative income results reported by the state, I don’t know where chairman Campbell thinks the state is going to come up with an additional $74 million to give Orange County,” Habermehl said.