Fair and equal treatment under the law is a central tenet of American government. Yet, on April 5 the California Department of Finance filed a lawsuit that specifically targets the property tax revenues of the County of Orange, with a uniquely harmful (mis)interpretation of the law. Despite being the most generous “donor county” in the state, the Department of Finance continues to grab for resources from the wallets of Orange County taxpayers.
In 2004 the state implemented a Vehicle License Fee (VLF) Swap that required its 58 counties to swap all of their VLF revenue for property taxes, which had previously been allocated to schools as educational revenue augmentation funds (ERAF). Since 2005, in accordance with the VLF Swap approved by the Legislature, all counties (except Orange County) received a 100% swap of VLF for property tax. Orange County exchanged only 76% of its VLF revenue, retaining 24% in order to comply with the covenants associated with bonds sold by the county in the wake of its 1994 bankruptcy. At no point did Orange County receive additional revenues from the state.
Fast forward to 2011, the state Legislature passed SB 89, which included a provision to take all of Orange County’s VLF revenue through a last-minute addition to the bill. The bill was voted on less than four hours after it was drafted, with none of the normal hearings and no opportunity for the county to read it, much less have input.
Absent a review of the statutes governing the VLF Swap, the net impact to the county would have been a loss of $48 million. Thankfully, the Orange County auditor-controller (aided by independent legal counsel) determined that without the county retaining a portion of VLF revenue, he was required by law to calculate Orange County’s allocation of property taxes in a manner consistent with the other 57 counties in the state.
The auditor-controller acted on the principle of fair and equal treatment under the law.
Due to the growth in property valuation since 2005, when the VLF Swap was enacted, it turns out that if Orange County is allocated property taxes using the same method as all other counties in California, it should receive $73 million of revenue for this fiscal year in exchange for losing its VLF revenue.
The state’s brazen grab of $48 million of Orange County VLF revenue actually triggered the receipt of $73 million of property tax revenue, according to the clear language of the California Revenue and Taxation Code.
Now, in an attempt to have its cake and eat it too, the Department of Finance is suing to deprive the county not only of the $48 million of VLF revenue, but also the $73 million of property tax revenues that it rightly deserves and is legally owed.
In essence, the Department of Finance is requesting that a judge support the profoundly unfair and clearly illegal effort of forcing Orange County to calculate property taxes as if it were still receiving VLF revenue.
Through its comments and the language of its lawsuit, it is clear that the state means to paint Orange County as the protagonist in this episode of intergovernmental resource shifts.
Nothing could be further from the truth, as it was the governor’s office and certain members of the Legislature who hatched the rash plan to grab $48 million from Orange County, and subsequently set in motion the sequence of events heretofore described.
The County of Orange is certainly empathetic to the plight of the community college districts that have lost revenue as a consequence of the recalculation of property tax distribution legally required by the State Revenue and Taxation Code.
For this reason, we offered to provide a one-time grant (of approximately $9.4 million) that would cover the revenue shortage accrued by the districts, statewide, during the current fiscal year.
While the responsibility to finance this shortfall certainly falls on the state and the Legislature, who caused this sequence of events, the county does not wish to pull the rug out from under fellow public servants.
We note that this courtesy was not extended to us by the state or the Legislature through the passage of SB 89.
Sadly, the community colleges declined this offer.
The intent of the County of Orange has never been to turn SB 89 into a windfall for our general fund. Perhaps the lesson for the architects of SB 89 is to let well enough alone. An ill-advised budgetary pot shot of $48 million taken at Orange County has boomeranged back at the state with the need to backfill $73 million of lost property tax revenues. Now, in an attempt to save face, the state has lashed out again at the County of Orange with a logically inconsistent lawsuit.
So much for fair and equal treatment.
