A deal has apparently been reached between Sacramento officials and the County of Orange 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 lay offs for county workers.
A deal has apparently been reached between Sacramento officials and the County of Orange 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 lay offs for county workers.
Orange County supervisors have largely avoided public comment on the ongoing negotiations and are not returning calls for comment on this story.
According to sources, the deal – largely crafted by the efforts of State Assemblywoman Sharon Quirk Silva, D-Fullerton, and State Senator Lou Correa, D-Anaheim – would revive legislation introduced by former State 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 it’s 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 the two years of property taxes ($146 million) that it has 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 the County of Orange is rooted in the 2005 refinancing of the county’s $1 billion bankruptcy debt from 1994.
Orange County supervisors were so excited to refinance the debt in 2005 – cutting off 10 years of payments worth $100 million – that they collectively ignored the fact that the refinancing effectively disconnected an important legislative authorization that gave the county special access to state vehicle license fees as part of the 1994 deal with Wall Street investors who put their money into the $1 billion in bonds that paid off the bankruptcy debt.
Indeed most of the board members at the time – such as current State Assemblyman Jim Silva – successfully campaigned on the issue in ensuing elections.
Yet despite being warned by the 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 estimated at $54 million.
Orange County supervisors reacted to that situation by convincing then County Auditor Controller David Sundstrom to ignore Sacramento’s property tax allocations.
Sundstrom then took more than $73 million in property taxes (finding that the state had a low estimate when it took the $54 million) and redirected them away from local schools and community colleges and gave them to the county.
While Proposition 98 forced state officials to backfill the lost property tax money to local schools, local community colleges lost the money altogether. Along with the State Department of Finance, they sued the county and later won in superior court.
While Orange County supervisors voted to appeal the case, since losing in local court they have sought out a negotiated settlement.
While supervisors met in closed session Friday to discuss the case, they did not announce any decision in public – even though there seems to be an agreement on terms that is still being circulated in the halls of Sacramento – against the backdrop of state legislative session that ends early next month.