MOORLACH UPDATE — Feuding — May 10, 2013

It’s been another busy week, so let’s recap. The biggest news item was the tentative ruling by Judge Moss against the County, concerning a difference of interpretation of Revenue and Taxation Code 97.70; his decision being a major blow to the County. The Los Alamitos-Seal Beach Patch provides another version of the story in the first piece below. For those wanting a tutorial on California’s Property Taxes, go to the Legislative Analyst’s Office at http://www.lao.ca.gov/reports/2012/tax/property-tax-primer-112912.aspx, for a report released on November 29, 2012. Here is one graph that shows how much of each property tax dollar, per resident, goes to the County of Orange. You will notice that out of the 58 counties, the OC is in last place. This means the OC is a major subsidizer of other counties in this category of taxation.

Cities Property Taxes per Resident Counties Property Taxes per Resident Schoolsa Property Taxes per Student
Industry $2,541 San Franciscob $1,411 Mono $10,683
Malibu 559 Sierra 1,126 San Mateo 5,432
Mountain View 344 Inyo 876 Marin 5,213
Los Angeles 332 Napa 522 San Francisco 4,020
Long Beach 268 El Dorado 464 Orange 3,315
Oakland 250 Los Angeles 359 San Diego 2,760
State Average 242 State Average 320 State Average 1,960
San Jose 200 Alameda 301 Yolo 1,765
Fresno 183 Sacramento 286 Sacramento 1,344
Anaheim 167 Contra Costa 271 San Joaquin 1,163
Santa Clarita 140 San Diego 261 Los Angeles 1,142
Chico 129 Riverside 200 Fresno 810
Modesto 119 Orange 174 Kings 379
a Countywide average for K–12 schools.

b San Francisco is a city and a county.

The Voice of OC provides an update on the VLF torpedo in the second piece below.

For those who appreciate our wonderful harbors, the third piece below from the Dana Point Times should bring you up to speed on Dana Point Harbor’s remodeling efforts.

The fourth and final piece below is from the LA Times, and is their take on the recent Orange County Grand Jury reports and reactions. One of my quotes may not have been presented in its proper context, so allow me to expound. Making a claim, based on sparse history, with some events going back as far as forty years, to conclude that everyone in current County leadership is corrupt is absurd and irresponsible. Such an outlandish claim creates an unnecessary blemish on our great County. Consequently, instead of being a tool for improvement, their reports are further eroding the Grand Jury’s credibility, while producing minimal overall benefit. Let me give one example. The “harassment” report scoffs at how few know the true definition of the word, yet doesn’t even provide the definition in its narrative. The report, on its main theme, missed the opportunity to be a learning tool.

County Loses Tax Feud with State, May Owe $147 Million

A judge’s verdict will mean cuts to Orange County services, officials say.

An Orange County Superior Court judge has ruled against the county in its dispute with the state over property tax revenue, forcing the county to give up about $147 million and consider cutbacks in service.

"I don’t like it, but we’re ready," Orange County Board of Supervisors Chairman Shawn Nelson said. "Ready means, ‘Ouch, this is going to hurt,’ but — as opposed to other governmental agencies up and down the state who ignore the circumstances — we understand full well this will require drawbacks."

Budget Director Frank Kim assured residents they likely won’t see draconian cuts in services.

"We asked all departments to prepare for the worst-case scenario and to make contingency plans of reduced funding by 10 percent and they’ve done that," Kim said. "We also have reserves and access to certain revenues, we’ll look at all those options. … Nobody at the county is panicking. We’re disappointed, but we’re going about this in a calm, reasonable manner."

H.D. Palmer of the state’s Department of Finance said the county will have to make a higher contribution to the Educational Revenue Augmentation Fund when it is next due.

"From our standpoint, we’re pleased with the court’s ruling because it affirms the county has been withholding property tax from the schools was illegal," Palmer said, adding it was "a threat to the community college system" that would cost it $12 million to $15 million for 2011-12 fiscal year.

Orange County Superior Court Judge Robert J. Moss issued a tentative ruling on the dispute Tuesday, but state and county officials were not informed until Wednesday afternoon. A hearing was scheduled for July 8, but it was not clear if that will go ahead or be delayed as county officials appeal.

The dispute stems from Orange County’s 1994 bankruptcy when the county pledged part of its revenue from vehicle license fees to the bondholders, because it was a guaranteed source of money.

The state changed the way it distributed vehicle license fee revenue to counties in 2004, but it left its arrangement alone in Orange County, because the agreement with bondholders.

Other counties were instead receiving property tax money, which was on the rise, while revenue from vehicle license fees was declining, according to county officials.

In the 2010-11 fiscal year, state officials decided to stop sending $48 million to Orange County, which had refinanced its bankruptcy debt and no longer needed it securitized.

County officials retaliated by withholding $73.5 million in property taxes for two years. County officials arrived at that number by using the same formula other counties use to calculate how much they are due in property taxes. That’s why county officials demanded $23 million in a claim filed last year — it’s about the difference between the vehicle license revenue and the property tax figure county officials came up with.

State officials filed the suit in April 2012. An attorney for the state argued that county officials should have taken the issue to the courts, not unilaterally change its tax obligation.

Moss said in his ruling, "The court finds that the county of Orange received no special treatment in regards to VLF funds. The only difference was approximately $54 million was withheld to ensure payment to bondholders from the county of Orange’s share of the VLF."

The judge said the case "presents an issue of pure statutory construction," and that state lawmakers were clear on the allocation of the funds.

However, Nelson and Supervisor John Moorlach complained Orange County was being treated differently.

"In the simplest forms, the county sought to do nothing but equally apply the law," Nelson said.

"We were the only people in this situation," Nelson said, referring to the funneling of some funds to the bankruptcy. "The state has the right to write laws that are not selective on its face, but unfortunately they were able to creatively do it in such a way that applies only to us. It’s a tragedy because all it does is mean the average citizen of Orange County is treated differently than everybody else in the state."

Moorlach said the judge’s ruling was "devastating" and he favors appealing the decision.

"I still believe we’re right and the governor should not treat one county any differently than he does any others. We’re already a donor county," Moorlach said.

The county will dip into its reserves and shave expenses where possible to come up with the $147 million, Nelson said.

"We are ready," Nelson said. "It doesn’t make the pill go down any easier, but we had it available in case of an emergency."

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