Bill Would Help Solve Costly $145 Million Tax Dispute Between State, OC

A bill that would settle a tax dispute between Orange County and the state that has cost the county more than $145 million was headed to Gov. Jerry Brown's desk Thursday following final approval in the Assembly.

The bill was approved in the Assembly by a 77-0 vote, one day after the Senate voted 38-0 to approve it, said Assemblywoman Sharon Quirk-Silva, D- Fullerton, who sponsored the legislation.

An aide to Brown declined comment on the bill, but Quirk-Silva is optimistic he will sign it.

"We've been working very closely with the governor's office from the beginning," Quirk-Silva told City News Service. "We feel pretty optimistic that we've taken all the steps we can."

Quirk-Silva noted the bipartisan support for the bill from Orange County.

"This was truly a team approach," Quirk-Silva said.

Quirk-Silva praised state Sen. Lou Correa, D-Santa Ana, for doing "all the heavy lifting" on the bill in the Senate.

Orange County Superior Court Judge Robert J. Moss recently sided with the state in the tax dispute. In May, he signaled his approval with a tentative ruling.

Since then, Orange County supervisors have been lobbying state officials to resolve the issue.

Quirk-Silva was confident the bill would be approved because it had "full bipartisan support from the Orange County delegation."

If Brown signs the bill then Orange County's tax revenue from the state will be calculated by the same formula that applies in every other county of the state.

"Orange County will now be in the formula when it comes to the (Vehicle License Fee Adjustment Amount), which has been our goal throughout this entire process," Orange County Board of Supervisors Chairman Shawn Nelson said.

"We appreciate the work of Assemblywoman Sharon Quirk-Silva and all of the members of the Orange County legislative delegation to help us gain approval of this legislation."

The county can expect to receive $53 million from the state from the vehicle license fee, and officials will have six years to repay the $145 million or so owed to the state.

County officials decided to seek a legislative solution to the dispute because they figured there was a bigger risk continuing to fight it in the courts, which might deepen political tensions with Brown and legislators, Nelson said.

The bill would also drop an annual $50 million the county receives that Correa won in 2009 for the county during state budget negotiations, Nelson said.

This year the county would not have to pay any of the past due money back, but could do so without interest, and in the second year the county would owe at least $5 million and then at least $15 million in the third year, Quirk- Silva said.

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 with Orange County alone because of the agreement with bondholders.

Other counties instead received property tax money, which was on the rise, while vehicle license fee revenue declined, according to county officials.

In 2011, 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. 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.

The state, in turn, sued the county in April 2012. County officials have cut their budget and are dipping into reserves to pay back the $147 million or so in withheld taxes.

While it could be argued the county would be better served by continuing to receive the $50 million, Nelson said county officials are concerned that when Correa is termed out of office that the Democratic majority in Sacramento would take that money too, leaving the county with nothing.

Even with the same funding formula as the state's 57 other counties, Orange County would receive $53 million from the state because it would be calculated under terms in place in 2011, Nelson said.

"So we'll get shorted $20 million, and that will be an ongoing shortage," Nelson said. "We're always going to be behind. Our alternative could be zero."