OC School Districts and State Upset Over Perceived County Tax Grab

Angry BirdsOrange County School District officials and State officials are upset over the Orange County Board of Supervisors response to the stalled negotiations to return the $48 million in VLF fees that were swiped to fund the Governor’s budget balancing plan. Back in June, Governor Brown’s budget staff figured out that it could swipe VLF fees from several jurisdictions, including Orange County in order to fill the budget gap. The hit to Orange County was due to the failure of the Board of Supervisors to resolve a technicality that grew out of the 2005 refinancing of their bankruptcy debt.

The swipe caused the County to review Tax Code to determine what the County would get if it was treated the same as all the other counties in the state. Their premise is that if the state feels that the deal that swapped property tax revenues for VLF fees struck in 1995 is no longer valid, the they that deal is off and the calculation of property tax revenues goes back to the way it was.

That recalculation has resulted in the county discovering that rather than $48 million they would have received in VLF fees, the county is entitled to $73 million in property tax receipts.

This has School officials concerned. Voice of OC reports:

Orange County Superintendent of Schools Bill Habermehl wrote to supervisors Tuesday asking they withhold action until further legal analysis could be provided. County officials have made assurances that the state would backfill the funds – because of the dictates of Proposition 98 that guarantee certain levels of education funding. Nonetheless, Habermehl has been critical of the stealth nature of supervisors’ moves, telling the Orange County Register’s Kimberly Edds that the way county officials unveiled their action was “almost a slap in the face.”

The county believes that because of the provisions of Prop 98, the state will be required to fill the gap in tax revenues and the districts will still get their funding.

Voice of OC further reports:

The State Department of Finance on Tuesday issued a harsh rebuke of Orange County government officials for defying Sacramento’s budget allocations on property taxes.

“The county’s intended decision to withhold property taxes is not only misguided but very likely illegal,” said H.D. Palmer, Deputy Director of the State Department of Finance.

Palmer said a legal challenge is likely.

“We’re looking at a range of legal options,” Palmer said.

It will be interesting to see if the state actually files a legal challenge. They don’t really need to fight this mess out in court. I would hope that the county and state would now be motivated to reach agreement to return the $48 million in funds that were stolen due to a technicality.

  1 comment for “OC School Districts and State Upset Over Perceived County Tax Grab

  1. November 19, 2011 at 2:04 pm


    Orange County, California is often referred to as the “Most Conservative County in America”. But County Supervisors have made a mockery of that title by increasing spending by $145.8 million, in a year of lower property tax collection. Now that the County has started running out of cash, they simply diverted $73.5 million from the school’s share of property taxes to stop lay-offs of 490 County unionized employees. Conservatives support small government, low taxes, and prudent spending. The County protecting their union buddies at the expense firing 865 school teachers doesn’t sound very conservative to me.

    I published a report last week: “California has Drawn Down 85% of its Credit Lines”; where we first reported the State of California has a $13 billion budget short-fall and has already pulled 85% of their available credit lines. I warned the state might start short-checking schools and local government in an attempt to avoid laying-off politically active state unionized employees. But I had no inkling that a big County with an upside-down budget would be the first to rip-off schools to shield powerful union friends.

    Orange County has a dicey history when it comes to playing games with other-peoples- money. In 1993, I discovered that the County was trying to cover a $180 million budget short-fall by leveraging the County and the local school’s payroll accounts by 500% and speculating in the wild and woolly world of derivatives. When I confronted the County they claimed what they were doing was “perfectly legal”. I tried to get the FBI, the Controller of the Currency, and the State Attorney General to stop this egregious activity. I was told that: “Government makes laws to regulate the people, not to regulate themselves.” A year later Orange County filed the largest bankruptcy in U.S. history. Of the $2 billion in losses, local schools portion was $93 million.

    In 2006, I ran and was elected as Orange County Treasurer to succeed Republican John Moorlach; now a Supervisor. When I came in office I discovered the $8 billion County pension plan was leveraged with $22 billion of derivatives. It turns out that the County had granted their unions the highest public pension benefits in the nation by spiking their pensions. To avoid having to actually pay for the higher costs of the benefits spike; the pension plan was secretly taking conspicuously bad investment risks. It took me a year of battling with County officials to get the pension to drastically reduce risk in 2007. Had the County not sold the derivatives, they would have suffered $2 billion in losses in 2008 Credit Crisis.

    Supervisor John Moorlach rationalizes ripping-off schools as a method to force the replacement of a $49 million state revenue stream eliminated in last year’s California state budget crisis:

    “We must keep our $49.5 million and we rightfully deserve the additional $24 million. The schools must be backfilled by the State. The State has to figure out how to come up with the $73.5 million. Had the Legislature and the Governor simply left the OC alone, it would have been $24 million ahead. Now we have to wait and see how Sacramento responds to our having informed them that we are following the law. Let’s hope they agree and we can all move on.”

    The power of public employee unions is well-known across the U.S. But what isn’t known is how politicians mouth an ultra-conservative position, while cutting side deals for union support. It is said: “The less the people know about how sausages and laws are made, the better they sleep in the night”. Unfortunately, the County of Orange’s rip-off of schools is now in the public eye. The schools will file a law suit and in three to five years win and get paid back. But during that delay, the Supervisors will have generated some very un-conservative rich and powerful friends.

    Feel free to forward this Op Ed and follow our Blog at http://www.chrissstreetandcompany.com

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