Dan Walters: Orange County in tangled money web

08/13/2013 12:00 AM

08/13/2013 7:57 AM

Four years ago, Lou Correa, a Democratic state senator from Orange County, refused to vote for a state budget deal until then-Gov. Arnold Schwarzenegger and other legislators agreed to give his county more money.

It was, relative to the budget, not even a drop in the bucket – just a $35 million annual shift in property taxes from schools that the state would backfill.

The rationale was that Orange received a smaller share of the local property tax pot than any other county government, but it was driven by a local wrangle over a $32 million county budget cut. While it may have been political extortion, Schwarzenegger needed Correa's vote, so he and legislative leaders paid up.

Fast forward to 2013. There's another dustup between Orange County and the state over taxes, this one involving more than $70 million a year.

It is almost too obtuse to describe in anything shorter than a "War and Peace"- sized book, but the CliffsNotes version is that the Legislature pledged a share of Orange's state-collected vehicle license fees (VLFs) to guarantee loans the county incurred to emerge from its 1994 bankruptcy.

The pledge remained on the books even when the state reduced all VLFs, and even when Orange refinanced its loans.

Two years ago, when the state began shifting some state functions, especially involving felons, to counties, it gave them $5-plus billion in sales taxes and VLFs, and in that action, Orange lost more than $70 million a year in VLFs it had assumed would continue.

On its merits, the loss was unfair, since the funds had always been part of the county's revenue stream, but county officials also erred by not protecting their funds during many years of complex financial maneuvers.

Orange supervisors refused to cede the money and ordered county tax officials to retain that much in local property taxes. Local community colleges then sued the county, but it lost in court, and now is supposed to repay $150 million in three annual installments.

However, Orange is still trying to wriggle its way out, with Correa's help, and the effort now involves that $35 million in extra property taxes that he obtained in 2009 (which has since grown to $50 million).

The senator is floating another swap under which the county would drop its claim to the $70-plus million and the $50 million in property taxes would be converted into an allocation of vehicle license fees that would presumably grow in the future.

It's a fraction of what the county wants, but Correa is still finding it's a hard sell.

Some legislators resent that earlier concession to Orange, and another minus is that the governor and most legislators are Democrats while Orange County is largely controlled by Republicans.

It brings to mind Sir Walter Scott's lines about weaving tangled webs.

Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters. Follow him on Twitter @WaltersBee.

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