Solution in sight for property-tax formula that’s cost Stanislaus County millions

Assemblywoman Kristin Olsen, working with state and local officials, is getting close to fixing a property-tax formula that’s considered an injustice for Stanislaus County and has cost it about $70 million in lost revenue over decades.

The end to what’s called the “negative bailout” was included in the May revision for Gov. Jerry Brown’s budget proposal released Thursday. The formula requiring the county to pay $2 million to $3.4 million to the state has been an added insult to a county that keeps a skimpy percentage of the property tax it collects.

“For decades, Stanislaus County has borne the brunt of a state property tax formula that costs the county upwards of $2 million each year,” Olsen said in a statement. “I am thrilled to see that the governor has agreed to make our county whole again.”

County officials and state lawmakers who represent the county have tried for years to correct the problem only to see their proposals die in the Legislature or vetoed by previous governors.

The problem goes back to Proposition 13 in 1978, which capped property taxes in California. Legislation was enacted to bail out counties for the lost revenue by shifting tax dollars from schools to counties and cities. In addition, the state assumed some of the counties’ health and welfare costs.

But Stanislaus and five other counties did not get a bailout from the state’s formula.

In an unintended consequence, the county was required to give up more property-tax revenue to the state. Since then, the county has seen millions of dollars in property tax diverted by the state every year, money that could have been spent on law enforcement or other local services.

Olsen’s fix would correct the problem going forward. The county won’t be refunded any money. The proposal to eliminate the negative bailout would provide $6.9 million in annual relief to Stanislaus, Mariposa and four other small counties.

Stanislaus officials are hoping the proposal will be incorporated in the final budget that’s approved by the Legislature and signed by the governor.

“The Legislature has to pass it, and the governor has a lot of asks in the budget,” said Supervisor Vito Chiesa, who is president of the California State Association of Counties. Chiesa has worked for several years to fix the problem. “It is just the right thing to do. We just want to be treated like 52 other counties that don’t have the negative bailout,” he said.

Olsen said she has talked about correcting the negative bailout in conversations with the governor and key administration staff members since she was elected to the Legislature in 2010. She said Chiesa was there the first time she raised the issue with the governor and the effort has been supported by the delegation of lawmakers who represent parts of the county.

It’s one item in a package of proposals on long-standing budget issues with local jurisdictions included in the May revision.

Olsen said she stayed in close contact with state Finance Director Michael Cohen on details of the proposal and was given the good news in a phone conversation with Cohen a few days ago.

The fix will be inserted in a budget trailer bill and needs to be vetted in budget subcommittees before finding a place in the state’s final budget.

“We will be working this, and hopefully it will end positively for us,” Olsen said. “Stanislaus is the only county in the entire state that has been affected to the degree of millions of dollars in revenue lost.”

Other state representatives from the area agreed with the budget proposal.

“The state’s shuffling of finances after the passage of Prop. 13 penalized counties like Stanislaus that exercised fiscal prudence,” said Assemblyman Adam Gray, D-Merced.

Sen. Cathleen Galgiani, D-Stockton, said the governor made good on a commitment to work with her and other legislators to address the negative bailout, which she said should free up significant funding for Stanislaus County and local agencies.

The property-tax issue has perturbed previous generations of county elected officials and executives.

Former Supervisor Paul Caruso recalled asking about it when he joined the Board of Supervisors in 1991. He was told it essentially penalized the county for being frugal with its health and welfare expenditures before Proposition 13.

Giving up the money to the state resulted in fewer programs and deputies on patrol, he said.

“It sounds like peanuts today because of the county’s $1 billion budget, but at that time for us it was real money,” Caruso said. “We just felt it was not fair and equitable. It was a burr in our saddle that would not go away.”

Besides the negative bailout, Stanislaus gets to keep a small percentage of property taxes compared with other counties. It keeps 11 percent of the taxes it collects compared with a statewide average of 17 percent, and 59 percent pocketed by San Francisco. Neighboring San Joaquin County holds on to 19 percent.

Former Sen. Dave Cogdill was successful in getting a bill passed that froze the negative bailout at the 2010 level, but it has not provided relief for the county since a subsequent decline in property taxes.

Supervisor Dick Monteith, who served in the state Senate from 1994 to 2002, said he teamed with former Republican Sen. Jim Brulte on a bill that would have boosted the county’s property tax revenue. The Legislature approved the bill but it was killed by a governor’s veto.

Monteith said it’s difficult to change the system for distributing property-tax dollars because some counties will give up money to the solution. “I think every governor has been afraid to change this because they feel it affects the other counties and they will take pressure from them,” Monteith said.

Monteith said Olsen’s proposal could still be thwarted but “I hope I am wrong. Being in the minority party makes it a difficult thing to do.”

This story was originally published May 14, 2015 at 1:34 PM with the headline "Solution in sight for property-tax formula that’s cost Stanislaus County millions."