Counties Win Round in Suit Against State

SACRAMENTO —  In a victory for California’s counties, a judge ruled Monday that the state must repay them billions of property tax dollars that were shifted to public schools.

The ruling in Sonoma County Superior Court marked the first major step forward in a frustrating series of both legislative and legal attempts by 55 counties to recoup money they claim was improperly taken from them beginning in 1991, when the state hit hard economic times.

“This is good news for us,” said John Wallace, spokesman for Los Angeles County Supervisor Don Knabe. “It reaffirms what Los Angeles County has been saying for years. . . . If you cut the money to the county, you’re cutting programs that are essential to the public safety and the quality of life.”

Los Angeles County could be eligible for up to $2 billion, said County Counsel Lloyd W. Pellman.

Estimates of the size of the reimbursement statewide range broadly from $4 to $14 billion or more, depending on how many years end up being counted, what other funds are subtracted and whether cities and special districts 3 are included, as the ruling suggests they should be. The Commission on State Mandates, whose rejection of the counties’ claims a year ago prompted the lawsuit, is charged with determining the final amounts.

Sonoma County Counsel Steven Woodside, who first filed the suit, said it is not an attack on the schools, but merely says the counties should not have to “shoulder the burden exclusively.” State surplus funds could be used to repay the money gradually, he suggested.

But state officials immediately vowed to appeal, calling the ruling “a first impression” and an incorrect one at that.

“Because we shifted the money doesn’t mean they are owed it,” said Department of Finance spokesman Sandy Harrison, who speculated that a state judge might be less sympathetic to the county’s position than the county judge.

The problem has its roots in legislating by ballot box and the collision of two competing initiatives.

Part of the dispute is related to Proposition 98, which in 1988 reserved at least 40% of the state’s budget for schools.

But like many of local governments’ beefs in this state, this one really dates to 1978, when voters froze local taxing authority by passing Proposition 13.

“What this really is, is Prop. 13 coming home to roost,” said Senior Assistant Atty. Gen. Allen Sumner, who is handling the case for the state. “Between 1978 and 1991, the counties and cities were floating on the cushion of the state’s general fund.”

After Proposition 13, the state began back-filling county budgets with general fund revenues. That arrangement lasted 13 years, until the state faced a $14-billion budget shortfall.

Mindful of the Proposition 98 requirements, the state shifted general fund money over to schools, leaving counties a leaner share of less predictable property tax revenues.

Pat Leary, a lobbyist for the California State Assn. of Counties, explained it this way: The state had given “30 cents on the dollar to schools in the past, but [Proposition 98] boosted them up to about 53 cents, and of course that came mostly out of counties’ pockets.”

Complicating matters, voters also had passed another initiative on the heels of Proposition 13--Proposition 4, which required the state to pay for anything it orders counties to do.

It is that 1979 law that Woodside used to argue the case in Sonoma County. Woodside first filed the case on behalf of Sonoma and three other counties.

“That number just grew as counties took a look at it and said, ‘You’ve got a case,’ ” Woodside said Monday evening from his home, where he was celebrating the victory with family and friends.

No one denies that counties have gotten some recognition of their poor financial straits. There was Proposition 172, which provided them trial court funding, and there was additional money for law enforcement, for instance.

Though counties are grateful for that relief, those pots of money are earmarked for specific programs, different from the fluid general fund and property tax money they need to fully function. In one stark example, Yolo County near Sacramento is in the process of turning two paved roads back to gravel, according to Leary, the lobbyist.

County representatives have already begun talking about a lawsuit settlement, perhaps one that would forgo reimbursement for a guarantee of more money from now on.

“You’re spending taxpayer dollars on both sides of the issue if this continues through the courts,” said Pellman, the L.A. county counsel. Acknowledging that the state previously has been unwilling to negotiate, he added: “I think it’s more likely now that we have this favorable ruling.”

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Times staff writer Miles Corwin contributed to this report.