It’s County vs. County in Battle Over Tax Equity

If you’re going to be stricken with mental illness, it’s better to be in San Francisco than in Anaheim.

If you want to kick a drug habit, seek help from a program in Los Angeles, not San Diego.

And if you need to call the sheriff, better hope you’re not in Butte County.

At least that’s the advice these days from several counties throughout the state, where officials are marshaling their forces for a new assault in the battle to get what they say is their rightful share of state and local tax dollars.

For years, leaders in several California communities have complained that they weren’t getting a fair slice of the tax pie. As a result, they contend, residents suffer every time they need a county-provided public service, from health programs for the poor to rural roads and law enforcement valued by the middle class and rich.

Acute Problem

The problem is particularly acute in Orange County. But help may be on the way from the south.

Unable to win help in the state Legislature--where a solution for San Diego or Orange counties might mean taking money away from politically powerful San Francisco and Los Angeles--San Diego County officials now believe that their only hope is in the courts.

There, they plan to seek a fundamental change in the way taxpayers’ dollars are spread among counties and to the various agencies within each county.

The strategy rests on the hope--some legal experts say it’s a dream--that a landmark state Supreme Court ruling on school financing can be applied to the health, social service and criminal justice programs that the counties provide.

‘Basis of Need’

“We’re talking about upsetting the whole tax system of the state if we win this thing,” said San Diego County Supervisor George Bailey. “That distribution (of state funds) shouldn’t be on the basis of politics. It should be on the basis of need.”

Orange County Supervisor Bruce Nestande, a former state assemblyman, said he will urge his fellow board members to support San Diego’s efforts because the counties’ chances in Sacramento are bleak.

“When you get more money for Orange (County), you’re taking it away from someone else,” he said. “There are too many legislators representing those communities who fully see we’re not getting a fair share, but they’re not going to change it because that would mean taking away from their counties.”

Orange and San Diego counties have perennially been on the low end of the scale when state-controlled funds for mental health and drug and alcohol rehabilitation programs are measured on a per-capita basis. In funds for drug programs, for example, San Diego ranks 56th of the 58 counties, receiving 91 cents for every county resident, less than half the statewide average. For alcohol programs, Orange County ranks 44th.

In funds for mental health programs, San Diego ranks 48th and Orange County 56th. Orange County receives just more than $9 per capita, while San Diego gets $12.25. San Francisco County receives $25.86 for every resident.

Local Tax Distribution

But county officials say a more serious inequity exists in the distribution of local property taxes, which, unlike state funds, county governments are free to use as they please.

The change sought by Orange County would give it about $133 million more each year, which County Administrator Larry Parrish said would be “a drop in the bucket” toward relieving overcrowding in county jails. San Diego would gain an additional $60 million, enough to improve its much-criticized mental health program, rebuild a deteriorating geriatric hospital and pay the annual debt service on a $420-million courthouse and jail construction program.

In Butte County, where supervisors are considering joining San Diego’s lawsuit or filing their own, more than half of the sheriff’s deputies have been laid off since 1981, Chief Administrator Martin Nichols said. Two of 14 fire stations have been closed, and one of the six library branches was shut down while the rest were cut back 25%. Next year’s budget is expected to bring more reductions.

Nichols said that he has seen supervisors in his county, about 70 miles north of Sacramento, and elsewhere grow frustrated as they have come to realize that their options are limited.

“They’re saying we have tried to play the game the way it’s been played since Proposition 13 and it hasn’t paid off,” Nichols said. “Now we’re seeing the increasing radicalization of some of these elected officials who have had their backs to the wall long enough and are giving up depending on the governor and the Legislature to solve this problem.”

At the heart of the problem, Nichols and others say, is the way property taxes are distributed among the agencies in each county--including county government, cities, schools and special districts.

Before Proposition 13, each agency set its own tax rate, so the breakdown of the property tax dollar differed from county to county and changed from year to year. But when voters passed Proposition 13 in 1978 and reduced property taxes statewide to 1% of assessed valuation, they also gave to the Legislature the right to decide how that 1% would be divided within each county.

Distribution Frozen

With some adjustments and tinkering, what resulted was a distribution more or less frozen in time. The relative winners, it turned out, were the counties that had been taxing, and spending, the most before Proposition 13. The losers were rapidly growing counties such as San Diego and Orange, where urban problems were beginning to worsen but where few major programs were yet in place to address them.

“As we move further and further away from that June day in 1978, this distribution bears little resemblance to what the reality is in terms of county services being provided,” said Dan Wall, a lobbyist for the County Supervisors Assn. of California. “What happens is that a squeeze has occurred.”

Most of the property tax money is divided between county governments and school districts. Cities and special districts (for services such as water, sewer and flood protection) in most counties get only a small amount of this revenue. Generally, the more the counties get, the less schools receive.

But there’s a catch, county officials say.

Because of a 1976 California Supreme Court ruling calling for equal opportunity in education, the state makes up for schools whatever the districts cannot raise in property taxes.

So in cases when counties get more and schools get less, the schools don’t really get less. The state bails them out.

For example, county government takes 17 cents of every property tax dollar collected in Orange County, while the schools get 52 cents. In San Diego, 24 cents goes to the county, 52 to the schools. In Los Angeles, though, the county takes 40 cents, the schools 23 cents. In San Francisco, the combined city-county government receives 85% of the property tax. The schools there get just 9%.

That 9% amounts to about one-fifth of San Francisco schools’ operating revenues; the rest comes from the state. In Los Angeles, about 16% of the schools’ revenues are raised locally. But in San Diego, local funds account for 41% of school revenues. In Orange County, the fiscal responsibility for schools is split almost 50-50 between local taxpayers and the state.

Called a Subsidy

San Diego County’s Bailey argues that this relationship amounts to a subsidy from property tax-poor county governments such as San Diego and Orange to counties such as San Francisco and Los Angeles.

“The state has taken the easy way out,” Bailey said. “They have found a way to give the schools extra funds where they aren’t getting it from the property tax. The problem is that the counties that were conservative are being penalized.”

Bailey said he believes that every county government is entitled to an equal share of the property tax. The first step toward that kind of parity, he said, would be to give each county at least 33% of the tax--the current statewide average. If that means less property tax money for the schools, the state would make up the difference, as it does in many counties today.

Earlier this year, county supervisors in San Diego allocated $240,000 for the coming legal battle. The county hired as consultants the San Francisco law firm Remcho Johansen and Purcell. County Counsel Lloyd Harmon said that he expects to file the lawsuit within 30 days.

The legal strategy, Harmon said, will be similar to that in the landmark case of Serrano vs. Priest, in which the state Supreme Court ruled in 1976 that education was a fundamental right under the Constitution and that school districts ought to be similarly funded regardless of the value of local property upon which taxes are based.

The decision, later implemented by the Legislature in a process that remains under dispute, was designed to close the fiscal gap between school districts in wealthy areas and those in poor communities.

Using the logic of Serrano, the county would have to prove that its citizens have a fundamental right to mental health, drug and alcohol programs as well as law enforcement protection and a system of criminal justice. Then the county would try to show that the state uses an irrational method to help finance these programs and to allocate the property tax.

“The theory is that the statutes as they are set up to provide money to the county to fund its activities cause great disparities between the counties, and consequently the scheme is arbitrary,” Harmon said.

But several attorneys who have been involved in the Serrano case said in interviews with The Times that they are pessimistic about the chances of applying that ruling to county government services.

John E. Coons, a professor of law at University of California, Berkeley, who helped develop the legal theory on which the Serrano suit was based, called the counties’ dilemma the “equal sewer” problem.

“Are people entitled to fiscal neutrality with respect to every imaginable service, or only with respect to services that can be characterized as fundamental within the Constitution?” Coons asked.

Richard Rothschild, director of litigation for the Western Center on Law and Poverty and the attorney for the plaintiffs in Serrano, said San Diego County’s argument sounds like “a rather significant expansion” of the schools decision.

“If I had to guess I would guess it did not have a great chance of winning,” Rothschild said. “The court might tend to say the county’s remedy is political, not legal.”

Officials in Los Angeles and San Francisco, meanwhile, argue that it would be unwise for the courts to order equal financing for certain county services or to look at the property tax without examining every other source of county funds.

Ed Gerber, San Francisco’s lobbyist in the state capital, said San Diego should focus less on the differences among counties and work more toward improving its own lot.

“The issue of inequity is used, but in their heart of hearts it isn’t inequity they’re arguing about but inadequate funding for their own programs,” Gerber said. “They have tried to beat more money out of the state. Now they’re using the inequity argument as another way of addressing the same problem.”

Gerber and James Hankla, chief administrator for Los Angeles County, said their counties get more state funds per person for health and social programs because their needs are greater.

“Per capita, at least as far as Los Angeles is concerned . . . is an accurate method of determining how these funds are allocated,” Hankla said. “We’re finding we have caseloads far exceeding our fair share of the state’s population.”

Clifford Allenby, deputy director of the state Department of Finance, said he sees “some merit” in the argument for a change in the way the property tax revenues are allocated. But he said the system is a result of the counties’ voluntary actions before Proposition 13 limited their taxing powers.

“What you basically did in ’78 is take the (property tax) and reallocate it based on the status quo,” Allenby said. “They’re arguing now that that’s not fair, that ‘you should have done something else or you should do something else now.’ I don’t know how you make that argument.”

But John Sweeten, San Diego County’s director of intergovernmental affairs, said San Diego, Orange, and other counties throughout the state will no longer accept the status quo.

“It doesn’t make sense to say it’s that way because that’s the way it is,” Sweeten said. “How long are we going to say that? Whatever the excuse, it doesn’t make sense, and it’s producing a tremendous hardship.

“We’re trying to do a lot of things other counties are trying to do, and we’re doing it with one hand tied behind our back, and sometimes both hands. We’ve been set up to fail.”