2 Railroads in Line for $52-Million Tax Rebate : Utilities: Legal settlement would give them refunds from 51 counties in the state. L.A.’s share is $14 million.

With Los Angeles County facing the largest payment, counties across the state are being asked to refund the Santa Fe and Southern Pacific railroads $52.5 million in back property taxes since 1978, the State Board of Equalization announced Tuesday.

The proposed settlement, filed in a San Francisco federal court last week, would end a lengthy legal dispute in which California’s two major railroads have maintained that they were unfairly taxed under Proposition 13, which froze tax values for homes but not utilities such as the railroads.

Under the terms of the settlement, Los Angeles County and 50 other counties would give the railroads $52.5 million in cash or future property tax breaks in exchange for the companies dropping a number of lawsuits in state and federal court. The Los Angeles County share would be $14 million, the largest of any jurisdiction.

Bitter Legal Fight

“We’re buying piece of mind here for a very, very, very small sum,” Robert Tyler, a supervising deputy attorney general, said of the proposed settlement. “If the railroads won (the court cases), the counties and ultimately the state stand to lose a lot of money. I’m talking two and three times this amount.”

The proposed settlement must be ratified by Feb. 9 by a majority of the counties or it will be withdrawn, Tyler said.

Ratification would end a bitter legal fight begun almost immediately after enactment of Proposition 13, the 1978 tax revolt measure aimed at keeping property taxes low in reaction to monumental surges in property values. While the measure froze tax values at 1975 levels for homeowners and many businessmen, the state Supreme Court held in 1978 that the same protection did not extend to utilities like the railroads.

Armed with that opinion, the state’s Board of Equalization, which is responsible for setting the valuations on utilities, continued to assess railroad property at its full market value, bumping it up each year for inflation. The result: railroad property tax bills increased annually at a faster rate than did those for other commercial concerns, such as shopping centers and office buildings.

Faced with the widening disparity, railroads--including the Southern Pacific Transportation Company and the Atchison, Topeka & Santa Fe Railway Company--filed a series of suits against the state and county tax collectors. The railroads argued that the state’s tax scheme under Proposition 13 violated a 1976 federal law that makes it illegal to tax railroads at a higher level than other commercial property.

The railroads won an early legal battle in 1982, when a federal court found that most commercial property was on the tax rolls at about 63% of its market value while the railroads were forced to pay 100%. That continuing disparity means that counties across California owe the railroads almost $300 million in back taxes, said Phoenix attorney Paul J. Mooney, who represents both Santa Fe and Southern Pacific.

Recently, however, the sheer cost of the court dispute prompted both sides to sit down and discuss a deal, Mooney said.

The two railroads own about 80% of all railroad land in California. Companies owning the other 20% still have similar lawsuits pending against the state and counties.

“The litigation had frankly gotten out of hand,” Mooney said. “We’re dealing with a case in which the parties had expended, collectively, $15 million in litigation fees and expert testimony.”

Fred Bennett, an assistant county counsel for Los Angeles County, declined Tuesday to discuss the proposed settlement in detail. But he said the announcement by the Board of Equalization was “premature” and could jeopardize the agreement.

He also said that, while the $14-million share from Los Angeles County would be a “burden,” the county could find the money in its $9.6-billion budget. “In a budget of our size, this amount of money can be found,” he said.