San Diego Asks Judge to Order Release of Funds Held Hostage by Budget Crisis

Claiming that their sales-tax revenue for transportation and jails has become hostage to a long-running state budget crisis, San Diego County authorities asked a state judge Monday to order the release of millions of dollars.

In a lawsuit filed here, the San Diego County Regional Transportation Commission, the Santa Clara County Transit District and the Santa Clara County Traffic Authority argued that local revenue funneled through the state should not be affected by the Legislature’s failure to agree on a budget. That money does not have to be appropriated to the Legislature, they argued, but is a special levy that taxpayers placed on themselves for pay for local programs.

“How can a state budget that governs state money hold up our check?” asked Barney Allison, a partner in the Los Angeles law firm of Nossaman, Guthner, Knox & Elliott, which filed the lawsuit.

Allison said a decision favoring the two counties would pave the way for all 15 counties--including Los Angeles--that levy the transportation tax to seek their funds. A ruling is expected today.

The State Board of Equalization collects an extra 1% in sales tax in San Diego and Santa Clara counties on top of the 6.25% sales tax the state levies. In San Diego, the money is divided between transportation and jails; in Santa Clara, the local sales tax goes only for transportation.

Once collected, the local revenue is turned over to state Controller Gray Davis, who disburses the money to the counties monthly. But on July 9, Davis notified the counties that he would have to withhold the payments until a new state budget is adopted.

But Wayne Sink, director of finance and administration for the San Diego Assn. of Governments which also sits as the county regional transportation commission, said local governments are worried that the delays could affect bond ratings and may also cause them to lose interest payments on the sales tax monies. His agency missed a $7.8-million payment July 12.

He said the delays may cause bond rating firms to question whether the sales tax is as secure a source of revenue as once thought. “What we’re concerned about is that this could cause a lower rating which translates into higher interest,” Sink said. “We could be talking hundreds of thousands of dollars in higher interest costs.” Democrats and Republicans in the Legislature have been unable to reach agreement on a tax and spending plan for the fiscal year, which began July 1. Once the fiscal year started, Davis said he “would lack legal authority to make certain payments” unless a budget were adopted by the Legislature and signed by the governor.

Davis has already been ordered by federal and state judges to release $688 million in medical and social service payments as a result of three lawsuits by nursing homes, welfare recipients and in-home care workers. Federal and state courts are expected to rule today on a request by state employees for an order releasing their paychecks.