Tax Case Casts Shadow Over S.D. County Counsel : Government: Performance of office questioned when, after four years, it is unready for trial on tax revenue suit.

Four years ago this month, the county of San Diego sued the state of California, saying the state was a cheat.

Compared with other counties, the suit said, the state grossly underpays San Diego County its share of property tax revenues. Without that cash, the county claimed, it has too little money in its general fund and cannot adequately fund courts and jails.

The county is still fully behind that claim--virtually every time the jammed jails or crowded courts draw public attention, county officials repeat it, as if it were a mantra. If the state suddenly decided to bring San Diego County up to the average amount paid, that would mean about $80 million a year, county officials said last week.

But the lawsuit, filed in San Diego Superior Court, has gone nowhere.

The suit never went to trial. Actually, in recently filed court documents, the San Diego County Counsel’s office, which serves as the county’s legal department in civil matters, indicated that, despite having had four years to work on it, the case is nowhere near ready to take to trial.

In court documents, the county counsel’s office readily concedes the “enormous importance” of the case, saying it could affect all of the state’s 58 counties. Yet its importance has helped highlight the question of whether the San Diego County Counsel’s office has the ability and resources it needs.

Without citing particular cases--saying trial strategy had to remain confidential because cases were discussed at closed board meetings--one county supervisor said several recent cases seem to have resulted in unexpectedly large settlements or damage awards against the county.

The supervisor, who asked to remain unnamed, confessed to “really deep-seated questions about the competence of recent representation out of county counsel’s office.”

Another supervisor, who also asked to remain unnamed, said the board’s confidence in the county counsel’s office is uncertain.

Because of rapid expansion at the office over the past several years, County Counsel Lloyd Harmon “doesn’t have that many experienced guys,” the supervisor said. “It’s been reported that the county has lost several cases, because of inexperienced lawyers, where we would have been better off to settle out of court without a heavy judgment that a jury might give them.”

“What the new ones produce I don’t know,” the supervisor said, referring to more inexperienced attorneys. “All I see is what comes down in judgments, or what we authorize in closed session for settlements--and it’s a lot.”

And, in recent court hearings, San Diego Superior Court Judge Michael I. Greer strongly suggested that he was out of patience with the county counsel’s management of the tax case.

After an Oct. 26 hearing at which the county counsel’s office asked for more time to get the case ready for trial, Greer made it clear at a Nov. 30 hearing that there would be no more extensions. He set trial for July 15, 1991.

“I have a suspicion that, with your office, the squeakiest wheel gets the grease, and I intend to be the squeakiest wheel,” he said at the Oct. 26 hearing.

Harmon, who has been county counsel since 1983, overseeing growth from a 34-lawyer agency with a $2.9-million annual budget to a 70-lawyer office with about a $7-million annual budget, said he was unaware of complaints about performance, whispered or straightforward.

“Let me put it this way--no one has said anything, whatever that means,” Harmon said. “I haven’t heard anything. And I talk to most of the board members or their staffs on a daily basis.”

The county counsel’s office provides legal advice and representation for supervisors, employees, boards and commissions. About a year ago, it also took over from the district attorney’s office the business of child-abuse and neglect cases at Juvenile Court.

“The business never stops,” Harmon said, stressing that supervisors generally have approved the growth at his office. But he added that it could still use “a couple more” trial deputies.

But, he said, about the tax case, “I think the case will get to trial as we’ve agreed to, and we’ll put the resources to make sure that it does.”

At recent court hearings on the case, county counsel deputies offered an irony to explain the delays. The suit is stalled, deputies said, in part because, as a county agency, it lacks the necessary resources to work up the case--the same resources the suit claims are due the county.

“This isn’t necessarily an excuse, it’s just a fact of budgeting life, money has been tight,” Harmon said last week.

That, however, is the whole point of the tax case.

In the suit, the county claimed that the way the state allocates property taxes is unfair and arbitrary because different counties receive different amounts and the shares bear no relationship to whether a county is large or small, urban or rural.

As the suit explained, the state’s allocation scheme was prompted by Proposition 13, the landmark tax-cutting measure that was approved by California voters in 1978.

Before its passage, counties had an independent, stable and predictable source of revenue--the property tax. Counties used to be able to set their own tax rates to raise the money for county services and state-mandated programs. And they also could use whatever share of that money they wanted on county government, schools, and other programs.

In one county, for instance, 30 cents of each property tax dollar might have gone to the county government, 65 cents to the schools and 5 cents to cities and special districts. In another, the county might have gotten 80 cents, the schools 10 cents and the special districts 10 cents.

Proposition 13 reduced property taxes statewide to 1% of assessed valuation and gave the Legislature the right to decide how that 1% would be divided within each county. Then, in implementing the proposition in 1979, the Legislature more or less froze distributions in each county where they were.

The relative winners were the county governments that were spending the most before 1978. The losers were rapidly growing counties like San Diego, where urban problems were only beginning to take root and county officials had not yet raised taxes to pay for new programs.

At the same time, the state was implementing a 1976 California Supreme Court ruling calling for equal opportunity in education. It did so by giving more state funds to school districts that were collecting less in property taxes.

The result, according to the suit, is that San Diego taxpayers are subsidizing schools in other counties at the expense of local health, social services and criminal justice programs.

In fiscal 1986, the suit said, the average county got 36% of the property tax money it collected. San Diego County got 27% while Los Angeles County got 46% and the city and county of San Francisco got 89%.

According to a recently published research project, the figures had not changed much by fiscal 1989.

That year, San Diego got 24% of local property tax dollars. According to recently released research, that ranked 54th out of 58 counties--ahead of only Butte County, which nearly declared bankruptcy in 1989 and got 22%, San Benito County at 21% and Orange County at 19%.

In contrast, San Francisco got 84%, Alpine County 68% and Sierra County 63%. The average was 33%.

In dollars, the shortfall is immense, said Manuel Lopez, San Diego County’s director of financial management. To bring the county to the 33% average would mean precisely $83.7 million more a year, he said.

That’s where the $80 million figure that county officials continually talk about comes from.

The rash of figures and the complexity of the allocation scheme are among the central reasons the county counsel’s office asked Judge Greer in October for more time to get the case ready for trial. In a court document filed Oct. 24, one of the three lawyers assigned to the case, Terrence G. Dutton, said the tax codes take 62 pages just to detail the scheme.

Dutton also said that it had been difficult to get information from the state on how the scheme functioned, and added that one of the experts the county had hired for the case had run into trouble processing state computer tapes comparing data county by county.

The biggest problem, however, was that another major case seeking more money for San Diego County had taken up more time than anyone had predicted, and the three attorneys on that case--in which the county is challenging the way the state allocates mental health funds--are the same three as on the tax suit, Dutton said.

The mental health case alleges that people in San Diego with mental illness or drug or alcohol problems have less access to state-funded services than people in Los Angeles, San Francisco or other counties. It was filed in July, 1986, about six months before the tax case, which was filed Dec. 17, 1986.

In a court filing, Dutton said that he, Bruce D. MacLeish and lead deputy Michael B. Poynor had been “literally inundated” with work on the mental health case, now mid-way through a trial.

The first half of the mental health case went to trial Sept. 18 before San Diego Superior Court Judge Barbara Gamer and concluded Nov. 1. The second half, scheduled to begin Jan. 28 before Gamer, is due to run through February, court documents indicate.

Harmon conceded that the mental health case had a more narrow focus than the tax case, which has what he called a “broad-based appeal.” But he said the decision was made to take the mental health case, which was filed first, to trial first.

The mental health case, he said, “clearly deals with real people issues--now.”

Though the county initially considered farming out the tax case to private lawyers, the initial estimates were that the private attorneys’ fees would be at least $500,000 to $1 million, Harmon said.

The other lawyers at the county counsel’s office are too busy with their own cases to take over the tax case, handling about 30 to 40 cases apiece, he said.

At the recent court hearings, Greer made it plain that, even if the three lawyers on the tax case are tied up with just one case--the mental health trial--for months, the county still had better have the tax case set to go next July 15.

“I really am extremely concerned that you meet this schedule,” Greer said at the Nov. 30 hearing. “I am not going to back off from the schedule. We have done a lot of backing off, and it’s not going to happen anymore. Is that clear?”

Last week, Harmon said it was perfectly clear. He said he had just hired a new lawyer--at about $55,000 a year--to work full-time on the case and he may hire another new attorney for it.

“Things just haven’t worked out,” Harmon said.

He added about the judge: “I know he’s anxious to get on with the case. And so are we.”