S.D. Cheated Out of Funds, Judge Rules

In a landmark ruling for cash-poor counties across California, a Superior Court judge Monday declared that the formula the state uses for distributing property-tax money has unconstitutionally shortchanged San Diego County for more than a decade.

If upheld, the ruling would bring major cash increases to counties that taxed and spent conservatively before the 1978 passage of Proposition 13, pulling the money from counties such as Los Angeles that spent more.

Judge Michael I. Greer ordered the Legislature to revise the tax allocation rules by July 1, 1993, and threatened to impose a remedy himself if a “constitutional” plan is not approved. State officials said they probably would appeal.

The state formula “has brought the (San Diego) county government to the brink of fiscal ruin and has brought the county criminal justice system to its knees,” Greer wrote in his 61-page decision.

He said the current scheme, enacted by the Legislature in 1979, “violates not only the equal protection clauses of both the state and federal constitutions, but . . . violates the very purpose and intent of taxpayer reform in California under Proposition 13.”

In San Diego, where the cash shortage has produced the nation’s most crowded jails, sharp cuts to the mental health system and underfunded health care programs for the poor, county officials hailed the ruling that comes six years after they filed the lawsuit in 1986.

“That’s going to shake up the state finance system more than anything in our lifetime,” said Board of Supervisors Chairman George Bailey, who persuaded his colleagues to file and pursue the suit.

Assistant Chief Administrative Officer David Janssen said that, if the county had gotten tax money in proportion to what it paid, it would have had $94 million more during the 1989-90 fiscal year alone.

That year, San Diego County got back 50% of the tax money its residents paid to the state. In contrast, Los Angeles got back 79%.

The formula cost San Diego County government $720 million to $1 billion from 1979 to 1989, Janssen said.

Greer’s decision, if ultimately implemented, would have a major impact on services for the county’s 2.5 million residents, Janssen said. The total rises substantially when city governments and special tax districts are included.

“We could open East Mesa,” the county’s newly completed, but nearly vacant, 2,000-bed jail, Janssen said. “We could afford to operate a reasonable mental health program. We could establish children’s services that are reasonable. We could have judges who don’t have to meet in trailers in or marshals’ locker rooms.”

But Deputy Atty. Gen. David Chaney, who unsuccessfully defended the distribution formula, said it is likely that the state will appeal Greer’s verdict, delaying any resolution of the issue for two or three years.

Chaney also cited a 1991 ruling by the 4th District Court of Appeal upholding the formula in a similar lawsuit filed by Rancho Cucamonga and several other cities. San Diego lawyers contend that the issues examined by the court in that case were much more limited.

Jim Lewis, spokesman for Assembly Speaker Willie Brown, said that “it’s much too early to tell just what the ultimate outcome of this suit might be. I’m assuming that the attorneys for the state are prepared to appeal.”

Along with San Diego County, which ranks near the bottom of the state’s 58 counties in property tax revenue per capita, Orange, Riverside, San Mateo and Santa Clara counties would be helped by Greer’s ruling.

Los Angeles and San Francisco counties would be major losers under an equitable plan. Chaney estimated that Los Angeles County government alone could lose $200 million to $400 million in property tax revenue in the first year.

Greer found that the tax revenue distribution scheme approved by the Legislature in 1979 in the wake of Proposition 13 penalizes counties that levied low taxes and kept expenditures down in the years before the 1978 passage of the tax-cutting measure. He called the distribution scheme “so complex that it defies comprehension.”

In effect, the formula locked in those revenue levels even after Proposition 13 equalized property tax rates statewide, Greer found.

“The evidence produced at trial clearly established that the purpose and intent of the . . . property tax allocation scheme was to permanently preserve the per-capita spending disparities between the ‘advantaged’ counties like Los Angeles County, that had been ‘high taxing/high spending’ counties prior to the passage of Proposition 13, and the ‘low taxing/low spending’ counties like the County of San Diego, which had been cutting property tax rates,” Greer wrote.

In 1989-90, San Diego County government agencies, not including schools, received $213 per capita, $67 less than the state average, he found. Los Angeles County governments received $315 per capita, and San Francisco agencies were given $569 per person.

The distribution formula, as manipulated by the Legislature after Proposition 13, has “the effect of causing the previously low-taxing counties to subsidize the previously high-taxing counties,” he wrote.

The formula, Greer continued, is “largely responsible for the lack of adequate funding for criminal justice services.” The county’s jail system releases 65% to 70% of all accused felons before arraignment, and the Sheriff’s Department has less than half the standard number of officers per thousand residents, he wrote.

Declaring that San Diego’s criminal justice system has deteriorated to the point that “the principle of rule of law itself is in jeopardy,” Greer said that the formula is illegal because it “infringes on a compelling California interest, public safety,” without furthering any state interest.

During hearings on the lawsuit, Greer had directed county lawyers to offer arguments to that effect, attorneys for both sides said.

The formula also frustrates the very intent of Proposition 13, which was to replace the county-by-county taxation system with uniform tax rates, Greer wrote.