Judge Rules on Proposition 13 Inequities : Taxes: Counties with conservative levies, such as San Diego, have been shortchanged of their proper share of state revenues since 1979, ruling says.

In a ruling that could affect county budgets around the state, a Superior Court judge declared Monday that counties that did not tax property owners as heavily before Proposition 13 have been unconstitutionally shortchanged by the state since then.

The formula that the state has used to distribute property tax money since 1979 “has brought the (San Diego) county government to the brink of fiscal ruin and has brought the county criminal justice system to its knees,” Judge Michael I. Greer wrote in his 61-page decision.

If upheld, his ruling could make the state give more property tax money to counties that taxed their residents conservatively before 1978 by pulling the money from counties such as Los Angeles, which taxed at higher rates and provided more services.

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.

Deputy Atty. Gen. David Chaney, who unsuccessfully defended the distribution formula, said the state is likely to appeal the verdict, delaying any application 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 several other cities. San Diego lawyers contend that the issues examined by the court in that case were much more limited in scope.

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 if the ruling stands. Chaney estimated that Los Angeles county government alone could lose $200 million to $400 million in property tax revenue per year.

Greer said that the current scheme, enacted by the Legislature in 1979 after Proposition 13 was approved by voters, “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.”

San Diego County’s assistant chief administrative officer, David Janssen, said that if the county had received tax money in proportion to what it paid, it would have had $94 million more in the 1989-90 fiscal year alone.

That year, San Diego County got back 50% of the property tax money it paid to the state. Los Angeles got back 79%.

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 1978. After Proposition 13, money given back to the counties from the state was based not on current taxes, but on the amounts taxed and spent before Proposition 13. Greer 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.

The formula cost San Diego County $720 million to $1 billion from 1979 to 1989, Janssen said. 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, which comes six years after a lawsuit they filed 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 the suit.