O.C. Cities Ask Bush to Waive Refunds : Revenue: Coalition of hard-up municipalities seeks break on millions in taxes paid locally by aerospace firms.

SANTA ANA — A coalition of Orange County cities Wednesday called on President Bush to waive the federal government’s right to collect refunds on millions of dollars in sales taxes paid locally by aerospace firms.

Anaheim Mayor Fred Hunter called the refunds “obscene” and said they would force his city to cut police and fire services. Eight other Orange County mayors or council members attending a press conference in Santa Ana agreed with his assessment.

City officials last week began writing letters to the Bush Administration, demanding an end to the refunds. The letters cited the recession and the Legislature’s recent decision to divert some municipal revenue to the state general fund to help solve the state’s budget crisis.

Wednesday’s press conference was aimed at generating public support for the effort, and to announce the formation of the Coalition for Aerospace Tax Relief that so far includes 38 cities, 31 from Orange County and seven from Los Angeles County.

Hunter estimated the refunds will cost Anaheim $1 million to $3 million. Even if repaid over a 10-year period with interest as authorized by legislation signed by Gov. Pete Wilson on Tuesday, a $3-million debt would cost Anaheim more than $300,000 a year. “That’s six police officers that won’t be in the streets of Anaheim,” Hunter said.

Irvine Mayor Sally Ann Sheridan estimated the refunds will cost her city at least $500,000 and warned that city programs for the disabled, substance abuse counseling and community crime prevention “would all have to be chopped out of our budget.”

The refunds result from a 1990 court case in which an El Segundo firm successfully sued the state to obtain the refunds. The court ruled that since the federal government didn’t pay sales taxes when it received the firm’s finished products, the supplies used by the company in support of the federal contract--including items such as desks, paper clips and computer paper--should be tax-free as well.

Since then, the Department of Defense and the Office of Management and Budget have insisted that aerospace firms file refund claims. Defense contractors had included the tax cost in company billings to the Defense Department, so most of the refund money will go to the federal treasury.

While not criticizing the 1990 court decision, Huntington Beach Mayor Don McAllister said: “It’s time for the state and federal governments to get off our backs.”