Eager to pressure Orange County into addressing its fiscal woes with a local tax increase, Democratic lawmakers on Wednesday unveiled a legal opinion saying the Board of Supervisors has the power to raise the sales tax as much as one cent without voter approval.
The surprising legal opinion, which was quickly contradicted by state tax authorities, came one day after the Board of Supervisors tentatively approved putting a half-cent sales tax on a special June ballot.
Democrats portrayed the opinion from the legislative counsel, which provides legal advice to state lawmakers, as an opportunity for Orange County’s Republican supervisors to quickly get the upper hand on its financial problems.
“Of course they should raise taxes if they can--it’s the responsible thing for Orange County to do,” said Assemblywoman Marguerite Archie-Hudson (D-Los Angeles), chairwoman of a special Assembly panel looking into the Orange County bankruptcy. “It’s their call whether they do it on their own or go to the voters.”
How a tax increase would be imposed is beginning to appear less critical than the timing. The soonest that a special election could be called is June 27, and added revenue from any sales tax increase would not begin to flow for months after that date. But the county has bond debts totaling more than $1 billion coming due in late June, July and August.
Orange County officials were taken aback by the newly unveiled legal opinion, which was presented at the start of a hearing of the Assembly Select Committee on the Insolvency of Orange County.
“I haven’t had a chance to look at it yet,” said Board of Supervisors Chairman Gaddi H. Vasquez, who was in Sacramento for the Assembly hearing. “It’s never been on the table before.”
Republicans and a variety of anti-tax groups quickly attacked the opinion, saying it is a misreading of the law.
“It’s just politics,” said Joel Fox, president of the Howard Jarvis Taxpayers Assn., which would likely sue if the supervisors imposed a tax without going to the voters. “The politics of reality is that the supervisors would have problems if they failed to submit it to a vote of the people.”
Officials at the State Board of Equalization, which collects sales taxes in California, threw another roadblock in the way, saying the agency would almost certainly refuse to collect a new tax imposed by Orange County without voter approval.
John Waid, the equalization board’s staff counsel, said a 1993 legal opinion by the state attorney general directly contradicts the arguments made by the legislative counsel. Atty. Gen. Dan Lungren’s office determined that the Board of Equalization is legally restricted from collecting taxes in such cases.
Barbara Stocker, an Orange County deputy county counsel who reviewed the legislative counsel’s opinion Wednesday, said the practical reality of the Board of Equalization’s position looms as a large obstacle to the board unilaterally imposing a tax.
“Regardless of what the legal merits are, you have a practical issue here if you can’t collect the tax,” Stocker said. “You’re also just inviting litigation.”
County Chief Executive Officer William J. Popejoy said he was “looking with great interest at the legislative counsel’s opinion” but was not certain that it was legally sound.
“Everything we hear is 180 degrees opposite,” he said, adding that even if the board had the authority to impose the tax it might be better to let voters decide.
“I really think we should let the people decide,” Popejoy said. “Five people making a decision on the most important thing to face the county is probably not appropriate.”
Several Assembly members said county officials are procrastinating because they don’t want to be the ones to pass the tax.
“The board testifies that there’s an urgency involved, our legislative counsel finds very clearly that they have the authority to do it. I think they are reluctant to do it and they’re hiding behind a county counsel opinion as reason not to,” said Assemblyman Richard Katz (D-Sylmar). “If (a tax) is a viable part of their solution, then they should go ahead and do it.”
“If the board passes it, it makes it much quicker,” said Archie-Hudson. “They know that. They just don’t want to pass the sales tax. There’s nothing unusual about that. We all know that.”
Katz said if the board acts now it might speed along a court challenge, which is almost certain no matter how a tax is established.
“Ultimately, the court is going to have to decide this anyway,” he said.
Katz also said any state assistance should be contingent on the tax being in place and a trustee established to administer the county’s finances.
Although sales tax increases have traditionally been put to a ballot test, the legislative counsel opinion suggests the board could immediately adopt a tax increase with a majority vote of the five supervisors. The opinion further said that a voter-approved sales tax increase might violate a provision of the state Constitution prohibiting tax decisions from being subject to a referendum.
But a variety of tax experts drew a starkly different conclusion.
“I think the legislative counsel is just wrong on this,” said Roy Ulrich, legal counsel for the California Tax Reform Assn., asserting that the opinion released Wednesday confuses constitutional prohibitions against a referendum on tax decisions with existing state law that calls for voter approval of sales tax hikes.
“The Democrats are fearful of going to the voters on tax issues,” Ulrich said. “I don’t think they should be so frightened. There will be a good debate in Orange County on this tax.”
John Coupal, legal affairs director for the Howard Jarvis Tax Assn., said the only way Orange County could get around going to voters is with special legislation from the state permitting unilateral approval by the supervisors.
“That opinion is pretty bogus,” Coupal said.
But the idea drew a favorable response from Orange County labor leaders, who said that the supervisors might be able to speed the process along and avert possible defaults if they move to raise the tax without first going to county voters.
“Who knows how it will turn out if it went to a vote of the people,” said John H. Sawyer Sr., general manager of the 11,000 member Orange County Employees Assn. “The county needs to raise taxes and I think they should really do whatever is the easiest, quickest and the least expensive way. The board should do it even if it is a political liability.”
Others, however, said the board should let the voters decide, regardless of whether it has the authority to impose the tax.
“It runs counter to everything we’ve heard,” said Todd Nicholson, head of the Orange County Business Council, which represents more than 2,000 Orange County businesses and has announced its support for placing the sales tax on the ballot. “I believe this is a very significant decision that should be made by the voters. I think the voters will have a pretty clear choice.”
Members of the Committees of Correspondence, a vocal anti-tax group, insisted that any decision on taxes must be made by the voters, not the supervisors.
“This is for the people to decide, not the politicians,” said group member Carole Walters, who opposes the proposed tax increase. Walters added it would be politically disastrous for supervisors to raise the tax, especially if voters reject the expected June 27 ballot measure.
“I don’t think any of the supervisors would vote for a tax if they want to stay in office,” she said.
While lawyers were busy haggling over the intricacies of tax law, the Assembly grappled with a wide range of topics during Wednesday’s hearing, including the impact on social services, schools and charitable organizations.
Several Democratic lawmakers groused that under bankruptcy laws Orange County continues to be the dominant player. “My concern is that these are the people who created the problem in the first place and they continue to have jurisdiction over solving the problem,” griped Assemblyman Antonio Villaraigosa (D-Los Angeles).
Archie-Hudson questioned why the state “doesn’t have a voice” in the bankruptcy proceedings, given that it has a responsibility to make schools whole.
Floyd Shimomura, a senior assistant attorney general, said that legal reality “puts the state in an uncomfortable position of hanging around the shadows of the bankruptcy court.”
Shimomura also voiced concern over the county’s precarious position and warned that the Legislature should take heed.
“The county could very well collapse this summer,” Shimomura said. “It will collapse unless it has some access to a loan, either from a bank, Wall Street or the state.”