Orange County officials are withholding millions in property taxes due schools, cities and special districts, claiming they cannot determine which money came in before and which after the county’s December bankruptcy filing and therefore do not know how much to give out.
The county and the committee representing the local agencies in the bankruptcy have also been arguing over who should bear the burden for the losses suffered last fall on the property taxes that came in before the bankruptcy, and were sitting in the county-run investment pool waiting to be allocated to the various agencies.
With relations between the county and the former pool participants growing ever more contentious, county bankruptcy attorney Bruce Bennett plans to ask U.S. Bankruptcy Judge John E. Ryan next week to resolve the dispute.
“This is a controversy waiting to explode,” Bennett said. “It’s time to go talk to the judge. We’ve got to be careful.”
Meanwhile, the county failed to distribute as planned this week about $25 million in taxes that have streamed in since the bankruptcy, and also still holds about $55 million in pre-bankruptcy tax payments belonging to schools, cities and other agencies.
“These are monies that are due us, and they better pay us. It’s damn important money,” said Irvine City Manager Paul O. Brady Jr., vice chairman of the seven-member committee representing pool participants in the bankruptcy case. “All of us have been counting on it. It’s not something the county should withhold--any or all of it. We’ll take whatever legal steps we have to to get it back.”
Bennett, county attorney John Amsden and county Auditor-Controller Steve E. Lewis said the problem is simply an accounting one.
Pre-bankruptcy money cannot be distributed without court approval, because other county creditors can try to lay claim to it. With the pre- and post-bankruptcy taxes mixed together, county officials said, it is impossible to know for sure how much to pay out.
The bulk of the property taxes that have come in since December have been given out as usual; all that remains is the final payment after the end of the fiscal year, which was sent out last year in mid-July, Amsden said.
“It’s like this big pool of money--it’s like sands in a glass, or grains in a granary--you can’t tell what belongs to whom. It’s going to take a while to get that untangled,” Amsden said. “It’s only two weeks late. It’s been such an extraordinary year, I hardly think two weeks is indictable.
“They’re like conspiracy theorists,” Amsden added. “They think there’s something going on out there when everyone’s just trying to do their job.”
Lewis said he had checks printed this week when the lawyers halted the distribution process, saying it would be better to hold all the money until the bankruptcy judge could mediate the dispute.
“We were ready to issue. At the last minute we were told, yesterday at about noontime, ‘No, don’t distribute it,’ ” Lewis said Thursday. “We had people coming in yesterday at 2 o’clock. We had to call them and cancel and say, ‘Hey, King’s X.’ ”
Beyond the problem of distinguishing between pre- and post-bankruptcy taxes--a matter both sides seem confident can be resolved once accountants have enough time to sort through records and computer programs--the county and the local agencies also disagree about who should suffer the investment losses borne by the unallocated property taxes when rising interest rates collapsed the investment pool last fall.
In January, some pre-bankruptcy property taxes were distributed to local agencies without accounting for the investment losses. Now, county officials want to take an equivalent amount out of the post-bankruptcy taxes and give the local agencies claims for the lost money.
But those representing the agencies argue that since the tax money had not yet been allocated when the losses occurred, the county was responsible for the funds and should bear the entire loss.
“The bottom line is, they want to allocate addition losses to us and we don’t want them to,” said John Giovannone, a lawyer for school districts.
“If they were holding your money, is it your loss?” asked Michael Ozawa of Price Waterhouse, financial advisers to the pool participants’ committee. “Why should that loss be ours just because the county was legally required to hold it?”