O.C. Supervisors Give Car Tax Cut a Green Light

Despite warnings about jeopardizing Orange County’s carefully crafted bankruptcy bailout, county supervisors voted Tuesday to support Gov. Pete Wilson’s effort to cut the state’s vehicle tax by 75%.

The resolution, approved by a 4-1 vote, contains provisions making the board’s support subject to guarantees that the county will continue to receive $130 million a year from the state, the amount now coming from the car tax.

About $16 million of that revenue goes toward paying off bankruptcy-related debts. The rest constitutes about 32% of the county’s general fund.

The dissenting vote was cast by Supervisor Charles V. Smith, who worried that losing the tax revenue could be a violation of the agreement the county signed with its bondholders as part of the bankruptcy settlement.

“How are you going to guarantee that Wall Street is not going to react badly to this?” Smith asked. “This is in violation of those bond covenants.”

The delicate bankruptcy bailout relies heavily on pledges of payments from several streams of income, including the vehicle license fees collected by the state and returned to the county.

Supervisor Todd Spitzer, who crafted the resolution, said the county’s support is being given only if the state agrees to cover the debt service on the recovery bonds until those debts are paid off in 2026.

The resolution, reviewed by the county’s bond attorneys, also makes support contingent on a state constitutional amendment to provide a fund to replace lost money.

“If there is going to be a cut in the vehicle license fee, we need to be at the table to discuss it,” Spitzer said. “We are going to fight to the death to make sure there is a backfill.”

The governor’s office has been looking for support. Supervisor William G. Steiner said he talked about the issue Monday night with Wilson’s chief of staff.

After declaring a $4-billion budget surplus last month, Wilson proposed the plan to slash the vehicle license fee by 75%. In addition, Assemblyman Tom McClintock (R-Northridge) has introduced a bill seeking to repeal the fee.

Created in 1935, the fee is an annual levy on all registered vehicles. The average owner pays about $157 per vehicle, according to the DMV.

Wilson maintains that the car tax is not necessary now that the state is economically vibrant. The governor also pledged a “dollar for dollar” replacement of the car tax funding from the state’s general fund.

But that pledge didn’t assuage many speakers at the board’s regular meeting Tuesday. They said the county was playing Russian roulette with money that helps pay for parks maintenance, health care and police and fire services.

In good economic times, there may be state money to replace the car tax, critics said, but in a recession, funding from the general fund could shrink.

“The vehicle license fee is more stable than the sales tax,” said Felix A. Schwartz of the Health Care Council of Orange County, a coalition of nonprofit health care agencies. “The health care system in Orange County is somewhat precariously funded.”

City officials, in particular, said they would bear the brunt of the problem if somehow funding from the state were not available. Separately, cities in the county receive about $96 million from the car tax money.

“This proposal is a Trojan horse,” Los Alamitos Councilman Ronald Bates said. “This is bad for the cities and it’s bad for Orange County.”

Judith McBride, a representative of national brokerage AG Edwards & Sons, a firm that advises the county on bankruptcy issues, cautioned the board about making hasty decisions.

“You’ve come such a long way since the bankruptcy. You have become very popular on Wall Street,” she said. “The prudent form of action is to carefully study this bill before you vote to support it.”

The local chapter of the League of California Cities also is worried.

“I don’t mind being on the train for tax cuts, but I don’t want to stand in front of it as its victim,” said Brea Councilwoman Bev Perry, president of the League’s Orange County chapter.

Though the supervisors have no jurisdiction or control over the car tax proposal, which still faces an uphill battle for approval in the Legislature, the majority wanted to show solidarity with Republican colleagues in Sacramento.

“Tax cuts are so rare,” Steiner said, “that this one opportunity should not be lost.”