New Hopes for a Bill to Fix Tax Imbalance

With a state budget surplus topping $13 billion, outgoing state Assemblywoman Marilyn Brewer hopes Orange County’s 21-year streak of getting stiffed on property tax revenue will finally come to an end.

But don’t bet on it.

Brewer has spent six years pushing legislation to correct a fiscal mutation of Proposition 13 that allows Orange County to keep only 7% of the property tax money it raises, one of the lowest rates in the state. Other counties pocket much more--Los Angeles County gets 24% and San Francisco 66%.

Along with Orange County, 16 other “donor” counties would be assured of keeping 15.5% of that tax money under Brewer’s proposal--providing millions of new dollars for police protection, parks, health care and other services.

“Everything is timing, and this may well be the time,” said Brewer, a Republican from Newport Beach. “In years past, we were operating in a deficit. Now there are billions of dollars of surplus.”

Before Prop. 13, the property tax revenue that counties and cities kept depended on what tax rate they set. The rate varied among counties because the amount needed was determined by services rendered, the number of cities in a county and historical and political influences, said Peter M. Detwiler, a Sacramento consultant to the state Senate Committee on Local Government.

Some counties, such as Riverside, must provide sheriff’s patrol, fire and other services in a vast area. But in the Los Angeles basin, most residents live in cities, which provide or contract for police services themselves.

Brewer’s hopes for her measure rose a month ago when an Assembly committee on local government voted unanimously in favor of it.

Her effort is still considered a longshot, however, despite widespread support for changing the way property tax revenue is shared.

As a loyal member of Orange County’s GOP-dominated delegation, Brewer pulls little weight in a town where Democrats lord over the Legislature and governor’s office. And she won’t be back in the Assembly next session, thanks to term limits.

The California League of Cities has also come out in opposition. The group’s lobbyist agrees that the way the state divvies up property tax revenue among local governments is in desperate need of repair--but said Brewer’s solution is shortsighted and will penalize cities.

“If there is to be a solution, it shouldn’t be crafted for just one small slice of the pie,” said David A. Jones, a league representative in Sacramento. “It just doesn’t make any sense to us.”

Proposition 13, the sweeping property tax measure passed by California voters in 1978, had the unintended effect of giving the state the power to decide how local property tax revenue should be split up among schools districts and local governments.

The Legislature, in quickly implementing the initiative, basically capped the level of property tax revenue that the schools and local governments received--levels that varied significantly from one county to another.

At the time, Orange County was being fed back 17% of all property taxes collected in the county, the lowest share of any California county, state figures show.

Over the years, the state eroded each county’s share of property taxes. The major shift came in 1991 when the state, facing a severe shortfall, cut school funding from the state budget and replaced it with property tax revenue from local governments--which helped whittle Orange County’s share down to about 7%.

Though lawmakers such as Brewer have tried, no one has succeeded in equalizing or altering the contorted formulas.

“Where we are now is fundamentally unfair,” said John Chamberlain of the Orange County Taxpayers Assn., which has been a strong advocate of Brewer’s legislation. “The nice thing about this bill is that we’re not taking money from anybody except for the state.”

Brewer’s legislation would ensure that all California counties receive at least 15.5% of their property tax revenue. Among the 17 counties that receive less than that are Orange, San Diego, Riverside, San Bernardino, Santa Clara and Fresno.

To pay for the increase, Brewer wants to tap into the property tax revenue that the state has diverted to schools--which is held in the Educational Revenue Augmentation Fund.

The change, which would be phased in over five years, would cost the state general fund an estimated $66 million in 2000-2001, and would rise to $331 million annually.

In comparison, the governor’s current budget proposal would set aside about $250 million for all local governments, in the next fiscal year only, to make up for the property tax money the state co-opted for schools.

As expected, Brewer’s measure has ignited opposition from many corners, and not just from schools. Tax formulas are complex and largely linked, so increasing one county’s share could come at the expense of other counties or cities.

“Everybody who paid into it should get something out of it. Not just the counties that may have, or may not have, paid into it the most,” said Jones of the California League of Cities. Only 16 out of 6,000 local government entities that had their property tax revenue diverted to schools would get the $331 million in annual relief from the bill.

Dan Wall, Los Angeles County’s Sacramento lobbyist, agreed with Brewer’s point that counties have been shortchanged, but he says her proposal has significant political barriers.

“Orange County’s equity may not be equity for somebody else,” Wall said. “Whenever you’re talking about allocation of existing resources, basically people get concerned because there is the potential to end up with less than what they have.”

What is significant, Wall said, is that counties have pushed for redress for more than six years with no success.

“Most telling is that in the last two fiscal years the state has had an unanticipated surplus of $4 billion in each year and [Sacramento] didn’t really get around to redress these property tax issues,” he said.