Brewer Bill Is Small Step Toward Tax Equity for Orange County

By now, almost everyone knows that Orange County taxpayers get back fewer of their state tax dollars in the form of governmental services than taxpayers of other counties. Hardly anyone understands how this unfair circumstance came about, how much it costs us, and what we’re trying to do about it. Here’s how the Orange County Taxpayers’ Assn. (OCTax) summarizes the “tax equity” issue.

Orange County’s unwelcome role as California’s most generous “donor” county was caused by a combination of historical events. The Serrano-Priest court decision in 1971 required that all schools in the state be funded about equally regardless of local property tax receipts. The state makes up shortfalls in those districts that allocate smaller percentages of their property taxes to schools.

In 1979, Assembly Bill 8 was state government’s effort to “bail out” local governments following Proposition 13. It doles out money to counties in accordance with their 1979 allocations of property taxes between schools and general governmental services. Being efficiently managed and somewhat agricultural in character in 1979, Orange County spent a much higher percentage of its property taxes on schools, and less on general services, than other counties. To our subsequent disadvantage, AB 8 makes this allocation permanent, even though Orange County has become heavily urban, with greater needs for governmental services.

In 1988, Proposition 98 required that 41% of the state’s general fund be spent on K-14 education, intensifying the competition among other branches of government for the remaining money. The Educational Revenue Augmentation Fund of 1992 continued to shift money from county and city governments and special districts to the schools in a contorted effort to put more money into education without raising state taxes.

The impact of these historical developments on Orange County taxpayers is threefold.

First, in compliance with AB 8, Orange County taxpayers spend about 70% of their property taxes on schools and only 30% on county and city governments and special districts. Those percentages are roughly reversed in San Francisco, which is a “recipient” county. Does this mean our schools are better-funded than those in San Francisco and other recipient counties? Unfortunately, no. Read on.

Second, in compliance with Serrano-Priest, Orange County taxpayers “donate” some of their sales, income and other taxes, via the state, to subsidize schools that are underfunded by property taxes in “recipient” counties such as San Francisco.

Third, general governmental services in Orange County, many of which enhance living conditions and the business climate, are underfunded compared to the rest of the state. For example, Orange County taxpayers spend only 6% of our property taxes on county government. The statewide average for all 58 counties is 18%. In other words, general governmental services in the average county in California are three times better-funded than in Orange County.

This “tax inequity” costs Orange County taxpayers dearly. Since 1992, the ERAF shift has taken about $1.5 billion from the county’s general fund, libraries, flood control, harbors beaches and parks, and other community service agencies. The amount shifted in the 1999-2000 fiscal year alone is more than $231 million, and the amount grows every year. The amount of Orange County taxpayers’ Serrano-Priest subsidy to school districts in recipient counties is harder to measure, but OCTax estimates it to be tens of millions of dollars per year.

The present system of financing local government is a mess, and Orange County taxpayers are its primary victims. What are we trying to do about it? Every year since 1996, Assemblywoman Marilyn C. Brewer (R-Newport Beach) has written a bill (each one sponsored by OCTax) that would partially redress the inequity. Even though every bill has been drafted carefully to help donor counties without penalizing recipients, they have died in the Legislature because of jealous resistance (mainly by the League of California Cities) to any measure that would reduce the recipients’ margin of subsidized privilege.

This year’s effort, AB 1880, is modest in its ambition. It would bring 17 donor counties a bit closer to the average of state funding for county governments. For example, Orange County taxpayers would receive about $64 million more per year (a fraction of the actual inequity) in better government services or in tax relief. As before, the League of California Cities and the city of San Jose opposed the bill, claiming that it was flawed because “it didn’t help all cities and counties.” (The league failed to explain why “recipient” cities and counties, which are subsidized by taxpayers in donor counties such as Orange, should be “helped” by a bill that is intended to correct part of the existing inequity.)

Despite the opposition of the League of Cities, AB 1880 was approved by the Assembly Local Government Committee by a 9-0 vote. The bill has a long way to go before it becomes law, but OCTax thinks this interim victory is an encouraging sign that statewide tax equity, long a dream of taxpayers in donor counties, someday may become reality.