Court Says State Need Not Pay $15 Billion to Counties

A judge’s order requiring California to reimburse local governments about $15 billion for unconstitutionally shifting property taxes from counties to schools was overturned Wednesday.

The legal wrangling dates to 1992, when the Legislature and then-Republican Gov. Pete Wilson faced a record $14 billion deficit.

Lawmakers reduced support of the state’s 58 counties by nearly $3 billion annually and shifted that property tax revenue to local schools. That cut the amount the state was required to provide for local schools under terms of a 1988 ballot initiative.

An attorney for the counties said Wednesday that they would ask the 1st District Court of Appeal in San Francisco to reconsider its ruling or request that the California Supreme Court review the decision.

“It’s the state’s obligation to fund schools. The constitutional protection we rely on is when you shift the financial obligation from state to local government, you must be reimbursed,” said Steven M. Woodside, an attorney for Sonoma County, which led 55 other counties in the legal fight.

Before the 1992 shift began, counties kept about one-third of the property tax revenue generated within their borders. The shift reduced that figure to about one-fifth, forcing many counties to reduce a wide range of services.

That funding formula remains intact today, despite the legislative analyst’s recent prediction that a healthy economy is expected to generate a $10.3 billion state budget surplus next year.

The counties contended that the shift violated a provision of the state Constitution prohibiting the state from ordering local government to provide services without providing the money for them. They sued to recover the amount of the revenue shift for the last five fiscal years, which totals about $15 billion.

Acting on the state’s appeal, a three-judge appellate panel disagreed with the counties’ argument in a technical 33-page ruling, and set aside Sonoma County Superior Court Judge Laurence K. Sawyer’s 1999 ruling ordering California to reimburse the counties.

“The state is not obligated to reimburse local governments for the challenged change in allocation of property tax revenues among local entities,” Justice James Marchiano wrote for the majority.

Sawyer, however, had ruled the shift unconstitutional, saying it “compels the counties to accept financial responsibility in whole or in part for programs which were required to be funded by the state.”