California accuses O.C. of illegally shifting $73.5 million

Orange County officials illegally diverted $73.5 million from local schools and colleges and used the money to balance their budget and cover day-to-day expenses, state officials alleged in a lawsuit filed Thursday.

The lawsuit, filed in Orange County Superior Court, contends that it was unconstitutional for the county to grab the funds, which should be spent on cash-strapped local schools and state community colleges.

The money fight erupted last year, when Orange County lost $48 million in vehicle license fees and redirected tax funds to the county that were supposed to go to schools. Without the tax dollars, the county might have been forced to lay off hundreds of workers, close jails and cut care for indigent patients, county supervisors said at the time.

But according to the state’s lawsuit, county officials knew they were breaking the law when they took “the extraordinary step of flouting the law and illegally redirecting property tax revenue” to help pay their own bills.

Supervisor Bill Campbell said the move was justified.

“We believe we’ve honored the law,” he said. “And our whole desire is to make sure that Orange County taxpayers are treated as equally as other taxpayers across the state.”

Community colleges, which were hit with about $400 million in cuts last year, are not protected under the move. Officials have estimated that the colleges, which have already had to cut classes and raise students’ fees, could be affected by an additional $10 million to $15 million.

“It’s at a time when the well is running dry,” said Dan Troy, the budget director with the chancellor’s office. “Your options on the table are few.”

The state was joined by the chancellor’s office in the lawsuit, which states that the county should not be “rewarded for its refusal to follow the law.”

So far, K-12 schools in Orange County have not been affected because of a deal between the county and education officials to provide more than $25 million in funding for one year. Still, Orange County Supt. of Schools Bill Habermehl worries what could happen if the lawsuit drags on.

“Hopefully, we can get this lawsuit settled quickly,” he said.

Originally, the county said the funds were needed for day-to-day expenses and to avoid layoffs. But because of underspending by departments and higher sales tax revenue, the money instead has been used to help pay down the debt from the county’s historic bankruptcy in 1994, as well as on computer software and jail upgrades, Campbell said.

If the county were to return the $73.5 million, layoffs or cuts in pay for county workers could occur, Campbell said.

County Board of Supervisors Chairman John M.W. Moorlach said the matter will be discussed in closed session April 17.

“We didn’t go down this road lightly,” he said.

nicole.santacruz@latimes.com

christopher.megerian@latimes.com

Nicole Santa Cruz reported from Orange County, Christopher Megerian from Sacramento,