Tax Battle Looms Over $5.6 Billion County Budget

Orange County supervisors this week approved a $5.6 billion annual budget, but the county may have to make significant changes to the spending plan, including substantial service cuts, if the county loses its legal battle with the state over property tax revenue.

The budget assumes the county will have $73.5 million available that could be taken away if the state prevails in its property tax lawsuit. The county has, in turn, filed a claim for $23 million against the state, a precursor to a lawsuit.

County officials also said they hope they don't encounter any unexpected cost increases from housing inmates as part of cuts in the state prison system.

For the past several years, county officials have pared down costs as the economy declined.

``We continue to glide down,'' County Board Chairman John Moorlach said after today's vote. ``We're just hoping the state doesn't surprise us anymore.''

The dispute over the $73.5 million has its roots in Orange County's 1994 bankruptcy, when the county pledged a portion of its vehicle license fee revenue to bondholders holding its debt because it was a guaranteed source of money. The state changed the way it allocates the vehicle license fee revenue to counties in 2004, but maintained its arrangement with Orange County because the bondholders were legally required to continue receiving the money, according to the county's claim.

State officials last fiscal year decided to stop sending the $48 million in vehicle license fee revenue to Orange County, which had paid off its debt from the bankruptcy. County officials retaliated by withholding $73.5 million in property taxes from the state that had been allocated to fund school districts.

Meanwhile, county officials said they were unsure how much it will cost to provide beds for inmates sent to the county's jails to alleviate overcrowding in the state's prisons.

The Orange County Sheriff's Department has a contract with federal authorities to supply beds in the county's jails for detainees in the country illegally. U.S. Immigration and Customs Enforcement pays the county $118 per bed, but the state reimburses the county only $60 to $70 per bed, said Orange County Budget Director Frank Kim.

It costs the county about $136 per bed, so the more inmates the county has to house from the state, the fewer beds would be available for federal inmates, meaning less money for the county.

If the $73.5 million from the legal dispute is not available and housing the state's inmates costs more than expected, significant cuts could be on the horizon, including layoffs or furlough days for county employees, Kim said.

County officials have a contingency plan to cut costs and services by 5 percent.

As for discretionary spending, the budget sets aside $344 million for public safety, $133 million for community services, $33 million for infrastructure costs, $99 million for general government, $17 million for capital improvements, $20 million for debt services and $9 million for miscellaneous costs. The rest of the budget is earmarked for programs the supervisors have no control over.

If the county loses its dispute with the state, nearly $14.3 million would be stripped from the public protection budget, $6.6 million from community services, $1.6 million from infrastructure and environmental resources, nearly $4.1 million from general government, $485,000 from capital improvements and $42,821 from insurance, reserves and miscellaneous costs.

 - City News Service