County Ignoring a Likely Disaster

NASA apparently knew about, and ignored, engineering reports that warned of the space shuttle fleet’s dangerous condition long before Columbia’s reentry disaster. Like NASA, Orange County received its own warning more than a year ago that one of its tax-collection practices violated the California Constitution.

In late 2001, Superior Court Judge John M. Watson made his pivotal ruling in the recently concluded class-action lawsuit on the case.

By failing to heed the court’s warning, the county may be headed for a preventable disaster of its own making.

Orange County is appealing its loss in the ongoing Proposition 13 “recapturing� lawsuit. Recapturing is the practice of increasing property assessments by more than the 2% annual limit imposed by Proposition 13, the 1978 voter initiative that fundamentally changed California’s property tax system.

In 1998, the county raised the assessment on our home by 4%, instead of 2%. We challenged that increase at the county’s Assessment Appeals Board. The board sided with us and ordered our assessment reduced to its Proposition 13 limit. A month later, the county sent us a tax refund of $100.55.

We got what we wanted. We were finished. No precedent was established.

But the county was upset by the board’s ruling and filed suit. My wife and I were named codefendants with the assessment board. We countersued the county, its assessor and tax collector.

We designated our cross-complaint a class action. Almost three years later, the county lost its case, we won our countersuit, and the case has been granted formal class-action status.

What is this lawsuit about? It concerns the meaning of the following sentence from the California Constitution, as adopted by voters in 1978: “The full cash value base may reflect from year to year the inflationary rate not to exceed 2% for any given year or reduction as shown in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced to reflect substantial damage, destruction or other factors causing a decline in value.�

Does “the full cash value base� remain limited to a 2% cap after “the full cash value base� is reduced? The county said no, and raised ours and roughly 400,000 other assessments more than 2%. Judge Watson disagreed. For more information about the merits and history of this lawsuit, visit www.propertytaxrefunds.biz.

Of course, the county immediately stopped its unconstitutional tax method, right? Wrong! The county continued in 2002 to collect “recapturing� taxes. Certainly the county now will refund all that money, won’t it? Don’t hold your breath.

In 2002, the county paid $600,000 in lawyers’ fees to fight the suit and lost the case. The Board of Supervisors then authorized an appeal and allocated $300,000 in lawyers’ fees for the first half of 2003.

But what if the county loses its appeal, as it consistently lost at trial? On Jan. 16, county Auditor-Controller David E. Sundstrom reported that the county had collected about $520 million in “recaptured� property taxes from 1998 to date.

Two weeks later he revised his report, reducing the sum by almost $104 million. The latest figure of refund exposure now stands at $416 million.

As an Orange County taxpayer, I’m deeply troubled by a $104-million error -- 20% less than the $520-million figure reported two weeks earlier.

Even more disturbing, both reports by the auditor-controller state “Please note that we have no immediate plans to escrow the funds.�

In other words, there will be no reserve earmarked here, when there should be.

Where does the county plan to find half a billion dollars to refund the illegally collected property taxes once the Court of Appeal upholds the lower-court ruling?

Considering that the county’s annual property tax revenue stream is $2.5 billion, $500 million is probably too big a hit to absorb at one time, especially if nothing is being held in escrow now.

It need not be so. The county has no guarantee that it will prevail in the appellate court, which, like Judge Watson, can read the clear text of the state Constitution.

Now is the time for the county to plan by promptly abandoning the ongoing “recapturing� practice and by creating a reserve fund sufficient to withstand the fiscal heat that will accompany another county court loss. Anything less is foolhardy and fiscally irresponsible.

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Seal Beach resident Robert A. Pool is a class representative in Orange County Superior Court Case No. 00C03385, County of Orange vs. Orange County Assessment Appeals Board No. 3.