Copyright© 1999 by School Services of California, Inc.

October 29, 1999

Court Orders State to Restore Property Taxes
to Counties - Appeal Expected

The state must reimburse county governments for the loss of property taxes shifted to schools, according to a decision handed down October 18 in a Sonoma County Superior Court.

In the midst of the recession in the early 1990s, the state enacted legislation that shifted property taxes from cities, counties, and special districts to K-14 school agencies - a total in excess of $3 billion a year. The shifted property taxes are collected in each county in an Education Revenue Augmentation Fund, and so are known as ERAF revenues. Although prior legal decisions have all upheld California's authority to shift these taxes, the latest litigation used a new approach - the argument that the shifted taxes violate the state's requirement to reimburse counties for state-imposed mandates.

Apparently, Sonoma County Superior Court Judge Laurence Sawyer agreed with the claim of the 54 plaintiff counties. Depending on how many years are at issue, and whether cities and special districts are included, the amount at issue can be anywhere between $4 and $14 billion. (Yes, that's billion with a "b.")

However, Sacramento officials are not in a panic over this decision. A spokesperson for the Department of Finance said that the state will certainly appeal the ruling and that a state judge might take a different perspective that a local judge.

Even if the counties are successful after years of appeals, a negotiated settlement to correct funding prospectively is more likely than a requirement that the state reimburse all prior years. And, fortunately for schools, Proposition 98 provides great protection. Even in a worst-case scenario where the state had to pay back billions of dollars, the Proposition 98 minimum funding level would maintain school funding. But such a scenario would obviously mean that schools would then not get any funding above the minimum, such as we've received in the past several years.

- Paul Goldfinger