San Mateo County is poised to repay its cities roughly $3 million for administrative fees on property tax after the state’s highest court last Monday upheld a ruling that the withholdings were improperly collected.
The decision in the suit filed against Los Angeles County reverberates statewide, including San Mateo County which must refund the money for administering the Education Revenue Augmentation Fund amounts they distribute on behalf of the state. The California Supreme Court ruled unanimously on Monday that Los Angeles County charged fees that are exempt under state law. Since most counties in the state used the same interpretation of the law to withhold the tax dollars, the ruling means they are now required to pay up.
The refunds date from fiscal year 2006 to 2007 and range in San Mateo County from just under $2,000 to as much as $60,000 for each of the years since, said Benjamin Fay, a lawyer representing them who filed a friend of the court brief on behalf of the League of California Cities.
"Two grand might be small for one city but $60,000 for another will probably cover part of a police officer. It does start adding up,” said Fay who represents 15 of the county’s cities.
According Chief Deputy County Counsel Paul Okada, the overall total owed back to the cities is about a half-million dollars a year since 2006, or roughly $3 million.
San Mateo County has a good relationship with its cities which is why Fay and Okada said neither side was eager to litigate the issue. Instead, they agreed to wait until after the Southern California case wound its way up to the California Supreme Court which it ultimately did after several flip-flops in lower jurisdictions. Okada anticipates both sides connecting to pencil out the actual refunds after the holiday season.
Fay said he believes some counties in the state may have been trying to grab any money they could from cities but thinks San Mateo County’s motives were different.
"The county was simply doing what clearly they felt was the right thing to do and the trial courts did agree in the first place,” Fay said.
The county, like all statewide, collects and distributes property tax revenue and takes an administrative fee. ERAF money, which is used to meet constitutional school funding requirements, cannot be used to determine the fees charged.
But when the state passed two laws in 2004 to close budget gaps — known commonly as the sales tax "triple flip” and vehicle license fee swap — some counties thought that meant ERAF was no longer exempt and began withholding the extra fees.
In 2009, a judge ruled Los Angeles County’s withholding was legal but a appellate court disagreed and sided with the 47 cities that sued. The county appealed to the state Supreme Court which led to last Monday’s decision.
Michelle Durand can be reached by email: email@example.com or by phone: (650) 344-5200 ext. 102.