What's Bad News for the County is Good for Local Schools

Last week’s court ruling that Orange County improperly withheld tax revenue from the state might cost the county $147 million, but it could be good news for the schools.

An Orange County Superior Court judge ruled that county officials wrongfully withheld property tax revenues from the state over the last two years. And it was the schools that were caught in the middle of the tug-of-war between the state and the county.

The county held onto $73.5 million last year by failing to divvy up the money, called education revenue augmentation funds, due the schools. the state would make the school districts whole.

And it did – for all but community colleges – but not exactly in a timely manner, said Ron Wenkart, general counsel for the county Department of Education.

For example, word came down in November 2011 about the so-called “money grab,” but the state didn’t come through with the funds until August 2012, Wenkart said. Schools needed the money by June so they could close out the books on the 2011-12 school year.

That caused some serious cash-flow issues, and eight school districts, including Capistrano Unified School District, needed zero-interest loans from the county just to get by, Wenkart said.

The following chart shows how local school districts in Patch towns were impacted by the withholding.

Capo was the only school district that needed the short-term loan, but it was able to pay it back when the state sent the money in August, said Wendy Benkert, assistant superintendent of business services for Orange County schools.

The bridge transfers essentially neutralized the impact of the [withholding money from] K-12 school districts," Benkert said.

Going forward, Wenkart said, if the ruling holds, schools should be able to avoid similar pains. The duty to refund the state falls squarely on the county's shoulders.

“If the judgment of the Orange County Superior Court is not appealed or is upheld on appeal, the $64.1 million that the State of California gave to school districts to make up for the reduction in property taxes by the County of Orange will be returned to the State of California by the County of Orange,” Wenkart said in a statement.

Likewise, if the ruling sticks, the county will also have to make the community college districts whole to the tune of $9.4 million, he said.