County expense of $5.3 million to reimburse cities for certain monies previously classified as property tax administration fees for the last 6 fiscal years, since fiscal year 2006-2007. Monies have been identified and will be appropriated from the Tax Losses Reserve Fund. The on-going impact of the change in the calculation of property tax administration fees will reduce the amount of fees collected by approximately one million dollars annually.
By statute, counties are responsible for the administration of local property taxes. Counties levy taxes, collect them, and distribute these revenues to the various cities, special districts, schools and other entities in the county. In order to partially recover county costs in administering the property tax system, a county is statutorily authorized to impose a property tax administration fee on certain taxing agencies within its borders. This fee is calculated as a percentage of the amount of property tax revenue allocated to that taxing agency. Some of the property tax revenue collected by the county must be paid into each county’s Educational Revenue Augmentation Fund (ERAF). Any revenues allocated from the taxing agencies to the county’s ERAF are exempt from the property tax administration fee.
In 2004, the Legislature adopted two budgetary measures designed to transfer local property tax revenue that would have been deposited into each county’s ERAF to fund various State budget gaps. In return the State made whole each county’s ERAF contributions through the allocation of other state funds. This policy was known as the “Vehicle License Fee (VLF) Swap” and the “Triple Flip.” After this legislation was passed, the State Association of County Auditors determined that it was appropriate for counties to recover the costs of administering the revenues resulting from the VLF Swap and Triple Flip, from cities in the same way that they recovered the costs from administering other property tax revenues (i.e., as a percentage of the money distributed), beginning in fiscal year 2006-07, and prepared guidelines to this effect. Accordingly, since fiscal year 2006-07, the Auditor-Controller has included property tax revenues derived from the VLF Swap and Triple Flip in the annual calculation of the property tax administration fees recoverable from cities and has withheld these administration costs from the County’s cities. The VLF Swap and the Triple Flip had no impact on the property tax administration fees paid by other taxing agencies in the County.
Cities in numerous counties, including those in Contra Costa County, objected to counties’ inclusion of property tax revenues resulting from the VLF Swap and Triple Flip in the calculation of a county’s recoverable property tax administration fees. These cities took the position that the VLF Swap and Triple Flip monies should be exempt from the administration fee, just as ERAF funds are exempt. Forty-seven cities in Los Angeles County brought suit against the county and its auditor to recover the property tax administration fees that they felt had been improperly deducted from their share of property tax revenues. On November 19, 2012, the California Supreme Court ruled in favor of the cities of Los Angeles County in City of Alhambra v. County of Los Angeles [(November 19, 2012) S185457]. The Court held that, in enacting the VLF Swap and Triple Flip, the legislature did not intend to eliminate the ERAF exemption for the property tax revenues designated for ERAF but diverted by the Triple Flip and VLF Swap, so that county was not allowed to collect the proportionate property tax administrative fees from these revenues. The only fees that could be collected were those that related to a few, minor services performed by the county pertaining to these funds. On November 30, 2012, Los Angeles County filed a Petition for Rehearing.
Payment to the cities in this County of the portion of the property tax administrative fees identified by the California Supreme Court in Los Angeles v. City of Alhambra is consistent with the Supreme Court’s ruling.
Failure to take the recommended action would be inconsistent with the California Supreme Court’s ruling.