Why is Orange a “Donor” County?
By now, almost everyone knows what the Orange County Taxpayers Association (OCTax) began railing about two decades ago: Orange County taxpayers get back less of their state tax dollars in the form of governmental services than taxpayers of other counties. Hardly anyone understands how this unfair circumstance came about, how much it costs us, and what OCTax and others are trying to do about it.
Orange County’s unwelcome role as California's most generous "donor" county was caused by a combination of historical events.
• The Serrano-Priest court decision (1971) requires that all schools in the state be funded about equally, regardless of local property tax receipts. The state makes up shortfalls in those districts that allocate smaller percentages of their property taxes to schools.
• AB 8 (1979) was state government's effort to "bail out" local governments following Proposition 13. It doles out money to counties in proportion to their 1979 allocations of property taxes between schools and general governmental services. Being efficiently managed and somewhat agricultural in character in 1979, Orange County spent a much higher percentage of its property taxes on schools, and less on general services, than other counties. To our subsequent disadvantage, AB 8 makes this allocation permanent, even though Orange County now is heavily urban, with more need for governmental services.
• Proposition 98 (1988) requires that 41% of the state's general fund be spent on K-14 education, intensifying the competition among other branches of government for the remaining money.
• The Educational Revenue Augmentation Fund (ERAF, 1992), sometimes called the "Wilson Shift," continues to shift $4 billion per year from county and city governments and special districts to the schools in a devious effort to put more money into education without raising state taxes.
The impact of these historical developments on Orange County taxpayers is threefold.
First, in compliance with AB 8, Orange County taxpayers spend about 70% of their property taxes on schools and only 30% on county and city governments and special districts. Those percentages are roughly reversed in San Francisco, which is a “recipient” county. Does this mean our schools are better-funded than those in San Francisco and other recipient counties? Unfortunately, no. Read on.
Second, in compliance with Serrano-Priest, Orange County taxpayers “donate” some of their sales, income, and other taxes, via the state, to subsidize schools that are underfunded by property taxes in “recipient” counties such as San Francisco.
Third, general (i.e., non-school) government services in Orange County, many of which enhance living conditions and the business climate, are underfunded compared to the rest of the state.
For example, Orange County taxpayers spend only 6% of our property taxes on county government. The statewide average for all 58 counties is 18%. In other words, general governmental services in the average county in California are three times better-funded than in Orange County.
This “tax inequity” costs Orange County taxpayers dearly. Since 1992, the ERAF shift has taken probably $5 billion dollars from the county’s general fund, libraries, flood control, harbors beaches and parks, and other community service agencies.
The amount of Orange County taxpayers’ Serrano-Priest subsidy to school districts in recipient counties is harder to measure, but OCTax estimates it to be tens of millions of dollars per year. The present system of financing local government is a mess, and Orange County taxpayers are its primary victims. What are we trying to do about it? For several years beginning in 1996, OCTax sponsored or supported several bills (authored by Assemblywoman Brewer and now-Senator Correa that would have partially redressed the inequity. Even though every bill was drafted to help donor counties without penalizing recipients, they have died in the Legislature because of jealous resistance (mainly by the League of California Cities and the City of San Jose) to any measure that would reduce the recipient counties’ margin of subsidized privilege.
The League and the City of San Jose claimed the bill was flawed because “it didn’t help all cities and counties.” They failed to explain why recipient cities and counties, which are subsidized by taxpayers in donor counties such as Orange, should be “helped” by a bill that is intended to correct part of the existing inequity.
Occasionally, Orange County makes a dent in the injustice. For example, now-Senator Lou Correa supported the $40 billion package of tax hikes, spending cuts and loans designed to close the gap in California's 2009 budget. In return, he demanded, and got, agreement by the Legislature to give Orange County $35 million in additional property tax revenue for two years and up to up to $50 million annually thereafter.
Even with Senator Correa’s small victory, Orange County’s annual “donation” to recipient counties is about $200,000,000
