Assessor’s actions may cost schools

Deirdre Newman

NEWPORT-MESA -- A letter released Tuesday by the county auditor shows

the school district could endure a staggering loss of about $11.5 million

this year if an initial ruling on property tax assessments turns into a

class-action lawsuit.

Assistant Supt. Mike Fine of the Newport-Mesa Unified School District

was quick to downplay the loss because he expects the effect to be

considerably less -- about $4 million -- and a successful appeal could do

away with it altogether.

“The first thing is, we don’t know it means anything because we don’t

know the ruling is valid,” Fine said. “This is a huge issue for the

state, not just for schools, and it needs to rise to a higher, more

competent level.”

The estimates, released by county Auditor-Controller David Sundstrom,

show the district would also lose about $5.9 million in subsequent years.

Cities would also suffer, with Newport Beach anticipating to lose $3.4

million the first year and $1.7 million in subsequent years. Costa Mesa

would be hammered with an estimated $1.5-million loss the first year and

$780,000 in subsequent years.

The losses are based on a Superior Court judge’s recent decision that

the county assessor violated Proposition 13 by a process known as

recapturing. It increases property assessments above the legal 2% a year

mandated by Proposition 13 to compensate for a property decreasing in

value and then rebounding. It has been a common practice among many

counties around the state in recent years.

Officials close to the case expect Judge John Watson to decide whether

to expand the ruling to class-action status next week. On Jan. 7, the

Orange County Board of Supervisors directed the county counsel not to

appeal the case.

Sundstrom, however, claims in his letter that “there is a reasonable

expectation that the judge’s order would be reversed on appeal.”

The recapturing process began when Bob Pool and Renee Bezaire, a Seal

Beach couple, filed suit when their home’s assessed value reached 4% in

1998.

In December, Watson declared the practice unconstitutional, saying

property values cannot be increased by more than 2% a year, even if the

market exceeds that amount.

The couple’s taxes have since been adjusted, and they have received

their refund. But if the ruling turns class-action, the county will be

forced to refund about $285 million in excess property taxes paid between

1998 and April 2002.

Schools would be hardest hit because they rely so heavily on property

taxes. But the estimated $11.5-million loss to the Newport-Mesa district

translates into a $4-million loss because the state is legally required

to pay the difference, Fine said.

The district has $4 million in reserve, Fine said, and would not have

to resort to layoffs this school year. Next year, however, would be

different, as the district must deal with the state budget deficit, as

well as losing about $6 million more in recapturing.

Fine said the district is exploring its legal options.

“We’re looking at a number of different legal theories to protect

ourselves from uninformed decisions the county has made,” Fine said. “One

of the questions is if the county screwed up, why aren’t they making it

whole? Take it out of the assessor’s paycheck, not out of ours.”

Newport Beach officials said the first potential $3-million hit would

be devastating.

“If the city had to refund all $3 million at once, that would have a

huge effect on the city’s operating budget,” said Dennis Danner,

administrative services director for the city.

All the secured property tax goes to the city’s general fund, which

pays for most of the city services, including public safety, recreation,

community development and libraries, Danner said.

To put the amount in perspective, Danner said $3.4 million funds the

entire budget for the police traffic division.

In Costa Mesa, City Manager Allan Roeder expressed confidence that the

potential $1.5-million loss would not directly affect city services.

Roeder said his optimism is based on the reserve the city maintains

for emergencies and the fact that the city has not yet allocated the

revenue in excess of original estimates combined with savings from last

year’s budget, which is about $4 million to $5 million.

Both Danner and Roeder are also adamant that the final decision should

be appealed.

Today, Sundstrom will ask the Board of Supervisors for outside counsel

for insight into his legal responsibilities in the case.

“I just want to do what’s ultimately right and the most cost-effective

remedy for the citizens. I keep emphasizing that we have some irrevocable

consequences if we move in the wrong direction. I want to wait on an

appeals ruling,” Sundstrom said.

* Deirdre Newman covers education. She may be reached at (949)

574-4221 or by e-mail at o7 deirdre.newman@latimes.comf7 .