A bizarre financing strategy implemented by Orange Country, California has been challenged by the California Department of Finance in a mandamus petition filed earlier this month in state superior court. Due to financial difficulties stemming from the county’s filing for bankruptcy in the 1990s, the California legislature had over the years allocated additional sums to the Orange County from a vehicle licensing fees fund it had established to assist counties generally in making up for revenue losses resulting from a legislative decision to reduce vehicle licensing fees. Last year, because it determined that financial stability had returned to Orange County, the state legislature decided to discontinue the special supplementary payments the county had been receiving, which had amounted to $48 million a year.

In response to the legislation, the county reduced its property tax payments to the Education Revenue Augmentation Fund (ERAF) by the amount it would have received under the previous licensing fee arrangements. The California Constitution (Proposition 98) requires shortfalls in the ERAF that are earmarked for K-12 educational services to be made up by the state. Community colleges are also detrimentally affected by the county’s actions, but the state has no constitutional obligation to maintain funding levels for their operations under these circumstances. Both the California Department of Finance and the Chancellor of the California Community Colleges filed the petition which asks the court to order the county to properly calculate the vehicle licensing fee funds due to the county and to order it to pay the full amount of property tax revenues owed to the ERAF.