San Benito County owes $4.3 million to the state because it
miscalculated its portion of property tax revenues between 1997 and
2002, according to a state audit announced Tuesday.
San Benito County owes $4.3 million to the state because it miscalculated its portion of property tax revenues between 1997 and 2002, according to a state audit announced Tuesday.
The announcement comes when the county already is struggling to balance a $4 million deficit. Officials received a letter from the state Controller’s Office on May 24 confirming the mistake, which the county is not disputing. And County Administrative Officer Terrence May announced the finding at Tuesday’s Board of Supervisors meeting.
The county is trying to negotiate and possibly lower the $4.3 million loss. But officials have adjusted the formula for future years.
And the immediate effect is a $1 million drop in projected property tax revenue for 2004-05 from $6.5 million to $5.5 million. Plus, the county must sacrifice another $1 million for the current fiscal year ending June 30.
“This isn’t a temporary loss,” May told the Board. “It’s a permanent, ongoing loss in revenue.”
That problem compounds an existing multi-million dollar shortfall caused by state takeaways, a poor economy and other declining revenues. Officials have discussed widespread cuts – such as closing the Marshal’s Office and curtailing fire protection – to close the gap.
County lawyers are negotiating with the state about potentially reducing the $4.3 million debt. And May said he’s “cautiously optimistic” they can reach some kind of settlement.
The county has known about the problem since the audit’s completion last summer, May said. Eleven other California counties also miscalculated the allocations and also face multi-million dollar debts, according to May.
Finance Director Dan Vrtis said the county’s accounting error, in vague terms, pertained to its calculation of growth into the tax equation. Though he didn’t elaborate because the formula has too many quirks, he said.
“It’s the most complicated thing you’ve ever seen in the history of mankind,” Vrtis said.
Vrtis, however, said the state lacks legal precedent to request the money after already collecting the wrong amount. He believes the Legislature would have to pass a special bill to force the 12 counties into paying their debts.
“There’s never been a county that’s ever paid back the state any money,” said Vrtis, finance director since 2001. “They have no power to collect the money.”
Regardless, Supervisor Reb Monaco affirmed the audit drastically affects the current budget planning process. The Board plans to approve the final budget in early August.
“It has to (affect decisions) because you don’t know the outcome,” he said of the $4.3 million. “You have to budget for the worst-case scenario, while hoping for the best.”
Although the county is not challenging the error, May believes San Benito and the state should share the blame. There was “tremendous turnover” in the county Auditor’s Office in the 1990s, he said. While the state provided a “lack of explicit written guidelines,” he said, on how to calculate a “very complex formula.”
Each year property owners pay 1 percent of property values that total $5.1 billion in San Benito, according to Assessor Arnold Fontes. Of that $50 million, about 11 percent goes to San Benito County government. Local agencies’ share of the taxes took a sharp dive in the late 1980s when the state started shifting local dollars into a statewide education fund.
San Benito County’s collection of 11 percent of property taxes is one of the lowest in the state, May said. Only two other counties, Orange and San Diego, get a lower portion.
