Fresno County will have to pay about $6 million to several cities in principal and accumulating interest for overcharging on property tax administration fees, a Fifth District Court of Appeal panel has ruled.
The city of Fresno could get $3.95 million and Clovis about $862,000 for excessive fees charged over more than seven years and interest on those fees.
A Fresno County Superior Court judge ruled in 2010 that seven cities -- Fresno, Clovis, Sanger, Selma, Kingsburg, Fowler and Kerman -- are due refunds for the excessive fees the county charged.
Fowler, the smallest of the cities, settled with Fresno County last August for $41,080, according to city documents.
About eight years ago, officials in many cities across the state first noticed the escalating fees corresponded to a change in the state tax distribution formula called the "triple flip." The complex formula was triggered after voters approved Proposition 57 in 2004. The ballot measure created a $15 billion bond issue to close the state's budget gap.
Under the "triple flip," 0.25% of local sales and use taxes were committed to pay off the Prop 57 bonds, then vehicle-license fees were swapped for property-tax dollars, and revenues lost by local governments were replaced with property-tax revenues that were previously dedicated to schools. The schools' money was backfilled by the state's general fund.
The formula was proposed to keep cities, counties, special districts, redevelopment agencies and schools at the same funding levels as in earlier years.
The county, which doles out property tax revenues to the cities, took its administrative fees out of the payments.
Fresno County wasn't the only one charging excessive fees.
Visalia lawyer Nancy Jenner said that the fee formula came out of guidelines provided to county auditors from their state association. Those guidelines, she said, had "nothing to do with what is written in the state Revenue and Taxation Code," which made the higher fees unlawful.
Ultimately, the California Supreme Court ruled in 2012 in favor of dozens of cities in Los Angeles County that had sued the county over excessive fees.
Fresno County had filed a challenge to the 2010 decision by Fresno County Superior Court Judge Jeff Hamilton that the county had overcharged fees and also owed 7% interest. After the Los Angeles County ruling confirmed that counties had charged excessive fees, it was up to the three-judge appellate panel to rule on the interest rate that Hamilton had awarded.
The appellate judges upheld Hamilton's decision and said that the county owed 7% interest from the start of the 2006-07 budget year through Dec. 31, 2013.
A new state law says a government agency can't be charged 7% interest unless damages are proven by another government agency. The new law calculated a 2.39% interest rate is due from the county, but the lower rate only took effect on Jan. 1.
The 2.39% interest calculation was based on more recent investment returns, the judges said.
Fresno County officials are unhappy that the county is still on the hook for 7% interest for prior years. "It's disappointing the court found that the new law capping interest paid on judgments against government agencies should be applied but only partially in this case, so that effectively the county must pay interest at 7%," said Fresno County Counsel Kevin Briggs.
He said he has not discussed the outcome with Fresno County supervisors to determine the county's next step.
Meanwhile, city officials across Fresno County are upset that they have not seen any money, even though the Los Angeles case was decided over a year ago.
If the county had paid the cities after the L.A. County ruling, they estimate the county would have saved about $350,000 in interest.
"All along this was the city's money that was being withheld," said Fresno City Attorney Douglas Sloan. "The city should have had this money years ago."
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