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California state officials sued Orange County today to recoup $73.5 million in property taxes, the latest development in a feud stemming from last year's state budget.

Since its 1994 bankruptcy, Orange County received an enhanced share of state car taxes to help regain its financial footing, the Department of Finance contends. But last year, Gov. Jerry Brown and lawmakers agreed to redirect that share -- $48 million -- to pay counties for new responsibilities they assumed from the state, such as housing low-level prisoners and overseeing parolees.

Orange County lawmakers attempted with little success last summer to have the state restore the car tax money before the end of session. In its place, Orange County has withheld property taxes this year that normally pay for K-12 schools and community colleges - money that the county believes is rightfully its own.

Orange County spokesman Howard Sutter disputes the state's characterization of the car tax history. While some money was dedicated to repaying bankruptcy debt, Sutter contends that did not result in the county receiving more than it was due under state tax formulas.

The state Department of Finance along with California Community Colleges Chancellor Jack Scott filed suit Thursday in Orange County Superior Court, alleging that the county has taken "the extraordinary step of flouting the law and illegally redirecting property tax revenue payments from schools and community colleges to the county's own general fund." The state wants the court to order the county to pay property taxes to schools.

Sutter issued the following in a statement: "While the county has been proactive in discussing this issue with legislators and school officials, the Department of Finance and Attorney General's office have made no contact with the county regarding this matter. The county is disappointed the state has now resorted to filing a lawsuit. We are evaluating the merits of their suit and cannot comment on its specifics at this time until we have had time to completely review their claims."

The state's lawsuit says Orange County believes the state will make education whole by sending the difference to schools, which the state does routinely to offset a drop in property tax revenues. But the state contends that while that may be the case for K-12 schools, California does not do the same for community colleges, which is one reason Scott is on the lawsuit.

The state also says the county is illegally relying on a provision requiring California to make schools whole that is intended to address natural property tax declines, "not from a county's illegal manipulation of its fiscal affairs."

The California Community Colleges system said in February that it was in danger of losing an additional $149 million this spring because of a decline in property taxes and fee revenue. The Orange County situation was cited then as a contributing factor in that drop.

Post updated with Orange County responses.



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