What began as a clerical error that cost the school district $6
million in uncollected taxes has mushroomed into a legal quagmire
that puts a $5.3 million bond payment due in September on shaky
ground.
What began as a clerical error that cost the school district $6 million in uncollected taxes has mushroomed into a legal quagmire that puts a $5.3 million bond payment due in September on shaky ground.
Two weeks ago, Gilroy Unified School District trustees passed a resolution calling upon the Santa Clara County Board of Supervisors to issue a corrected tax levy in order to collect approximately $6 million in Measure J taxes that should have been collected during the 2008/09 fiscal year. However, the Board of Education issued a formal statement after emerging from a Thursday night closed session meeting – which included an item labeled “initiation of litigation” – indicating that the school district will likely not pursue the corrected tax bill due to legal issues and substantial costs.
According to the statement, read by board Vice President Francisco Dominguez, the Board of Supervisors will not place the tax levy on their agenda unless the district provides a court order demanding so. The county also provided an alternative, suggesting that the district “indemnify the county against all claims that could conceivably occur if they (the county) issue a corrected tax bill” and “pay for all hard and soft costs involved in (levying a corrected tax bill), estimated at over $100,000.”
Not willing to pick up the $100,000 bill associated with issuing a corrected tax bill or face potential lawsuits that could result if taxpayer constituents protest the corrected bill, Superintendent Deborah Flores said the district has considered several scenarios for collecting this year’s tax over the next two years. Flores said the board will likely double up on the Measure J levy – which taxes property owners $70.50 per $100,000 of assessed property value – in the final two years of the measure’s life span to recoup the money that should have been collected during the last round of taxes.
Based on the district’s statement, it was unclear how they will make their fall payment of $5.3 million but Flores said they are looking into several different options. Earlier this month, she said the district has an informal agreement with the county to borrow the money from the county if it’s not collected in time. Meanwhile, the county has expressed its support for loaning the district money to pay their debts.
“They’re going to be made whole one way or another,” County Supervisor Don Gage said.
County Supervisor Dave Cortese agreed that the error needs to be rectified swiftly.
“The problem needs to be corrected,” he said. “Leaving the school district in the lurch is not a good idea.”
Gage met with Flores, other district staff and officials, the district’s attorney, the county’s attorney, and County Finance Director John Guthrie earlier this week to discuss the district’s options.
“You can do whatever you want but the problem is which one will end you up with a lawsuit,” Gage said. “The bottom line is that they have options to consider. None of the options that are being suggested are illegal, but some have a greater risk than others.”
With other options available to the school board, Gage said he hoped school officials would take the county’s feedback and craft a new solution. If the district came back to the county with the same solution – to issue a corrected tax bill this spring – Gage said significant parameters would have to be added to indemnify the county against future lawsuits.
“We can’t hang the county out to dry on this,” Gage said. “There are better options out there. The (school) board moved very quickly on a resolution which may have been a mistake. There are several ways to fix the problem that are more palatable.”
At a previous board meeting, Deputy Superintendent of Business Services Enrique Palacios outlines for the board how different options might play out for taxpayers. Had the district levied a corrected tax this year, they would have been able collect at a reduced rate in the 2010/11 fiscal year. Not levying a corrected tax this year could mean a tax rate of about $109 per $100,000 of assessed value in 2009/10 and about $74 per $100,000 in 2010/11. Or, it the district doesn’t collect this year’s taxes at all and depending on home value growth rates, the district could end up with a negative $3 million fund balance that would encroach on the general fund.
County officials and staff said they believe doubling up on the Measure J tax in the coming years is the best option.
“Honestly, it would be my preference for them to pick up the missing amount on next year’s tax bill,” said John Guthrie, the county’s director of finance. “It would be cheaper and easier.”
Guthrie said the cost of sending out another bill this year would be significantly more expensive than the $1 per bill Flores suggested earlier this month. Though he was not willing to provide a specific dollar amount at this point, both he and Gage emphasized that it would be “considerably” more after the cost of designing a new bill from scratch, printing the bills, postage and customer service were taken into account. The district placed the total at the above mentioned figure of $100,000.
Sending out a corrected tax “would mean thousands in costs and legal fees” and is not in the best interests of the district or its students, according to the board’s statement.
As a county employee, board President Javier Aguirre recused himself from the discussion.
Though Flores wouldn’t cite the source of the error, “We know where the error occurred and we’re dealing with it,” she said, adding that the omission of Measure J on the last tax roll resulted from a “breakdown at all three levels” – the school district, the Santa Clara County Office of Education and Santa Clara County.
