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Fiscal Double-Whammy Scrutinized

Counties might have to refund money.

A fine-tuned case of statute semantics has the City of Menlo Park and the County of San Mateo in a four-year-long tussle over roughly $85,000.

But instead of fighting for the cash in court, the two sides have agreed to wait for a California State Supreme Court ruling on the same issue -- unjust charges -- that's pitted Los Angeles and Fresno Counties against several of their cities.

Like Menlo Park, the cities are seeking financial reparations and filed suit against Los Angeles and Fresno Counties about two years ago. After two appeals, the California State Supreme Court is expected to take the cases next year. The verdict will affect every city and county government in the state.

"We're basically arguing over the meaning of a statute," San Mateo County Counsel Michael Murphy said. "So we're going to let a court decide."

The Menlo Park City Council voted unanimously Tuesday night to launch a "tolling agreement" with San Mateo County, which means the two sides will not sue each other during the pending litigation.

The Fresno and Los Angeles lawsuits, filed by dozens of cities against their respective counties over what they claim are unjust administrative charges, grew out of a 2004 California law that diverted a large chunk of city money back to Sacramento. Cities were aware of the change and accepted it, Menlo Park included, City Attorney Bill McClure said. 

Tasked with assessing, collecting and redistributing property taxes, cities expect a bill from their counties, McClure said.

"There's never been any dispute about that," McClure said.

But in 2006, McClure said city officials in Menlo Park and elsewhere noticed that their county payments were spiking.

Turns out, counties had started charging cities for the service of sending their diverted money back to the state – a fiscal double-whammy – prompting Southern and Central Valley cities to take their counties to court in pursuit of a refund.

According to Tuesday's staff report, San Mateo County has rejected two of Menlo Park's last three refund claims since 2006. After Tuesday's agreement, the current claim is frozen until a verdict emerges from the outside lawsuits.

San Mateo County, however, feels the charges are justified under the 2004 California law, said Paul Okada, San Mateo County Deputy Counsel. He echoed Murphy's statement that the issue revolves around interpretation of the state law.

Los Angeles County filed the latest appeal to the State Supreme Court; and although the state's high court hasn't accepted the case yet, Okada said his agency expects a ruling in the next year.

Regardless of the verdict, millions are at stake statewide. For the city of Menlo Park, a win would mean a refund of close to $85,000 if the verdict comes in the next fiscal year. But a win for the counties means cities will keep paying to send money to Sacramento.

Brisbane, Colma, East Palo Alto, Foster City, Millbrae, Pacifica, Portola Valley, Redwood City, San Bruno, San Carlos, San Mateo South San Francisco and Woodside have all passed similar agreements.

For more information, check out the staff report.

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