SAN FRANCISCO – The California Supreme could soon rule in a long-simmering dispute between San Jose and Santa Clara County over which government agency is entitled to $40 million in already-collected property taxes.  

In 2012, city leaders sued Santa Clara County, alleging that the money rightfully belongs to San Jose for its redevelopment costs. Soon after that, Santa Clara officials counter-sued, arguing that the funds had been previously designated for the county’s retirement benefit obligations.

Most recently, the Court of Appeal in the Third Appellate District of California ruled in favor of San Jose, upholding a lower’s court ruling and marking the second time the courts have sided for San Jose.

The money comes from a special property tax voters approved more than 60 years ago for the county’s retirement obligations; however, the funds are to be distributed differently in so-called redevelopment areas, established to revitalize regions in need of urban renewal across the affluent Silicon Valley area.

“The language of the law is clear, the issue is one of statutory interpretation,” San Jose City Attorney Rick Doyle recently told the Northern California Record. "The county claims they are entitled to a certain amount of the money off the top, but they're funds they’ve never taken before.”

In times past, redevelopment areas have been funded from the increases in tax revenue as property values rose in project areas, known as “tax increment.” Since 1956, the San Jose redevelopment agency had been receiving roughly $7 million a year from the additional funds.

Four years ago, state officials moved to abolish the redevelopment agency, setting off the dispute between the two local governments and leading to Santa Clara withholding the funds earmarked for San Jose. 

“After 50 years of never raising the issue, all of a sudden it’s now a major contention,” Doyle said. “The truth is there’s no validity to what they are insisting.”

Santa Clara government officials now argue that the retirement levy should be viewed as a “special tax” that can only be used for a specific purpose, namely to fund the retirement plans of county employees through CalPERS.

With the redevelopment agencies now a thing of the past, they further insist that the two already adjudicated cases were wrongly interpreted and that San Jose is no longer entitled to the tax-generated funds, adding to continue extending the money to them would be the equivalent of giving a “prohibited gift of public funds.”

Early on in the dispute, San Jose officials offered to end all litigation in exchange for the guarantee that the $40 million would be spent on housing for the poor, but the county roundly rejected that offer.

“You would think that would be a win-win solution, but it was roundly rejected without the other side offering much of an explanation,” Doyle said.

The court could place the case on its busy calendar as early as mid-February. If it ultimately declines to intervene, the verdict previously rendered by the appellate court would stand as the law of the land.


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