Cities settle out of court with San Mateo County

Four Peninsula cities have settled out of court with San Mateo County over a decades-old mistake that lost them millions of dollars in property tax revenue.

The Colma Town Council approved the settlement agreement with the county Wednesday night, becoming the last city to do so. Portola Valley, Woodside and Half Moon Bay also have settled.

The agreement calls for Colma to receive $882,900; Half Moon Bay, $380,858; Woodside, $1,196,122; and Portola Valley, $901,578, according to Ben Fay, the land-use attorney representing them.

In 1988, state legislators passed Tax Equity Allocation, a law directing counties to move property tax revenues from the county to cities that receive little or no revenue from their own property taxes.

The county made a series of mistakes, however, that led to the four cities not receiving funds they were owed, according to a June 2006 Civil Grand Jury report. The grand jury noted that of the 17 counties with qualifying cities, San Mateo County was the only one that failed to comply promptly with the new provisions — a mistake that the four cities also failed to realize until recently.

In 2005, the county, acknowledging its error, paid the cities $2.6 million to cover the mistake’s cost in the previous two years, but the cities hired outside legal counsel to determine if they were owed more. If they hadn’t settled with the county, then litigation was an option, Fay said.

The cities estimated they were owed about $9.6 million for the 18-year mistake, but the county’s estimate was closer to $8.1 million, Fay said. “This overall, for all things considered, is a very good settlement,” Fay said. “The cities have been able to recover most of what they did not receive.”

The county’s position was that it had paid the cities what they were owed, said Assistant County Counsel Mike Murphy, who called the agreement a compromise by both parties.

Diane McGrath, the city manager for Colma, said the money would go into the town’s General Fund and would help out “a lot” because the town lost about $1 million in the past year due to the imposition of betting limits at Lucky Chances Casino.

This was not the first such error by the county identified in recent years.

In 2005, the Assessor’s Office declared that a computer glitch and human error had resulted in hundreds of thousands of dollars in misguided property taxes.

dsmith@examiner.com

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