LOS ANGELES - Los Angeles County met some skeptical questioning last week from California appellate justices over its efforts to challenge the state's recent shift of local property tax revenues.

The county seeks to overturn a recent lower court ruling that upheld the constitutionality of the state's decision to reallocate $2.6 billion of local property taxes in the current fiscal year. The action shifted funds from counties, cities, and other local governments to school purposes, thereby helping the state balance its own budget.

A three-member appellate panel raised numerous questions about the county's arguments during an hour-long hearing last Thursday.

Some of the most intense questioning focused on the county's decision to raise Proposition 98 as one of its key issues on appeal.

Proposition 98, a voter initiative passed in 1988, established formulas for public education's minimum funding base.

According to the county, the proposition requires the state to set aside 40% of general fund revenues for schools. The county contends that the state manipulated the formulas in recent years and reduced its obligation to about 35%.

By taking less from the general fund, the state invoked a Proposition 98 test that led it to use local property tax revenues to meet its school funding needs, according to the county's argument.

The state's actions "violate both the literal language of Prop. 98 and the voters' intent," the county's briefs says. Proposition 98 says schools should be "funded from state, not local property tax revenues, and that is what voters approved," the brief continues

But Justice Patti Kitching questioned the county's logic.

"I don't see whit Proposition 98 has to do with it," Kitching said. The legislation that authorized the tax shift has "nothing to do with Proposition 98." she said.

Frederick Bennett, assistant county counsel, responded that the school funding machinations were at the "center of the state's budget" and thereby merit scrutiny.

Aside from the Proposition 98 arguments, Bennett said the county also is relying on a 1910 constitutional amendment that established local control over the use and administration of local property taxes.

In written briefs, lawyers for the state responded that court rulings since the enactment of Proposition 13 in 1978 have shown that the state has the authority to control various aspects of property taxes."

Christopher Foley, a deputy attorney general for the state, only made a few short remarks Thursday. The lower court case focused on a much narrower issue, Foley said, adding that the county is now trying to raise broader issues on appeal.

But Bennett said the state is attempting to reconstruct the record to fit its claim that the county has "no standing" to make its Proposition 98 arguments.

Robin Johansen, who appeared at Thursday's hearing on behalf of the California Teachers Association, said the county's arguments about the state's 1910 law were not relevant.

It is wrong to assume California's tax system is "frozen in time," Johansen said, because the system has essentially been restructured by voter initiatives over the last 15 years.

The teachers association filed a friend of the court brief in support of the state.

Earlier in the proceeding, Kitching also wondered why the county did not complain about a similar but smaller tax shift in the previous year.

"We should have filed that lawsuit. We didn't," Bennett replied.

Lawyers for the state also argue that the county is making political arguments - to wit, that the Legislature should have addressed the fiscal crisis in another fashion. Such arguments are different from ones backed by legal authority, and should be rejected by the appeals court, the state says in its briefs.

The Los Angeles County case is a bellwether of sorts because it has progressed faster than numerous other local lawsuits challenging the tax shifts. Municipal analysts are tracking the cases because they raise some uncertainty, at least until they are resolved, over the state's budget solutions.

Assistant attorney general Alan Sumner said a lower court hearing has been set for March 18 in Los Angeles for eight separate challenges to the state's property tax shift.

The coordination will result in the eight cases being heard by Los Angeles County Superior Court Judge Bob O'Brien. However, the cases will not be consolidated - each case will have its own counsel, and the judge is expected to rule separately on each case.

The eight cases involve San Diego County, Alhambra and its redevelopment agency, Contra Costa County, various special districts in Ventura County, Kern County, Novato Fire Protection District in Marin County. Butte County, and Monterey County.

Another tax shift challenge is pending in the California Third District District Court of Appeal involving the San Miguel Fire District, Sumner said. The appellate court has given the case calendar preference, but no date has been set for oral arguments.

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