LOS ANGELES--Orange County, Calif., transportation officials are poised to sell an estimated $300 million bond issue secured by sales tax revenues after the state Supreme Court's rejection last week of a challenge to the tax.
In a 6-to-1 decision, the high court Thursday let stand an earlier appellate court ruling upholding the constitutionality of Measure M, a half-cent sales tax for transportation purposes approved by a majority of Orange County voters in 1990.
"We are delighted that the uncertainty has been removed," said Roger Stanton, chairman of the Orange County Transportation Authority. "It's a clear signal to go ahead with a bond issue."
While the exact size of the bond issue remains under review, the authority could sell $100 to $500 million of bonds secured by the half-cent sales tax by late August, officials said. Lisa Mills, director of planning and development for the authority, estimated the issue at $300 million.
During the next 20 years, the tax is expected to fund $3.1 billion of transit projects, including commuter rail, freeways, and streets.
Local taxpayer groups sued to block the tax several weeks after it was passed, charging the tax needed a two-thirds approval vote under restrictions on special taxes imposed by Proposition 13, the property tax-cutting measure passed by voters in 1978.
But the state's Fourth District Court of Appeal in March upheld the tax, partly because the transit authority was created in 1976, two years before the passage of Proposition 13. This showed the tax was not attempting to circumvent the initiative, the court said.
The appellate court also ruled that Measure M was a general tax, not a special one, because it "is not dedicated to any specific function of the authority, but is devoted to [the transit authority's] general fund."
Sales tax measures approved by majority vote in California back millions of dollars of bonds for transportation purposes.
In December, however, the California Supreme Court cast a cloud over sales tax measures approved by majority vote when it struck down a San Diego County tax increase for judicial purposes that was approved by majority vote. In Rider v. County of San Diego, the high court ruled that a two-thirds voter approval was needed.
The court subsequently said it would consider similar challenges to majority-approved sales tax increases on a case-by-case basis. Accordingly, last week's ruling only serves to benifit the Orange County authority.
Market participants involved with the Orange County financing said they were confident the tax would be upheld and continued to work on financing plans during the litigation period.
"We're not going to miss a beat," said Jeffery Leifer, president of Leifer Capital, financial adviser to the district. "We anticipated this and we're ready."
Members of the bond financing team met Friday to discuss the bond issue. Mr. Leifer said "flexibility" in the financing structure would be a top priority and added that officials may consider credit enhancement.
The projects to be funded with the bond issue include several right-of-way acquisitions from the Santa Fe Railroad for commuter rail and highway and street improvements.
"This gives us the green light," said Richard M. Jones, a partner at the law firm of O'Melveny & Myers. "Los Angeles and Orange are in the clear."
Earlier this year, an appellate court upheld the legality of a sales tax measure for transportation purposes approved by a majority of voters in Los Angeles County. The state high court in May refused to hear the case, upholding the appellate court ruling.