CA Prop 13: State Appeals court overturns ruling in Orange County property tax lawsuit

AP via Sarasota Herald-Tribune, Fl ^ | March 27, 2004 | Associated Press

[heleny]

SANTA ANA, Calif. -- An appeals court Friday overturned a Superior Court judge's ruling in a property tax lawsuit that could have cost Orange County hundreds of millions of dollars in tax refunds.

The county assessor's office may increase property taxes by more than 2 percent in a year following a period when home values dipped or remained flat, justices with the 4th District Court of Appeal ruled.

The case involved a lawsuit against the county assessor by Seal Beach resident Robert Pool. Pool, a property tax attorney, alleged the assessor violated Proposition 13 by increasing the taxable property value beyond 2 percent.

Proposition 13, passed in 1978, limits annual property assessments to a 2 percent increase per year, except in the case of new construction or a sale.

Local governments argue that the provision doesn't apply when property values remain flat or drop during a recession, then surge as real estate values rebound. In those cases, counties routinely hike the taxable property value beyond 2 percent.

The three 4th District justices sided with the county in Friday's 17-page ruling, saying Pool's interpretation was "fundamentally inconsistent with the system Proposition 13 put in place."

Superior Court Judge John Watson ruled in favor of Pool three years ago, and in 2002 approved class-action status for the lawsuit, which caused the county to fear it could be forced to pay hundreds of millions of dollars in property tax refunds.

County Supervisor Tom Wilson said he was relieved by Friday's ruling.

"It provides the county with a comfort level with all our financial challenges," he said.

Neither Pool nor David Gangloff, a partner in his law firm who also argued in the case, returned calls placed Friday after business hours.

The case arose after Pool bought his Seal Beach home for $330,000 in November 1995. The home's taxable value was flat for two years, but the assessor raised the assessed value more than $13,000 in 1998, saying the jump was justified. The assessor's hike prompted Pool to sue.

[heleny]

A related article appears in the March 27, 2004, Los Angeles Times, by staff writer Jean O. Pasco:

CA: Prop. 13 Ruling Means No Tax Refund

Judges reverse a decision that could have made counties return $10 billion collected under their reading of the law

...

The 4th District Court of Appeal said the technique used by Orange County in assessing taxes, called recapturing... is constitutional under Proposition 13, the landmark property tax limit approved by voters in 1978.

...

"The temporary nature of any reassessment for a decline in value cannot be overstressed," Presiding Justice David G. Sills wrote for the court.

The ruling overturns an earlier decision by Orange County Superior Court Judge John M. Watson that invalidated the commonly accepted practice.

...

... Seal Beach homeowner Rob Pool ... vowed to ask the state Supreme Court to review the unanimous decision released Friday.

The appellate justices were intimidated by the possibility of a flood of refund requests, he said, which representatives for state [$5.3 billion] and local [$4.7 billion] government argued in court briefs that they could not afford.

"I still think it's all about the money," Pool said. "They're not dealing with the pure language of the [law]."

...
The appellate court's 17-page decision sided with [Orange County Assessor Webster J.] Guillory's argument. The 2% annual limit on property assessment increases, they said, was tied to the original purchase price, not to the previous year's assessment.

---

For anyone unfamiliar with this case, Robert Pool's home was reassessed in 1998 at a value 4% higher than the 1997 assessed value.

His home's assessed value had not increased in the mid-90's because of the depressed real estate market (and could have even declined due to Proposition 8, which allows for temporary lower assessments when properties are damaged in disasters or if they decline in value).

The Orange County Assessor's logic, used by all counties across the state, was that Proposition 13 allowed a 2% increase every year from the purchase price even if the value had not actually increased every year.

So, by this "recapture" method, the assessed value of a property that did not increase in value in nine years but whose value doubled in the tenth year would increase 22% that tenth year.

In Mr. Pool's case, the assessor said the property increased 4% in the third year.

[heleny]

My mistake, the AP article is complete (not excerpted), so clicking the link will reach the same article.

[GeronL]

what does all that mean? That the law doesn't matter?

[heleny]

what does all that mean? That the law doesn't matter?

Prop 8 passed after Prop 13, so when Prop 13 passed in 1978 there was no provision for a decline in property values. Still, even without Prop 8, property values will not always increase every year.

The problem is in the interpretation of Prop 13 (or the application of the 2% increase). Is an increase in assessment value limited to
2% from last year,
2% from the highest assessed value (in the event of an intermediate temporary decline), or
2% compounded by the number of years you've owned your property?

[heleny]

So, the next step is to appeal this to the state Supreme Court.

[AnimalLover]

PING

[truth_seeker]

"The appellate court's 17-page decision sided with [Orange County Assessor Webster J.] Guillory's argument. The 2% annual limit on property assessment increases, they said, was tied to the original purchase price, not to the previous year's assessment."

I understand this situation fairly well. I'm a Real Estate Broker in Orange County, and must often explain Prop. 13 to clients.

When prices/values declined in the early/mid 90s this homeowner benefited from Prop. 8 which allowed a reduction in taxable value.

The issue is whether Prop. 13 ALWAYS limits the annual increase in taxable value to 2 percent?

According to this appelate court, it doesn't in the case of a property which enjoyed the benefit of the reduction in value. They are allowing the taxable value to be increased by more than 2 percent, presumably until it catches up to the original purchase price basis.

Both sides can be argued (and have been). The original decision gave the homeowner a "windfall."

As much as I hate taxes, I see the logic of this court decision. The original intent of Prop. 13 was to make property taxes predictable, tied to purchase price.

Prop. 8 allowed downward reduction, if prices decline. I doubt the authors of Prop. 8 intended a permanent "windfall" benefit, when values TEMPORARILY declined.

The appelate court decision meets the "equity" measure, if the legal sense. This is what courts must do, when vagueness exists, between conflicting laws.

[GeronL]

sorry I asked. =o)

[DB]

The law is pretty clear. The assessed value can't increase more than 2% over the previous year with the same owner and property. That was a maximum increase, not a minimum increase.

[Lancey Howard]

The appelate court decision meets the "equity" measure, if the legal sense. This is what courts must do, when vagueness exists, between conflicting laws.

So then what was the basis for the original (Superior Court Judge John M. Watson) decision? Watson is no dummy, either. He reached his decision for a reason.
In any event....

Seal Beach homeowner Rob Pool ... vowed to ask the state Supreme Court to review the unanimous decision released Friday.

Assuming the Supreme Court is in the pocket of the money-grubbing scumbag political elite, the appellate court decision will be upheld. I haven't recently read the language of Prop 13 but it is apparently very unclear. Surprisingly so.

[Robert_Paulson2]

it wasn't unclear to jarvis.
it took the state armed robbers a few years to figure out how to reinterpret it, os as to benefit the tax assessors.

if it said two percent max per year, it couldn't mean four.
if it meant that accumilated values could be recovered by using a higher percentage than 2 in a given year, it would have said four or eight or ten as a yearly cap.

typical bureaucrats feathering their beds.
what a rotten state. they have davisitis... taxaddiction.

[Amerigomag]

Prop. 8 allowed downward reduction, if prices decline. I doubt the authors of Prop. 8 intended a permanent "windfall" benefit, when values TEMPORARILY declined.

I would argue that since Prop 13 allows property valuation to be increased, any gain from Prop 8, which Pool did not realize, is offset with time.

A property tax reduction under Prop 8 is offset by later increases under Prop 13.

The original intent of Prop. 13 was to make property taxes predictable, tied to purchase price.

This was clearly not the primary intention of Prop 13.

Prop 13 was designed to primarily accomplish two things.

1)Protect retired homeowners from confiscatory tax increases in their lifetime, allowing them to remain in their homes,
2)Protect agricultural property, adjacent to urban development, from tax increases that made agricultural pursuits fall victim to urban sprawl.

I am familiar with the motivation behind Prop 13 because I was privy to many of the early planning discussions that lead to its creation. Those discussions occured in my father's home.

[Carry_Okie]

I am familiar with the motivation behind Prop 13 because I was privy to many of the early planning discussions that lead to its creation. Those discussions occured in my father's home.

You had a most fortunate education.

[Amerigomag]

This same group (ag interests + estate planners + tax attorneys) had worked earlier to protect ag. One of the fruits of their labor was the California Land Conservation Act which proceeded Prop 13 by over a decade.

The "Williamson" Act was a compromise and ten years later it became obvious that Fresno County was opposed to granting new agricultural tax sanctuaries on the immediate margins of their larger urban centers. Both pressue from cities to increase their tax base and the double* loss of tax revenue to counties who enrolled more land into these sanctuaries was the driving motivation. Ag felt a second layer of protection was needed.

During this same period retirees and middle income folks were feeling the bite from county assessors who were given the green light to fund government excesses through free wielding property valuation increases. Retirees and the middle class were being taxed out of their home/lifestyle.

In this atmosphere of a general tax revolt these ag protectionists coalesced through ag associations and shopped around for public support. They found a willing accomplice in Howard Garvis who was approaching the same problem from a standpoint of the protection of retirees.

* Not only did counties lose the immediate benefit of the tax increases but ultimately they were forced to surrender some of their existing tax revenues to subsidize the cost of the program (offset the tax loss to the state).

[Publius6961]

what does all that mean? That the law doesn't matter?

It means that the judges are space aliens.
I notice that there is no mention of reductions, ever. The tax assesment can only go up. This has to be the most Kafkaesque reasoning I have seen in a very long time.
Their reasoning is, that since reductions are not mentioned in the law, they can never exist.

Time for a new amendment!

[Publius6961]

The appelate court decision meets the "equity" measure, if the legal sense. This is what courts must do, when vagueness exists, between conflicting laws.

BS!
If values stay flat has the increase ever not been applied? Give me a break!

[Carry_Okie]

An interesting take on the situation. The real problem is that the attributes that would otherwise contribute to high prices for agricultural land have been socialized while land for residences have been maintained as artificially scarce. That depresses the price of ag land and raises the price of residential land, a recipe ripe for controlled conversion requiring a payoff to political gatekeepers.

It's a stupid and corrupt model, one that is bad for land and bad for people. The economic causes and environmental consequences are well documented in my book, although it uses the timber industry instead of ag. The economics are entirely analogous.

[Amerigomag]

An interesting take on the situation.

I'll admit I'm having problems understanding your offering of insight.

I understand you to mean that since land values are manipulated for societal/economic purposes, as opposed to a free market model, the practice lends itself to corruption of public officials and their personal enrichment at a rate greater than that created by tax codes prior to 1968.

I also understand you to suggest that there are other models available which achieve the same ends (preservation of an agricutural base and gentification of higher density habitation areas) without the documented negative consequences.

Am I understanding you correctly?

[Carry_Okie]

I understand you to mean that since land values are manipulated for societal/economic purposes, as opposed to a free market model, the practice lends itself to corruption of public officials and their personal enrichment at a rate greater than that created by tax codes prior to 1968.

More than public officials, they are simply agents. The current model enriches select developers, ag corporations, banks, insurance comapanies, offshore interests... much of it at the expense of the resource landowner.

Am I understanding you correctly?

In part it would so appear. My book not only offers an alternative model, but the beginnings of a way to get there.

[Amerigomag]

My book not only offers an alternative model, but the beginnings of a way to get there.

Here's my offer.

I'll cough up the 30 bucks to find out if you'll promise to answer my online queries, after I've finished the book, as how your observations correlate to the topic under discussion on this thread.

Deal?