Posted on 11/28/2001 6:17:47 AM PST by crimedog
11/28/2001 The Wall Street Journal Page B1 (Copyright (c) 2001, Dow Jones & Company, Inc.)
California's Proposition 13, the 1978 ballot initiative that sparked a nationwide taxpayer revolt, is posing a new fiscal threat to the state's local governments.
"Prop 13" shields property owners from big tax increases during booming real-estate markets by limiting property-assessment increases to 2% in a given year. But after California emerged from a period of flat to declining property values in the mid-to-late 1990s, some counties ratcheted up assessments at greater rates, arguing that the average annual increase over several years didn't exceed Prop 13's limit.
Does the argument wash? Judge John Watson of California Superior Court thought not. Earlier this month, in a case that started with a $100 dispute in a tax bill, he sided with a tax attorney who contended that the Orange County assessor's office violated the law by raising his home assessment by 4% in 1998 after not raising it at all the year before.
Now the attorney, Robert Pool, and his law partners are trying to persuade Judge Watson to turn the matter into a class-action suit, potentially including commercial- and industrial-property owners as well as homeowners -- and threatening to wreak havoc with local-government finances. Bond-ratings agency Standard & Poor's last week warned that if the California case is applied to all property owners, "the property-tax loss to communities could be significant," exacerbating already slowing tax collections and potential cutbacks in state aid. The hit "could be hundreds of millions of dollars" in lost revenue to the state's local governments in the future, says David Doerr, chief tax consultant for the California Taxpayers' Association, a Sacramento research and lobbying group.
Even if the firm fails to win class-action status -- which could be difficult in California, where courts typically don't view tax cases as class-action candidates -- the ruling could establish a precedent for taxpayers who believe they were overcharged to file for their own refunds.
If upheld on appeal, the case could "open the floodgates" to taxpayer refunds, says Jon Coupal, a Sacramento attorney who is president of the Howard Jarvis Taxpayers Association, a nonprofit watchdog group founded by a political gadfly who was the father of Prop 13.
Mr. Jarvis, a onetime U.S. Senate candidate who died in 1986, launched the crusade that led to Prop 13. As inflation and rising home prices sparked double-digit property-tax increases across California in the late 1970s, he canvassed the state collecting signatures to force a remedial ballot issue. His aim was to cap property-tax rates at 1% of values, roll back those values for tax purposes to 1975 levels and impose a 2% annual ceiling on future growth in assessments.
Despite broad opposition from California's local governments, Prop 13 won 65% of the statewide vote in June 1978. Virtually overnight, the measure forced $6.9 billion in property tax-reductions, causing local agencies to cut spending and prompting copycat ballot initiatives across the country.
The latest Prop 13 battle was triggered when California's real-estate market soured in the early-to-mid-1990s. During that period, California's counties lowered assessments as property values slid as much as 30% in some places, according to the Public Policy Institute of California, a San Francisco think tank. Then, as real estate started rebounding in the late '90s, many county assessors sought to recoup at least part of the property-tax revenue they weren't able to collect when assessments had been reduced.
Acting on a longtime legislative interpretation of Prop 13, local assessors began routinely raising property assessments in excess of 2% in a given year. Their rationale: As long as the average annual increase spread over several years didn't exceed that limit, the practice was in keeping with the intent of Prop 13.
Mr. Pool disagreed. The 48-year-old attorney, whose small firm, Gangloff, Gangloff & Pool, is in Bellflower, Calif., specializes in property-tax law and had been waiting for the right time to challenge what he and his law partners anticipated would be exorbitant increases by assessors. "We were kind of kicking around the idea of `Can they or can't they?'" Mr. Pool recalls. "Then I got my own property-tax statement."
In July 1998, the Orange County assessor's office notified Mr. Pool that the three-bedroom house that he and his wife, Renee Bezaire, bought in 1995 in Seal Beach, 30 miles south of Los Angeles, had been reassessed at $343,332 -- up 4% and double the percentage that Mr. Pool believed was legally allowed. He paid the difference because it was a relatively small sum -- $100.55 to be exact -- but two months later appealed his tax bill with Orange County's Assessment Appeals Board. The panel ultimately agreed with him, and the county mailed a refund in October 1999.
But Webster Guillory, the Orange County assessor, objected because he thought giving one taxpayer special handling set a bad precedent. "The issue is treating people the same," says Mr. Guillory.
The result: Orange County government, at the assessor's behest, essentially sued itself in state Superior Court in March 2000, naming its own Assessment Appeals Board as the defendant in a lawsuit seeking to overturn the refund. Mr. Pool, also named in the suit, countersued, seeking class-action status to allow other homeowners and business-property owners to join him.
On Nov. 2, Judge Watson agreed the assessor's office overstepped Prop 13's legal bounds. Not waiting for the judge's decision on the class-action request, Mr. Pool's law firm is urging taxpayers, in local news outlets and over the Internet, to begin filing claims for refunds. The Orange County Board of Supervisors, meanwhile, is considering an appeal.
Mr. Pool and his law partners, who stand to reap a windfall in legal fees if a class-action suit is successful, believe that once taxpayers find out about the case, they will rush to file their own claims. "People don't remember a whole lot about Prop 13," says David Gangloff, one of the partners. "But what they do remember is, `My property taxes can't go up more than 2% a year.'"
PROPOSED AMENDMENT TO ARTICLE XIII A [of the California Constitution]
Section 2. (a) The full cash value means theCounty Assessorscounty assessor's valuation of real property as shown on the 1975-76 tax bill under "full cash value",or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership hasoccurredoccurred after the 1975 assessment. All real property not already assessed up to the 1975-76tax levelsfull cash value may be reassessed to reflect that valuation. For purposes of this section, the term "newly constructed" shall not include real property which is reconstructed after a disaster, as declared by the Governor, where the fair market value of such real property, as reconstructed, is comparable to its fair market value prior to the disaster.
(b) Thefair marketfull cash value base may reflect from year to year the inflationary rate not to exceedtwo2 percent(2%)for any given year or reduction as shown in the consumer price index or comparable data for the area under taxing jurisdiction., or may be reduced to reflect substantial damage, destruction or other factors causing a decline in value.
Prop 8 shields disaster victims by lowering assessment values when property values decline due to disasters and depreciation. After disaster victims rebuild, the new parts of their home won't be assessed as new construction if the value is comparable to the value before the disaster.
Prop. 8 doesn't specifically mention raising the assessments for normal, non-disaster, economic recovery after depreciation ends, except for minor adjustments to the relevant parts of the amendment introduced by Prop 13. In particular,
"the ... full cash value base may reflect from year to year the inflationary rate not to exceed ... 2 percent ... for any given year...."
Your property tax bill has gone up? Here's why
ASSESSOR EXPLAINS: As real estate values have been restored, so have taxes.
By Dan Goodwin
As we near the end of 2001, the Assessor's Office is in high gear answering telephone calls from property owners facing significant increases in their recently delivered property tax bills.
While about 80 percent of Ventura County property owners have seen only a 2 percent increase in assessments due to Proposition 13, nearly 40,000 have received larger assessment increases. As a result, they must pay significantly higher annual property tax bills than in prior years. For many of those who find themselves in this predicament, the frequent question is, "What happened to Proposition 13 limiting my property tax increase?"
It is important to keep in mind that Proposition 13 did not freeze assessments, but assures a limit each year on assessed value. Proposition 13 has allowed the vast majority of taxpayers to have a predictable property tax bill, increasing only about 2 percent per year. The exception would be in the years that follow some form of assessment reduction.
Much of the confusion experienced by some property owners trying to understand their newly increased tax bill centers on the fact that under Proposition 8 they had received an assessment reduction when property values declined in the mid-1990s. This same law requires that the assessor begin restoring assessments to their maximum allowed amount under Proposition 13 once the community's market values begin to appreciate.
During the early 1990s, real estate prices in Ventura County slipped to very low levels during the statewide economic recession. The Assessor's Office reduced approximately 75,000 property assessments below what we call their Proposition 13-factored base year values. These properties were accounted for on our records in a temporary decline-in-value status.
Under Proposition 13, the taxable value established at the time of purchase must be increased annually by an inflation factor, as supplied by the state, not to exceed 2 percent per year. Remember, even when the real estate market declines, the Proposition 13 value maximum is updated yearly, although that value may not be used for the assessed value.
Under Proposition 8, there is no limit as to how rapidly the assessor can reduce values to follow depreciating market conditions. Likewise, there is also no limit as to how rapidly we restore values in a recovering market. The assessment's upper limit remains the lower value of either market value or the Proposition 13-factored base year value, which keeps going up as the years go by.
In most of our county, real estate sales are now above the prices that were paid during the last peak in the market around 1990. This boom has impacted almost all classes of property in Ventura County. The Assessor's Office has now reviewed agricultural, commercial/industrial, oil, multi-family apartment, and single-family residential properties, which were previously enrolled at a decline-in-value status (Proposition 8). With the sharp increase in real estate values over the last few years, we restored many thousands of properties to their maximum Proposition 13-factored base year values. Several thousand other properties have not yet reached their Proposition 13 maximum, and remain on our records at a partially restored value.
To help understand the process, let's look at a hypothetical example. In March 1990, Millie and Mac purchased a home for $250,000 at the top of the market. Although their Proposition 13-factored base year value increased in the next five years on our records to $279,275 (the added 2 percent per year), the real estate market suffered a severe decline during that same period.
Therefore, as of March 1995, their home was really only worth $200,000, which we enrolled as a temporary decline-in-value (Proposition 8 value). By 1998, the Proposition 13-factored base year value had gone up to $293,800. At this time, the real estate recovery started and the value of their home increased to $245,000. By 2001, the Proposition 13-factored base year value of their home continued to increase at 2 percent per year, reaching $311,300.
Now the market has fully recovered in their neighborhood, where the market value is $350,000. Keep in mind the assessed value of Millie and Mac's home cannot exceed the factored base year value.
Consequently, their home's assessed value is now once again below the current market value, even though it is 55 percent higher than it was assessed under Proposition 8 in 1995.
Proposition 13 is an enduring benefit for the vast majority of homeowners, as it allows for predictable assessed value increases of 2 percent per year, unless there has been a period of reduction, like with Proposition 8. The good news for Millie and Mac is they now own a home worth $350,000, but pay taxes on a Proposition 13 maximum of $311,300.
Should you have any questions about your property assessment, please contact me at 654-2161.
-- Dan Goodwin is the Ventura County assessor.
November 4, 2001
Copyright 2001, Ventura County Star. All Rights Reserved.
http://www.insidevc.com/vcs/opinion/article/0,1375,VCS_125_867893,00.html
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