Aggressive Calif. Ceiling on Property Tax Lacks a Floor, So Gov't Revenue Plunges with Home Values
Declining home values are a problem throughout much of the country, for a multiplicity of reasons. But they are a particular problem in California because of a state constitutional amendment adopted by a ballot measure known as Proposition 13, which routinely limits property tax rate increases until a home is sold to a new owner.
No one, presumably, anticipated when the initiative passed decades ago that the market price of the state’s homes would plummet. But it did, and an apparent unintended consequence of the constitutional amendment is that it permits taxes to plunge along with the market value of homes.
As a result, a number of California counties have seen their tax revenue reduced by double digits over the course of the last four years, as assessed valuations drop to accord with the falling free-market price of the state’s housing and the tax rate. And because of Proposition 13, they can’t be increased by a proportionate amount to compensate, according to the Wall Street Journal.
(For the uninitiated, a homeowner’s property tax bill is generally calculated by multiplying the assessed valuation of a home, which is determined by a county assessor’s office, and a tax rate set by another county governing body, such as a board of supervisors or school district. Thus, if a home is assessed at $100,000 and the school tax rate is $13.50 per $1,000 of assessed value, the homeowner’s school tax bill would be 100 x $13.50, or $1,350.)
In Calaveras County, Calif., tax assessor Leslie Davis has responded to residents’ complaints that their homes are now assessed at excessive pre-bust values by reducing their assessments, the newspaper recounts. But that has elicited outrage from other officials, as the total assessed valuation of the county’s property fell by nearly 20 percent over three years.
Davis is required by state law to assess homes at their fair value. However, Tom Tryon, who chairs the board of supervisors, says the county is being “cremated” by her overly aggressive revaluations. Assessors, he says, “have a lot of discretion” and Davis has “used hers in a way that’s devastated the county.”
While changing the tax law would be one way to address the issue, those who benefit from it—including some lawmakers—have little incentive to do so, notes an article in the Bay Citizen that was republished by the New York Times earlier this month.
A state legislator who has had the same San Francisco home since 1974, for example, says corporations can too easily structure ownership changes to avoid the tax increase that Proposition 13 allows when a property is sold. However, he is quiet as a mouse concerning the residential portion of the tax law, which has limited the tax on his own property to about $530 per year, the article says.
Related coverage:
California State Board of Equalization: “California Property Tax Propositions–Frequently Asked Questions”
California Tax Data: “What is Proposition 13?”
Time (2009): “The Legacy of Proposition 13”
