As home values drop, county tells owners to pay less tax
on August 31, 2010
It’s a mixed blessing to get a letter from the government that says your house is worth less than it used to be. Nobody wants a reminder about depreciating home values, but on the other hand, you’ll pay less in property taxes, which are based on the county’s assessment of your home’s worth.
This July, the owners of more than 110,000 properties were sent a letter telling them that appraisers at the Alameda County Assessor’s office judged their properties to be worth less than they were last year. That decision slashed $2.9 billion from the collective value of properties in Alameda County and lowers the value of nearly one quarter of the county’s roughly 440,000 properties. It will be applied to tax bills issued later this year to be paid next year.
Oakland, the city with the highest net property value in the county, lost $1.3 billion, down 3 percent from 2009, as calculated excluding tax-exempted properties.
It’s the second fiscal year in a row that the county halted its normal routine of gradually increasing the value of most properties, a standard real estate philosophy. During the 2009-10 fiscal year, Alameda County lowered the valuation of almost 99,000 properties, according to Russ Hall, chief deputy assessor for the county.
Hall explained the county’s 50 real estate appraisers concentrated on properties that were purchased—and were subsequently reassessed—during a period when prices were rising rapidly. “Pretty much most of these fall in a time period where their assessment period happened since January 1, 2001,” Hall said.
It’s no simple task to standardize the process of valuing properties en masse. For approximately the last 30 years, counties figured out how much to tax houses by resetting the value of each property at the time of purchase, pegging the value to the purchase price. The most accurate market-rate assessment of a house, the theory goes, is the price someone agreed to pay for it.
For all the other properties—the ones that weren’t bought recently—the government tacks on a bit of value every year, something a little over 1 percent. The precise percentage differs geographically, because of various fees and bonded debt. “In general, property values increase, most years, about 2 percent a year,” Hall said of Alameda County.
But figuring out how calibrate home values after a real estate boom and bust is difficult. “Those guys have a hard problem,” said John Quigley, an economics professor at UC Berkeley and director of the Berkeley Program on Housing and Urban Policy. He said that the county has to make “a good faith attempt” to reconcile prices assessed in boom times with today’s market, because the law requires it. But with 50 appraisers and 440,000 properties to assess in a shaky market, the process could be difficult to get right.
There’s no generic algorithm for a widespread downward reassessment, particularly in a market like Oakland, where property values vary block-to-block, and neighbors who bought comparable properties ten years apart from each other pay wildly different taxes.
“It’s an imperfect system to say the least,” Quigley said, but he gave the county assessor credit for being preemptive rather than waiting for property owners to fight unfairly high taxes. “It’s clear they’re trying to responsive,” he said.
Hall couldn’t define exactly how the county’s appraisers figured out how to calculate the home values, saying they make independent decisions. “We gather all the information we can, present the properties in our review segments, in ordered fashion, to appraisers generally familiar with the neighborhoods we’re reviewing,” he said.
Because the county’s lost billions in property value, fewer tax dollars will come in from property taxes next year, as they did last year. These property taxes get shuffled around to several parties, like the county itself and the state of California, which uses the money for schools.
As a result of the drop in property values, officials expect that the county’s general fund will only collect approximately $290 million in secured and unsecured property taxes next year. That’s down almost 2.5 percent from the previous year’s—approximately $298 million—and almost 9 percent lower than what was collected the year before that, about $319 million. Those declines mean less cash in city coffers.
“We have taken a hit because of the assessed value has decreased,” said Cheryl Taylor, director of the City of Oakland Budget Office.
For Oakland, it means the city government will count on about $125 million in property tax revenue next year, a downgrade from the originally budgeted $130 million, according to a report issued by the city in April. The city took in almost $130 million this year and a little more than $134 million last year, according to the same report.
Declining revenues from property taxes are only part a widespread financial crisis here. Oakland’s also taking in less cash from hotel taxes and utility consumption tax, because people are traveling less and using less electricity. They’re also shopping less, cutting into city revenue from parking meters and sales tax, particularly related to auto sales, according to Taylor.
Transfer tax revenue, collected when properties are sold, has also plummeted. Taylor said the city would bring in around $70 million in transfer tax during boom years. “Now, I think we’re probably lucky to get $25 million,” she said.
For homeowners wondering why the county has decided to reassess so many properties now, Hall points out they have no choice. “We do as the law bids assessors to do,” he said. “There’s ample evidence that property values have declined,” he said, adding that because home sales are down, the appraisal staff have enough time on their hands to take on such a major project.
Reassessing properties downward preemptively, before homeowners start complaining about their taxes, also has the beneficial side effect of reducing the number of assessment appeals that the county has to process, and owners have been appealing their tax bills a lot lately.
“Normally we get around 2,500, maybe 3,000 appeals,” said Crystal Graff, clerk of the Alameda County Board of Supervisors. Last year Alameda received more than 11,800 assessment appeals from property owners who thought the county had it wrong, she said. In 2008 the clerk’s office received more than 11,500 appeals, more than doubly 2007’s count of approximately 4,500, according to figures provided by Graff.
Even after the assessor lowers a property value, the owner can still appeal. The county sends every owner a notice in July explaining what to expect during the next tax cycle, regardless of whether or not the county thinks a property’s changed in value. Owners have until September 15 to appeal.
“If we didn’t send these notices out, people might not be able to file their appeals in time,” Hall said. “Not every county sends out these notices to every taxpayer.”
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