By Dan Harp, Assistant Assessor-Recorder
The County Assessor is responsible for the assessment of all taxable property within their respective counties, except for State Board of Equalization assessed property which includes utility-owned property and railroad property. The Assessor’s role involves three main objectives: (1) discovering and taking inventory of all taxable property within the county; (2) determining the taxability of each item of property; and (3) valuing and assessing each item of property in accordance with property tax law.
Proposition 13, which was overwhelmingly approved by California voters in June 1978, is the basis for property tax assessment today in California and all of its 58 counties. Prior to the passage of Proposition 13, property taxes could increase dramatically from year to year based on assessed value of the property. Proposition 13 limits the tax rate to 1 percent plus additional rates necessary to fund local voter-approved bonded indebtedness. It limits the property tax increases to a maximum of 2% per year on properties that did not undergo a change in ownership nor had completion of new construction. Proposition 13 placed explicit limitations on the power of government to impose additional property taxes and it requires real property to be assessed at its current market value upon a change in ownership and new construction is to be reappraised at its current market value as of its date of completion. Proposition 13 has been amended numerous times since 1978 resulting in several change in ownership and new construction exclusions from reassessment. Some of the more common exclusions are:
- Reappraisal exclusion for parent/child transfers – property transferred between parent and children may be excluded from reappraisal. A timely filed claim form is required along with other statutory requirements and limitations.
- Reappraisal exclusion for property owners age 55 and older – property owners age 55 or older may transfer their Prop 13 value from their original principal residence to a replacement residence if the replacement residence is of equal or lesser current market value compared to the original property and is located in the same county. A timely filed claim form is required along with other statutory requirements and limitations.
- Property acquired or constructed to replace property destroyed in a disaster – owners of property that is substantially damaged or destroyed by a Governor-declared disaster may transfer the Prop 13 value of the damaged property to a comparable replacement property within the same county. A timely filed claim is required along with other statutory requirement and limitations.
- Exclusions from market value assessment as a result of new construction include the following: addition of an active solar energy system, additions of fire sprinkler systems, seismic retrofitting and earthquake hazard mitigation features applied to existing buildings, and modifications to make an existing residence or structure more accessible to a severely and permanently disabled person.
When Proposition 13 was originally enacted in 1978, it did not provide the Assessor the ability to reduce assessments resulting from a decline in market value if the property was owned by the same taxpayer. California real estate was appreciating at record levels in the late 1970s so the drafters of Proposition 13 did not have the foresight or envision a need to allow Assessors the ability to reduce assessments resulting from economic conditions, depreciation, damage, obsolescence, or other factors causing a decline in value. Proposition 8 was approved by the voters in November 1978 to remedy this oversight in Proposition 13. Proposition 8 allows the Assessor to make reductions to assessed values when property has been damaged or its value has been reduced by other factors such as economic conditions. The Assessor can recognize declines in value if the market value of the property on lien date (January 1st) falls below its Proposition 13 value or stated otherwise, the correct value to be enrolled in any year is the lower of a property’s Proposition 13 value or its current market value. For example, if the current market value of one’s home on January 1st is $125,000 and its corresponding Proposition 13 value is $174,556, the assessed value for that particular assessment year should be reduced to the current market value of $125,000. It is important to note that a property owner may lose a substantial amount of equity in the property because of a declining real estate market but that does not necessarily mean the assessed value is incorrect. For example, the current market value of one’s home on January 1, 2007 is $360,000 and its current market value on January 1, 2012 is $150,000. The owners purchased the property in 1998 and their January 1, 2012 Proposition 13 value is $110,556. Even though the property owner has lost $210,000 in equity, its assessed value is still correct because the Proposition 13 value of $110,556 is less than the January 1, 2012 current market value of $150,000.
During the mid- 2000s, San Bernardino County experienced unprecedented appreciation in real estate prices in all areas of the county, which resulted in double-digit increases to the assessment roll for years 2004 through 2007. The 5 High Desert cities and adjoining unincorporated areas showed a particularly robust increase in their assessed values for years 2004 through 2007 then stabilizing in 2008. The peak of the real estate market in San Bernardino County occurred in 2007, stabilized in 2008 and then began its steep decline. During the late 2000s, the 5 High Desert cities and adjoining unincorporated areas were especially hard hit with decline of real estate values and substantial decreases to the assessment roll.
The decline in the real market created an assessment situation county-wide in which thousands of properties were over assessed because the current market value was now less than their Proposition 13 thus the Assessor was faced with Proposition 8 reductions on a mass scale. As with the case where the High Desert experienced the highest rate of increased real estate values during the real estate boom, conversely the High Desert experienced the highest rate of decrease in values when the real estate bubble burst. The effect the collapse of the real estate market had on the San Bernardino County assessment roll is staggering. Approximately 186,000 parcels have been reduced under Proposition 8 reductions and the total assessed value removed from the assessment roll for 2008 through 2011 is $27.3 billion.
There are several factors that contribute to assessment roll growth and decline. Assessment roll growth is a result of 3 primary components: (1) change of ownership reappraisals in an appreciating real estate market; (2) abundant new construction, both residential and commercial; (3) assessed value added by the 2% California Consumer Price (CCPI) index factor. Assessment roll decline is the result of 4 primary components; (1) change of ownership reappraisals in a declining real estate market; (2) dearth of new construction; (3) assess value added/deducted by the CCPI factor – for 2010 and 2011 the CCPI was minus 0.237% and 0.753% respectfully; (4) Proposition 8 reductions. property revenue collected on the basic 1% tax rate is used to support local schools, cities, special districts, the county, and redevelopment agencies (dissolved as of 2-1-2012). As one can imagine, when assessed values are increasing property tax revenue supporting schools, cities, county, etc. are increasing. Conversely, when assessed values are decreasing property tax revenue to schools and local government is reduced, which is the current situation in San Bernardino County and the State of California.
The compilation of the 2012 assessment roll will not be completed until June 2012 and will be certified by the Assessor July 1, 2012. It is projected the San Bernardino County assessment roll will decrease by 1% from 2011 and the High Desert portion of San Bernardino County is projected to experience a similar 1% decrease.