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string(153344) "Proposition 13 in Recession and Recovery Steven M. Sheffrin Terri Sexton 1998 Copyright © 1998 Public Policy Institute of California, San Francisco, CA. All rights reserved. PPIC permits short sections of text, not to exceed three paragraphs, to be quoted without written permission, provided that full attribution is given to the source and the above copyright notice is included. Foreword Twenty years ago, Proposition 13 marked the beginning of a taxlimitation movement that has profoundly affected the fiscal relationship between state and local governments and the provision of public services in California. Many of the consequences of Proposition 13 have been predictable; some have been quite unexpected. When the initiative was passed in 1978, it is unlikely that anyone thought about how it might operate in a recessionary environment. Although the state did experience several mild economic slumps over the next fifteen years, housing inflation continued, steadily widening the gap between the property taxes of more recent home buyers and those who had owned their homes for many years. But in 1991, California entered one of the severest recessions in the history of the state. Housing prices fell sharply in many areas, and businesses and homeowners began to flood county assessors with appeals for property reassessment. In this report, Steven Sheffrin and Terri Sexton examine how falling property values in Los Angeles County and San Mateo County affected iii the disparity between property taxes within different categories of properties, ranging from owner-occupied single family homes to commercial and industrial property. They find that declining real estate prices from 1991 through 1995 diminished the gap between market value and assessed value and thus reduced some of the inequities in the property tax system introduced by Proposition 13. Whether these inequities will return during the recovery in real estate prices depends on a number of critical factors, which are discussed in the report. The authors also look at the tremendous workload imposed on county tax assessors throughout the recession and recovery. Statewide, the number of appeals increased 300 percent in 1992–93 and continued to grow, increasing by an additional 110 percent in 1993–94, another 20 percent in 1994–95, and another 7.7 percent in 1995–96. Although the number of appeals has begun to decline, it is unlikely that it will ever return to pre-recession levels because taxpayers are now more aware of changing property values and are more knowledgeable about the appeals process. Although the state has established a temporary loan program to help counties work through the backlog of cases, the authors suggest that a more permanent and viable source of revenue is needed to support property tax administration in California. This is the sixth in a series of studies that PPIC has published to help improve understanding of state and local governance and finance in California. It is the first to be published under the aegis of PPIC’s Extramural Research Program, which funds external research on social, economic, and political policy issues affecting California. David W. Lyon President and CEO Public Policy Institute of California iv Summary Twenty years ago, California voters approved Proposition 13, limiting the rate at which property is taxed to 1 percent, as well as limiting increases in assessments. Every time property is constructed or sold, it is assessed at its full market value, usually its selling price. Properties for which there are no changes of ownership can be increased only by a maximum of 2 percent a year. Until 1991, this property tax system operated in an era of inflation and rising property values, creating disparities between virtually identical properties. Our collective understanding of the effects of Proposition 13 was developed in this regime. From 1991 through 1995, California experienced a prolonged recession. During this five-year period, the decline in property values was significant and widespread, with home values falling as much as 30 percent in many locations. This sharp fall in property values, as well as the recent upturn in the state, has affected the magnitude of the inequities and inefficiencies resulting from California’s property tax v system and has dramatically altered the job of the county assessor. This study analyzes the changes in California’s property tax system caused by the recession and the recent recovery. Our work examines in detail the changes in property tax disparities in Los Angeles County and San Mateo County. The sharp fall in property values in Los Angeles County, as well as natural turnover of properties, sharply reduced some of the disparities in assessment caused by Proposition 13. Our research demonstrated that disparities have been reduced for all classes of property and along a geographical dimension as well. In Northern California, the declines in property values were relatively modest. Thus, for San Mateo County, there was some reduction in the disparities but the declines were not as large. If housing prices remain flat (or increase by less than 2 percent a year), inequities will continue to be reduced, although they will not be fully eliminated, through turnover and new construction. Will the natural forces of turnover and new construction eventually lead to a reasonably equitable property tax system in California? Before reaching this conclusion, there are some very important caveats. First, if property price appreciation begins to exceed 2 percent per year on a sustained basis, inequities will increase. Second, a disproportionate share of the owner-occupied properties that have not been sold since 1975 are held by the elderly. The choices they make in the disposition of their property—in particular, whether they pass it on to their children or grandchildren—will largely determine whether this class of property, the one with the greatest disparities, will decrease over time. Although the general decline in property values that accompanied the recession in California helped to eliminate some of the inequities in assessments, it has put a tremendous strain on California’s already vi understaffed and underfunded county assessors. Under the provisions of Proposition 13, a property’s assessed value must be the lower of its factored base year value (original assessed value plus a maximum of 2 percent a year) or its current market value. Before the recession that began in 1991, the assessor’s job was relatively easy. Determination of assessed value for the majority of properties involved simply adjusting the previous year’s assessed value upward by 2 percent or by the rate of inflation, whichever was smaller. Only properties that had changed ownership or included new construction needed to be appraised by the assessor’s office. However, since 1991, the market value of many properties has fallen below their factored base year values. Under Proposition 8, a constitutional amendment passed by California voters in November 1978, a property whose market value falls below its factored base year value on January 1 must be assessed or enrolled at its market value for that date. This legislation provides temporary property value reductions when property suffers from a “decline in value.” Such properties are commonly referred to as Prop 8 properties. In subsequent years, these properties must be reviewed and reassessed at market value unless, or until, their market values again exceed their factored base year values. Beginning in 1991–92, assessors began to see an increase in the number of appeals filed by property owners who believed that the market values of their properties had fallen below their assessed values. The number of appeals escalated sharply through the 1990s. This rapid growth in appeals came at a time when assessors’ budgets were in decline. There were no funds for hiring more staff and hence backlogs of work developed. If an appeal is not resolved within two years, the assessor is obligated to enroll the property at the value claimed by the owner on the vii appeal. To prevent further growth in their backlog of appeals and to avoid the inequities that would arise from lowering values only for those properties that were appealed, assessors began to make mass, downward adjustments in assessed values. When properties are classified as Prop 8, they must be assessed at their true market value. Coupled with recent sales and new constructions that are also assessed at market value, Prop 8 assessments have increased to the point that in some counties more than one-third of the parcels are now assessed at market value instead of by factored base year value. This also means that the assessor must reassess each of these properties every year until they are back at factored base year value. The 1993 property tax shift cut the counties’ share of property tax revenues in half and caused serious staffing and incentive problems for county assessors. It was much easier for boards of supervisors to cut the budgets of assessors’ offices than to cut county programs that provide direct services to residents, particularly when the amount of property tax revenues at stake was so low. Since the state receives 53 percent of property tax revenue, it has a strong interest in property tax administration. The state enacted the State-County Property Tax Administration Program, which provided “loans” directly to the assessor. These loans were “paid off” through specific actions taken to increase the efficiency of property tax collection. As we look down the road to the point where property values have fully recovered, assessments have been fully restored, and appeals have declined to more normal levels, property tax administration problems in California will still remain. Programs such as the State-County Property Tax Administration Program provide only temporary and therefore partial solutions. In many ways, the current system does not provide viii incentives for cooperation between locally elected county assessors and the California State Board of Equalization—the oversight body. The State-County Property Tax Administration Program provides a stopgap measure, but we need to begin designing a system now to put into place when this program expires to insure efficient administration of the property tax in California. ix Contents Foreword ..................................... Summary..................................... Figures ...................................... Tables ....................................... Acknowledgments ............................... iii v xiii xv xix 1. INTRODUCTION ........................... 2. HOW HAVE THE DISPARITIES CHANGED? ........ Methodology ............................... Los Angeles County ........................... Owner-Occupied Single Family Residential Property .... Other Classes of Property ...................... A Geographical Perspective ..................... San Mateo County ............................ Assessing the Findings .......................... 3. HOW DID THE RECESSION AFFECT PROPERTY TAX ADMINISTRATION? ..................... Appeals ................................... Proposition 8 Assessment Reductions ................ The State’s Role in Property Taxation ................ State-County Property Tax Administration Program ...... Recovery .................................. 1 9 12 15 15 22 25 28 31 37 38 42 46 48 54 xi 4. PROPOSITION 13 IN THE LONG RUN ........... Appendix: Data for Los Angeles and San Mateo Counties ..... About the Authors ............................... Other PPIC Publications........................... 57 63 89 90 xii Figures 2.1. Index of Housing Prices for Los Angeles County ...... 2.2. Disparity Ratios for Properties in Los Angeles County: 1975 Base Year, Owner-Occupied, Nonmodified ...... 2.3. Assessment Regions in Los Angeles County ......... 10 16 26 xiii Tables 2.1. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified ............ 2.2. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified ............ 2.3. Key Property Assessment Statistics for Los Angeles County: 1991 and 1996 ..................... 2.4. Changes in Disparities Within Los Angeles County .... 2.5. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified ............ 2.6. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified ............ 2.7. Key Residential Property Tax Statistics for San Mateo County: 1991 and 1996 ..................... 3.1. Property Tax Appeals, 1993–94 Through 1995–96 .... 3.2. Resolution of Appeals, 1995–96................. 3.3. Proposition 8 Properties, 1995–96 ............... 18 19 23 27 29 30 32 39 42 44 xv 3.4. California Property Tax Revenue and Counties’ Shares, 1995–96 ............................... 3.5. Loans for Property Tax Administration, 1995–96 ..... A.1. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified ............ A.2. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Modified ............... A.3. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Nonexempt, Nonmodified .................... A.4. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Nonexempt, Modified ....................... A.5. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Multi-Family Residential, Nonmodified ............................. A.6. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Multi-Family Residential, Modified ............................... A.7. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Commercial/Industrial Nonmodified ............................. A.8. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Commercial/Industrial Modified ............................... A.9. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified ............ A.10. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Modified ............... 47 50 64 65 66 67 68 69 70 71 72 73 xvi A.11. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Nonexempt, Nonmodified .................... A.12. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Nonexempt, Modified ....................... A.13. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Multi-Family Residential, Nonmodified ............................. A.14. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Multi-Family Residential, Modified ............................... A.15. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Commercial/Industrial Nonmodified ............................. A.16. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Commercial/Industrial Modified ............................... A.17. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified ............ A.18. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Modified ............... A.19. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Nonexempt, Nonmodified .................... A.20. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Nonexempt, Modified ....................... A.21. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified ............ 74 75 76 77 78 79 80 81 82 83 84 xvii A.22. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Modified ............... A.23. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Nonexempt, Nonmodified .................... A.24. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Nonexempt, Modified ....................... 85 86 87 xviii Acknowledgments A number of individuals contributed to our understanding of the issues addressed in this study and we would like to thank them. Alan Flory, the Yolo County Assessor, first pointed out to us some of the issues involved in property taxation with declining real estate values and helped us frame our study. We had extensive discussions with a group of assessors on the changing climate of property taxation. We would like to thank Larry Stone, Santa Clara County; Gary Orso, Riverside County; Mike DeFerrari, Stanislaus County; Roger Fong, Sacramento County; John Scott, Alameda County; and Kenneth Hahn, Los Angeles County, for sharing their unique perspectives. Max Goodrich from Los Angeles County also provided useful advice as did Pedro Reyes from the Department of Finance. Our reviewers for the project, Jan Brueckner, Michael Teitz, and Jeff Reynolds, helped us sharpen our story. We owe a special debt of gratitude to Robert Cenzer who processed the vast amounts of data used xix in the study and co-authored a working paper on Los Angeles County with us. Bob worked with us on our earlier study of Proposition 13 and enabled us to make detailed comparisons to our earlier work. We could not have completed this study without his assistance. xx 1. Introduction Twenty years ago, California voters approved Proposition 13, limiting the rate at which property is taxed to 1 percent, as well as limiting increases in assessments. Every time property is constructed or sold, it is assessed at its full market value, usually its selling price. After that value is established, assessed value may increase by no more than 2 percent per year until the next transfer of ownership takes place. Property purchased before March 1, 1975, and not subsequently sold is assessed at the 1975 assessed value plus 2 percent per year. These provisions of Proposition 13 have been the source of well-documented inequities and inefficiencies in the property tax system. From 1991 through 1995, California experienced a prolonged recession. During this five-year period, the decline in property values was significant and widespread, with home values falling as much as 30 percent in many locations. The decline was sharper in urban areas and in the commercial sector and particularly strong in Southern California. This sharp fall in property values, as well as the recent upturn in the 1 state, has affected the magnitude of inequities and inefficiencies resulting from California’s property tax system and has dramatically altered the job of county assessors. This study analyzes the changes in California’s property tax system caused by the recession and the recent recovery. In our book Property Taxes and Tax Revolts: The Legacy of Proposition 13 and our report to the California Policy Seminar,The Future of Proposition 13, we (along with Arthur O’Sullivan) analyzed the economic and fiscal consequences of Proposition 13 in detail.1 This body of work provided the most comprehensive description of Proposition 13 that was available. In this work, we: • Identified and measured the inefficiencies and inequities that can result from an acquisition-value-based property tax system; • Identified specifically the winners and losers under Proposition 13; • Analyzed the fiscal effects on local governments; and • Analyzed changes in state and local government fiscal relations resulting from passage of Proposition 13. The results and conclusions of our empirical study depended upon the rate of property value appreciation which, in all but one year since 1978, was in excess of 2 percent per year. Inflation in excess of 2 percent a year creates inequities in assessments. To understand these inequities, consider these data: In 1991, homeowners who had resided in their current homes in Los Angeles County since 1975 (a group that constituted 43 percent of all homeowners in the county) were, on ____________ 1Arthur O’Sullivan, Terri A. Sexton, and Steven M. Sheffrin, Property Taxes and Tax Revolts: The Legacy of Proposition 13, New York and Cambridge: Cambridge University Press, 1995. 2 average, underassessed relative to market value by a factor of five. This means that actual market value had increased to a level five times that of assessed value and that the property taxes due on two such identical homes would differ by a factor of five if one of the homes were to sell. This inequity in tax bills increases over time as long as the rate of property inflation exceeds 2 percent. Appreciation of property values also tends to increase the relocation penalty associated with an acquisition-value-based tax, because appreciation increases the gap between assessed and market values. If a property owner were to move from a property owned for several years to one of equal market value, his property taxes would increase. This penalty results in inefficient resource allocation because it discourages mobility. Thus, in addition to producing inequitable assessments, Proposition 13 leads to economic inefficiencies. As long as property values increase at a rate in excess of the maximum allowable rate of increase in property tax (2 percent), the assessor has only to automatically increase by 2 percent assessments of properties that have not sold. There is no need for the assessor to visit the property and make a detailed appraisal of its market value or conduct an elaborate statistical analysis; in these circumstances, market value is irrelevant for properties that do not sell. Moreover, when properties do sell, the selling price can be used as the basis for the assessment. The recession in the early 1990s had important effects on both the equity and the efficiency of the system as well as on its administration. The decline in property values reduced the disparities between market and assessed values and thereby reduced the related efficiency costs. From the administrative point of view, if property values decline, the assessor is obliged to adjust assessments to the smaller of (1) the original 3 assessed value factored up by 2 percent a year or (2) actual market value. For most properties not recently sold, the factored assessed value will still be less than market value even if market value has declined. But the assessor is required to consider market values especially for recently sold properties and make downward adjustments when necessary. Throughout the state, many homeowners and businesses have taken advantage of these provisions of Proposition 13 through appeals or business reorganizations designed specifically to trigger reassessments. However, one related aspect of the law is not well understood and can lead to some unpleasant surprises for property owners. Suppose that the assessed value of a property was reduced, for example, by an appeal. If property values subsequently appreciate, assessments can jump back to their prior (pre-appeal) level, provided market value exceeds that level. Assessments can be adjusted fully back to factored assessed value in a single year. These readjustments are not subject to the 2 percent per year limitation. For example, consider a home that is assessed at $150,000 in 1995 but, because of a decline in real estate prices, now has a market value of only $140,000 in 1996. The assessor is required to reduce the assessment to $140,000 for 1996. If, in 1997, the housing market in this location has recovered and this home is found to have a market value of $160,000, the assessor can increase the assessment back to $150,000 plus 2 percent for 1996 plus an additional 2 percent for 1997 for a new assessed value of $156,060. In this case, the one-year increase in assessed value would be $16,060 or 11 percent. The widespread decline in property values in California has dramatically increased the workload of county assessors. They have been flooded with appeals, in many cases ten times the normal number, even 4 though across-the-board reductions in assessments have often been implemented. In some counties, property values have begun to recover and some of the recovery is reflected in rising assessments. However, other counties are still in the process of reducing assessments. This work examines how California’s property tax assessment operated during a period of declining and then recovering property values. In particular, we address the two following sets of questions: 1. How have disparity ratios (the ratio of market value to assessed value) changed since 1991, the last date for which we have accurate information on disparity ratios? One would expect a decline in market value to lead to decreases in disparity ratios, but are such decreases uniform across all property? 2. How has the decline and recent recovery in property values changed assessment practices? How have county assessors coped with sharp increases in appeals and the requirement to reduce (and later restore) assessments for substantial numbers of properties? Does the current assessment system in California work efficiently and protect the fiscal interests of state and local governments in California? In Chapter 2, we address the first set of questions. We selected two counties—Los Angeles and San Mateo—and estimated the property tax disparities within each county. Los Angeles County is the largest in California, accounting for approximately 30 percent of the assessed value in the state, and it experienced some of the sharpest declines in real estate values within the state. San Mateo is a representative Northern California urban county. Both of these counties were included in our 1991 study, and thus those data are available for comparison. Our procedure for estimating property tax disparities starts with the complete property tax roll for a county for the two most recent years. Using recent sales of properties, we can estimate the disparity ratio for 5 different classes of properties. If there are sufficient sales, it is possible to estimate average disparity ratios for all classes of property. These estimates can then be combined with current assessed value, by class of property, to provide overall estimates of market value. The results can then be compared to those obtained in 1991, which were described in detail in our prior work. We use the same categories and classifications to facilitate the comparisons. Although the key comparative statistics are presented in the text, the appendix presents a complete picture of the property tax inequities in the two counties for the current period. In Chapter 3, we address issues concerning property tax administration. We conducted a series of interviews with county assessors and state officials to learn about changes in practices and their perspectives on the problems facing the property tax system in California. These interviews were quite revealing and highlighted significant changes in the property tax assessment system that have already occurred. They also highlighted some potential problems. In addition, the assessors provided us with data on appeals and the methods used and time lags involved in dealing with them. In Chapter 4, we address some of the key findings and policy issues raised in our investigation. Two key issues emerge. First, the decline in real estate values has changed California’s property tax system to one that relies much more extensively on determining market value assessments than on making automatic adjustments to assessed value. Does the current assessment system have the resources to work effectively in this environment? Second, recent changes in property tax allocations have increased the share of property tax revenues that flow directly to the state and reduced the share of property tax revenues that flow to the county. In this new era, what is the proper role of the state and the State Board of 6 Equalization in insuring that the property tax system functions efficiently? 7 2. How Have the Disparities Changed? As we discussed in Chapter 1, the system of property tax assessment created under Proposition 13 produces inequities for similarly situated property owners as long as increases in real estate prices exceed 2 percent per year. Under Proposition 13, the assessed value of property cannot increase by more than 2 percent per year until the property is sold, at which time the property is reassessed at its full market value. Until the early 1990s, inflation in real estate generally exceeded 2 percent a year, thereby creating gaps between the assessed value of properties and their true market value. In turn, this created inequities between buyers of property and owners of property who chose not to sell and who benefited from property tax assessments below market value. Prior research revealed that the largest disparities occurred in the large urban areas in Southern and Northern California. The recession that occurred in California during the early 1990s had important effects on the disparities in property taxation in California. As 9 the state experienced a severe recession from 1991 through 1995, property values fell in many parts of the state. Declining real estate prices have important effects on an acquisition-value-based property tax system such as Proposition 13. In particular, declining market prices for housing reduce the gap between market value and assessed value, thereby also reducing some of the inequities in the system. The extent of the decline in real estate values differed sharply within the state. Figure 2.1 plots an index of quality-adjusted housing prices for the Los Angeles area based on data supplied from Freddie Mac (a financial intermediary). From their peak in the first quarter of 1990 to their trough in the first quarter of 1995, housing prices fell throughout the county by 27.5 percent. This was the first significant decline in housing prices since the passage of Proposition 13. The decline in Los 200 160 120 80 40 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 Year SOURCE: Freddie Mac repeat sales index. Figure 2.1—Index of Housing Prices for Los Angeles County 10 Angeles was greater than in other areas of the state. For example, in the San Jose area, the fall in housing prices from peak to trough was only 12.5 percent, whereas in the Santa Rosa area, prices declined only 5.2 percent. In this chapter, we explore how the recession in the early 1990s affected the disparities in property taxation within the state. It builds on the work and follows precisely the methodology of our earlier study in which we conducted a systematic investigation of property tax disparities in a number of counties in California.1 In the present study, we examine Los Angeles County and San Mateo County. Since Los Angeles County accounts for nearly 30 percent of the assessed value in the entire state, it is important to understand the changes in property tax disparities within this county. Moreover, since the drop in real estate values differed sharply between Southern and Northern California, it is important to include a representative northern county, such as San Mateo. Both counties were studied in detail in our earlier work and thus we can pinpoint precisely the changes that have occurred. In the next section, we outline the methodology that we employ to measure the disparities in both counties. We then present our analysis of the current disparities for both counties and compare them to the period before the onset of the recession. The appendix contains the detailed results of our investigation for both counties, classified by property type and the year since the last sale. ____________ 1See O’Sullivan, Sexton, and Sheffrin (1995). 11 Methodology To measure and evaluate property tax disparities, we first review some of the key features of the assessment provisions contained in Proposition 13. One key concept in the implementation of Proposition 13 is the “base year.” When Proposition 13 was passed by the voters in 1978, assessments were rolled back to the values for the property that prevailed in 1975. Subsequently, the assessed value of properties can be increased only by a maximum of 2 percent a year until the property is sold, at which time it is assessed at market value. The base year of properties is defined as the year of the most recent sale; however, for properties that were in existence in 1975 and have not sold, the base year is 1975. The base year for a newly constructed property will initially be the year in which it first appears on the property tax roll. As long as housing price inflation exceeds 2 percent a year, properties with more recent base years will be assessed closer to market value than properties with older base years. Thus, it is important to keep track of the base year for properties to measure disparities between market and assessed values. The base year is the most important piece of information necessary to estimate the disparities between market and assessed value. Properties can have multiple base years. If a property owner makes a substantial modification to a property—a new wing to a house or a new structure on an existing piece of land—the new part of the property will have a separate base year. Large commercial and industrial properties often have multiple base years, reflecting a series of major modifications to the property. Many residential properties will also have substantial modifications. Keeping track of the precise number of modifications for each class of properties is not possible. In our empirical work, we make a distinction between properties with a single base year and properties with 12 multiple base years. We term these properties “nonmodified” and “modified,” respectively. In our earlier work, we found that the pattern of new construction and turnover differed sharply for four types of properties and thus we analyzed each type separately. These groups were: • Single family residential property (owner-occupied); • Single family residential property (not owner-occupied); • Multifamily residential; and • Commercial and industrial. In California, homeowners are allowed a $7,000 reduction in their assessed value before the property tax rate is applied. Assessors must maintain a record of this exemption; thus, we are able to distinguish between single family residential properties that are owner-occupied and those that are not owner-occupied but are used for rental, vacation, or other purposes. In our previous work, we found that owner-occupied properties were sold less frequently than other single family residential properties. Consequently, the base year distributions of the two types of properties were quite distinct. Multifamily residential property consists of apartment complexes. Commercial and industrial property is defined as property that is used for nonresidential business purposes. For both categories, there is a wide range in the size and value of properties. Counties also have to keep records for other smaller classes of property as well as for vacant land. We did not include these in our analysis. Within each group, we distinguish between nonmodified and modified properties. Thus, there are actually eight distinct subgroups of 13 property that we must analyze in our empirical work. For each group, we also categorize property by its base year. Our goal is to estimate the disparity ratio—defined as the ratio of market to assessed value—for different types of property. Although data on assessed values are available for all properties, market values are not. For a single property, it would be possible to conduct an appraisal and approximately determine its market value. However, this approach is clearly not feasible for a large, comprehensive study. To obtain measures of market values, we rely on a method based on the sale of properties. Specifically, we first obtain data on all properties for two consecutive years and determine which properties have been sold in the most recent year. When a property is sold, we know its new market value (the sale price) and we also know its assessed value from the prior year. For each sale, we can thus calculate the ratio of market to assessed value—the disparity ratio for that property. We then separate all sales into categories based on three factors: the prior base year, the type of property, and whether or not the property had been modified. Within each category, we calculate the median disparity ratio for all the properties that were sold. These median disparity ratios are our preferred measures of property tax disparities and are used in all subsequent calculations. Our method embodies several assumptions and choices. First, we assume that the sales that actually occur are representative of the underlying properties within each category that do not sell. This is the standard approach underlying the “sales approach” to property tax assessment that is widely used throughout the world. It is based on the principle that most sales of property occur for idiosyncratic or random reasons. Potential biases are also mitigated through the process of 14 disaggregating the data into eight separate categories. Second, we use the median rather than the mean of the disparity ratios for properties within each category. Our inspection of the data revealed that a few properties had unusually high disparity ratios that, in part, could be caused by errors in reporting assessed values.2 Using the median disparity ratios minimizes the importance of these “outliers.” This study applies the methodology to two periods. We examined all sales of property that occurred in Los Angeles and San Mateo Counties in 1990–91 and in 1995–96. This period brackets the downturn in real estate prices. In each time period, we used data for two consecutive years. This involved analyzing approximately eight million property records for Los Angeles (approximately two million per year) and 1.4 million for San Mateo. Once we have estimated disparity ratios, we then use them to estimate the total market value of all properties within the county. By comparing the estimated market value to its current assessed value, it is possible to determine the loss in revenue that is due solely to the assessment provisions contained within Proposition 13 and how this revenue gap has changed because of the recession and fall in real estate prices. Los Angeles County Owner-Occupied Single Family Residential Property To illustrate our results for Los Angeles County, it is instructive to study a single and representative case in detail—owner-occupied single ____________ 2Since we are working with ratios of market to assessed values, it is important to use methods that are robust to reporting errors. 15 family residential property that has not been modified (i.e., has a single base year). Recall that we calculate a disparity ratio for each property that is sold classified by base year and property type. Figure 2.2 depicts the entire distribution of disparity ratios for 1975 base year properties that were sold in the 1995–96 period. It is clear from the figure that there is no single, unique disparity ratio and thus it is necessary to develop a summary measure. The median disparity ratio in this distribution is 3.84. For the reasons discussed above, this is our preferred estimate of the disparity ratio for 1975 base year properties for this class of properties. For each base year and each class of property, we calculate a similar statistic for the 1995–96 period as well as the 1990–91 period. Tables 2.1 and 2.2 present the essential data for this class of property for the 1990–91 and 1995–96 periods, respectively. The formats of the Percentage of homes sold 5.0 4.0 3.0 2.0 1.0 0.0 0.9 1.9 2.7 3.5 4.3 5.1 5.9 6.7 7.5 8.3 9.2 9.6 Ratio of market value to assessed value SOURCE: Authors’ analysis of data obtained from the Los Angeles County Assessor. Figure 2.2—Disparity Ratios for Properties in Los Angeles County: 1975 Base Year, Owner-Occupied, Nonmodified 16 tables are identical. The first column in each table contains the base year and the second column contains the number of properties having each base year. (Note that for Table 2.1, the final base year is 1991; for Table 2.2 it is 1996.) The third column is the number of sales in the most recent year. The fourth column contains the median disparity ratio for each base year. The fifth column contains the total assessed value for each base year obtained from the roll data from the county. The sixth column is our estimate of the total market value for each base year.3 It is obtained by multiplying the assessed value by the median disparity ratio for each base year. The remaining columns contain the average assessed and market values for each base year, which are obtained by dividing the totals by the number of properties. Finally, at the bottom of each table is the “revenue ratio.” This is defined as total assessed value divided by total market value (over all base years); it measures the degree to which property in this category is “underassessed.” Comparing the two tables, one of the most striking features is the decrease in disparity ratios that occurred between the two periods. Changes in disparity ratios are clearest for the 1975 base year properties, the single largest base year class. From 1991 to 1996, the disparity ratio for 1975 base year property fell from 5.19 to 3.84 or a 26 percent decrease.4 This is a direct consequence of the fall in real estate prices and ____________ 3It is only an estimate because we are using an estimated value of the disparity ratio to multiply the assessed value of each property. 4Although the 26 percent decrease is close to the decline in real estate values based on the Freddie Mac index, these statistics are not directly comparable. This estimate is based on Los Angeles County, not the Los Angeles Primary Statistical Metropolitan Area (PSMA), which is the basis for the Freddie Mac index, and applies only to a subset of properties. 17 Table 2.1 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified . 18 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 356634 19426 21607 21337 22682 21944 15298 12344 12290 22323 26140 34180 45034 47509 56890 50372 39217 No. of Sales 5,577 389 445 531 681 725 595 535 550 1,045 1,371 1,835 2,383 3,081 4,135 2,884 Median Disparity Ratio 5.19 4.18 3.55 2.90 2.49 2.04 1.71 1.68 1.70 1.68 1.66 1.62 1.55 1.43 1.27 1.12 1.00 Total Assessed Value 18,659,804,148 1,326,834,652 1,702,199,460 1,976,745,028 2,423,208,788 2,788,094,920 2,338,421,684 1,879,559,160 1,918,948,310 3,626,750,841 4,263,198,740 5,850,112,080 8,203,123,236 9,544,795,645 13,322,045,080 13,022,219,812 10,237,088,029 Total Market Value 96,844,383,528 5,546,168,845 6,042,808,083 5,732,560,581 6,033,789,882 5,687,713,637 3,998,701,080 3,157,659,389 3,262,212,127 6,092,941,413 7,076,909,908 9,477,181,570 12,714,841,016 13,649,057,772 16,918,997,252 14,584,886,189 10,237,088,029 Average Assessed Value 52,322 68,302 78,780 92,644 106,834 127,055 152,858 152,265 156,139 162,467 163,091 171,156 182,154 200,905 234,172 258,521 261,037 Average Market Value 271,551 285,502 279,669 268,668 266,017 259,192 261,387 255,805 265,436 272,945 270,731 277,273 282,339 287,294 297,398 289,544 261,037 Total 825227 26,773 103,083,149,613 227,057,900,301 Revenue ratio = 0.45 Av. 124,915 Av. 275,146 Table 2.2 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified . 19 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 298113 16372 18313 18196 18906 18073 12363 9944 9637 17122 20286 26293 35621 38130 47617 44939 39343 45457 43323 39750 43259 35361 896418 No. of Sales 5460 339 379 429 482 514 353 304 295 534 683 867 1230 1467 1969 1956 1482 1499 1366 1668 6260 29539 Median Disparity Ratio 3.84 2.98 2.59 2.14 1.78 1.47 1.28 1.27 1.28 1.23 1.22 1.20 1.12 1.01 0.90 0.86 0.86 0.87 0.88 0.96 0.96 1.00 Total Assessed Value 17,575,630,408 1,257,626,462 1,625,152,212 1,892,877,464 2,253,469,759 2,566,510,926 2,113,533,574 1,715,216,732 1,691,609,053 3,129,293,238 3,754,813,097 5,011,930,873 7,153,744,287 8,316,317,440 11,179,045,931 10,207,045,842 8,815,787,352 10,572,897,112 10,280,575,194 9,464,977,783 10,296,151,017 7,963,636,606 Total Market Value 67,490,420,767 3,747,726,857 4,209,144,229 4,050,757,773 4,011,176,171 3,772,771,061 2,705,322,975 2,178,325,250 2,165,259,588 3,849,030,683 4,580,871,978 6,014,317,048 8,012,193,601 8,399,480,614 10,061,141,338 8,778,059,424 7,581,577,123 9,198,420,487 9,046,906,171 9,086,378,672 9,884,304,976 7,963,636,606 138,837,842,362 196,787,223,391 Revenue ratio = 0.71 Average Assessed Value 58,956 76,816 88,743 104,027 119,193 142,008 170,956 172,488 175,533 182,764 185,094 190,618 200,829 218,104 234,770 227,131 224,075 232,591 237,301 238,113 238,012 225,210 Av. 154,881 Average Market Value 226,392 228,911 229,845 222,618 212,164 208,752 218,824 219,059 224,682 224,800 225,814 228,742 224,929 220,285 211,293 195,333 192,705 202,354 208,825 228,588 228,491 225,210 Av. 219,526 is also evident in our estimates of market values (the last column in the tables) for the two years. An average new purchaser of a home in Los Angeles County today will find that he or she is paying a bit less than four times the basic property tax compared to a homeowner who has been in his home since 1975. As an example, a purchaser of a new home for $240,000 will pay $2,400 at the basic 1 percent rate, but homeowners who have not moved since 1975 would pay only $600 at the basic rate. Actual property tax bills will, in fact, differ less in relative terms because of the myriad of additional charges, such as parcel taxes and special assessments, that are not typically based on assessed value but also appear on the bills. These disparities were significantly larger in 1991. The fraction of 1975 base year property has also decreased substantially. In 1991, 43 percent of all properties had 1975 base years. By 1996, just five years later, it had fallen to 33 percent. Several factors explain this drop in the 1975 base year percentage. First, there is natural turnover in the real estate market. A fraction of the 1975 base year property was sold and thus assumed later base years. Between 1995 and 1996, 5,460 1975 base year properties in this class were sold; over the period since 1990–91, total sales of 1975 base year properties amounted to approximately 16 percent of the 1990–91 total of 1975 base years. The second factor that reduces the share of 1975 base year property is new construction, which adds to the total number of properties and thereby reduces the 1975 base year percentage. The third factor appears to be a slight shift to single family property receiving the homeowner’s exemption from single family property not receiving the exemption. In effect, either some rental or vacation homes became owner-occupied over this period or, as an alternative possibility, 20 homeowners who had neglected to file for their exemption in prior years did so during this period. The total number of single family nonresidential properties fell by 50,901 between 1991 and 1996, which is 4.8 percent of the total for single family residential properties (both modified and nonmodified). Although this third factor probably is a one-time change, turnover and new construction will continue in the future. Assuming that the same rate of decrease in the percentage of 1975 base year properties that occurred between 1991 and 1996 will continue in the future, by 2006 the percentage of 1975 base year property will be approximately 22 percent; by 2016 it will be approximately 14 percent, a relatively small percentage. These estimates are robust to alternative assumptions about the growth of new construction. The 1975 base year percentages are key statistics because they are the most important source of property tax disparities. As Table 2.2 indicates, the median disparity ratios fall to below 1.3 for base years after 1980. A 30 percent difference in assessments is not unusual in other states that are allegedly on a market-value-based property tax system. Many states reassess properties only on infrequent, fixed cycles and much larger disparities often emerge over the period, although these disparities are rectified following the reassessment. Montana, for example, has recently had to cope with this problem. Another factor limiting some of the inequities is that properties with base years ranging from 1976 to 1980 constitute only 10 percent of the total for nonmodified homeowner property. Another important comparison for this class of property is between the revenue ratios for the two years. In 1991, the revenue ratio (total assessed value divided by total market value) was 0.45 but by 1996 it had 21 increased to 0.71. This means that if all property in this category in Los Angeles County were assessed at market value, revenue would increase by 40.8 percent. This is substantially less than the 122 percent increase that would have occurred in 1991. Other Classes of Property Table 2.3 summarizes the key statistics for other classes of property in Los Angeles County. For each class, the table contains the disparity ratios for 1975 base years and the percentage of the property with a 1975 base year for both 1991 and 1996. We focus on the 1975 base years because of their relative size and their importance in determining overall disparities. The table also contains the revenue ratios for the entire county for both years. A number of consistent patterns across property types emerge from the data in Table 2.3. First, the disparity ratios for modified properties are less than those for nonmodified properties. This finding was anticipated, as modified properties are those with multiple and, thus, more recent base years. Second, the percentage of 1975 base years is higher for modified properties. This finding was also anticipated. Modifying a property is an alternative to selling it. Thus, we expect households or corporations that modify properties to have earlier base years on average. Properties that were modified also experienced less of a decrease in their 1975 base year percentages. Modifying a property is a means of preserving the 1975 base year assessed values for the original portion of the property. Once the decision has been made to modify a property, the owner will often typically want to hold on to the property or make further modifications to it rather than sell it. 22 Table 2.3 Key Property Assessment Statistics for Los Angles County, 1991 and 1996 Class of Property Single family with homeowner exemption Modified? No 1991 Disparity Percent 1975 Ratio, 1975 Base Year 5.19 43 1996 Disparity Percent 1975 Ratio, 1975 Base Year 3.84 33 Single family with homeowner exemption Yes 4.35 47 3.24 43 Single family without homeowner exemption No 5.54 23 3.98 18 23 Single family without homeowner exemption Yes 4.46 28 3.22 28 Multifamily No 6.10 35 4.28 30 Multifamily Yes 5.51 44 3.71 41 Commercial and industrial No 5.66 36 3.23 29 Commercial and industrial Yes 4.19 45 2.34 43 County revenue ratio for 1991: 0.48 County revenue ratio for 1996: 0.73 Some clear differences also emerge through comparisons across property types. First, single family residences (with the homeowner exemption) turn over much more slowly than rental or vacation property (without the exemption). Since this class of property turns over more rapidly, fewer 1975 base year properties remain today. This is reflected in the substantially smaller percentage of 1975 base year property without the exemption. Second, disparity ratios fell very dramatically in the commercial and industrial category. This is consistent with popular accounts that the commercial real estate market in Los Angeles County experienced very sharp downturns in the first half of the 1990s. The percentage in 1975 base years for commercial and industrial properties that were modified remains relatively high over the entire period. Modified commercial and industrial properties also tend to be much larger than nonmodified properties. Finally, the revenue ratios for the entire county change sharply over this period, increasing from 0.48 to 0.73. In 1996, if all properties were assessed at market value, revenues would increase by only 37 percent. In 1991, the comparable figure was 108 percent. Thus, over this five-year period, the percentage gain in property tax revenue from moving from the current system to a market-value-based system has decreased sharply. The appendix contains a set of tables, identical in format to Tables 2.1 and 2.2, for all eight classes of property for both 1991 and 1996. Two important additional findings emerge from these tables. First, disparity ratios for the years from about 1990 to 1995 are often below unity, indicating that the properties were sold for less than their assessed values. In principle, the owners could have appealed their assessments to reduce them to market value; however, because of lags in the appeals process or lack of initiative on the part of the property owners, this did 24 not occur. We anticipate that this phenomenon will tend to disappear in the near future. As we discuss in the next chapter, assessors throughout the state have started to automatically reduce the value of properties without requiring prior appeals, and delays in resolving appeals have been reduced. The second notable feature is that modified properties have higher market values than nonmodified properties. (Multifamily property is the one exception.) One potential explanation for this finding is that owners of more valuable properties have found it in their interests to modify properties rather than sell them. In part, this may be a behavioral effect related to tax incentives—that is, the additional property tax benefits that owners receive from the assessment provisions of Proposition 13, relative to owners of less-valued properties. A Geographical Perspective Los Angeles County is large enough that it is possible to examine the geographical pattern of disparities within the county and over time. Thirteen major regions within the county are shown in Figure 2.3, which is taken from the web page of the Los Angeles County Assessor. For each region, we examined the disparity ratios for single family residences (nonmodified) with a 1975 base year for both 1991 and 1996. We chose this category because there were at least 100 sales in each region in each year, which permits us to be relatively confident in our estimates of the median disparity ratio. No other property category had sufficient numbers of sales to produce reliable estimates. Table 2.4 contains the key statistics from our analysis and also provides an index to the map. (Note that the Pasadena/Glendale area comprises two regions.) The table provides the median 1975 disparity 25 A1 B1 02 03 07 09 14 14 04 05 11 06 12 10 Figure 2.3—Assessment Regions in Los Angeles County ratio both for 1991 and 1996 as well as the average assessed value for this category of property in 1996. Several patterns emerge from the table. First, in 1991, the region with the highest disparity ratio was Santa Monica, which also had the highest average assessed value. The lowest disparity ratios tended to occur in outlying areas with lower assessed values, such as West Covina and Lancaster. The one exception to this pattern appears to be 26 Table 2.4 Changes in Disparities Within Los Angeles County Name of Region Chatsworth Van Nuys Pasadena/Glendale Pasadena/Glendale West Covina Santa Monica Culver City Long Beach South El Monte Norwalk Lomita (Catalina) Lancaster Santa Clarita Region Number 2 3 4 5 6 7 9 10 11 12 14 A1 B1 1991 1975 Median Disparity Ratio 4.7 5.0 6.4 6.0 4.9 7.0 5.6 5.0 5.0 5.2 5.5 3.8 4.7 1996 1975 Median Disparity Ratio 3.2 3.4 4.2 4.6 3.8 4.3 4.1 3.6 3.8 4.0 4.1 2.3 3.3 Average Assessed Value in 1996 (dollars) 74,812 58,575 61,379 55,107 45,778 124,734 52,633 48,743 48,051 42,958 64,969 39,808 50,066 NOTE: Owner-occupied, single family properties that have not been modified. Chatsworth, the area north of Santa Monica, which has a high average assessed value but a relatively low disparity ratio. Second, disparity ratios fell sharply in all the regions from 1991 to 1996 and have tended to become more equal. For the entire county, the median disparity ratio for this class of property fell from 5.19 to 4.84. Santa Monica’s disparity ratio fell from 7.0 to 4.3 and Pasadena/ Glendale (region 4) fell from 6.4 to 4.2. On the other hand, West Covina’s disparity ratio fell only from 4.9 to 3.8. These findings suggest that, on average, housing prices fell more in the wealthier areas of the city, thereby reducing the range of disparities across districts. 27 San Mateo County As the fall in real estate prices was significantly less in Northern California, we would expect to find less dramatic changes in the disparities in San Mateo County. This is indeed the case. We restrict our analysis to single family residential property because the number of sales for other classes of properties, in both 1991 and 1996, is too small to make meaningful and reliable judgments about changes in disparities. Table 2.5 and 2.6 contain the data for nonmodified owner-occupied housing for 1991 and 1996, presented in a format identical to Tables 2.1 and 2.2. Several key features emerge from the table. First, 1975 base year disparity ratios fall from 4.58 to 4.32—a 5.7 percent decline. This is a much more modest decline than this study found for Los Angeles County or that the Freddie Mac statistics found for nearby San Jose. The relatively modest decline in real estate prices also affects the disparities for other base years. In 1996, only base years after 1987 have disparity ratios less than 1.3. This implies that over 54 percent of all owner-occupied nonmodified properties have disparities greater than 30 percent—again, a smaller number than in Los Angeles County. One feature consistent with Los Angeles County is the decline in the percentage of properties with 1975 base years. In 1991, approximately 40 percent of this class of property had 1975 base years. By 1996, this percentage fell to 32. Since the number of properties in this class grew by less than 1 percent, the decrease in the base year percentage was primarily due to the natural turnover process. Assuming the same rate of decrease in the 1975 base years, by the year 2006 the percentage will have fallen to approximately 21 and by 2016 to approximately 14 percent. 28 Table 2.5 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified . 29 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 45521 2437 3006 2705 3253 3032 2121 1739 2821 3818 3882 4996 6655 6558 7725 6359 8731 No. of Sales 944 84 84 73 99 108 73 68 196 205 223 325 401 542 546 498 Median Disparity Ratio 4.58 3.50 3.32 2.48 2.31 2.09 1.63 1.47 1.71 1.58 1.51 1.46 1.34 1.20 1.09 1.08 1.00 Total Assessed Value 3,364,275,026 217,877,548 314,343,432 357,333,205 452,820,853 493,733,912 425,461,995 363,124,068 567,187,439 788,997,336 825,328,728 1,153,546,424 1,655,471,180 1,864,163,964 2,411,799,075 2,002,976,897 3,060,913,980 Total Market Value 15,408,379,619 762,571,418 1,043,620,194 886,186,348 1,046,016,170 1,031,903,876 693,503,052 533,792,380 969,890,521 1,246,615,791 1,246,246,379 1,684,177,779 2,218,331,381 2,236,996,757 2,628,860,992 2,163,215,049 3,060,913,980 Average Assessed Value 73,906 89,404 104,572 132,101 139,201 162,841 200,595 208,812 201,059 206,652 212,604 230,894 248,756 284,258 312,207 314,983 350,580 Average Market Value 338,489 312,914 347,179 327,610 321,554 340,338 326,970 306,954 343,811 326,510 321,032 337,105 333,333 341,110 340,306 340,182 350,580 Total 115359 4469 20,319,355,062 38,861,221,686 Av. 176,140 Av. 336,872 Revenue ratio = 0.52 Table 2.6 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified . 30 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 37651 2005 2487 2183 2582 2412 1635 1361 2122 2705 2779 3559 4584 4385 5138 4253 4056 4677 5433 6250 4996 8960 116213 No. of Sales 1409 91 112 98 150 129 96 71 111 180 179 233 346 297 252 203 191 222 233 411 293 5307 Median Disparity Ratio 4.32 3.51 3.07 2.45 2.26 1.84 1.53 1.52 1.61 1.47 1.46 1.35 1.23 1.13 1.10 1.08 1.09 1.07 1.11 1.10 1.22 1.00 Total Assessed Value 2,874,661,016 182,824,069 272,964,987 296,725,156 373,931,249 411,229,297 343,298,713 296,699,753 447,163,854 582,377,056 624,769,484 854,486,140 1,194,172,035 1,275,706,053 1,528,383,586 1,242,805,790 1,284,520,865 1,557,084,162 1,776,761,633 2,155,859,191 1,771,251,552 2,862,018,679 Total Market Value 12,418,535,589 641,712,482 838,002,510 726,976,632 845,084,623 756,661,906 525,247,031 450,983,625 719,933,805 856,094,272 912,163,447 1,153,556,289 1,468,831,603 1,441,547,840 1,681,221,945 1,342,230,253 1,400,127,743 1,666,080,053 1,972,205,413 2,371,445,110 2,160,926,893 2,862,018,679 24,209,694,320 39,211,587,743 Revenue ratio = 0.62 Average Assessed Value 76,350 91,184 109,757 135,925 144,822 170,493 209,969 218,001 210,728 215,297 224,818 240,092 260,509 290,925 297,467 292,219 316,696 332,924 327,031 344,937 354,534 319,422 Av. 208,322 Average Market Value 329,833 320,056 336,953 333,017 327,298 313,707 321,252 331,362 339,271 316,486 328,234 324,124 320,426 328,745 327,213 315,596 345,199 356,228 363,005 379,431 432,531 319,422 Av. 356,228 Table 2.7 contains key data for all the single family classes of property. Although there are declines in the 1975 disparity ratios for all classes of property, they are relatively modest. As we found for Los Angeles County, the decline in the base year percentages was less for modified properties, since modifying a property is an alternative to selling it. For a relatively small class of properties (non-owner-occupied, modified), the 1975 base year percentage increased slightly. This occurred because some older properties that were previously owneroccupied were converted to rental use. In this circumstance, a property maintains its base year but loses its $7,000 exemption. The appendix contains detailed information for all classes of single family property. We also calculated the revenue ratios for all classes of single family properties combined. The revenue ratio rose from 0.53 in 1991 to 0.61 in 1996. Thus, in 1996, single family residential property tax revenues would have increased by 64 percent if these classes of property were assessed at full market value. This is a larger percentage increase than in Los Angeles County and reflects the relative severity of the housing price decline in the two regions. Assessing the Findings The fall in property values in Los Angeles County sharply reduced some of the disparities in assessment caused by Proposition 13. Our research demonstrated that disparities have been reduced for all classes of property and along a geographical dimension as well. For San Mateo County, there was also some reduction in the disparities but the declines were not as large. 31 Table 2.7 Key Residential Property Tax Statistics for San Mateo County: 1991 and 1996 Class of Property Single family with homeowner exemption Modified? No 1991 Disparity Percent 1975 Ratio, 1975 Base Year 4.58 40 1996 Disparity Percent 1975 Ratio, 1975 Base Year 4.32 32 32 Single family with homeowner exemption Yes 4.13 41 3.94 36 Single family without homeowner exemption No 4.44 22 4.25 19 Single family without homeowner exemption Yes 3.92 23 3.91 24 Residential revenue ratio for 1991: 0.53 Residential revenue ratio for 1996: 0.61 Prior research has shown that the disparities were largest in the older, urban areas of Northern and Southern California.5 In the newer, fastgrowing counties such as San Bernardino, Riverside, Fresno, and Sacramento, a much smaller percentage of properties naturally had older base years. Even estimates of the disparities for the 1975 base year properties were lower than for Los Angeles and San Mateo Counties. Thus, this current research suggests that except for some parts of urban Northern California, price depreciation has reduced some of the inequities of the assessment provisions of Proposition 13. Moreover, for both the counties we examined, normal turnover and new construction have also reduced the percentage of properties with assessments far out of line with market values. If housing prices remain flat (or increase by less than 2 percent a year), inequities will continue to be reduced through turnover and new construction, although they will not be fully eliminated. Assuming that similar rates of turnover and new construction continue in the future, we project that by the year 2016, approximately 15 percent of owner-occupied, nonmodified properties in Los Angeles and San Mateo Counties will have 1975 base years. In fastgrowing counties around the state, the percentage is currently much less than in Los Angeles and San Mateo Counties and will also continue to decline. Can we therefore expect that the natural forces of turnover and new construction will soon lead to a reasonably equitable property tax system in California? Before reaching this conclusion, there are some very important caveats. First, the crucial role of the rate of property price appreciation cannot be overemphasized. The evolution of disparity ratios ____________ 5See O’Sullivan, Sexton, and Sheffrin (1995). 33 depends on the difference between the inflation rate for property and the 2 percent assessment cap under Proposition 13. As long as the inflation rate for property remains below 2 percent, the system moves inevitably toward more equal assessments. On the other hand, a new period of rapid inflation could easily cause new inequities to emerge. Second, the median disparity ratios do disguise important variations of properties within any given class, as Figure 2.2 reminds us. Under the current assessment system, some properties will always have assessed values far out of line with market values. Reporters will always be able to find “outrageous” examples of inequities, particularly in exclusive neighborhoods in California. Third, turnover rates will eventually fall. At some point, the 1975 base year properties that remain will, in most likelihood, contain a disproportionate number whose assessed values are most out of line with market values. Those homeowners face a large “penalty” if they sell because they then lose the favorable tax treatment of their property. They thus become more reluctant to sell and become more highly represented within the 1975 base year group.6 Moreover, they also may begin to modify their properties rather than selling them. As we have seen, modified properties did not show such sharp decreases in 1975 base year percentages over the last five years and this is likely to continue in the future. Fourth, it is important to recognize that a disproportionate share of owner-occupied properties with 1975 base years are held by the elderly. Using a match of tax returns and property records, it was possible to ____________ 6Technically, this is known as a declining “hazard rate” for sales. Our prior work found some evidence in support of declining hazard rates. 34 determine whether the owner of a home was 65 years of age or over.7 In 1991, 44 percent of 1975 base year properties in Los Angeles County belonged to the elderly; in San Mateo County, the corresponding figure was 49 percent. How the elderly dispose of their property will be a crucial factor in determining the persistence of 1975 base year property. Thus, two provisions added to the property tax law in California after Proposition 13 will be particularly important in determining the ultimate disposition of 1975 base year property. The first provision allows seniors to move into lower-valued homes and retain their assessed values. The law restricts these moves to be within the same county, but a number of counties have enacted reciprocity provisions. The other provision allows property to be transferred from parents to children also without triggering reassessments. This latter provision will ultimately become more important over time, particularly in affluent areas of the state where the gaps between market and assessed value are the greatest. We have little knowledge of the extent to which this provision has been used to date, but it ultimately could have a major effect on the number of 1975 base year properties that persist into the future. As a final note, there has never been underlying popular support for a major revision of Proposition 13 by the voters of California. The fall in real estate prices has reduced the potential revenue gains in switching from the current system to one based on market values. This reduces the public sector’s incentives to lobby for other wholesale changes in Proposition 13 as well. Indeed, most of the lobbying by the public sector in the last several years has been to undo the shift in the allocation of ____________ 7See O’Sullivan, Sexton, and Sheffrin (1995). 35 property taxes (from local governments to schools) that occurred in the early 1990s and not for fundamental changes in the assessment system. 36 3. How Did the Recession Affect Property Tax Administration?1 Although the general decline in property values that accompanied the recession in California helped to eliminate some of the inequities in assessments, it has put a tremendous strain on California’s already understaffed and underfunded county assessors. Statewide, staffing and funding of county assessor offices are down about 30 to 40 percent over the pre-Proposition 13 levels of 1978, whereas staff workloads have doubled or tripled in the same period. Much of the increased workload can be attributed to the real estate recession. Under the provisions of Proposition 13, a property’s assessed value must be the lower of its factored base year value (base year value plus inflation of not more than 2 percent) or its current market value. Before ____________ 1Data for this portion of the study were drawn from interviews with the assessors or assistant assessors from Alameda, Los Angeles, Riverside, Sacramento, Santa Clara, and Stanislaus Counties, and from California State Board of Equalization, A Report on Budgets, Workloads, and Assessment Appeals Activities in California Assessors’ Offices, 1993– 94, 1994–95, and 1995–96. 37 the recession that began in 1991, the assessor’s job was relatively easy. Determination of assessed value for the majority of properties involved simply adjusting the previous year’s assessed value upward by 2 percent or by the rate of inflation, whichever was smaller. Only properties that had changed ownership or included new construction needed to be appraised by the assessor’s office. Since 1991, the market value of many properties has fallen below their factored base year values. This is most likely to occur in areas that have seen the greatest decline in property values and for properties that were purchased near or at the peak of real estate prices in 1989–1991. Under Proposition 8, a constitutional amendment passed by California voters in November 1978, a property whose market value falls below its factored base year value on January 1 (the lien date) must be assessed or enrolled at its market value for that date. This legislation provides temporary property value reductions when property suffers from a “decline in value.” Such properties are commonly referred to as Prop 8 properties. In subsequent years, these properties must be reviewed and reassessed at market value unless, or until, their market values again exceed their factored base year values. If the assessor discovers that the market value of a property once again exceeds its factored base year value, the factored base year value is reinstated. Appeals Beginning in 1991–92, assessors began to see an increase in the number of appeals filed by property owners who believed that the market values of their properties had fallen below their assessed values and that the assessors had not made appropriate Proposition 8 reductions. Statewide, the number of appeals filed was relatively constant between 38 1987–88 and 1990–91, averaging roughly 30,000 per year. Thereafter, the number of appeals increased noticeably, exceeding 90,000 in 1992–93. In 1993–94, the number of appeals filed rose to nearly 190,000, a 110 percent increase over 1992–93. The number of appeals filed continued to increase, with a 20 percent increase in 1994–95 and a 7.7 percent increase in 1995–96. Table 3.1 contains data on appeals for selected counties and for the state over this period. A comparison of the number of appeals filed for each property type to the number of such properties on the assessment roll reveals that commercial properties had the most appeals filed. For 1995–96, one appeal was filed for every nine units of commercial property, whereas only one in 20 industrial property assessments and one in 55 residential property assessments were appealed.2 Table 3.1 Property Tax Appeals, 1993–94 Through 1995–96 Selected Counties Alameda Los Angeles Orange Riverside Sacramento San Mateo Santa Clara 1993–94 15,343 59,399 35,666 16,098 4,633 4,175 4,991 Percent of Total 4.0 2.7 5.1 2.9 1.3 2.0 1.1 1994–95 12,878 68,193 41,610 21,981 7,464 2,328 3,455 Percent of Total 3.4 3.0 5.7 3.6 2.0 1.1 0.8 1995–96 11,280 93,305 32,547 26,289 7,707 3,007 6,490 Percent of Total 3.2 4.1 4.4 4.2 2.1 1.4 1.5 Statewide 189,596 2.0 228,291 2.2 246,638 2.4 SOURCE: California State Board of Equalization (1993–94, 1994–95, and 1995–96). ____________ 2California State Board of Equalization (1993–94, 1994–95, and 1995–96). 39 Although all counties experienced increases in appeals, there was considerable variation in the magnitude and timing of appeals. Large counties have been inundated with more appeals both absolutely and relatively. Appeals activity reached a peak in Orange County in 1994– 95, when 41,610 appeals were filed representing 5.7 percent of the parcels on their secured roll. Over 20 percent of all commercial and industrial and 4 percent of residential assessments were appealed. Both Los Angeles and Riverside Counties received appeals on roughly 4 percent of assessments in 1995–96. In the northern part of the state, Alameda County had an appeals rate of 4 percent in 1993–94, which declined to 3.2 percent in 1995–96 with industrial properties having the highest rate, nearly 12 percent. Sacramento County averaged approximately 700 appeals per year between 1978 and 1991. This figure rose to 7,464 in 1994–95 and to 7,707 in 1995–96. These appeals represented over 2 percent of all properties in the county and over 7 percent of all commercial and industrial property assessments were appealed. In Santa Clara County, appeals began to increase as early as 1991, reaching a peak of eight times their previous annual average of 900 by 1995. Although the number of appeals was smaller in Santa Clara County than in similarly sized counties, the dollar value of the appeals was greater. About half the appeals filed in Santa Clara County were eventually withdrawn by the property owners, resulting in no adjustments, whereas half either resulted in a stipulated adjustment, with a reduction averaging 10 percent (46 percent), or were heard by the appeals board, resulting in an average 20 percent reduction (4 percent). Stanislaus County has seen the number of appeals double from about 600 in 1991–92 to about 1,200 in 1996–97. Like many other counties, 40 Stanislaus County attributed a large percentage (about 40 percent) of the appeals filed to the efforts of private property adjusters, who were filing the appeals on behalf of property owners in exchange for a fee. These “appeals mills” or “bucket shops” spread throughout California, sending (in some cases, misleading) fliers and advertisements to property owners, alerting them to the fact that they may qualify for a reduction in assessment and offering to file an appeal on their behalf for a fee, usually between $50 and $100. In Riverside County, the number of appeals filed increased from 1,600 in 1990 to 4,000 in 1991 and continued to increase yearly to a peak of over 26,000 in 1995–96, representing 4.2 percent of all properties. During the peak year, the county managed to resolve only 5,842 appeals or 22 percent of the number filed. In contrast, Alameda County appeals peaked much earlier, in 1993–94, at nearly 16,000 or 4 percent of all properties, but it succeeded in resolving 11,333 appeals, 74 percent of those filed. Los Angeles County is the largest in the state, accounting for 22 percent of all properties. It also generates nearly 30 percent of all property tax revenue statewide, so it should come as no surprise that 38 percent of all assessment appeals statewide in 1995–96 were filed in Los Angeles County. Before 1991, appeals normally ranged from 7,500 to 9,000 per year. In 1992–93, appeals increased to 48,689, most of which involved commercial and industrial properties. The over 93,000 appeals filed in 1995–96 represented 4.1 percent of all properties. Much of the increase was fueled by the efforts of private property adjusters. Only 31,000 of the 60,000 appeals filed in 1993–94 were resolved in 1993– 94, but the county managed to successfully resolve 87,000 appeals in 1995–96 (93 percent of the number filed). 41 The rapid growth in appeals came at a time when assessors’ budgets were in decline. There were no funds for hiring more staff and hence backlogs of work developed. In 1993–94 and 1994–95, when appeals in most counties were at their peak, the number of appeals resolved statewide was half the number of appeals filed. Some counties were able to do better than others. Table 3.2 contains data on the resolution of appeals for selected counties and statewide. Alameda and Los Angeles Counties consistently exceeded the statewide rate, but Riverside County was able to resolve less than 13 percent of the number of appeals filed in 1994–95 and, consequently, still has a 12- to 18-month backlog of cases. Table 3.2 Resolution of Appeals, 1995–96 Selected Counties Alameda Los Angeles Orange Riverside Sacramento San Mateo Santa Clara Total Appeals 11,280 93,305 32,547 26,289 7,707 3,007 6,490 Appeals Resolveda 6,611 87,062 12,978 5,842 1,155 2,688 3,230 Percent 58.6 93.3 39.9 22.2 15.0 89.4 49.8 Statewide 246,638 147,505 59.8 SOURCE: California State Board of Equalization (1995– 96), Table L, p. 18. aIndicates appeal activity that occurred during the 1995– 96 fiscal year on the appeals that were filed for that year but does not include the appeals that were carried over from previous years and resolved in 1995–96. Proposition 8 Assessment Reductions If an appeal is not resolved within two years, the assessor is obligated to enroll the property at the value claimed by the owner on the appeal. 42 With declining real estate values, assessors faced continued increases in appeals. They could not let appeals build up too rapidly or they would quickly find themselves dealing with a level of appeals that they could not process. This could easily lead to a situation where excessive claims for reductions in assessed value were accepted, simply because the assessor could not handle the total volume of appeals. The alternative strategy for the assessors was to take direct action themselves to reduce assessed values, without waiting for appeals. Thus, throughout the state, assessors began to make mass, downward adjustments in assessed values to prevent further growth in their backlog of appeals and to avoid the inequities that would arise from lowering values for only those properties that were appealed. Many counties began to process Proposition 8 reductions in value using automatic computer programs based on some form of regression analysis rather than trying to send staff out to the field to review properties. By 1995– 96, one-third of the counties were using automatic programs, which accounted for nearly three-fourths of all Proposition 8 assessments. Some counties developed programs that were based on countywide data and applied countywide; others tailored their programs to be location- or neighborhood-specific, often relying on paired property sales comparisons. Los Angeles County uses a neighborhood model based on clusters of properties of similar type, use, and economic characteristics. When properties are classified as Prop 8, they must be assessed at their true market value. Coupled with recent sales and new constructions that are also assessed at market value, Prop 8 assessments have increased to the point that in some counties more than one-third of the parcels are now assessed at market value instead of by factored base 43 year value. This of course means that the assessor must reassess each of these properties every year until they are back at factored base year value. Statewide, the number of Prop 8 properties grew from 826,147 in 1993–94 to 1,526,935 in 1995–96, an 85 percent increase. Over this same period, Prop 8 properties increased from 9 percent to 15 percent of all secured properties. By 1995–96, Prop 8 properties constituted over 20 percent of all properties in Marin, Modoc, Orange, Riverside, Sacramento, San Bernardino, San Joaquin, Santa Clara, Solano, and Stanislaus Counties. Over 20 percent of all residential property assessments had experienced downward adjustment in these same counties. Table 3.3 contains data on Proposition 8 properties for selected counties and statewide for 1995–96. In 1995–96, Santa Clara County had over 98,000 Prop 8 properties on its roll (23 percent of all properties), 94,000 of which were residential properties. This number has since decreased as housing and other property values in Santa Clara County were among the first in the state Table 3.3 Proposition 8 Properties, 1995–96 Selected Counties Alameda Los Angeles Orange Riverside Sacramento San Mateo Santa Clara Number of Prop 8s 40,981 78,089 300,296 175,016 109,077 30,228 98,194 Percent of Total 11.6 3.5 40.5 28.0 29.1 14.2 23.0 Statewide 1,526,935 14.7 SOURCE: California State Board of Equalization (1995–96), Table H, p. 13. 44 to begin to rebound, allowing the assessor to restore some properties to factored base year values. In contrast, Stanislaus County was still adjusting property values downward in 1997. Stanislaus had 26,522 Prop 8 properties in 1996 and 31,289 in 1997, accounting for over 25 percent of all properties in the county. Residential reductions were done by a countywide but neighborhood-specific computer model. However, 50 percent of the appeals filed are contesting the Prop 8 reductions made by this method. The county has yet to begin the process of restoring values. For 1996–97, Riverside County ranked second in number of Prop 8 properties with 210,000 (approximately one-third of its assessment roll), of which 175,000 were residential properties. Only Orange County had more, with over 300,000 Prop 8 properties, over 40 percent of all properties in the county. Orange County made 80 percent of its Prop 8 adjustments using an automatic program, whereas Riverside County used regression methods to make 60 percent of its Prop 8 reductions. For 1996–97, Alameda County had about 130,000 Prop 8 properties out of a total of 385,000 on its secured roll. Some of these cases involved reductions in assessments of 25 to 30 percent. Alameda assessors began dealing with individual appeals and then made neighborhood adjustments based on the appeals cases. After several years, they developed a computerized regression model that can be used to restore values as well as reduce them. Los Angeles County began reducing assessments using its neighborhood-based computer model in 1992–93, when it had a total of 20,000 Prop 8 properties involving an average reduction of $135,000. These were primarily commercial and industrial properties. The number of properties assessed at market value, below their factored base year 45 values, peaked in 1996–97 at 99,000. The average reduction in value was $51,000 for these properties. The State’s Role in Property Taxation The property tax generates $20 billion of revenue each year statewide, of which counties receive an average of 18 percent, cities 11 percent, special districts 18 percent, and schools 53 percent. Counties bear over 70 percent of the burden of property tax administration costs but receive less than 20 percent of the resulting revenues. This low return provides little incentive to reduce backlogs of new assessments, changes in ownership, assessment appeals, and other tasks. In 1992 and 1993, at the peak of the recession, the Governor reduced the state’s financial obligations to schools by shifting $3.4 billion in property tax revenues from local agencies to schools through the Educational Revenue Augmentation Fund (ERAF). This led to significant reductions in counties’ share of property tax revenues. For example, Alameda County saw its share decline from 40 percent to 16 percent and Los Angeles County’s share declined from 47 percent to less than 24 percent. Among the counties with the lowest share are Orange County, which keeps only about a nickel of every property tax dollar collected in the county, and Butte and Yolo Counties, which keep about eight cents of every property tax dollar. Table 3.4 contains the property tax revenues and county shares for 1995–96. The state benefits indirectly from local property tax revenues because state General Fund contributions for schools are inversely related to schools’ property tax revenues. If property tax revenues decline, the state must make up the loss out of general funds. Because its stake in local property tax collections is so high, the state has a strong incentive to 46 47 Table 3.4 California Property Tax Revenue and Counties’ Shares, 1995–96 County Alameda Alpine Amador Butte Calaveras Colusa Contra Costa Del Norte El Dorado Fresno Glenn Humboldt Imperial Inyo Kern Kings Lake Lassen Los Angeles Madera Marin Mariposa Mendocino Merced Modoc Mono Monterey Napa Nevada Orange Revenue ($ thousands) 814,535 2,096 21,810 89,928 27,096 14,602 671,464 9,338 101,577 306,057 13,957 55,996 57,763 24,153 351,112 40,435 32,936 12,661 5,047,078 53,279 231,722 11,029 46,540 79,111 5,817 18,847 209,480 93,747 64,851 1,769,341 County Share (%) 16.1 65.3 33.2 8.4 17.6 25.9 12.5 17.6 22.9 14.5 21.6 16.4 14.9 29.7 18.3 16.8 24.0 19.9 23.6 16.0 17.2 26.1 28.1 16.0 26.1 31.4 15.8 17.5 15.7 5.6 County Placer Plumas Riverside Sacramento San Benito San Bernardino San Diego San Francisco San Joaquin San Luis Obispo San Mateo Santa Barbara Santa Clara Santa Cruz Shasta Sierra Siskiyou Solano Sonoma Stanislaus Sutter Tehama Trinity Tulare Tuolumne Ventura Yolo Yuba Totals Revenue ($ thousands) 169,849 19,359 747,307 539,739 25,310 735,305 1,485,326 567,993 237,859 183,133 581,827 253,197 1,176,668 151,840 82,179 3,516 22,856 185,297 282,234 178,980 38,284 24,416 6,528 131,367 33,188 456,004 81,324 22,235 18,701,478 SOURCE: California State Board of Equalization. County Share (%) 19.3 22.8 11.0 18.5 12.2 13.1 14.7 62.1 20.8 23.8 13.6 20.1 12.9 14.1 15.3 55.6 22.6 17.1 23.2 11.9 17.6 20.1 30.4 17.5 26.4 16.8 8.2 22.4 18.2 ensure vigorous and efficient property tax administration. To help counties enhance their property tax administration systems and to protect the schools’ share of property tax revenues, the Legislature has taken the following steps: 1. Imposed requirements that nonschool agencies (cities and special districts) pay a share of the property tax administrative costs (SB 2557, Maddy, 1990; SB 282, Greene, 1992; AB 1055, Caldera, 1996). 2. Provided $25 million in state grants to counties for property tax administration (SB 2120, Budget and Fiscal Review, 1994). 3. Created the State-County Property Tax Administration Program, which provides up to $60 million per year in state loans to counties for three years to improve counties’ property tax administration (AB 818, Vasconcellos, 1995). 4. Extended the State-County Property Tax Administration Program for an additional three years, until fiscal year 2000–01 (AB 719, Torlakson, 1997). 5. Imposed requirements aimed at curbing the operations of businesses that offer to file property tax appeals for property owners in exchange for a fee (AB 1178, Davis, 1997; AB 1319, Alquist, 1997). State-County Property Tax Administration Program The property tax shift of 1993 cut counties’ share of property tax revenues in half and caused serious staffing and incentive problems for county assessors. Since other county revenues such as sales taxes were also in decline because of the recession, significant cuts had to be made in county budgets. It was much easier for boards of supervisors to cut the budgets of assessors’ offices than to cut county programs that provide 48 direct services to residents, particularly when the amount of property tax revenues at stake was so low. Assessors from Alameda, Santa Clara, and Los Angeles Counties collaborated with the Assembly Committee on Revenue and Taxation to address concerns regarding property tax administration. They sought to design a program whereby the state could provide counties with funds that would actually find their way to assessors’ offices, to help compensate for increased workload, reduced staffing, and reduced incentives for accurate assessments, and not be allocated to other county programs. Several earlier attempts failed to gain approval until the present version was picked up by then Assemblyman John Vasconcellos and tacked on as a trailer bill during the closing hours of the 1995 legislative session. AB 818 established the State-County Property Tax Administration Program, which provides eligible counties with loans from the state to provide supplemental funding for the administration of the county property tax collection program. Loans were made available to counties in each of the 1995–96, 1996–97, and 1997–98 fiscal years for amounts up to those listed in the bill, totaling $60 million statewide each year. Eligible counties were defined in the law to be counties in which additional property tax revenues allocated to school entities would reduce the state’s general fund apportionments for schools. (San Benito and Solano Counties, although not technically eligible under this criterion, were allowed to participate in the program.) To qualify for a loan, the county must meet a maintenance of effort requirement to ensure that the funds are supplementing and not supplanting existing administration budgets. Specifically, participating counties are required to maintain a base staffing and funding level in the county assessor’s office, 49 independent of the loan proceeds, equal to either the 1993–94 or the 1994–95 funding level, whichever is smaller. The first column of Table 3.5 lists the maximum available annual loan amount for selected counties that is stipulated in the bill. Each county’s maximum share of the available $60 million is determined by the amount of ERAF funds they contribute as a percentage of total county ERAF funds. An eligible county that elects to participate in the program must enter into a performance-based contractual agreement with the Department of Finance. The contract must specify the loan amount (as determined by the Director of Finance), indicate repayment provisions, provide a listing of proposed uses of the additional resources, and state an agreement to provide a report to the Department of Finance (by March Table 3.5 Loans for Property Tax Administration, 1995–96 Selected Counties Alameda Butte Contra Costa Los Angeles Marin Orange Riverside Sacramento San Bernardino San Diego San Mateo Santa Clara Stanislaus Maximum Loan Amount $2,152,429 381,956 2,022,088 13,451,670 790,490 6,826,325 2,358,068 1,554,245 2,139,938 5,413,943 2,220,001 4,213,639 866,155 Loan Received $1,743,043 19,238 2,022,000 13,451,670 No contract No contract 1,280,000 1,554,245 2,139,938 5,413,943 115,916 905,241 866,155 Statewide 60,000,000 SOURCE: Text of AB 818. 37,994,424 50 31 of the fiscal year in which the loan is made) projecting the effect of the increased funding in the current and subsequent years. According to the Department of Finance, the performance requirements are primarily directed toward eliminating workload backlogs. Counties are not required, under the contracts, to produce additional revenues. The purpose of the performance requirement and the maintenance of effort requirement is to ensure that the loaned funds do not simply replace funds currently allocated to property tax administration and hence are used to fund other programs. Such reallocations of funds by the county would lead to failure or inability of the assessor to meet the performance and maintenance effort requirements and would require repayment of the loan. The loan must be “repaid” by June 30 of the fiscal year following the year in which the loan is made unless a 12-month extension is granted by the Director of Finance. Several performance factors are considered in determining the extent to which a county has satisfied the terms of the contract and repaid the loan, including the reduction in backlogs of assessment appeals and Proposition 8 value reductions, the reduction in backlogs of new construction and changes in ownership, county compliance with mandatory audits, and county performance as indicated by the State Board of Equalization’s sample survey. The loans may also be forgiven if the assessor can demonstrate that the activities financed with the loan produce sufficient new revenues for schools (and therefore the state) to offset the amount of the loan. If the county does not “repay” the loan, its motor vehicle license fee apportionment is reduced and transferred to the state’s General Fund. Although the State-County Property Tax Administration Program was set up as a performance-based loan program, the expectation was that 51 the $60 million of additional resources provided to county assessors would result in increased property tax revenues for schools in excess of $60 million. But how can revenues increase if the loans are used primarily to reduce backlogs in appeals and Prop 8 reductions, which in turn reduce assessments? It is important to recall that resources devoted to Prop 8 reductions help to reduce the number of appeals filed. If property owners received automatic reductions in assessments, there is no need to file an appeal. The unprecedented number of assessment appeals, caused by the economic recession, created huge backlogs and delays, frequently beyond two years. As we have noted, if an appeal is not decided in two years, the taxpayer’s opinion of the value of his or her property (which may be artificially low) is automatically enrolled. Thus, additional resources to reduce the backlog of appeals could prevent assessments from declining as much as they otherwise would. In 1995–96, the Department of Finance approved $49 million in loans to 44 counties. Table 3.5 provides a selected listing of the counties that signed loan contracts and the funds those counties received for 1995–96, the first year of the program. The use of the funds varied across counties, with 34 counties indicating that they hired new permanent or part-time staff. Los Angeles County hired 289 additional staff, the majority of whom were property appraisers. Most counties used a portion of the funds to purchase automation equipment, mainly computers, and 20 counties used funds to hire outside contractors. The Legislative Analyst’s Office estimates that these loans generated nearly $100 million for schools and local agencies and prevented an additional $100 million in losses to these agencies. During its first year, 14 counties did not participate in the program: Alpine, El Dorado, Imperial, Inyo, Lake, Marin, Mariposa, Merced, 52 Modoc, Monterey, Orange, Siskiyou, Trinity, and Tuolumne. Several counties did not participate either because they could not meet the program’s 1993–94 or 1994–95 base year funding maintenance of effort requirement, they did not have a backlog of work, they did not think they could generate enough new revenue to repay the loan, they could not get approval of the Board of Supervisors, or they did not feel that the amount of the loan was worth the effort necessary to negotiate an agreement. Some counties obtained the maximum allowable under the law, but others did not. Each county individually sets objectives with the State Department of Finance. The state is most interested in preserving and producing revenues and so has supported objectives including more rapid adjustment of transfers, new construction, and activities that increase county assessments. But reducing the backlog of appeals has also been supported, since value is lost if appeals go unresolved for two years. Most counties have been conservative in setting their performance criteria and no county has yet been unable to meet the criteria set out in its contract. Because of its very positive reception, the State-County Property Tax Administration Program was extended when Governor Wilson signed AB 719 on September 21, 1997. Now the Department of Finance can approve up to $60 million per year in loans to counties through fiscal 2000–2001. AB 719 also allows more counties to participate by modifying the base year maintenance of effort requirement. Beginning with the 1996– 97 fiscal year, if a county was unable to participate in this program previously because it did not meet the 1993–94 or 1994–95 base year funding and staffing requirements in the assessor’s office, it may now be eligible if it can maintain the funding and staffing levels of 1995–96. 53 This modification is expected to allow at least three additional counties (including Orange County) to participate. The new legislation recognizes the important roles that county auditors and tax collectors play in administering the property tax system. County assessors are now required to consult with the county tax collector and any other county agency directly involved in property tax administration to discuss needs, since AB 719 authorizes the use of loan proceeds to support these functions. Recovery The recession has ended and property values are once again on the rise in many locations. This is both good news and bad news for county assessors. The good news is that property tax revenues should begin to increase at a faster rate. The bad news is that the administrative workload will remain high as assessors begin to restore assessments to their factored base year values. Many counties have already begun restoring their Prop 8 assessments and are hoping that this process does not bring about another round of appeals by property owners as they see their tax bills go up. The number of appeals, so far, is also declining but will probably never return to pre-recession levels because taxpayers are now better informed concerning the process of appeal and are more aware of changing property values. Santa Clara County was the first to experience the turnaround in property values in early 1996. Santa Clara is using a district-based regression model to restore values. Prop 8 assessments have declined from their peak of over 98,000 in 1995 to about 67,000 now. In 1996, 12,000 parcels were fully restored to their factored base year values, and another 32,000 were partially restored. Another 12,000 parcels were 54 fully restored in 1997 along with 46,000 partial restorations. The number of appeals is also down 40 percent, to about 3,500, most of which are not residential properties. Assessed valuations in Santa Clara County increased $5.3 billion in 1996, 25 percent of the statewide increase of $23.3 billion. Another $10.2 billion of assessments were added in 1997. Much of the growth in Santa Clara County has been fueled by tremendous job growth and new construction. Good media coverage in the San Jose Mercury, along with advance notice to property owners in the form of letters and post cards, has allowed restoration of Prop 8 assessments to proceed in Santa Clara County without causing an increase in appeals. All property owners receive post cards detailing their assessed valuation and owners whose values are being restored receive letters of explanation. In addition, a phone bank has been set up to handle taxpayer questions. Alameda County plans to deal similarly with restorations, using newspaper articles to inform the public of general changes in property values in the county and sending advance valuation notices to all property owners experiencing more than a 2 percent increase in assessment. For properties that lost 25 to 30 percent of their value, upward adjustments will be made gradually as the market dictates. Although Alameda County did not begin to notice a turnaround in property values until early 1997, it is expecting a significant upturn in 1998–99 assessed values. Some property values in the county have been rising but others are still declining in value. Consequently, while some Prop 8 assessments are being restored, new reductions are also being made. Appeals, which peaked at over 15,000 in 1993–94, are now down to 6,500. 55 As we move away from the San Francisco Bay area, it appears that the recovery, although slower, has finally begun. Fueled by the replacement of nearly 90 percent of the jobs lost in the recession, the housing markets in Los Angeles and Orange Counties are rebounding, with coastal communities experiencing the biggest gains in value—as much as 25 percent in the last year.3 Values are also once again on the rise in the Sacramento region, where home prices are expected to increase even more than the 10 percent they did in the past year. In Sacramento County, owners of 64,000 residential properties will experience an average increase in assessments of 6.5 percent for 1998–99 with higher valued properties gaining as much as 12 percent.4 Smaller counties, such as Stanislaus, have not yet begun to restore any of their Prop 8 assessments, but they, like the bigger counties, expect to see significant increases in assessments this year. The extension of the State-County Property Tax Administration Program through fiscal 2000–01 will help counties cope with the workload associated with the recovery. Most counties will use AB 719 funds to augment staff and technology to aid in the process of restoring Prop 8 assessments. The state should see an even greater payback as assessments, and hence revenues, increase. ____________ 3Laura Mecoy, “South State is feeling the heat—of soaring home prices,” Sacramento Bee, July 20, 1998. 4Loretta Kalb, “Home values rebound and so do property taxes,” Sacramento Bee, May 27, 1998. 56 4. Proposition 13 in the Long Run In many respects, the picture of Proposition 13 at its twentieth anniversary looks very different than it did at its tenth anniversary. At its tenth anniversary, researchers were first beginning to measure and react adversely to the large disparities in the property tax burden created by the combination of acquisition-value-based taxation and rapid price appreciation for real estate.1 Tax administrators also had their laments. As the former Assistant Executive Secretary of the California State Board of Equalization wrote, “I am convinced that Proposition 13 has had a devastating effect on property tax administration in California. It has swept county appraisers out of the mainstream of appraisal and assessment practice into a (nonprofessional) back water that affords little ____________ 1For a discussion of some of these studies at the tenth anniversary, see George F. Break, “Proposition 13’s Tenth Birthday: Opportunity for Celebration or Lament?” in Frederick D. Stocker (ed.), Proposition 13: A Ten-Year Retrospective, Cambridge, Mass.: The Lincoln Institute of Land Policy, 1991. For more recent work, see O’Sullivan, Sheffrin, and Sexton (1995). 57 opportunity to make professional judgments.”2 At the twentieth anniversary of Proposition 13, the picture is not as dire. As our research in Chapter 2 documented, except for some parts of urban Northern California, price depreciation has reduced some of the inequities stemming from the acquisition-value-based provisions of Proposition 13. In Los Angeles County, for example, owner-occupied housing with base years after 1980 were undervalued by less than 30 percent, a reasonable amount by national standards. Throughout the state, the percentage of 1975 base year properties has continued to decrease to slightly over 30 percent in the large, urban counties that had the greatest disparities. (Properties with base years ranging from 1976 to 1980 constitute approximately 10 percent of residential property.) Projections indicate that this percentage will continue to decrease, although some complicating factors make precise predictions of the decline uncertain. The greatest uncertainty is the behavior of homeowners over the age of sixty-five. Prior work indicated that, in 1991, nearly one-half the 1975 base year properties in Los Angeles and San Mateo Counties were owned by seniors. If the seniors eventually sell their homes to third parties, the 1975 base year percentages should decline rapidly and perhaps reach the 15 percent mark in 2016. However, they also have the option of intrafamily transfer of the property, allowing the 1975 base year to remain in place. We have little data on this aspect of Proposition 13, enacted in 1986. ____________ 2Ronald B. Welch, “Property Tax Administrative Changes Resulting from Proposition 13,” in Frederick D. Stocker (ed.), Proposition 13: A Ten-Year Retrospective, Cambridge, Mass.: The Lincoln Institute of Land Policy, 1991, p. 131. 58 It is important to recognize that turnover rates may not be uniform and owners of tax-favored property may sell their property less frequently and thus garner larger tax benefits. In particular, long-time owners of 1975 base year property are the ones most likely to continue to hold onto their property. As we discussed, for homeowner property, the behavior of the elderly will be a key determinant of the persistence of 1975 base years. Many large, modified commercial and industrial properties also have 1975 base years, and these percentages have been slow to change. There have been proposals to alter the “change of ownership” rules for property held by publicly traded firms. These proposals (involving close scrutiny of stock ownership) would have effectively reduced the percentages of properties with 1975 base years but have not been successful. If both owner-occupied and commercial and industrial property retain 1975 base years, it may be possible to propose a reform that deals simultaneously with both sectors. Assuming that inflation does not reemerge in the near future, solving this problem would deal effectively with the equity problems of the assessments under Proposition 13. Turning to property tax administration, the decline in real estate prices and consequent large number of Prop 8 properties have moved California from the “backwater” of property tax administration to the forefront. Faced with reduced staff levels, the need to make market value assessments for up to one-third of all properties, and complex issues in commercial and industrial properties triggered by appeals and change of ownership, county assessors have modernized their offices, brought in new and advanced computer technology, and hired specialized appraisers. It was fortunate that the administrative crisis facing the assessors occurred in the 1990s, after the computer revolution had dramatically lowered the 59 costs of acquiring powerful hardware and software necessary for mass appraisals and tracking of property. California assessors now draw on the same advanced technologies and techniques used throughout the country and specialized consulting firms have enabled even the smaller counties to make the transition to the new era. However, there are still very important structural issues. As we look down the road to the point where property values have fully recovered, assessments have been fully restored, and appeals have declined to more normal levels, property tax administration problems in California will still remain. Because the county share of property tax revenues is so small, counties have little interest or incentive in staffing the assessor’s office or spending any of their scarce budgetary dollars on ensuring a sound and equitable property tax system. The obvious (but politically difficult) solution would be to shift property tax revenues back to counties as their primary source of revenue. Only then will they have an incentive to spend resources to provide timely and accurate assessments. Programs such as the State-County Property Tax Administration Program provide only temporary and therefore partial solutions. The funds provided by such programs have helped to maintain California’s property tax system, but they have also introduced an added source of uncertainty in the budgetary process. Another approach would be to ensure that all recipients of property tax revenue pay their share of administrative costs. This was the essence of SB 2557, which was passed in 1990. All agencies, including cities, schools, and special districts, were required to pay a portion of administrative costs equivalent to the portion of revenues they received. However, in 1991, with the help of the California Teachers Association, schools were exempted. According to the allocation of property tax 60 revenues in 1995–96, the schools received, either directly or indirectly through ERAF, over 53 percent of all property tax revenues. Under this proposal, the state would, therefore, pay 53 percent of property tax administrative costs on behalf of the schools. This may provide a solution to the funding problems associated with property tax administration. But it would not provide counties with the type of incentives for thorough and accurate assessments that come with having a larger stake in the outcome, namely, property tax revenues. The opinion of many assessors is that the State Board of Equalization, the state agency assigned to oversee our property tax system, should be more proactive in helping counties administer the property tax. In their view, the board has shown little interest, nor has it offered any solutions or ideas, regarding the main issues affecting assessors: staffing levels, increased appeals, Prop 8s, and related issues. In fact, the board has behaved at times as more of an adversary of assessors. An example is the board’s recent lawsuit against Riverside County in which the board argued that California law requires that Riverside County must hold a hearing on an appeal, despite the fact that the taxpayer who filed the appeal has refused to provide the county assessor with the information needed to make an income-based valuation. In addition, the board has on many occasions not taken positions on bills that affect the assessors or the property tax. Assessors would like to see the board provide more training for their staff, participate in technology conferences organized by assessors, and take a leadership role in helping to bring about uniformity and standardization in procedures and technology. We believe it is necessary to step back and take a broader look at property tax administration in light of the evolution of the property tax 61 in California. California’s property tax revenues are now higher than at any time since the very early part of this century. We need to begin designing a system now to put into place when the State-County Property Tax Administration Program expires to insure efficient administration of the property tax in California. 62 Appendix Data for Los Angeles and San Mateo Counties 63 Table A.1 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified . 64 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 356634 19426 21607 21337 22682 21944 15298 12344 12290 22323 26140 34180 45034 47509 56890 50372 39217 No. of Sales 5,577 389 445 531 681 725 595 535 550 1,045 1,371 1,835 2,383 3,081 4,135 2,884 Median Disparity Ratio 5.19 4.18 3.55 2.90 2.49 2.04 1.71 1.68 1.70 1.68 1.66 1.62 1.55 1.43 1.27 1.12 1.00 Total Assessed Value 18,659,804,148 1,326,834,652 1,702,199,460 1,976,745,028 2,423,208,788 2,788,094,920 2,338,421,684 1,879,559,160 1,918,948,310 3,626,750,841 4,263,198,740 5,850,112,080 8,203,123,236 9,544,795,645 13,322,045,080 13,022,219,812 10,237,088,029 Total Market Value 96,844,383,528 5,546,168,845 6,042,808,083 5,732,560,581 6,033,789,882 5,687,713,637 3,998,701,080 3,157,659,389 3,262,212,127 6,092,941,413 7,076,909,908 9,477,181,570 12,714,841,016 13,649,057,772 16,918,997,252 14,584,886,189 10,237,088,029 Average Assessed Value 52,322 68,302 78,780 92,644 106,834 127,055 152,858 152,265 156,139 162,467 163,091 171,156 182,154 200,905 234,172 258,521 261,037 Average Market Value 271,551 285,502 279,669 268,668 266,017 259,192 261,387 255,805 265,436 272,945 270,731 277,273 282,339 287,294 297,398 289,544 261,037 Total 825227 26,773 103,083,149,613 227,057,900,301 Revenue ratio = 0.45 Av. 124,915 Av. 275,146 Table A.2 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Modified . 65 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 71446 7175 8404 8936 8662 7032 4140 3035 2741 4506 4699 4936 5203 4400 3935 2257 616 No. of Sales 899 80 131 180 199 150 93 76 92 119 130 146 127 129 137 47 Median Disparity Ratio 4.35 3.66 3.17 2.76 2.41 2.07 1.89 1.89 1.89 1.73 1.71 1.69 1.59 1.45 1.32 1.18 1.00 Total Assessed Value 5,286,218,094 702,002,000 917,153,732 1,153,101,440 1,283,006,778 1,231,767,312 878,578,380 657,499,365 642,024,430 1,050,722,598 1,138,309,255 1,213,619,256 1,369,398,382 1,244,751,200 1,313,030,800 833,735,800 246,043,336 Total Market Value 22,995,048,709 2,569,327,320 2,907,377,330 3,182,559,974 3,092,046,335 2,549,758,336 1,660,513,138 1,242,673,800 1,213,426,173 1,817,750,095 1,946,508,826 2,051,016,543 2,177,343,427 1,804,889,240 1,733,200,656 983,808,244 246,043,336 Average Assessed Value 73,989 97,840 109,133 129,040 148,119 175,166 212,217 216,639 234,230 233,183 242,245 245,871 263,194 282,898 333,680 369,400 399,421 Average Market Value 321,852 358,094 345,952 356,150 356,967 362,594 401,090 409,448 442,695 403,407 414,239 415,522 418,478 410,202 440,458 435,892 399,421 Total 152123 2735 21,160,962,158 54,173,291,482 Av. 139,104 Av. 356,115 Revenue ratio = 0.39 Table A.3 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Nonexempt, Nonmodified . Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 135274 7769 10762 13596 16694 18351 13975 12119 11025 16196 20991 26847 36705 44039 62416 70323 59146 No. of Sales 10,191 557 642 815 1,009 1,072 877 805 807 1,414 1,764 2,279 3,151 4,083 5,701 6,480 Median Disparity Ratio 5.54 4.45 3.80 3.09 2.62 2.18 1.82 1.79 1.73 1.74 1.69 1.64 1.55 1.43 1.28 1.13 1.00 Total Assessed Value 4,419,401,580 416,364,017 684,570,820 978,572,100 1,244,854,886 1,711,524,366 1,530,807,525 1,405,634,334 1,288,436,625 2,064,293,572 2,690,185,569 3,601,659,285 5,446,361,310 7,395,733,504 12,523,271,072 16,048,622,799 13,880,442,426 Total Market Value 24,483,484,753 1,852,819,876 2,601,369,116 3,023,787,789 3,261,519,801 3,731,123,118 2,786,069,696 2,516,085,458 2,228,995,361 3,591,870,815 4,546,413,612 5,906,721,227 8,441,860,031 10,575,898,911 16,029,786,972 18,134,943,763 13,880,442,426 Average Assessed Value 32,670 53,593 63,610 71,975 74,569 93,266 109,539 115,986 116,865 127,457 128,159 134,155 148,382 167,936 200,642 228,213 234,681 Average Market Value 180,992 238,489 241,718 222,403 195,371 203,320 199,361 207,615 202,176 221,775 216,589 220,014 229,992 240,148 256,822 257,881 234,681 Total 576228 41,661 77,330,735,790 127,593,192,724 Av. 134,202 Av. 221,428 66 Revenue ratio = 0.61 Table A.4 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Nonexempt, Modified . Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 11520 1272 1772 2308 2397 2267 1349 1112 1048 1459 1857 2223 2628 2663 2804 2028 629 No. of Sales 1,106 136 137 212 221 176 118 63 75 126 126 148 120 138 124 57 Median Disparity Ratio 4.46 3.68 3.28 2.76 2.42 2.10 1.81 1.85 1.85 1.73 1.70 1.69 1.50 1.47 1.25 1.19 1.00 Total Assessed Value 836,501,760 123,742,704 198,322,240 294,339,240 336,179,250 392,009,640 303,093,320 252,971,104 268,148,616 345,457,643 419,782,278 510,640,884 663,667,236 759,626,076 924,369,444 740,311,260 238,483,463 Total Market Value 3,730,797,850 455,373,151 650,496,947 812,376,302 813,553,785 823,220,244 548,598,909 467,996,542 496,074,940 597,641,722 713,629,873 862,983,094 995,500,854 1,116,650,332 1,155,461,805 880,970,399 238,483,463 Average Assessed Value 72,613 97,282 111,920 127,530 140,250 172,920 224,680 227,492 255,867 236,777 226,054 229,708 252,537 285,252 329,661 365,045 379,147 Average Market Value 323,854 357,998 367,098 351,983 339,405 363,132 406,671 420,860 473,354 409,624 384,292 388,207 378,806 419,320 412,076 434,404 379,147 67 Total 41336 3,083 7,607,646,158 15,359,810,212 Av. 184,044 Av. 371,584 Revenue ratio = 0.50 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 Table A.5 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Multi-Family Residential, Nonmodified . No. of Properties 74574 5651 7456 8083 7512 6931 4539 3860 3704 6235 7582 9337 11978 11161 14880 14350 12557 No. of Sales 2,363 146 182 229 275 253 168 161 153 275 414 518 680 903 1,357 1,393 Median Disparity Ratio 6.10 4.72 4.10 3.34 2.84 2.47 1.98 1.84 1.90 1.77 1.68 1.63 1.46 1.38 1.24 1.13 1.00 Total Assessed Value 6,689,660,670 659,822,062 1,039,470,784 1,302,365,292 1,292,274,336 1,346,277,440 1,021,810,602 923,941,180 1,020,829,808 1,726,153,515 2,356,978,430 3,197,987,859 4,643,726,864 4,403,003,339 6,711,906,720 6,789,645,100 5,430,073,738 Total Market Value 40,806,930,087 3,114,360,133 4,261,830,214 4,349,900,075 3,670,059,114 3,325,305,277 2,023,184,992 1,700,051,771 1,939,576,635 3,055,291,722 3,959,723,762 5,212,720,210 6,779,841,221 6,076,144,608 8,322,764,333 7,672,298,963 5,430,073,738 Average Assessed Value 89,705 116,762 139,414 161,124 172,028 194,240 225,118 239,363 275,602 276,849 310,865 342,507 387,688 394,499 451,069 473,146 432,434 Average Market Value 547,201 551,117 571,597 538,154 488,560 479,773 445,734 440,428 523,644 490,023 522,253 558,286 566,024 544,409 559,326 534,655 432,434 68 Total 210390 9,470 50,555,927,739 111,700,056,856 Av. 240,296 Av. 530,919 Revenue ratio = 0.45 Table A.6 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Multi-Family Residential, Modified . Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 4967 545 672 752 644 558 318 288 226 336 378 372 345 262 261 204 49 No. of Sales 91 14 18 16 20 18 16 9 11 10 13 8 20 10 24 4 Median Disparity Ratio 5.51 3.87 3.75 3.10 2.71 2.15 1.94 2.07 1.93 2.07 1.72 2.05 1.69 1.41 1.38 1.18 1.00 Total Assessed Value 468,298,694 76,339,785 77,638,176 116,205,808 92,645,840 101,724,516 62,098,086 79,501,824 52,561,272 83,217,120 103,795,398 114,243,804 90,851,955 72,023,014 98,867,583 79,729,320 16,047,843 Total Market Value 2,580,325,804 295,434,968 291,143,160 360,238,005 251,070,226 218,707,709 120,470,287 164,568,776 101,443,255 172,259,438 178,528,085 234,199,798 153,539,804 101,552,450 136,437,265 94,080,598 16,047,843 Average Assessed Value 94,282 140,073 115,533 154,529 143,860 182,302 195,277 276,048 232,572 247,670 274,591 307,107 263,339 274,897 378,803 390,830 327,507 Average Market Value 519,494 542,083 433,249 479,040 389,861 391,949 378,837 571,419 448,864 512,677 472,297 629,569 445,043 387,605 522,748 461,179 327,507 69 Total 11177 302 1,785,790,038 5,470,047,470 Av. 159,774 Av. 489,402 Revenue ratio = 0.33 Table A.7 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Commercial/Industrial Nonmodified . Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 41723 2451 2913 3783 4020 3761 2920 2998 2964 3758 4581 5480 7162 6211 7709 7583 6227 No. of Sales 1,248 66 77 99 128 142 118 115 107 138 165 260 329 396 450 546 Median Disparity Ratio 5.66 4.84 4.54 3.86 3.73 3.00 2.11 1.94 2.05 1.84 1.72 1.59 1.45 1.31 1.25 1.11 1.00 Total Assessed Value 7,902,503,092 609,365,169 655,241,481 1,075,945,728 1,339,841,880 1,399,656,150 1,250,472,480 1,585,570,248 1,452,964,656 2,491,001,574 3,406,454,505 4,759,988,280 7,644,181,650 7,003,560,866 8,598,572,346 8,301,557,497 6,183,124,558 Total Market Value 44,728,167,501 2,949,327,418 2,974,796,324 4,153,150,510 4,997,610,212 4,198,968,450 2,638,496,933 3,076,006,281 2,978,577,545 4,583,442,896 5,859,101,749 7,568,381,365 11,084,063,393 9,174,664,734 10,748,215,433 9,214,728,822 6,183,124,558 Average Assessed Value 189,404 248,619 224,937 284,416 333,294 372,150 428,244 528,876 490,204 662,853 743,605 868,611 1,067,325 1,127,606 1,115,394 1,094,759 992,954 Average Market Value 1,072,027 1,203,316 1,021,214 1,097,846 1,243,187 1,116,450 903,595 1,026,019 1,004,918 1,219,650 1,279,001 1,381,091 1,547,621 1,477,164 1,394,243 1,215,182 992,954 70 Total 116244 4,384 65,660,002,160 137,110,824,123 Av. 564,846 Av. 1,179,509 Revenue ratio = 0.48 Table A.8 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Commercial/Industrial Modified . 71 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 5683 477 558 781 748 671 521 519 445 544 498 398 372 274 233 175 59 No. of Sales 100 13 10 15 15 31 10 14 11 17 19 20 7 7 4 5 Median Disparity Ratio 4.19 4.17 3.64 4.28 2.58 2.14 1.69 2.07 2.11 1.60 1.89 1.48 1.95 1.88 1.70 1.64 1.00 Total Assessed Value 4,136,252,207 371,297,277 268,367,868 608,569,258 690,011,300 475,484,691 1,020,953,163 566,136,618 750,712,775 826,982,272 1,015,651,080 1,267,862,432 961,848,036 836,921,766 1,031,829,083 429,625,175 122,323,874 Total Market Value 17,330,896,747 1,548,309,645 976,859,040 2,604,676,424 1,780,229,154 1,017,537,239 1,725,410,845 1,171,902,799 1,584,003,955 1,323,171,635 1,919,580,541 1,876,436,399 1,875,603,670 1,573,412,920 1,754,109,441 704,585,287 122,323,874 Average Assessed Value 727,829 778,401 480,946 779,218 922,475 708,621 1,959,603 1,090,822 1,686,995 1,520,188 2,039,460 3,185,584 2,585,613 3,054,459 4,428,451 2,455,001 2,073,286 Average Market Value 3,049,604 3,245,932 1,750,643 3,335,053 2,379,986 1,516,449 3,311,729 2,258,002 3,559,559 2,432,301 3,854,579 4,714,664 5,041,945 5,742,383 7,528,367 4,026,202 2,073,286 Total 12956 298 15,380,828,875 40,889,049,617 Av. 1,187,159 Av. 3,155,993 Revenue ratio = 0.38 Table A.9 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified . 72 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 298113 16372 18313 18196 18906 18073 12363 9944 9637 17122 20286 26293 35621 38130 47617 44939 39343 45457 43323 39750 43259 35361 896418 No. of Sales 5460 339 379 429 482 514 353 304 295 534 683 867 1230 1467 1969 1956 1482 1499 1366 1668 6260 29539 Median Disparity Ratio 3.84 2.98 2.59 2.14 1.78 1.47 1.28 1.27 1.28 1.23 1.22 1.20 1.12 1.01 0.90 0.86 0.86 0.87 0.88 0.96 0.96 1.00 Total Assessed Value 17,575,630,408 1,257,626,462 1,625,152,212 1,892,877,464 2,253,469,759 2,566,510,926 2,113,533,574 1,715,216,732 1,691,609,053 3,129,293,238 3,754,813,097 5,011,930,873 7,153,744,287 8,316,317,440 11,179,045,931 10,207,045,842 8,815,787,352 10,572,897,112 10,280,575,194 9,464,977,783 10,296,151,017 7,963,636,606 Total Market Value 67,490,420,767 3,747,726,857 4,209,144,229 4,050,757,773 4,011,176,171 3,772,771,061 2,705,322,975 2,178,325,250 2,165,259,588 3,849,030,683 4,580,871,978 6,014,317,048 8,012,193,601 8,399,480,614 10,061,141,338 8,778,059,424 7,581,577,123 9,198,420,487 9,046,906,171 9,086,378,672 9,884,304,976 7,963,636,606 138,837,842,362 196,787,223,391 Revenue ratio = 0.71 Average Assessed Value 58,956 76,816 88,743 104,027 119,193 142,008 170,956 172,488 175,533 182,764 185,094 190,618 200,829 218,104 234,770 227,131 224,075 232,591 237,301 238,113 238,012 225,210 Av. 154,881 Average Market Value 226,392 228,911 229,845 222,618 212,164 208,752 218,824 219,059 224,682 224,800 225,814 228,742 224,929 220,285 211,293 195,333 192,705 202,354 208,825 228,588 228,491 225,210 Av. 219,526 Table A.10 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Modified . 73 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 71908 7067 8210 8798 8662 7106 4255 3210 3077 4929 5491 6272 7056 6044 4150 1556 1269 1649 1886 1446 1253 463 165757 No. of Sales 940 101 132 148 148 135 78 77 56 108 119 144 184 178 137 29 31 36 36 20 8 2845 Median Disparity Ratio 3.24 2.75 2.41 2.05 1.69 1.45 1.35 1.29 1.32 1.29 1.32 1.24 1.16 1.04 0.91 0.88 0.92 0.95 0.88 0.94 1.13 1.00 Total Assessed Value 6,056,558,730 785,810,610 1,019,036,165 1,279,053,069 1,432,797,128 1,388,317,156 1,006,655,416 753,635,231 781,026,999 1,242,893,923 1,417,620,143 1,645,378,454 1,958,411,023 1,775,090,223 1,240,578,259 477,440,471 396,240,683 539,209,248 655,552,888 486,885,774 453,252,855 164,260,186 Total Market Value 19,623,250,285 2,160,979,178 2,455,877,158 2,622,058,791 2,421,427,146 2,013,059,876 1,358,984,812 972,189,448 1,030,955,639 1,603,333,161 1,871,258,589 2,040,269,283 2,271,756,787 1,846,093,832 1,128,926,216 420,147,614 364,541,428 512,248,786 576,886,541 457,672,628 512,175,726 164,260,186 26,955,704,634 48,428,353,109 Revenue ratio = 0.56 Average Assessed Value 84,226 111,194 124,121 145,380 165,412 195,373 236,582 234,777 253,827 252,159 258,172 262,337 277,553 293,695 298,935 306,838 312,246 326,992 347,589 336,712 361,734 354,774 Av. 162,622 Average Market Value 272,894 305,785 299,132 298,029 279,546 283,290 319,385 302,863 335,052 325,286 340,786 325,298 321,961 305,442 272,030 270,018 287,267 310,642 305,878 316,509 408,760 354,774 Av. 292,165 Table A.11 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Nonexempt, Nonmodified . 74 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 94098 5993 8106 9930 11304 12146 9200 7873 7134 10106 12133 14677 20142 22134 30212 32377 24376 23844 24093 36642 48765 69956 535241 No. of Sales 8783 446 563 656 716 737 542 494 482 851 1053 1430 2041 2421 3848 4531 3821 3699 3415 4182 12448 57167 Median Disparity Ratio 3.98 3.09 2.68 2.17 1.82 1.53 1.34 1.32 1.30 1.25 1.21 1.18 1.12 1.02 0.90 0.85 0.85 0.85 0.84 0.93 0.96 1.00 Total Assessed Value 3,474,618,796 344,772,317 552,493,827 751,515,630 956,866,225 1,262,259,724 1,090,748,114 980,541,937 901,763,774 1,398,048,881 1,684,106,231 2,085,567,817 3,088,568,424 3,870,541,090 5,772,675,566 6,295,081,189 4,875,185,024 4,924,126,280 5,190,660,063 7,640,949,966 9,576,029,133 12,922,968,178 Total Market Value 13,828,982,808 1,065,346,460 1,480,683,456 1,630,788,917 1,741,496,530 1,931,257,378 1,461,602,473 1,294,315,357 1,172,292,906 1,747,561,101 2,037,768,540 2,460,970,024 3,459,196,635 3,947,951,912 5,195,408,009 5,350,819,011 4,143,907,270 4,185,507,338 4,360,154,453 7,106,083,468 9,192,987,968 12,922,968,178 79,640,088,186 91,718,050,191 Revenue ratio = 0.87 Average Assessed Value 36,926 57,529 68,159 75,681 84,648 103,924 118,560 124,545 126,404 138,339 138,804 142,098 153,340 174,869 191,072 194,431 199,999 206,514 215,443 208,530 196,371 184,730 Av. 148,793 Average Market Value 146,964 177,765 182,665 164,228 154,060 159,004 158,870 164,399 164,325 172,923 167,953 167,675 171,740 178,366 171,965 165,266 169,999 175,537 180,972 193,933 188,516 184,730 Av. 171,358 Table A.12 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Nonexempt, Modified . 75 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 8728 986 1321 1622 1795 1589 946 816 727 1017 1244 1408 1653 1620 1331 570 467 489 634 979 958 522 31422 No. of Sales 1249 106 164 203 186 186 122 78 92 133 182 193 208 240 172 84 42 53 48 21 10 3772 Median Disparity Ratio 3.22 2.74 2.37 1.94 1.70 1.43 1.30 1.34 1.26 1.23 1.25 1.22 1.09 1.02 0.94 0.84 0.84 0.86 0.88 1.03 1.15 1.00 Total Assessed Value 654,827,926 100,809,482 146,642,008 200,739,737 256,920,399 273,475,499 216,306,504 181,299,985 170,678,586 235,395,817 273,859,440 320,463,357 406,920,369 457,399,857 375,191,322 196,350,392 159,660,192 164,182,617 217,955,905 324,826,713 352,336,474 158,197,496 Total Market Value 2,108,545,922 276,217,981 347,541,559 389,435,090 436,764,678 391,069,964 281,198,455 242,941,980 215,055,018 289,536,855 342,324,300 390,965,296 443,543,202 466,547,854 352,679,843 164,934,329 134,114,561 141,197,051 191,801,196 334,571,514 405,186,945 158,197,496 5,844,440,077 8,504,371,089 Revenue ratio = 0.69 Average Assessed Value 75,026 102,241 111,008 123,761 143,131 172,105 228,654 222,181 234,771 231,461 220,144 227,602 246,171 282,346 281,887 344,474 341,885 335,752 343,779 331,794 367,783 303,060 Av. 185,998 Average Market Value 241,584 280,140 263,090 240,096 243,323 246,111 297,250 297,723 295,812 284,697 275,180 277,674 268,326 287,993 264,974 289,358 287,183 288,747 302,526 341,748 422,951 303,060 Av. 270,650 76 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total Table A.13 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Multi-Family Residential, Nonmodified . No. of Properties 62159 4905 6389 6950 6378 5722 3737 3162 3035 5044 6000 7234 9168 7885 10016 8825 7374 6499 6708 7402 9780 13237 207609 No. of Sales 1913 95 169 169 164 180 122 84 103 172 220 288 511 417 707 706 633 528 559 841 2925 11506 Median Disparity Ratio 4.28 2.88 2.72 2.04 1.90 1.50 1.38 1.28 1.26 1.17 1.04 1.06 0.99 0.90 0.80 0.75 0.75 0.79 0.84 0.88 0.93 1.00 Total Assessed Value 6,353,278,153 649,971,970 1,014,120,396 1,265,282,994 1,256,908,011 1,262,679,579 959,623,323 869,351,475 960,950,119 1,638,924,379 2,038,237,517 2,930,188,017 3,479,133,103 3,137,723,728 4,148,437,494 3,668,067,752 2,843,547,136 2,578,586,465 2,699,640,793 2,941,976,306 3,817,851,981 4,445,570,633 Total Market Value 27,192,030,495 1,871,919,274 2,758,407,477 2,581,177,308 2,388,125,221 1,894,019,369 1,324,280,186 1,112,769,888 1,210,797,150 1,917,541,523 2,119,767,018 3,105,999,298 3,444,341,772 2,823,951,355 3,318,749,995 2,751,050,814 2,132,660,352 2,037,083,307 2,267,698,266 2,588,939,149 3,550,602,342 4,445,570,633 54,960,051,324 78,837,482,192 Revenue ratio = 0.70 Average Assessed Value 102,210 132,512 158,729 182,055 197,069 220,671 256,790 274,937 316,623 324,926 339,706 405,058 379,487 397,936 414,181 415,645 385,618 396,767 402,451 397,457 390,373 335,844 Av. 264,729 Average Market Value 437,459 381,635 431,743 371,392 374,432 331,007 354,370 351,920 398,945 380,163 353,295 429,361 375,692 358,142 331,345 311,734 289,214 313,446 338,059 349,762 363,047 335,844 Av. 379,740 Table A.14 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Multi-Family Residential, Modified . 77 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 4948 522 666 708 647 574 322 254 228 362 366 426 398 335 305 245 174 152 104 81 100 53 11970 No. of Sales 114 7 14 20 11 16 7 9 9 12 11 11 18 6 12 11 12 12 3 1 2 318 Median Disparity Ratio 3.71 2.17 3.06 2.52 1.56 1.54 1.54 1.54 1.52 1.35 1.32 0.84 1.13 1.05 0.90 0.69 0.74 0.90 1.04 1.47 0.58 1.00 Total Assessed Value 510,550,957 83,168,341 86,816,227 129,549,648 102,601,081 110,102,714 65,991,110 55,720,992 52,887,019 80,334,648 95,728,760 109,490,781 105,931,972 84,857,873 93,451,854 66,631,470 48,067,505 43,336,342 47,478,344 25,757,805 28,391,554 16,806,019 Total Market Value 1,894,144,050 180,475,300 265,657,655 326,465,113 160,057,686 169,558,180 101,626,309 85,810,328 80,388,269 108,451,775 126,361,963 91,972,256 119,703,128 89,100,767 84,106,669 45,975,714 35,569,954 39,002,708 49,377,478 37,863,973 16,467,101 16,806,019 2,043,653,016 4,124,942,395 Revenue ratio = 0.50 Average Assessed Value 103,183 159,326 130,355 182,980 158,580 191,817 204,941 219,374 231,961 221,919 261,554 257,021 266,161 253,307 306,400 271,965 276,250 285,108 456,523 317,998 283,916 317,095 Av. 170,731 Average Market Value 382,810 345,738 398,885 461,109 247,384 295,398 315,610 337,836 352,580 299,591 345,251 215,897 300,762 265,972 275,760 187,656 204,425 256,597 474,783 467,456 164,671 317,095 Av. 344,607 Table A.15 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Commercial/Industrial Nonmodified . 78 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 34184 2012 2471 3225 3324 3129 2467 2484 2428 3107 3678 4388 5648 4702 5680 5609 4611 4188 4227 4638 5777 5960 117937 No. of Sales 826 47 48 61 107 83 66 67 80 102 123 145 221 193 269 266 280 307 271 367 583 4512 Median Disparity Ratio 3.23 2.54 2.77 2.17 2.11 1.50 1.52 1.33 1.22 1.05 1.03 0.96 0.86 0.91 0.79 0.76 0.83 0.84 0.84 0.90 1.00 1.00 Total Assessed Value 7,400,387,682 635,513,928 615,317,766 1,018,414,340 1,308,966,337 1,638,741,897 1,309,938,108 1,817,094,161 1,881,871,556 2,230,560,633 2,817,004,551 4,139,030,544 6,039,188,499 5,016,146,110 6,473,460,115 6,282,355,431 4,840,980,329 4,029,785,058 4,610,165,413 4,920,965,452 4,855,398,155 4,001,833,760 Total Market Value 23,903,252,213 1,614,205,377 1,704,430,212 2,209,959,118 2,761,918,971 2,458,112,846 1,991,105,924 2,416,735,234 2,295,883,298 2,342,088,665 2,901,514,688 3,973,469,322 5,193,702,109 4,564,692,960 5,114,033,491 4,774,590,128 4,018,013,673 3,385,019,449 3,872,538,947 4,428,868,907 4,855,398,155 4,001,833,760 77,883,119,825 94,781,367,445 Revenue ratio = 0.82 Average Assessed Value 216,487 315,862 249,016 315,787 393,793 523,727 530,984 731,519 775,071 717,915 765,907 943,261 1,069,261 1,066,811 1,139,694 1,120,049 1,049,876 962,222 1,090,647 1,061,010 840,471 671,449 Av. 660,379 Average Market Value 699,253 802,289 689,773 685,259 830,902 785,591 807,096 972,921 945,586 753,810 788,884 905,531 919,565 970,798 900,358 851,237 871,397 808,266 916,144 954,909 840,471 671,449 Av. 803,661 Table A.16 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Commercial/Industrial Modified . 79 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 5035 435 499 709 666 568 420 426 367 397 392 325 318 191 199 171 154 135 119 57 43 13 11639 No. of Sales 128 13 11 14 10 14 13 12 14 13 21 19 9 6 2 11 9 2 5 4 2 332 Median Disparity Ratio 2.34 2.26 1.97 1.58 2.66 1.37 1.22 1.27 1.13 1.23 1.03 0.91 0.66 0.76 1.07 0.84 0.74 1.64 0.78 0.83 1.10 1.00 Total Assessed Value 3,460,660,290 249,886,302 246,904,024 506,098,699 630,799,914 437,365,369 552,192,883 298,748,523 304,578,689 378,200,596 392,625,768 536,571,989 407,340,469 334,783,985 500,699,083 406,393,550 725,825,282 167,580,293 441,655,485 92,802,254 62,671,958 21,585,407 Total Market Value 8,097,945,079 564,743,043 486,400,927 799,635,944 1,677,927,771 599,190,556 673,675,317 379,410,624 344,173,919 465,186,733 404,404,541 488,280,510 268,844,710 254,435,829 535,748,019 341,370,582 537,110,709 274,831,681 344,491,278 77,025,871 68,939,154 21,585,407 11,155,970,812 17,705,358,202 Revenue ratio = 0.63 Average Assessed Value 687,321 574,451 494,798 713,820 947,147 770,009 1,314,745 701,288 829,915 952,646 1,001,596 1,650,991 1,280,945 1,752,796 2,516,076 2,376,570 4,713,151 1,241,336 3,711,391 1,628,110 1,457,487 1,660,416 Av. 958,499 Average Market Value 1,608,331 1,298,260 974,751 1,127,836 2,519,411 1,054,913 1,603,989 890,635 937,804 1,171,755 1,031,644 1,502,402 845,424 1,332,125 2,692,201 1,996,319 3,487,732 2,035,790 2,894,885 1,351,331 1,603,236 1,660,416 Av. 1,521,210 Table A.17 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified . 80 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 45521 2437 3006 2705 3253 3032 2121 1739 2821 3818 3882 4996 6655 6558 7725 6359 8731 No. of Sales 944 84 84 73 99 108 73 68 196 205 223 325 401 542 546 498 Median Disparity Ratio 4.58 3.50 3.32 2.48 2.31 2.09 1.63 1.47 1.71 1.58 1.51 1.46 1.34 1.20 1.09 1.08 1.00 Total Assessed Value 3,364,275,026 217,877,548 314,343,432 357,333,205 452,820,853 493,733,912 425,461,995 363,124,068 567,187,439 788,997,336 825,328,728 1,153,546,424 1,655,471,180 1,864,163,964 2,411,799,075 2,002,976,897 3,060,913,980 Total Market Value 15,408,379,619 762,571,418 1,043,620,194 886,186,348 1,046,016,170 1,031,903,876 693,503,052 533,792,380 969,890,521 1,246,615,791 1,246,246,379 1,684,177,779 2,218,331,381 2,236,996,757 2,628,860,992 2,163,215,049 3,060,913,980 Average Assessed Value 73,906 89,404 104,572 132,101 139,201 162,841 200,595 208,812 201,059 206,652 212,604 230,894 248,756 284,258 312,207 314,983 350,580 Average Market Value 338,489 312,914 347,179 327,610 321,554 340,338 326,970 306,954 343,811 326,510 321,032 337,105 333,333 341,110 340,306 340,182 350,580 Total 115359 4469 20,319,355,062 38,861,221,686 Av. 176,140 Av. 336,872 Revenue ratio = 0.52 Table A.18 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Modified. 81 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 7255 788 976 960 1079 845 595 447 672 714 570 649 692 542 499 199 89 No of Sales 89 7 19 19 25 26 9 23 20 21 33 32 38 29 38 21 Median Disparity Ratio 4.13 3.54 3.24 2.53 1.91 2.24 1.06 1.98 1.96 1.66 1.68 1.53 1.41 1.36 1.14 1.22 1.00 Total Assessed Value 768,239,205 108,664,412 144,623,680 174,092,160 220,631,762 207,555,660 177,260,020 150,255,921 207,003,552 226,919,196 196,852,920 244,295,282 281,665,452 272,305,678 284,826,206 121,791,980 58,122,785 Total Market Value 3,172,827,917 384,672,018 468,580,723 440,453,165 421,406,665 464,924,678 187,895,621 297,506,724 405,726,962 376,685,865 330,712,906 373,771,781 397,148,287 370,335,722 324,701,875 148,586,216 58,122,785 Average Assessed Value 105,891 137,899 148,180 181,346 204,478 245,628 297,916 336,143 308,041 317,814 345,356 376,418 407,031 502,409 570,794 612,020 653,065 Average Market Value 437,330 488,162 480,103 458,805 390,553 550,207 315,791 665,563 603,760 527,571 580,198 575,920 573,914 683,276 650,705 746,664 653,065 Total 17571 449 3,845,105,871 8,624,059,911 Av. 218,833 Av. 490,812 Revenue ratio = 0.45 Table A.19 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Nonexempt, Nonmodified . 82 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 8236 715 1114 1136 1262 1377 992 916 1265 1420 1473 1895 2427 2495 3503 2920 4080 No. of Sales 439 20 49 30 32 49 29 31 63 70 108 97 165 153 216 229 Median Disparity Ratio 4.44 2.79 3.35 2.57 2.21 1.77 1.50 1.28 1.57 1.42 1.52 1.49 1.36 1.19 1.09 1.08 1.00 Total Assessed Value 579,122,576 51,534,340 97,903,890 117,573,728 144,018,178 191,927,637 154,050,656 153,222,068 207,118,450 227,858,880 264,462,420 363,172,960 515,856,423 672,153,000 936,159,235 893,414,880 1,371,010,560 Total Market Value 2,571,304,237 143,780,809 327,978,032 302,164,481 318,280,173 339,711,917 231,075,984 196,124,247 325,175,967 323,559,610 401,982,878 541,127,710 701,564,735 799,862,070 1,020,413,566 964,888,070 1,371,010,560 Average Assessed Value 70,316 72,076 87,885 103,498 114,119 139,381 155,293 167,273 163,730 160,464 179,540 191,648 212,549 269,400 267,245 305,964 336,032 Average Market Value 312,203 201,092 294,415 265,990 252,203 246,704 232,940 214,109 257,056 227,859 272,901 285,556 289,067 320,586 291,297 330,441 336,032 Total 37226 1780 6,940,559,881 10,880,005,047 Av. 186,444 Av. 292,269 Revenue ratio = 0.64 Table A.20 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Nonexempt, Modified . 83 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 512 71 98 100 124 114 76 67 112 101 96 103 163 124 165 142 54 No. of Sales 43 5 6 15 6 5 4 6 10 2 7 5 11 5 28 4 Median Disparity Ratio 3.92 3.19 3.21 2.36 2.19 1.05 1.30 1.74 1.39 1.96 1.67 1.47 1.56 1.05 1.28 1.05 1.00 Total Assessed Value 64,132,096 8,100,674 13,210,498 18,416,900 21,567,444 22,781,760 21,832,596 19,977,390 39,245,696 27,111,026 25,922,112 28,564,269 74,043,076 51,718,168 82,130,235 95,054,516 40,137,444 Total Market Value 251,397,816 25,841,150 42,405,699 43,463,884 47,232,702 23,920,848 28,382,375 34,760,659 54,551,517 53,137,611 43,289,927 41,989,475 115,507,199 54,304,076 105,126,701 99,807,242 40,137,444 Average Assessed Value 125,258 114,094 134,801 184,169 173,931 199,840 287,271 298,170 350,408 268,426 270,022 277,323 454,252 417,082 497,759 669,398 743,286 Average Market Value 491,011 363,960 432,711 434,639 380,909 209,832 373,452 518,816 487,067 526,115 450,937 407,665 708,633 437,936 637,132 702,868 743,286 Total 2222 162 653,945,900 1,105,256,325 Av. 294,305 Av. 497,415 Revenue ratio = 0.59 Table A.21 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified . 84 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 37651 2005 2487 2183 2582 2412 1635 1361 2122 2705 2779 3559 4584 4385 5138 4253 4056 4677 5433 6250 4996 8960 116213 No. of Sales 1409 91 112 98 150 129 96 71 111 180 179 233 346 297 252 203 191 222 233 411 293 5307 Median Disparity Ratio 4.32 3.51 3.07 2.45 2.26 1.84 1.53 1.52 1.61 1.47 1.46 1.35 1.23 1.13 1.10 1.08 1.09 1.07 1.11 1.10 1.22 1.00 Total Assessed Value 2,874,661,016 182,824,069 272,964,987 296,725,156 373,931,249 411,229,297 343,298,713 296,699,753 447,163,854 582,377,056 624,769,484 854,486,140 1,194,172,035 1,275,706,053 1,528,383,586 1,242,805,790 1,284,520,865 1,557,084,162 1,776,761,633 2,155,859,191 1,771,251,552 2,862,018,679 Total Market Value 12,418,535,589 641,712,482 838,002,510 726,976,632 845,084,623 756,661,906 525,247,031 450,983,625 719,933,805 856,094,272 912,163,447 1,153,556,289 1,468,831,603 1,441,547,840 1,681,221,945 1,342,230,253 1,400,127,743 1,666,080,053 1,972,205,413 2,371,445,110 2,160,926,893 2,862,018,679 24,209,694,320 39,211,587,743 Revenue ratio = 0.62 Average Assessed Value 76,350 91,184 109,757 135,925 144,822 170,493 209,969 218,001 210,728 215,297 224,818 240,092 260,509 290,925 297,467 292,219 316,696 332,924 327,031 344,937 354,534 319,422 Av. 208,322 Average Market Value 329,833 320,056 336,953 333,017 327,298 313,707 321,252 331,362 339,271 316,486 328,234 324,124 320,426 328,745 327,213 315,596 345,199 356,228 363,005 379,431 432,531 319,422 Av. 356,228 Table A.22 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Modified . 85 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 7370 792 982 939 1088 879 602 469 747 812 674 812 915 722 631 412 364 362 290 246 131 29 20268 No. of Sales 201 33 37 24 37 24 23 12 36 39 43 45 74 38 44 39 19 18 6 14 6 812 Median Disparity Ratio 3.94 3.45 3.07 2.49 2.46 2.00 1.57 1.59 1.85 1.67 1.57 1.51 1.34 1.17 1.15 1.09 1.14 1.26 2.06 1.17 2.11 1.00 Total Assessed Value 824,539,929 113,167,008 152,901,294 180,078,385 227,187,168 227,157,746 182,077,924 159,284,072 235,371,050 250,538,357 228,540,289 294,590,599 360,951,528 340,836,927 348,405,483 221,416,304 210,505,766 246,243,874 195,428,112 155,473,986 93,775,612 15,733,255 Total Market Value 3,248,687,320 390,426,178 469,406,973 448,395,179 558,880,433 454,315,492 285,862,341 253,261,674 435,436,443 418,399,056 358,808,254 444,831,804 483,675,048 398,779,205 400,666,305 241,343,771 239,976,573 310,267,281 402,581,911 181,904,564 197,866,541 15,733,255 5,264,204,668 10,639,505,601 Revenue ratio = 0.49 Average Assessed Value 111,878 142,888 155,704 191,777 208,812 258,427 302,455 339,625 315,088 308,545 339,081 362,796 394,483 472,073 552,148 537,418 578,313 680,232 673,890 632,008 715,844 542,526 Av. 680,232 Average Market Value 440,799 492,962 478,011 477,524 513,677 516,855 474,854 540,004 582,914 515,270 532,356 547,822 528,607 552,326 634,970 585,786 659,276 857,092 1,388,213 739,449 1,510,432 542,526 Av. 524,941 Table A.23 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Nonexempt, Nonmodified. 86 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 7181 598 918 954 1039 1111 808 708 965 1079 1050 1357 1583 1523 2002 1700 1239 1294 1313 1784 1985 5909 38100 No. of Sales 803 58 50 62 94 69 47 36 49 96 110 128 187 149 191 102 78 96 121 174 342 3042 Median Disparity Ratio 4.25 3.33 2.70 2.48 2.13 1.84 1.55 1.40 1.44 1.51 1.37 1.29 1.21 1.12 1.16 1.09 1.14 1.12 1.07 1.16 1.36 1.00 Total Assessed Value 459,963,910 44,062,438 78,293,293 102,400,921 116,986,145 159,090,712 127,950,158 121,371,311 158,823,892 173,675,454 194,837,251 258,796,445 326,504,631 393,605,295 490,674,079 450,356,340 352,020,001 387,248,564 378,922,754 562,838,289 632,629,635 1,772,353,612 Total Market Value 1,954,846,618 146,727,919 211,391,891 253,954,284 249,180,489 292,726,910 198,322,745 169,919,835 228,706,404 262,249,936 266,927,034 333,847,414 395,070,604 440,837,930 569,181,932 490,888,411 401,302,801 433,718,392 405,447,347 652,892,415 860,376,304 1,772,353,612 7,743,405,130 10,990,871,225 Revenue ratio = 0.70 Average Assessed Value 64,053 73,683 85,287 107,338 112,595 143,196 158,354 171,428 164,584 160,960 185,559 190,712 206,257 258,441 245,092 264,915 284,116 299,265 288,593 315,492 318,705 299,941 Av. 203,239 Average Market Value 272,225 245,364 230,274 266,199 239,827 263,481 245,449 240,000 237,001 243,049 254,216 246,019 249,571 289,454 284,307 288,758 323,892 335,177 308,795 365,971 433,439 299,941 Av. 288,474 Table A.24 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Nonexempt, Modified . 87 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 542 58 85 108 120 104 73 64 90 82 70 97 104 112 113 97 65 58 59 50 45 26 2222 No. of Sales 57 11 10 22 26 8 8 6 12 16 10 27 21 17 24 10 5 10 4 5 21 330 Median Disparity Ratio 3.91 3.16 2.85 2.49 2.29 2.15 1.65 1.77 1.91 1.77 1.62 1.39 1.26 1.21 1.14 1.26 1.00 1.34 1.42 2.21 1.77 1.00 Total Assessed Value 56,872,555 6,772,850 9,947,326 17,721,279 22,244,578 19,059,318 22,656,502 18,703,199 25,331,213 20,366,372 18,004,312 27,671,674 35,982,923 39,307,448 46,234,710 47,477,983 32,878,441 46,499,381 57,890,065 40,750,015 39,430,536 20,075,903 Total Market Value 222,371,690 21,402,206 28,349,879 44,125,985 50,940,084 40,977,534 37,383,228 33,104,662 48,382,617 36,048,478 29,166,985 38,463,627 45,338,483 47,562,012 52,707,569 59,822,259 32,878,441 62,309,171 82,203,892 90,057,533 69,792,049 20,075,903 671,878,583 1,193,464,287 Revenue ratio = 0.56 Average Assessed Value 104,931 116,773 117,027 164,086 185,371 183,263 310,363 292,237 281,458 248,370 257,204 285,275 345,990 350,959 409,157 489,464 505,822 801,713 981,188 815,000 876,234 772,150 Av. 302,376 Average Market Value 410,280 369,004 333,528 408,574 424,501 394,015 512,099 517,260 537,585 439,616 416,671 396,532 435,947 424,661 466,439 616,724 505,822 1,074,296 1,393,286 1,801,151 1,550,934 772,150 Av. 537,113 About the Authors STEVEN M. SHEFFRIN Steven Sheffrin is Dean, Division of Social Sciences, and a professor of economics at the University of California, Davis. He also serves as Director of the Center for State and Local Taxation at U.C. Davis. He has been a visiting professor at the London School of Economics, Oxford University, and Princeton University and has worked as an economist in the Office of Tax Analysis of the U.S. Department of the Treasury. His work in macroeconomics and tax policy has been widely published. Sheffrin holds a B.A. from the College of Social Studies, Wesleyan University, and a Ph.D. in economics from the Massachusetts Institute of Technology. TERRI A. SEXTON Terri Sexton is a professor of economics at California State University, Sacramento, and a research associate in the Institute of Governmental Affairs at U.C. Davis. She has also served as a visiting associate agricultural economist in the Department of Agricultural and Resource Economics and as a visiting assistant professor in the Department of Economics at U.C. Davis. She has served as a member of the Task Force on Fiscal Reform of the California Business and Higher Education Forum, as co-investigator in a property tax oversight study conducted for the California State Board of Equalization, and as coinvestigator, along with Steven Sheffrin and Arthur O’Sullivan, in a comprehensive study of the economic and fiscal effects of Proposition 13, which culminated in Property Taxes and Tax Revolts: The Legacy of Proposition 13 (Cambridge University Press, 1995). Her writings have appeared in such publications as the National Tax Journal, Land Economics, RAND Journal of Economics, and the Journal of Urban Economics. Sexton holds a B.S. in economics, a Bachelor of Mathematics, and a Ph.D. in economics from the University of Minnesota. 89 Other PPIC Publications Dardia, Michael (1998), Subsidizing Redevelopment in California. Dresch, Marla, and Steven M. Sheffrin (1997), Who Pays for Development Fees and Exactions? Johnson, Hans P. (1996), Undocumented Immigration to California: 1980–1993. Lewis, Paul G. (1998), Deep Roots: Local Government Structure in California. Lewis, Paul G., and Mary Sprague (1997), Federal Transportation Policy and the Role of Metropolitan Planning Organizations in California. MaCurdy, Thomas, and Margaret O’Brien-Strain (1997), Who Will Be Affected by Welfare Reform in California? MaCurdy, Thomas, and Margaret O’Brien-Strain (1998), Reform Reversed? The Restoration of Welfare Benefits to Immigrants in California. Reed, Deborah, Melissa Glenn Haber, and Laura Mameesh (1996), The Distribution of Income in California. Reyes, Belinda I. (1997), Dynamics of Immigration: Return Migration to Western Mexico. Shires, Michael A., and Melissa Glenn Haber (1997), A Review of Local Government Revenue Data in California. Shires, Michael A., John Ellwood, and Mary Sprague (1998), Has Proposition 13 Delivered? The Changing Tax Burden in California. Smolensky, Eugene, Eirik Evenhouse, and Siobhán Reilly (1997), Welfare Reform: A Primer in 12 Questions. Spetz, Joanne (1996), Nursing Staff Trends in California Hospitals: 1977 through 1995. Copies of PPIC publications may be ordered by e-mail (order@ppic.org) or phone (415) 291-4400. Full text versions are also available at: www.ppic.org. 90"
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string(153344) "Proposition 13 in Recession and Recovery Steven M. Sheffrin Terri Sexton 1998 Copyright © 1998 Public Policy Institute of California, San Francisco, CA. All rights reserved. PPIC permits short sections of text, not to exceed three paragraphs, to be quoted without written permission, provided that full attribution is given to the source and the above copyright notice is included. Foreword Twenty years ago, Proposition 13 marked the beginning of a taxlimitation movement that has profoundly affected the fiscal relationship between state and local governments and the provision of public services in California. Many of the consequences of Proposition 13 have been predictable; some have been quite unexpected. When the initiative was passed in 1978, it is unlikely that anyone thought about how it might operate in a recessionary environment. Although the state did experience several mild economic slumps over the next fifteen years, housing inflation continued, steadily widening the gap between the property taxes of more recent home buyers and those who had owned their homes for many years. But in 1991, California entered one of the severest recessions in the history of the state. Housing prices fell sharply in many areas, and businesses and homeowners began to flood county assessors with appeals for property reassessment. In this report, Steven Sheffrin and Terri Sexton examine how falling property values in Los Angeles County and San Mateo County affected iii the disparity between property taxes within different categories of properties, ranging from owner-occupied single family homes to commercial and industrial property. They find that declining real estate prices from 1991 through 1995 diminished the gap between market value and assessed value and thus reduced some of the inequities in the property tax system introduced by Proposition 13. Whether these inequities will return during the recovery in real estate prices depends on a number of critical factors, which are discussed in the report. The authors also look at the tremendous workload imposed on county tax assessors throughout the recession and recovery. Statewide, the number of appeals increased 300 percent in 1992–93 and continued to grow, increasing by an additional 110 percent in 1993–94, another 20 percent in 1994–95, and another 7.7 percent in 1995–96. Although the number of appeals has begun to decline, it is unlikely that it will ever return to pre-recession levels because taxpayers are now more aware of changing property values and are more knowledgeable about the appeals process. Although the state has established a temporary loan program to help counties work through the backlog of cases, the authors suggest that a more permanent and viable source of revenue is needed to support property tax administration in California. This is the sixth in a series of studies that PPIC has published to help improve understanding of state and local governance and finance in California. It is the first to be published under the aegis of PPIC’s Extramural Research Program, which funds external research on social, economic, and political policy issues affecting California. David W. Lyon President and CEO Public Policy Institute of California iv Summary Twenty years ago, California voters approved Proposition 13, limiting the rate at which property is taxed to 1 percent, as well as limiting increases in assessments. Every time property is constructed or sold, it is assessed at its full market value, usually its selling price. Properties for which there are no changes of ownership can be increased only by a maximum of 2 percent a year. Until 1991, this property tax system operated in an era of inflation and rising property values, creating disparities between virtually identical properties. Our collective understanding of the effects of Proposition 13 was developed in this regime. From 1991 through 1995, California experienced a prolonged recession. During this five-year period, the decline in property values was significant and widespread, with home values falling as much as 30 percent in many locations. This sharp fall in property values, as well as the recent upturn in the state, has affected the magnitude of the inequities and inefficiencies resulting from California’s property tax v system and has dramatically altered the job of the county assessor. This study analyzes the changes in California’s property tax system caused by the recession and the recent recovery. Our work examines in detail the changes in property tax disparities in Los Angeles County and San Mateo County. The sharp fall in property values in Los Angeles County, as well as natural turnover of properties, sharply reduced some of the disparities in assessment caused by Proposition 13. Our research demonstrated that disparities have been reduced for all classes of property and along a geographical dimension as well. In Northern California, the declines in property values were relatively modest. Thus, for San Mateo County, there was some reduction in the disparities but the declines were not as large. If housing prices remain flat (or increase by less than 2 percent a year), inequities will continue to be reduced, although they will not be fully eliminated, through turnover and new construction. Will the natural forces of turnover and new construction eventually lead to a reasonably equitable property tax system in California? Before reaching this conclusion, there are some very important caveats. First, if property price appreciation begins to exceed 2 percent per year on a sustained basis, inequities will increase. Second, a disproportionate share of the owner-occupied properties that have not been sold since 1975 are held by the elderly. The choices they make in the disposition of their property—in particular, whether they pass it on to their children or grandchildren—will largely determine whether this class of property, the one with the greatest disparities, will decrease over time. Although the general decline in property values that accompanied the recession in California helped to eliminate some of the inequities in assessments, it has put a tremendous strain on California’s already vi understaffed and underfunded county assessors. Under the provisions of Proposition 13, a property’s assessed value must be the lower of its factored base year value (original assessed value plus a maximum of 2 percent a year) or its current market value. Before the recession that began in 1991, the assessor’s job was relatively easy. Determination of assessed value for the majority of properties involved simply adjusting the previous year’s assessed value upward by 2 percent or by the rate of inflation, whichever was smaller. Only properties that had changed ownership or included new construction needed to be appraised by the assessor’s office. However, since 1991, the market value of many properties has fallen below their factored base year values. Under Proposition 8, a constitutional amendment passed by California voters in November 1978, a property whose market value falls below its factored base year value on January 1 must be assessed or enrolled at its market value for that date. This legislation provides temporary property value reductions when property suffers from a “decline in value.” Such properties are commonly referred to as Prop 8 properties. In subsequent years, these properties must be reviewed and reassessed at market value unless, or until, their market values again exceed their factored base year values. Beginning in 1991–92, assessors began to see an increase in the number of appeals filed by property owners who believed that the market values of their properties had fallen below their assessed values. The number of appeals escalated sharply through the 1990s. This rapid growth in appeals came at a time when assessors’ budgets were in decline. There were no funds for hiring more staff and hence backlogs of work developed. If an appeal is not resolved within two years, the assessor is obligated to enroll the property at the value claimed by the owner on the vii appeal. To prevent further growth in their backlog of appeals and to avoid the inequities that would arise from lowering values only for those properties that were appealed, assessors began to make mass, downward adjustments in assessed values. When properties are classified as Prop 8, they must be assessed at their true market value. Coupled with recent sales and new constructions that are also assessed at market value, Prop 8 assessments have increased to the point that in some counties more than one-third of the parcels are now assessed at market value instead of by factored base year value. This also means that the assessor must reassess each of these properties every year until they are back at factored base year value. The 1993 property tax shift cut the counties’ share of property tax revenues in half and caused serious staffing and incentive problems for county assessors. It was much easier for boards of supervisors to cut the budgets of assessors’ offices than to cut county programs that provide direct services to residents, particularly when the amount of property tax revenues at stake was so low. Since the state receives 53 percent of property tax revenue, it has a strong interest in property tax administration. The state enacted the State-County Property Tax Administration Program, which provided “loans” directly to the assessor. These loans were “paid off” through specific actions taken to increase the efficiency of property tax collection. As we look down the road to the point where property values have fully recovered, assessments have been fully restored, and appeals have declined to more normal levels, property tax administration problems in California will still remain. Programs such as the State-County Property Tax Administration Program provide only temporary and therefore partial solutions. In many ways, the current system does not provide viii incentives for cooperation between locally elected county assessors and the California State Board of Equalization—the oversight body. The State-County Property Tax Administration Program provides a stopgap measure, but we need to begin designing a system now to put into place when this program expires to insure efficient administration of the property tax in California. ix Contents Foreword ..................................... Summary..................................... Figures ...................................... Tables ....................................... Acknowledgments ............................... iii v xiii xv xix 1. INTRODUCTION ........................... 2. HOW HAVE THE DISPARITIES CHANGED? ........ Methodology ............................... Los Angeles County ........................... Owner-Occupied Single Family Residential Property .... Other Classes of Property ...................... A Geographical Perspective ..................... San Mateo County ............................ Assessing the Findings .......................... 3. HOW DID THE RECESSION AFFECT PROPERTY TAX ADMINISTRATION? ..................... Appeals ................................... Proposition 8 Assessment Reductions ................ The State’s Role in Property Taxation ................ State-County Property Tax Administration Program ...... Recovery .................................. 1 9 12 15 15 22 25 28 31 37 38 42 46 48 54 xi 4. PROPOSITION 13 IN THE LONG RUN ........... Appendix: Data for Los Angeles and San Mateo Counties ..... About the Authors ............................... Other PPIC Publications........................... 57 63 89 90 xii Figures 2.1. Index of Housing Prices for Los Angeles County ...... 2.2. Disparity Ratios for Properties in Los Angeles County: 1975 Base Year, Owner-Occupied, Nonmodified ...... 2.3. Assessment Regions in Los Angeles County ......... 10 16 26 xiii Tables 2.1. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified ............ 2.2. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified ............ 2.3. Key Property Assessment Statistics for Los Angeles County: 1991 and 1996 ..................... 2.4. Changes in Disparities Within Los Angeles County .... 2.5. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified ............ 2.6. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified ............ 2.7. Key Residential Property Tax Statistics for San Mateo County: 1991 and 1996 ..................... 3.1. Property Tax Appeals, 1993–94 Through 1995–96 .... 3.2. Resolution of Appeals, 1995–96................. 3.3. Proposition 8 Properties, 1995–96 ............... 18 19 23 27 29 30 32 39 42 44 xv 3.4. California Property Tax Revenue and Counties’ Shares, 1995–96 ............................... 3.5. Loans for Property Tax Administration, 1995–96 ..... A.1. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified ............ A.2. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Modified ............... A.3. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Nonexempt, Nonmodified .................... A.4. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Nonexempt, Modified ....................... A.5. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Multi-Family Residential, Nonmodified ............................. A.6. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Multi-Family Residential, Modified ............................... A.7. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Commercial/Industrial Nonmodified ............................. A.8. Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Commercial/Industrial Modified ............................... A.9. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified ............ A.10. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Modified ............... 47 50 64 65 66 67 68 69 70 71 72 73 xvi A.11. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Nonexempt, Nonmodified .................... A.12. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Nonexempt, Modified ....................... A.13. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Multi-Family Residential, Nonmodified ............................. A.14. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Multi-Family Residential, Modified ............................... A.15. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Commercial/Industrial Nonmodified ............................. A.16. Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Commercial/Industrial Modified ............................... A.17. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified ............ A.18. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Modified ............... A.19. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Nonexempt, Nonmodified .................... A.20. Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Nonexempt, Modified ....................... A.21. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified ............ 74 75 76 77 78 79 80 81 82 83 84 xvii A.22. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Modified ............... A.23. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Nonexempt, Nonmodified .................... A.24. Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Nonexempt, Modified ....................... 85 86 87 xviii Acknowledgments A number of individuals contributed to our understanding of the issues addressed in this study and we would like to thank them. Alan Flory, the Yolo County Assessor, first pointed out to us some of the issues involved in property taxation with declining real estate values and helped us frame our study. We had extensive discussions with a group of assessors on the changing climate of property taxation. We would like to thank Larry Stone, Santa Clara County; Gary Orso, Riverside County; Mike DeFerrari, Stanislaus County; Roger Fong, Sacramento County; John Scott, Alameda County; and Kenneth Hahn, Los Angeles County, for sharing their unique perspectives. Max Goodrich from Los Angeles County also provided useful advice as did Pedro Reyes from the Department of Finance. Our reviewers for the project, Jan Brueckner, Michael Teitz, and Jeff Reynolds, helped us sharpen our story. We owe a special debt of gratitude to Robert Cenzer who processed the vast amounts of data used xix in the study and co-authored a working paper on Los Angeles County with us. Bob worked with us on our earlier study of Proposition 13 and enabled us to make detailed comparisons to our earlier work. We could not have completed this study without his assistance. xx 1. Introduction Twenty years ago, California voters approved Proposition 13, limiting the rate at which property is taxed to 1 percent, as well as limiting increases in assessments. Every time property is constructed or sold, it is assessed at its full market value, usually its selling price. After that value is established, assessed value may increase by no more than 2 percent per year until the next transfer of ownership takes place. Property purchased before March 1, 1975, and not subsequently sold is assessed at the 1975 assessed value plus 2 percent per year. These provisions of Proposition 13 have been the source of well-documented inequities and inefficiencies in the property tax system. From 1991 through 1995, California experienced a prolonged recession. During this five-year period, the decline in property values was significant and widespread, with home values falling as much as 30 percent in many locations. The decline was sharper in urban areas and in the commercial sector and particularly strong in Southern California. This sharp fall in property values, as well as the recent upturn in the 1 state, has affected the magnitude of inequities and inefficiencies resulting from California’s property tax system and has dramatically altered the job of county assessors. This study analyzes the changes in California’s property tax system caused by the recession and the recent recovery. In our book Property Taxes and Tax Revolts: The Legacy of Proposition 13 and our report to the California Policy Seminar,The Future of Proposition 13, we (along with Arthur O’Sullivan) analyzed the economic and fiscal consequences of Proposition 13 in detail.1 This body of work provided the most comprehensive description of Proposition 13 that was available. In this work, we: • Identified and measured the inefficiencies and inequities that can result from an acquisition-value-based property tax system; • Identified specifically the winners and losers under Proposition 13; • Analyzed the fiscal effects on local governments; and • Analyzed changes in state and local government fiscal relations resulting from passage of Proposition 13. The results and conclusions of our empirical study depended upon the rate of property value appreciation which, in all but one year since 1978, was in excess of 2 percent per year. Inflation in excess of 2 percent a year creates inequities in assessments. To understand these inequities, consider these data: In 1991, homeowners who had resided in their current homes in Los Angeles County since 1975 (a group that constituted 43 percent of all homeowners in the county) were, on ____________ 1Arthur O’Sullivan, Terri A. Sexton, and Steven M. Sheffrin, Property Taxes and Tax Revolts: The Legacy of Proposition 13, New York and Cambridge: Cambridge University Press, 1995. 2 average, underassessed relative to market value by a factor of five. This means that actual market value had increased to a level five times that of assessed value and that the property taxes due on two such identical homes would differ by a factor of five if one of the homes were to sell. This inequity in tax bills increases over time as long as the rate of property inflation exceeds 2 percent. Appreciation of property values also tends to increase the relocation penalty associated with an acquisition-value-based tax, because appreciation increases the gap between assessed and market values. If a property owner were to move from a property owned for several years to one of equal market value, his property taxes would increase. This penalty results in inefficient resource allocation because it discourages mobility. Thus, in addition to producing inequitable assessments, Proposition 13 leads to economic inefficiencies. As long as property values increase at a rate in excess of the maximum allowable rate of increase in property tax (2 percent), the assessor has only to automatically increase by 2 percent assessments of properties that have not sold. There is no need for the assessor to visit the property and make a detailed appraisal of its market value or conduct an elaborate statistical analysis; in these circumstances, market value is irrelevant for properties that do not sell. Moreover, when properties do sell, the selling price can be used as the basis for the assessment. The recession in the early 1990s had important effects on both the equity and the efficiency of the system as well as on its administration. The decline in property values reduced the disparities between market and assessed values and thereby reduced the related efficiency costs. From the administrative point of view, if property values decline, the assessor is obliged to adjust assessments to the smaller of (1) the original 3 assessed value factored up by 2 percent a year or (2) actual market value. For most properties not recently sold, the factored assessed value will still be less than market value even if market value has declined. But the assessor is required to consider market values especially for recently sold properties and make downward adjustments when necessary. Throughout the state, many homeowners and businesses have taken advantage of these provisions of Proposition 13 through appeals or business reorganizations designed specifically to trigger reassessments. However, one related aspect of the law is not well understood and can lead to some unpleasant surprises for property owners. Suppose that the assessed value of a property was reduced, for example, by an appeal. If property values subsequently appreciate, assessments can jump back to their prior (pre-appeal) level, provided market value exceeds that level. Assessments can be adjusted fully back to factored assessed value in a single year. These readjustments are not subject to the 2 percent per year limitation. For example, consider a home that is assessed at $150,000 in 1995 but, because of a decline in real estate prices, now has a market value of only $140,000 in 1996. The assessor is required to reduce the assessment to $140,000 for 1996. If, in 1997, the housing market in this location has recovered and this home is found to have a market value of $160,000, the assessor can increase the assessment back to $150,000 plus 2 percent for 1996 plus an additional 2 percent for 1997 for a new assessed value of $156,060. In this case, the one-year increase in assessed value would be $16,060 or 11 percent. The widespread decline in property values in California has dramatically increased the workload of county assessors. They have been flooded with appeals, in many cases ten times the normal number, even 4 though across-the-board reductions in assessments have often been implemented. In some counties, property values have begun to recover and some of the recovery is reflected in rising assessments. However, other counties are still in the process of reducing assessments. This work examines how California’s property tax assessment operated during a period of declining and then recovering property values. In particular, we address the two following sets of questions: 1. How have disparity ratios (the ratio of market value to assessed value) changed since 1991, the last date for which we have accurate information on disparity ratios? One would expect a decline in market value to lead to decreases in disparity ratios, but are such decreases uniform across all property? 2. How has the decline and recent recovery in property values changed assessment practices? How have county assessors coped with sharp increases in appeals and the requirement to reduce (and later restore) assessments for substantial numbers of properties? Does the current assessment system in California work efficiently and protect the fiscal interests of state and local governments in California? In Chapter 2, we address the first set of questions. We selected two counties—Los Angeles and San Mateo—and estimated the property tax disparities within each county. Los Angeles County is the largest in California, accounting for approximately 30 percent of the assessed value in the state, and it experienced some of the sharpest declines in real estate values within the state. San Mateo is a representative Northern California urban county. Both of these counties were included in our 1991 study, and thus those data are available for comparison. Our procedure for estimating property tax disparities starts with the complete property tax roll for a county for the two most recent years. Using recent sales of properties, we can estimate the disparity ratio for 5 different classes of properties. If there are sufficient sales, it is possible to estimate average disparity ratios for all classes of property. These estimates can then be combined with current assessed value, by class of property, to provide overall estimates of market value. The results can then be compared to those obtained in 1991, which were described in detail in our prior work. We use the same categories and classifications to facilitate the comparisons. Although the key comparative statistics are presented in the text, the appendix presents a complete picture of the property tax inequities in the two counties for the current period. In Chapter 3, we address issues concerning property tax administration. We conducted a series of interviews with county assessors and state officials to learn about changes in practices and their perspectives on the problems facing the property tax system in California. These interviews were quite revealing and highlighted significant changes in the property tax assessment system that have already occurred. They also highlighted some potential problems. In addition, the assessors provided us with data on appeals and the methods used and time lags involved in dealing with them. In Chapter 4, we address some of the key findings and policy issues raised in our investigation. Two key issues emerge. First, the decline in real estate values has changed California’s property tax system to one that relies much more extensively on determining market value assessments than on making automatic adjustments to assessed value. Does the current assessment system have the resources to work effectively in this environment? Second, recent changes in property tax allocations have increased the share of property tax revenues that flow directly to the state and reduced the share of property tax revenues that flow to the county. In this new era, what is the proper role of the state and the State Board of 6 Equalization in insuring that the property tax system functions efficiently? 7 2. How Have the Disparities Changed? As we discussed in Chapter 1, the system of property tax assessment created under Proposition 13 produces inequities for similarly situated property owners as long as increases in real estate prices exceed 2 percent per year. Under Proposition 13, the assessed value of property cannot increase by more than 2 percent per year until the property is sold, at which time the property is reassessed at its full market value. Until the early 1990s, inflation in real estate generally exceeded 2 percent a year, thereby creating gaps between the assessed value of properties and their true market value. In turn, this created inequities between buyers of property and owners of property who chose not to sell and who benefited from property tax assessments below market value. Prior research revealed that the largest disparities occurred in the large urban areas in Southern and Northern California. The recession that occurred in California during the early 1990s had important effects on the disparities in property taxation in California. As 9 the state experienced a severe recession from 1991 through 1995, property values fell in many parts of the state. Declining real estate prices have important effects on an acquisition-value-based property tax system such as Proposition 13. In particular, declining market prices for housing reduce the gap between market value and assessed value, thereby also reducing some of the inequities in the system. The extent of the decline in real estate values differed sharply within the state. Figure 2.1 plots an index of quality-adjusted housing prices for the Los Angeles area based on data supplied from Freddie Mac (a financial intermediary). From their peak in the first quarter of 1990 to their trough in the first quarter of 1995, housing prices fell throughout the county by 27.5 percent. This was the first significant decline in housing prices since the passage of Proposition 13. The decline in Los 200 160 120 80 40 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 Year SOURCE: Freddie Mac repeat sales index. Figure 2.1—Index of Housing Prices for Los Angeles County 10 Angeles was greater than in other areas of the state. For example, in the San Jose area, the fall in housing prices from peak to trough was only 12.5 percent, whereas in the Santa Rosa area, prices declined only 5.2 percent. In this chapter, we explore how the recession in the early 1990s affected the disparities in property taxation within the state. It builds on the work and follows precisely the methodology of our earlier study in which we conducted a systematic investigation of property tax disparities in a number of counties in California.1 In the present study, we examine Los Angeles County and San Mateo County. Since Los Angeles County accounts for nearly 30 percent of the assessed value in the entire state, it is important to understand the changes in property tax disparities within this county. Moreover, since the drop in real estate values differed sharply between Southern and Northern California, it is important to include a representative northern county, such as San Mateo. Both counties were studied in detail in our earlier work and thus we can pinpoint precisely the changes that have occurred. In the next section, we outline the methodology that we employ to measure the disparities in both counties. We then present our analysis of the current disparities for both counties and compare them to the period before the onset of the recession. The appendix contains the detailed results of our investigation for both counties, classified by property type and the year since the last sale. ____________ 1See O’Sullivan, Sexton, and Sheffrin (1995). 11 Methodology To measure and evaluate property tax disparities, we first review some of the key features of the assessment provisions contained in Proposition 13. One key concept in the implementation of Proposition 13 is the “base year.” When Proposition 13 was passed by the voters in 1978, assessments were rolled back to the values for the property that prevailed in 1975. Subsequently, the assessed value of properties can be increased only by a maximum of 2 percent a year until the property is sold, at which time it is assessed at market value. The base year of properties is defined as the year of the most recent sale; however, for properties that were in existence in 1975 and have not sold, the base year is 1975. The base year for a newly constructed property will initially be the year in which it first appears on the property tax roll. As long as housing price inflation exceeds 2 percent a year, properties with more recent base years will be assessed closer to market value than properties with older base years. Thus, it is important to keep track of the base year for properties to measure disparities between market and assessed values. The base year is the most important piece of information necessary to estimate the disparities between market and assessed value. Properties can have multiple base years. If a property owner makes a substantial modification to a property—a new wing to a house or a new structure on an existing piece of land—the new part of the property will have a separate base year. Large commercial and industrial properties often have multiple base years, reflecting a series of major modifications to the property. Many residential properties will also have substantial modifications. Keeping track of the precise number of modifications for each class of properties is not possible. In our empirical work, we make a distinction between properties with a single base year and properties with 12 multiple base years. We term these properties “nonmodified” and “modified,” respectively. In our earlier work, we found that the pattern of new construction and turnover differed sharply for four types of properties and thus we analyzed each type separately. These groups were: • Single family residential property (owner-occupied); • Single family residential property (not owner-occupied); • Multifamily residential; and • Commercial and industrial. In California, homeowners are allowed a $7,000 reduction in their assessed value before the property tax rate is applied. Assessors must maintain a record of this exemption; thus, we are able to distinguish between single family residential properties that are owner-occupied and those that are not owner-occupied but are used for rental, vacation, or other purposes. In our previous work, we found that owner-occupied properties were sold less frequently than other single family residential properties. Consequently, the base year distributions of the two types of properties were quite distinct. Multifamily residential property consists of apartment complexes. Commercial and industrial property is defined as property that is used for nonresidential business purposes. For both categories, there is a wide range in the size and value of properties. Counties also have to keep records for other smaller classes of property as well as for vacant land. We did not include these in our analysis. Within each group, we distinguish between nonmodified and modified properties. Thus, there are actually eight distinct subgroups of 13 property that we must analyze in our empirical work. For each group, we also categorize property by its base year. Our goal is to estimate the disparity ratio—defined as the ratio of market to assessed value—for different types of property. Although data on assessed values are available for all properties, market values are not. For a single property, it would be possible to conduct an appraisal and approximately determine its market value. However, this approach is clearly not feasible for a large, comprehensive study. To obtain measures of market values, we rely on a method based on the sale of properties. Specifically, we first obtain data on all properties for two consecutive years and determine which properties have been sold in the most recent year. When a property is sold, we know its new market value (the sale price) and we also know its assessed value from the prior year. For each sale, we can thus calculate the ratio of market to assessed value—the disparity ratio for that property. We then separate all sales into categories based on three factors: the prior base year, the type of property, and whether or not the property had been modified. Within each category, we calculate the median disparity ratio for all the properties that were sold. These median disparity ratios are our preferred measures of property tax disparities and are used in all subsequent calculations. Our method embodies several assumptions and choices. First, we assume that the sales that actually occur are representative of the underlying properties within each category that do not sell. This is the standard approach underlying the “sales approach” to property tax assessment that is widely used throughout the world. It is based on the principle that most sales of property occur for idiosyncratic or random reasons. Potential biases are also mitigated through the process of 14 disaggregating the data into eight separate categories. Second, we use the median rather than the mean of the disparity ratios for properties within each category. Our inspection of the data revealed that a few properties had unusually high disparity ratios that, in part, could be caused by errors in reporting assessed values.2 Using the median disparity ratios minimizes the importance of these “outliers.” This study applies the methodology to two periods. We examined all sales of property that occurred in Los Angeles and San Mateo Counties in 1990–91 and in 1995–96. This period brackets the downturn in real estate prices. In each time period, we used data for two consecutive years. This involved analyzing approximately eight million property records for Los Angeles (approximately two million per year) and 1.4 million for San Mateo. Once we have estimated disparity ratios, we then use them to estimate the total market value of all properties within the county. By comparing the estimated market value to its current assessed value, it is possible to determine the loss in revenue that is due solely to the assessment provisions contained within Proposition 13 and how this revenue gap has changed because of the recession and fall in real estate prices. Los Angeles County Owner-Occupied Single Family Residential Property To illustrate our results for Los Angeles County, it is instructive to study a single and representative case in detail—owner-occupied single ____________ 2Since we are working with ratios of market to assessed values, it is important to use methods that are robust to reporting errors. 15 family residential property that has not been modified (i.e., has a single base year). Recall that we calculate a disparity ratio for each property that is sold classified by base year and property type. Figure 2.2 depicts the entire distribution of disparity ratios for 1975 base year properties that were sold in the 1995–96 period. It is clear from the figure that there is no single, unique disparity ratio and thus it is necessary to develop a summary measure. The median disparity ratio in this distribution is 3.84. For the reasons discussed above, this is our preferred estimate of the disparity ratio for 1975 base year properties for this class of properties. For each base year and each class of property, we calculate a similar statistic for the 1995–96 period as well as the 1990–91 period. Tables 2.1 and 2.2 present the essential data for this class of property for the 1990–91 and 1995–96 periods, respectively. The formats of the Percentage of homes sold 5.0 4.0 3.0 2.0 1.0 0.0 0.9 1.9 2.7 3.5 4.3 5.1 5.9 6.7 7.5 8.3 9.2 9.6 Ratio of market value to assessed value SOURCE: Authors’ analysis of data obtained from the Los Angeles County Assessor. Figure 2.2—Disparity Ratios for Properties in Los Angeles County: 1975 Base Year, Owner-Occupied, Nonmodified 16 tables are identical. The first column in each table contains the base year and the second column contains the number of properties having each base year. (Note that for Table 2.1, the final base year is 1991; for Table 2.2 it is 1996.) The third column is the number of sales in the most recent year. The fourth column contains the median disparity ratio for each base year. The fifth column contains the total assessed value for each base year obtained from the roll data from the county. The sixth column is our estimate of the total market value for each base year.3 It is obtained by multiplying the assessed value by the median disparity ratio for each base year. The remaining columns contain the average assessed and market values for each base year, which are obtained by dividing the totals by the number of properties. Finally, at the bottom of each table is the “revenue ratio.” This is defined as total assessed value divided by total market value (over all base years); it measures the degree to which property in this category is “underassessed.” Comparing the two tables, one of the most striking features is the decrease in disparity ratios that occurred between the two periods. Changes in disparity ratios are clearest for the 1975 base year properties, the single largest base year class. From 1991 to 1996, the disparity ratio for 1975 base year property fell from 5.19 to 3.84 or a 26 percent decrease.4 This is a direct consequence of the fall in real estate prices and ____________ 3It is only an estimate because we are using an estimated value of the disparity ratio to multiply the assessed value of each property. 4Although the 26 percent decrease is close to the decline in real estate values based on the Freddie Mac index, these statistics are not directly comparable. This estimate is based on Los Angeles County, not the Los Angeles Primary Statistical Metropolitan Area (PSMA), which is the basis for the Freddie Mac index, and applies only to a subset of properties. 17 Table 2.1 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified . 18 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 356634 19426 21607 21337 22682 21944 15298 12344 12290 22323 26140 34180 45034 47509 56890 50372 39217 No. of Sales 5,577 389 445 531 681 725 595 535 550 1,045 1,371 1,835 2,383 3,081 4,135 2,884 Median Disparity Ratio 5.19 4.18 3.55 2.90 2.49 2.04 1.71 1.68 1.70 1.68 1.66 1.62 1.55 1.43 1.27 1.12 1.00 Total Assessed Value 18,659,804,148 1,326,834,652 1,702,199,460 1,976,745,028 2,423,208,788 2,788,094,920 2,338,421,684 1,879,559,160 1,918,948,310 3,626,750,841 4,263,198,740 5,850,112,080 8,203,123,236 9,544,795,645 13,322,045,080 13,022,219,812 10,237,088,029 Total Market Value 96,844,383,528 5,546,168,845 6,042,808,083 5,732,560,581 6,033,789,882 5,687,713,637 3,998,701,080 3,157,659,389 3,262,212,127 6,092,941,413 7,076,909,908 9,477,181,570 12,714,841,016 13,649,057,772 16,918,997,252 14,584,886,189 10,237,088,029 Average Assessed Value 52,322 68,302 78,780 92,644 106,834 127,055 152,858 152,265 156,139 162,467 163,091 171,156 182,154 200,905 234,172 258,521 261,037 Average Market Value 271,551 285,502 279,669 268,668 266,017 259,192 261,387 255,805 265,436 272,945 270,731 277,273 282,339 287,294 297,398 289,544 261,037 Total 825227 26,773 103,083,149,613 227,057,900,301 Revenue ratio = 0.45 Av. 124,915 Av. 275,146 Table 2.2 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified . 19 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 298113 16372 18313 18196 18906 18073 12363 9944 9637 17122 20286 26293 35621 38130 47617 44939 39343 45457 43323 39750 43259 35361 896418 No. of Sales 5460 339 379 429 482 514 353 304 295 534 683 867 1230 1467 1969 1956 1482 1499 1366 1668 6260 29539 Median Disparity Ratio 3.84 2.98 2.59 2.14 1.78 1.47 1.28 1.27 1.28 1.23 1.22 1.20 1.12 1.01 0.90 0.86 0.86 0.87 0.88 0.96 0.96 1.00 Total Assessed Value 17,575,630,408 1,257,626,462 1,625,152,212 1,892,877,464 2,253,469,759 2,566,510,926 2,113,533,574 1,715,216,732 1,691,609,053 3,129,293,238 3,754,813,097 5,011,930,873 7,153,744,287 8,316,317,440 11,179,045,931 10,207,045,842 8,815,787,352 10,572,897,112 10,280,575,194 9,464,977,783 10,296,151,017 7,963,636,606 Total Market Value 67,490,420,767 3,747,726,857 4,209,144,229 4,050,757,773 4,011,176,171 3,772,771,061 2,705,322,975 2,178,325,250 2,165,259,588 3,849,030,683 4,580,871,978 6,014,317,048 8,012,193,601 8,399,480,614 10,061,141,338 8,778,059,424 7,581,577,123 9,198,420,487 9,046,906,171 9,086,378,672 9,884,304,976 7,963,636,606 138,837,842,362 196,787,223,391 Revenue ratio = 0.71 Average Assessed Value 58,956 76,816 88,743 104,027 119,193 142,008 170,956 172,488 175,533 182,764 185,094 190,618 200,829 218,104 234,770 227,131 224,075 232,591 237,301 238,113 238,012 225,210 Av. 154,881 Average Market Value 226,392 228,911 229,845 222,618 212,164 208,752 218,824 219,059 224,682 224,800 225,814 228,742 224,929 220,285 211,293 195,333 192,705 202,354 208,825 228,588 228,491 225,210 Av. 219,526 is also evident in our estimates of market values (the last column in the tables) for the two years. An average new purchaser of a home in Los Angeles County today will find that he or she is paying a bit less than four times the basic property tax compared to a homeowner who has been in his home since 1975. As an example, a purchaser of a new home for $240,000 will pay $2,400 at the basic 1 percent rate, but homeowners who have not moved since 1975 would pay only $600 at the basic rate. Actual property tax bills will, in fact, differ less in relative terms because of the myriad of additional charges, such as parcel taxes and special assessments, that are not typically based on assessed value but also appear on the bills. These disparities were significantly larger in 1991. The fraction of 1975 base year property has also decreased substantially. In 1991, 43 percent of all properties had 1975 base years. By 1996, just five years later, it had fallen to 33 percent. Several factors explain this drop in the 1975 base year percentage. First, there is natural turnover in the real estate market. A fraction of the 1975 base year property was sold and thus assumed later base years. Between 1995 and 1996, 5,460 1975 base year properties in this class were sold; over the period since 1990–91, total sales of 1975 base year properties amounted to approximately 16 percent of the 1990–91 total of 1975 base years. The second factor that reduces the share of 1975 base year property is new construction, which adds to the total number of properties and thereby reduces the 1975 base year percentage. The third factor appears to be a slight shift to single family property receiving the homeowner’s exemption from single family property not receiving the exemption. In effect, either some rental or vacation homes became owner-occupied over this period or, as an alternative possibility, 20 homeowners who had neglected to file for their exemption in prior years did so during this period. The total number of single family nonresidential properties fell by 50,901 between 1991 and 1996, which is 4.8 percent of the total for single family residential properties (both modified and nonmodified). Although this third factor probably is a one-time change, turnover and new construction will continue in the future. Assuming that the same rate of decrease in the percentage of 1975 base year properties that occurred between 1991 and 1996 will continue in the future, by 2006 the percentage of 1975 base year property will be approximately 22 percent; by 2016 it will be approximately 14 percent, a relatively small percentage. These estimates are robust to alternative assumptions about the growth of new construction. The 1975 base year percentages are key statistics because they are the most important source of property tax disparities. As Table 2.2 indicates, the median disparity ratios fall to below 1.3 for base years after 1980. A 30 percent difference in assessments is not unusual in other states that are allegedly on a market-value-based property tax system. Many states reassess properties only on infrequent, fixed cycles and much larger disparities often emerge over the period, although these disparities are rectified following the reassessment. Montana, for example, has recently had to cope with this problem. Another factor limiting some of the inequities is that properties with base years ranging from 1976 to 1980 constitute only 10 percent of the total for nonmodified homeowner property. Another important comparison for this class of property is between the revenue ratios for the two years. In 1991, the revenue ratio (total assessed value divided by total market value) was 0.45 but by 1996 it had 21 increased to 0.71. This means that if all property in this category in Los Angeles County were assessed at market value, revenue would increase by 40.8 percent. This is substantially less than the 122 percent increase that would have occurred in 1991. Other Classes of Property Table 2.3 summarizes the key statistics for other classes of property in Los Angeles County. For each class, the table contains the disparity ratios for 1975 base years and the percentage of the property with a 1975 base year for both 1991 and 1996. We focus on the 1975 base years because of their relative size and their importance in determining overall disparities. The table also contains the revenue ratios for the entire county for both years. A number of consistent patterns across property types emerge from the data in Table 2.3. First, the disparity ratios for modified properties are less than those for nonmodified properties. This finding was anticipated, as modified properties are those with multiple and, thus, more recent base years. Second, the percentage of 1975 base years is higher for modified properties. This finding was also anticipated. Modifying a property is an alternative to selling it. Thus, we expect households or corporations that modify properties to have earlier base years on average. Properties that were modified also experienced less of a decrease in their 1975 base year percentages. Modifying a property is a means of preserving the 1975 base year assessed values for the original portion of the property. Once the decision has been made to modify a property, the owner will often typically want to hold on to the property or make further modifications to it rather than sell it. 22 Table 2.3 Key Property Assessment Statistics for Los Angles County, 1991 and 1996 Class of Property Single family with homeowner exemption Modified? No 1991 Disparity Percent 1975 Ratio, 1975 Base Year 5.19 43 1996 Disparity Percent 1975 Ratio, 1975 Base Year 3.84 33 Single family with homeowner exemption Yes 4.35 47 3.24 43 Single family without homeowner exemption No 5.54 23 3.98 18 23 Single family without homeowner exemption Yes 4.46 28 3.22 28 Multifamily No 6.10 35 4.28 30 Multifamily Yes 5.51 44 3.71 41 Commercial and industrial No 5.66 36 3.23 29 Commercial and industrial Yes 4.19 45 2.34 43 County revenue ratio for 1991: 0.48 County revenue ratio for 1996: 0.73 Some clear differences also emerge through comparisons across property types. First, single family residences (with the homeowner exemption) turn over much more slowly than rental or vacation property (without the exemption). Since this class of property turns over more rapidly, fewer 1975 base year properties remain today. This is reflected in the substantially smaller percentage of 1975 base year property without the exemption. Second, disparity ratios fell very dramatically in the commercial and industrial category. This is consistent with popular accounts that the commercial real estate market in Los Angeles County experienced very sharp downturns in the first half of the 1990s. The percentage in 1975 base years for commercial and industrial properties that were modified remains relatively high over the entire period. Modified commercial and industrial properties also tend to be much larger than nonmodified properties. Finally, the revenue ratios for the entire county change sharply over this period, increasing from 0.48 to 0.73. In 1996, if all properties were assessed at market value, revenues would increase by only 37 percent. In 1991, the comparable figure was 108 percent. Thus, over this five-year period, the percentage gain in property tax revenue from moving from the current system to a market-value-based system has decreased sharply. The appendix contains a set of tables, identical in format to Tables 2.1 and 2.2, for all eight classes of property for both 1991 and 1996. Two important additional findings emerge from these tables. First, disparity ratios for the years from about 1990 to 1995 are often below unity, indicating that the properties were sold for less than their assessed values. In principle, the owners could have appealed their assessments to reduce them to market value; however, because of lags in the appeals process or lack of initiative on the part of the property owners, this did 24 not occur. We anticipate that this phenomenon will tend to disappear in the near future. As we discuss in the next chapter, assessors throughout the state have started to automatically reduce the value of properties without requiring prior appeals, and delays in resolving appeals have been reduced. The second notable feature is that modified properties have higher market values than nonmodified properties. (Multifamily property is the one exception.) One potential explanation for this finding is that owners of more valuable properties have found it in their interests to modify properties rather than sell them. In part, this may be a behavioral effect related to tax incentives—that is, the additional property tax benefits that owners receive from the assessment provisions of Proposition 13, relative to owners of less-valued properties. A Geographical Perspective Los Angeles County is large enough that it is possible to examine the geographical pattern of disparities within the county and over time. Thirteen major regions within the county are shown in Figure 2.3, which is taken from the web page of the Los Angeles County Assessor. For each region, we examined the disparity ratios for single family residences (nonmodified) with a 1975 base year for both 1991 and 1996. We chose this category because there were at least 100 sales in each region in each year, which permits us to be relatively confident in our estimates of the median disparity ratio. No other property category had sufficient numbers of sales to produce reliable estimates. Table 2.4 contains the key statistics from our analysis and also provides an index to the map. (Note that the Pasadena/Glendale area comprises two regions.) The table provides the median 1975 disparity 25 A1 B1 02 03 07 09 14 14 04 05 11 06 12 10 Figure 2.3—Assessment Regions in Los Angeles County ratio both for 1991 and 1996 as well as the average assessed value for this category of property in 1996. Several patterns emerge from the table. First, in 1991, the region with the highest disparity ratio was Santa Monica, which also had the highest average assessed value. The lowest disparity ratios tended to occur in outlying areas with lower assessed values, such as West Covina and Lancaster. The one exception to this pattern appears to be 26 Table 2.4 Changes in Disparities Within Los Angeles County Name of Region Chatsworth Van Nuys Pasadena/Glendale Pasadena/Glendale West Covina Santa Monica Culver City Long Beach South El Monte Norwalk Lomita (Catalina) Lancaster Santa Clarita Region Number 2 3 4 5 6 7 9 10 11 12 14 A1 B1 1991 1975 Median Disparity Ratio 4.7 5.0 6.4 6.0 4.9 7.0 5.6 5.0 5.0 5.2 5.5 3.8 4.7 1996 1975 Median Disparity Ratio 3.2 3.4 4.2 4.6 3.8 4.3 4.1 3.6 3.8 4.0 4.1 2.3 3.3 Average Assessed Value in 1996 (dollars) 74,812 58,575 61,379 55,107 45,778 124,734 52,633 48,743 48,051 42,958 64,969 39,808 50,066 NOTE: Owner-occupied, single family properties that have not been modified. Chatsworth, the area north of Santa Monica, which has a high average assessed value but a relatively low disparity ratio. Second, disparity ratios fell sharply in all the regions from 1991 to 1996 and have tended to become more equal. For the entire county, the median disparity ratio for this class of property fell from 5.19 to 4.84. Santa Monica’s disparity ratio fell from 7.0 to 4.3 and Pasadena/ Glendale (region 4) fell from 6.4 to 4.2. On the other hand, West Covina’s disparity ratio fell only from 4.9 to 3.8. These findings suggest that, on average, housing prices fell more in the wealthier areas of the city, thereby reducing the range of disparities across districts. 27 San Mateo County As the fall in real estate prices was significantly less in Northern California, we would expect to find less dramatic changes in the disparities in San Mateo County. This is indeed the case. We restrict our analysis to single family residential property because the number of sales for other classes of properties, in both 1991 and 1996, is too small to make meaningful and reliable judgments about changes in disparities. Table 2.5 and 2.6 contain the data for nonmodified owner-occupied housing for 1991 and 1996, presented in a format identical to Tables 2.1 and 2.2. Several key features emerge from the table. First, 1975 base year disparity ratios fall from 4.58 to 4.32—a 5.7 percent decline. This is a much more modest decline than this study found for Los Angeles County or that the Freddie Mac statistics found for nearby San Jose. The relatively modest decline in real estate prices also affects the disparities for other base years. In 1996, only base years after 1987 have disparity ratios less than 1.3. This implies that over 54 percent of all owner-occupied nonmodified properties have disparities greater than 30 percent—again, a smaller number than in Los Angeles County. One feature consistent with Los Angeles County is the decline in the percentage of properties with 1975 base years. In 1991, approximately 40 percent of this class of property had 1975 base years. By 1996, this percentage fell to 32. Since the number of properties in this class grew by less than 1 percent, the decrease in the base year percentage was primarily due to the natural turnover process. Assuming the same rate of decrease in the 1975 base years, by the year 2006 the percentage will have fallen to approximately 21 and by 2016 to approximately 14 percent. 28 Table 2.5 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified . 29 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 45521 2437 3006 2705 3253 3032 2121 1739 2821 3818 3882 4996 6655 6558 7725 6359 8731 No. of Sales 944 84 84 73 99 108 73 68 196 205 223 325 401 542 546 498 Median Disparity Ratio 4.58 3.50 3.32 2.48 2.31 2.09 1.63 1.47 1.71 1.58 1.51 1.46 1.34 1.20 1.09 1.08 1.00 Total Assessed Value 3,364,275,026 217,877,548 314,343,432 357,333,205 452,820,853 493,733,912 425,461,995 363,124,068 567,187,439 788,997,336 825,328,728 1,153,546,424 1,655,471,180 1,864,163,964 2,411,799,075 2,002,976,897 3,060,913,980 Total Market Value 15,408,379,619 762,571,418 1,043,620,194 886,186,348 1,046,016,170 1,031,903,876 693,503,052 533,792,380 969,890,521 1,246,615,791 1,246,246,379 1,684,177,779 2,218,331,381 2,236,996,757 2,628,860,992 2,163,215,049 3,060,913,980 Average Assessed Value 73,906 89,404 104,572 132,101 139,201 162,841 200,595 208,812 201,059 206,652 212,604 230,894 248,756 284,258 312,207 314,983 350,580 Average Market Value 338,489 312,914 347,179 327,610 321,554 340,338 326,970 306,954 343,811 326,510 321,032 337,105 333,333 341,110 340,306 340,182 350,580 Total 115359 4469 20,319,355,062 38,861,221,686 Av. 176,140 Av. 336,872 Revenue ratio = 0.52 Table 2.6 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified . 30 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 37651 2005 2487 2183 2582 2412 1635 1361 2122 2705 2779 3559 4584 4385 5138 4253 4056 4677 5433 6250 4996 8960 116213 No. of Sales 1409 91 112 98 150 129 96 71 111 180 179 233 346 297 252 203 191 222 233 411 293 5307 Median Disparity Ratio 4.32 3.51 3.07 2.45 2.26 1.84 1.53 1.52 1.61 1.47 1.46 1.35 1.23 1.13 1.10 1.08 1.09 1.07 1.11 1.10 1.22 1.00 Total Assessed Value 2,874,661,016 182,824,069 272,964,987 296,725,156 373,931,249 411,229,297 343,298,713 296,699,753 447,163,854 582,377,056 624,769,484 854,486,140 1,194,172,035 1,275,706,053 1,528,383,586 1,242,805,790 1,284,520,865 1,557,084,162 1,776,761,633 2,155,859,191 1,771,251,552 2,862,018,679 Total Market Value 12,418,535,589 641,712,482 838,002,510 726,976,632 845,084,623 756,661,906 525,247,031 450,983,625 719,933,805 856,094,272 912,163,447 1,153,556,289 1,468,831,603 1,441,547,840 1,681,221,945 1,342,230,253 1,400,127,743 1,666,080,053 1,972,205,413 2,371,445,110 2,160,926,893 2,862,018,679 24,209,694,320 39,211,587,743 Revenue ratio = 0.62 Average Assessed Value 76,350 91,184 109,757 135,925 144,822 170,493 209,969 218,001 210,728 215,297 224,818 240,092 260,509 290,925 297,467 292,219 316,696 332,924 327,031 344,937 354,534 319,422 Av. 208,322 Average Market Value 329,833 320,056 336,953 333,017 327,298 313,707 321,252 331,362 339,271 316,486 328,234 324,124 320,426 328,745 327,213 315,596 345,199 356,228 363,005 379,431 432,531 319,422 Av. 356,228 Table 2.7 contains key data for all the single family classes of property. Although there are declines in the 1975 disparity ratios for all classes of property, they are relatively modest. As we found for Los Angeles County, the decline in the base year percentages was less for modified properties, since modifying a property is an alternative to selling it. For a relatively small class of properties (non-owner-occupied, modified), the 1975 base year percentage increased slightly. This occurred because some older properties that were previously owneroccupied were converted to rental use. In this circumstance, a property maintains its base year but loses its $7,000 exemption. The appendix contains detailed information for all classes of single family property. We also calculated the revenue ratios for all classes of single family properties combined. The revenue ratio rose from 0.53 in 1991 to 0.61 in 1996. Thus, in 1996, single family residential property tax revenues would have increased by 64 percent if these classes of property were assessed at full market value. This is a larger percentage increase than in Los Angeles County and reflects the relative severity of the housing price decline in the two regions. Assessing the Findings The fall in property values in Los Angeles County sharply reduced some of the disparities in assessment caused by Proposition 13. Our research demonstrated that disparities have been reduced for all classes of property and along a geographical dimension as well. For San Mateo County, there was also some reduction in the disparities but the declines were not as large. 31 Table 2.7 Key Residential Property Tax Statistics for San Mateo County: 1991 and 1996 Class of Property Single family with homeowner exemption Modified? No 1991 Disparity Percent 1975 Ratio, 1975 Base Year 4.58 40 1996 Disparity Percent 1975 Ratio, 1975 Base Year 4.32 32 32 Single family with homeowner exemption Yes 4.13 41 3.94 36 Single family without homeowner exemption No 4.44 22 4.25 19 Single family without homeowner exemption Yes 3.92 23 3.91 24 Residential revenue ratio for 1991: 0.53 Residential revenue ratio for 1996: 0.61 Prior research has shown that the disparities were largest in the older, urban areas of Northern and Southern California.5 In the newer, fastgrowing counties such as San Bernardino, Riverside, Fresno, and Sacramento, a much smaller percentage of properties naturally had older base years. Even estimates of the disparities for the 1975 base year properties were lower than for Los Angeles and San Mateo Counties. Thus, this current research suggests that except for some parts of urban Northern California, price depreciation has reduced some of the inequities of the assessment provisions of Proposition 13. Moreover, for both the counties we examined, normal turnover and new construction have also reduced the percentage of properties with assessments far out of line with market values. If housing prices remain flat (or increase by less than 2 percent a year), inequities will continue to be reduced through turnover and new construction, although they will not be fully eliminated. Assuming that similar rates of turnover and new construction continue in the future, we project that by the year 2016, approximately 15 percent of owner-occupied, nonmodified properties in Los Angeles and San Mateo Counties will have 1975 base years. In fastgrowing counties around the state, the percentage is currently much less than in Los Angeles and San Mateo Counties and will also continue to decline. Can we therefore expect that the natural forces of turnover and new construction will soon lead to a reasonably equitable property tax system in California? Before reaching this conclusion, there are some very important caveats. First, the crucial role of the rate of property price appreciation cannot be overemphasized. The evolution of disparity ratios ____________ 5See O’Sullivan, Sexton, and Sheffrin (1995). 33 depends on the difference between the inflation rate for property and the 2 percent assessment cap under Proposition 13. As long as the inflation rate for property remains below 2 percent, the system moves inevitably toward more equal assessments. On the other hand, a new period of rapid inflation could easily cause new inequities to emerge. Second, the median disparity ratios do disguise important variations of properties within any given class, as Figure 2.2 reminds us. Under the current assessment system, some properties will always have assessed values far out of line with market values. Reporters will always be able to find “outrageous” examples of inequities, particularly in exclusive neighborhoods in California. Third, turnover rates will eventually fall. At some point, the 1975 base year properties that remain will, in most likelihood, contain a disproportionate number whose assessed values are most out of line with market values. Those homeowners face a large “penalty” if they sell because they then lose the favorable tax treatment of their property. They thus become more reluctant to sell and become more highly represented within the 1975 base year group.6 Moreover, they also may begin to modify their properties rather than selling them. As we have seen, modified properties did not show such sharp decreases in 1975 base year percentages over the last five years and this is likely to continue in the future. Fourth, it is important to recognize that a disproportionate share of owner-occupied properties with 1975 base years are held by the elderly. Using a match of tax returns and property records, it was possible to ____________ 6Technically, this is known as a declining “hazard rate” for sales. Our prior work found some evidence in support of declining hazard rates. 34 determine whether the owner of a home was 65 years of age or over.7 In 1991, 44 percent of 1975 base year properties in Los Angeles County belonged to the elderly; in San Mateo County, the corresponding figure was 49 percent. How the elderly dispose of their property will be a crucial factor in determining the persistence of 1975 base year property. Thus, two provisions added to the property tax law in California after Proposition 13 will be particularly important in determining the ultimate disposition of 1975 base year property. The first provision allows seniors to move into lower-valued homes and retain their assessed values. The law restricts these moves to be within the same county, but a number of counties have enacted reciprocity provisions. The other provision allows property to be transferred from parents to children also without triggering reassessments. This latter provision will ultimately become more important over time, particularly in affluent areas of the state where the gaps between market and assessed value are the greatest. We have little knowledge of the extent to which this provision has been used to date, but it ultimately could have a major effect on the number of 1975 base year properties that persist into the future. As a final note, there has never been underlying popular support for a major revision of Proposition 13 by the voters of California. The fall in real estate prices has reduced the potential revenue gains in switching from the current system to one based on market values. This reduces the public sector’s incentives to lobby for other wholesale changes in Proposition 13 as well. Indeed, most of the lobbying by the public sector in the last several years has been to undo the shift in the allocation of ____________ 7See O’Sullivan, Sexton, and Sheffrin (1995). 35 property taxes (from local governments to schools) that occurred in the early 1990s and not for fundamental changes in the assessment system. 36 3. How Did the Recession Affect Property Tax Administration?1 Although the general decline in property values that accompanied the recession in California helped to eliminate some of the inequities in assessments, it has put a tremendous strain on California’s already understaffed and underfunded county assessors. Statewide, staffing and funding of county assessor offices are down about 30 to 40 percent over the pre-Proposition 13 levels of 1978, whereas staff workloads have doubled or tripled in the same period. Much of the increased workload can be attributed to the real estate recession. Under the provisions of Proposition 13, a property’s assessed value must be the lower of its factored base year value (base year value plus inflation of not more than 2 percent) or its current market value. Before ____________ 1Data for this portion of the study were drawn from interviews with the assessors or assistant assessors from Alameda, Los Angeles, Riverside, Sacramento, Santa Clara, and Stanislaus Counties, and from California State Board of Equalization, A Report on Budgets, Workloads, and Assessment Appeals Activities in California Assessors’ Offices, 1993– 94, 1994–95, and 1995–96. 37 the recession that began in 1991, the assessor’s job was relatively easy. Determination of assessed value for the majority of properties involved simply adjusting the previous year’s assessed value upward by 2 percent or by the rate of inflation, whichever was smaller. Only properties that had changed ownership or included new construction needed to be appraised by the assessor’s office. Since 1991, the market value of many properties has fallen below their factored base year values. This is most likely to occur in areas that have seen the greatest decline in property values and for properties that were purchased near or at the peak of real estate prices in 1989–1991. Under Proposition 8, a constitutional amendment passed by California voters in November 1978, a property whose market value falls below its factored base year value on January 1 (the lien date) must be assessed or enrolled at its market value for that date. This legislation provides temporary property value reductions when property suffers from a “decline in value.” Such properties are commonly referred to as Prop 8 properties. In subsequent years, these properties must be reviewed and reassessed at market value unless, or until, their market values again exceed their factored base year values. If the assessor discovers that the market value of a property once again exceeds its factored base year value, the factored base year value is reinstated. Appeals Beginning in 1991–92, assessors began to see an increase in the number of appeals filed by property owners who believed that the market values of their properties had fallen below their assessed values and that the assessors had not made appropriate Proposition 8 reductions. Statewide, the number of appeals filed was relatively constant between 38 1987–88 and 1990–91, averaging roughly 30,000 per year. Thereafter, the number of appeals increased noticeably, exceeding 90,000 in 1992–93. In 1993–94, the number of appeals filed rose to nearly 190,000, a 110 percent increase over 1992–93. The number of appeals filed continued to increase, with a 20 percent increase in 1994–95 and a 7.7 percent increase in 1995–96. Table 3.1 contains data on appeals for selected counties and for the state over this period. A comparison of the number of appeals filed for each property type to the number of such properties on the assessment roll reveals that commercial properties had the most appeals filed. For 1995–96, one appeal was filed for every nine units of commercial property, whereas only one in 20 industrial property assessments and one in 55 residential property assessments were appealed.2 Table 3.1 Property Tax Appeals, 1993–94 Through 1995–96 Selected Counties Alameda Los Angeles Orange Riverside Sacramento San Mateo Santa Clara 1993–94 15,343 59,399 35,666 16,098 4,633 4,175 4,991 Percent of Total 4.0 2.7 5.1 2.9 1.3 2.0 1.1 1994–95 12,878 68,193 41,610 21,981 7,464 2,328 3,455 Percent of Total 3.4 3.0 5.7 3.6 2.0 1.1 0.8 1995–96 11,280 93,305 32,547 26,289 7,707 3,007 6,490 Percent of Total 3.2 4.1 4.4 4.2 2.1 1.4 1.5 Statewide 189,596 2.0 228,291 2.2 246,638 2.4 SOURCE: California State Board of Equalization (1993–94, 1994–95, and 1995–96). ____________ 2California State Board of Equalization (1993–94, 1994–95, and 1995–96). 39 Although all counties experienced increases in appeals, there was considerable variation in the magnitude and timing of appeals. Large counties have been inundated with more appeals both absolutely and relatively. Appeals activity reached a peak in Orange County in 1994– 95, when 41,610 appeals were filed representing 5.7 percent of the parcels on their secured roll. Over 20 percent of all commercial and industrial and 4 percent of residential assessments were appealed. Both Los Angeles and Riverside Counties received appeals on roughly 4 percent of assessments in 1995–96. In the northern part of the state, Alameda County had an appeals rate of 4 percent in 1993–94, which declined to 3.2 percent in 1995–96 with industrial properties having the highest rate, nearly 12 percent. Sacramento County averaged approximately 700 appeals per year between 1978 and 1991. This figure rose to 7,464 in 1994–95 and to 7,707 in 1995–96. These appeals represented over 2 percent of all properties in the county and over 7 percent of all commercial and industrial property assessments were appealed. In Santa Clara County, appeals began to increase as early as 1991, reaching a peak of eight times their previous annual average of 900 by 1995. Although the number of appeals was smaller in Santa Clara County than in similarly sized counties, the dollar value of the appeals was greater. About half the appeals filed in Santa Clara County were eventually withdrawn by the property owners, resulting in no adjustments, whereas half either resulted in a stipulated adjustment, with a reduction averaging 10 percent (46 percent), or were heard by the appeals board, resulting in an average 20 percent reduction (4 percent). Stanislaus County has seen the number of appeals double from about 600 in 1991–92 to about 1,200 in 1996–97. Like many other counties, 40 Stanislaus County attributed a large percentage (about 40 percent) of the appeals filed to the efforts of private property adjusters, who were filing the appeals on behalf of property owners in exchange for a fee. These “appeals mills” or “bucket shops” spread throughout California, sending (in some cases, misleading) fliers and advertisements to property owners, alerting them to the fact that they may qualify for a reduction in assessment and offering to file an appeal on their behalf for a fee, usually between $50 and $100. In Riverside County, the number of appeals filed increased from 1,600 in 1990 to 4,000 in 1991 and continued to increase yearly to a peak of over 26,000 in 1995–96, representing 4.2 percent of all properties. During the peak year, the county managed to resolve only 5,842 appeals or 22 percent of the number filed. In contrast, Alameda County appeals peaked much earlier, in 1993–94, at nearly 16,000 or 4 percent of all properties, but it succeeded in resolving 11,333 appeals, 74 percent of those filed. Los Angeles County is the largest in the state, accounting for 22 percent of all properties. It also generates nearly 30 percent of all property tax revenue statewide, so it should come as no surprise that 38 percent of all assessment appeals statewide in 1995–96 were filed in Los Angeles County. Before 1991, appeals normally ranged from 7,500 to 9,000 per year. In 1992–93, appeals increased to 48,689, most of which involved commercial and industrial properties. The over 93,000 appeals filed in 1995–96 represented 4.1 percent of all properties. Much of the increase was fueled by the efforts of private property adjusters. Only 31,000 of the 60,000 appeals filed in 1993–94 were resolved in 1993– 94, but the county managed to successfully resolve 87,000 appeals in 1995–96 (93 percent of the number filed). 41 The rapid growth in appeals came at a time when assessors’ budgets were in decline. There were no funds for hiring more staff and hence backlogs of work developed. In 1993–94 and 1994–95, when appeals in most counties were at their peak, the number of appeals resolved statewide was half the number of appeals filed. Some counties were able to do better than others. Table 3.2 contains data on the resolution of appeals for selected counties and statewide. Alameda and Los Angeles Counties consistently exceeded the statewide rate, but Riverside County was able to resolve less than 13 percent of the number of appeals filed in 1994–95 and, consequently, still has a 12- to 18-month backlog of cases. Table 3.2 Resolution of Appeals, 1995–96 Selected Counties Alameda Los Angeles Orange Riverside Sacramento San Mateo Santa Clara Total Appeals 11,280 93,305 32,547 26,289 7,707 3,007 6,490 Appeals Resolveda 6,611 87,062 12,978 5,842 1,155 2,688 3,230 Percent 58.6 93.3 39.9 22.2 15.0 89.4 49.8 Statewide 246,638 147,505 59.8 SOURCE: California State Board of Equalization (1995– 96), Table L, p. 18. aIndicates appeal activity that occurred during the 1995– 96 fiscal year on the appeals that were filed for that year but does not include the appeals that were carried over from previous years and resolved in 1995–96. Proposition 8 Assessment Reductions If an appeal is not resolved within two years, the assessor is obligated to enroll the property at the value claimed by the owner on the appeal. 42 With declining real estate values, assessors faced continued increases in appeals. They could not let appeals build up too rapidly or they would quickly find themselves dealing with a level of appeals that they could not process. This could easily lead to a situation where excessive claims for reductions in assessed value were accepted, simply because the assessor could not handle the total volume of appeals. The alternative strategy for the assessors was to take direct action themselves to reduce assessed values, without waiting for appeals. Thus, throughout the state, assessors began to make mass, downward adjustments in assessed values to prevent further growth in their backlog of appeals and to avoid the inequities that would arise from lowering values for only those properties that were appealed. Many counties began to process Proposition 8 reductions in value using automatic computer programs based on some form of regression analysis rather than trying to send staff out to the field to review properties. By 1995– 96, one-third of the counties were using automatic programs, which accounted for nearly three-fourths of all Proposition 8 assessments. Some counties developed programs that were based on countywide data and applied countywide; others tailored their programs to be location- or neighborhood-specific, often relying on paired property sales comparisons. Los Angeles County uses a neighborhood model based on clusters of properties of similar type, use, and economic characteristics. When properties are classified as Prop 8, they must be assessed at their true market value. Coupled with recent sales and new constructions that are also assessed at market value, Prop 8 assessments have increased to the point that in some counties more than one-third of the parcels are now assessed at market value instead of by factored base 43 year value. This of course means that the assessor must reassess each of these properties every year until they are back at factored base year value. Statewide, the number of Prop 8 properties grew from 826,147 in 1993–94 to 1,526,935 in 1995–96, an 85 percent increase. Over this same period, Prop 8 properties increased from 9 percent to 15 percent of all secured properties. By 1995–96, Prop 8 properties constituted over 20 percent of all properties in Marin, Modoc, Orange, Riverside, Sacramento, San Bernardino, San Joaquin, Santa Clara, Solano, and Stanislaus Counties. Over 20 percent of all residential property assessments had experienced downward adjustment in these same counties. Table 3.3 contains data on Proposition 8 properties for selected counties and statewide for 1995–96. In 1995–96, Santa Clara County had over 98,000 Prop 8 properties on its roll (23 percent of all properties), 94,000 of which were residential properties. This number has since decreased as housing and other property values in Santa Clara County were among the first in the state Table 3.3 Proposition 8 Properties, 1995–96 Selected Counties Alameda Los Angeles Orange Riverside Sacramento San Mateo Santa Clara Number of Prop 8s 40,981 78,089 300,296 175,016 109,077 30,228 98,194 Percent of Total 11.6 3.5 40.5 28.0 29.1 14.2 23.0 Statewide 1,526,935 14.7 SOURCE: California State Board of Equalization (1995–96), Table H, p. 13. 44 to begin to rebound, allowing the assessor to restore some properties to factored base year values. In contrast, Stanislaus County was still adjusting property values downward in 1997. Stanislaus had 26,522 Prop 8 properties in 1996 and 31,289 in 1997, accounting for over 25 percent of all properties in the county. Residential reductions were done by a countywide but neighborhood-specific computer model. However, 50 percent of the appeals filed are contesting the Prop 8 reductions made by this method. The county has yet to begin the process of restoring values. For 1996–97, Riverside County ranked second in number of Prop 8 properties with 210,000 (approximately one-third of its assessment roll), of which 175,000 were residential properties. Only Orange County had more, with over 300,000 Prop 8 properties, over 40 percent of all properties in the county. Orange County made 80 percent of its Prop 8 adjustments using an automatic program, whereas Riverside County used regression methods to make 60 percent of its Prop 8 reductions. For 1996–97, Alameda County had about 130,000 Prop 8 properties out of a total of 385,000 on its secured roll. Some of these cases involved reductions in assessments of 25 to 30 percent. Alameda assessors began dealing with individual appeals and then made neighborhood adjustments based on the appeals cases. After several years, they developed a computerized regression model that can be used to restore values as well as reduce them. Los Angeles County began reducing assessments using its neighborhood-based computer model in 1992–93, when it had a total of 20,000 Prop 8 properties involving an average reduction of $135,000. These were primarily commercial and industrial properties. The number of properties assessed at market value, below their factored base year 45 values, peaked in 1996–97 at 99,000. The average reduction in value was $51,000 for these properties. The State’s Role in Property Taxation The property tax generates $20 billion of revenue each year statewide, of which counties receive an average of 18 percent, cities 11 percent, special districts 18 percent, and schools 53 percent. Counties bear over 70 percent of the burden of property tax administration costs but receive less than 20 percent of the resulting revenues. This low return provides little incentive to reduce backlogs of new assessments, changes in ownership, assessment appeals, and other tasks. In 1992 and 1993, at the peak of the recession, the Governor reduced the state’s financial obligations to schools by shifting $3.4 billion in property tax revenues from local agencies to schools through the Educational Revenue Augmentation Fund (ERAF). This led to significant reductions in counties’ share of property tax revenues. For example, Alameda County saw its share decline from 40 percent to 16 percent and Los Angeles County’s share declined from 47 percent to less than 24 percent. Among the counties with the lowest share are Orange County, which keeps only about a nickel of every property tax dollar collected in the county, and Butte and Yolo Counties, which keep about eight cents of every property tax dollar. Table 3.4 contains the property tax revenues and county shares for 1995–96. The state benefits indirectly from local property tax revenues because state General Fund contributions for schools are inversely related to schools’ property tax revenues. If property tax revenues decline, the state must make up the loss out of general funds. Because its stake in local property tax collections is so high, the state has a strong incentive to 46 47 Table 3.4 California Property Tax Revenue and Counties’ Shares, 1995–96 County Alameda Alpine Amador Butte Calaveras Colusa Contra Costa Del Norte El Dorado Fresno Glenn Humboldt Imperial Inyo Kern Kings Lake Lassen Los Angeles Madera Marin Mariposa Mendocino Merced Modoc Mono Monterey Napa Nevada Orange Revenue ($ thousands) 814,535 2,096 21,810 89,928 27,096 14,602 671,464 9,338 101,577 306,057 13,957 55,996 57,763 24,153 351,112 40,435 32,936 12,661 5,047,078 53,279 231,722 11,029 46,540 79,111 5,817 18,847 209,480 93,747 64,851 1,769,341 County Share (%) 16.1 65.3 33.2 8.4 17.6 25.9 12.5 17.6 22.9 14.5 21.6 16.4 14.9 29.7 18.3 16.8 24.0 19.9 23.6 16.0 17.2 26.1 28.1 16.0 26.1 31.4 15.8 17.5 15.7 5.6 County Placer Plumas Riverside Sacramento San Benito San Bernardino San Diego San Francisco San Joaquin San Luis Obispo San Mateo Santa Barbara Santa Clara Santa Cruz Shasta Sierra Siskiyou Solano Sonoma Stanislaus Sutter Tehama Trinity Tulare Tuolumne Ventura Yolo Yuba Totals Revenue ($ thousands) 169,849 19,359 747,307 539,739 25,310 735,305 1,485,326 567,993 237,859 183,133 581,827 253,197 1,176,668 151,840 82,179 3,516 22,856 185,297 282,234 178,980 38,284 24,416 6,528 131,367 33,188 456,004 81,324 22,235 18,701,478 SOURCE: California State Board of Equalization. County Share (%) 19.3 22.8 11.0 18.5 12.2 13.1 14.7 62.1 20.8 23.8 13.6 20.1 12.9 14.1 15.3 55.6 22.6 17.1 23.2 11.9 17.6 20.1 30.4 17.5 26.4 16.8 8.2 22.4 18.2 ensure vigorous and efficient property tax administration. To help counties enhance their property tax administration systems and to protect the schools’ share of property tax revenues, the Legislature has taken the following steps: 1. Imposed requirements that nonschool agencies (cities and special districts) pay a share of the property tax administrative costs (SB 2557, Maddy, 1990; SB 282, Greene, 1992; AB 1055, Caldera, 1996). 2. Provided $25 million in state grants to counties for property tax administration (SB 2120, Budget and Fiscal Review, 1994). 3. Created the State-County Property Tax Administration Program, which provides up to $60 million per year in state loans to counties for three years to improve counties’ property tax administration (AB 818, Vasconcellos, 1995). 4. Extended the State-County Property Tax Administration Program for an additional three years, until fiscal year 2000–01 (AB 719, Torlakson, 1997). 5. Imposed requirements aimed at curbing the operations of businesses that offer to file property tax appeals for property owners in exchange for a fee (AB 1178, Davis, 1997; AB 1319, Alquist, 1997). State-County Property Tax Administration Program The property tax shift of 1993 cut counties’ share of property tax revenues in half and caused serious staffing and incentive problems for county assessors. Since other county revenues such as sales taxes were also in decline because of the recession, significant cuts had to be made in county budgets. It was much easier for boards of supervisors to cut the budgets of assessors’ offices than to cut county programs that provide 48 direct services to residents, particularly when the amount of property tax revenues at stake was so low. Assessors from Alameda, Santa Clara, and Los Angeles Counties collaborated with the Assembly Committee on Revenue and Taxation to address concerns regarding property tax administration. They sought to design a program whereby the state could provide counties with funds that would actually find their way to assessors’ offices, to help compensate for increased workload, reduced staffing, and reduced incentives for accurate assessments, and not be allocated to other county programs. Several earlier attempts failed to gain approval until the present version was picked up by then Assemblyman John Vasconcellos and tacked on as a trailer bill during the closing hours of the 1995 legislative session. AB 818 established the State-County Property Tax Administration Program, which provides eligible counties with loans from the state to provide supplemental funding for the administration of the county property tax collection program. Loans were made available to counties in each of the 1995–96, 1996–97, and 1997–98 fiscal years for amounts up to those listed in the bill, totaling $60 million statewide each year. Eligible counties were defined in the law to be counties in which additional property tax revenues allocated to school entities would reduce the state’s general fund apportionments for schools. (San Benito and Solano Counties, although not technically eligible under this criterion, were allowed to participate in the program.) To qualify for a loan, the county must meet a maintenance of effort requirement to ensure that the funds are supplementing and not supplanting existing administration budgets. Specifically, participating counties are required to maintain a base staffing and funding level in the county assessor’s office, 49 independent of the loan proceeds, equal to either the 1993–94 or the 1994–95 funding level, whichever is smaller. The first column of Table 3.5 lists the maximum available annual loan amount for selected counties that is stipulated in the bill. Each county’s maximum share of the available $60 million is determined by the amount of ERAF funds they contribute as a percentage of total county ERAF funds. An eligible county that elects to participate in the program must enter into a performance-based contractual agreement with the Department of Finance. The contract must specify the loan amount (as determined by the Director of Finance), indicate repayment provisions, provide a listing of proposed uses of the additional resources, and state an agreement to provide a report to the Department of Finance (by March Table 3.5 Loans for Property Tax Administration, 1995–96 Selected Counties Alameda Butte Contra Costa Los Angeles Marin Orange Riverside Sacramento San Bernardino San Diego San Mateo Santa Clara Stanislaus Maximum Loan Amount $2,152,429 381,956 2,022,088 13,451,670 790,490 6,826,325 2,358,068 1,554,245 2,139,938 5,413,943 2,220,001 4,213,639 866,155 Loan Received $1,743,043 19,238 2,022,000 13,451,670 No contract No contract 1,280,000 1,554,245 2,139,938 5,413,943 115,916 905,241 866,155 Statewide 60,000,000 SOURCE: Text of AB 818. 37,994,424 50 31 of the fiscal year in which the loan is made) projecting the effect of the increased funding in the current and subsequent years. According to the Department of Finance, the performance requirements are primarily directed toward eliminating workload backlogs. Counties are not required, under the contracts, to produce additional revenues. The purpose of the performance requirement and the maintenance of effort requirement is to ensure that the loaned funds do not simply replace funds currently allocated to property tax administration and hence are used to fund other programs. Such reallocations of funds by the county would lead to failure or inability of the assessor to meet the performance and maintenance effort requirements and would require repayment of the loan. The loan must be “repaid” by June 30 of the fiscal year following the year in which the loan is made unless a 12-month extension is granted by the Director of Finance. Several performance factors are considered in determining the extent to which a county has satisfied the terms of the contract and repaid the loan, including the reduction in backlogs of assessment appeals and Proposition 8 value reductions, the reduction in backlogs of new construction and changes in ownership, county compliance with mandatory audits, and county performance as indicated by the State Board of Equalization’s sample survey. The loans may also be forgiven if the assessor can demonstrate that the activities financed with the loan produce sufficient new revenues for schools (and therefore the state) to offset the amount of the loan. If the county does not “repay” the loan, its motor vehicle license fee apportionment is reduced and transferred to the state’s General Fund. Although the State-County Property Tax Administration Program was set up as a performance-based loan program, the expectation was that 51 the $60 million of additional resources provided to county assessors would result in increased property tax revenues for schools in excess of $60 million. But how can revenues increase if the loans are used primarily to reduce backlogs in appeals and Prop 8 reductions, which in turn reduce assessments? It is important to recall that resources devoted to Prop 8 reductions help to reduce the number of appeals filed. If property owners received automatic reductions in assessments, there is no need to file an appeal. The unprecedented number of assessment appeals, caused by the economic recession, created huge backlogs and delays, frequently beyond two years. As we have noted, if an appeal is not decided in two years, the taxpayer’s opinion of the value of his or her property (which may be artificially low) is automatically enrolled. Thus, additional resources to reduce the backlog of appeals could prevent assessments from declining as much as they otherwise would. In 1995–96, the Department of Finance approved $49 million in loans to 44 counties. Table 3.5 provides a selected listing of the counties that signed loan contracts and the funds those counties received for 1995–96, the first year of the program. The use of the funds varied across counties, with 34 counties indicating that they hired new permanent or part-time staff. Los Angeles County hired 289 additional staff, the majority of whom were property appraisers. Most counties used a portion of the funds to purchase automation equipment, mainly computers, and 20 counties used funds to hire outside contractors. The Legislative Analyst’s Office estimates that these loans generated nearly $100 million for schools and local agencies and prevented an additional $100 million in losses to these agencies. During its first year, 14 counties did not participate in the program: Alpine, El Dorado, Imperial, Inyo, Lake, Marin, Mariposa, Merced, 52 Modoc, Monterey, Orange, Siskiyou, Trinity, and Tuolumne. Several counties did not participate either because they could not meet the program’s 1993–94 or 1994–95 base year funding maintenance of effort requirement, they did not have a backlog of work, they did not think they could generate enough new revenue to repay the loan, they could not get approval of the Board of Supervisors, or they did not feel that the amount of the loan was worth the effort necessary to negotiate an agreement. Some counties obtained the maximum allowable under the law, but others did not. Each county individually sets objectives with the State Department of Finance. The state is most interested in preserving and producing revenues and so has supported objectives including more rapid adjustment of transfers, new construction, and activities that increase county assessments. But reducing the backlog of appeals has also been supported, since value is lost if appeals go unresolved for two years. Most counties have been conservative in setting their performance criteria and no county has yet been unable to meet the criteria set out in its contract. Because of its very positive reception, the State-County Property Tax Administration Program was extended when Governor Wilson signed AB 719 on September 21, 1997. Now the Department of Finance can approve up to $60 million per year in loans to counties through fiscal 2000–2001. AB 719 also allows more counties to participate by modifying the base year maintenance of effort requirement. Beginning with the 1996– 97 fiscal year, if a county was unable to participate in this program previously because it did not meet the 1993–94 or 1994–95 base year funding and staffing requirements in the assessor’s office, it may now be eligible if it can maintain the funding and staffing levels of 1995–96. 53 This modification is expected to allow at least three additional counties (including Orange County) to participate. The new legislation recognizes the important roles that county auditors and tax collectors play in administering the property tax system. County assessors are now required to consult with the county tax collector and any other county agency directly involved in property tax administration to discuss needs, since AB 719 authorizes the use of loan proceeds to support these functions. Recovery The recession has ended and property values are once again on the rise in many locations. This is both good news and bad news for county assessors. The good news is that property tax revenues should begin to increase at a faster rate. The bad news is that the administrative workload will remain high as assessors begin to restore assessments to their factored base year values. Many counties have already begun restoring their Prop 8 assessments and are hoping that this process does not bring about another round of appeals by property owners as they see their tax bills go up. The number of appeals, so far, is also declining but will probably never return to pre-recession levels because taxpayers are now better informed concerning the process of appeal and are more aware of changing property values. Santa Clara County was the first to experience the turnaround in property values in early 1996. Santa Clara is using a district-based regression model to restore values. Prop 8 assessments have declined from their peak of over 98,000 in 1995 to about 67,000 now. In 1996, 12,000 parcels were fully restored to their factored base year values, and another 32,000 were partially restored. Another 12,000 parcels were 54 fully restored in 1997 along with 46,000 partial restorations. The number of appeals is also down 40 percent, to about 3,500, most of which are not residential properties. Assessed valuations in Santa Clara County increased $5.3 billion in 1996, 25 percent of the statewide increase of $23.3 billion. Another $10.2 billion of assessments were added in 1997. Much of the growth in Santa Clara County has been fueled by tremendous job growth and new construction. Good media coverage in the San Jose Mercury, along with advance notice to property owners in the form of letters and post cards, has allowed restoration of Prop 8 assessments to proceed in Santa Clara County without causing an increase in appeals. All property owners receive post cards detailing their assessed valuation and owners whose values are being restored receive letters of explanation. In addition, a phone bank has been set up to handle taxpayer questions. Alameda County plans to deal similarly with restorations, using newspaper articles to inform the public of general changes in property values in the county and sending advance valuation notices to all property owners experiencing more than a 2 percent increase in assessment. For properties that lost 25 to 30 percent of their value, upward adjustments will be made gradually as the market dictates. Although Alameda County did not begin to notice a turnaround in property values until early 1997, it is expecting a significant upturn in 1998–99 assessed values. Some property values in the county have been rising but others are still declining in value. Consequently, while some Prop 8 assessments are being restored, new reductions are also being made. Appeals, which peaked at over 15,000 in 1993–94, are now down to 6,500. 55 As we move away from the San Francisco Bay area, it appears that the recovery, although slower, has finally begun. Fueled by the replacement of nearly 90 percent of the jobs lost in the recession, the housing markets in Los Angeles and Orange Counties are rebounding, with coastal communities experiencing the biggest gains in value—as much as 25 percent in the last year.3 Values are also once again on the rise in the Sacramento region, where home prices are expected to increase even more than the 10 percent they did in the past year. In Sacramento County, owners of 64,000 residential properties will experience an average increase in assessments of 6.5 percent for 1998–99 with higher valued properties gaining as much as 12 percent.4 Smaller counties, such as Stanislaus, have not yet begun to restore any of their Prop 8 assessments, but they, like the bigger counties, expect to see significant increases in assessments this year. The extension of the State-County Property Tax Administration Program through fiscal 2000–01 will help counties cope with the workload associated with the recovery. Most counties will use AB 719 funds to augment staff and technology to aid in the process of restoring Prop 8 assessments. The state should see an even greater payback as assessments, and hence revenues, increase. ____________ 3Laura Mecoy, “South State is feeling the heat—of soaring home prices,” Sacramento Bee, July 20, 1998. 4Loretta Kalb, “Home values rebound and so do property taxes,” Sacramento Bee, May 27, 1998. 56 4. Proposition 13 in the Long Run In many respects, the picture of Proposition 13 at its twentieth anniversary looks very different than it did at its tenth anniversary. At its tenth anniversary, researchers were first beginning to measure and react adversely to the large disparities in the property tax burden created by the combination of acquisition-value-based taxation and rapid price appreciation for real estate.1 Tax administrators also had their laments. As the former Assistant Executive Secretary of the California State Board of Equalization wrote, “I am convinced that Proposition 13 has had a devastating effect on property tax administration in California. It has swept county appraisers out of the mainstream of appraisal and assessment practice into a (nonprofessional) back water that affords little ____________ 1For a discussion of some of these studies at the tenth anniversary, see George F. Break, “Proposition 13’s Tenth Birthday: Opportunity for Celebration or Lament?” in Frederick D. Stocker (ed.), Proposition 13: A Ten-Year Retrospective, Cambridge, Mass.: The Lincoln Institute of Land Policy, 1991. For more recent work, see O’Sullivan, Sheffrin, and Sexton (1995). 57 opportunity to make professional judgments.”2 At the twentieth anniversary of Proposition 13, the picture is not as dire. As our research in Chapter 2 documented, except for some parts of urban Northern California, price depreciation has reduced some of the inequities stemming from the acquisition-value-based provisions of Proposition 13. In Los Angeles County, for example, owner-occupied housing with base years after 1980 were undervalued by less than 30 percent, a reasonable amount by national standards. Throughout the state, the percentage of 1975 base year properties has continued to decrease to slightly over 30 percent in the large, urban counties that had the greatest disparities. (Properties with base years ranging from 1976 to 1980 constitute approximately 10 percent of residential property.) Projections indicate that this percentage will continue to decrease, although some complicating factors make precise predictions of the decline uncertain. The greatest uncertainty is the behavior of homeowners over the age of sixty-five. Prior work indicated that, in 1991, nearly one-half the 1975 base year properties in Los Angeles and San Mateo Counties were owned by seniors. If the seniors eventually sell their homes to third parties, the 1975 base year percentages should decline rapidly and perhaps reach the 15 percent mark in 2016. However, they also have the option of intrafamily transfer of the property, allowing the 1975 base year to remain in place. We have little data on this aspect of Proposition 13, enacted in 1986. ____________ 2Ronald B. Welch, “Property Tax Administrative Changes Resulting from Proposition 13,” in Frederick D. Stocker (ed.), Proposition 13: A Ten-Year Retrospective, Cambridge, Mass.: The Lincoln Institute of Land Policy, 1991, p. 131. 58 It is important to recognize that turnover rates may not be uniform and owners of tax-favored property may sell their property less frequently and thus garner larger tax benefits. In particular, long-time owners of 1975 base year property are the ones most likely to continue to hold onto their property. As we discussed, for homeowner property, the behavior of the elderly will be a key determinant of the persistence of 1975 base years. Many large, modified commercial and industrial properties also have 1975 base years, and these percentages have been slow to change. There have been proposals to alter the “change of ownership” rules for property held by publicly traded firms. These proposals (involving close scrutiny of stock ownership) would have effectively reduced the percentages of properties with 1975 base years but have not been successful. If both owner-occupied and commercial and industrial property retain 1975 base years, it may be possible to propose a reform that deals simultaneously with both sectors. Assuming that inflation does not reemerge in the near future, solving this problem would deal effectively with the equity problems of the assessments under Proposition 13. Turning to property tax administration, the decline in real estate prices and consequent large number of Prop 8 properties have moved California from the “backwater” of property tax administration to the forefront. Faced with reduced staff levels, the need to make market value assessments for up to one-third of all properties, and complex issues in commercial and industrial properties triggered by appeals and change of ownership, county assessors have modernized their offices, brought in new and advanced computer technology, and hired specialized appraisers. It was fortunate that the administrative crisis facing the assessors occurred in the 1990s, after the computer revolution had dramatically lowered the 59 costs of acquiring powerful hardware and software necessary for mass appraisals and tracking of property. California assessors now draw on the same advanced technologies and techniques used throughout the country and specialized consulting firms have enabled even the smaller counties to make the transition to the new era. However, there are still very important structural issues. As we look down the road to the point where property values have fully recovered, assessments have been fully restored, and appeals have declined to more normal levels, property tax administration problems in California will still remain. Because the county share of property tax revenues is so small, counties have little interest or incentive in staffing the assessor’s office or spending any of their scarce budgetary dollars on ensuring a sound and equitable property tax system. The obvious (but politically difficult) solution would be to shift property tax revenues back to counties as their primary source of revenue. Only then will they have an incentive to spend resources to provide timely and accurate assessments. Programs such as the State-County Property Tax Administration Program provide only temporary and therefore partial solutions. The funds provided by such programs have helped to maintain California’s property tax system, but they have also introduced an added source of uncertainty in the budgetary process. Another approach would be to ensure that all recipients of property tax revenue pay their share of administrative costs. This was the essence of SB 2557, which was passed in 1990. All agencies, including cities, schools, and special districts, were required to pay a portion of administrative costs equivalent to the portion of revenues they received. However, in 1991, with the help of the California Teachers Association, schools were exempted. According to the allocation of property tax 60 revenues in 1995–96, the schools received, either directly or indirectly through ERAF, over 53 percent of all property tax revenues. Under this proposal, the state would, therefore, pay 53 percent of property tax administrative costs on behalf of the schools. This may provide a solution to the funding problems associated with property tax administration. But it would not provide counties with the type of incentives for thorough and accurate assessments that come with having a larger stake in the outcome, namely, property tax revenues. The opinion of many assessors is that the State Board of Equalization, the state agency assigned to oversee our property tax system, should be more proactive in helping counties administer the property tax. In their view, the board has shown little interest, nor has it offered any solutions or ideas, regarding the main issues affecting assessors: staffing levels, increased appeals, Prop 8s, and related issues. In fact, the board has behaved at times as more of an adversary of assessors. An example is the board’s recent lawsuit against Riverside County in which the board argued that California law requires that Riverside County must hold a hearing on an appeal, despite the fact that the taxpayer who filed the appeal has refused to provide the county assessor with the information needed to make an income-based valuation. In addition, the board has on many occasions not taken positions on bills that affect the assessors or the property tax. Assessors would like to see the board provide more training for their staff, participate in technology conferences organized by assessors, and take a leadership role in helping to bring about uniformity and standardization in procedures and technology. We believe it is necessary to step back and take a broader look at property tax administration in light of the evolution of the property tax 61 in California. California’s property tax revenues are now higher than at any time since the very early part of this century. We need to begin designing a system now to put into place when the State-County Property Tax Administration Program expires to insure efficient administration of the property tax in California. 62 Appendix Data for Los Angeles and San Mateo Counties 63 Table A.1 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified . 64 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 356634 19426 21607 21337 22682 21944 15298 12344 12290 22323 26140 34180 45034 47509 56890 50372 39217 No. of Sales 5,577 389 445 531 681 725 595 535 550 1,045 1,371 1,835 2,383 3,081 4,135 2,884 Median Disparity Ratio 5.19 4.18 3.55 2.90 2.49 2.04 1.71 1.68 1.70 1.68 1.66 1.62 1.55 1.43 1.27 1.12 1.00 Total Assessed Value 18,659,804,148 1,326,834,652 1,702,199,460 1,976,745,028 2,423,208,788 2,788,094,920 2,338,421,684 1,879,559,160 1,918,948,310 3,626,750,841 4,263,198,740 5,850,112,080 8,203,123,236 9,544,795,645 13,322,045,080 13,022,219,812 10,237,088,029 Total Market Value 96,844,383,528 5,546,168,845 6,042,808,083 5,732,560,581 6,033,789,882 5,687,713,637 3,998,701,080 3,157,659,389 3,262,212,127 6,092,941,413 7,076,909,908 9,477,181,570 12,714,841,016 13,649,057,772 16,918,997,252 14,584,886,189 10,237,088,029 Average Assessed Value 52,322 68,302 78,780 92,644 106,834 127,055 152,858 152,265 156,139 162,467 163,091 171,156 182,154 200,905 234,172 258,521 261,037 Average Market Value 271,551 285,502 279,669 268,668 266,017 259,192 261,387 255,805 265,436 272,945 270,731 277,273 282,339 287,294 297,398 289,544 261,037 Total 825227 26,773 103,083,149,613 227,057,900,301 Revenue ratio = 0.45 Av. 124,915 Av. 275,146 Table A.2 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Homeowner Exemption, Modified . 65 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 71446 7175 8404 8936 8662 7032 4140 3035 2741 4506 4699 4936 5203 4400 3935 2257 616 No. of Sales 899 80 131 180 199 150 93 76 92 119 130 146 127 129 137 47 Median Disparity Ratio 4.35 3.66 3.17 2.76 2.41 2.07 1.89 1.89 1.89 1.73 1.71 1.69 1.59 1.45 1.32 1.18 1.00 Total Assessed Value 5,286,218,094 702,002,000 917,153,732 1,153,101,440 1,283,006,778 1,231,767,312 878,578,380 657,499,365 642,024,430 1,050,722,598 1,138,309,255 1,213,619,256 1,369,398,382 1,244,751,200 1,313,030,800 833,735,800 246,043,336 Total Market Value 22,995,048,709 2,569,327,320 2,907,377,330 3,182,559,974 3,092,046,335 2,549,758,336 1,660,513,138 1,242,673,800 1,213,426,173 1,817,750,095 1,946,508,826 2,051,016,543 2,177,343,427 1,804,889,240 1,733,200,656 983,808,244 246,043,336 Average Assessed Value 73,989 97,840 109,133 129,040 148,119 175,166 212,217 216,639 234,230 233,183 242,245 245,871 263,194 282,898 333,680 369,400 399,421 Average Market Value 321,852 358,094 345,952 356,150 356,967 362,594 401,090 409,448 442,695 403,407 414,239 415,522 418,478 410,202 440,458 435,892 399,421 Total 152123 2735 21,160,962,158 54,173,291,482 Av. 139,104 Av. 356,115 Revenue ratio = 0.39 Table A.3 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Nonexempt, Nonmodified . Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 135274 7769 10762 13596 16694 18351 13975 12119 11025 16196 20991 26847 36705 44039 62416 70323 59146 No. of Sales 10,191 557 642 815 1,009 1,072 877 805 807 1,414 1,764 2,279 3,151 4,083 5,701 6,480 Median Disparity Ratio 5.54 4.45 3.80 3.09 2.62 2.18 1.82 1.79 1.73 1.74 1.69 1.64 1.55 1.43 1.28 1.13 1.00 Total Assessed Value 4,419,401,580 416,364,017 684,570,820 978,572,100 1,244,854,886 1,711,524,366 1,530,807,525 1,405,634,334 1,288,436,625 2,064,293,572 2,690,185,569 3,601,659,285 5,446,361,310 7,395,733,504 12,523,271,072 16,048,622,799 13,880,442,426 Total Market Value 24,483,484,753 1,852,819,876 2,601,369,116 3,023,787,789 3,261,519,801 3,731,123,118 2,786,069,696 2,516,085,458 2,228,995,361 3,591,870,815 4,546,413,612 5,906,721,227 8,441,860,031 10,575,898,911 16,029,786,972 18,134,943,763 13,880,442,426 Average Assessed Value 32,670 53,593 63,610 71,975 74,569 93,266 109,539 115,986 116,865 127,457 128,159 134,155 148,382 167,936 200,642 228,213 234,681 Average Market Value 180,992 238,489 241,718 222,403 195,371 203,320 199,361 207,615 202,176 221,775 216,589 220,014 229,992 240,148 256,822 257,881 234,681 Total 576228 41,661 77,330,735,790 127,593,192,724 Av. 134,202 Av. 221,428 66 Revenue ratio = 0.61 Table A.4 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Single Family Residential, Nonexempt, Modified . Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 11520 1272 1772 2308 2397 2267 1349 1112 1048 1459 1857 2223 2628 2663 2804 2028 629 No. of Sales 1,106 136 137 212 221 176 118 63 75 126 126 148 120 138 124 57 Median Disparity Ratio 4.46 3.68 3.28 2.76 2.42 2.10 1.81 1.85 1.85 1.73 1.70 1.69 1.50 1.47 1.25 1.19 1.00 Total Assessed Value 836,501,760 123,742,704 198,322,240 294,339,240 336,179,250 392,009,640 303,093,320 252,971,104 268,148,616 345,457,643 419,782,278 510,640,884 663,667,236 759,626,076 924,369,444 740,311,260 238,483,463 Total Market Value 3,730,797,850 455,373,151 650,496,947 812,376,302 813,553,785 823,220,244 548,598,909 467,996,542 496,074,940 597,641,722 713,629,873 862,983,094 995,500,854 1,116,650,332 1,155,461,805 880,970,399 238,483,463 Average Assessed Value 72,613 97,282 111,920 127,530 140,250 172,920 224,680 227,492 255,867 236,777 226,054 229,708 252,537 285,252 329,661 365,045 379,147 Average Market Value 323,854 357,998 367,098 351,983 339,405 363,132 406,671 420,860 473,354 409,624 384,292 388,207 378,806 419,320 412,076 434,404 379,147 67 Total 41336 3,083 7,607,646,158 15,359,810,212 Av. 184,044 Av. 371,584 Revenue ratio = 0.50 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 Table A.5 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Multi-Family Residential, Nonmodified . No. of Properties 74574 5651 7456 8083 7512 6931 4539 3860 3704 6235 7582 9337 11978 11161 14880 14350 12557 No. of Sales 2,363 146 182 229 275 253 168 161 153 275 414 518 680 903 1,357 1,393 Median Disparity Ratio 6.10 4.72 4.10 3.34 2.84 2.47 1.98 1.84 1.90 1.77 1.68 1.63 1.46 1.38 1.24 1.13 1.00 Total Assessed Value 6,689,660,670 659,822,062 1,039,470,784 1,302,365,292 1,292,274,336 1,346,277,440 1,021,810,602 923,941,180 1,020,829,808 1,726,153,515 2,356,978,430 3,197,987,859 4,643,726,864 4,403,003,339 6,711,906,720 6,789,645,100 5,430,073,738 Total Market Value 40,806,930,087 3,114,360,133 4,261,830,214 4,349,900,075 3,670,059,114 3,325,305,277 2,023,184,992 1,700,051,771 1,939,576,635 3,055,291,722 3,959,723,762 5,212,720,210 6,779,841,221 6,076,144,608 8,322,764,333 7,672,298,963 5,430,073,738 Average Assessed Value 89,705 116,762 139,414 161,124 172,028 194,240 225,118 239,363 275,602 276,849 310,865 342,507 387,688 394,499 451,069 473,146 432,434 Average Market Value 547,201 551,117 571,597 538,154 488,560 479,773 445,734 440,428 523,644 490,023 522,253 558,286 566,024 544,409 559,326 534,655 432,434 68 Total 210390 9,470 50,555,927,739 111,700,056,856 Av. 240,296 Av. 530,919 Revenue ratio = 0.45 Table A.6 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Multi-Family Residential, Modified . Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 4967 545 672 752 644 558 318 288 226 336 378 372 345 262 261 204 49 No. of Sales 91 14 18 16 20 18 16 9 11 10 13 8 20 10 24 4 Median Disparity Ratio 5.51 3.87 3.75 3.10 2.71 2.15 1.94 2.07 1.93 2.07 1.72 2.05 1.69 1.41 1.38 1.18 1.00 Total Assessed Value 468,298,694 76,339,785 77,638,176 116,205,808 92,645,840 101,724,516 62,098,086 79,501,824 52,561,272 83,217,120 103,795,398 114,243,804 90,851,955 72,023,014 98,867,583 79,729,320 16,047,843 Total Market Value 2,580,325,804 295,434,968 291,143,160 360,238,005 251,070,226 218,707,709 120,470,287 164,568,776 101,443,255 172,259,438 178,528,085 234,199,798 153,539,804 101,552,450 136,437,265 94,080,598 16,047,843 Average Assessed Value 94,282 140,073 115,533 154,529 143,860 182,302 195,277 276,048 232,572 247,670 274,591 307,107 263,339 274,897 378,803 390,830 327,507 Average Market Value 519,494 542,083 433,249 479,040 389,861 391,949 378,837 571,419 448,864 512,677 472,297 629,569 445,043 387,605 522,748 461,179 327,507 69 Total 11177 302 1,785,790,038 5,470,047,470 Av. 159,774 Av. 489,402 Revenue ratio = 0.33 Table A.7 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Commercial/Industrial Nonmodified . Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 41723 2451 2913 3783 4020 3761 2920 2998 2964 3758 4581 5480 7162 6211 7709 7583 6227 No. of Sales 1,248 66 77 99 128 142 118 115 107 138 165 260 329 396 450 546 Median Disparity Ratio 5.66 4.84 4.54 3.86 3.73 3.00 2.11 1.94 2.05 1.84 1.72 1.59 1.45 1.31 1.25 1.11 1.00 Total Assessed Value 7,902,503,092 609,365,169 655,241,481 1,075,945,728 1,339,841,880 1,399,656,150 1,250,472,480 1,585,570,248 1,452,964,656 2,491,001,574 3,406,454,505 4,759,988,280 7,644,181,650 7,003,560,866 8,598,572,346 8,301,557,497 6,183,124,558 Total Market Value 44,728,167,501 2,949,327,418 2,974,796,324 4,153,150,510 4,997,610,212 4,198,968,450 2,638,496,933 3,076,006,281 2,978,577,545 4,583,442,896 5,859,101,749 7,568,381,365 11,084,063,393 9,174,664,734 10,748,215,433 9,214,728,822 6,183,124,558 Average Assessed Value 189,404 248,619 224,937 284,416 333,294 372,150 428,244 528,876 490,204 662,853 743,605 868,611 1,067,325 1,127,606 1,115,394 1,094,759 992,954 Average Market Value 1,072,027 1,203,316 1,021,214 1,097,846 1,243,187 1,116,450 903,595 1,026,019 1,004,918 1,219,650 1,279,001 1,381,091 1,547,621 1,477,164 1,394,243 1,215,182 992,954 70 Total 116244 4,384 65,660,002,160 137,110,824,123 Av. 564,846 Av. 1,179,509 Revenue ratio = 0.48 Table A.8 Disparity Ratios and Other Data for Properties in Los Angeles County: 1991, Commercial/Industrial Modified . 71 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 5683 477 558 781 748 671 521 519 445 544 498 398 372 274 233 175 59 No. of Sales 100 13 10 15 15 31 10 14 11 17 19 20 7 7 4 5 Median Disparity Ratio 4.19 4.17 3.64 4.28 2.58 2.14 1.69 2.07 2.11 1.60 1.89 1.48 1.95 1.88 1.70 1.64 1.00 Total Assessed Value 4,136,252,207 371,297,277 268,367,868 608,569,258 690,011,300 475,484,691 1,020,953,163 566,136,618 750,712,775 826,982,272 1,015,651,080 1,267,862,432 961,848,036 836,921,766 1,031,829,083 429,625,175 122,323,874 Total Market Value 17,330,896,747 1,548,309,645 976,859,040 2,604,676,424 1,780,229,154 1,017,537,239 1,725,410,845 1,171,902,799 1,584,003,955 1,323,171,635 1,919,580,541 1,876,436,399 1,875,603,670 1,573,412,920 1,754,109,441 704,585,287 122,323,874 Average Assessed Value 727,829 778,401 480,946 779,218 922,475 708,621 1,959,603 1,090,822 1,686,995 1,520,188 2,039,460 3,185,584 2,585,613 3,054,459 4,428,451 2,455,001 2,073,286 Average Market Value 3,049,604 3,245,932 1,750,643 3,335,053 2,379,986 1,516,449 3,311,729 2,258,002 3,559,559 2,432,301 3,854,579 4,714,664 5,041,945 5,742,383 7,528,367 4,026,202 2,073,286 Total 12956 298 15,380,828,875 40,889,049,617 Av. 1,187,159 Av. 3,155,993 Revenue ratio = 0.38 Table A.9 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified . 72 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 298113 16372 18313 18196 18906 18073 12363 9944 9637 17122 20286 26293 35621 38130 47617 44939 39343 45457 43323 39750 43259 35361 896418 No. of Sales 5460 339 379 429 482 514 353 304 295 534 683 867 1230 1467 1969 1956 1482 1499 1366 1668 6260 29539 Median Disparity Ratio 3.84 2.98 2.59 2.14 1.78 1.47 1.28 1.27 1.28 1.23 1.22 1.20 1.12 1.01 0.90 0.86 0.86 0.87 0.88 0.96 0.96 1.00 Total Assessed Value 17,575,630,408 1,257,626,462 1,625,152,212 1,892,877,464 2,253,469,759 2,566,510,926 2,113,533,574 1,715,216,732 1,691,609,053 3,129,293,238 3,754,813,097 5,011,930,873 7,153,744,287 8,316,317,440 11,179,045,931 10,207,045,842 8,815,787,352 10,572,897,112 10,280,575,194 9,464,977,783 10,296,151,017 7,963,636,606 Total Market Value 67,490,420,767 3,747,726,857 4,209,144,229 4,050,757,773 4,011,176,171 3,772,771,061 2,705,322,975 2,178,325,250 2,165,259,588 3,849,030,683 4,580,871,978 6,014,317,048 8,012,193,601 8,399,480,614 10,061,141,338 8,778,059,424 7,581,577,123 9,198,420,487 9,046,906,171 9,086,378,672 9,884,304,976 7,963,636,606 138,837,842,362 196,787,223,391 Revenue ratio = 0.71 Average Assessed Value 58,956 76,816 88,743 104,027 119,193 142,008 170,956 172,488 175,533 182,764 185,094 190,618 200,829 218,104 234,770 227,131 224,075 232,591 237,301 238,113 238,012 225,210 Av. 154,881 Average Market Value 226,392 228,911 229,845 222,618 212,164 208,752 218,824 219,059 224,682 224,800 225,814 228,742 224,929 220,285 211,293 195,333 192,705 202,354 208,825 228,588 228,491 225,210 Av. 219,526 Table A.10 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Homeowner Exemption, Modified . 73 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 71908 7067 8210 8798 8662 7106 4255 3210 3077 4929 5491 6272 7056 6044 4150 1556 1269 1649 1886 1446 1253 463 165757 No. of Sales 940 101 132 148 148 135 78 77 56 108 119 144 184 178 137 29 31 36 36 20 8 2845 Median Disparity Ratio 3.24 2.75 2.41 2.05 1.69 1.45 1.35 1.29 1.32 1.29 1.32 1.24 1.16 1.04 0.91 0.88 0.92 0.95 0.88 0.94 1.13 1.00 Total Assessed Value 6,056,558,730 785,810,610 1,019,036,165 1,279,053,069 1,432,797,128 1,388,317,156 1,006,655,416 753,635,231 781,026,999 1,242,893,923 1,417,620,143 1,645,378,454 1,958,411,023 1,775,090,223 1,240,578,259 477,440,471 396,240,683 539,209,248 655,552,888 486,885,774 453,252,855 164,260,186 Total Market Value 19,623,250,285 2,160,979,178 2,455,877,158 2,622,058,791 2,421,427,146 2,013,059,876 1,358,984,812 972,189,448 1,030,955,639 1,603,333,161 1,871,258,589 2,040,269,283 2,271,756,787 1,846,093,832 1,128,926,216 420,147,614 364,541,428 512,248,786 576,886,541 457,672,628 512,175,726 164,260,186 26,955,704,634 48,428,353,109 Revenue ratio = 0.56 Average Assessed Value 84,226 111,194 124,121 145,380 165,412 195,373 236,582 234,777 253,827 252,159 258,172 262,337 277,553 293,695 298,935 306,838 312,246 326,992 347,589 336,712 361,734 354,774 Av. 162,622 Average Market Value 272,894 305,785 299,132 298,029 279,546 283,290 319,385 302,863 335,052 325,286 340,786 325,298 321,961 305,442 272,030 270,018 287,267 310,642 305,878 316,509 408,760 354,774 Av. 292,165 Table A.11 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Nonexempt, Nonmodified . 74 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 94098 5993 8106 9930 11304 12146 9200 7873 7134 10106 12133 14677 20142 22134 30212 32377 24376 23844 24093 36642 48765 69956 535241 No. of Sales 8783 446 563 656 716 737 542 494 482 851 1053 1430 2041 2421 3848 4531 3821 3699 3415 4182 12448 57167 Median Disparity Ratio 3.98 3.09 2.68 2.17 1.82 1.53 1.34 1.32 1.30 1.25 1.21 1.18 1.12 1.02 0.90 0.85 0.85 0.85 0.84 0.93 0.96 1.00 Total Assessed Value 3,474,618,796 344,772,317 552,493,827 751,515,630 956,866,225 1,262,259,724 1,090,748,114 980,541,937 901,763,774 1,398,048,881 1,684,106,231 2,085,567,817 3,088,568,424 3,870,541,090 5,772,675,566 6,295,081,189 4,875,185,024 4,924,126,280 5,190,660,063 7,640,949,966 9,576,029,133 12,922,968,178 Total Market Value 13,828,982,808 1,065,346,460 1,480,683,456 1,630,788,917 1,741,496,530 1,931,257,378 1,461,602,473 1,294,315,357 1,172,292,906 1,747,561,101 2,037,768,540 2,460,970,024 3,459,196,635 3,947,951,912 5,195,408,009 5,350,819,011 4,143,907,270 4,185,507,338 4,360,154,453 7,106,083,468 9,192,987,968 12,922,968,178 79,640,088,186 91,718,050,191 Revenue ratio = 0.87 Average Assessed Value 36,926 57,529 68,159 75,681 84,648 103,924 118,560 124,545 126,404 138,339 138,804 142,098 153,340 174,869 191,072 194,431 199,999 206,514 215,443 208,530 196,371 184,730 Av. 148,793 Average Market Value 146,964 177,765 182,665 164,228 154,060 159,004 158,870 164,399 164,325 172,923 167,953 167,675 171,740 178,366 171,965 165,266 169,999 175,537 180,972 193,933 188,516 184,730 Av. 171,358 Table A.12 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Single Family Residential, Nonexempt, Modified . 75 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 8728 986 1321 1622 1795 1589 946 816 727 1017 1244 1408 1653 1620 1331 570 467 489 634 979 958 522 31422 No. of Sales 1249 106 164 203 186 186 122 78 92 133 182 193 208 240 172 84 42 53 48 21 10 3772 Median Disparity Ratio 3.22 2.74 2.37 1.94 1.70 1.43 1.30 1.34 1.26 1.23 1.25 1.22 1.09 1.02 0.94 0.84 0.84 0.86 0.88 1.03 1.15 1.00 Total Assessed Value 654,827,926 100,809,482 146,642,008 200,739,737 256,920,399 273,475,499 216,306,504 181,299,985 170,678,586 235,395,817 273,859,440 320,463,357 406,920,369 457,399,857 375,191,322 196,350,392 159,660,192 164,182,617 217,955,905 324,826,713 352,336,474 158,197,496 Total Market Value 2,108,545,922 276,217,981 347,541,559 389,435,090 436,764,678 391,069,964 281,198,455 242,941,980 215,055,018 289,536,855 342,324,300 390,965,296 443,543,202 466,547,854 352,679,843 164,934,329 134,114,561 141,197,051 191,801,196 334,571,514 405,186,945 158,197,496 5,844,440,077 8,504,371,089 Revenue ratio = 0.69 Average Assessed Value 75,026 102,241 111,008 123,761 143,131 172,105 228,654 222,181 234,771 231,461 220,144 227,602 246,171 282,346 281,887 344,474 341,885 335,752 343,779 331,794 367,783 303,060 Av. 185,998 Average Market Value 241,584 280,140 263,090 240,096 243,323 246,111 297,250 297,723 295,812 284,697 275,180 277,674 268,326 287,993 264,974 289,358 287,183 288,747 302,526 341,748 422,951 303,060 Av. 270,650 76 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total Table A.13 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Multi-Family Residential, Nonmodified . No. of Properties 62159 4905 6389 6950 6378 5722 3737 3162 3035 5044 6000 7234 9168 7885 10016 8825 7374 6499 6708 7402 9780 13237 207609 No. of Sales 1913 95 169 169 164 180 122 84 103 172 220 288 511 417 707 706 633 528 559 841 2925 11506 Median Disparity Ratio 4.28 2.88 2.72 2.04 1.90 1.50 1.38 1.28 1.26 1.17 1.04 1.06 0.99 0.90 0.80 0.75 0.75 0.79 0.84 0.88 0.93 1.00 Total Assessed Value 6,353,278,153 649,971,970 1,014,120,396 1,265,282,994 1,256,908,011 1,262,679,579 959,623,323 869,351,475 960,950,119 1,638,924,379 2,038,237,517 2,930,188,017 3,479,133,103 3,137,723,728 4,148,437,494 3,668,067,752 2,843,547,136 2,578,586,465 2,699,640,793 2,941,976,306 3,817,851,981 4,445,570,633 Total Market Value 27,192,030,495 1,871,919,274 2,758,407,477 2,581,177,308 2,388,125,221 1,894,019,369 1,324,280,186 1,112,769,888 1,210,797,150 1,917,541,523 2,119,767,018 3,105,999,298 3,444,341,772 2,823,951,355 3,318,749,995 2,751,050,814 2,132,660,352 2,037,083,307 2,267,698,266 2,588,939,149 3,550,602,342 4,445,570,633 54,960,051,324 78,837,482,192 Revenue ratio = 0.70 Average Assessed Value 102,210 132,512 158,729 182,055 197,069 220,671 256,790 274,937 316,623 324,926 339,706 405,058 379,487 397,936 414,181 415,645 385,618 396,767 402,451 397,457 390,373 335,844 Av. 264,729 Average Market Value 437,459 381,635 431,743 371,392 374,432 331,007 354,370 351,920 398,945 380,163 353,295 429,361 375,692 358,142 331,345 311,734 289,214 313,446 338,059 349,762 363,047 335,844 Av. 379,740 Table A.14 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Multi-Family Residential, Modified . 77 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 4948 522 666 708 647 574 322 254 228 362 366 426 398 335 305 245 174 152 104 81 100 53 11970 No. of Sales 114 7 14 20 11 16 7 9 9 12 11 11 18 6 12 11 12 12 3 1 2 318 Median Disparity Ratio 3.71 2.17 3.06 2.52 1.56 1.54 1.54 1.54 1.52 1.35 1.32 0.84 1.13 1.05 0.90 0.69 0.74 0.90 1.04 1.47 0.58 1.00 Total Assessed Value 510,550,957 83,168,341 86,816,227 129,549,648 102,601,081 110,102,714 65,991,110 55,720,992 52,887,019 80,334,648 95,728,760 109,490,781 105,931,972 84,857,873 93,451,854 66,631,470 48,067,505 43,336,342 47,478,344 25,757,805 28,391,554 16,806,019 Total Market Value 1,894,144,050 180,475,300 265,657,655 326,465,113 160,057,686 169,558,180 101,626,309 85,810,328 80,388,269 108,451,775 126,361,963 91,972,256 119,703,128 89,100,767 84,106,669 45,975,714 35,569,954 39,002,708 49,377,478 37,863,973 16,467,101 16,806,019 2,043,653,016 4,124,942,395 Revenue ratio = 0.50 Average Assessed Value 103,183 159,326 130,355 182,980 158,580 191,817 204,941 219,374 231,961 221,919 261,554 257,021 266,161 253,307 306,400 271,965 276,250 285,108 456,523 317,998 283,916 317,095 Av. 170,731 Average Market Value 382,810 345,738 398,885 461,109 247,384 295,398 315,610 337,836 352,580 299,591 345,251 215,897 300,762 265,972 275,760 187,656 204,425 256,597 474,783 467,456 164,671 317,095 Av. 344,607 Table A.15 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Commercial/Industrial Nonmodified . 78 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 34184 2012 2471 3225 3324 3129 2467 2484 2428 3107 3678 4388 5648 4702 5680 5609 4611 4188 4227 4638 5777 5960 117937 No. of Sales 826 47 48 61 107 83 66 67 80 102 123 145 221 193 269 266 280 307 271 367 583 4512 Median Disparity Ratio 3.23 2.54 2.77 2.17 2.11 1.50 1.52 1.33 1.22 1.05 1.03 0.96 0.86 0.91 0.79 0.76 0.83 0.84 0.84 0.90 1.00 1.00 Total Assessed Value 7,400,387,682 635,513,928 615,317,766 1,018,414,340 1,308,966,337 1,638,741,897 1,309,938,108 1,817,094,161 1,881,871,556 2,230,560,633 2,817,004,551 4,139,030,544 6,039,188,499 5,016,146,110 6,473,460,115 6,282,355,431 4,840,980,329 4,029,785,058 4,610,165,413 4,920,965,452 4,855,398,155 4,001,833,760 Total Market Value 23,903,252,213 1,614,205,377 1,704,430,212 2,209,959,118 2,761,918,971 2,458,112,846 1,991,105,924 2,416,735,234 2,295,883,298 2,342,088,665 2,901,514,688 3,973,469,322 5,193,702,109 4,564,692,960 5,114,033,491 4,774,590,128 4,018,013,673 3,385,019,449 3,872,538,947 4,428,868,907 4,855,398,155 4,001,833,760 77,883,119,825 94,781,367,445 Revenue ratio = 0.82 Average Assessed Value 216,487 315,862 249,016 315,787 393,793 523,727 530,984 731,519 775,071 717,915 765,907 943,261 1,069,261 1,066,811 1,139,694 1,120,049 1,049,876 962,222 1,090,647 1,061,010 840,471 671,449 Av. 660,379 Average Market Value 699,253 802,289 689,773 685,259 830,902 785,591 807,096 972,921 945,586 753,810 788,884 905,531 919,565 970,798 900,358 851,237 871,397 808,266 916,144 954,909 840,471 671,449 Av. 803,661 Table A.16 Disparity Ratios and Other Data for Properties in Los Angeles County: 1996, Commercial/Industrial Modified . 79 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 5035 435 499 709 666 568 420 426 367 397 392 325 318 191 199 171 154 135 119 57 43 13 11639 No. of Sales 128 13 11 14 10 14 13 12 14 13 21 19 9 6 2 11 9 2 5 4 2 332 Median Disparity Ratio 2.34 2.26 1.97 1.58 2.66 1.37 1.22 1.27 1.13 1.23 1.03 0.91 0.66 0.76 1.07 0.84 0.74 1.64 0.78 0.83 1.10 1.00 Total Assessed Value 3,460,660,290 249,886,302 246,904,024 506,098,699 630,799,914 437,365,369 552,192,883 298,748,523 304,578,689 378,200,596 392,625,768 536,571,989 407,340,469 334,783,985 500,699,083 406,393,550 725,825,282 167,580,293 441,655,485 92,802,254 62,671,958 21,585,407 Total Market Value 8,097,945,079 564,743,043 486,400,927 799,635,944 1,677,927,771 599,190,556 673,675,317 379,410,624 344,173,919 465,186,733 404,404,541 488,280,510 268,844,710 254,435,829 535,748,019 341,370,582 537,110,709 274,831,681 344,491,278 77,025,871 68,939,154 21,585,407 11,155,970,812 17,705,358,202 Revenue ratio = 0.63 Average Assessed Value 687,321 574,451 494,798 713,820 947,147 770,009 1,314,745 701,288 829,915 952,646 1,001,596 1,650,991 1,280,945 1,752,796 2,516,076 2,376,570 4,713,151 1,241,336 3,711,391 1,628,110 1,457,487 1,660,416 Av. 958,499 Average Market Value 1,608,331 1,298,260 974,751 1,127,836 2,519,411 1,054,913 1,603,989 890,635 937,804 1,171,755 1,031,644 1,502,402 845,424 1,332,125 2,692,201 1,996,319 3,487,732 2,035,790 2,894,885 1,351,331 1,603,236 1,660,416 Av. 1,521,210 Table A.17 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Nonmodified . 80 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 45521 2437 3006 2705 3253 3032 2121 1739 2821 3818 3882 4996 6655 6558 7725 6359 8731 No. of Sales 944 84 84 73 99 108 73 68 196 205 223 325 401 542 546 498 Median Disparity Ratio 4.58 3.50 3.32 2.48 2.31 2.09 1.63 1.47 1.71 1.58 1.51 1.46 1.34 1.20 1.09 1.08 1.00 Total Assessed Value 3,364,275,026 217,877,548 314,343,432 357,333,205 452,820,853 493,733,912 425,461,995 363,124,068 567,187,439 788,997,336 825,328,728 1,153,546,424 1,655,471,180 1,864,163,964 2,411,799,075 2,002,976,897 3,060,913,980 Total Market Value 15,408,379,619 762,571,418 1,043,620,194 886,186,348 1,046,016,170 1,031,903,876 693,503,052 533,792,380 969,890,521 1,246,615,791 1,246,246,379 1,684,177,779 2,218,331,381 2,236,996,757 2,628,860,992 2,163,215,049 3,060,913,980 Average Assessed Value 73,906 89,404 104,572 132,101 139,201 162,841 200,595 208,812 201,059 206,652 212,604 230,894 248,756 284,258 312,207 314,983 350,580 Average Market Value 338,489 312,914 347,179 327,610 321,554 340,338 326,970 306,954 343,811 326,510 321,032 337,105 333,333 341,110 340,306 340,182 350,580 Total 115359 4469 20,319,355,062 38,861,221,686 Av. 176,140 Av. 336,872 Revenue ratio = 0.52 Table A.18 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Homeowner Exemption, Modified. 81 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 7255 788 976 960 1079 845 595 447 672 714 570 649 692 542 499 199 89 No of Sales 89 7 19 19 25 26 9 23 20 21 33 32 38 29 38 21 Median Disparity Ratio 4.13 3.54 3.24 2.53 1.91 2.24 1.06 1.98 1.96 1.66 1.68 1.53 1.41 1.36 1.14 1.22 1.00 Total Assessed Value 768,239,205 108,664,412 144,623,680 174,092,160 220,631,762 207,555,660 177,260,020 150,255,921 207,003,552 226,919,196 196,852,920 244,295,282 281,665,452 272,305,678 284,826,206 121,791,980 58,122,785 Total Market Value 3,172,827,917 384,672,018 468,580,723 440,453,165 421,406,665 464,924,678 187,895,621 297,506,724 405,726,962 376,685,865 330,712,906 373,771,781 397,148,287 370,335,722 324,701,875 148,586,216 58,122,785 Average Assessed Value 105,891 137,899 148,180 181,346 204,478 245,628 297,916 336,143 308,041 317,814 345,356 376,418 407,031 502,409 570,794 612,020 653,065 Average Market Value 437,330 488,162 480,103 458,805 390,553 550,207 315,791 665,563 603,760 527,571 580,198 575,920 573,914 683,276 650,705 746,664 653,065 Total 17571 449 3,845,105,871 8,624,059,911 Av. 218,833 Av. 490,812 Revenue ratio = 0.45 Table A.19 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Nonexempt, Nonmodified . 82 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 8236 715 1114 1136 1262 1377 992 916 1265 1420 1473 1895 2427 2495 3503 2920 4080 No. of Sales 439 20 49 30 32 49 29 31 63 70 108 97 165 153 216 229 Median Disparity Ratio 4.44 2.79 3.35 2.57 2.21 1.77 1.50 1.28 1.57 1.42 1.52 1.49 1.36 1.19 1.09 1.08 1.00 Total Assessed Value 579,122,576 51,534,340 97,903,890 117,573,728 144,018,178 191,927,637 154,050,656 153,222,068 207,118,450 227,858,880 264,462,420 363,172,960 515,856,423 672,153,000 936,159,235 893,414,880 1,371,010,560 Total Market Value 2,571,304,237 143,780,809 327,978,032 302,164,481 318,280,173 339,711,917 231,075,984 196,124,247 325,175,967 323,559,610 401,982,878 541,127,710 701,564,735 799,862,070 1,020,413,566 964,888,070 1,371,010,560 Average Assessed Value 70,316 72,076 87,885 103,498 114,119 139,381 155,293 167,273 163,730 160,464 179,540 191,648 212,549 269,400 267,245 305,964 336,032 Average Market Value 312,203 201,092 294,415 265,990 252,203 246,704 232,940 214,109 257,056 227,859 272,901 285,556 289,067 320,586 291,297 330,441 336,032 Total 37226 1780 6,940,559,881 10,880,005,047 Av. 186,444 Av. 292,269 Revenue ratio = 0.64 Table A.20 Disparity Ratios and Other Data for Properties in San Mateo County: 1991, Single Family Residential, Nonexempt, Modified . 83 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 No. of Properties 512 71 98 100 124 114 76 67 112 101 96 103 163 124 165 142 54 No. of Sales 43 5 6 15 6 5 4 6 10 2 7 5 11 5 28 4 Median Disparity Ratio 3.92 3.19 3.21 2.36 2.19 1.05 1.30 1.74 1.39 1.96 1.67 1.47 1.56 1.05 1.28 1.05 1.00 Total Assessed Value 64,132,096 8,100,674 13,210,498 18,416,900 21,567,444 22,781,760 21,832,596 19,977,390 39,245,696 27,111,026 25,922,112 28,564,269 74,043,076 51,718,168 82,130,235 95,054,516 40,137,444 Total Market Value 251,397,816 25,841,150 42,405,699 43,463,884 47,232,702 23,920,848 28,382,375 34,760,659 54,551,517 53,137,611 43,289,927 41,989,475 115,507,199 54,304,076 105,126,701 99,807,242 40,137,444 Average Assessed Value 125,258 114,094 134,801 184,169 173,931 199,840 287,271 298,170 350,408 268,426 270,022 277,323 454,252 417,082 497,759 669,398 743,286 Average Market Value 491,011 363,960 432,711 434,639 380,909 209,832 373,452 518,816 487,067 526,115 450,937 407,665 708,633 437,936 637,132 702,868 743,286 Total 2222 162 653,945,900 1,105,256,325 Av. 294,305 Av. 497,415 Revenue ratio = 0.59 Table A.21 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Nonmodified . 84 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 37651 2005 2487 2183 2582 2412 1635 1361 2122 2705 2779 3559 4584 4385 5138 4253 4056 4677 5433 6250 4996 8960 116213 No. of Sales 1409 91 112 98 150 129 96 71 111 180 179 233 346 297 252 203 191 222 233 411 293 5307 Median Disparity Ratio 4.32 3.51 3.07 2.45 2.26 1.84 1.53 1.52 1.61 1.47 1.46 1.35 1.23 1.13 1.10 1.08 1.09 1.07 1.11 1.10 1.22 1.00 Total Assessed Value 2,874,661,016 182,824,069 272,964,987 296,725,156 373,931,249 411,229,297 343,298,713 296,699,753 447,163,854 582,377,056 624,769,484 854,486,140 1,194,172,035 1,275,706,053 1,528,383,586 1,242,805,790 1,284,520,865 1,557,084,162 1,776,761,633 2,155,859,191 1,771,251,552 2,862,018,679 Total Market Value 12,418,535,589 641,712,482 838,002,510 726,976,632 845,084,623 756,661,906 525,247,031 450,983,625 719,933,805 856,094,272 912,163,447 1,153,556,289 1,468,831,603 1,441,547,840 1,681,221,945 1,342,230,253 1,400,127,743 1,666,080,053 1,972,205,413 2,371,445,110 2,160,926,893 2,862,018,679 24,209,694,320 39,211,587,743 Revenue ratio = 0.62 Average Assessed Value 76,350 91,184 109,757 135,925 144,822 170,493 209,969 218,001 210,728 215,297 224,818 240,092 260,509 290,925 297,467 292,219 316,696 332,924 327,031 344,937 354,534 319,422 Av. 208,322 Average Market Value 329,833 320,056 336,953 333,017 327,298 313,707 321,252 331,362 339,271 316,486 328,234 324,124 320,426 328,745 327,213 315,596 345,199 356,228 363,005 379,431 432,531 319,422 Av. 356,228 Table A.22 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Homeowner Exemption, Modified . 85 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 7370 792 982 939 1088 879 602 469 747 812 674 812 915 722 631 412 364 362 290 246 131 29 20268 No. of Sales 201 33 37 24 37 24 23 12 36 39 43 45 74 38 44 39 19 18 6 14 6 812 Median Disparity Ratio 3.94 3.45 3.07 2.49 2.46 2.00 1.57 1.59 1.85 1.67 1.57 1.51 1.34 1.17 1.15 1.09 1.14 1.26 2.06 1.17 2.11 1.00 Total Assessed Value 824,539,929 113,167,008 152,901,294 180,078,385 227,187,168 227,157,746 182,077,924 159,284,072 235,371,050 250,538,357 228,540,289 294,590,599 360,951,528 340,836,927 348,405,483 221,416,304 210,505,766 246,243,874 195,428,112 155,473,986 93,775,612 15,733,255 Total Market Value 3,248,687,320 390,426,178 469,406,973 448,395,179 558,880,433 454,315,492 285,862,341 253,261,674 435,436,443 418,399,056 358,808,254 444,831,804 483,675,048 398,779,205 400,666,305 241,343,771 239,976,573 310,267,281 402,581,911 181,904,564 197,866,541 15,733,255 5,264,204,668 10,639,505,601 Revenue ratio = 0.49 Average Assessed Value 111,878 142,888 155,704 191,777 208,812 258,427 302,455 339,625 315,088 308,545 339,081 362,796 394,483 472,073 552,148 537,418 578,313 680,232 673,890 632,008 715,844 542,526 Av. 680,232 Average Market Value 440,799 492,962 478,011 477,524 513,677 516,855 474,854 540,004 582,914 515,270 532,356 547,822 528,607 552,326 634,970 585,786 659,276 857,092 1,388,213 739,449 1,510,432 542,526 Av. 524,941 Table A.23 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Nonexempt, Nonmodified. 86 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 7181 598 918 954 1039 1111 808 708 965 1079 1050 1357 1583 1523 2002 1700 1239 1294 1313 1784 1985 5909 38100 No. of Sales 803 58 50 62 94 69 47 36 49 96 110 128 187 149 191 102 78 96 121 174 342 3042 Median Disparity Ratio 4.25 3.33 2.70 2.48 2.13 1.84 1.55 1.40 1.44 1.51 1.37 1.29 1.21 1.12 1.16 1.09 1.14 1.12 1.07 1.16 1.36 1.00 Total Assessed Value 459,963,910 44,062,438 78,293,293 102,400,921 116,986,145 159,090,712 127,950,158 121,371,311 158,823,892 173,675,454 194,837,251 258,796,445 326,504,631 393,605,295 490,674,079 450,356,340 352,020,001 387,248,564 378,922,754 562,838,289 632,629,635 1,772,353,612 Total Market Value 1,954,846,618 146,727,919 211,391,891 253,954,284 249,180,489 292,726,910 198,322,745 169,919,835 228,706,404 262,249,936 266,927,034 333,847,414 395,070,604 440,837,930 569,181,932 490,888,411 401,302,801 433,718,392 405,447,347 652,892,415 860,376,304 1,772,353,612 7,743,405,130 10,990,871,225 Revenue ratio = 0.70 Average Assessed Value 64,053 73,683 85,287 107,338 112,595 143,196 158,354 171,428 164,584 160,960 185,559 190,712 206,257 258,441 245,092 264,915 284,116 299,265 288,593 315,492 318,705 299,941 Av. 203,239 Average Market Value 272,225 245,364 230,274 266,199 239,827 263,481 245,449 240,000 237,001 243,049 254,216 246,019 249,571 289,454 284,307 288,758 323,892 335,177 308,795 365,971 433,439 299,941 Av. 288,474 Table A.24 Disparity Ratios and Other Data for Properties in San Mateo County: 1996, Single Family Residential, Nonexempt, Modified . 87 Base Year 1975 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 Total No. of Properties 542 58 85 108 120 104 73 64 90 82 70 97 104 112 113 97 65 58 59 50 45 26 2222 No. of Sales 57 11 10 22 26 8 8 6 12 16 10 27 21 17 24 10 5 10 4 5 21 330 Median Disparity Ratio 3.91 3.16 2.85 2.49 2.29 2.15 1.65 1.77 1.91 1.77 1.62 1.39 1.26 1.21 1.14 1.26 1.00 1.34 1.42 2.21 1.77 1.00 Total Assessed Value 56,872,555 6,772,850 9,947,326 17,721,279 22,244,578 19,059,318 22,656,502 18,703,199 25,331,213 20,366,372 18,004,312 27,671,674 35,982,923 39,307,448 46,234,710 47,477,983 32,878,441 46,499,381 57,890,065 40,750,015 39,430,536 20,075,903 Total Market Value 222,371,690 21,402,206 28,349,879 44,125,985 50,940,084 40,977,534 37,383,228 33,104,662 48,382,617 36,048,478 29,166,985 38,463,627 45,338,483 47,562,012 52,707,569 59,822,259 32,878,441 62,309,171 82,203,892 90,057,533 69,792,049 20,075,903 671,878,583 1,193,464,287 Revenue ratio = 0.56 Average Assessed Value 104,931 116,773 117,027 164,086 185,371 183,263 310,363 292,237 281,458 248,370 257,204 285,275 345,990 350,959 409,157 489,464 505,822 801,713 981,188 815,000 876,234 772,150 Av. 302,376 Average Market Value 410,280 369,004 333,528 408,574 424,501 394,015 512,099 517,260 537,585 439,616 416,671 396,532 435,947 424,661 466,439 616,724 505,822 1,074,296 1,393,286 1,801,151 1,550,934 772,150 Av. 537,113 About the Authors STEVEN M. SHEFFRIN Steven Sheffrin is Dean, Division of Social Sciences, and a professor of economics at the University of California, Davis. He also serves as Director of the Center for State and Local Taxation at U.C. Davis. He has been a visiting professor at the London School of Economics, Oxford University, and Princeton University and has worked as an economist in the Office of Tax Analysis of the U.S. Department of the Treasury. His work in macroeconomics and tax policy has been widely published. Sheffrin holds a B.A. from the College of Social Studies, Wesleyan University, and a Ph.D. in economics from the Massachusetts Institute of Technology. TERRI A. SEXTON Terri Sexton is a professor of economics at California State University, Sacramento, and a research associate in the Institute of Governmental Affairs at U.C. Davis. She has also served as a visiting associate agricultural economist in the Department of Agricultural and Resource Economics and as a visiting assistant professor in the Department of Economics at U.C. Davis. She has served as a member of the Task Force on Fiscal Reform of the California Business and Higher Education Forum, as co-investigator in a property tax oversight study conducted for the California State Board of Equalization, and as coinvestigator, along with Steven Sheffrin and Arthur O’Sullivan, in a comprehensive study of the economic and fiscal effects of Proposition 13, which culminated in Property Taxes and Tax Revolts: The Legacy of Proposition 13 (Cambridge University Press, 1995). Her writings have appeared in such publications as the National Tax Journal, Land Economics, RAND Journal of Economics, and the Journal of Urban Economics. Sexton holds a B.S. in economics, a Bachelor of Mathematics, and a Ph.D. in economics from the University of Minnesota. 89 Other PPIC Publications Dardia, Michael (1998), Subsidizing Redevelopment in California. Dresch, Marla, and Steven M. Sheffrin (1997), Who Pays for Development Fees and Exactions? Johnson, Hans P. (1996), Undocumented Immigration to California: 1980–1993. Lewis, Paul G. (1998), Deep Roots: Local Government Structure in California. Lewis, Paul G., and Mary Sprague (1997), Federal Transportation Policy and the Role of Metropolitan Planning Organizations in California. MaCurdy, Thomas, and Margaret O’Brien-Strain (1997), Who Will Be Affected by Welfare Reform in California? MaCurdy, Thomas, and Margaret O’Brien-Strain (1998), Reform Reversed? The Restoration of Welfare Benefits to Immigrants in California. Reed, Deborah, Melissa Glenn Haber, and Laura Mameesh (1996), The Distribution of Income in California. Reyes, Belinda I. (1997), Dynamics of Immigration: Return Migration to Western Mexico. Shires, Michael A., and Melissa Glenn Haber (1997), A Review of Local Government Revenue Data in California. Shires, Michael A., John Ellwood, and Mary Sprague (1998), Has Proposition 13 Delivered? The Changing Tax Burden in California. Smolensky, Eugene, Eirik Evenhouse, and Siobhán Reilly (1997), Welfare Reform: A Primer in 12 Questions. Spetz, Joanne (1996), Nursing Staff Trends in California Hospitals: 1977 through 1995. Copies of PPIC publications may be ordered by e-mail (order@ppic.org) or phone (415) 291-4400. Full text versions are also available at: www.ppic.org. 90"
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