The only things certain in life are death and taxes. Through technology, we may eventually cheat death, but taxes are here to stay.

What Proposition 8 giveth, Proposition 8 taketh away. California tax code section 51(e), enacted at the same time as Proposition 13, requires the tax assessor to annually adjust tax levies based on current full-market value. This was great when property values were falling and property tax bills fell dramatically. Now, property taxes are set to jump back up for homes bought during the bubble years.

Will a jump in property taxes cause more defaults, or will more equity owners sell at a loss because of cash-flow issues?

The CALIFORNIA TAX CODE SECTIONS 51(a) [Prop 13], and 51(e) [Prop 8], state the following:

51. (a) For purposes of subdivision (b) of Section 2 of Article
XIII A of the California Constitution, for each lien date after the
lien date in which the base year value is determined pursuant to
Section 110.1, the taxable value of real property shall, except as
otherwise provided in subdivision (b) or (c), be the lesser of:
(1) Its base year value, compounded annually since the base year
by an inflation factor, which shall be determined as follows:

(C) For any assessment year commencing on or after January 1,
1998, the inflation factor shall be the percentage change, rounded to
the nearest one-thousandth of 1 percent, from October of the prior
fiscal year to October of the current fiscal year in the California
Consumer Price Index for all items, as determined by the California
Department of Industrial Relations.
(D) In no event shall the percentage increase for any assessment
year determined pursuant to subparagraph (A), (B), or (C) exceed 2
percent of the prior year’s value.

51. (e) Nothing in this section shall be construed to require the
assessor to make an annual reappraisal of all assessable property.
However, for each lien date after the first lien date for which the
taxable value of property is reduced pursuant to paragraph (2) of
subdivision (a), the value of that property shall be annually
reappraised at its full cash value as defined in Section 110 until
that value exceeds the value determined pursuant to paragraph (1) of
subdivision (a). In no event shall the assessor condition the
implementation of the preceding sentence in any year upon the filing
of an assessment appeal.

As California property values rise, owners see big tax bill hikes

May 5, 2014

The revival of California’s economy and a rising housing market mean some hefty property tax increases for homeowners, the Legislature’s budget analyst believes.

When property values were dropping sharply during recession, county tax assessors adjusted tax rolls downward, which then lowered property tax bills. Many property owners also applied for reductions.

The average homeowner saw a $1,600 property tax cut while those for commercial property averaged $7,500. “In total, temporary property tax reductions depressed local government property tax revenues by an estimated $7 billion in 2013-14, amounting to a 15 percent reduction statewide,” the Legislative Analyst’s Office (LAO) says in a new report.

Maybe the legislature will refund the excess tax revenue out of the goodness of their hearts? Clearly they don’t need the extra money – we have a balanced budget after all. Or maybe we could reduce the sales tax and roll back income taxes? In my opinion, we will see daily commutes to Mars and people breathing water before the legislature gives “unneeded” revenue back to taxpayers. I bet there is already a line forming in Sacramento to receive all the extra property tax money.

But with a rising market, the LAO says those cuts are being rescinded, as state law allows, and some property owners may see tax increases as high as 20 percent. It notes that home values rose statewide by 12 percent in 2012, but those increases were not immediately reflected in property tax bills.

Proposition 13, passed by voters in 1978, limits annual increases in taxable values to 2 percent, but state tax law also allows temporary decreases in those values to be fully recovered later if the market increases. Increases of up to 20 percent were reported during the 2013-14 fiscal year, based on the 2012 market rise.

“Looking ahead, property tax payments for many owners that received temporary property tax reductions during the real estate crisis could increase by more than 10 percent annually for the next several years,” the LAO said. “These increases likely will cause local property tax revenues to grow swiftly over the next several years as well.”

And I’m sure all this extra revenue will be spent efficiently, right? The easiest way to spend the money is to raise salaries of current workers. That way no extra work has to be done to deal with the problem of all these extra revenues.

The taxable value decreases were heaviest in communities — mostly in inland areas — that had felt the sharpest effect of the housing industry meltdown. Stanislaus County saw the steepest decline in home sale prices, 65 percent, and tax assessments were reduced for 51 percent of the county’s properties, so it could see the one of the biggest upticks.

I wonder how many properties there are left in these areas from the bubble days? Many of these were foreclosed on. Will banks holding REO continue to hold them when they get these higher tax bills? Will this slow the foreclosure process since banks don’t want to pay these high taxes?

The $7 billion reduction in local property tax revenues also affected the state budget because the state was required to make up the schools’ losses of about $3.2 billion. Therefore, the increases in property values and property taxes not only are increasing revenues to local governments but reducing the state’s constitutionally required level of education spending.

There is your answer. The state will take all the extra property tax revenue and reduce local contributions dollar-for-dollar. Once the initial $3.2B shortfall is zeroed-out, then extra taxes go to schools at 55% of the increase, I assume. I’m not sure if the local tax base will see any increase – it pays to be upriver, I guess. If you’re the state, you can take all the water, and send the sewage to the land of elsewhere.

Tax bills are going up for bubble owners. What is going to happen?


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