The city of Bell illegally raised its property taxes in 2007 and must immediately give up $2.9 million it has collected since then, state Controller John Chiang said Friday.
Chiang ordered Bell to immediately reduce the "retirement tax" rate, which its City Council increased in 2007 to cover rising pension costs for its employees. The reductions will apply to the next round of property taxes due in November, said Jacob Roper, a spokesman for Chiang.
"Taxpayers should not have had to pay that money," Roper said.
The controller's finding appears to confirm longstanding complaints from Bell property owners that they were being overtaxed. The Times reported last month that Bell officials collected huge paychecks, that the city had cut police and other services and that its property owners were paying higher tax rates than all but one city in Los Angeles County.
The owner of a home in Bell with an assessed value of $400,000 will save about $360 a year because of the cut, an official with the Los Angeles County auditor-controller's office said Friday.
But Bell residents won't be getting a tax refund. According to state law, the nearly $3-million overpayment cannot be refunded to taxpayers and must instead go to schools in the city, Roper said.
Chiang's order marked the latest twist in a scandal that broke last month when The Times reported that the working-class city of about 39,000 was paying its administrators and police chief the largest municipal salaries in the state, if not the country, with City Manager Robert Rizzo making nearly $800,000 a year.
On Friday, some Bell residents said they were angry about being overtaxed but that they found the controller's findings vindicating.
"As a resident and property owner I am very outraged," said Ali Saleh, co-founder of the Bell Assn. to Stop the Abuse. "This proves all the complaining we have done about the high taxes is true."
Bell resident Huitzil Arenas, 43, agreed, adding: "I'm very angry.... They stole money from the people."
Bell's interim city manager, Pedro Carrillo, said Friday that auditors from the state controller's office discovered the overcharge Thursday night. The City Council is expected to vote on a resolution Monday that will lower the tax rate, he said, and Bell will repay the $2.9 million from a $5-million reserve fund.
"We haven't determined what the fiscal impact of this is yet," he said.
The focus of Chiang's action Friday is a so-called retirement tax, which was approved by local voters in 1944 and made property owners responsible for some of the cost of municipal employees' pensions.
For at least 20 years prior to 2007, the retirement tax had stayed at the same rate of 0.187%.
In 2007, the City Council passed a resolution calling for a series of increases over the next three years. The current rate is 0.277%, or roughly 50% higher than it was three years ago.
On Friday, Chiang ordered the rate rolled back to 0.187%.
Roper, the controller's spokesman, said the amount of property tax that residents can be assessed for pension costs are capped by the tax code to the rate Bell applied in 1984. Increases the City Council set in motion starting in 2007 are illegal, he said.
Roper said the controller's office is unaware whether the property tax increase was implemented concurrently with increased pension benefits for local officials, or if it was intended to be used to cover existing contracts.
The former officials' salaries and Bell's hefty property taxes contrast sharply with city residents' financial standing. Median household income in Bell, just southeast of Los Angeles, is $40,556 —- well below the countywide average of $57,152.
The district attorney and state attorney general have launched investigations into the high pay, as well as allegations of voter fraud and improper property transactions.
Carrillo and interim City Atty. Jamie Casso said they are intent on getting to the bottom of the property tax issue and other alleged improprieties.
"This is why we've been working with the state controller and our city attorney," Carrillo said. "And that is to fix whatever is broken — and it seems we are finding a lot of that."
He also said the city is exploring options for making rebates to residents for their retirement tax overpayment.
All county property owners pay a 1% general property tax, along with special or direct assessments levied by their municipalities. The countywide average of all tax rates is 1.16%, or $11.60 for every $1,000 of assessed value.
Bell's total property tax rate is 1.55%.
That means the owner of a home in Bell with an assessed value of $400,000 pays about $6,200 in annual property taxes. The owner of the same house in Malibu, whose rate is 1.10%, would pay just $4,400.
Bell's high tax rate is due to several factors, records show, including bond debt for municipal improvements such as a sports complex now under construction. Since 2006, county records show, Bell's local taxes have doubled, as have direct assessments for trash collection, sewer maintenance and other services.
Even with the retirement tax cut, Bell's overall rates will remain higher than many cities in the county, in part because of a 0.09% assessment that kicked in this year to cover the bond debt, which was approved by voters.
Revenue from the tax increases went to designated funds or services and did not directly pay for administrators' salaries. But by freeing money from the city's general fund, the higher taxes appear to have made the outsized salaries more feasible for the small city.
Miguel Sanchez, 33, said he paid $5,403 in property taxes in 2009, up from $4,866 the year before.
"It was hitting us hard," Sanchez said. "We knew our property taxes in Bell were high. But I'm very upset about this. Enraged really."
Times staff writer Jeff Gottlieb contributed to this report.