Tax to Be Cut on 240,000 Homes : Property: Reduced L.A. County assessment reflects decline in value and affects most houses bought since 1988. Governments could lose more than $140 million.

Reacting to a dramatic $14-billion decline in the assessed value of Los Angeles County real estate, officials announced Wednesday that they will lower the property tax bills of an estimated 240,000 homeowners.

The reduction in assessed property values is the largest ever in the county and marks the first time officials have initiated the lowering of property taxes. The action reflects a persistent slump in residential and commercial real estate. The lowering of property tax rates could cost cash-strapped state and local governments more than $140 million, officials said.

Officials at the tax assessor’s office said the value of single-family homes in Los Angeles County has dropped an average of 12% since 1988.

Taxes will automatically be lowered by 5% to 25% on homes sold after 1988 if the value of the property has declined, officials said. In the past, property could be reassessed only at an owner’s request.

Other homeowners will be able to apply for reductions if they believe they qualify, officials said.

“Although this significant decrease in revenue will hurt the county, I cannot--in good conscience, or by law--allow properties . . . to be taxed higher than the current market value,” Assessor Kenneth P. Hahn said.

Hahn said he took the action after receiving a letter from the State Board of Equalization in September saying that state law requires equal effort to be applied in assessing both declines and increases in property values.

Orange and Ventura counties have taken similar action. About 31,000 Ventura County homeowners saved an average of $300 on their property tax bills last year. Orange County lowered tax assessments on 9,000 parcels, slightly more than half of which were commercial properties.

In Los Angeles County, only single-family residential properties are eligible for the automatic tax break. Collectively, the 240,000 homes have lost $8.5 billion in value since 1988, Hahn said. Commercial and other property dropped by $5.5 billion, and those owners still must request reassessment.

The total assessed value of all property in the county is about $500 billion.

In years past, the assessed value of all property in the county increased by about 10% annually, officials said. In some years and in some areas, it increased as much as 25%. This year, officials expect total assessed property value to rise a meager 1%.

“It speaks to the seriousness of the economic conditions and to the assessor’s attempt to maintain the credibility of government,” said Gary Townsend, a spokesman for the assessor’s office. “If we raised property taxes during good times, we have to recognize when values have gone down.”

The assessor’s office will undertake a computer-assisted review of 350,000 single-family homes sold since 1988. Of those, an estimated 240,000 have declined in value, Hahn said. Homes sold in 1988 or earlier will not be reviewed because most have either increased in value or decreased back to their original values.

Those receiving the tax break are to be notified by mail in late May.

About 40% of the property taxes collected by the assessor’s office fund services in Los Angeles County, officials said. County government is facing a $1.4-billion shortfall in the coming fiscal year and the drop in property tax revenue probably will contribute to the county’s fiscal crisis, they said.

Board of Supervisors Chairman Ed Edelman had mixed feelings about the action.

“For the individual property owners, it’s probably good news,” he said. “In general, it’s not the best news for the county because we’re losing revenue.”

The assessor is an elected official, and Hahn said the action falls within his power under the County Charter. Reassessing property values does not require approval by the Board of Supervisors, he said.

Hahn remained optimistic that the real estate market will soon begin to improve.

“We’ve pretty much approached the bottom,” Hahn said. “We are not going to see additional substantial decline next year. We’re taking our hit now so we don’t have to take it next year.

John Karevoll of Dataquick, a real estate information service, said he expects property owners with homes valued at more than $300,000 to benefit most from the assessor’s action. He said homes worth that much and more have experienced the greatest losses in value.

Moderately priced homes “by and large . . . have retained their value,” he said.

Karevoll said that owners of homes worth about $175,000 probably will see their bills lowered by approximately $50. Those who own homes worth about $350,000 may have tax reductions of as much as $800, he estimated.

In Orange County, the assessor’s office is planning another reduction in assessments this year, officials said. Howard Whitcomb, a spokesman for the assessor, could not say how many properties might be affected, but said the number would be much smaller than in Los Angeles County.

Times staff writers Peggy Y. Lee in Ventura County and Dan Weikel in Orange County contributed to this story.