County Fears Losses as Property Tax Claims Rise

Dispatch from the trenches of the property tax revolt, Los Angeles County sector: No casualties yet, but tempers are on hair triggers.

Consider Gary Winter.

The West Hills homeowner stood up at a recent hearing with his arms tightly crossed and anger in his eyes. The tax madness just has to stop, he said.

“I can’t even sell my house for $435,000 and you’re taxing me like it’s still worth $590,000,” said Winter, an executive for a film company.

“You’ve got to be an idiot not to know that a house bought in 1989 is not worth the same in 1994.”

Winter’s salvo isn’t the only one being fired.

Anxious to capitalize on declining real estate values, the owners of more than 134,000 homes and businesses have bombarded Los Angeles, Orange and San Diego counties in the past two years with requests for lower property tax bills. In Los Angeles County alone, more than 35,000 claims have been filed so far this fiscal year--the equivalent of seven normal years’ workload.

No statewide figures are available, but tax experts said most of the requests are raining down on Southern California counties because the real estate market here is suffering the steepest decline in the state--down an average of about 20% from its 1989-90 peak.

The hail of assessment appeals has county officials scurrying for cover. With a two-year legal limit to process each claim, time is fast running out on the 41,767 cases pending in Los Angeles County. If the county fails to meet the deadline, the property owner’s valuation (usually lower) automatically becomes the basis on which the taxes are collected.

Since that could lead to untold millions of dollars in lost tax revenue, the county recently allocated $661,000 for extra staff in an effort to move the appeals through the system on time. And local officials are working with the California State Assn. of Counties to get a law passed that would give counties an extra year to process the claims.

“We’re really in a state of panic,” said Dan Wall, the association’s revenue and taxation lobbyist. “Here is a hugely significant revenue source that accounts for 20% of the state’s total tax revenues, and it’s under fire.”

Wall said the attack is being mounted by two types of tax warriors: people with legitimate claims and those who are trying to take advantage of the system.

“Some folks know there is this huge backlog and are playing a little game of chance in the hopes that the assessors won’t get to the appeal in time,” Wall said.

But Los Angeles County officials believe that most of the claims are legitimate because property values have, indeed, declined. But they caution that homeowners, who comprise about 70% of the applicants, may have to settle for smaller reductions than they desire.

“The people who wind up at these hearings are often very confused about the procedures, but they accurately perceive that they are deserving of some type of break,” said Marvin Lane, a division chief with the county assessor’s office.

In response to the declining real estate market, the county last year voluntarily reduced the property tax bills of about 240,000 of the 350,000 people who purchased homes between late 1988 and early 1992. As a result, it lost more than $80 million of the $4.9 billion in property taxes it could have collected.

But it gained an unexpected ally--the conservative Howard Jarvis Taxpayers Assn.

Assessor Kenneth P. Hahn “deserves a lot of praise from taxpayers for lowering the bills,” said Kris Vosburgh, executive director of the taxpayers’ group. “We think the appeals system is still fair even though it’s a little slow.”

But it’s a different story on the front lines, where scores of angry homeowners who didn’t get automatic tax breaks are challenging county bureaucrats at a dozen government offices throughout Los Angeles County.

“People verbally attack me and I have to take it,” said Cleo Davis, a hearing officer who presided during a hearing in Van Nuys earlier this month at which Winter spoke. “I try to be nice to everybody, but after four or five hours of sitting here, it’s not easy.”

Winter’s case demonstrates the pitfalls of doing battle without the proper weapons--a thorough understanding of the arcane, time-consuming appeals process and the right facts and figures.

Property taxes are calculated as a percentage of the appraised value of the house--about 1.25% annually, including bonds and assessment district fees. Appraised values, and thus taxes, usually rise by about 2% a year. In times of declining prices, a homeowner can request a reassessment by claiming that the house is worth less today than what was paid for it. The tax reductions will last until the economy improves, county officials said.

Taxpayers who appeal an assessment have three choices: negotiate a settlement with the assessor’s office; opt for a meeting with a hearing officer who listens to evidence presented by a county appraiser and the homeowner, then recommends an assessment; or present their case before one of the county’s three-member appeals boards, whose decision is final.

In Winter’s case, his three-bedroom house with three bathrooms and a pool is currently assessed at $590,465, reflecting the top-dollar price of $525,000 he paid in 1989 when the market was peaking, plus improvements he made and annual tax increases. He therefore owes the county about $7,381 in annual property taxes.

But Winter, who recently married and purchased another residence with his wife, says he offered the house for sale in 1992 and couldn’t even get the rock-bottom price of $435,000. He wants the county to drop the assessed value to $408,000, based on a professional appraisal and recent sales of comparable properties in the area.

At that rate, Winter would pay about $5,100 in property taxes, or about $2,281 less than under the current assessment.

But the county is only willing to drop Winter’s taxes to $5,937, based on an assessed value of $475,000, which would force him to pay $837 more.

“Will we starve without that money? No, but we’ve got $30,000 in earthquake damage and a daughter to educate,” said Winter’s wife, Jackie. “And I can’t believe we’re alone in saying that in these times, a $2,000 tax break would really help us.”

The county arrived at the higher assessment based on comparable sales of similar houses in Winter’s West Hills neighborhood through May 31, 1993.

Therein lies one of the rules that caught Winter off guard.

Under state law, the county can only take into account the decline that occurred through the end of the fifth month (May) of the year the appeal was filed. But Winter had to wait almost a year for his case to be heard because of the county’s backlog. So by the time he got a hearing, the value of his property may have indeed declined even further than when he requested the reduction.

But to qualify for further reductions, Winter will have to reapply. He and other taxpayers can expect delays of six to 18 months for requests filed this year, unless they are willing to negotiate a settlement with the assessor’s office over the phone, officials said.

In the meantime, they must pay the full amount of their bills while they wait to find out if they qualify for a refund.

“You know the game and we don’t,” Winter said angrily to Davis during the hearing when it became clear he would not get his way. “We didn’t know what to bring. We thought it was going to be just you. We didn’t realize it was like a trial with someone from the assessor’s office to play the part of the prosecution. You’re trying to railroad this through.”

“I’m just a worker,” Davis responded, falling back on bureaucrats’ age-old defense.

“It is so frustrating,” Winter said. “I just want what is fair.”

In a sense, Winter and others like him are already winners under California’s tax system because they pay some of the lowest tax rates in the nation. Under Proposition 13, the government can lower property assessments to reflect true market value in bad times but is prohibited from raising them above 2% annually. In boom times, that’s far less than the property is actually worth, said Lenny Goldberg, a spokesman for the California Tax Reform Assn.

But Winter doesn’t plan to surrender the cause. Stalking out of the 15-minute hearing earlier this month, he vowed to take his case to the assessment appeals board--with one major difference.

“On appeal,” he said, “we’re going to be much, much better prepared.”

Tax Appeals

Taxpayers have flooded Los Angeles County with requests for lower property tax bills after the real estate market peaked in 1989 and began declining.

Fiscal year Appeals 1985-86 5,444 1986-87 5,557 1987-88 4,253 1988-89 5,176 1989-90 4,990 1990-91 5,751 1991-92 8,286 1992-93 20,456 1993-94 * 35,721

* Appeals to date

Source: L.A. County, Assessment Appeals Division