Judge Postpones Ruling in Property Tax Case

An Orange County judge deferred ruling Monday on whether to grant class-action status to a homeowner’s lawsuit against the county over property tax assessments, pending a possible appeal of his original decision.

Judge John M. Watson was persuaded to delay his decision by attorneys for the county and the homeowners, who argued for an appellate review of what could become a California landmark case.

But just when, and by whom, such an appeal would be filed hasn’t been decided.

Currently, the case applies only to attorney Robert A. Pool and his wife, Renee Bezaire, who sued over their 1998-99 tax bill. If the case is upheld and given class-action status, it could cost local governments millions of dollars and result in lower property taxes for thousands.

The question is whether the Orange County assessor’s office violated Proposition 13, passed in 1978, which limits increases in the taxable value of properties to no more than 2% a year.

In a decision earlier this month, Watson said the county improperly disregarded Proposition 13 by increasing the value of the couple’s Seal Beach home by 4% in one year. The county argued that it was recovering taxes that hadn’t been paid by the couple when their home’s value stayed flat.

This “recapturing” method is used by every assessor in California, county attorneys said.

Assessors have argued that the 2% limit doesn’t apply when property values have remained flat or dropped, then risen as real estate values rebound. In that case, they said, property can be restored to the value it would have held if its worth had climbed uninterrupted.

Deputy County Counsel James Harman said the Board of Supervisors still must decide whether to challenge Watson’s decision. County Counsel Benjamin deMayo has recommended the appeal.

Assessor Webster J. Guillory said he is waiting to see what the board decides. It is possible, he said, that he could ask county counsel to appeal the decision if the board balks.

Supervisors Will Discuss Issue in Closed Meeting

Supervisors will consider what to do next at a Dec. 4 closed-door session. The board discussed the matter last week but deferred a decision because Supervisor Jim Silva was absent.

Supervisor Todd Spitzer said he supports asking the appellate court to affirm Watson’s decision, rather than fighting the ruling. “Just because this could cost a lot of money [in refunds] doesn’t give local government the right to tax people in violation of the Constitution,” Spitzer said.

Pool and his attorney and law partner, David L. Gangloff Jr., said appealing the case would provide them more time to identify other property owners in the same situation. It also would save money on the costs of contacting potentially thousands of people if Watson’s ruling isn’t upheld.

“We think it would be good [to appeal] before everyone knocks themselves out trying to find these property owners,” Gangloff said.

Also at issue is how broadly to apply Watson’s ruling, if it is upheld. Class-action status could apply to property owners who appealed their assessments, or to a much larger group of people whose assessments rose by more than 2% a year.

Watson asked Monday what would happen if the larger group were included. Gangloff said two previous appellate court cases have limited class-action cases involving taxpayers to only those who appealed their bills.

The attorneys are encouraging property owners whose assessments rose above 2% a year to file appeals, just in case. The pair also created a Web site--https://www.propertytaxrefunds.biz--for property owners to share information about their assessments.

Since Watson’s ruling, several homeowners have said their property values soared not only in a single year, but for several years. The value of Steve Nadel’s Laguna Niguel home, for example, jumped 17% for 1999-00, 16.4% for 2000-01 and 11.5% for this tax year.

Home’s Value Stayed Level for 2 Years

Nadel said he didn’t appeal the assessments because his tax bill included a statement that the increases were legal. If Pool’s lawsuit is expanded, he said, he wants to be included.

“I’m not holding my breath thinking I’m going to get anything back, but I’d like to know that in the future, I’m not going to get [increases of] more than 2%,” he said.

Pool and his wife bought their $330,000 home in November 1995. For two years, the home’s taxable value stayed the same because of a flat real estate market. But in 1998, the assessor raised the taxable value to $343,332, arguing that the jump of 4% was justified.

Orange County officials have not revealed the number of properties retroactively reassessed or how much would have to be refunded if Watson’s ruling stands and is expanded. But officials estimate that over the last few years, the value of about 330,000 parcels dropped or remained flat.

In Los Angeles County, about 147,000 homes retroactively reassessed last year could be affected by the ruling--representing about $92 million in property tax revenue.

The average property tax bill is about 1.2% of the assessed value. Counties receive about 5 cents of every tax dollar, with state and other taxing agencies, such as schools, receiving the rest.

Spitzer said a successful appeal that outlaws the assessment practice could trigger one unfortunate effect: It could persuade assessors to stop issuing blanket reductions in property values during bad economic times.

Previously, property owners who believed their values had dropped had to appeal individually under Proposition 8, which also passed in 1978. But assessors began reducing property assessments during economic downturns without requests by owners.