Supervisors Won’t Fight Tax Ruling

Orange County supervisors Tuesday ducked what could become a far-reaching legal battle by voting not to challenge a recent court ruling that found a key method for assessing property unconstitutional.

Instead, they punted to independently elected Assessor Webster J. Guillory, allowing him to hire his own attorneys for an appeal, with the county paying the costs.

Supervisors also recommended that Guillory immediately stop using the assessment method--called “recapturing”--because a Superior Court judge ruled that it violates Proposition 13, the state’s landmark 1978 tax-reform measure.

The board also directed the assessor, tax collector and the auditor/controller to notify anyone whose properties were assessed under the method during the last four years that they might have overpaid their taxes. State law allows taxpayers up to four years to file claims for refunds.

Supervisor Todd Spitzer drafted the board’s response to last month’s ruling by Judge John M. Watson. The vote was 4 to 1, with Supervisor Chuck Smith dissenting because of the possible loss of tax money to schools, cities and other governments.

County attorneys have defended recapturing, which allows the assessed value on some properties to rise above the 2%-per-year limit set by Proposition 13. County assessors statewide use the same method.

“We’ve shifted this issue to where it should be, and that is with the assessor,” said Spitzer, who supports Watson’s ruling. “This has become a pattern and practice of assessors statewide. It’s the assessor’s responsibility to defend it in court.”

Guillory Says He Wants Clarification

Guillory hasn’t decided whether to appeal the ruling. He is independently elected by voters and faces reelection in March. Watson’s ruling contradicts other provisions of law, Guillory said, and one way to clarify things would be to let a higher court decide the issue.

“This [ruling] may personally be good for a lot of people,” he said. “I’m not against it, I just want to get some clarity. My role is to promote accuracy and uniformity.”

Proposition 13, which passed overwhelmingly, prohibited assessments from rising more than 2% a year unless properties were sold. But assessors statewide, including Guillory, routinely assess above that rate the properties where values have slumped and then recovered.

Watson ruled that Proposition 13 clearly provides for property values to drop during bad economic times. But they cannot rise more than 2% a year regardless of how much the real estate market springs back, he said.

California taxpayers and government groups are closely watching the Orange County case because it’s the first ruling on the legality of recapturing. Response has been divided over whether the case should be appealed, which could lead to the assessment practice being declared unconstitutional statewide.

“That’s a pretty large risk,” said Pat Leary, legislative representative for the County Supervisors Assn. of California, which is monitoring the case. “It’s a risk, especially in these economic times. But a lot of people think [the ruling] would be overturned on appeal.”

Tax attorney Rob Pool of Seal Beach, who filed the case, said the board’s actions Tuesday should be commended. He bought his $330,000 home in 1995. Because of a drop in the real estate market, the house wasn’t reassessed for two years. Then, in 1998, its taxable value was set at $343,200--a 4% increase.

Pool said he’ll push for Watson to expand the case into a class-action lawsuit on behalf of every Orange County property owner whose assessments rose above 2% a year since 1998. Watson indicated last month that he would delay ruling on the class-action issue until after supervisors decided whether to appeal.

“The sooner they come to grips with it, the better off they’ll be,” Pool said. “This issue isn’t going to go away.”

Impact on Government Would Be Substantial

If the ruling is upheld, the impact on schools, cities and county government could be substantial. Auditor-Controller David E. Sundstrom has estimated that governments countywide would lose $147 million in taxes in the first year. Of that, schools would lose the most--$94 million. The state, however, must make up the difference if schools dip below a minimum level of funding.

If the ruling were applied retroactively, Orange County’s taxing agencies would have to refund an additional $285 million in excess property taxes paid between 1998 and 2001, Sundstrom estimated. Statewide, the loss could go as high as $4 billion, he said.

Pool acknowledged that schools, cities and the county could be forced to refund millions of dollars. The biggest hit would come in the first year, then diminish as properties were sold.

But naysayers warned of the same impending fiscal doom in 1978 when Proposition 13 passed, Pool said. But it didn’t happen, he said: In 1975, the Los Angeles County property tax roll was $85 billion. For 2001-02, the tax roll is $610 billion. Comparative figures for Orange County were unavailable.

Assessor employee Larry L. Bales, who is challenging Guillory in March, said the county’s reliance on the recapturing method will become an issue in his campaign. Supervisors facing reelection include board Chairwoman Cynthia P. Coad, Vice Chairman Tom Wilson and Jim Silva, who all voted against lodging an appeal. Spitzer, reelected last year, is running for the Assembly.

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