Prop. 13 Appeal Arguments Made; Ruling Due Soon

Orange County officials and tax activists squared off before a state appellate panel Wednesday in a battle over a commonly used method for assessing property values in California -- a case that could lead to an estimated $10 billion in tax refunds statewide.

A three-judge panel listened to more than 90 minutes of arguments before taking the matter under submission. The court must issue a ruling within 60 days.

The case began when Robert Pool, a tax attorney, appealed Orange County’s increase in the assessment of his Seal Beach home by 4% in 1999. Pool argued that the increase was illegal under the state’s landmark 1978 tax initiative, Proposition 13. After a county assessment appeals board agreed, the county took Pool to court.

In December 2001, Superior Court Judge John M. Watson agreed with Pool, finding that the county -- and by extension all counties in California -- routinely violated a provision of Proposition 13 that limits assessment increases to 2% a year. The next year, Watson granted the case class-action status.

Attorneys for Orange County Assessor Webster J. Guillory appealed the ruling, arguing that assessors, as they have been doing, may increase valuations by more than 2% to “recapture” tax amounts they were not able to collect when property values were flat or declining.

The Superior Court case was the first court test for the issue in the initiative’s 25-year history. A companion ballot initiative, Proposition 8, also passed in 1978 and refined Proposition 13 to allow property values to be reduced in a declining market.

Both sides expect the matter to ultimately be brought to the state Supreme Court.

Watchers of the case didn’t get many clues Wednesday to how the appellate panel might be leaning. The justices listened quietly to arguments -- on one side from attorneys representing Guillory, Orange County Treasurer-Tax Collector John M.W. Moorlach and the state Finance Department; and on the other side from attorneys Pool and David Gangloff.

At one point, Gangloff contended that Proposition 13, which was added to the state Constitution, was so plain in setting a 2% cap on assessment increases that “even a 10-year-old” could understand it.

After the hearing, Gangloff said he was unsure how the argument was received. “It’s hard to tell what they’re thinking,” he said.

Attorney Robert Luskin, representing Guillory, said the language of Proposition 13 was ambiguous and that it was the job of the Legislature to interpret it. The state Board of Equalization initially issued a ruling in 1978 that squares with Judge Watson’s later interpretation, in agreement with the plaintiff, but a legislative task force disagreed, acting to allow the “recapturing” that now goes on.

Luskin repeated arguments made before Watson that the natural consequence of declining assessments when the real estate market falls is that counties may recapture all that lost value when the market recovers. The method was proper, he said, as long as the assessments do not cumulatively increase more than 2% a year from the base-year value.

“It’s clear the legislative enactment was faithful to the law,” he said.

State officials say that, if Watson’s ruling ultimately is upheld, it could force counties to refund $10 billion statewide, including interest. That wouldn’t be automatic; taxpayers eligible for refunds would need to apply.