Court Backs Counties in Prop. 13 Suit

The California Supreme Court spared state and local governments a potentially devastating blow Wednesday when it upheld the method that Orange and many other counties use to assess property taxes.

The court declined to review an appeals court’s decision that found Orange County did not violate Proposition 13 when it retroactively raised taxes to make up for down years in the real estate market.

Had the Supreme Court intervened, state officials estimated that as much as $10 billion in property tax revenue would have had to be refunded to property owners statewide.

The high court voted 5 to 2 not to review the case.

Under Proposition 13, the landmark property tax limit approved by voters in 1978, counties cannot raise the assessed value of a parcel by more than 2% a year, even if values climbed higher than that -- effectively limiting the amount of taxes that homeowners have to pay.

During the declining real estate market of the early and mid-1990s, counties were not able to raise the assessed values of many homes by even 2%. When property values picked up again several years later, Orange County raised the assessed values of some homes by more than 2% to “recapture” the raises it had been unable to enforce in the down market.

In 2002, Orange County Superior Court Judge John Watson ruled that the recapturing method violated Proposition 13. Earlier this year, the 4th District Court of Appeals in Santa Ana reversed Watson, contending that the raises were legal as long as they did not cumulatively exceed the 2% annual hikes allowed under Proposition 13.

The Supreme Court’s decision was good news to the state and local governments, which are already struggling to balance their books, officials said. Had the Supreme Court intervened, Orange County could have been forced to pay out more than $400 million in refunds, said Treasurer-Tax Collector John M.W. Moorlach.

“It saves Orange County a boatload of money,” Moorlach said. “It reaffirms that the approach taken was correct and the decision of Judge Watson was a fluke.... One out of six taxpayers would have gotten a refund, and the rest of us would have had to pay for it.”

Rob Pool, a tax attorney and Seal Beach resident who fought the county over the tax increase, could not be reached for comment.