Hot Home Sales Fill Counties’ Coffers

California’s hot real estate market has boosted the coffers of local governments, which are reporting record increases in property tax revenue they intend to use to improve services slashed in recent years.

Los Angeles County announced Monday that it expects to collect an extra $223 million in property taxes in the next fiscal year, roughly a 9% increase; officials want to earmark it for the county’s troubled hospital system and to put more sheriff’s deputies on the streets.

Although property tax collections have been increasing steadily in recent years, officials said the frenetic rise in property values over the last 12 months, coupled with new construction, is pushing total assessments to levels they’ve never seen before. More houses are selling, allowing county tax assessors to revalue the properties to current market levels.

The fast-growing Inland Empire is seeing the biggest windfalls. San Bernardino County predicts its property taxes will double to about $320 million, and Riverside County expects a 30% increase. Counties in the Bay Area report smaller but still sizable jumps, even without the benefits of enormous new land development.

For the counties, which have been struggling for years with cuts in funding caused by the state’s financial problems, the extra money is a welcome turnaround.

In San Mateo County, officials plan to give employees raises and pay for construction of a new youth services center. In Riverside and San Bernardino counties, some of revenue will go to create special units to tackle identity theft cases. In San Francisco, officials want to beef up public health services.

“God bless low interest rates,” said Los Angeles County Supervisor Zev Yaroslavsky, “and God bless the rate of turnover of real estate, because it’s certainly made our life a lot easier.”

Yaroslavksy and others, however, cautioned against rushing to spend money that relies on what some analysts describe as a housing market bubble.

Local county governments, they said, cannot expect to reap similarly large increases in the future.

“They cannot count on sustained growth,” said Jon Coupal, president of the Howard Jarvis Taxpayers Assn. “Economies by their very nature are cyclical, with upturns and downturns. If they did not learn that from the dot-com boom, then they learned nothing at all.”

Local governments are the biggest beneficiaries of the red-hot real estate market because their income fluctuates with changes in property tax collections.

Although schools also receive property tax revenue, much of their funding is locked in by state law. The state government relies largely on income, sales and other business taxes to pay its bills.

County governments -- which provide health care along with law enforcement, welfare and other social services -- have become increasingly reliant on property taxes since the state two years ago cut the revenue they get from motor vehicle license fees.

In Los Angeles County, for example, property taxes make up about 60% to 70% of local revenue. The county’s 16% increase in property value last year was a boon.

But a crash could cause a drop in property tax revenue. The real estate bust of the early 1990s, for example, caused counties to lower the assessed values of thousands of properties as recently as 1996, resulting in a cut in tax revenue.

“I am concerned about it,” said David Janssen, L.A. County’s chief administrative officer. “It’s always nice to have a varied income, just like in an investment portfolio.”

The rise in property tax revenue was credited as one of the reasons for the unusually harmonious approval of Los Angeles County’s $19.6-billion on Monday, the first time the Board of Supervisors unanimously backed a budget package in at least a decade.

Janssen said the board has chosen a conservative approach to spending its windfall. Much of the extra money will go to short-term projects, such as earthquake retrofitting the county’s damaged administration building in downtown Los Angeles, rather than on new social service programs.

The extra funds, however, will help to ease the pain of cuts made in the last few years because of the state’s fiscal crisis.

Supervisors set aside additional money for the Sheriff’s Department to hire deputies and reopen jail dormitories that had been closed to save money.

They also allocated an extra $20 million for new homeless shelters and $125 million for the county’s financially beleaguered Health Services Department. Those funds should help delay the enormous deficit forecast in the next four years but won’t prevent the crisis entirely.

Despite the health funding, Supervisor Michael Antonovich warned against spending extra property tax revenue on programs that don’t assist property owners.

Such caution may not be as necessary in the Inland Empire, according to some local economists. In Riverside and San Bernardino counties, the growth of the housing market shows little sign of slowing down.

“Will this continue? Yeah, it will,” said economist John Husing. “Why? Because there’s a lot of dirt out here.”

The counties’ financial picture is also brighter than in more built-up coastal areas because of Proposition 13.

The statewide initiative passed in 1978 limits property tax increases to 2% a year. Under the law, county assessors can revalue a residence only after it has been sold.

In the Inland Empire, much of the boom has come from the construction of new housing, which can be assessed immediately at their true market price. The region recorded 51,928 housing starts in 2004. Values jumped 16% over the last year in Riverside County and 30% in San Bernardino County.

Riverside County’s property tax returns are expected to spike by a third to an estimated $217 million.

San Bernardino County posted the most spectacular gains, nearly doubling property tax revenue in the last year, from $161 million to $320 million. The swelling county treasury is largely attributable to skyrocketing property values and new residential construction.

San Bernardino officials plan to funnel the property tax windfall primarily into law enforcement, county spokesman David Wert said.

The county plans to beef up public safety ranks with at least 25 additional sheriff’s deputies, Wert said.

The rising value in Orange County real estate is evident by the shrinking number of properties that officials have had to auction for delinquent taxes. In each of the last several years, his office has auctioned about three dozen properties, according to John M.W. Moorlach, treasurer and tax collector. This year, it auctioned six.

Even the Bay Area, one of the most expensive regions in the state, is seeing modest jumps in property tax revenue because of high demand for a small number of high-priced residences. Northern California officials, however, remain cautious that the growth may be short-lived.

“We’re seeing little three-bedroom, 1.5-bath bungalows going for over a million here -- which is crazy,” said Reyna Farrales, San Mateo County’s deputy county manager. “And it’s talking about 35-, 40-year-old homes.”

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Times Staff Writers Jean O. Pasco in Orange County and Dan Morain in Sacramento contributed to this report.

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(BEGIN TEXT OF INFOBOX)

Property taxes up

Assessments of Los Angeles County property are estimated to increase this year by 9% to 10%, boosting property tax revenues.

Percent annual change, L.A. County property assessments

1995: -1.7

1996: -0.2

1997: 1.1

1998: 3.1

1999: 5.6

2000: 6.7

2001: 6.8

2002: 6.2

2003: 7.4

2004: 7.6

2005: 9*

* Estimated

Source: Los Angeles County Assessor’s Office