GLENDALE — Homeowners may get an unprecedented property tax break in 2010 if the California Board of Equalization this fall determines there has been deflation in the past year, officials said Tuesday.
Property taxes are calculated based on a home’s assessed value at the time of its purchase. Since the calculation is tied to inflation, property tax rolls have never decreased, according to the Board of Equalization. So assessors statewide found themselves scratching their heads this year about the possibility of deflation, which hasn’t happened with taxable property values since the state’s calculation methods were enacted with Proposition 13 in 1978, Los Angeles County Assessor Rick Auerbach said.
“Since it’s never happened, nobody really worried about it,” Auerbach said.
The board, in response to inquiries from assessors, has indicated that it will allow for a deflation in taxable home values if the Consumer Price Index shows a downward trend when it is measured in October, said Anita Gore, spokeswoman for the board.
While the change could bring a welcome break from another year of dollar-value property tax hikes for residents, it could also mean a drop in revenues for local schools and governments, officials said.
Deflation is not yet certain, but the board’s decision does leave the door open for the possibility, Gore said.
“It just depends,” she said. “It depends on what inflation does between now and October.”
California’s Franchise Tax Board announced last month it had lowered the dollar thresholds for income tax brackets and other valuations to match deflation of 1.5%. Those brackets and valuations rose a year ago to match inflation of 5%.
Given the Franchise Tax Board’s recent change, a drop in taxable property values may be on the horizon, although recent trends show they could rise or reflect minimal inflation by October, officials said.
Still, any decrease in growth would cut governments off from annual inflationary increases in property tax revenues, Auerbach said.
The 2% inflationary increase accounted for in the 2008-09 fiscal year pulled in $153 million in additional tax revenues countywide, of which about a third went to county services. The remainder went to cities and schools, Auerbach said.
To go without similar growth during a year in which governments are already hemorrhaging from the recession could add to current challenges, he said.
“Fifty million dollars is a sizable amount, no matter what,” he said of the county’s approximate share of inflated property tax revenues during the current fiscal year.
Glendale and Burbank officials were uncertain what effect any loss of property tax revenues might have on their budgets.
While property taxes make up large chunks of each city’s funds, they have the potential for improving based on home sales, city officials said.
Because each property’s taxable value is set at the time of its purchase and likely has not risen to match high market values, even when recent price drops are taken into account, any home sales could reset previously low taxable values that rose at only 2% annually, they said.
Any potential drop in property tax values would help residents, many of whom have struggled with fixed incomes that have not kept pace with inflation, said Joanne Hedge, president of the Glendale Rancho Homeowners Assn.
“A break like that would be most welcome because it’s been pretty tough for people around here,” Hedge said.