• Justin Sullivan/Getty Images file photo
• Real estate in San Francisco and around the Bay Area is poised for an upswing, much like the trend before the recession hit.

In the half-decade before California was clobbered by its worst recession since the Great Depression, taxable property values — those of land, homes, apartments and commercial buildings — exploded.

Between 2003 and 2009, values increased by a whopping two-thirds, from $2.7 trillion to $4.5 trillion, much from new construction, and local governments enjoyed a nearly $20 billion increase in annual revenue from the boom.

We all know what happened next: The real estate market went into a tailspin. Local governments that had banked, literally, on ever-increasing revenues felt the pinch. It contributed heavily to two cities’ bankruptcies.

Actually, taxable values didn’t go into the tank.

They just stopped growing and shrank a little, falling to $4.3 trillion in 2011. And as the state’s economy began to improve, so did property values, rising slightly in 2012.

This year, they are poised to register a sharp gain, based on reports from local assessors that are being compiled by the state Board of Equalization.

Gov. Jerry Brown’s 2013-14 budget assumes a 2.8 percent increase, but it’s more likely to be in the 4 to 5 percent range.

Los Angeles County, which has a quarter of the state’s taxable property, is up 4.66 percent, and in some of the counties experiencing economic booms, such as those in the Bay Area, the gains are higher. They’re up 6 percent in San Mateo County, for example, and 5.17 percent in Alameda County.

Each percentage point of property value increase generates about a $500 million in additional revenue statewide, so overall, the increase could be well over $2 billion for local coffers and, indirectly, for the state treasury.

Under the state constitution, schools are guaranteed certain amounts of revenue, with the first increment coming from property taxes and the state providing the remainder. Thus any unanticipated increase in local property values and taxes decreases what the state must pay schools.

It’s not another property bubble, at least not yet, but with the housing construction industry beginning to pick up again, California could see strong growth in property taxes in the years ahead. The state is also seeing a surge in sales and income taxes, $2 billion over estimates already this year.

These revenue jumps, however, create another challenge for state and local politicians, who have overspent previous windfalls, leading to huge budget deficits and, as mentioned earlier, the bankruptcies of two cities.

Those who want more spending, whether it’s for government services or public employees’ salaries, will be pressing politicians hard.

Brown has said he wants to resist that pressure and redirect any windfalls into debt reduction and reserves.

But as the money piles up, the pressure will grow.

Dan Walters covers state politics for the Sacramento Bee.

Article source: http://www.sfexaminer.com/sanfrancisco/california-property-values-poised-to-soar/Content?oid=2535210

The uneven recovery of the Bay Area real estate market over the past year has created opportunities for real estate owners to challenge their property tax assessments. Areas that have experienced the strongest growth, as well as markets in which the recovery is lagging, may be ripe for challenges to property tax assessments.

Pregnant propositions

Under California’s Proposition 13, property taxes are based on the purchase price paid for a property or on the cost of constructing the property. Thereafter, Proposition 13 caps value increases (and property tax increases) at 2 percent annually.

When property values decline, Proposition 8, the bookend to Proposition 13, requires county assessors to reduce taxable property values below Proposition 13 value caps to reflect current market conditions. As real estate values recover following a downturn, assessors restore taxable values back to Proposition 13 levels.

Over the past year or so, core Bay Area markets (primarily San Francisco and the Silicon Valley) have experienced strong growth in market rents and declines in capitalization rates, particularly as compared to other Bay Area real estate markets. Because of the brisk recovery in core markets, county assessors have aggressively moved to restore 2012 values, determined as of Jan. 1, 2012, back to Proposition 13 levels. Such value restorations can bring major increases in assessments and taxes.

Assessors exercise value judgment

In order to restore property values to Proposition 13 levels, California requires county assessors to evaluate market sales and rental information. In so doing, assessors consider ranges of information on sales and rentals, and exercise their judgment as to whether values should fall in the top, middle or bottom of a range.

While assessors generally determine values for residential properties using computerized mass appraisal techniques, commercial properties tend to be more complex and require individual attention by assessor staff.

This year, the assessors in San Francisco and Santa Clara County have restored property values and assessments to levels at or near Proposition 13 amounts, which, in some cases, has dramatically increased tax bills as compared to 2011. In doing so, assessors may have justified assessments using more recent rental rates or cap rates, rather than using average rates during the 12 months prior to Jan. 1, which tends to accelerate value increases.

In 2012, most Bay Area counties announced increases in their property tax rolls.

The 2012 roll increases are due, at least in part, to increasing sales and leasing activity, which tend to be reflected in higher property tax values and assessments. However, these increases also reflect Proposition 13 value restorations described previously, and highlight those counties which merit increased consideration as far as whether to review and appeal property tax assessments.

Property tax appeal opportunities

The current situation presents several types of property tax appeal opportunities. First, for properties in San Francisco, San Mateo and Santa Clara counties, it is possible that assessors have been overly aggressive in restoring values to Proposition 13 levels. Taxpayers should request backup information supporting full or partial restoration of Proposition 13 levels and if the assumptions appear excessive, file an appeal.

This same advice goes for properties in secondary and tertiary markets, particularly where there have been Proposition 13 value restorations. Properties in these markets should also be reviewed, however, to determine whether they have participated in the economic recovery that San Francisco and the Silicon Valley have experienced. Economic recovery among Bay Area counties has been uneven, and hasn’t benefited every city within a county consistently.

In San Mateo County, for example, property values in Atherton have increased significantly, but values in East Palo Alto have continued to decline. Similarly, in Contra Costa County, values in five cities increased while in the county’s remaining 14 cities values generally declined.

Finally, property owners should not assume that a “no change” assessment or that a lower assessment by the local assessor is correct. Values in some areas declined during 2011, which means that market values as of Jan. 1, 2012 may be lower than 2011 values, and should not reflect value increases that have occurred during the first nine months of 2012.

Cris K. O’Neall specializes in property and local tax matters as a partner in the law firm of Cahill, Davis O’Neall LLP, the California member of American Property Tax Counsel, the national affiliation of property tax attorneys.

Article source: http://www.nuwireinvestor.com/articles/bay-area-homeowners-appeal-tax-assessments-59956.aspx