Monday, March 29, 2004
Ruling That Would Have Cut Property Assessments Overturned
By KENNETH OFGANG, Staff Writer/Appellate Courts
The limit on inflation increases in property assessments under Proposition 13 is calculated based on the original price of the property, not the previous year’s assessed value, the Fourth District Court of Appeal ruled Friday.
“Indeed, as our Supreme Court pointed out in upholding Proposition 13...one of the major planks of Proposition 13 was the transition from a fair market value system (in which your property taxes were pegged, if your property was reassessed, to the fair market value of your property) to an original purchase price system,” Presiding Justice David Sills explained for Div. Three. “Calculating the inflation cap based on a previous year’s reassessed value is fundamentally inconsistent with the system that Proposition 13 put in place.”
The decision overturns an Orange Superior Court judge’s ruling that could have led to reduced assessments and huge property tax refunds throughout the state and huge financial headaches for already cash-strapped local governments.
Officials estimated the potential refunds at $285 million in Orange County and up to $10 billion statewide. The California Assessors’ Association, California School Boards Association, state Senate, California State Association of Counties, League of California Cities, and California Department of Finance filed amicus briefs in support of Orange County, which brought the appeal.
That appeal stemmed from a ruling by an assessment appeals board in favor of a Seal Beach couple, Renee M. Bezaire and Robert A. Pool. Pool is a partner in the Bellflower firm of Gangloff, Gangloff & Pool and argued in the Court of Appeal along with partner David Gangloff.
The couple had purchased a $330,000 home in Seal Beach in November 1995, and the property was placed on the tax roll in 1996 at that sum.
The property failed to gain value in 1997, the assessor determined, so it was placed on the roll at the same amount, rather than at the previous amount plus two percent as permitted by Proposition 13.
When property values rose in 1998, however, the assessor applied the “recapture” method of assessment generally used throughout the state and fixed the value at $343,332, the purchase price plus two percent for each year since the purchase, compounded.
The homeowners appealed, contending that Proposition 13 prohibits an increase of more than two percent over of the previous year’s assessment, rendering the recapture method illegal. The assessment appeals board agreed with them and cut the assessment by $10,000, entitling the couple to a refund of a little over $100.
The county challenged the board’s ruling by filing a petition for writ of mandate. Pool and Bezaire responded with a class-action cross-complaint seeking reassessments on behalf of all similarly situated homeowners.
Orange Superior Court Judge John Watson concluded that the board’s interpretation was correct. Proposition 13, he reasoned, was intended to prevent “huge increases from one year to the next,” as well as to impose a “long-term limit” on assessments.
Definition at Issue
At issue, Sills explained, is the definition of “full cash value base.” Proposition 13, as amended in November 1978 by Proposition 8, declares: “The full cash value base may reflect from year to year the inflationary rate not to exceed 2 percent for any given year or reduction as shown in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced to reflect substantial damage, destruction or other factors causing a decline in value.”
The presiding justice reasoned that had the drafters intended to limit the allowable two percent increase to the “previous” assessed value, or to the “reassessed value of the year before,” they would have inserted those words in the text.
“The more natural reading ... is that the base on which the inflation factor is figured remains that of the original purchase price ... not any reduced base resulting from a reassessment in the wake of a decline in property values, such as might happen with a general deflation or a disaster,” Sills wrote. “The structure of the constitutional language, and the intent of its drafters, also point in the same direction.”
Descriptions of the inflation cap in past Supreme Court decisions, the justice added, are consistent with the use of the recapture method. “While those descriptions are not dispositive (they were descriptions in passing of how Proposition 13 works), they show that someone just reading the language of the inflation cap would not necessarily come to the conclusion which the trial court did,” Sills explained.
Justices Kathleen O’Leary and Eileen Moore concurred in the opinion.
The case is County of Orange v. Bezaire, G032412.
Copyright 2004, Metropolitan News Company