County Assessor Rick Auerbach Leads Reassessment of 316,000 L.A. County Homes

The L.A. Times recently reported that more than 41,000 homes have been reassessed downward in L.A. County. Other counties have barely begun the assessment process but promise to get the job done before property tax bills are mailed in October. How serious is the housing crisis for L.A. County?

In L.A. County, we're faring much better than the rest of the state-the Inland Empire and the Central Valley up through Sacramento. We are impacted less by the reductions in values, especially in single-family homes. We're seeing very little, if any, reduction in commercial property and residential income property. I won't say that there's none in the commercial property area, but they would be very few. We're looking at the property tax lien date, which is January 1, 2008, so when I speak about reductions, I'm talking about one specific date and nothing that has occurred afterwards.

I don't think the situation has changed drastically concerning commercial property and residential income property. We are still seeing further declines in single-family homes and condominiums.

There's a report in the L.A. Daily News that your office is about to reassess 310,000 homes. Is that true?

That's correct. It's actually 316,000 now. We're looking at anything that sold as resale or sold new in the period of July 1, 2004–June 30, 2007. We're not going out and physically looking at the properties; we're looking at the information we have and looking for comparable sales to those properties. By looking at the comparable sales and our current property tax valuation of those properties, we're seeing if they deserve a reduction. It's the assessor's responsibility to assess the property at either its Prop. 13 value or its actual value, whichever is less.

A year ago in February, the median price of a home in the county was $616,000. How much has it dropped?

We're always behind the times, because we're looking at one specific date: January 1, 2008. We're looking at comparable sales that may have occurred in the three months after that. So, we're a little bit behind the curve. But I would say that we're seeing 10-20 percent drops in some areas. If you go out to the Antelope Valley area, Palmdale/Lancaster, the drops are steeper than in the Central City. In some areas of the county, the prices are static. Sales volume is down, but we're seeing some areas where we don't believe there are any reductions at all.

In July of 2007, you were quoted as saying that "the average rate of property tax in L.A. County was probably around 1.2 percent." Has that changed? Will it change?

The average rate stays approximately the same. You have the 1 percent rate that's mandated by Proposition 13, and then you have the voted indebtedness that's added on after that, which varies by city and by area. The rate is about 1.2 percent of assessed value, and assessed value is really the Prop. 13 value, or actual value, whichever is less.

What has change in the last three years is the rate of increase in the assessment roll. There have been reports in the media of a downturn in property tax or less property tax being collected this year than last year. If you go back two years ago to 2006/2007, we had an increase in the assessment roll of approximately 11 percent. Last year, 2007/2008, the increase was approximately 9.3 percent. This year, for Los Angeles County alone, we're projecting an increase of 6 percent. That is a little bit different than the feeling you'd get from reading some of the stuff in the media.

What's the significance of the drop to 6 percent for the budget challenges that local and state governments face?

Property tax is the biggest source of discretionary money for local government . Any change in the increase is a problem. I think, though, property tax has been the one bright spot for local government. With the triple-flip and Prop. 1A, local government is now getting a bigger slice of the property tax in exchange for sales tax and vehicle license fees. You get different answers depending on whom you talk to in Los Angeles County, but from the documents I've seen, the county share of property tax has gone up from about 23-24 percent to 34 percent.

The good thing about that is that property tax has seemed to be a more stable source of income since Prop. 13 passed. Since Prop. 13 passed, the increase is approximately 7 percent a year. We've had some years that have been much less than 7 percent, and we had a couple of years in the '90s when it was actually negative. But overall, there's a 7 percent increase. You wouldn't see that with either sales tax or income tax or a vehicle license fee. It has been a stable source. If local government was budgeting for another 9 percent increase, that's obviously not going to happen.

Los Angeles County is faring better than most other counties. I've talked to assessors in surrounding counties and the increase in those counties will most likely be less than Los Angeles County, especially when you talk about the Inland Empire, Riverside, and San Bernardino County. Orange County may be very close to a 6 percent increase.

Has you office gone beyond 2008/2009 in your projections of the assessments expected?

Not at all. The reason we're able to make pretty good projections is because of the way Prop. 13 works and what the real effects are of changes of ownership, new construction, and these reductions, which are caused by Proposition 8. Proposition 8 was passed in November of '78, after the June passage of Prop. 13. Proposition 8 says that property should be assessed either at its Prop. 13 value or actual value, whichever is less. Those are the three biggest things that affect the assessment roll, along with the 2 percent increase allowed by Proposition 13.

We already know all the transfers of ownership that we're going to work for the 2008 year. We already have that information. We're not done yet, but we have a good sense of what that's going to provide in the way of increased and assessed value. We're able to make a very good projection of what the assessment roll will be when we turn it over to the auditor around July 1. But we don't know what's going to happen this calendar year, which will affect the 2009/2010-assessment roll. We're only three months into that, so we don't have a lot of information, and we're not able to make any projection.

We're about halfway through the 316,000 homes we're reassessing. We've looked at about 150,000-about 75,000 will be reduced. The average reduction on that 75,000 is about $65,000-$66,000 in assessed value, around $700 in property tax for each one of those. Some will be a lot more, some will be less.

We're looking at the range of $5-6 billion assessed value reduction from what it would have been if that hadn't happened. That $5-6 billion reduction in the assessment roll is really only five-tenths of a percent decrease in the assessment roll. In Los Angeles County, it's not that big of a hit. Last year was the first time we went over a trillion dollars in the assessment roll.

You've watched how the banking system is reacting-lines of credit are being frozen and markets are stalling over the access to mortgage capital. What do you think about the way the real estate market is playing out in the culture, the media, and the marketplace?

I went to a breakfast today where there were a lot of big real estate investors and large companies that have large holdings in real estate. They were talking about the access to capital. They can get the equity capital that they need, but they need somewhere around 35-40 percent equity to get the loan to buy a piece of property. That is apparently causing a very big problem. There are investors that are willing to invest 10-20 percent, but it's difficult to get into that because of concerns about debt and financial institutions.

The other thing you hear a lot about is people waiting. They don't know when this is going to end, and they're unwilling to make a decision because they don't know if we're going to go down further.

Comment on what assessors in other counties are expecting. Is their experience applicable to the county of L.A.?

Their story is similar. It's more difficult for the counties in the Inland Empire because they have a larger percentage of their assessment roll that they have to review. Where there's been a lot of new development, such as in Riverside and San Bernardino County, the properties that sold in the last one to four years are the ones that should potentially get a reduction. Because there has been so much new development in the Inland Empire and up through the Central Valley to Sacramento, they have a tougher time dealing with this than I do in Los Angeles.

We've been hit the least by this, even though we have more properties than any other county. The percentage that would require a property tax reduction is lower in Los Angeles County than in most other counties throughout the state.

What actually happens to assessed valuation and property tax obligations when a home is foreclosed? What impact does it have on your rolls?

We were looking at some foreclosures and what happened with their property tax value. It was interesting to find out that, in some cases, a foreclosure actually caused an increase in the property tax. Normally, when you think of a foreclosure, you think that somebody has purchased a price at a high value and now it's worth less. They're upside down, they walk away from it, and it's foreclosed upon.

But we've seen a number of properties in Los Angeles County where the property has an old Proposition 13 base value; in other words, the people in the home have owned it a number of years and refinanced it, which caused the foreclosure. So, when it's foreclosed upon, we try to figure out that actual value. There is no sales price when it's foreclosed upon and the bank has taken it over. Obviously, when it's sold out of foreclosure, there's a new value set, and that may or may not be the actual market value. It depends on how that was handled. Was it an open-market sale? Did they have enough time to find a buyer? Foreclosures generally cause a reduction in the value of that property and surrounding properties, but if you look at individual properties, for some individual properties (for property tax purposes), it actually causes an increase in the property tax. That's counterintuitive.

Is property tax relief part of public policy deliberations in the State Legislature and nationally over how to get relief to homeowners in this housing crisis?

I have not heard any discussion of that. I've seen some reports in the media saying that one of the things that somebody who's in trouble should do is go to their local assessor and ask for a reduction. That's true in California. If a person believes their property is over-assessed, they should go to their local assessor. We have an easy way; you don't have to file the formal assessment appeal at this time. You can file a document with my office (and most other counties, also) that says, "Here's my address, here's what I paid, here's what I think it's worth now, and if you have comparable sales, we'd like to have those." That will cause us in Los Angeles County, and most of my colleagues in other counties, to look at it and see if there should be a reduction in the property tax.

If somebody reading this has a single-family property in Los Angeles County that was purchased within the period of July 1, 2004–June 30, 2007, don't file an application. If they haven't heard from us about a reduction by July 15, they still have an opportunity to file an assessment appeal, which is what they should do. But we should get to all of 316,000 of those.

How is commercial property performing in this down market?

What I heard today at this breakfast is that, in many areas, rents are still rising, which means that the values are either staying the same or going up. Cap rates are apparently going up also. If rents rise, cap rates rise-it also may cause it to be static in value. But we've seen and heard that this has generally not hurt good commercial properties yet. It's the same with residential income property. Some of the people I had breakfast with today were saying that when you get to the lower-end commercial properties-some of the strip malls-they are now starting to see the effect on those. Maybe next year we'll be dealing with property tax reductions for those.

Lastly, how did your office deal with those who were affected by fires last year? Was relief offered?

We didn't get impacted to the same extent that San Diego or San Bernardino County did. We were able to deal with those very quickly. It would normally require the taxpayer to file a form with our office, but we have the authority through ordinance to go out and look at affected properties. We get reports from the fire departments and from county public works or city public works about damage.

We're able to go out and, because of the limited number that were actually damaged or destroyed in Los Angeles County, process those quickly. What happens is they get reductions based upon their damage and its ratio to their Prop. 13 value. We were able to do reductions, and those reductions will hold until the property is reconstructed.