Real Estate Meltdown Has Broad Effect on L.A. County Tax Rolls

In your TPR interview in 2008, you said, "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." At that point you were referencing a property tax lien date of January 1, 2008. How have Los Angeles county property valuations changed or improved since?

It has gotten substantially worse. We are seeing very large reductions for single-family homes. We are also seeing reductions in commercial property and residential income property. With commercial property and residential income property it very much depends upon what specific type of property we are talking about, whether it is hotels, warehouses, or office buildings, and it depends on which L.A. County submarket they are in. The same thing goes for residential property. The Palmdale, Lancaster, and Antelope Valley areas have been hit much harder than the beach areas and the Westside, but we are seeing substantial reductions throughout the county.

We have a very large, proactive review process for the 2009 property tax lien date, which is January 1. We have completed that. For single-family residences and condos we have reviewed approximately 473,000 properties. About 70 percent are getting some reduction in assessed value. We looked at properties that sold between July 1, 2003 and June 30, 2008 to determine if their actual value is lower than their Prop 13 value.

What percentage of the total housing stock of L.A. have you reviewed?

That is close to 30 percent.

What percentage drop in housing value are you seeing?

I can't give you the percentage of value reduction. I can give you a number for the average value reduction per parcel. For detached single-family homes it is about $126,000. For condominiums it is about $96,000.

And for commercial property-what property tax reductions are being granted or envisioned?

We are unable to do as good of a review of as many properties as we would like. We just don't have the staff. It requires gathering a lot more information from the property owner. In some cases we have been unable to obtain the information because they haven't responded to our requests, or we have just not had the time to look as far back or look at as many prior year transfers. Basically, what we have tried to do is look at everything that was transferred from 2006 forward, for everything other than hotels. For hotels we have looked back to 2005. We have reviewed about 5,000 properties, including apartment buildings. About 40 percent are getting reductions.

In a March L.A. Times article you estimated a 1 percent decrease in the county's tax base. Last year you said that the average increase in property tax revenues, year over year, is 7 percent. Are those numbers still accurate?

Since Proposition 13 the average increase has been 7 percent. We had two years back in the ‘90s, 1995 and 1996, where there was a negative assessment roll. In 1995 it went down 1.7 percent. In 1996 it went down 0.2 percent. If you add up all of the years since Proposition 13 and divide by that number, you would get an average increase of 7 percent. For the 2008 assessment roll it increased 6.9 percent. Right now we are doing the final estimates that we will give to the cities, the County CEO, and the Board of Supervisors of what we expect the roll's decrease will be. Back when I was first interviewed by the Times I said minus 1 percent. Subsequent to that, probably about six weeks ago, I told the CEO that it could be as bad as minus 3 percent. Now, I would say that we will be closer to minus 1 percent.

That number will probably change slightly as we do our final processing to deliver the assessment roll to the Auditor-Controller on July 1.

What variables most impact the county's property tax base?

The biggest variable was the proactive review of all the properties that transferred in the last few years. We have a new program that values each single-family residence, including condos. We have used that to emulate the value for 2009. That is how we came to the minus 3 percent. However, when our appraisers went in, looked at comparable sales for each of those properties and then made adjustments on each of those comparable sales, we ended up with a smaller decrease. That was the biggest change.

We had other changes. For many properties, even some that were foreclosed upon, there was an actual increase in property tax value. For instance, if a property were purchased in 1980 it would have a very low property tax value-the sale price back then plus an additional 2 percent a year. If that property owner refinanced in 2006 at the height of the market, they may have obtained a problem loan, found out they couldn't make the payments, and been foreclosed upon. As soon as the bank or financial institution takes ownership of the property there is a transfer for property tax purposes under Proposition 13. We have to revalue the property. Even though that property at the time of foreclosure was maybe 20 percent less than it was at the height of the market, it was still worth more than its old property tax value. There would be an increase there. We had early estimates of the average incremental increase in value. The early estimates turned out to be wrong by a small amount. It was actually a little bit more. That was an adjustment we had to use. We finally reappraised all of the properties with transferred ownership, whether it was by foreclosure, purchased out of foreclosure, or REO sale. Once we did more of that work we found our estimate of average increment was wrong. The same goes for commercial properties.

What does the information you have collected tell us, if anything, about whether the Los Angeles County market has found its residential housing market bottom?

People get paid a lot of money to make those kinds of predictions and they have a lot more information than I do. The information that I have is all based upon what has already happened two or three months ago. We are looking at what the value was as of January 1, 2009. The people I have been talking to, especially about residential properties, seem to be more positive than they were six months ago. That seems to indicate that we are closer to the bottom than we were six months ago.

The problem I see is with commercial property. There is a lack of financing out there. Many commercial property owners have to refinance their properties because their loans are coming due. The financing is not there. We are continuing to see job loss, which obviously means there is less money being spent by consumers, which will impact the value of properties. If we are getting closer to the bottom of residential property, we are further away from the bottom on commercial property.

You meet with the other assessors in Southern California. How does L.A. County compare to other counties in the state?

I have talked a lot with Riverside County. At one point they were predicting a 10 percent reduction in their assessment roll. The last time I talked to the assessor in Riverside he thought maybe it would be a little bit less than that, but it is still much greater than what we are seeing in Los Angeles County. That is because of all the development of single-family homes that happened in Riverside County and the rest of the Inland Empire over the past few years. Those are properties that are more likely to have problematic loans. They have more foreclosures percentage wise in Riverside County than in Los Angeles County.

Orange County will have similar results to L.A. County. Last time I talked to both the San Diego and Orange County assessors they were in a flat roll or somewhat negative, but nothing to compare with what is happening in the Inland Empire.

What is the nexus between assessing property tax, and the condition and health of the California budget?

Property tax is significant with the California budget because of the amount of property tax money that goes to schools. I know the Board of Supervisors, the CEO in Los Angeles County, and the various cities in the county were very concerned about the outcome of the May 19 election and what it is going to mean for the money that the state takes from local jurisdictions. I am not qualified to say any more about that. That would be a question for Bill Fujioka, the county's CEO.

There are mass mailings out to residents and commercial owners on official looking stationary, asking people to appeal their property tax assessment. Many letters include a recommended property value that should be in one's request. Are you aware of these letters?

I have heard the reports on commercial properties. I haven't actually seen one that was mailed to a commercial property owner. For residential, we've seen a lot. I have personally had three mailed to me. It is a scam, 100 percent. Especially for people that represent commercial property owners, there are, no doubt, agents that do a very good job, and there are some that also do it for residential property owners. But these mass mailers are just trying to make their solicitation look like it is coming from government by using a name that usually does not have a company after it or incorporated after it, even though many of them are incorporated. They do things like make their payment stub look like a property tax bill. They go as far as to say that if you don't send your money by a certain date that there will be a 10 percent penalty. They make it look very much like what happens for a property tax fee.

We have had numerous complaints from property owners but we have referred those to the Attorney General, the L.A. County Department of Consumer Affairs, and the District Attorney. In fact, the District Attorney is sponsoring a bill-AB 992-that will put some provisions that will stop this from happening. But right now, what they are doing is a scam. Additionally, one of the principals of one of these companies was charged with a felony by the D.A. on May 13th.

When, a year from now, we sit for another TPR interview, what will we most likely to be addressing?

I am very worried about commercial property and how that is going to affect the assessment roll. A few interesting facts: for 2008 our number of assessment appeals for both commercial and residential has increased three times. For January 1, 2007 there were 16,000 parcels appealed. For January 1, 2008 values there were 50,000 parcels appealed. I am worried that we may see close to 100,000 appeals for 2009. The big increase will be with commercial properties. We have done a very good job-although until we will see the results of our proactive process on single-family residences-we won't know if it stemmed the tide, and we will probably see an increase in the number of appeals on single-family residences, maybe not to the extent that it would triple.

With commercial properties I expect we will see a very large increase in the number of appeals. The basic reason is that sometime around the summer and fall of last year, commercial property values tumbled downward. The reduction in the single-family residential market has been ongoing for a couple of years now. As I said before, we are unable to review as many commercial properties for 2009 values as we would like to. Those property owners are very sophisticated and they will be looking at appealing their property tax value. Many of them, I believe, will have a good case for properties that were purchased in the last two, three, or four years.