LOS ANGELES - Local property tax revenues in California are likely to grow quickly over the next several years as the real estate market continues to improve, according to a report from California's nonpartisan Legislative Analyst's Office.
Property values in some parts of California dropped by more than half during the meltdown that begin in 2007. Under Proposition 8, which allows for tax reductions when property values fall, homeowners were allowed temporary relief.
But rising values will bring those existing property assessments up at a rate exceeding the normal 2% annual increase permitted under California's Proposition 13 property tax limits.
Proposition 13 permits assessments to grow no more than 2% a year on properties that don't change ownership.
But assessments on properties that had their assessments reduced under Proposition 8 rules can be increased to match rising property values until they reach the point where they would have been had they gone up the maximum permitted amount per year.
"In total, temporary property tax reductions depressed local government property tax revenues by an estimated $7 billion in 2013-14, amounting to a 15% reduction statewide," said Mac Taylor, legislative analyst and author of the report, released Monday.
In the years following the downturn, California's housing market has slowly begun to improve and values have started to climb back up. Home values increased 12% during 2012, yet property taxes for most property owners were largely unaffected.
The base property tax rate in California is 1% of a property's assessed value. Locally approved taxes, such as for bond measures, can increase the rate.
Home and property sales are also apt to boost property tax revenues because properties are then reassessed at their purchase price when they change ownership.
Of the 500,000 properties that returned to their maximum Prop 13 value in 2013-14, about 60% did so due to market value increases, and 40% due to changing ownership.
Among the properties under reduced assessment, taxes increased by 5% to 20% in 2013-14 due to real estate improvements during 2012.
In Los Angeles County, for example, assessments for Prop 8 properties increased by a total of $10 billion in 2013-14, generating additional property revenues of $120 million for local governments there.
"Looking ahead, property tax payments for many owners that received temporary property tax reductions during the real estate crisis could increase by more than 10 percent annually for the next several years," Taylor wrote in the report. "These increases likely will cause local property tax revenues to grow swiftly over the next several years as well."