SAN FRANCISCO -- By refusing to hear an appeal, the Supreme Court of California has affirmed California county assessors' current practice pertaining to property reassessment subsequent to a valuation decline -- a favorable development for local governments according to a new report released by Moody's Investors Service. Moody's notes that the initiation of the case had not resulted in rating changes and no adjustments will be necessary based upon its conclusion.
"An adverse ruling in this case could have had significant consequences for California counties, cities, and many special districts, so the elimination of this risk is a positive development for them," said Moody's Vice President Dari Barzel, who authored the report. However, Moody's had not significantly factored the potential effects of this case into any of its ratings pending the outcome of the litigation.
"As the status quo has effectively been validated by the Supreme Court, no rating changes will be made based upon the resolution of this case," said Ms. Barzel.
The litigation surrounded county assessors' methodology pertaining to a specific type of assessed value increase. Under ordinary circumstances county assessors in California establish an assessed value for a property equal to the market value at the time the property is purchased. This base year assessed value is then increased annually by the value of any new construction plus the lesser of inflation or 2%. Each year the annually adjusted assessed value is compared to the market value, and the lower figure is used as the basis for taxation.
County assessors in California uniformly interpret the provisions of Propositions 8 and 13, adopted by California voters in 1978, as permitting the assessed value to grow in excess of 2% under specific circumstances. However, in December 2001 the Orange County Superior Court ruled in favor of Renee Bezaire and Robert Pool, Orange County homeowners who initiated a process that challenged this methodology as unconstitutional. This year, the State Court of Appeals reversed the Superior Court judgment and the Supreme Court refused to hear an appeal.
There remains the possibility that anti-tax advocates could address their concerns through the initiative process, but this risk is no different than the generalized initiative risk that is built into Moody's ratings. "The specific legal threat to California county assessors' property valuation methodology from this case has now been eliminated," said Barzel.
