If voters approve Proposition 15 in November, residential property assessments are likely to become less accurate as assessors are forced to shift resources to determining market values of commercial and industrial properties, Los Angeles County Assessor Jeffrey Prang said July 23.
Prang, testifying during a six-hour State Board of Equalization informational hearing on the split-roll initiative, noted that under Proposition 15, assessors would be required to assess all commercial and industrial properties within their jurisdiction at least every three years. Los Angeles County includes approximately 2.6 million parcels, approximately 200,000 of which could be subject to reassessment under Proposition 15, Prang said.
To attempt to meet this responsibility, Prang said he would have to shift all of his office’s residential property appraisers to business property valuation, then rely on computer modeling for residential assessments. “That type of modeling is not very precise,” he said, so there likely would be a major increase in errors, along with a corresponding increase in appeals by homeowners.
At the same time, Prang anticipated that “most, if not all” of the commercial and industrial reassessments would be appealed. Such reassessments are notoriously complex, he noted, and there likely would be errors “with undertrained residential appraisers doing that work.”
While many commercial and industrial properties ultimately would not face tax increases because of the measure’s exemption for properties owned by a single owner with less than $3 million in total California commercial and industrial property value, “every one of them will still need to be appraised” to determine if the $3 million threshold is met, Prang said.
This would be the case in every county, as the $3 million threshold is based on market value (which conceivably would change every year) and aggregate property value throughout the state (which would change dramatically anytime the owner bought or sold a property). The $3 million threshold would be adjusted annually for inflation – a responsibility that would fall to the BOE, under a process that BOE staff said has yet to be determined.
Prang said his office currently appraises 5,000 to 10,000 commercial and industrial properties annually, and this would have to increase to approximately 57,000 per year to meet Proposition 15’s requirement of reassessing all such properties at least once every three years.
The assessor said he was not testifying in support or opposition to Proposition 15, but was simply describing how the measure would impact assessors. His office would need approximately 500 new appraisers, and another 500 would be needed in other counties, he said.
Stanislaus County Assessor Don Gaekle (president of the California Assessors’ Association, which opposes Proposition 15) and Calaveras County Assessor Leslie Davis (the association’s immediate past president) said their offices also would experience major workload increases.
Prang noted that hiring 500 new appraisers would be a monumental challenge. He said his office nets about 30 new appraisers “in a good year” after accounting for normal retirement levels and other turnover. It would be more difficult to reach this level if Proposition 15 passes, he predicted, because his office would lose more appraisers than usual to private-sector businesses that would be offering much higher salaries as they ramped up to file appeals.
The state standard is that five years of work experience is needed for a new appraiser to be qualified to handle commercial and industrial appraisals, so it would take years before assessors’ offices would be able to fully implement Proposition 15, Prang said.
“The revenue increase anticipated by the Legislative Analyst’s Office would not be generated immediately, and there might be changes in the market that would impact the estimate,” Prang said.
Davis said it would be even more difficult for smaller counties to hire enough assessors. Even under the current system, she said, she has been unable to fill a vacancy because of a lack of candidates coupled with competition from counties that pay more. She had only two applicants for one ongoing vacancy, and both opted to work elsewhere.
Davis, who also said she was not testifying in support for or opposition to Proposition 15, said the initiative also includes many errors that make implementation difficult. For example, she said, “They call an exemption an exclusion,” so legislation would be needed to clarify definitions.
Additionally, Davis said the measure “may have the unintended consequence of increasing the gap between wealthier and poorer counties,” as smaller counties without large business properties could lose property tax revenue due to Proposition 15’s exemption for business personal property for specified small businesses.
Several hours of the hearing were spent listening to public comment, with many of the comments submitted in writing and read into the record by BOE staff. A large number of comments used talking points from the campaigns for and against the measure. Many of the “No on 15” comments came from small business owners who would be hit with the tax hike because their leases require them to pay any property tax increases.
Other issues raised during the hearing included:
- Tax Increase on Agriculture. Jamie Johanssen, president of the California Farm Bureau Federation, noted that the initiative exempts agricultural land from frequent market-value reassessment, but not the improvements on the land. This would result in a tax increase on barns, dairies, vines and other improvements, several Proposition 15 opponents said.
Oregon resident Lenny Goldberg, listed on the agenda as a “research and policy consultant” for the Yes on 15 campaign, argued that no assessor would determine that agricultural buildings would be considered commercial and industrial properties, and said few of the buildings have use codes that would be considered commercial or industrial and thus subject to reassessment. However, Goldberg said “large food processing facilities” and many wineries could be considered commercial and industrial, and should be reassessed at least every three years.
Assessor Gaekle responded: “I appreciated Mr. Goldberg’s comments today, but certainly I think from a farmer’s perspective what’s in writing is more significant than what is said.”
- Lack of Safeguards for Taxpayers. Representatives of the California Alliance of Taxpayer Advocates testified that Proposition 15 lacks safeguards for taxpayers regarding appeals. The initiative doesn’t specify what will happen if there is a dispute over an assessed value, they noted.
For example, the CATA representatives said it is unclear how the owner of multiple properties could appeal an assessor’s determination that the aggregate value of all the owner’s California commercial and industrial properties exceeds $3 million. It is not clear whether the owner would have to appeal the values in multiple counties, or what would happen if the owner prevailed in some counties and lost appeals in others.
The CATA representatives also argued that Proposition 15’s three-year reassessment window would result in a lack of fairness and uniformity, as it is not known how assessors would determine which properties would get assessed first. Goldberg testified that the highest valued properties should be reassessed first, to bring in the maximum tax revenue as quickly as possible. The CATA representatives questioned whether counties would use other standards, including property type, location in the county, property size or other arbitrary standards. The timing of the reassessment would have a major impact, they noted, since market values can fluctuate significantly from year to year.
- Major Revisions to Assessment Handbooks. David Yeung, deputy director of the BOE’s Property Tax Department, said many of the agency’s assessors’ handbooks would require major revisions to conform to the changes made by Proposition 15. “A major revision of one of the handbooks is about a two-year process,” he said.
Yeung said revisions to BOE rules and documents would be ongoing, noting that more than 40 years after Proposition 13’s approval the BOE is still required to make rule changes (including a recent change relating to the transfer of base-year value when a property is taken via eminent domain).
- More Questions From Taxpayers. Lisa Thompson, who heads the BOE’s Taxpayers’ Advocate Office, said she anticipates a sustained increase in inquiries about property taxes if Proposition 15 is approved, likely requiring more staff to respond. The inquiries would come from homeowners who are receiving less service from assessors, business owners with questions about personal property exemptions, and more, she said.
- More Work for Legal Staff. BOE Chief Counsel Henry Nanjo said Proposition 15 lacks many details that would have to be worked out by the BOE and the Legislature. He projected that the BOE would need to “promulgate numerous regulations” to guide taxpayers.