Ruling Helps Taxpayers, but Only on Paper

Lawyers hoping to parlay an Orange County court ruling on property taxes into victory for homeowners statewide have hit a snag.

In recent court papers, county lawyers argued that a provision in the California Constitution forbids the courts from ordering changes in the way taxes are collected.

That means that even if a judge declares a tax unconstitutional, the court cannot order the taxing agency to stop collecting it, Deputy County Counsel James Harman argued. The only way to benefit from the judge’s ruling is for each affected taxpayer to file a lawsuit demanding a refund.

Attorney Robert A. Pool, who filed the original suit over assessments on his Seal Beach home, said a 1990 state Supreme Court ruling backs up the county’s claim. He said he is retooling his lawsuit to address the latest legal twist.

“It’s a true Catch-22 for the taxpaying public,” Pool said. “I strongly suspect that this is not what the good people of California had in mind as a fair system of government.”

Superior Court Judge John W. Watson ruled in November that Orange County violated Proposition 13 when it raised the assessed value of Pool’s home by 4% in a single year. Passed by voters in 1978, Proposition 13 limits increases in assessed value to 2% per year--though the increase is generally not collected in years when housing values drop or remain flat.

The county argued that its assessment method--used by every assessor in the state--allows values to be raised by more than 2% when “recapturing” tax revenues from those lean years.

Taxpayers across California have been closely monitoring the Orange County court case. It is the first time a court has ruled on the legality of the “recapturing” method. However, the case cannot be considered a precedent outside of Orange County unless it is upheld by a higher court.

Pool recently amended his proposed order for Watson to sign, removing any enforcement action against the county and Assessor Webster Guillory. Pool also dropped a request that the ruling be applied to all county taxpayers whose assessments rose more than 2% a year for the last three years.

Instead, he asked Watson to restate his declaration that the taxing method is illegal. Next, Pool said, he will ask the court to intervene against the county under a separate provision of tax law.

In light of Watson’s ruling, Pool said, he will argue that the county must comply with a requirement that taxpayers be notified of the right to file for a refund if their taxes were overpaid by $10 or more. That way, taxpayers would know in a timely way about the ruling and how to file a claim, he said.

“The system as it currently stands is an outrage,” Pool said. “When a government fails in the simple principle of honesty, it is up to its citizens to demand that its government be honest.”

‘Let the Chips Fall Where They Fall’

County Treasurer-Tax Collector John M.W. Moorlach agreed with county attorneys that assessments in Orange County and elsewhere have been properly handled. Taxpayers are given a break when their home values dip in a bad economy, but the break should be temporary if real estate values rebound, he said.

If not, the lost tax revenue would starve not only county government but schools, cities and special districts that rely on the income, he said.

“We’re already dealing in a stringent [financial] environment,” Moorlach said. “The ramifications are that we may solve one problem [by the ruling] but create an even bigger one. This needs a thorough review by the appellate court, and let the chips fall where they fall.”

Word of the ruling has sparked property owners and elected officials across Orange County to organize, said Orange County Supervisor Todd Spitzer, who supports Watson’s interpretation of Proposition 13.

Voters could see a constitutional amendment on the state ballot in 2003 that would ban the practice of “recapturing” lost assessments, he said. In addition, the Legislature may be asked to authorize the filing of class-action claims for property taxes.

Currently, the case applies only to Pool and his wife, Renee Bezaire, who sued over their 1998-99 tax bill. The couple bought their Seal Beach home for $330,000 in November 1995. For two years, the home’s taxable value stayed the same, thanks to a flat real estate market. But in 1998, the assessor determined that the home had rebounded and raised its taxable value to $343,332--a 4% jump.

In his November ruling, Watson said the county’s assessment method was unconstitutional because Proposition 13 clearly limits increases in taxable value to no more than 2% above the previous year--regardless of how much the property value recovers from a slump.