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California Counties Brace for Post-Virus Property Tax Crunch

April 24, 2020, 8:34 PM

The coronavirus pandemic mildly dampened property tax payments to California counties by an April 10 deadline, but counties are bracing themselves for a bigger hit next year if owners seek lower property valuations amid the economic downturn.

County officials resisted calls from business groups to push back the payment deadline because of the crisis, and it appears to have paid off. Several counties told Bloomberg Tax they have collected between 93% and 97% of what is owed. Those percentages are slightly below last year for some counties and may go up as they continue to process payments sent through the mail.

“This is very good, all things considered,” Los Angeles County Treasurer and Tax Collector Keith Knox said.

Although revenue for the year seems solid, the economic impact of the crisis could hit harder next year when assessors will likely face a higher-than-normal volume of requests for lower property valuations, and therefore lower tax bills, at the same time that other local tax revenues are falling.

California property taxes are set at 1% of purchase price, under a 1978 law, and can increase no more than 2% a year. Owners must ask for a reassessment if they believe their value has decreased, and assessors typically require documentation such as an appraisal or comparable sales to justify a drop in value.

Santa Clara County Assessor Larry Stone said he expects downward assessments to rival the Great Recession that began in 2009, when his office proactively reduced assessed value on 136,000 properties—almost a quarter of properties in the county—by a total of $27 billion.

“We’re going to see that kind of reduction,” he said.

Stone said he is also expecting the volume of assessment appeals in the Silicon Valley county to match the recession, when they tripled to 12,000 a year.

Inconsistent Penalty Waivers

In the meantime, tax collectors are processing an uptick in requests to waive interest and penalties for late payments due to the crisis.

April 10 was the deadline for the second yearly installment. Property owners paid the first half of their bills by Dec. 10, 2019, for the fiscal year July 1, 2019, to June 30, 2020. A 10% penalty and other fees apply to late payments.

Some, but not all, tax collectors have said they will waive those amounts for property owners affected by Covid-19. The inconsistency has prompted the California State Association of Counties to ask Gov. Gavin Newsom (D) to step in with an executive order.

“Allow counties to consider a distressed property owner’s economic hardship when determining whether the county may cancel property tax delinquencies and other charges,” CSAC Executive Director Graham Knaus said in an April 23 letter to Newsom. “There is significant uncertainty among many county officials as to whether they are allowed to take economic hardship into account, given past court rulings.”

Uncertainty probably helped drive owners to pay on time, said Mark Phillips, associate professor at the University of Southern California Sol Price School of Public Policy.

“Different counties’ plans for the April 10 deadline weren’t clear ahead of time,” he said in an email. “And even now that policies have been announced (many after the fact), there’s no guarantee that a waiver will be granted. That’s a lot of uncertainty to risk a 10% delinquency penalty (plus interest). “

Lost Jobs, Closed Schools

Los Angeles has received several thousand property tax waiver requests, Alameda County about 600, San Diego County about 450, and rural El Dorado County about 116.

“The requests are primarily from residents who have lost their jobs due to the shelter-in-place order and parents who have to stay home because schools are closed,” El Dorado Treasurer-Tax Collector Karen Coleman said. El Dorado includes the resort area of South Lake Tahoe.

Los Angeles’ Knox said the county will continue to consider waiver requests past the default deadline of July 1. In San Diego, owners must request relief by June 30 to be eligible. Waivers may be rarer in Fresno, Sacramento, and other counties where tax collectors, who are elected, are sticking to the letter of the Revenue and Taxation Code’s limitations on granting relief.

Payments that are late because of postmarks past the due date, most health reasons, forgetfulness, misplaced bills, job loss, and bankruptcies may not be approved, Fresno Treasurer-Tax Collector Oscar Garcia said.

In Alameda County, Treasurer-Tax Collector Henry C. Levy said he is weighing waiver requests on a case-by case basis.

Levy said Alameda was denying waivers for such reasons as “This Covid-19 thing stressed me out and I lost my checkbook.”

To contact the reporters on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com; Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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