California’s real estate market experienced some wild swings that pushed housing prices up faster than anywhere in the nation before plummeting in response to the financial crisis. Local government revenues rode the same boom-bust cycle.
After the housing crash, a California state law, Proposition 8, allowed temporary property tax reductions for 3.2 million properties — about 2.6 million homes and 600,000 other properties. Under Prop 8, property assessments were allowed to be lowered to match the market value of the property. According to a recent legislative report, these reductions dragged down local government revenues by approximately 15 percent. As the housing market has rebounded, property assessments that had special treatment under Prop 8 have increased, providing a positive impact on local government budgets. The Sacramento Bee reports:
The average homeowner saw a $1,600 property tax cut while those for commercial property averaged $7,500. ‘In total, temporary property tax reductions depressed local government property tax revenues by an estimated $7 billion in 2013-14, amounting to a 15 percent reduction statewide,’ the Legislative Analyst’s Office (LAO) says in a new report.
The income from Prop 8 property assessments is a huge plus for cash-strapped local governments, but it could come as a rude surprise to homeowners. From the LAO report: