A dispute has erupted between the Orange County assessor and the University of California over property taxes levied on residents of UC Irvine's academic housing development, University Hills.
The development was built by the university on state land to offer low-cost housing to UCI employees, in particular young professors.
Under the plan, residents own their homes, but the state retains the land beneath. UCI officials say that homes in University Hills, which they built and sold, are priced at from 20% to 40% below market values in the surrounding area.
But when tax bills were sent this fall, Orange County did not assess University Hills homes at their purchase price; instead, the assessor taxed residents for the purchase value of their homes, plus an amount for use of the state land beneath.
This amount--called a possessory interest--is levied on others who lease space from government agencies, such as a concessionaires at a municipal sports stadium, for example.
UC officials say their case is different from that of food vendors in public buildings because the state Constitution exempts UC property used for educational purposes from taxation. The university maintains that residents of University Hills and residents of similar developments near the Los Angeles, Santa Barbara and Santa Cruz campuses should receive the property tax exemption.
With assessors in those counties also levying taxes on possessory interest, officials say the matter will end up in the courts, and possibly before the Legislature. Until the issue is resolved, the State Board of Equalization has ruled that residents must pay taxes on the disputed increment. About 500 residences statewide are affected.
The Orange County assessor's office was unable to say how much money is at stake at University Hills, but Los Angeles County officials have estimated that $200,000 in taxes are at issue between them and residents of the UCLA faculty housing development.
At a time when the university reports problems in attracting talented scholars, UC officials say that inexpensive housing is an important recruitment tool.
Should the county assessments be upheld, "it obviously reduces the positive aspects of this recruitment tool," said Steven M. Mathews, UC's statewide director of faculty housing.
UC began "building subdivisions on land that the university owned to provide affordable housing so that we could remain competitive for the recruitment and retention of big-name faculty members with other top schools in the country," he said.
"The primary purpose of these developments is for the institutional goal of attracting or retaining the faculty to run our programs," Mathews said, and thus having professors live on the property constitutes an educational purpose.
Said Howard Whitcomb, of the Orange County assessor's office: "It's not a public use for public good; it's a public use for private good."
Whitcomb said University Hills had attractions for faculty members other than its relatively low prices: "It's located in one of the finest residential areas in the world--near Newport Beach, in Orange County, Calif."
Noting that UC had already subsidized the cost of construction, Whitcomb said, "They want their housing (to cost) less, plus, they don't want to pay taxes."
Prices at University Hills range from $75,000 for a condominium to $275,000 for a large home. The state land in dispute represents approximately 20% of the total tax bill, or from $150 to $600, said William Parker, the UCI associate executive vice chancellor who is president of the Irvine Campus Housing Authority.
David Smith, an assistant sociology professor at UCI and a resident of University Hills, said, "Many of us have opportunities to move to other campuses, and the cost of living is dramatically lower in other parts of the country--places like Austin, Tex.; Ann Arbor, Mich., and Chapel Hill, N.C."
Those cities are the sites of the universities of Texas, Michigan and North Carolina, all state institutions.
At the UCLA campus in West Los Angeles, the university constructed a 58-house development in the expensive Beverly Glen area. Residents there paid about half the prevailing cost for a home, said Kate Kairoff, a UCLA faculty housing official.
Single-family homes in Beverly Glen can start at $500,000, Kairoff said, while residents of the development, known as the Glen, pay from $157,000 to $254,000.
"We don't have a lot of nine-to-fivers," Kairoff said; "we have a lot of people who need to be close to campus. They're waiting for the bacteria to grow in the petri dish to find a cure for cancer."
John J. Lynch, the Los Angeles County assessor, said he thought the professors were trying to escape paying their share of taxes.
"We think everybody should pay taxes. Los Angeles and Orange County are in sync on this."
Lynch said that the total amount in taxes at stake for his county was $200,000.
"The interest rate (on mortgages) makes or breaks home buyers," Lynch said. "Taxes, being what they are since Jarvis, are a minimal consideration," he said, referring to 1978's property tax-cutting initiative, Proposition 13.
State Sen. Marian Bergeson (R-Newport Beach) said she is considering introducing legislation that would grant the university developments an exemption from the property tax.
"Placing the tax was negating the intent of the law," said a Bergeson aide, Kevin Sloat.
Smith, 31, who came to UCI from the University of North Carolina, said even with the subsidized price of his University Hills condominium, he still pays nearly twice what he did each month for housing in Chapel Hill.
"My mother practically fainted when I told her how much this condominium cost," he said. "It cost twice as much as her house"--in Buffalo, N.Y.