A state appeals court in Santa Ana on Friday spared governments across California a potential $10-billion hit by upholding how Orange and other counties assess property taxes.
The 4th District Court of Appeal said the technique used by Orange County in assessing taxes, called recapturing, and which is also used by counties across California, is constitutional under Proposition 13, the landmark property tax limit approved by voters in 1978.
The process allows the tax assessor to increase the value of property above Proposition 13's annual 2% limit after it has lost value or stayed flat in previous years, in order to recover revenues lost because of the temporary market decline.
"The temporary nature of any reassessment for a decline in value cannot be overstressed," Presiding Justice David G. Sills wrote for the court.
The ruling overturns an earlier decision by Orange County Superior Court Judge John M. Watson that invalidated the commonly accepted practice.
Had the appellate court upheld Watson's ruling, the state estimated that as much as $10 billion in property tax revenue would have had to have been refunded to property owners whose assessments increased more than 2% in a year.
The case involved Seal Beach homeowner Rob Pool, a tax attorney who vowed to ask the state Supreme Court to review the unanimous decision released Friday.
The appellate justices were intimidated by the possibility of a flood of refund requests, he said, which representatives for state and local government argued in court briefs that they could not afford.
"I still think it's all about the money," Pool said. "They're not dealing with the pure language of the [law]."
"For the state of California, this was proper and just," said Orange County Assessor Webster J. Guillory.
Local government officials statewide were concerned about a contrary outcome, said Tom Wilson, chairman of the Orange County Board of Supervisors.
If the justices had upheld Watson's 2001 ruling, the county's general fund would have had to repay $18.6 million in property taxes, county Auditor-Controller David E. Sundstrom estimated.
"I'm sure officials all over the state are cheering," Wilson said. "This sets a precedent and gives us a measure of relief. We've had enough to deal with from the state budget."
State officials were also relieved.
"The ruling means the state doesn't have a multibillion-dollar threat to its budget," said H.D. Palmer, spokesman for the Department of Finance.
