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Hot Home Sales Fill Counties' Coffers

June 21, 2005|Jack Leonard and Susannah Rosenblatt | Times Staff Writers

California's hot real estate market has boosted the coffers of local governments, which are reporting record increases in property tax revenue they intend to use to improve services slashed in recent years.

Los Angeles County announced Monday that it expects to collect an extra $223 million in property taxes in the next fiscal year, roughly a 9% increase; officials want to earmark it for the county's troubled hospital system and to put more sheriff's deputies on the streets.

Although property tax collections have been increasing steadily in recent years, officials said the frenetic rise in property values over the last 12 months, coupled with new construction, is pushing total assessments to levels they've never seen before. More houses are selling, allowing county tax assessors to revalue the properties to current market levels.

The fast-growing Inland Empire is seeing the biggest windfalls. San Bernardino County predicts its property taxes will double to about $320 million, and Riverside County expects a 30% increase. Counties in the Bay Area report smaller but still sizable jumps, even without the benefits of enormous new land development.

For the counties, which have been struggling for years with cuts in funding caused by the state's financial problems, the extra money is a welcome turnaround.

In San Mateo County, officials plan to give employees raises and pay for construction of a new youth services center. In Riverside and San Bernardino counties, some of revenue will go to create special units to tackle identity theft cases. In San Francisco, officials want to beef up public health services.

"God bless low interest rates," said Los Angeles County Supervisor Zev Yaroslavsky, "and God bless the rate of turnover of real estate, because it's certainly made our life a lot easier."

Yaroslavksy and others, however, cautioned against rushing to spend money that relies on what some analysts describe as a housing market bubble.

Local county governments, they said, cannot expect to reap similarly large increases in the future.

"They cannot count on sustained growth," said Jon Coupal, president of the Howard Jarvis Taxpayers Assn. "Economies by their very nature are cyclical, with upturns and downturns. If they did not learn that from the dot-com boom, then they learned nothing at all."

Local governments are the biggest beneficiaries of the red-hot real estate market because their income fluctuates with changes in property tax collections.

Although schools also receive property tax revenue, much of their funding is locked in by state law. The state government relies largely on income, sales and other business taxes to pay its bills.

County governments -- which provide health care along with law enforcement, welfare and other social services -- have become increasingly reliant on property taxes since the state two years ago cut the revenue they get from motor vehicle license fees.

In Los Angeles County, for example, property taxes make up about 60% to 70% of local revenue. The county's 16% increase in property value last year was a boon.

But a crash could cause a drop in property tax revenue. The real estate bust of the early 1990s, for example, caused counties to lower the assessed values of thousands of properties as recently as 1996, resulting in a cut in tax revenue.

"I am concerned about it," said David Janssen, L.A. County's chief administrative officer. "It's always nice to have a varied income, just like in an investment portfolio."

The rise in property tax revenue was credited as one of the reasons for the unusually harmonious approval of Los Angeles County's $19.6-billion on Monday, the first time the Board of Supervisors unanimously backed a budget package in at least a decade.

Janssen said the board has chosen a conservative approach to spending its windfall. Much of the extra money will go to short-term projects, such as earthquake retrofitting the county's damaged administration building in downtown Los Angeles, rather than on new social service programs.

The extra funds, however, will help to ease the pain of cuts made in the last few years because of the state's fiscal crisis.

Supervisors set aside additional money for the Sheriff's Department to hire deputies and reopen jail dormitories that had been closed to save money.

They also allocated an extra $20 million for new homeless shelters and $125 million for the county's financially beleaguered Health Services Department. Those funds should help delay the enormous deficit forecast in the next four years but won't prevent the crisis entirely.

Despite the health funding, Supervisor Michael Antonovich warned against spending extra property tax revenue on programs that don't assist property owners.

Such caution may not be as necessary in the Inland Empire, according to some local economists. In Riverside and San Bernardino counties, the growth of the housing market shows little sign of slowing down.

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