California property values poised to soar 

click to enlarge Real estate in San Francisco and around the Bay Area is poised for an upswing, much like the trend before the recession hit. - JUSTIN SULLIVAN/GETTY IMAGES FILE PHOTO
  • Justin Sullivan/Getty Images file photo
  • Real estate in San Francisco and around the Bay Area is poised for an upswing, much like the trend before the recession hit.

In the half-decade before California was clobbered by its worst recession since the Great Depression, taxable property values — those of land, homes, apartments and commercial buildings — exploded.

Between 2003 and 2009, values increased by a whopping two-thirds, from $2.7 trillion to $4.5 trillion, much from new construction, and local governments enjoyed a nearly $20 billion increase in annual revenue from the boom.

We all know what happened next: The real estate market went into a tailspin. Local governments that had banked, literally, on ever-increasing revenues felt the pinch. It contributed heavily to two cities' bankruptcies.

Actually, taxable values didn't go into the tank.

They just stopped growing and shrank a little, falling to $4.3 trillion in 2011. And as the state's economy began to improve, so did property values, rising slightly in 2012.

This year, they are poised to register a sharp gain, based on reports from local assessors that are being compiled by the state Board of Equalization.

Gov. Jerry Brown's 2013-14 budget assumes a 2.8 percent increase, but it's more likely to be in the 4 to 5 percent range.

Los Angeles County, which has a quarter of the state's taxable property, is up 4.66 percent, and in some of the counties experiencing economic booms, such as those in the Bay Area, the gains are higher. They're up 6 percent in San Mateo County, for example, and 5.17 percent in Alameda County.

Each percentage point of property value increase generates about a $500 million in additional revenue statewide, so overall, the increase could be well over $2 billion for local coffers and, indirectly, for the state treasury.

Under the state constitution, schools are guaranteed certain amounts of revenue, with the first increment coming from property taxes and the state providing the remainder. Thus any unanticipated increase in local property values and taxes decreases what the state must pay schools.

It's not another property bubble, at least not yet, but with the housing construction industry beginning to pick up again, California could see strong growth in property taxes in the years ahead. The state is also seeing a surge in sales and income taxes, $2 billion over estimates already this year.

These revenue jumps, however, create another challenge for state and local politicians, who have overspent previous windfalls, leading to huge budget deficits and, as mentioned earlier, the bankruptcies of two cities.

Those who want more spending, whether it's for government services or public employees' salaries, will be pressing politicians hard.

Brown has said he wants to resist that pressure and redirect any windfalls into debt reduction and reserves.

But as the money piles up, the pressure will grow.

Dan Walters covers state politics for the Sacramento Bee.

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Dan Walters

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