While the County’s roll growth rate was all but flat, there were significant geographic differences ranging from a high of 6.22 percent in Mountain View and 4.75 percent in Sunnyvale to a low of -9.48 percent in Gilroy and -4.73 percent in the unincorporated portions of the County. “That’s a spread of 16 percent. It underscores the geographic variance in property values, and reflects the housing boom and bust,” said Stone. The communities with the most newly constructed, entry-level housing suffered the greatest impact. In contrast, more established communities like Palo Alto, Los Altos, Cupertino, Saratoga and Los Gatos had proportionately fewer properties in decline.
During the previous three years, assessed value growth has been steadily declining from 9 percent in 2006, to 8.25 percent in 2007 and 7 percent last year. This year the rate of growth is 0.18 percent, a dramatic decline. “In light of the economic meltdown, schools and cities that rely upon property tax revenue are fortunate to see any growth. Other counties are experiencing double-digit declines. Silicon Valley may end up being one of only a handful of California counties on the positive side,” said Stone. “Next year may be worse, since most of the declines this year are attributed to the soft residential market,” Stone said. “The steepest decline in commercial property values is ahead of us.”
The annual growth in the assessment roll is a combination of a number of factors including changes in ownership, reductions when market values fall below the assessed value, new construction and the two percent California Consumer Price Index limit allowed by Proposition 13. It also includes the values of business personal property, which include machinery, equipment, computers and fixtures.
In normal years, substantial growth in the assessment roll is derived from new construction, or changes in ownership at sales prices higher than existing assessed values. This year, a significant number of changes in ownership are home foreclosures or distressed sales. Consequently, the new purchase price is often lower than previously established assessed values, resulting in negative rather than positive assessment roll growth. In 2008, the number of foreclosures in Santa Clara County jumped four-fold to 6,200 homes.
The negligible growth in assessed values is especially remarkable considering that Proposition 13 provides an automatic two percent increase in the assessed value for all real property that did not change ownership or complete new construction during the prior calendar year.
The Assessor reported that his appraisal staff proactively reduced the assessed value on 90,000 homes. The average reduction for each residential property is nearly $170,000 causing a whopping $17.4 billion reduction in the County’s assessment roll. The amount is determined by comparing the factored base year value (typically the assessed value at the time of purchase plus increases of no more than two percent annually) to the market value as of the lien (valuation) date, January 1, 2009. When the real estate market rebounds, the Assessor is required to “restore” the factored base year assessed value to reflect the market at that time.