Drop In Property Tax Collection Means Drop In County Revenue
Wednesday, January 6, 2010
As the value of properties plummet, property tax collection drops as well. We'll talk with San Diego County Treasurer-Tax Collector about the impact to local government when tax revenues fall.
MAUREEN CAVANAUGH (Host): I'm Maureen Cavanaugh, and you're listening to These Days on KPBS. When we hear about budget shortfalls, we usually talk about cuts in services or higher taxes. We don't always talk about why the shortfall is there in the first place. Well, in this recession there are lots of reasons why state and local governments are taking in less revenue than they anticipated. But in the County of San Diegan – San Diego, that is, one reason will be a decrease in the amount of property taxes coming in. Joining us to explain what’s going on with property tax collections and what the prospects are for a turnaround is my guest, Dan McAllister. He is San Diego County Treasurer and Tax Collector. And, Dan, welcome back to These Days.
DAN MCALLISTER (San Diego County Treasurer-Tax Collector): My pleasure. Good morning to you.
CAVANAUGH: Good morning. Now, tell us where we are when it comes to property tax revenue. Is it true that last year was actually a record year?
MCALLISTER: Last year was, indeed, a record high both for revenue and in terms of taxable parcels that we sent tax bills out for. Last year we hit about 978,000 parcel taxes that we sent bills out for and we received revenues back to the tune of about $4.55 billion dollars, an all-time record high on both levels. This year, in September, we hit another new record high for numbers of taxable parcels but because of the valuation decreases and because of the reassessments and because of the assessment appeals being so successful, the number of dollars yielded is going down.
CAVANAUGH: Now we have been talking about problems with real estate for years now. Why is it that the property tax collections are just starting to feel it?
MCALLISTER: The answer is simple and it’s analogous to a tail on a dog. If you can picture a dog bounding through a park, a grass park, for instance, you know that the head of the dog and the body of the dog leaps up and then it leaps down. But as it leaps down, and if you think of the dog body as the economy, as it leaps downward as the economy has been doing over the last couple of years here, the tail still rises and then when the dog figures out that it’s got to leap up again, it starts to come out of that doldrum, that downturn, and it spins up but the tail then is going down where the dog was. And in this case, the tail is our current economic condition and it’s the revenues that are spun off by real estate taxes that are going down. This year we predict about a $50 million decrease in property tax revenues over last year, and we don’t see that stopping in the next year or so. It will continue to creep downward before it goes up again.
CAVANAUGH: Now what does that mean to the County?
MCALLISTER: Well, it means that we have $50 million less in revenues at least that we had otherwise counted on for all of the services that we provide. And I think it’s pretty instructive to look at the tax bill insert, if you will, or the tax bill guide that is sent out with every property tax bill. On the back, we publish a pie chart showing the breakdown of how monies are distributed from every property tax dollar that comes in. And if you see that graphic, you can tell that 43.3%, almost half of every dollar, goes to K-thru-12 education, schools, arguably a great place to go because they need the monies to operate and continue to operate at the levels that will educate our children and the children are our future, but they will suffer a decrease. The cities in the county, all 18 cities, will suffer a decrease and a decline as a result of this $50 million hit. Redevelopment agencies, libraries, all of them will take a little bit of a hit on a pro rata share and it’s sad because it’s money otherwise they had counted on to do, and continue to do, the work that would benefit our citizens.
CAVANAUGH: And, as you say, with this tail of the dog analogy even – you expect this, since it just started going down just this past September, you expect to see several more quarters and maybe even years of trailing property tax collections?
MCALLISTER: Well, we remain optimistic…
MCALLISTER: …and the new year brings all kinds of optimism across the board. We know that. The governor’s getting ready to be optimistic in his State of the State message, and I’m sure everybody with every speech over the next couple of months will be very optimistic, too. We’re optimistic, we’re cautious, but we’re realistic, too, and we know that things will continue to suffer a little bit of a downturn at least over the next six months or maybe even this full 2010. We’re optimistic, though, based on some numbers in the real estate market and the upticks that we have seen in the numbers of sales over the last few months that that will continue and this trend will catch on and, thus, help to drive those valuations back up to where they should be.
CAVANAUGH: I’m speaking with San Diego County Treasurer and Tax Collector Dan McAllister. I’m wondering, Dan, what – how do delinquency numbers factor into this? What do they look like for San Diego County?
MCALLISTER: You know, for the second year in a row, we’re off a percentage point. Last year, we were down a percent in defaults or delinquencies. This year, once again, our December 31 numbers look like we’re down a full percentage point which, to us, means that more people are paying what they owe us on time, and that’s a good thing. Now lending to this issue, I’m sure, are the lenders and the entities that have taken back properties through foreclosures and they are not wanting to see those properties fall into any kind of tax problems so they will step up and pay in a timely fashion those tax bills right away. And that probably has added to our abilities to collect and to see those delinquencies drop.
CAVANAUGH: Now, one bright spot for consumers has been the supplemental refunds that you were able to distribute. First of all, tell us what they are.
MCALLISTER: Well, these refunds – and, actually, it’s kind of interesting because there are several different kinds of refunds that we could potentially do. It doesn’t happen very often but it’s part of this down cycle. Part of the down cycle is the positive news of refunds going out for people that might’ve overpaid their taxes. These monies are based solely on sales, name changes, ownership changes, or new construction because all of those garner a look by the Assessor and a reassessment. And in the case of these property owners that have already received monies, about $8.6 million, in fact, has been sent out to 13,500 property tax payers since October and we estimate that over the next three months we’ll be sending another 8,000 refunds out, totaling about $6.5 million. They are from people who bought property where the taxes were paid at the close of escrow. They may have overpaid based on a previous valuation and now the Assessor has deemed them to be worth lower amounts and they are, therefore, entitled to a refund. In another instance, somebody might’ve done construction, maybe they added a room onto the house, maybe they added something to the facility they purchased, but the Assessor then comes in, does a reassessment and decides the property’s worth less, not more, and, therefore, they’re entitled to a refund.
CAVANAUGH: And, of course, the downside is that also increases the deficit, if you would, of the anticipated revenues that you would get from property taxes.
MCALLISTER: Well, it increases the amount we have to pay other entities or entities throughout the county…
CAVANAUGH: Right, right.
MCALLISTER: …that rely on those tax dollars…
MCALLISTER: …no question. And I think it’s important to note, too, the Assessor’s office has done a remarkable job in the last year and a half in San Diego County of entertaining the assessment appeals that have come before it. From what we are told, they received this past year 225,000 requests for reassessments and they granted about 216,000. Those have yet to hit our refund rolls and we expect that they will show up beginning sometime soon in this new year.
CAVANAUGH: Now, many homeowners I’ve talked to have seen a decrease in their assessed property value on their tax bills without even asking for it. How does that happen?
MCALLISTER: Well, I think that as the Assessor has explained, the Assessor’s office did take a number of areas of the county where they knew that these reassessments were in order and they went out and unilaterally conducted those and gave the reductions. The others come from the assessment appeals. And it’s important, I think, for your listeners to know that legally they have a right every year, two times a year, November 30th is the first deadline and May 30th is the second, to file an appeal to their assessment. In other words, when they receive our bill in September and October, if they’re not happy with the valuation that the Assessor’s office has assigned to their property, if they think something might be amiss, then they should file for that appeal. The Assessor’s office has also told us that anybody who’s purchased in the last five years or so should be entitled to some sort of adjustment on their valuation.
CAVANAUGH: So if you haven’t seen your – the amount of your home actually adjusted on your bill, you should perhaps inquire and see if you can get that done for your property.
MCALLISTER: Yes, through the Assessor’s office.
CAVANAUGH: Right. Exactly.
MCALLISTER: They handle those assessment appeals.
CAVANAUGH: Now, there’s an upcoming tax sale auction. Could you tell us a little bit about that, Dan?
MCALLISTER: Yes. Every year there are any number of people, owners, property owners in the county, who fail to pay their taxes. Under state law, though, we are forbidden from selling those properties to collect those taxes until five years of delinquency has occurred. So that means that every year we get a batch of properties. This year it’s a little bit higher than last and, in fact, I think if we look at our numbers, we see that earlier in December we sent to the County Board of Supervisors 379 properties in the county where property taxes have not been paid for five years. Now they have until the night before our annual tax sale to redeem—a lot of religious terms here…
MCALLISTER: …to redeem themselves and their properties…
MCALLISTER: …by stepping up to pay all that is due, including penalties and the principle that is added to the taxes every year. And if they do that, they redeem them, then they’re taken off the sale block. But usually on or about the last Friday of every February we conduct a sale of properties. I will tell you that that 379 number has now dropped as of yesterday to 339, and we expect it will continue to decrease until the week of the sale. And usually we end up selling about 100 to 110 different properties. Usually, in the past, approximately 65 to 75% of those are timeshare properties.
MCALLISTER: So not a lot of taxes owed and sometimes, I would encourage your listeners to understand, there are very, very good bargains available but not always. Sometimes they’re developed properties and other times they’re just vacant land.
CAVANAUGH: Let’s take a couple of calls. Some of our listeners want to join the conversation. Heather is calling from Ocean Beach. And good morning, Heather. Welcome to These Days.
HEATHER (Caller, Ocean Beach): Good morning. Thank you for having this conversation.
CAVANAUGH: Yes, how can we help you?
HEATHER: Well, I went to the school board meeting last night and they’re talking about $80 million in tax cuts – I mean, in cuts to the budget. And I wanted to know why, if we had such a record tax collection year last year, we are seeing cuts – we saw cuts last year and we’re seeing over, you know, $80 million in cuts this year. Like I thought it would be delayed just like the tax revenues were delayed and affected – being affected by the recession.
MCALLISTER: Well, I think that part of the dilemma for school districts right now, all 42 public school districts in the County of San Diego, is the lapse in property tax bill payments. For instance, the decrease and the decline, that’s one part of their budgeting process. However, it’s not all of their budgeting process. They rely an awful lot on allocations and funding from the state and the federal government for operating dollars, and those dollars have been cut dramatically, particularly at the state level. I think Maureen had an earlier guest talking about the governor, who’s ready to make another State of the State address within the next couple of days and, you know, it is sad that not a lot has improved in the last few years. If anything, less money is going to education than more and I think that’s a sad note. But it’s not all dependent on property tax revenues.
CAVANAUGH: Right. So what you’re saying is even if the total 43.3% expected went to the schools, they’d still be – have some problem with their…
CAVANAUGH: …budget. Okay.
MCALLISTER: There would still be deficiencies.
CAVANAUGH: Joe is calling from Mira Mesa. Good morning, Joe, and welcome to These Days.
JOE (Caller, Mira Mesa): Thank you for taking my call. Yeah, my question is about the reassessing of my property.
JOE: When I bought my house, I understand that the assessed value of my house can’t go up. Because of the state laws, you can’t increase my assessed value and, therefore, my taxes won’t increase drastically over the years. But if I decide to go ahead and reassess my property to lower my assessed value, does that expose me in future years that you could raise it above what I’d originally paid for the property in the first place?
MCALLISTER: As I understand it, no. That’s an Assessor question. But I know that Mr. Butler and his crew are doing a great job over there and I can give you a phone number, if you have further information needs, to call directly or if you want to call my office, we can get a direct answer for you. But I would say that the answer we’ve been told is, no, it can’t go higher than what you paid originally…
MCALLISTER: …but the courts have ruled recently that for the dips that have taken place in the downturns economically, the counties have a right to recover up to the point of where the dipping began. So you would not be charged more than you were originally paying but you could be charged up to the amount you were originally paying as the recovery occurs.
CAVANAUGH: I see. And what is that phone number for the Assessor? Do we know?
MCALLISTER: Yes, we do. It’s 531-5507, 619-531-5507.
CAVANAUGH: Thank you so much for that. Now let me get back for just a moment or two to that – these tax sale auctions that are coming up. Don’t investors usually grab a lot of these properties before they actually go on the block, so to speak?
MCALLISTER: This is not a typical auction. I would say that that’s probably the case in bank auctions or other commercialized auctions. But if you get a look-see at some of the properties, and our brochure will be out and available within the next few weeks – we do encourage people to go online and sign up early if they’re interested in even watching and maybe bidding, but an awful lot of these properties are undevelopable. There has been parcels. It might be easy, for instance, to see why Uncle Charlie did not pay his taxes on this before he passed away and then willed it on to heirs. There was no ingress, there was no egress. Maybe it was in the northeast part of the county…
CAVANAUGH: I see.
MCALLISTER: …where it was surrounded by boulders, no roads in, no roads out. But Uncle Charlie got tired of paying the taxes. Now there are some parcels once in awhile that are pretty good deals. I saw one about three years ago that came to us for auction and they were two buildable lots on Market Street in downtown San Diego and I think both lots together went for about $210,000, so bargains are out there. And we encourage people to do the due diligence and it’s a buyer beware situation, though.
CAVANAUGH: And how can they find out about this?
MCALLISTER: Once again, they can call our offices or they can go to us online and that’s pretty easy to do. Our office number is, toll free, 877-829-4732, again 877-829-4732. Or our website is www.sdtreastax.com.
CAVANAUGH: We also have that website linked to our These Days page at KPBS.org. Dan, you’ve given us so much good information. Thank you so much for coming in this morning.
MCALLISTER: It’s always my pleasure. You guys do such a spectacular job for San Diego and we appreciate all you do.
CAVANAUGH: Well, thank you so much. I’ve been speaking with Dan McAllister, San Diego County Treasurer and Tax Collector. Stay with us. Coming up, the search for San Diego’s next classical music star. You’re listening to These Days on KPBS.