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‘Bring Back the Crooked Assessor’

VOICES FROM THE SQUARE - The ongoing criminal investigation of Los Angeles County Assessor John Noguez, on allegations that he lowered tax assessments on property owners in return for campaign contributions, divides Californians into two camps.

The first, and larger, is made up of all those who, having come of age since the 1978 passage of Proposition 13, will greet the news by asking, “What is an assessor?” The second camp, the graying and dwindling cohort of Californians who predate that famous property tax initiative, will nod sagely and muse, “Ah, yes, the Crooked Assessor. That’s how it all began.” Before Prop 13, county tax assessors mattered. Before a previous generation of voters locked tax policy into constitutional amber, the property tax was set community by community, in decisions of local officials elected through the ordinary tug and pull of democratic politics.

If you owned a house or business property, your property tax bill was the product of two factors: 1) the tax rates set by your city, county, and school district; and 2) the value the assessor put on your property. Even if the city council or school board raised the tax rate, your tax bill might not go up as fast if the assessor, using his discretion, held down the assessed value of your house or factory.

And that is what assessors did. In California’s great post-World War boom, assessors up and down the state used their discretion to shelter homeowners from a gale of rising home prices and property tax rates.

As 10 million Californians became 20 million, all those new people needed roads and police and parks and teachers and schools. “I don’t think that they’ve built a new schoolhouse in Brooklyn in the last 20 years,” the Los Angeles County assessor explained in 1957. “But we’ve got to build a new one every week.”

Local elected officials, needing property tax revenue to pay for those public goods, had to raise tax rates. They also pushed hard on assessors to produce higher assessments as homes and businesses climbed in value.

But assessors were elected officials, too. Their discretion to set assessments at less than full market value gave them clout. They understood they could not earn their tickets to re-election or promotion by rapidly raising assessments on voters.

So as thousands of working- and middle-class families in the late ’50s and early ’60s rallied in protest meetings and trooped off to berate their elected officials for rising property taxes, assessors held back on reassessing homes at higher values. And using their political clout, they pushed back against the efforts of local officials and technocratic reformers to take away their discretion and power to benefit homeowners and favored businesses.

When Russell Wolden, the tax assessor in San Francisco and statewide leader of county officials opposing reform, was asked by state legislators how he assessed businesses, he would say, “Well, let’s illustrate with a good example—the [San Francisco] Chronicle building at Fifth and Mission.”

Lawmakers did not need an interpreter to read the subtext: With discretion came the possibility of making powerful friends.

But Wolden had pushed his discretion too far. In 1965 a whistleblower revealed to the Chronicle that Wolden’s judgment was for sale. The whistleblower delivered stacks of files, stuffed with cancelled checks and bribery fee schedules, detailing how businesses that paid Wolden or his partners for “consulting” services got their assessments lowered. Investigations around the state turned up more cases of assessors handing out low-ball assessments to businesses that had contributed to their campaigns or stuffed dollars into their pockets.

Wolden, dubbed the “Crooked Assessor,” went to jail. So did several assessors in other counties. The San Diego assessor committed suicide. The Los Angeles assessor was indicted but found not guilty at trial.

The convictions cleared the way for reformers. Even before the Crooked Assessor became news, the Assembly’s tax committee had uncovered the assessment racket and put together a far-reaching plan, supported by Speaker Jesse Unruh and Assemblyman Nicholas Petris, a liberal Democrat from Oakland, to overhaul the whole state-local tax system to reduce reliance on the property tax. The plan called the system of property tax administration “outmoded, discriminatory, unfair, economically destructive, and regressive,” bad in both theory and practice.

But this comprehensive approach foundered. County tax assessors still fought to keep their power, and Gov. Edmund G. (Pat) Brown didn’t want to kick off his upcoming reelection campaign by raising state taxes to make up the lost revenue to schools and other local governments if the property tax were reduced and reformed.

Instead, in 1966, the Legislature and Brown enacted a narrower bill, AB 80. It required assessors to set assessments at a standard level of 25 percent of market value. The assessors’ discretion was quickly replaced by computers running regression analyses of real estate data to determine how much houses were worth. And those computers churned out something entirely unexpected and unintended: soaring property taxes for homeowners.

As it turned out, the newspaper reports about crooked assessors had left out a key piece of the story: homeowners had been the biggest beneficiaries of assessors’ discretion.

Before AB 80 passed, homeowners in San Francisco were paying taxes on 9 percent of market value while commercial property owners were assessed at 35 percent of market value. Los Angeles homeowners were assessed at 21 percent of value while commercial property was at 45 percent.

To protect homeowners (and their own careers), assessors had used their discretion to create an informal split roll, taxing business at a higher rate. By passing AB 80, the Legislature had inadvertently repealed that split roll and required local governments to lower taxes on business and shift the property tax burden to homeowners.

In San Francisco, cars carried bumper stickers with a plea: “Bring back the Crooked Assessor.” It was not to be.

With the economy booming and people still flocking to live in the sun, home prices by the mid-1970s were jumping by 2 or 3 percent a month. And because California had put assessment on auto-pilot, property taxes rode the same upward trajectory, with assessments more than doubling from 1975 to 1978—not just for new buyers but for people who had bought a cheap bungalow decades earlier and now found themselves owning, and paying huge taxes on, a house newly worth far more than they could ever afford to buy on their incomes.

No one ever intended for property taxes on homes to go so high. It happened inadvertently, the result of one of California’s spasms of reform, enacted in the modern faith that rules and experts were a better way to run California than politics and politicians’ discretion.

Instead of returning to the past and to democratic decision-making, with all its uncertainties and occasional frailties, as those bumper stickers in San Francisco urged, California would soon choose the path of even more rules. Prop 13 set property tax rates at a uniform 1 percent and set the assessed value at the purchase price, plus an inflation factor of no more than 2 percent a year.

It thereby removed not just the discretion of assessors (who now matter only in the rare instances, like the recent housing bust, when property prices decline, leaving houses worth less than their purchase price). It also took away or limited the taxing discretion of local elected officials and legislators—and even of majorities of voters.

This lack of discretion—and democracy—is at the heart of California’s present fiscal and governance turmoil.

The Crooked Assessor has a lot to answer for.

(Mark Paul, formerly deputy state treasurer of California, is co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It. Zocalo Public Square … where this article was first posted … is a living magazine that connects people to ideas and each other. A must visit.)

Tags:  Mark Paul, Zocalo Public Square, assessor, foreclosure, California, crooked assessor, property tax, Prop 13

Vol 10 Issue 47
Pub: June 12, 2012