Proposition 8 Alameda Decline in Market Value

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Office of the City Manager
                                                                    INFORMATION CALENDAR
                                                                    September 16, 2008

To:              Honorable Mayor and Members of the City Council
From:            Phil Kamlarz, City Manager
Submitted by: Robert Hicks, Finance Director, Finance
Subject:         Proposition 8 Reassessment Information

INTRODUCTION
This information report is a follow up to the May 20, 2008 information report staff issued
on the Proposition 13 assessed value base and Berkeley’s Proposition 8 reassessment
risks. Staff promised to report back to Council the impact of Proposition 8
reassessments on the City’s assessed value and Secured Property Tax revenue after
the County Assessor’s Office completed its Proposition 8 reassessments for FY 2009.
All cities were expected to face downward pressure on assessed values due to
Proposition 8 reassessments, as a result of the significant decline in property values
over the last two years.

CURRENT SITUATION AND ITS EFFECTS
In an April 2008 article in the San Francisco Chronicle, the Alameda County Assessor
indicated that his office “has received about 2,000 requests for property tax reductions in
the past several weeks. The county will automatically review the assessments of 65,000
                                                    …
properties and take additional requests individually” Areas most likely to receive
reductions include parts of Livermore, Castro Valley and Union City, which have seen
declines in some cases greater than 10 percent”.

This report is to inform Council of the impact of Proposition 8 reassessments on the
City’s assessed value and Secured Property Tax revenue after the County Assessor’s
Office completed its report on Proposition 8 reassessments for FY 2009.

That report indicates that the impact of the Proposition 8 reassessments on Berkeley for
FY 2009 will be a reduction in the City’s assessed value of $75,979,469 or .61% of total
assessed value in the City. This percentage decrease was the second lowest in
Alameda County, after Piedmont’s .21%. The average decrease for the County was
1.58%, and the largest decrease was Dublin’s 3.39% (See Attachment 1 for
comparisons with other cities in Alameda County).

Berkeley’s decrease in FY 2009 assessed value related to Proposition 8 reassessments
will result in approximately $246,933 less in Secured Property Tax revenues. This
decrease in Secured Property Tax revenues amounts to .66% of the adopted budget



    2180 Milvia Street, Berkeley, CA 94704 ● Tel: (510) 981-7000 ● TDD: (510) 981-6903 ● Fax: (510) 981-7099
                E-Mail: manager@ci.berkeley.ca.us Website: http://www.ci.berkeley.ca.us/manager
                                                                   INFORMATION CALENDAR
Proposition 8 Reassessment Information                                   September 16, 2008


amount of $37,117,262. However, the amount currently projected to be received in FY
2009, after considering the reduction in assessed value due to proposition 8
reassessments, is close to the adopted budget amount as staff anticipated the
proposition 8 decrease when the FY 2009 budget was adopted.

BACKGROUND
Proposition 13 passed in 1978 was designed to keep a lid on property taxes when
property values were rising. However, it did not provide relief when property values
declined. As a result on the same year, California voters passed Proposition 8, a
constitutional amendment that allows a temporary reduction in assessed value when a
property suffers a “decline-in-value”. A decline-in-value occurs when the current market
value of a property is less than the current assessed value as of January 1st.

To illustrate a property where an owner should file a decline-in-value reassessment,
take a property that was purchased for $500,000 and during a three-year period the real
estate market declined and recovered. The following table shows the trend in base
value of the property, the assumed market value of the property, and the assessed
value of the property, assuming a 2% annual increase in the Consumer Price Index
(CPI):
Table 1
                                   Property Based Value Trend
                                              Assumed
                                               Market       Assessed
                        Year    Base Value     Value         Value
                         1        $500,000      $500,000       $500,000
                         2         510,000       480,000        480,000
                         3         520,200       510,000        510,000
                         4         530,604       550,000        530,604


Most properties purchased more than five years ago in Berkeley have Proposition 13
base year values significantly below current market value, even after considering the
annual Consumer Price Index increases of 2%. However, all cities will face downward
pressure on assessed values due to Proposition 8 reassessments, as a result of the
significant decline in property values over the last two years. As previously reported,
56.5% of Berkeley’s parcels have an assessed value base year between 1975-1995.
This is the second highest percentage among all of the incorporated cities in Alameda
County. In addition, only 21.7% of Berkeley’s parcels have a base year between 2003-
2008, and only 9.8% have a base year between 2006-2008, compared to countywide
averages of 31.6% and 14.8%, respectively. Therefore, staff did not expect a significant
impact from Proposition 8 reassessments.




                                             Page 2
                                                           INFORMATION CALENDAR
Proposition 8 Reassessment Information                           September 16, 2008


POSSIBLE FUTURE ACTION
None

FISCAL IMPACTS OF POSSIBLE FUTURE ACTION
None


CONTACT PERSON
Robert Hicks, Director, Finance, 981-7339



Attachments:
1. Attachment 1 - Impact of Prop 8 Reassessments on FY 2009 Assessed Value –
Alameda County




                                         Page 3
Attachment 1- Impact of Prop 8 Reassessments on FY 2009 Assessed Value- Alameda County
                                                                                                                                                                                           (K)
                                                                                                                                                            (I)                         % Prop 8
                      (A)        (B)           FY        (C)            (D)           (E)                (F)              (G)             (H)       FY 2009 Assessed          (J)        Decline
                    FY 2008        2008 Appeal        Subtotal         New           Partial            Total         2% COLA        Ownership          Value[AV]      Prop 8 Decline In In AV
 Jurisdiction    AssessedValue     Reductions          (A)+(B)      Construction Construction        (C)+(D)+(E)       (C) x.02        Changes         (F)+(G)+(H)            AV          (J)/(I)
Alameda        $   8,234,309,506 $      (578,960) $ 8,233,730,546 $ 12,684,644 $ 17,845,796      $ 8,264,260,986 $ 164,674,611 $ 338,981,665 $ 8,767,917,262 $              (98,189,738) -1.12%
Albany             1,739,559,388             -        1,739,559,388    1,316,548     8,589,482        1,749,465,418      34,791,188      70,296,132      1,854,552,738      (32,048,483) -1.73%
Berkeley          11,539,630,344      (4,509,273)    11,535,121,071   32,107,546    31,412,100       11,598,640,717     230,702,421     590,327,181     12,419,670,319      (75,979,469) -0.61%
Dublin             7,982,219,901        (910,468)     7,981,309,433   55,966,101   124,953,878        8,162,229,412     159,626,189     359,854,733      8,681,710,334    (294,116,513) -3.39%
Emeryville         3,288,891,857      (8,382,629)     3,280,509,228   53,923,653    33,252,070        3,367,684,951      65,610,185     269,900,177      3,703,195,313      (37,241,548) -1.01%
Fremont           30,303,544,375     (18,576,525)    30,284,967,850  133,910,452   108,855,787       30,527,734,089     605,699,357     970,234,682     32,103,668,128    (427,343,432) -1.33%
Hayward           14,571,341,167      (6,588,011)    14,564,753,156   48,522,112    54,135,180       14,667,410,448     291,295,063     477,982,790     15,436,688,301    (334,601,229) -2.17%
Livermore         12,861,754,427      (8,138,903)    12,853,615,524  108,186,494    34,594,415       12,996,396,433     257,072,310     330,735,597     13,584,204,340    (268,229,937) -1.97%
Newark             5,344,246,689      (2,745,812)     5,341,500,877   21,253,155    11,508,100        5,374,262,132     106,830,018     110,244,037      5,591,336,187      (48,512,215) -0.87%
Oakland           37,972,061,017     (29,400,288)    37,942,660,729   82,995,130   373,806,131       38,399,461,990     758,853,215   1,362,893,649     40,521,208,854    (624,449,089) -1.54%
Piedmont           2,783,160,327        (346,701)     2,782,813,626      (53,475)    1,133,500        2,783,893,651      55,656,273     103,943,584      2,943,493,508       (6,099,902) -0.21%
Pleasanton        16,041,966,208     (18,079,902)    16,023,886,306   89,956,310    70,831,585       16,184,674,201     320,477,726     534,514,317     17,039,666,244    (181,943,322) -1.07%
San Leandro        8,887,014,805        (242,414)     8,886,772,391   22,783,899    16,042,480        8,925,598,770     177,735,448     283,790,655      9,387,124,873    (122,319,668) -1.30%
Union City         7,581,665,324        (265,039)     7,581,400,285   22,126,466    46,696,115        7,650,222,866     151,628,006     261,815,430      8,063,666,302    (194,525,110) -2.41%
Unincorporated    14,120,062,915      (7,100,267)    14,112,962,648   42,744,356    47,622,392       14,203,329,396     282,259,253     393,452,282     14,879,040,931    (328,586,447) -2.21%
Totals         $ 183,251,428,250 $ (105,865,192) $ 183,145,563,058 $ 728,423,391 $ 981,279,011   $ 184,855,265,460 $ 3,498,236,650 $ 6,458,966,911 $ 194,977,143,632 $ (3,074,186,102) -1.58%