Bills

The total assessed value of properties in Santa Clara County
made an unprecedented decline this year, with Morgan Hill and
Gilroy seeing the largest drop in property values than any other
city in the county.
The total assessed value of properties in Santa Clara County made an unprecedented decline this year, with Morgan Hill and Gilroy seeing the largest drop in property values than any other city in the county.

Based on property assessments announced by the Santa Clara County Office of the Tax Assessor Wednesday, the total assessment roll in Morgan Hill decreased from last year’s value of about $6.6 billion, to about $6.2 billion this year – a 6.1 percent decline, according to assessor Larry Stone.

The assessment roll in Gilroy dropped by the same percentage, from about $6.1 billion to $5.7 billion.

Countywide, the total decline in property values was 2.43 percent, or a drop of $7.4 billion. The county’s total assessment roll this year is $296.47 billion, Stone said.

The county has not seen such a decline in property values since the Great Depression, except in 1978 when proposition 13 capped the growth of assessed property values – “a political, not economic circumstance,” Stone said. That year, property values decreased by about 21 percent.

“This is far worse than anyone had expected,” Stone said. During the Great Depression, while the county saw three consecutive years of negative growth in assessed values, only one of those years saw a steeper decline than this year. In 1933, the county’s assessment roll dropped by 3.19 percent.

“It is very difficult for me to deliver such distressing news,” Stone said. “As a citizen and taxpayer, I am concerned about additional cuts to public schools and other public services funded by property taxes. I am concerned about the significant loss of equity by our property owners.”

The rate of decline is “especially alarming” when considered against the backdrop of a $20 billion increase in property values just two years ago, and a $27 billion growth in 2001, Stone added.

Adding to the unusual nature of the decline is the fact that it was uniform across the county, with only the city of Palo Alto able to escape a reduction in the assessment roll, Stone said.

“This reduction is a direct consequence of the soaring unemployment rate in Santa Clara County triggered by the Great Recession,” said Stone. “Unemployment drives nearly all the main economic components that impact property values. When unemployment increases, businesses stop investing in new buildings, cancel contracts for leased office space and reduce purchasing machinery and equipment. Unemployed workers are no longer able to make mortgage payments, and reduce the purchase of consumer products. The result is not only distressed sales and foreclosed homes, but major retailers, such as Mervyns, Blockbuster and Circuit City, file for bankruptcy.”

Last month, the tax assessor’s office reported that it will devalue 1,136 Morgan Hill properties by a total of $225 million since last year’s assessments.

That means the city will lose up to $150,000 it expected in revenues to help pay for basic services. The city manager’s office anticipated general fund property tax revenues of about $6.6 million next year, based on the assumption that the tax roll would remain flat.

However, with the negative growth in the assessment roll, the city expects to collect about 5 percent less in property taxes next year.

Another big surprise countywide was the 8 percent decline in the value of business personal property including machinery, equipment, computers and fixtures. In addition, the number of businesses declined by 8.2 percent from 46,000 businesses to 42,000, Stone said.

The contraction of business, driven by unemployment and unstable financial markets, is also evidenced by the lack of investment in real estate, Stone said. Major companies are downsizing or negotiating lower rents, and as a result the number of commercial, industrial and retail establishments receiving reductions increased 122 percent, and the amount of the reduction more than doubled from $2.2 to $4.9 billion.

But Stone said the current numbers are “only the tip of the iceberg.”

“Unlike the residential sector where technology assisted us in the review of 220,000 residential properties, valuing commercial properties require extensive analysis and usually a full appraisal,” he said. “I fully expect this number to increase sharply over the next few years as major businesses file assessment appeals.”

In the residential sector, the number of homes receiving a temporary reduction increased from 90,214 to 117,306. However, the rate of decline slowed overall, reflecting a possible bottom of the residential real estate market.

And for the first time since Proposition 13 passed, the California Consumer Price Index was negative by 0.237 percent, Stone added. Proposition 13 provides that the assessed value of all real property cannot increase by more than 2 percent annually, unless there is a change of ownership or new construction. Thus, an estimated 350,000 property owners will receive a reduction in the assessed value of their property, totaling $6 billion, including properties in which the assessed value is significantly below the market value.

“If there is any silver lining to this news, it is that homes are more affordable now than they have been in more than a decade. That is good news for the high technology companies who will ultimately lead us out of this economic crisis. We need local companies to start hiring again, and high housing costs have always been an impediment,” said Stone.

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