Billions of dollars in tax breaks are coming to the Northern San Joaquin Valley, and they'll save most homeowners hundreds of dollars a year or more.
It's true: Most landowners will pay less in property taxes during the coming year.
That's a nice way of saying home values have fallen so far that county assessors are drastically reducing property assessments. Property taxes are based on those assessments, so tax bills will decline. That will pinch local governments, which will receive less revenue.
"My guess is that 50 to 60 percent or more of homeowners will have their assessments lowered," said Stanislaus County Assessor Doug Harms, who expects to finish the assessment roll next week.
San Joaquin and Merced county assessors predict that about 70 percent of homeowners there will have property taxes lowered because of the real estate market's collapse.
Harms said many homeowners will save thousands of dollars this year in property taxes, which generally are based on 1 percent of a home's assessed value.
"It's kind of startling what's happened to values," Harms said. "It's really hard for people to realize."
An example: Harms recently reviewed the assessment of a west Modesto home that sold for $350,000 a few years ago when real estate was at its peak. He determined that the 1,200-square-foot, pre-World War II house now is worth $78,000.
With a $350,000 assessment, basic property taxes for that house were $3,500 per year, but the new assessment will drop that bill to $780.
That's a savings of $2,720 for the homeowner, and a equal reduction for the tax collector.
Because property taxes fund schools, state and local governments, not everyone is happy about the tax cut. Public agencies throughout the region are slashing budgets to compensate for the funding losses.
Harms isn't ready to reveal how much the lowered property assessments will cost government agencies, but he said some communities will be hit worse than others.
Patterson, south Modesto, west Modesto and Modesto's airport neighborhood have suffered the greatest drops in values, Harms said.
Merced County Assessor Kent Christiansen already has done his math: Assessments there will drop 20 percent, cutting more than $3 billion in property taxes.
"I think most people would rather still have the value in their homes (rather than the tax cut)," Christiansen said.
But that value is gone, and paying more in property taxes won't change the fact many people owe more on their mortgages than their homes are worth.
So the tax cut is kind of a consolation prize.
Harms jokes about it being his version of an economic stimulus package.
The county assessors have no option but to reduce property assessments and thus trigger tax cuts. State law since the 1978 passage of Proposition 13 dictates how properties must be assessed.
During boom years when home values are soaring, property assessments are forbidden from rising more than 2 percent per year. So people who bought their homes back in the mid-'90s, when prices were low, didn't get nailed with taxes a decade later when home values peaked.
If you paid $100,000 for a home in 1995, your assessment -- for tax purposes -- was about $120,000 in 2005, even though you might have been able to sell your house for $400,000.
That 2 percent limit on assessment increases was approved by voters to prevent homeowners from "being taxed out of their homes," as tax-cut advocates used to say.
Now, unfortunately, homes that sold for $100,000 in 1995 may not be worth even $120,000, so assessments that used to be considered very low now may be too high.
Harms said he is lowering the assessments for some homes that have had the same owners since as far back as 1984. Not every home purchased since then will have its taxes lowered, but most will.
"It's unbelievable. None of us ever dreamed anything like this would happen," said Kenneth Blakemore, San Joaquin's assessor. "We'll probably lower assessments on 100,000 (of the 170,000) homes."
More pain in newer areas
The newer the neighborhood, the further the assessments will drop, Blakemore said.
For instance: Every home built in the upscale Mountain House community on San Joaquin's western edge is worth less than what the original buyers paid for it.
"Lathrop also has been hit really hard because a high percentage of its homes were built during the real estate boom," Blakemore said. "Ripon and Escalon are doing better ... especially Escalon because it put a lid on growth, so a lower percentage of its homes were built during the boom."
Property owners throughout the Northern San Joaquin Valley will find out next month how much assessors think their homes are worth. That's when property assessment notices will be mailed.
Those assessments will be based on what each home's estimated value was on Jan. 1. Property values have continued dropping since then, but those losses won't be gauged until 2010.
Property owners who don't agree with their assessments have until November to appeal.
The first installment of property taxes will be due Dec. 10.
Bee staff writer J.N. Sbranti can be reached at firstname.lastname@example.org or 578-2196.