After working in the L.A. County Office of the Assessor for 40 years, ten of which as assessor, L.A. County Assessor Rick Auerbach retired this month. In order to document a life of effective and respected public service, TPR presents the following exit interview, during which Rick describes the state of property values in the county, details how the real estate market in Los Angeles County compares to the rest of the region and the state, and makes some predictions about the daunting tasks facing his successor, especially regarding commercial property.
You recently announced that you would retire as county tax assessor, effective this month. Talk about the ten years of service you've given to this position. What are you most proud of?
I have almost 40 years of service in the department. I started right after graduating from college in 1970, and I've worked as an appraiser, in various management positions, as an assistant assessor, and then as assessor. I was appointed about ten years ago and elected shortly after that. I am most proud that we've changed the attitude of the employees in the office, but we've also changed public's perception of the employees. Now almost everybody in the office understands that we are public servants. Putting the right value on properties is an important role, but it's just as important to provide the best in service to the public. In fact, that is our mission. It's a real short mission statement: to produce an accurate assessment and provide the best in public service.
Why is now the time to retire? And why have you chosen to nominate Robert Quon as your interim successor?
I suggested to the board that Robert Quon be appointed in the interim because I knew he would not be running for the office. I am supporting John Noguez, who is an employee of the office, in the upcoming election. I feel that somebody running for the position at this particular time could not do an effective job of running the office and running for the office. One of those would suffer. I thought Robert, who is the current assistant assessor and certainly has the experience to be the assessor, would be the best choice in an interim period from now until December. The board accepted my recommendation and voted to appoint Robert as assessor until a new assessor takes office.
What should the voters be focused on in the way of qualifications in the upcoming election? What are the challenges in this incredibly difficult environment for property and real estate and revenue?
They should be looking for somebody that understands appraisal, is a certified appraiser, and has been working within this office. Los Angeles County is the largest property tax jurisdiction in the country. You want somebody that understands what it takes to do a good job in appraising and assessing property, somebody that understands the laws, and somebody that is focused on the public service aspect of the job. The person I'm supporting, John Noguez, is the one candidate that meets all those qualifications. Plus, he has a background in elected politics; he has been a city councilman for the past ten years and served as mayor in the city of Huntington Park. He understands politics, but he has been working in this office for 25 years. This is his main job. I can tell you that he is liked and respected by, I believe, every employee in the office. I have not heard an employee say something bad about Mr. Noguez. The people that he has worked with outside the office, meaning property owners, have the same feeling about him. He is very well respected.
Let's turn to the difficulty of the county assessor's job. When we interviewed you last May, you were preparing to finalize property tax rules for the county. You predicted at that time that property tax revenues for the county would be down one percent. How did the year turn out?
It was down about a half percent overall. This year, we've been looking at somewhere between two to two-and-three-quarter percent reductions. Robert Quon will be here until we close the roll in the end of July. There's a tremendous amount of work that needs to be done in the way of looking at properties for a reduction in value. We expect to be looking at somewhere around 600,000 properties for a potential reduction in property tax value. It is a very daunting task. Three years ago we were looking at, maybe, 10,000 a year for that same type of reduction. It's a greatly increased workload. We expect a number of our other major functions in the office to increase, such as reappraising properties that are transferred or sold and get a re-appraisal under Proposition 13-which will increasing at a time when resources are decreasing.
How does the Assessor's Office tackle doing 600,000 re-appraisals?
We have an automated system that will handle half to two-thirds of the properties. The system will take care of doing much of the work and it will only require review. The balance of that total is work that the system will help an appraiser do, but the appraiser will have to make adjustments and come up with a new value on property. It's a fairly automated system, providing a lot of online information to the appraisers. They're going to be expected to do between ten and 15 of these appraisals per hour. That's the only way we can get through this. We will do it. I will not be here for most of that work, but we reviewed close to 500,000 last year. This year it's a little more than 600,000. Last year we finished sometime at the end of May, early June, and the same thing will happen this year.
In the interview TPR did with you last year, you saw a major problem with commercial properties. What is the nature and size of the problem in 2010?
We know that many commercial properties that were sold or purchased at the top of the market, the years 2006-2007, will deserve a reduction in their property tax value. The problem is we don't have an automated system to handle those; they have to be done individually. We have to get information from the property owners to do that. Although we will proactively look at a few thousand, there are many more where the tax payer is going to have to file a claim or an assessment appeal for us to have enough information to make a reduction. It's a very difficult, time-consuming task that requires a lot of expertise on the part of the appraisers. Most of these properties will be done on the income approach, where single-family properties are done with a comparative sales approach, which is an easier way of appraising properties. You can't do that with the commercial properties because there are not a sufficient number of sales to provide that type of information.
What does the public least understand about the responsibilities of the Assessor's Office and the challenges of this year's marketplace?
The public does not understand that the real role of the assessor is not to raise revenue for the county, schools, or the state. The role of the assessor is to put the right value on the property and ignore the revenue consequences. That's what the Constitution and taxation code mandate of the assessor. Most people's perception of the assessor or the Assessor's Office is to put as high a value as possible on a property. That is definitely not true, nor is it true in the other 58 counties in the state of California. The elected assessors all take their role very seriously and will do what the Constitution mandates.
As many as 50 percent of the transactions reviewed by the Assessor's Office have been foreclosures. What happens, vis-à-vis valuation, when there is a foreclosure?
First of all, when a property is actually foreclosed upon, in other words, taken over by the financial institution, that's a change of ownership under Proposition 13, and we have to reappraise the property. Usually we end up with two reappraisals, one when the financial institution takes over the property and then soon after that when the financial institution sells that property.
The problem with the foreclosures is figuring out the condition of the property and whether that property should be used as a comparable sale for other sales or for our process of lowering values. When a property is foreclosed upon, many times that property is not in good condition; it has either been damaged by the prior owner or by people that have gone into the home and taken fixtures or appliances out of the home. When the financial institution sells property and there is an actual sales price, many times that sales price is not an accurate indication of what the value of the property would be if it was in good condition. For us, it's finding out the condition of the property.
What's the impact of California's Prop. 13 on the reevaluation of foreclosed properties and on collections?
Proposition 13 has the effect of moderating the increases in property tax value, but it also moderates the decreases. In the last two to three years we've had a decline in home values of 30-50 percent. But for property tax revenue, we've only had very slight declines. Prop. 13, because it keeps property tax values artificially low, makes the property tax base a more stable source of income to government.
The same thing goes when there are increases because a property tax value can only go up to the Prop 13 value plus 2 percent each year, and no higher. When there are large increases, such as we had in the period of 2002-2006, where property values were increasing 20 percent a year, the property tax values in Los Angeles County were only were going up 7-10 percent a year. Prop 13 is a good thing in that in moderates the fluctuation in revenue.
Some people have talked about a split assessment roll or appraising commercial properties at their actual value every year or every third year. Assessors have looked at the statistics that the proponents of such a scheme have thrown out there, and I can tell you that they have greatly overestimated the amount of revenue that would be raised from such a scheme. There are a number of reasons for that, but I believe they've never estimated the revenue correctly. My colleagues in other counties have the same feeling.
How does L.A. County compare with other Southern California counties, such as the Inland Empire, where half a million homes may be under water?
Los Angeles County has been much better than most other counties. We are starting to see increases in certain areas; I'm talking about single-family homes, not commercial properties. For property tax purposes, where we look at the value of properties between January 1 of 2009 and January 1 of 2010, we've seen a flattening of value changes. In other words, we have not seen the great decreases that we've seen in prior years. From what I've heard from my colleagues in other counties in the Inland Empire and up through the Central Valley, that's still not true. Although in Riverside County my understanding is that that has flattened out also.