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An unprecedented bit of news from the county assessor:

The county expects the overall assessed value on properties in the county — and thus the taxes assessed on them — to dip negative in fiscal year 2009-2010 compared to the current year, said Dave Butler, San Diego County Assessor, earlier this afternoon.

His office had originally projected a slight increase but has now revised it to a 2.5 percent expected drop, a nightmare scenario for local governments. That’s due primarily to the dramatic slowdown in new construction and the piles of requests for reductions in property tax bills from homeowners who’ve seen their values drop, he said.

“We think we’re taking the big negative this year, and hoping it’ll be better next year,” he said.

Butler said the projected 2.5 percent drop is in line with expected drops in L.A. and Orange counties of between 2 and 3 percent. Riverside County is projecting a 10 percent decline for the same period, he said.

The assessed value — and thus property tax collection — was up 4.6 percent in the fiscal year that ended in 2008. Assessed value rose 9.36 percent the year before that. The Assessor’s Office will release the current year’s total in June.

The negative projection for next year is a big deal. “We’ve never been negative before,” Butler said. “At least since Prop 13.” Even in downturns like the 1990s, the collection was “basically flat,” he said — but not negative.

I’ll try to explain:

Proposition 13 is a California law that locked in a property tax base rate in 1978 for homeowners who don’t move. But when the property does change hands, as happened often during the housing boom, that property is reassessed to its contemporary value and the new owner is taxed based on that value. As a house comes out from the Proposition 13 rate lock, the recipients of property tax revenues see a proportionately large gain.

The more houses a city or the county has that have the potential to change hands and come out of that Proposition 13-locked tax rate, the better chance they have of retaining positive property tax growth even in a housing slowdown.

During the boom, like in 2005, Butler said, the average increase in assessed value (for the purposes of calculating taxes) every time a house was sold was $200,000.

But right now, the majority of sales are foreclosures, and on the low end of the market, too. Butler said the average increase in value for the first half of last year was significantly lower — $85,000.

By the second half of last year, that average was $25,000 for every sale, he said.

And by the end of this year, Butler expects about 200,000 homeowners in the county will have had their property tax bills reduced — another hit to the coffers.

Even in a downturn, individual homeowners can see their property tax bills rise 2 percent every year to keep up with inflation.

Butler said his office is readying preliminary projections for the county’s individual cities and school districts so that they can use them for their budgets. He said hard-hit cities include Chula Vista, San Marcos, Oceanside and Escondido.

I wrote this story last fall about the impact of dwindling revenues on cities across the county. Check out my colleague Rani Gupta‘s post about how property tax collection affects the city of San Diego’s budget.

KELLY BENNETT

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