Why did my property taxes increase so much this year? This is a question a lot of us could be asking when we open our property tax bill based on the latest assessment this fall. Unfortunately, the answer isn’t so simple – but we’ll do our best to break it down…….
Information from the Department of Industrial Relations shows that the CCPI (California Consumer Price Index) increased 3.81 percent. Because of Prop-13 however, property assessment increases are limited to +2 percent annually regardless of how much the market increases.
Chart 1 lists the value change percentages used by California County Assessors since 1999/2000:

So what does this mean in terms of property tax increases? For many homeowners, property taxes will increase 2% over last year – regardless of market value changes. For Californians who have owned and occupied the same home for several years without any construction modifications, this isn’t necessarily NEW news. They’ve come to expect a moderate increase in their property taxes each year, and unless Prop-13 changes or goes away, they’ve no reason to expect anything different in the near-term. However, for the majority of Californians who have purchased their home in the past 7-10 years, our ‘near-term’ might look very different in terms of our property tax bill increases – and it has everything to do with a long-forgotten Prop-8.
Passed in 1978, Prop-8 requires a reduction in assessed value if “the property’s value has been reduced by ‘other factors’ such as economic conditions.” Put simply, Prop 8 allows for the temporary lowering of the assessed value of properties whose market value falls below their Prop 13 value. As a result of the historic decline of the housing market in recent years, county assessors throughout California have moved a large majority of our homes from Prop-13 to Prop-8 status (e.g., More than half of all parcels in Sacramento County are Prop-8). What does this mean? For those of us with a Prop 8 status, it means that our property tax bills are no longer calculated based on a moderately increasing Prop-13 base year value trend, but rather based on our property’s current market value. If you’re in this boat, you’ve likely enjoyed a minimal, or even drastic, decline in your property tax bill in the last few years. However, if the revival of the housing market continues (and many analysts predict it should), we could be staring down large increases to our property tax bills for years to come.
I know you’re probably thinking “I thought my property taxes couldn’t increase by more than +2%?” This would be true for a home assessed under Prop-13 , but Prop-8 parcels are tied directly to fluctuations in the real estate market which can adjust up or down much more radically and without limit. As long as a parcel remains in Prop-8 status, property taxes for that parcel are based on market values that can exhibit much more erratic behavior and increase at a rate much greater than +2%. Keep in mind also that a parcel’s Prop-13 base year value trend line never ‘goes away’. In fact, it continues to ‘trudge’ along in the background, increasing by the CCPI each year, while the parcel remains in Prop-8 status.
Chart 2 provides a common example of a new home purchased in late 2004 for a price of $475,000. Although the market value of the home during the first three (3) years increased at rates of +5.3%, +7.0% and +1.9%, respectively – property taxes were calculated against the Prop-13 trend line that prevented increases from exceeding +2% per year. In 2007 however, the housing market began its steady decline, and consistent with California law the county assessor moved the home from Prop-13 to Prop-8 status. Property taxes for this particular home then are no longer calculated against current Prop-13 base year value, but against the current Prop-8/Market Value. As a result, property tax bills also began to steadily decrease. However, as the market value of this home grows, so will its property tax bill – likely at a yearly rate much greater than +2% as long as it remains in Prop-8. So where’s the ceiling? Remember the Prop-13 base year value trend line hanging around in the background? That’s the ceiling. In the case of the home exemplified in Chart 2, that ceiling is currently $547,716 – the likely value of the home had the market never fallen and +$174,716 greater than current market value.

As long as this particular home’s market value remains below the Prop-13 base year trend line, the county assessor will likely retain Prop-8 status. While homeowners with homes that are assessed under Prop-8 can take solace in slowly regaining lost equity, larger (than historical) increases to their property tax bills can also be expected – at least until market value catches up and the home is moved back to Prop-13 status.
For more information, please contact your local California County Assessor.