1.4.3 Ad Valorem Real Property Taxes
Ad valorem real property taxes are taxes levied on real property as a percentage of the assessed valuation of that property. Ad valorem taxes are collected by counties and are allocated to the county and to cities, special districts, and school districts within the county.
CONSTITUTIONAL LIMITATION50 – Subject to the exceptions described below, ad valorem taxes assessed against a particular property may not exceed 1% of “full cash value.” The full cash value of a property is, in turn, the full cash value of the property in Fiscal Year 1975–76, increased by the lesser of 2% annually or the rate of inflation as evidenced by the consumer price index. Full cash value may, however, be redetermined in connection with improvements to the property (with some exceptions) or damage to or contamination of the property. Of greater significance, full cash value may also be redetermined upon a “change of ownership” of the property, which is defined to exclude a limited subset of transfers. In addition, property owners may transfer the full cash value assessment on an existing property to a new property under certain conditions.
EXCEPTIONS – Ad valorem real property taxes levied to pay obligations approved by voters before July 1978 and general obligation bonds approved by voters in accordance with Proposition 46 or Proposition 39 are excepted from the 1% of full cash value limitation. See Section 1.4.4, Ad Valorem Real Property Taxes Securing Voter-Approved Obligations.
DEBT FINANCING IMPACT – For governmental entities receiving ad valorem real property tax revenue before the passage of Proposition 13, ad valorem real property tax revenues not securing voter approved obligations (“general property tax revenues”) are a revenue source available for general purposes, including general fund obligations such as leases and TRANs. Because general property tax revenues are a source for the payment of operation and maintenance expenses as well, the greater the share of ad valorem revenues committed to repay debt the less is available for operations. Since the amount of general property tax revenues is a function of the aggregate full cost value of taxable property in the jurisdiction and not the tax rate, a governmental entity receiving general real property tax revenues has no control over the amount of ad valorem real property tax revenues.