Wall Street Journal: Los Angeles Appraisals Probed

From the Wall Street Journal  June 10, 2012

  
LOS ANGELES—Property values in the ritzy communities of Beverly Hills and Brentwood have fallen along with those elsewhere amid the recession. But prosecutors here say that for some of those houses and businesses the drop isn't because of the economy, it's criminal.

An investigation by the Los Angeles County District Attorney's Office last month led to the arrest of a former county appraiser on felony charges for allegedly improperly lowering dozens of property values by a combined $172 million.

The arrest was part of an continuing criminal investigation of the Los Angeles County Assessor's office to determine whether homeowners and businesses in some of the nation's richest neighborhoods were given tax breaks in exchange for campaign contributions to the assessor.

The district attorney said he also is investigating whether the current county assessor, John Noguez, and other members of Mr. Noguez's staff reduced property values for some wealthy clients of tax agent Ramin Salari. Mr. Salari and members of his family contributed $10,000 to Mr. Noguez's election campaign, according to county records.

Mr. Noguez hasn't been charged with any wrongdoing, and his lawyer, Michael Proctor, said "once all the facts come to the fore, John will not be accused of undermining the mission of the office."

Mr. Salari hasn't been charged, either. The allegations being investigated by the district attorney are "absolutely untrue," said Mr. Salari's lawyer, Mark Werksman. "Every reduction he's obtained has been based on documentation that justifies a lower assessment."

Earlier this month, Mr. Noguez announced he would take a leave of absence, saying in a statement he hoped that by stepping aside he would enable the assessor's office "to continue to serve the taxpayers and citizens of this county."

Mr. Noguez was elected to the nonpartisan post for a four-year term in 2010, and raised more than $1 million for his campaign.

The former appraiser, Scott Schenter, had resigned from his county job before he was charged with 60 felony counts for allegedly falsifying documents and unlawfully lowering property values in return for contributions to Mr. Noguez's 2010 campaign, according to charges listed by the district attorney's office. Mr. Schenter pleaded not guilty to those charges. His lawyer didn't respond to requests for comment.

The Los Angeles County assessor oversees a tax roll valued at $1.1 trillion in a county of 10 million residents, who live in homes that vary from modest bungalows to some of the most lavish estates in the country. Home prices have been depressed across Los Angeles County since 2008, though some areas have seen and are seeing increases in values.

In many cases, the values Mr. Schenter allegedly lowered were on properties in some of the most affluent enclaves of the city's west side, according to prosecutors. Some were homes and condos in Beverly Hills and Brentwood, famous for celebrity residents. Others were in Pacific Palisades, a neighborhood that includes expansive mansions perched above the Pacific.

Mr. Schenter allegedly cut the value of many properties by 30% or more, according to assessor's records. In the records, 157 parcels are labeled with a "Scott value"—referring to Mr. Schenter—and a "market value," according to county records. Mr. Schenter lowered the value of one donor's condo to $950,000 from $1.7 million, according to documents provided by the county assessor's office to the district attorney.

"We believe his actions are not isolated," Los Angeles District Attorney Steve Cooley said.

The district attorney's probe boosts proponents of increasing oversight of tax agents, third-party representatives hired by property owners to lobby the tax assessor's office for a property- value reduction. It also has left residents wondering how much damage may have been done to local budgets, which rely heavily on property taxes.

Judy Price, a Los Angeles homeowner for 30 years and vice president of the Greater Valley Glen neighborhood council, said the investigation makes her think, "Oh my gosh, we've been s—out of a lot of property taxes."

Some state and county officials say tax agents should be treated as lobbyists, required to register publicly and be prohibited from working on contingency fees or making campaign donations.

"The recent allegations have laid bare these tax agents operate in a shadowy world," said Mike Gatto, a Democratic state assemblyman in California who in May proposed a bill to require tax agents to register as lobbyists. Mr. Noguez publicly endorsed the bill.

The California Alliance of Taxpayer Advocates, a professional association for tax agents, opposes the bill, arguing it would be "premature for any action to be taken" until the district attorney's investigation and a host of other audits of the department are concluded, said the group's president, Peter Kotschedoff.

"This unregulated world of tax agents would benefit from a little transparency and a few restrictions," Mr. Gatto said.

Tax agents typically aren't regulated or certified in most states, and often work on contingency fees, taking anywhere from 25 % to 35% of the tax reduction they win on behalf of a property owner, according to interviews with lawmakers, tax agents, assessors and property tax experts. The majority of reductions are worked out by the appraiser and tax agent reaching a compromise in private.

It isn't illegal in California for a tax agent to contribute to political campaigns, and agents say it isn't unusual for an agent and their clients to be asked to donate to various local campaigns.

Mr. Kotschedoff, of the California Alliance of Taxpayer Advocates, said most tax agents "are very ethical" and maintain cordial, professional relationships with appraisers. Even deals reached between an appraiser and tax agent are still subject to review, he noted.

Los Angeles County Supervisor Don Knabe and another supervisor have raised the possibility of changing the state constitution to make assessors an appointed position, rather than an elected one. Mr. Knabe is also leading an effort among county supervisors to prohibit campaign contributions by tax agents.

Write to Tamara Audi at tammy.audi@wsj.com

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Mike Gatto is the Chairman of the Appropriations Committee of the California State Assembly.  He represents Los Feliz, Silver Lake, and portions of Atwater Village along with the cities of Burbank and Glendale and the Los Angeles neighborhoods of Toluca Lake, Valley Glen, North Hollywood, and Van Nuys.  He has served in the Assembly since June 2010. His web site is asm.ca.gov/gatto or  e-mail Mike at: assemblymember.gatto@assembly.ca.gov, or call him at (818) 558-3043.