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ORANGE COUNTY, CA-In a ruling that could save property owners millions of dollars but exacerbate the budget shortfall faced by state and local governments, a Superior Court judge here has ruled that tax assessors across the state have improperly assessed the value of many commercial buildings and homes.

The decision stems from Proposition 13, the landmark tax-revolt initiative that was overwhelmingly approved by voters in the 1970s. The law generally prohibits counties from raising a property’s tax bill by more than 2% a year, and bans annual increases altogether when real estate values don’t rise.

The case before Orange County Superior Court Judge John M. Watson involved a homeowner who also is an attorney. The lawyer, Robert Pool, paid $330,000 for his Seal Beach home in 1995.

Pool’s property-tax bill didn’t rise in 1996 or ’97 because values in the area were either flat or declining. But when prices spiked sharply in ’98, the Orange County tax assessor retroactively hiked the bill by about 4% to make up for the two years when the bill didn’t increase.

Pool sued, claiming that the retroactive increase violated the 2% cap on annual increases imposed by Prop. 13. Government lawyers countered that the county was simply collecting the 2% annual hikes it had to forgo when prices weren’t rising.

Judge Watson sided with Pool, but still must rule on a motion to give the case class-action status—a move that would allow the decision to be applied to similar cases statewide. No firm estimates are available on how many properties might be covered by such a ruling, or how much it could cost state and local governments in lost property-tax revenue.

Orange County officials weren’t available to take GlobeSt.com’s phone calls Tuesday, but have indicated that they will appeal Watson’s ruling.

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