A strange political scandal in Los Angeles raises a tough question about real estate and taxes.
L.A. County District Attorney Steve Cooley is investigating corruption in the office of County Assessor John Noguez. There is some reason to believe that Noguez has made the most of his power to decide how much property owners must pay in taxes.
Earlier this week, former Noguez underling Scott Schenter was arrested up in Oregon on charges of falsifying documents and unlawfully lowering property values. According to the L.A. Times' Ruben Vives and Jack Dolan, Schenter is accused of "improperly slashing the value on more than 100 Westside" properties, resulting in a tax break of "$172 million for multimillion-dollar homes and businesses." Property owners reportedly contributed to Noguez' campaign in payment for the reduced assessments.
Schenter left office in January 2011 after a supervisor got wind of his alleged activities. In the intervening time he spilled the beans to Vives and Dolan, which had the immediate effect of expanding the story to include a local consultant named Ramin Salari who, again allegedly, acted as a middleman/fixer for property owners seeking relief on their tax bills. Schenter also may have incriminated himself with this loose talk, though I have no idea whether his statements to the paper had any impact on his own case. Most recently, Schenter relocated to the Beaver State and was, at age 49, living back in his dad's house when he was arrested.
Noguez has his own saga, including credible reports of threats and physical harassment against opponents during a 2007 mayoral race in the suburb of Huntington Park. These threats apparently resulted from questions about whether the then-mayor's real name was John Noguez. It may be Juan Rodriguez or Juan Noguez or Dick Whitman.
The grownup thing might be to say "Hey, even Jesus hung out with corrupt tax collectors," and leave it at that. But it's illustrative of how far from a free market real estate has wandered that you have to bribe public officials to get a lower assessment in a county where 30 percent of all mortgages are underwater. It's true that the West Side, where Noguez' office is said to have done much of its business, has less negative equity than other parts of L.A. County. But this interactive map from the L.A. Times (a fine national newspaper), shows Santa Monica's beachfront zip code with 20 percent negative equity, Brentwood with 11 percent, Malibu with 16 percent and Marina del Rey with 21 percent.
Here in the land of the million-dollar starter home and the half-million-dollar teardown, in an era that has given us the deathless phrase "repenetrated bottom," the idea that real estate can only go up remains so stubborn that we don't even have language to describe the decline. Predictably, local pols are agitating for re-assessments, and I'm guessing they don't expect those assessments to be lower than Schenter's.
Nationwide, housing will mark its sixth straight year of deflation next month. Yet to this day you only get in trouble if you say a house has lost value. If you pretend the price is still inflated, nobody will bother you.