Property Tax Post: Porter Ranch Gas Leak Fuels Speculation about Declining Property Values


 

Imagine waking up in your sunny California home to a smell so bad you can practically taste it. This is the unfortunate reality for thousands of California residents that are experiencing the fallout from a methane gas leak at Southern California Gas Company’s Aliso Canyon gas storage facility. The catastrophe was recently labeled by the Associated Press as the “largest-known release of methane, a greenhouse gas, in U.S. history.” There are already talks of tax relief for property owners in the area, specifically, “decline-in-value” relief. The Los Angeles Daily News reported in February 2016 that Los Angeles County Assessor Jeff Prang “will review all of the properties affected by the Porter Ranch gas leak to determine whether property owners may be eligible for property tax relief.” Mr. Prang went on to acknowledge the frustration that homeowners and businesses are experiencing from the gas.

Decline-in-Value Review

Unlike other natural disasters, it’s difficult to quantify the property damage. The Los Angeles County Assessor website explains that a “decline in value” occurs when the current market value of a property is less than the current assessed value as of January 1.” California’s Proposition 8 allows the temporary reduction in assessed value when a property suffers a decline. The major question left unanswered is how the county will quantify the decline in value from the gas leak.

On April 4, economic and real estate industry and data experts RealtyTrac and Greenfield Advisors released a detailed analysis on the Porter Ranch gas leak and 318 other underground natural gas storage facilities across the country. The report discussed the impact of these facilities on housing markets nationwide. Centered on 117 million homes available for the research, including homes in the Porter Ranch area, the report noted that approximately 4 percent of homes across the country are within 10 miles of an underground natural gas storage facility. “Quantifying property value diminution is a complicated process that involves the analyses of sales transactions data, surveys of real estate brokers, surveys of non-stakeholders, and a review of the academic and professional literature,” said Dr. Clifford A. Lipscomb, Vice Chairman and Co-Managing Director at Greenfield Advisors. 

Based on simulations using information from a 2013 article written by Lipscomb in the Journal of Real Estate Literature, he suggests “that the homes in Porter Ranch could experience at least a 5-10 percent decline in property values.” He also explains that once a new equilibrium is established, the decline in value could go even higher depending on the information housing market participants learn regarding the riskiness of the gas well. All risks considered, regulations to mitigate the damage caused by the well will help residents and businesses recover and perhaps look forward to maintaining ownership in the area.

Future Effects

Obvious health effects resulting from the gas leak have already been claimed, and lawsuits are lying in wait. As Bloomberg BNA’s Carolyn Whetzel reported back in February, “[r]esidents in Porter Ranch and other neighborhoods near the facility in Aliso Canyon have reported headaches, nausea, nosebleeds, dizziness and other ailments the state's Office of Environmental Health Hazard Assessment said can be caused by exposure to odorants used in natural gas.” Adding insult to the personal health and property valuation injury are the expected power outages. The California Energy Commission released a statement on April 5th considering “a distinct possibility of electricity service interruptions in the coming summer months.”

So, what happens now? How long will residents have to wait to find out just how much their property values have declined? In a Los Angeles Times interview last month with Randall Bell, an economist and appraiser who specializes in stigmatized properties, Mr. Bell stated, "[w]e'll start getting a picture of things in about three months in terms of indexes that are published that show market trends….” Unfortunately for Porter Ranch property owners, having to wait really stinks.

Continue the discussion on LinkedIn: Should the Southern California Gas Company permanently close its Aliso Canyon facility?

For more information about state tax issues, sign up for a  free trial on Bloomberg BNA’s Premier State Tax Library.

By Cynthia N. Wells