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XIIIA defines full cash value to mean "the county assessor's valuation of real property as shown on the 1975-76 tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership have occurred after the 1975 assessment." This full cash value may be increased at a rate not to exceed two percent per year to account for inflation. Article XIIIA has subsequently been amended to permit reduction of the "full cash value" base in the event of declining property values caused by damage, destruction or other factors, to provide that there would be no increase in the "full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in other minor or technical ways. Pending Litigation Regarding 2% Limitation. The County of Orange brought an action against a County Assessment Appeals Board (County of Orange v. Assessment Appeals Board No.3) over the Board's ruling that the County Assessor unlawfully assessed a parcel of residential property. The residence at issue had been purchased in 1995, and due to the flat real estate market, the home's taxable value stayed the same for 2 years. When the market increased in 1998-99, the County enrolled a taxable value which represented the 1996-97 base year adjusted for an annual 2 percent rate for 1997-98 and 1998-99 tax years. Thus, the assessment in 1998-99 was an increase of approximately 4 percent from the 1996-97 taxable value. The County of Orange contended that Proposition 8 reductions in assessments are temporary and when the assessed value of the property returns to pre-reduction value, the .., Assessor must return to using the base year value, adjusted for inflation, even if the increased assessment exceeds 2% of the prior year's reduced value. The Court disagreed and on December 27, 2001 ruled that the "recapturing" method used by the County violated Propositions 13 and 8. On December 12, 2002, the Court ruled on a motion in the case to restate the complaint as a class action, which could have the effect of extending the ruling to other similar cases. The case now goes to the State 4th District Court of Appeal. At this time, this case applies only to the Orange County assessor, but if appealed and upheld on appeal, the ruling could become binding on county assessors statewide. The City is unable to predict the effect on its revenues if the ruling described above is ultimately upheld. Legislation Implementing Article XIIIA. Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The one percent property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1989. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the "taxing area" based upon their respective "situs." Any such allocation made to a local agency continues as part of its allocation in future years. Beginning in the 1981-82 fiscal year, assessors in the State no longer record property values on tax rolls at the assessed value of 25% of market value which was expressed as $4 per$100 assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 oftaxable value. All taxable property -31-