* 15 of 20 largest counties see gains
* Assessed values entering "new normal"
Oct 18 (Reuters) - California's local governments are seeing signs of a leveling off in sinking property tax valuations that may mean better revenues for the state's counties, cities and towns worrying America's $3.7 trillion municipal debt market.
"Recent data from county assessors for fiscal 2013 show the first signs of statewide (assessed value) stability since the declines started in fiscal 2009," Fitch Ratings said in a report issued on Thursday.
Fifteen of California's 20 largest counties reported gains in valuations, while five reported further declines, according to Fitch, which said local governments in California get 25 percent of revenue from taxes based on property values.
"This is in contrast with fiscal years 2010-2011, when 17 of the largest 20 counties recorded (assessed value) declines and fiscal years 2011-2012, when eight of the 20 reported declines," Fitch said.
But, Fitch said, assessed value improvements and property tax growth for California's local governments will be modest in coming years and will vary regionally. Some inland counties with especially weak housing markets may see more drops.
"Fitch Ratings' Sustainable Home Price Model projects an additional 5 percent-10 percent statewide decline (real terms) in home prices before reaching sustainability," Fitch said. "Continued housing weakness will limit potential increases in (assessed values) and property tax revenues, delaying robust fiscal improvements for local governments."
Assessed values in California were entering a "new normal," Fitch said, in which increases in assessed values will be sharply lower than the 9 percent compound annual growth rate posted each year between 2000 and 2009.
"Even with sustained improvements in the housing market, Fitch expects local governments to face ongoing pressures from inflationary cost increases and rising pension and labor costs," the rating agency said.
The slowed growth will fall most heavily on schools and county governments that get 22 percent of their revenue from property taxes and cites, where property owners supply one of every four dollars of revenue, Fitch said.