Assessing Prop. 13
30 years later, it's time for a face-lift.
A face-lift for Prop. 13?
The property tax measure turns 30 today, a good time to see what still works and what doesn't.
May 29, 2008 - On a May evening 30 years ago, I left my desk in the newsroom at the Los Angeles Times, grabbed a copy of the early edition of the next day's paper and drove to Lucy's El Adobe Cafe on Melrose for supper. One of the guests at Lucy's that night was then-Gov. Jerry Brown, my former employer (I was his press secretary in 1975).
I showed Brown the paper and its bold Page 1 headline, as I remember it: "Property Tax Assessments Soar." That news, I suggested, made it virtually certain that angry California taxpayers would approve Proposition 13, the tax-cutting constitutional amendment on the primary election ballot the following week.
No way, Brown told me. He was part of a blue-chip coalition of government, business and academic leaders -- plus the state's major newspapers -- that opposed the ballot initiative sponsored by political gadflies Paul Gann and Howard Jarvis. Voters had rejected similar proposals before, and Brown et al were confident they would do so again.
Suffice it to say they badly misread the warnings of a tax revolt express roaring down on California. On June 6, 1978, voters approved Proposition 13 by a margin of 65% to 35%. California has not been the same since.
The tax revolt had been brewing for years. The property tax was the basic source of revenue for cities, counties, school districts and special districts. As demand for services rose, so did the tax rates, pushed along by a booming housing market. Governors and legislators tried to cope by capping tax rates and granting some homeowner exemptions. No matter. The assessed value of homes -- the amount subject to property tax -- kept rising. As long as that happened, so did tax bills. The escalation was especially hard on senior citizens and others living on fixed incomes.
Opponents of Proposition 13 may have understood taxpayer anger, but they responded primarily by floating doomsday scenarios. If the Jarvis-Gann measure passed, they said, libraries and parks would close, school class sizes would double, fire stations would be shuttered. Lawmakers offered a countermeasure, Proposition 8, on the June 6 ballot. It offered $1.6 billion in tax relief, but in the end, it couldn't compete with Proposition 13.
The doomsday warnings were viewed for what they were: scare tactics plucked from thin air. It didn't help when Jesse M. Unruh, then the Democratic state treasurer, accused the state of harboring "an obscene" state budget surplus of about $5 billion that could mostly offset the local loss of revenue projected were Proposition 13 to pass, an estimated $7.6 billion.
Proposition 8 used complicated formulas to spread its tax benefits. Proposition 13 looked, simply, like a good deal: For homeowners, assessments would be rolled back to 1975 levels, and then could rise at no more than 2% a year, and the tax itself would be capped at a maximum of 1% of that assessed value.
The big appeal was that the home's value would not be periodically reassessed strictly according to market value. Market value only came into play when the house changed hands; it became the taxable value for the new owners. But if you stayed put, Proposition 13 prevented your property taxes from following California's often exuberant housing prices into the stratosphere.
It still does. The Howard Jarvis Taxpayers Assn. estimates that if you purchased a home for $548,430 in 2005 (the median price then), by 2007 you had saved an average $8,971 a year in taxes because of Proposition 13.
Despite appearances, Proposition 13 wasn't all that simple. With follow-up measures, it covered nine pages of one edition of the state Constitution, including a requirement for a two-thirds vote to raise any state tax. None of that has diminished its allure to taxpayers.
In the end, local revenues fell and the state did step in with its surpluses to bail out cities, towns and counties. A patchwork of compensatory deals re-divvied revenues, resulting in a massive shift in power from local government to Sacramento as the state took over most of the cost of public schools, welfare and, later, municipal and superior courts.
Sales taxes generally replaced property taxes as the major source of local revenue, with all sorts of unintended consequences. For example, cities competed for big-box stores and auto malls because of their sales-tax bounty. Planning and zoning suffered. New housing no longer paid its way in terms of the services it required. And yes, over time, classrooms got more crowded and libraries closed.
These problems and more continue today. But so far, it's been political death for a politician to tamper with Proposition 13. Now, however, the push for tax reform in California is getting some traction. With both houses of the Legislature under new leadership, the discussion should take on serious proportions. A fair revision of Proposition 13 could continue to safeguard homeowners against confiscatory property tax but increase corporate property taxes and jettison the crippling need for a supermajority on taxation issues.
Proposition 13 is only one part of an overly complex tax system that is inefficient, inequitable and out of date. The system contributes to yo-yoing deficits and surpluses, and crises like the one we face now: billions in the hole, with deep cuts needed in essentials like education. But make no mistake, it is Proposition 13 -- because of its real impact on state coffers and its iconic role as a tax revolt symbol -- whose reform is the crucial first step in assuring California's future.
Happy 30th, Proposition 13. It's time for a face-lift.
June 6, 2008 -Proposition 13 turns 30 today, which means it's officially no longer young. In wishing it a happy birthday and ushering it into a healthy middle age, we want it to slim down, get a checkup, consider some cosmetic surgery, hang out with a better crowd and start acting more like a mature, responsible citizen than an unruly teenager.
Property tax paying Californians gave birth to the enfant terrible of all ballot initiatives a generation ago. Real estate values in the state, and especially in Los Angeles, were in one of their dizzying ascents, meaning huge tax bills for homeowners as soon as their property was reassessed. Critics of tax reform scoff at the notion today, but there really were people in the 1970s who could have been taxed out of their homes. As the U.S. Supreme Court later noted in upholding the landmark initiative, citizens have the right to stabilize their neighborhoods by making future taxes predictable.
Voters approved Proposition 13 on June 6, 1978, ending the long-standing practice of basing property taxes on current market value. The initiative capped taxes at 1% of the assessed value as of 1975 or, for those who bought after the measure passed, the same percentage of the purchase price, plus up to 2% a year.
Under this scheme, newcomers with higher property values began subsidizing vital services for the next-door neighbors who had bought early. Sacramento went crazy, back-filling revenues lost to local government and, in the process, undermining city and county self-determination. Schools, municipalities and the state began a giant shell game of shifting, grabbing and releasing funds. Cities discouraged housing and sought sprawling retail developments because they needed the sales tax money. The state's population grew, and with it the need for water systems, roads, libraries and schools, but the aging portion of the demographic that votes chose to expand the tax revolt in a series of ballot measures that took the property tax cap far beyond what Proposition 13 envisioned.
Today, for seniors, low property taxes are portable to new homes, sometimes in distant counties. Artificially low rates survive a multitude of property transfers. Vacation homes and corporate property get the same protection ostensibly meant to stabilize neighborhoods.
Defenders of the measure and its offshoots have taken to reflexive denunciations of any attempt to discuss Proposition 13 and whether it should be amended to provide fairer taxation for residents, and more rational levels of revenue to pay for the quality of infrastructure and governance that Californians still expect. But birthdays ought to be a time of self-examination. Proposition 13 provides predictability for homeowners, and it ought to be retained.
But it may be time for a haircut