A Surge Against Proposition 13

In June of 1978 California governor Jerry Brown opposed Proposition 13, but voters passed the measure in a landslide. California’s ruling class has never ceased to attack it, and these attacks are certain to escalate with new ammunition from Nathan Gardels of the Berggruen Institute.

“The Proposition 13 property tax revolt of 1978 still defines the fiscal framework of California,” Mr. Gardelsrecently wrote in theSacramento Bee. “That revolt was sustained largely by an older, white middle class reasonably, at the time, seeking to protect their assets from a bloating state.”

Mr. Gardels is right about the “bloating state,” but he neglects to explain that government growth and inflation were taxing people out of their homes. In these conditions it was reasonable that people would seek to protect their assets, but for Mr. Gardels, these were mainly older people.

In reality, young first-time homebuyers championed Proposition 13. After making the biggest purchase of their lives, in a time of rampant inflation and high unemployment, young people did not aspire to be saddled with onerous and ever-rising property taxes. That’s why nearly two-thirds of California voters, Asians, African-Americans and Mexican-Americans among them, decided to limit those taxes.

Californians might recall that, under Proposition 13, property tax rates could not exceed 1 percent of the property’s market value and could not grow by more than 2 percent per year unless the property was sold. And unlike the California Coastal Act of 1976, which created the Coastal Commission, Proposition 13 created no new state agencies and included no mandate for new state spending.

Proposition 13 applied to all Californians, regardless of ethnicity, but for Gardels it was mainly about older “white” people. These old folks may have had a legitimate complaint, but in his view they represent the past.

“The political constituency of California’s future,” Mr. Gardels explained, “is largely Latino, Asian and youthful.” And this constituency of the future “is seeking to build their assets through upward mobility.” And for Mr. Gardels, that changes the equation.

“For aspirational constituencies striving to reach the middle class,” he wrote, “the most important thing is an opportunity web and trampoline to boost their chances.” Trouble is, “even though California has one of the most progressive tax structures in the nation, inequality is rising and dashing hopes.”

So if progressive taxes, which means higher and more punitive taxes, are not serving as a trampoline and opportunity web, what might do the job?

Mr. Gardels wants a new philosophy of governance that focuses on the “overall progressive outcome.” In this vision, the very high state income tax should be reduced “while extending a sales tax on services.” Politicians will be happy to oblige.

Proposition 13, meanwhile, prevents the state from inflicting punitive property taxes on all Californians. It is one of the few measures actually to limit the power of government.

If ruling-class types find it objectionable, there is something they can do: Craft a measure that nixes Proposition 13, pegs property taxes at 10 percent of the property’s value, and allows increases of 15 percent per year. Put that on the 2016 ballot and let California voters decide.

If facing the people proves too daunting, maybe the Berggruen Institute—a group “dedicated to the design and implementation of new ideas of good governance” —can offer a 12-step plan to trim California’s bloated government. As Mr. Gardels makes clear, the government’s appetite for more of the people’s earnings remains ravenous as ever.

Lloyd Billingsley is a policy fellow with Independent Institute in Oakland. He and his family bought their first house in California in 1977. Originally published on Fox and Hounds Daily.

Via: California Political Review

Continue Reading....

California: Attack on Prop 13 Faces Long Odds

The original Proposition 13 was four paragraphs long fitting on one side of a piece of paper. SCA 5, the measure to change Proposition 13 introduced by Senators Loni Hancock and Holly Mitchell yesterday intended to increase taxes on business property is 30 pages long. Without going into the details of the proposed changes, suffice it to say the groups behind the proposal, liberal organizations and public employee unions, want more tax dollars to spend. That is despite the fact that the state treasury is enjoying a big boost in revenue.

The rhetoric of “fairness” spoken by supporters at the press conference announcing the bill does not match the impact of what the proposed law intends to do. Sen. Mitchell said at the press conference, “What we are looking to do is to take those few that are benefitting from under-assessment and bring them in line with everyone else.” 

The measure would not raise taxes on a “few” but re-assess all business property annually so that they can pay the highest property tax possible.

Most of the news reports following the press conference that announced the filing of the bill spoke of “long odds” and “high hurdles” to get the bill through the legislature. Since the proposal is a constitutional amendment, it requires a two thirds vote to be placed on the ballot. Many news articles noted that there are no Republican votes for the measure.

A more interesting question is how many Democratic legislators will vote for SCA 5? I can imagine right now there are a number of political consultants drawing up campaign mailers that say: Candidate X voted to change Proposition 13.

While there seems little expectation that this proposal will get through the legislature, it is anticipated that a split roll could become an initiative measure.

The recent PPIC poll question on a split roll found only 50-percent of the voters support the idea. That mark was recorded against a simple question asking if commercial property should pay taxes based on full market value. There were no arguments offered to the respondents about possible consequences such as thousands of lost jobs, a stifling of economic growth, and devaluation of commercial property when new property taxes are capitalized into the value of the property.

A multi-million dollar campaign pointing out the negative consequences of a split roll is sure to take shape if the split roll makes the ballot.

Via: California Political Review

Continue Reading....

Los Angeles County: Labor groups protest at county building over Prop. 13 tax loophole

Labor and community advocacy groups staged a brief sit-in outside the office of Los Angeles County's chief executive Friday calling on the county to scrutinize the property tax assessments of a major downtown property owner.

The activists from the ReFund LA Coalition say commercial property giant Brookfield Office Properties structured its recent acquisition of four downtown skyscrapers to take advantage of a tax loophole and avoid having the properties reassessed at fair market value as required by Proposition 13 when a change of ownership occurs.

The coalition has recently targeted prominent Los Angeles property owners as part of a campaign to reform the property tax law.

They say the company could avoid paying more than $10 million in property taxes a year by taking less than a 50% stake in a new entity that will take title to the properties and others now held by Brookfield.

About 100 activists rallied at Brookfield's Bank of America Plaza on South Hope Street and then marched to the county's Hall of Administration, where they rallied and then sat and chanted outside of county Chief Executive William T Fujioka's office until Fujioka emerged and took a copy of a letter stating their demands.

The activists called on the county to scrutinize Brookfield's properties -- along with those of other major commerical property owners -- and reassess the newly purchased properties, and to take a stand in favor of reforming Proposition 13 to close the loophole for commercial property owners.

SEIU Local 721, which is in the midst of contentious labor negotiations with the county and is part of the ReFund coalition, made similar requests as part of the contract talks but has accused the county of ignoring them.

Some union members have questioned why that issue is being brought up as part of the negotiations. But SEIU member Jesse Pinedo, an accountant supervisor with the county's internal services department, said he thinks it is important.

"This affects us, too, because with those funds, they can give us the raise that we deserve," he said, as well as paying for other public services.

Via: LA Times

Continue Reading.....

California: Prop 13: Who’s the Fairest of Them All?

Almost twenty years ago, Money Magazine sponsored a debate and panel discussion at UCLA on Proposition 13. When one of the panelists, with ties to the public sector, began to assert vigorously that the tax cutting measure was unfair, he was challenged by Craig Stubblebine, Professor of Political Economy at Claremont McKenna College. Stubblebine said he would be happy to discuss fairness, but charged that the critic’s true motivation was simply the desire for more revenue. The Proposition 13 critic sheepishly conceded the point.

I thought of this last week when we of the Howard Jarvis Taxpayers Association caucused with about a hundred Southern California taxpayer advocates and activists to discuss attacks on Proposition 13. After the event, a longtime homeowner approached me and told me that he had had words with a new neighbor over the fact that he was paying less in property taxes and the recent homebuyer thought this was unfair.

While Professor Stubblebine’s opponent refused to continue the fairness debate, knowledgeable taxpayers are always glad to address the issue.

Because Proposition 13 uses acquisition value (usually the purchase price) as a basis of taxation and not current market value, it is possible for owners of identical side-by-side properties to have significantly different tax bills. Critics claim that this is an “inherent flaw.” But this criticism flows from a mind-set accustomed to market-value-based taxation.

To understand why Proposition 13 is fair one must understand how it works. Proposition 13 limits property taxes by limiting the maximum rate to one percent and, more importantly, by limiting increases in assessed valuation to two percent annually. With the latter provision, it is easy to see how, during a real estate market upswing, a property’s market value can greatly exceed its taxable value over the span of just a few years.

This difference between a property’s actual value and its taxable value disappears when the property changes hands because then county assessors reassess the property to market value. Thus, recent purchasers derive no immediate benefit from the limitation on annual increases in taxable value.

Via: California Political Review

Continue Reading.....

California: Prop. 13 Protects Against the Yo-Yo Effect

Even for those who aren’t in the market, it’s hard to ignore all the news about rising home prices. According to the California Association of Realtors, median home prices are up nearly 30 percent over just the last year. California has not seen this big of a one year increase since 1977 when it jumped 28.1 percent.

But the huge increase in values in 1977 brought as much anger and fear as anything else because that was just before voters overwhelmingly approved Proposition 13 to rein in out of control property taxes. Those taxes were going up as fast as home prices and forcing many from their homes.

Under the pre-Proposition 13 system, homeowners shuddered in fear when their tax bill arrived because it would be based on what someone else was willing to pay for a home like theirs, not on what they had paid or could afford. Those whose property values were increased by hyperinflation in the housing market were treated as if they were now “rich guys” who should be taxed on their “paper profits.” But those who were committed to homeownership were seeing no benefit. If they did sell their home and realized a profit, they would find that they would need every cent if they wanted to buy another house at the new inflated values.

Some homeowners today will say it is about time home values rebounded, clearly remembering that many homes lost more than 30% of their value when the housing bubble burst half a dozen years ago. However, most will not be troubled by this real estate market yo-yo effect, because Proposition 13 makes their taxes predictable from year to year. A buyer who pays $250,000 for a house knows that they will be taxed at a one percent rate and that annual increases in assessed value are limited to two percent. This means that the basic property tax — voter approved parcel taxes and bonds are extra — does not increase by more than two percent, and this certainty allows the owner to budget for future taxes.

While providing security to homeowners, Proposition 13 also guarantees stable — and almost always increasing — revenue to local governments. The take from property taxes is estimated to increase in the 4 to 5 percent range this year. However, even in years when property values are down, the Proposition 13 system acts like a shock absorber stabilizing revenue, because most property owners continue to pay under this system that allows an annual two percent increase. The exception is for those who bought at the top of the market and have seen a subsequent decline in value below the purchase price. These folks are entitled to a temporary tax reduction until the marked goes up and full value is restored.

Via: Ca Political Review

Continue Reading....