1. We love public transit, but will never amend the constitution to make sure gas tax goes to public transit projects (currently it is required, but law, to go to maintaining roads and highways).
2. We love public transit, but we will never pass a tax to pay for it.
3. We love clean air, but our largest public utility is having trouble with divesting from coal power
4. We love that our public universities are top in the country in academics and athletics, but our legislators would rather cut hundreds of millions from them instead of pass a tax to support them.
5. We love our K-12 education, yet our legislators are unwilling to pass a tax to prevent cuts to the school year
6. We love our public services, yet complain about high taxes
7. We complain about high taxes and bad schools, but still overwhelmingly support Proposition 13
The last (and bold) point is what this blog post is about. Some controversial points about Prop 13 are:
1. Maximum value-based tax on real property shall not exceed 1% of the value of the property.
2. Decrease in property taxes by assessing the real value of a property at its 1975 price and restricting assessment of annual increases to an inflation factor not to exceed 2%. Reassessment of a new value can only happen under an ownership change or completion of construction.
3. Requires a 2/3 majority of both houses of the CA Legislature to increase tax rates or collect revenues.
4. Requires a 2/3 majority in local elections to pass an increase in special taxes
The passage of Prop 13 was a result of the "Taxpayer Revolution" headed off by anti-tax people like Howard Jarvis. But, Prop 13, which is considered to be the third rail of CA politics, has caused decreased tax revenues for localities, which have been forced to find creative ways to recapture those monies.
Here are some supportive arguments for Prop 13:
1. It creates certainty for Homeowners
True. But, it created uncertainty for localities and pegs a portion of their tax base to the rise and fall of the real estate market. This is especially bad in coastal communities, where home ownership and prices are higher. These localities must find creative ways to recapture tax money. They become dependent on state block grants and look to "use fees" and higher sales taxes. Cities have begun to decrease services and increase fees to compensate for that move.
2. The acquisition-value assessment provides property tax equity
Suspect. The scheme is good for taxpayers if you look at the prop as a whole. But, it's condition that the value be reassessed for change of ownership highly favors commercial properties. If a commercial property is owned by one company and it sells, but continues to be deeded to that company, they are exempt from the reassessment condition in Prop 13. This works well for those who own big box stores and shopping malls.
3. Decreases volatility for funding of municipalities
True. But, it also decreases that funding. It creates certainty, but in a negative way. See my answer for #1.
Some negatives:
1. Sales disincentives
Because of the condition that the house value will be reassessed upon change in ownership, there is a disincentive towards upward mobility or selling of a home. There is also a disincentive to build more homes.
2. Loss of Revenues to local government
The 2% maximum has under paced the Consumer Price Index, giving local government less money to collect against the 2% levy or when the price of a parcel is reassessed. Translation: less tax money to the coffer. Result: find ways to recover that loss money through creative means (see #1 under "Arguments for Prop 13").
3. Bubbles and Ownership/Renting volatility
When housing bubbles occur, taxes collected increase due to increase in housing values. Once the bubble bursts, downward pressure is put on collected revenues, creating a tax deficit. Trends in ownership/renting follow these bubbles creating both rigidity and friction in the housing market. This can attributed to Prop 13.
4. Price Increase for New Developments
Because there is a disincentive to move out of a home due to the reassessment condition, older homeowners are not selling and younger prospective homeowners are increasingly renting. Finding new places to build homes in a constrained market also leads to higher prices. Adding in environmental, geographical and development limitations only makes prices for development even higher.
When Gov. Schwarzenegger was elected governor in a recall, his financial adviser Warren Buffett told him that Prop 13 needed to be repealed or changed in order to cover the widening state budget deficit. The governor said it was no politically possible. Current governor Jerry Brown has openly criticized Prop 13 and it's negative affects on the power of local governments. Part of Brown's initial budget was to return power back to local governments and away from Sacramento.
With the partisan gridlock in Sacramento holding back any modification to Prop 13, these inequities, high sales/use taxes and uncertainty will only persist.
