Real Estate

Prop 13 targeted again: The initiative draws new attention, but defenders dig in

Proposition 13 booster Howard Jarvis became the face of the national tax revolt in 1978.

Over dinner at a local restaurant, Shana, a married mother of two elementary-school children, coaxed one of them to eat his food and then paused to implore her dinner companions to attend a car show. The auto event was a fundraiser for the parent-teacher organization (PTA) for which she volunteered, and it was only one of the fundraising activities in which the group was involved.

“The PTA used to be about organizing social events,” Shana said. “Now it’s all fundraising.” Her children’s school has no full-time music teacher, and Shana — who has a graduate degree in science — was brought in to teach art to first graders because there was no art teacher.

Whether it’s academic scores or funding levels, California public schools rank near the bottom nationally at a time when education is being focused upon as the key to the state’s and the nation’s economic future success. Defenders of the system point to increases in spending on education over the past few years, but those came after years of underfunding.

The poor state of California’s schools is just one of the signs of systemic dysfunction in the way the state works. California voters have used the referendum process repeatedly to underscore deep distrust of their elected representatives in Sacramento; the result has been handcuffs placed on the legislators’ spending powers, with very large portions of the state budget already allocated by voter initiatives before the legislators even get a say in the matter.

And it could get worse. The number of signatures needed to get something on the ballot is set at 5 or 8 percent of the number of people who voted for governor in the most recent election. In the most recent gubernatorial election, incumbent Jerry Brown had a cakewalk reelection, and a no-drama election meant dismally low voter turnout. So the hurdle for qualifying an initiative for the statewide ballot just dropped dramatically.

The Reagan Revolution started here

This month marks the 37th anniversary of Proposition 13, one of the most remarkable laws in this country. Many people love it, many people hate it. But after nearly four decades, some people are calling for it to be updated to deal with current realities — such as the need to provide a more stable source of funding to schools — while still balancing concerns about out-of-control spending and its impact on seniors and other

vulnerable populations.

Prop 13 passed overwhelmingly in 1978, with nearly two-thirds of state voters approving of it. The voter initiative established a property tax ceiling of 1 percent of a property’s assessed value, and that assessed value — no matter how much estimated values might be skyrocketing here in the Bay Area — can be raised no more than 2 percent a year, unless there is a change of ownership.

“At the time, advocates of Proposition 13 claimed it would limit government spending. They were wrong,” David Crane wrote for Bloomberg in 2013. “Proposition 13 simply shifted revenue collection from localities — which rely on property taxes — to Sacramento, the state capital. Taxation moved from relatively stable property taxes to erratic income taxes and regressive sales levies. By moving to income taxes that treat capital gains as ordinary income, California raises much of its revenue from a boom-or-bust system.”

When Silicon Valley does well, the state does well. As UC Berkeley economics professor Alan Auerbach noted in these pages in April, the state relies “more and more exclusively on Silicon Valley to fund itself, and that’s good when times are good, and not so good when times aren’t good.”

Those not-so-good times always come around again. California’s budget was $60 billion in the hole not long ago; at the next big downturn, our deficit might set another record.

But first, the reality: Proposition 13 is not going to be killed. There isn’t a large enough constituency to get rid of it; it might no longer be the “third rail” to even bring it up, but it’s a solid political nonstarter. That hasn’t stopped people who want to change it, and that has re-energized defenders of Prop 13.

A group of liberal and union-affiliated groups has launched a campaign to change California’s Proposition 13 limits on property taxes. They call themselves the Make It Fair coalition, and they target commercial property taxes, seeking to introduce higher property taxes on commercial properties but not residential properties.

The Howard Jarvis Taxpayers Ass-ociation — named after one of the leading original proponents of Prop 13 — has naturally come out swinging against changes to the initiative. “Since California already imposes the highest taxes in all 50 states in almost every category except taxes on property – we rank 19th highest – the obvious target is Proposition 13 which limits annual increases in property taxes,” the group’s president, Jon Coupal, recently explained. “To take on Proposition 13, public unions, including the two major teachers unions and the Service Employees International Union, have joined with some ragtag groups of Bay Area radicals to create a front group, calling itself ‘Make It Fair.’ The stated goal is to strip Proposition 13 protections away from businesses, including small mom-and-pop stores and residential rentals, thereby creating a ‘split roll’ in order to seize another $9 billion in tax revenue annually.”

Fairness versus tax control

Some “Bay Area radicals” have pointed out the unfairness of multimillionaires paying piddly amounts of taxes on mansions purchased in 1976, while moderate-income homeowners struggle to pay taxes on the inflated house prices of today. But defenders of the current law worry that any change could threaten to undo the entire thing. “Prop. 13 is arguably the only significant taxpayer protection left in California,” the Orange County Register editorialized recently. “It should be guarded jealously.”

NAIOP, an association of commercial real estate developers, warned “At this point the sole purpose of [Make It Fair] seems to be political communications in order to ‘move the needle’ of public opinion to support [having different tax levels for residential and commercial properties]. This is intended to set up legislative efforts to push a bill, which will continue to be used as a platform for political communications; and finally to pave the way for passage of a proposition.”

Labor group AFSCME Council 57, which supports reform of Prop 13, puts the argument in terms that fit into the post-Occupy era: “Proposition 13, a law passed in 1978 to protect homeowners, which we support, has been unfortunately manipulated by large corporations to keep them from paying their fair share.”

So everyone wants to protect Prop 13, even the groups that want to change it. Welcome to California.

The Reagan Revolution rode the coattails of the tax revolt in the 1970s. In 2015, antitax fever is still running rampant across the United States. Californians can claim credit for being some of the original tax revolters and for limiting the size of government, but they might also be the ones most able to explain the unwanted side effects of a hamstrung government.

Again, Prop 13 isn’t going anywhere. But efforts to address it might add momentum to another growing desire to control an out-of-control movement in the state: the voter referendum, which started it all in the first place.

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