Prop. 13 is California Taxpayers Only “Saving Grace”

Proposition 13 is certain to continue to be a hot topic in 2016 and beyond as “reformers” continue to work on mobilizing a statewide effort to enact a “split-roll” that raises billions of dollars in increased property taxes from California businesses.

I have worked in and around Prop. 13 in one form or another for my entire career and have collected more data and research on its impacts that anybody else I have ever come in contact with.

I have since ended that research for the “reform” side, because I came to appreciate Prop. 13 for what it truly is–the last line of defense that California taxpayers have against elected officials who refuse to control “unsustainable” and “unaffordable” spending at both the state and local levels of government. 

For those new to Prop. 13, it is a California ballot measure passed in 1978 that places a 1% limit on local property tax rates, unless a “change in ownership occurs,” and limits assessment increases to 2% per year.

At the state level, Prop. 13 requires that any measure which would raise revenues to be enacted by a 2/3 vote of the Legislature.  At the local level, Prop. 13 requires taxes raised by local governments for a designated or special purpose to be approved by 2/3 of voters and a majority for general tax increases.

Sure, Prop. 13 is not perfect, far from it.   But the reality is that there is perhaps no public policy in California that is more effective at safeguarding taxpayers against the inability of California politicians, particularly those of the Democratic stripe, from overspending and then sticking taxpayers with the bill.

With the State of California $400 billion in the red, and most local governments in the same situation, you don’t hear anyone arguing with the fact that California government has a huge spending and debt problem.

Moody’s Investor Services agrees with this assessment, having prepared a report that finds California to be the least prepared state to weather a financial storm due to its fiscal policies and inability to reform its tax system.

Without Prop. 13, California elected officials would have “carte blanc” to push the state’s $1 trillion and growing pension problem onto state and local taxpayers, serving to further exacerbate the problem.  A whole host of other state and local taxes and fees would inevitably become viable proposals overnight in the absence of Prop. 13’s protections.

The ongoing explosion in fees and tax exactions on businesses at the local level is perhaps the best indicator of what would happen if Prop. 13 did not exist—turning an already steady and increasing flow of new local taxes and fees into the equivalent of an unchecked dam-break flood of new taxes and fees on California taxpayers.

Stanford University economist Roger Noll says that the problem of ever increasing, burdensome local taxes and fees is the single most legitimate concern that California businesses express about the state’s system of state and local finance.

Opponents of Prop. 13 cite tax equity and fairness as reasons to “reform” Proposition 13 by switching away from a “change in ownership” trigger for market reassessment to a “periodic reassessment of commercial property at market value.”

Furthermore, reformers say Prop. 13 is not “fair” because it heavily taxes new investment and rewards  “long-time” landowners—resulting in heavily disparate property tax amounts.

They say that the only fair way is to bring all businesses who receive a “tax break” under Prop. 13 up to market value and then send billions of dollars in increased property tax revenues to Sacramento to spend as they please.

My primary issue with this line of reasoning is that Sacramento has already proven that it cannot manage the existing tax dollars it gets from the state’s property tax responsibly so why on earth would we send them a flood of new tax dollars?

Second, the entire state and local tax system is riddled with similar inequities so why are reformers choosing to single out Prop. 13 for “reform”?  California’s major taxes are all characterized by extremely high rates and a very limited or loophole-ridden base.

The result is that those who pay the tax pay full boat, and those who can take advantage of loopholes get a break.  The reality of the situation is that all tax “reformers” in California want to increase tax revenues by leaving the rates the same, closing the loopholes, and sending billions of dollars in increased revenues to Sacramento to poorly manage.

True tax “reform” would be to close the loopholes and lower the base to make the change revenue neutral—but there is not a single tax “reformer” in California that I know of who is pushing for revenue neutral tax reform.

This is the method that nearly all significant successful attempts at tax reform utilized including President Reagan’s 1986 tax overhaul—widely lauded as one of the most successful tax reform efforts of all-time.

Reagan’s 1986 tax reform was “revenue neutral” but hailed by politicians of all stripes for simplifying the tax code, broadening the base and reducing the rates—a win win for everyone, not just those who want more tax dollars.

Kersten Institute for Governance and Public Policy

Originally published by Fox and Hounds Daily

Comments

  1. I hope everyone is supporting the Howard Jarvis Tax Association (HJTA)
    They are fighting constantly for Prop 13.It is one of the few orgs that I consistently send money to. If it wasn’t for Prop 13, I would have lost my home by now. And now, even after Prop 13, the State income from property taxes is at a all time high. Fools like deLeon and other liberals are frothing at the mouth for more money to spend on illegals to bulk up the democratic majority. Can’t wait to move out of this festering money pit!

    • We are right there with you on planning to leave CA ASAP. I’ve lived in CA the better part of 55 years and do not see any hope for CA until it collapses. Even then, I am not convinced it will regain its former self. There are just too many forces, i.e. the public employee unions, that have a strangle hold on the state. Not only can we thank Moonbeam for overseeing the conditions that made Prop. 13 passage possible, but he also was governor when public employees were given the right to unionize. Thanks for nothing Jerry.

  2. askeptic says

    CA does not have a tax problem insofar that it is incapable of raising funds necessary for the operation of government; what is has is a fundamental problem of spending more than it can raise.
    It is more than just a little ironic that the conditions that prompted the passage of Prop-13 in 1978 were overseen – and ignored – by CA’s Governor at the time, Jerry “Moonbeam” Brown, who today reaps what he sowed.

  3. Emanuelle Goldstein says

    “the only fair way is to bring all businesses who receive a “tax break” under Prop. 13 up to market value”

    Really? When the next downturn in real estate occurs, will properties be reassessed at the lower level?

  4. There is no limit to the greed or corruption of the elected ruling class. If we lose Proposition 13 there is no longer any reason to live in California. It is just that simple.

    Google “Two Minute Conservative” for more.

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