Apr232014

Will Proposition 13 ever be changed?

Voters warm to the idea of reforming Proposition 13, but large financial interests would vigorously oppose any attempts to curtail their subsidy.

prop.-13s-howard-jarvisProperty taxes have long been a source of local government tax revenues because real property cannot be moved out of a government’s jurisdiction, and values can be estimated by an appraisal, so it’s a convenient item to tax. In most states, local governments add up the cost of running the government and divide by the total property value in the jurisdiction to establish a millage tax rate. California is forced to do things differently by Proposition 13 which effectively limits the appraised value and total tax revenue from real property, forcing local governments to find revenue from other sources. Proposition 13 limits the tax rate to 1% of purchase price with a small inflation multiplier allowing yearly increases.

Proposition 13 tends to limit move-up trading because it requires owners to increase their property tax bill, sometimes dramatically. There are basis transfers and ways around this problem for certain people who qualify, but there is a documented tendency among California home owners to stay in their homes because they end up trapped there by the tax savings. This Wikipedia article has a good discussion of the impact of Proposition 13.

California’s Ballot Initiative System

Realistically, the only way to reform Proposition 13 is by ballot initiative. It’s very unlikely legislators would have the courage to reform the law, assuming they saw reason to do so. According to Wikipedia:

Laws already adopted by the state legislature may be vetoed by means of a referendum. To qualify a referendum for inclusion on the ballot, a referendum petition must have been signed by at least five per cent of the number of voters in the previous gubernatorial election. This is also known as a “petition referendum” or “people’s veto”.

People could vote to amend Proposition 13, but it would be an uphill battle. One of my fellow bloggers (his site is on my blogroll) makes his living as a political consultant who specializes in ballot initiatives. I talked with him about the process and his work, and one thing he told me always stuck in my mind: it’s very difficult to pass a ballot initiative if moneyed interests are on the “no.”

Any attempt to reform Proposition 13 would have big-money opponents. Who would you guess? Homeowners wanting to preserve a good deal? Nope. The big money on the “no” would be commercial properties owners and their various organizations — and they will spend whatever it takes to convince homeowners to vote with them to kill any reforms.

108253_600

49% of California voters say they support changing Prop. 13

By Jessica Calefati, Posted: 04/17/14, 7:32 PM PDT

SACRAMENTO >> Proposition 13’s restrictions on property tax growth have been untouchable in California politics for almost 40 years, but a new Field Poll shows about half of voters are open to tweaking the landmark measure.

Asked in a general way if they favor making some changes, 49 percent of registered voters said they supported the idea, while 34 percent are opposed, the poll found.

If you polled voters in the Bible Belt, a very high percentage would favor some form of prayer in public schools; however, if asked to vote on a specific prayer, the majority consensus quickly breaks down into quibbling factions. It would be similar to any attempt to change Proposition 13. Voters may realize it’s a problem, but they have no consensus on how to solve it.

Deciding how to alter California’s rigid tax rules is the multimillion-dollar question. The Field Poll found far less consensus around a proposal to reduce the threshold needed to boost local taxes from a two-thirds majority to 55 percent. Only 39 percent of voters said they support that idea, and Republicans are strongly opposed, with 67 percent disapproving.

Proposition 13 is not as sacrosanct as it had been in the past,” said Carl Stempel, a California State University East Bay professor who helped write the poll. “California has so many more younger voters today, and they don’t have the same historical memory as the older generation.”

califtaxrevolts

Prop. 13 enshrined an anti-tax mentality in California law when it passed with 65 percent of the vote in 1978, slashing property taxes and limiting the ability of politicians and even voters to raise taxes of all types. Advocates say it has helped keep California affordable for residents and businesses, but critics say it has starved government for money, leading in particular to a decline in the quality of the state’s schools.

In recent years more than half a dozen plans to alter Proposition 13 in some way have all failed, in part because of strong opposition in the business community and advocacy groups like the Howard Jarvis Taxpayers Association. Jon Coupal, the group’s president, said keeping property taxes low for businesses is important because higher levies always “hit the pocketbooks of consumers and tenants,” too.

This is clearly an example of advocates being self-serving liars and opponents pointing out the truth. Higher tax levies on businesses and commercial properties does not hit the pocketbooks of consumers. The free market for goods and services determines how much consumers will pay for anything; businesses can’t pass their costs on to consumers. Businesses may decide not to operate, but none will pass costs on to consumers.

The reality is that Proposition 13 benefits owners of commercial properties at the expense of everyone else. Because property taxes are held at 1970s levels on commercial properties, the net operating income is higher than it othewise would be. This in turn prompts buyers to pay more to own the property and inflates its value. Proposition 13 is a hidden tax subsidy that increases the income and wealth of commercial property owners.

prop_13

In February, Assemblyman Tom Ammiano introduced a bill to close what he calls a loophole in state law that allows commercial property buyers who take a less than 50 percent stake in the ownership to avoid having the property reassessed at market rate. Under his bill, any sale, no matter how many new owners are involved, would trigger reassessment and a higher tax.

proposition-13This is common sense reform that should be done; however, with commercial property owners on the “no”, the negative ads full of lies and half-truths will likely defeat this bill. Despite the fact the text explicitly states it only applies to commercial properties, the political consultants would undoubtedly run ads trying to scare old people with threats of skyrocketing property taxes leading to foreclosure and eviction.

A decade ago, wine company E&J Gallo avoided a higher reassessment in buying a 1,765-acre Napa County vineyard when a dozen Gallo family members bought shares of the property­ — none greater than 50 percent. The move costs Napa County at least $700,000 a year in lost property taxes.

In one interesting example of consensus, the poll found a strong majority of both Democrats and Republicans support changing Proposition 13 to force business properties, just like houses, to be reassessed when they are sold. More than 7 in 10 Democrats (71 percent) and nearly two in three Republicans (64 percent) reported supporting such a change, similar to the one Ammiano hopes to enact this year.

prop-13
Two questions for today:

1. Do you think Proposition 13 should be amended to reassess commercial properties when owners change?

2. Do you think any change to Proposition 13 could be passed by ballot initiative? Why or why not?

[dfads params=’groups=3&limit=1&orderby=random’]

[listing mls=””]