By RALPH E. SHAFFER
Thirty-five years ago homeowners in California rose up in a misguided attack on rising property taxes and imposed a burden on future generations that will be hard to undo. Despite the gross inequities Proposition 13 created, anti-tax advocates across the country are urging other states to adopt California’s property tax plan. Before your state moves to do so, voter beware.
Prop. 13 as a panacea for overtaxed property owners came from Howard Jarvis, a gruff, loud conservative who had been an inconsequential political reformer prior to his successful anti-tax effort in 1978. With property taxes rising rapidly in the 1970s, Jarvis effectively rallied voters to support the initiative measure that became Prop. 13. It was adopted by a significant majority of voters that year.
The reform gave immediate tax relief to homeowners, but it also gave vast property tax relief to oil refineries, owners of downtown skyscrapers, and corporate farms. Before passage of 13, property was regularly reassessed as land values rose. Taxes would thus reflect the current value of the property. Additionally, cities, counties and school districts had the power to raise tax rates to maintain the same level of services for growing populations or a larger number of students.
Prop. 13 stopped that. Not only did it fix assessments at the 1975 level, it decreed that the tax rate would be 1 percent of the property’s assessed value and that the assessment could not rise ore than 2 percent each year. On the other hand,when property was sold, it would be reassessed at full market value and taxed at 1 percent of that new figure.
Yes, Prop. 13 reduced taxes. Mine fell from $2,199 in 1977 to only $727 in 1978. Thirty-five years later the current property tax on my house is $1,601.
So what could be wrong with Prop. 13? It isn’t fair, imposing burdensome taxes on newly purchased homes while giving tax breaks to long-established residents.
The organization created by Jarvis sends out a statement to homeowners periodically, reminding them of how much money they have saved with Prop. 13. In my case, their estimate is that I’ve saved over $200,000 in taxes since i still live in the house I owned in 1978. In three and a half decades my tax has slightly more than doubled.
How, then, are the local schools, public safety, libraries, parks and other services paid for? Not by homeowners like me who stay in the same house year after year. But when one of us old geezers sells out at prices that are many times what they were in 1978, the property is reassessed at that inflated market price and taxes on the new owner are several times what the original owner was paying.
Take for example my house and the one across the street that was recently purchased by a young couple with a family. Real estate appraisers say that the market value of both homes is about the same, but the new buyer across the street is paying over $7,000 a year in taxes while I’m paying $1,601. In essence, my neighbor is paying a large portion of my share of what it costs to provide public safety and to run the local schools. That couldn’t be more unfair.
Prop. 13 also gives great benefits to commercial property owners. Residential property changes hands far more often than commercial property. Thus, an oil refinery, a shopping mall, or a corporate farm remain with the same owner for decades longer than a home. Gradually the burden of taxation falls increasingly on homeowners, not commercial property, as homes are reassessed at market value on resale while business property, if unsold, remains assessed and taxed at 1975 values.
When your local Tea Party leaders begin beating the drums for your adoption of California’s property tax reform law, think about the long-term consequences of a Prop. 13 in your state.
Ralph E. Shaffer is professor emeritus of history and an occasional contributor to Stephens Media.