A Return to Equity

A pernicious legacy of Proposition 13 continues to accentuate the disparity between two classes of homeowners in California: those who pay some property taxes and those who pay a lot more--even if they live in similar homes. It is time to do something about this discrimination, and we commend Los Angeles County Assessor Alexander H. Pope and Assemblyman Dave Elder (D-Long Beach) for their efforts to restore some measure of equity to the property tax system.

One class of homeowners, of course, consists of those who still live in the same homes on which tax assessments were frozen at 1975 levels (except for a maximum 2% annual inflation) by Proposition 13, the Jarvis-Gann initiative approved by voters in 1978. The other consists of everyone else who bought homes since then. Their homes are largely assessed at the sales price.

Proposition 13 required reappraisal of homes, businesses and industries only when they changed ownership and not on a routine basis to account for inflation, as in pre-Proposition 13 days. Thus, when a property does turn over, the new owner is socked with all of the inflation at once.

Given the inflation since 1975, it is now possible that the owner of a home that has turned over recently will pay more than three times the tax bill of the neighbor with a house of the same value. Pope said the 1984 buyer of a home assessed at $29,600 in 1975 will pay $1,025 property tax compared with $297 for the person who remained in the same house. It’s absurd.

Elder has introduced legislation that would, first of all, have no effect on the homeowner who has remained in the same house since 1975. Assessments would not be changed. Thus, none of the benefits of the Jarvis-Gann initiative would be taken away from anyone. It would index the standard $7,000 homeowners’ property tax exemption so that new homeowners in California would get some relief from the Proposition 13 discrimination. The exemption has remained at $7,000 since 1974 even though the average price of a home has increased from $30,000 to $130,000. The Pope-Elder proposal would maintain the exemption at $7,000 for those who have owned their homes since 1975 and have enjoyed the maximum Proposition 13 benefit. The exemption would be increased on the basis of inflation for persons who have bought homes since then.

Inflation ran as high as 30% a year during the late 1970s, but dropped to 1.5% in 1985, and is estimated at 3% this year and 4% in 1987. The exemption would be increased to $8,400 for a house bought in 1976 up to $24,250 for one purchased last year.

This will cost the state money, perhaps $500 million a year, to cover both homeowners and renters who, by law, must share any tax break that homeowners get. The big price tag clouds the prospects of any action on the Pope-Elder legislation this year. But at least the debate has been opened.

Any attempt to change Proposition 13 is going to be highly controversial and will require a good deal of political courage. But Pope has the support of Howard Jarvis and the statistics to indicate that political sentiment might ultimately swing behind his concept. For the first time, more than 50% of the homeowners in Los Angeles County have bought their residences since 1975 and thus pay the higher level of tax. The ratio in favor of new purchasers ranges as high as 60% in other, faster-growing counties such as Orange, he said.

People demand that their tax systems be fair. The present property tax structure is blatantly unfair and the way must be prepared for the achievement of some form of equity.