2 Exemptions to Prop. 13 Limits on June 3 Ballot

Two more exceptions to the stiff property tax-limiting features of Proposition 13 approved by voters in 1978 are on the ballot in next month’s election: Propositions 46 and 50.

Proposition 46 is aimed at making it less costly to raise cash for construction of public facilities, such as firehouses, hospitals and classrooms--but it could also mean a tax increase.

If the proposition is approved June 3, cities and school districts could issue general obligation bonds that, in effect, have been precluded by Proposition 13’s strict property tax ceiling. Before the bonds could be issued and property taxes increased to pay for the interest on them, however, the proposition would require a two-thirds vote of the people in a separate election.

Backers argue that Proposition 46 would save local governments millions of dollars in interest paid in raising construction cash in the financial marketplace. A similar measure was rejected by voters in 1980.

Proposition 50 would give property owners a chance to rebuild on a separate parcel following a disaster, such as an earthquake, without facing dramatically higher taxes. Under current law, reconstruction on another piece of property would trigger reassessment by the appraiser, as required by Proposition 13, and in most cases higher taxes.

Legislators backing Proposition 50 say it is simply an effort to help disaster victims resettle without being penalized by increased property taxes. Voters approved a similar amendment in 1978.

Since 1978, Californians have had a mixed record on approving exemptions to Proposition 13, according to a tally by the California Taxpayers Assn. In those eight years, voters have approved only three of eight legislative attempts to alter Proposition 13.

Although there is no organized opposition to either Proposition 50 or 46 listed in the ballot pamphlet, both are opposed by Proposition 13 co-author Howard Jarvis.

Jarvis charges that Proposition 46 is bad policy because it could lead to more “indebtedness on the backs of the people.” Returning to an argument that put Proposition 13 over the top eight years ago, Jarvis claimed in a telephone interview that “97%” of California’s cities and school districts “are not bad off at all” and do not need extra financial help.

Bill Honig, the state superintendent of public instruction, sees Proposition 46 as part of a financial package--combined with measures currently going through the Legislature--to provide up to $5 billion that, he says, is needed to finance school construction for the balance of this decade.

“It’s perfectly consistent with Proposition 13,” Honig said. “The people voted (in 1978) for property tax relief, not to preclude construction bonds.”

Proposition 50, Jarvis said, would “clutter up the (state) Constitution” when, in his opinion, help for disaster victims could be extended by local government without putting an amendment on the ballot.

1% Tax Ceiling

Proposition 13 slashed property taxes by placing a 1% tax ceiling on a property’s full cash value. This ceiling could only be increased by debt, such as bond issues, approved by voters prior to July, 1978.

Add-ons to Proposition 13’s 1% tax to service interest rates on general obligation bonds would require a constitutional amendment, which is why the Legislature placed Proposition 46 on the ballot.

Proposition 46 proponents, such as Assemblyman Dominic L. Cortese (D-San Jose), chairman of the Assembly Local Government Committee; the California Taxpayers’ Assn.; the California Chamber of Commerce, and the League of California Cities, argue that passage of the measure would save local government millions of dollars in interest costs.

That’s because, they claim, revenue bonds, secured by income from a project, are often viewed by investors as not being as safe as general obligation bonds, which are backed by property taxes. Therefore, it usually costs local government more to issue revenue bonds because interest rates must be higher to attract buyers.

In supporting passage of Proposition 46, the cities league points to a recent study by the San Francisco office of the brokerage firm of PaineWebber.

Savings Predicted

“If Proposition 46 is approved . . . local taxpayers could save $3.2 million or more on the cost of raising $10 million in capital by using general obligation bonds instead of . . . revenue bonds to finance local public improvements,” wrote Terrence E. Comerford, a Paine Webber managing director.

Proposition 13’s 1% tax rate ceiling is based on property’s market value in the year that it was acquired from another party or when it was newly constructed. In 1978, after the amendment was approved, voters passed the first exception to this formula--exempting disaster victims from higher new construction assessments if they rebuilt a comparable structure on their property.

Proposition 50, said John H. Sullivan, general counsel for the California Taxpayers’ Assn., which is supporting the measure, is “a missing link” to this 8-year-old exception. It would allow disaster victims to rebuild in the same county on a comparable parcel acquired after July 1, 1985, without facing reassessment.

To qualify, the governor must declare a disaster and the disaster must have reduced the property’s value by more than half.

“For persons to remain and rebuild at the location of a previous earthquake or slide may be inviting tragedy to strike again,” said Sens. Jim Ellis (R-San Diego), Becky Morgan (R-Los Altos Hills) and Diane Watson (D-Los Angeles) in support of the measure.