Challenge to Prop. 13

Proposition 13, the 1978 law that has kept the property-tax bills of long-time California homeowners low by shifting the tax burden to newcomers, may be vulnerable to constitutional challenge. The U.S. Supreme Court, in striking down the method of taxation in a West Virginia county, said that the Constitution requires “rough equality in tax treatment of similarly situated properties”--a principle that Proposition 13 violates, on its face.

We would welcome the dismantlement of Proposition 13, either by the courts or by the voters. As should be apparent to all Californians, even those happily paying 1970s-vintage taxes, Proposition 13 and its companion tax-revolt measure, the 1979 Gann limit, have been devastating. The state’s public schools, highways, parks and other public services have deteriorated. Voters have reacted to traffic congestion and poor schools by opposing further development and erecting barriers to the construction of badly needed new housing. Proposition 13 also has centralized fiscal authority in Sacramento, where local authorities unable to raise property-tax revenues have looked for bailouts. And, with tax increases virtuallyoff limits as a fiscal tool, the state is financing improvements through bond issues, going deeper and deeper into debt.

Courts, of course, cannot overturn laws simply because they are disastrous; what makes Proposition 13 open to legal challenge is its many inequities and anomalies. Proposition 13 set the property-tax rate at 1% of assessed valuation and froze assessments for existing homeowners at 1975 levels, furnishing instant relief to Californians angry that their property taxes sometimes exceeded their mortgage payments. But there were built-in inequities: While assessments for pre-1978 homeowners could rise only 2% a year, anyone who bought property after that paid taxes based on the purchase price and, in the real-estate boom of the 1980s, could find himself paying 10 times as much in property taxes as his neighbors.

And the inequities don’t end there. Cities and counties unable to raise property taxes now impose “impact fees” on developers to cover the costs of new streets, sewers and schools associated with new homes; these fees, averaging $11,807 per house in 1987, are passed on to home buyers. So a young family struggling to make a down payment on a newly constructed house may end up paying not only heftier property taxes but also impact fees--and, in essence, subsidizing public services for what one author, Edmund L. Andrews, has called a “low-taxed landed gentry.”

Anyone who still believes that he has benefited from Proposition 13 should consider another anomaly: The major beneficiaries have been not homeowners but businesses. Commercial property changes hands less frequently than homes, so many businesses are still paying pre-Proposition 13 property taxes. One study suggests that, in the first five years after the law was enacted, individual homeowners received just one-third of the total tax relief; the lion’s share went to owners of commercial and industrial property.

It is far from certain that the courts will over-turn Proposition 13; it represents not the practices of a single county assessor, as was the case in West Virginia, but the preferences of an electoral majority. The ardor behind California’s tax revolt appears to be ebbing, however; one public-opinion poll found 71% of the people willing to pay more taxes to improve public services. A legal challenge to Proposition 13 would make Californians face up to its inequities and force the Legislature to consider alternatives more palatable than tax relief for the few. A split tax roll that repealed the benefits of Proposition 13 for commercial property owners but not homeowners has been proposed, though its long-range economic effects are unknown. Or the entire law might be repealed, with exceptions made only for low-income, elderly homeowners in danger of losing their homes if the assessments on their paper profits suddenly jumped. Whatever the solution, reconsideration of Proposition 13 is overdue.