SACRAMENTO : Mapping Options as Court Takes Up Prop. 13

Just weeks after the U.S. Supreme Court announced that it would review the constitutionality of California’s Proposition 13, lawmakers and interest groups in Sacramento are studying the impact that an adverse ruling could have on the state’s tax system.

Taxpayer organizations are already threatening to qualify a ballot measure that would lower property taxes for recent homeowners, consumer groups are pushing for higher taxes on commercial property and industry groups are preparing a defense against pleas for steeper taxes on business.

In the meantime, the Legislature is holding hearings and issuing reports on which options it has once the court rules.

The U.S. Supreme Court said Oct. 7 that it would consider Long Beach homeowner Stephanie Nordlinger’s claim that Prop. 13 violates the equal protection clause of the U.S. Constitution.

Because she purchased her home in 1988, her tax bill is nearly five times that of neighbors who have been longtime homeowners. Nordlinger sued Los Angeles County Tax Assessor Kenneth P. Hahn, contending that her constitutional rights were violated.

Under Prop. 13, property tax bills are computed at a rate of 1% of the purchase price or “acquisition basis” of a home. For houses owned before 1978, the rate applies to the 1975 assessed value. Because of home price inflation, houses purchased later have a much higher tax tab.

The California Appeals Court upheld Prop. 13, and Nordlinger appealed to the U.S. Supreme Court.

If the court throws out the “acquisition basis” for determining property tax bills, taxpayer groups are worried that property will be assessed at current market value, which would push up the tax bill for millions of homeowners.

This fear has prompted the Howard Jarvis Taxpayers Foundation to begin raising funds for a ballot measure next year. The Los Angeles-based group has also asked its attorneys to craft language for an initiative.

Because Prop. 13 amended the state Constitution, fundamental changes to the property tax rules require another constitutional amendment, which the voters must act on.

“Several alternatives are under consideration,” said Joel Fox, president of the Jarvis group.

One option is to roll back taxes for all homeowners to 1975 levels or later. This would equalize the tax tab for property owners but would also reduce tax revenues by billions of dollars, according to experts. Because the property tax is the primary source of income to local government, this action could bankrupt many cities and counties.

Consumer groups are using the Supreme Court case to push harder for a split-roll property tax, which would push up the tax rate on commercial property but keep the residential rate at 1%. By increasing revenue from higher taxes on business, state and local governments could afford to lower taxes on newer homeowners.

Business leaders are concerned that taxpayer groups and consumer organizations might come together on a ballot measure that includes a split-roll feature and lowers taxes for new homeowners.

“If we have to choose between taxes going up on business or going up on Grandma, then you know where we are,” Fox said.

It doesn’t have to come down to a high-profile battle at the ballot box, said legislative analyst Ellen Worcester. In a new report titled “Legal Challenges to Proposition 13: Implications for California,” Worcester concluded that state lawmakers have several options.

For instance, should the court rule that everyone’s taxes will be raised to current market levels, the Legislature could cut the 1% tax rate to a lower rate to reduce the burden of higher assessed values. So a home that was purchased for $150,000 in 1980 and is now worth $300,000 would have a property tax bill of $2,000 under the current system. If a court decision forced the appraised value to go up to $300,000, the tax tab would jump to $3,000. The Legislature could counteract this increase, however, by lowering the 1% rate to 0.5%, which would keep the tax bill level.

Another option is that lawmakers could urge the court for a lengthy period to implement the decision and the Legislature could pass special relief legislation for low-income homeowners and senior citizens.

Worcester also pointed out that “the court may decide that Proposition 13 is just fine, then all of this worry is for naught.”

Other Taxes Have Jumped Since ’78

Although property taxes in California have been kept depressed by Proposition 13, many other levies have been climbing.

For example, business license fees increased 229% from 1979 to 1990, and utility taxes have climbed nearly 300% during the same period. Hotel taxes have been pushed up 389% in the last 11 years, and real estate transfer taxes have jumped 249%.

An analysis by Cal-Tax concluded that all local taxes--other than property taxes--have grown more than $5 billion, or 298%, since the passage of Prop. 13 in 1978. Cal-Tax is a public policy research group based in Sacramento.

Panels on Competition, Productivity Created

Sometimes it seems a problem isn’t a problem until there’s a task force, a special advisory committee or a blue-ribbon commission working to solve it.

So it follows that Gov. Pete Wilson recently announced the creation of his Private Sector Commission on Efficiency and Quality in Government.

The new group will be packed with business executives and will be patterned after the Grace Commission, which under President Reagan made several thousand recommendations for streamlining the federal bureaucracy and eliminating government waste.

Wilson also announced the formation of the Council on California Competitiveness, which is charged with examining state regulations that interfere with private enterprise.

“California needs to spend less time doing paperwork so we can spend more time doing productive work,” said Wilson in a speech before several hundred business leaders last month.