A Buffett-ing on Property Taxes
Nancy Fritz and her husband spent $75,000 in 1961 buying a modest plot and building a home in Laguna Beach’s Emerald Bay, an investment that has more than paid off. But although the home is now worth more than $1 million, Fritz still pays relatively low property taxes of about $4,000 a year, thanks to Proposition 13.
So Fritz and others in the exclusive community were a little displeased when their part-time neighbor ventured an opinion last week that raising property taxes might be a good way to address California’s fiscal problems.
If Arnold Schwarzenegger is elected governor, the neighbor’s views might carry some weight: He is Warren Buffett, the billionaire investor and financial advisor to the actor’s campaign.
“I don’t know what he was thinking,” Fritz, 75, said Monday. “He’s got billions. He doesn’t have to worry about it.”
Schwarzenegger’s campaign hastened to distance the actor from his financial advisor’s statements last week and assure voters that the candidate supports the landmark proposition that caps property tax increases. But Buffett’s comments stirred up a froth in Emerald Bay, where homes recently listed at $2.3 million to $10.9 million.
More than 500 homeowners live within the gates at Emerald Bay, which opened in the 1920s as a vacation destination but is now filled with some of Orange County’s wealthiest residents. Many of Emerald Bay’s homeowners cruise in electric carts down winding roads to a private beach, which was dotted Monday with colorful umbrellas, vintage red lifeguard stands and dozens of youthful, bronzed bodies.
Buffett bought his first home at Emerald Bay in 1971 for less than $100,000. He’s seen the value of that home skyrocket to an estimated market value of $4.5 million. Because of the Proposition 13 property tax restrictions voters approved in 1978, Buffett paid $2,265 in tax for that home on an assessed value of $217,350 last year. If he were taxed on the current value, it would jump to about $46,000 per year.
Emerald Bay resident Nancy Casebier, a real estate agent who has sold more than 200 homes in the community, said she bought her home for about $225,000 in the 1970s and it’s now worth about $2.5 million.
“There are a lot of people like me, working mothers who have held onto our homes for all these years because it appreciated so much. We couldn’t afford our homes again, if we were to buy them,” she said. “A lot of elderly people living on fixed incomes, they’d be out on the streets.”
Many residents bought homes decades ago and are wealthy on paper because of the region’s real estate boom, but they are now retired and living on fixed incomes that they say would crumble under a tax increase.
This goes to the heart of voter loyalty to Proposition 13, which has allowed many Californians to retain ownership in neighborhoods whose property values -- but not property taxes -- have skyrocketed in recent decades. While their new neighbors pay tens of thousands of dollars in tax on high-priced property, longtime residents next door pay a fraction of that.
In an interview with the Wall Street Journal, Buffett said last week that one cause of California’s financial crisis might be the state’s Proposition 13 restrictions on property taxes. Buffett noted that he pays far more tax on his $500,000 Nebraska home than on his picturesque, Emerald Bay vacation home.
Fritz, a Republican, said she walks by Buffett’s two Emerald Bay homes -- he bought a second one on an adjacent lot later on -- nearly every day on her way to the beach. She has not decided how she will vote in the recall election, and doesn’t know whether Buffett’s comments will be a factor. But she knows what she thinks about the prospect of higher taxes: “I’m really incensed. I would be in deep grief, and so would a lot of other people.”
Census figures for Emerald Bay show that the proportion of residents who are retired is indeed higher than the state average: An estimated 31% of households there in 1999 had income from Social Security, compared with 22% for all of California.
But by any other measure, the community is far wealthier. Nearly one-third of Emerald Bay households had income above $200,000, compared with less than 4% statewide. And among 2,196 people in its census district, none are on welfare -- compared with 5% of all Californians.
Residents here concede that outsiders might think everyone in Emerald Bay is in Buffett’s league. But contrary to popular belief, residents say, there are families of all income brackets.
“Emerald Bay is not primarily about money,” said Sally Forbes. “It’s not the slums, by any means. But by no means do we feel that we’re the elite.”
Forbes, a retired clinical psychologist, and her husband, Gordon, a retired department store vice president, moved here in 1964 and live on a fixed income. Their home, which they bought for $54,000 and had to rebuild after the 1993 Laguna Beach fire, is on a hillside and has a panoramic ocean view. They pay $4,000 in taxes.
The Forbeses estimate that they might have to pay tens of thousands of dollars in taxes, considering that homes on their street have sold for $4 million. They said they might be able to pull it off, but it would be a real struggle. And a lot of their friends and neighbors would be forced out, leaving them without the sense of community that has kept them here so long.
Forbes said Schwarzenegger never had her vote anyway. But she is surprised by Buffett’s idea.
“He engaged his mouth before he put his brain in gear,” she said.
Times staff writer Kenneth Reich contributed to this report.