Why is Prop. 13 sacrosanct?
Two weeks ago, I wrote about a lawsuit working its way through the state courts that poses a novel and fundamental challenge to Proposition 13, the tax initiative approved by California voters in 1978. According to the lawsuit, brought by former UCLA Chancellor Charles Young -- represented by William A. Norris -- Proposition 13’s imposition of a two-thirds requirement for the Legislature to approve any tax increase may have so altered the arrangements of California government that it constitutes a revision of the Constitution rather than a mere amendment.
If the court finds in favor of Young, it could invalidate that portion of the landmark tax initiative because it only was approved as an amendment and did not receive the legislative backing to qualify as a revision. (In 1978, the court declared the proposition an amendment, not a revision, but it did not address the two-thirds requirement in the Legislature, so that question remains open.)
The column drew hundreds of responses. A few of those who wrote welcomed the chance to reform a tax system that they believe has stifled California’s investment in schools and infrastructure. But most of my correspondents bemoaned the threat to a tax system that they believe has preserved their ability to afford their homes.
The two sets of readers don’t have much in common -- one side is convinced that Proposition 13 has been ruinous; the other that it’s been a salvation -- but they share two basic assumptions: that Proposition 13 profoundly altered life in California, and that it is all but impervious to normal political tinkering.
But why should a 33-year-old initiative stand as sacrosanct? Over the same period, the state and nation have debated nuances in environmental protection, gay marriage, abortion rights and the death penalty, to name just a few highly charged issues. But the core provisions of Proposition 13 remain weirdly off-limits to normal political debate.
I asked Bob Stern, one of California’s longest-standing policy experts, what he thought made Proposition 13 so special and bound voters so closely to it. He suggested that it’s a simplification of the initiative’s reach that makes so many Californians cling so fiercely to what they think it does.
“All the public cares about is the limitation on residential property taxes,” he said. Homeowners are terrified that opening up debate on the initiative would return California to the days when rapidly rising home values threatened to tax some residents -- particularly older ones -- out of their homes. They don’t seem to understand that other parts of the proposition could be adjusted while retaining the things voters care most about.
Proposition 13’s great contribution to California was that it protected homeowners. But it was a blunt instrument, and it reached far beyond that goal. Yes, owners were protected from skyrocketing property taxes, but the tax limits also applied to second homes and businesses, less sympathetic recipients of the initiative’s largesse. And the initiative puts a far greater tax burden on new homeowners than on those who have owned their homes longer.
Perhaps the most striking example of where devotion to Proposition 13 has thwarted intelligent debate is in the area of corporate property. The company I work for sits on property that is still appraised at its 1978 value -- with Proposition 13-limited increases of 2% per year -- because it’s never technically changed owners, even though this was once a Times-Mirror newspaper and it now belongs to Chicago-based Tribune Co. Why? Because the ownership change was technically a merger and because the real estate was held separately. Similar gambits have kept the value of corporate property artificially low throughout California. If you sell your house, you sell it, and it’s reappraised based on the selling price. That often doesn’t happen when large corporations transfer property.
“Businesses have great lawyers,” Stern noted. “Homeowners usually don’t.”
Surely the point of Proposition 13 wasn’t to bestow the greatest tax benefits on those with the best lawyers or to end up with a system that effectively means homeowners subsidize corporations.
It’s time for Californians to quit thinking of Proposition 13 in its entirety as untouchable, and instead consider rationally whether some of its provisions need revising. Here’s my guess of what would happen if the issues were vigorously and openly debated: The Legislature would protect personal property taxes exactly at their current levels, while property taxes on businesses would be reassessed periodically, so that homeowners would no longer have to carry more than their share of the property tax burden. More money would flow to schools and police. Students would get a bit better education, teachers might get a raise and police might get reinforcements.
Why would that be a bad thing?