It’s time to tinker with ‘untouchable’ Prop. 13
Now I’ve done it. I made a few idle comments last week about rethinking Proposition 13, and the column ticked off hordes of senior citizens — the most loyal of all newspaper readers.
“The question I ask you is, would you have my husband and me homeless in order to balance the state budget?” asked Betty Vanole, 71, of Burbank.
No, Betty, there’s no need to start packing.
“May we get together over a cup of coffee and talk about Proposition 13?” asked Barbara Menendez, 81, of the San Fernando Valley.
Yes, Barbara. And I’ll spring for the java.
“I have lived in our modest single-family home … in Sherman Oaks since 1954….My first husband was a beginning school teacher with a modest income and I was a stay-at-home Mom with two small children,” Menendez wrote. The house cost $13,750.
“A few years later I was divorced and to make ends meet, went to work nearby for a minimum wage at Bullock’s department store wrapping customer purchases,” she went on. She still lives in the same house, now with her second husband.
“Had it not been for Howard Jarvis instigating Proposition 13 … not many seniors over the years would have been able to afford the consistent annual increases in the property tax rates.”
I do understand, Barbara. I was a California homeowner when Proposition 13 passed in 1978, so, yes, I know the history. But the fix was too radical, with taxes limited to 1% of a home’s value at time of purchase, with a cap on annual increases of 2%.
That has led over the years to huge inequities. Two people living next door to each other in identical houses can pay widely varying taxes depending on when they bought. Warren Bufffet famously pointed that out in 2003 as one of Arnold Schwarzenegger’s advisors. At the time, he paid only $2,200 a year in property taxes on a Laguna Beach home valued at $4 million. At the same time, he was paying $14,000 in annual taxes on a $500,000 house in Omaha.
We’re still paying for Proposition 13’s failings in countless ways, with local governments and school districts endlessly hammered. And, in order to make up for our lower property taxes, California has high income and sales taxes compared with other states. But that has made for a revenue stream that rises and falls with the economy, crippling the state when the economy is in the dumps.
As Californians, we’ve all heard the same sermon: Proposition 13 is untouchable because it’s political dynamite.
But Gov. Jerry Brown is old enough that he doesn’t have to worry about his political future, only his political legacy.
Brown, who first opposed and then embraced Proposition 13 in his first term as governor, has a $26-billion deficit to close. So what’s he doing? He’s messing with the little things, like an extension of a temporary vehicle registration tax, when he should be telling the truth about the state’s screwed-up tax system while making smart budget cuts.
Alan Auerbach, director of UC Berkeley’s Burch Center on Tax Policy and Public Finance, said the state could tinker with Proposition 13 without putting Barbara Menendez and Betty Vanole on the street.
“You could do a gradual phase-in” of a new system, Auerbach said, but everyone over a certain age would get a pass. For younger homeowners, a gradual property tax increase would take place over several years, based on market value rather than on when a home was purchased.
Auerbach said a smart makeover of the state’s tax system might also include lowering income and sales taxes but applying the latter to more goods and services. He’d also recommend continued budget cuts.
But the most obvious thing to do, he argued, would be to quit giving owners of commercial property the windfall break they’ve gotten under Proposition 13. Lenny Goldberg, of the California Tax Reform Assn., has been lobbying for that very thing for years.
“In virtually every county in California,” Goldberg said, “commercial property owners are paying a much smaller portion of the total property tax burden since Proposition 13.”
In Los Angeles County, he said, homeowners paid 53% of all property taxes in 1975, but today they pay 69%. Commercial property owners have gone from 46% to 30%. In Orange County, homeowners have gone from 59% of the burden to 72%, while commercial property owners have gone from paying 40% to 27%.
One reason is that commercial property doesn’t change hands as often as residential property, so it doesn’t get reassessed as frequently. The other reason, Goldberg said, is that commercial property owners have exploited “huge loopholes” by transferring properties to various partnerships and affiliates and avoiding reassessment.
Cracking down on inequities and abuses on the commercial side could reap an additional $8 billion to $10 billion in property tax revenue each year, Goldberg estimated. When I suggested that the business lobby would surely crush any such attempt, he argued that the current system is so inequitable, it saddles new businesses with onerous taxes and stifles economic development.
A new gas station, dry cleaner or hotel will pay higher property taxes than competitors who have been in the same neighborhood for years, Goldberg said.
And what does Barbara Menendez say about tinkering with the commercial side of Proposition 13?
“Oh, I’d go for that,” she said. But she wanted to know if we could still meet for coffee.
Absolutely, I said, promising to take her anywhere she wants to go.
McDonald’s, she said. Still frugal after all these years.
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