October 23, 2011

Prop 13: Insidious Budget Cancer or Fiscal Terrorist Threat?

Well, that certainly got your attention.  I’d like to direct you to an excellent, dare I say seminal piece of reporting on the elephant in the California real estate room: Proposition 13.  I’ll quote a few grafs here, but I really would like you to read the entire piece.

California Diminished by 1978 Tax Revolt Shows U.S. in Decline

By Christopher Palmeri, Bloomberg/Businessweek
October 17, 2011, 12:23 AM EDT

Oct. 17 (Bloomberg) — California voters approved Proposition 13 to rein in property taxes that had doubled in 10 years. More than three decades later, that rebellion has mortgaged the state’s future, saddling it with the nation’s highest debt and lowest credit rating.

The measure led to reductions that dropped per-student school spending from seventh to 29th nationally, prompted cities to pursue sprawling retail development to compensate for lost revenue, and pushed the state into budget gridlock, including a $705 million revenue shortfall announced Oct. 10, by requiring two-thirds approval for any tax increase.

“Proposition 13 set up an unfair and dysfunctional two- tiered system of property taxes,” said Kevin Starr, a history professor at the University of Southern California and the author of a series of books on the state. “It choked off a source of revenue, and the lack of that revenue has brought California to the edge.”

The measure, approved in 1978, was the inspiration for an antitax movement that has taken hold of the public discourse in Washington and in state legislatures throughout the country. It caps real estate levies at 1 percent of a property’s most-recent sale price. Before it passed, local governments could raise revenue as they saw fit.

imageHere’s a few more colorful quotes from this story:

  • “You couldn’t invent a crazier system,” [Santa Clara County Assessor Larry] Stone said in a telephone interview.
  • “It’s had a profound impact on multiple levels,” said Jean Ross, executive director of the California Budget Project, a nonpartisan research group in Sacramento. “The one that’s underestimated is the shift in decision-making from the local level to the state. All of our public systems have been affected by our seemingly perpetual budget crises.”
  • “Prop. 13 has had the unintended effect of favoring commercial property owners at the expense of homeowners,” [Los Angeles Mayor Antonio] Villaraigosa said Aug. 16 at the Sacramento Press Club. “Let’s apply Prop. 13’s protections to homeowners and homeowners alone.”
  • “This is a nightmare,” said Mohammad Islam, San Bernardino’s assistant superintendent who has worked in school finance for 22 years. “It’s impossible what the state is doing to us.”

Yet despite all California’s budget woes (as described by Michael Lewis in Vanity Fair), there is no organized movement toward either doing away with, or even modifying Proposition 13 to a homeowners-only tax adjustment.  While presented as a way to keep senior citizens from losing their homes to skyrocketing property taxes, Prop 13 has become a windfall for commercial and corporate property owners instead.

imageMeanwhile, California’s public school system has declined from seventh in per-pupil spending to 29th according to this article. If you go by this NEA report, it’s 36th. According to this article from KQED, it’s 42nd.  Or 43rd.  Or 46th.  More importantly, education quality has dropped as well.  California ranks 46th of 51 (50 states plus District of Columbia) on test scores in 2003.  This more recent ranking had California come in 30th (but this appears to be a different series of grades).

That NEA report said we’re #3 in prison spending per capita, though!  Woot!

Now, if you don’t think an educated citizenry is an important goal, then you can tell me to shut up already about school funding.  But I suspect most knowledge workers (such as Silicon Valley engineers or San Francisco creative class members) would want our schools to return to their previous high quality, and that means starving them is not in our interest.

image

Let’s hear from someone else who doesn’t agree with that.  Furthermore, this is someone who writes a San Francisco real estate blog.  Here is his complete takedown of that 2600 word Bloomberg piece.  Ready?

Prop 13 Isn’t Squeezing Anything

Bill Quick, San Francisco Real Estate Blog

The political big spenders absolutely hate Prop 13, because it cut off their unlimited access to the piggy bank of private property taxation.

The truth is, our spending on essentials like education, public safety, and other bottom-line items is not being constricted by Prop 13. It is being choked off by the propensity of governments at both the local and state levels to spend money on tens of thousands of pet projects and pet constituencies, rather than paying for services that voters feel are the most basic. We’re not broke because our state “salary” (taxes) is too low, it’s because we spend way too much on non-essential fripperies.

Wow, I’m speechless from that relentless chain of brilliant logic!  And to be fair, when I called Quick on his heavy use of facts and supporting evidence, he did respond with this:

imageEnjoyed your sarcasm! I’ll be looking forward to your piece supporting runaway property taxes and booting retired boomers into the street, too. Of course, California’s housing economy is in such great shape that property tax hikes should be just the ticket for rocketing us to even greater heights!

Right.  Because interest rates and inflation are exactly the same as they were in 1978, and property tax assessments are rising faster than college costs.  Then there’s this:

Here’s a bunch of stats on California’s tax and business climate. Short takeaway: We’re in awful shape, with one of the highest overall tax burdens in America.

imageThe bunch of stats are from the Tax Foundation, so I looked into just who they are and what their real motives are.  They’re funded by high-minded humanitarians such as the Koch Foundation (as in Koch Brothers) and ExxonMobil. They obviously have your interests in mind rather than those grabby one percenters!  Would you expect anything less from a group founded by the CEOs of General Motors and Standard Oil other than whether grannies are getting taxed out of their Cayman Island Corporations and have to bunk in their Swiss bank deposits?

Paul Krugman (a know-nothing economist who won a stupid Nobel) accused this group of committing “deliberate fraud” in their evaluation of Obama’s jobs proposal.  This isn’t the first time he’s questioned their methodology, either. But let’s drink to “the tax is too damned high” Kool-aid that the Tax Foundation is pouring.

It’s a lot cheaper than actually fixing things.

Comments (64) -- Posted by: madhaus @ 5:05 am

64 Responses to “Prop 13: Insidious Budget Cancer or Fiscal Terrorist Threat?”

  1. PKamp3 Says:

    It’s not hard to construct a conservative argument against Proposition 13 either – Prop 13 leads to less home turnover in periods of high home price inflation, so in any places in California that have ever inflated faster than the Prop 13 caps, (think the Real Bay Area, Real Los Angeles, and Real Orange County) Prop 13 has undoubtedly led to even higher prices and lower inventory. It’s not that California has been starved for revenue – it’s just that revenue comes from higher income taxes and sales taxes than elsewhere.

    So, Prop 13 shifted the burden of paying for local services from home owners to those who earn income and buy things – and those aren’t necessarily the same people. It’s even worse if you make a progressive/regressive argument – what demographics own homes versus what demographics spend a higher proportion of their income?

    Still, the worst person to be in Los Angeles, Orange County, or the Bay Area is a high earning renter who wants to buy a house and spends a decent portion of their salary on anything taxable. Think about it – they get taxed for their high salary, they get taxed for their consumption, and most of the beneficiaries of Prop 13 bought a while ago. There’s also no guarantee that the house they buy will appreciate at > Prop 13 levels per year (let alone 7.2%!).

    Toss me into the Prop-13-disagreeing-home-owner camp, which is an incredibly small demographic! Great post OP, maybe we can swing a few voters?

    On a lighter note, Google is still playing the game! Lock in that tax basis on $100 million now, since this MV property will be worth $200,000,000 in 10 years!

  2. SEA Says:

    It’s a little funny how owners generally want everyone to think their home is worth so much more, except the tax man.

  3. nomadic Says:

    Why would it be funny to find people act in their own self-interest?

  4. Divasm Says:

    I tried to think of a way to respond without getting political, but ultimately this piece is a political piece so it’s kind of impossible.

    One point that comes to mind is that a lot of the anti-prop 13 arguments are against large, successful, and sometimes out-of-state businesses to profit from this. That’s a far cry from “booting retired boomers into the street”, isn’t it?

    But when I make that argument, it all of a sudden seems to echo exactly what’s happening nationally right now. When my household is having finance issues, I don’t sit down with my husband and blame it solely on his love of electronics, refusing to address any of the other causes. We figure out several cuts and/or income enhancements to make it work.

    Anyone who runs a truly successful business also knows that to really solve a problem it must be attacked on several fronts. And I’m so tired of hearing the argument that if we’d only fix this or that it would work – we’re in such a deep hole in California and the US that we have to do everything we possibly can, as uncomfortable as that is for both parties.

    Sorry for the soapbox, but what I’m saying is that as attractive as it is for the liberal in me to only go after big businesses with Prop 13 reform, I think the whole thing should be examined. Everything should be on the table right now, until we can afford to buy groceries again.

  5. SEA Says:

    #3- The self interest seems to shift from one party to the next. If I’m not going to sell, why do I care if my how is worth more or less, and excluding the tax man, why would I care what the next guy thinks it’s worth?

    To show what a great neighbor I am, maybe I should park a Porsche out front?

  6. madhaus Says:

    Divasm, please don’t apologize for responding to a political opinion piece with your own political opinion. The fact that you did so far more effectively than the blogger I mention in the OP doesn’t hurt your credibility, either.

    It’s Prop 13, I’m waiting for the food fight. I wasn’t exactly playing the disinterested journalist on this piece.

  7. Divasm Says:

    I know, this weekend has been very light in responses…perhaps the warm beautiful weather has actually lured people away from their computers into the last of Indian Summer? I think this is a strong, in-depth, conversation provoker if ever I saw one.

    But perhaps people feel more comfortable making witty comments about Realtards – in some respects that’s why I was hesitant to jump into the fray.

  8. nomadic Says:

    Hard to make comments with the site crashing and eating comments. Good thing I copied this one…

    #6, you’re kind of preaching to the choir on this one. #1 and #4 make reasonable arguments. The line from the article “before it passed, local governments could raise revenue as they saw fit” doesn’t exactly make me wish Prop 13 never happened, but I think only willful ignorance can support arguments that Prop 13 hasn’t done significant harm to the state.

    I would happily support taking a very hard look at where tax revenue is currently spent, but we’re not going to solve this problem only through spending cuts. My company has been pursuing that approach for five years now and without increasing revenue you’re caught in a downward spiral.

    My biggest disappointment with government (both state and federal) is that the problem has been kicked down the decades until it’s a HUGE issue, instead of someone in Sacramento saying (back in the ’80s) that borrowing our way out of revenue shortfalls isn’t sustainable. And now those dolts “solve” the budget deficit by magically imagining that revenue will be $4B more than originally forecast? Did I read that right?

  9. SEA Says:

    “And now those dolts “solve” the budget deficit by magically imagining that revenue will be $4B more than originally forecast?”

    Are these the same ‘dolts’ who determine how much pension funds need to be funded to meet future obligations?

  10. The Gilroy Alex Says:

    Public schools have almost nothing to do with education and everything to do with keeping kids off the streets and out of the work force until they’re 18. Yet they eat up HUGE amounts of money. The only thing the differentiates them from home-schooling is the “holding pen” aspect, kids legally *have* to be there and the cops will round them up and either take them there or to jail depending on how much they resist the system. Educationally, they seem to prevent more education than they cause. I literally learned more playing hookey and staying home and watching PBS than I did in school.

    So the “it’s for the children” argument doesn’t fly with me.

  11. Mr. Bee Says:

    . … the lack of that revenue has brought California to the edge

    I agree. That and also one of the most lavish welfare/social spending setups in the country, out of control government pensions, anti-business environment, more invasive regulations than Sweden, A monster public university system that puts to shame any private sector corporate campus in the world while featherbedding tens of thousands of unnecessary employees. Big Unions that can kick any local city council members who even think of trying to economize (as happened in the small town where I live)

    Well, mostly the all the latter stuff, actually.
    But still, the only answer is ALWAYS MORE TAXES.

    Book it.

    PS: The elimination of prop 13 won’t stop tax increases or more spending. As the Keynesians say, in the long run, you’re dead. Just hope you die before Cali= Detroit.

  12. ms Says:

    Taking away Prop. 13 wouldn’t give California the schools we had in 1978.
    We weren’t educating mostly illegals and their progeny then. You can cite the movie where Edward James Olmos taught them all calculus, but that doesn’t happen in real life.
    In real life, property taxes have paid for subsidized school lunches, school breakfasts, ESL, ELL, IAPs, high school nurseries, AP funds being diverted to fill the diversity mandate, gang awareness, and more gangs anyway. As Olmos could attest.
    The single-home, non-investor property tax owner is getting it stuck through the nose, and has been at least 20 years, to pay for other people’s kids and their problems.
    Which wouldn’t get better with money.
    Yay for Prop. 13.

  13. Sunny(vale) Kim Says:

    The single-home, non-investor property tax owner is getting it stuck through the nose, and has been at least 20 years, to pay for other people’s kids and their problems.
    —-

    I fully support above argument. Why paying for “other people’s kids and their problems”! Outrageous!

    In addition, my parents don’t live in this country. Therefore, I hate to pay Social Security and Medicare taxes for other people’s parents. It’s unfathomable to see other people’s parents getting social security money from my hard-earned income and playing bingo in casino. Then someone’s mom is getting botox done with my Medicare tax dollars because she wants to find a new date on her 70s (after her husband died). Outrageous!

  14. corntrollio Says:

    “We weren’t educating mostly illegals and their progeny then. ”

    Yes, and we aren’t now. Nice talking point, but it makes you sound uninformed.

    I’ve discussed a number of problems with Prop 13 on Patrick.net — here is a sample:

    1) entrenches wealth, including the stupid generational and skip-generational rules
    2) results in greater state legislature control because localities are starved for money
    3) results in higher sales taxes because localities are starved for money
    4) over the long-term shifts the overall property burden to residential owners from commercial property owners
    5) screws over newcomers and artificially elevates property prices
    6) results in inefficient use of land and structures
    7) makes an illiquid property market

  15. madhaus Says:

    Looks like the blog I mentioned in the OP is responding 404 to every single article. Woo-hoo, 5 readers and it broke. Too bad, though, as Quick’s responses are a beautiful example of how to win friends and influence people.

  16. nomadic Says:

    Aw, why pick on Quick? He’s so nicely cocooned in his own world…

  17. ms Says:

    Prop. 13 doesn’t have skip-generation. Grandchildren who inherit get stuck with present property taxes.
    Commercial owners get Prop. 13 tax breaks too.

    And to Sunnyvale Kim,
    Sure, everyone pays for everyone else somehow. Most people paying property tax send their kids to private school, unless they hit the Lowell of RBA. Property taxes are mostly school taxes, and this money has been spent unwisely in my personal opinion.
    Hence, yay for prop. 13

  18. CB Says:

    Little talked about fact — for a decade at least governments wont be hindered by prop 13 restrictions on homes purchased during the boom.

    For example, in 2005 I paid 600-something for a home that now has a prop 13 assessment of 680+, but a temporary reduction to the low 500’s.

    Going forward I will pay taxes based on actual market value until (or if) my home catches up to it’s prop 13 assessment, which is increasing 2%/year regardless of the lack of appreciation.

    Yet another reason why I hate prop 13. I think 1/3 of homes in the bay area were turned over during the boom, and all those homes will be paying inflated taxes compared to their older neighbors, and their newer neighbors!

    But still, spare me the arguments on prop 13 being the sole, or even major culprit in the state’s financial situation. There is a long and distinguished list.

  19. nomadic Says:

    CB, are you sure about that? My assessment decreased three years in a row as property values dropped. They don’t drop the value one year and then automatically resume the 2% march back up if prices haven’t gone up.

    If you’re assessment comes in above market value, appeal it.

  20. Sunny(vale) Kim Says:

    Sure, everyone pays for everyone else somehow.
    —-

    Ms,
    Sorry to know that you did not understand the sarcasm in #13. I got little bit ticked off by your comment “pay for other people’s kids and their problems“.
    If you think you should not pay for “other people’s kids”, when why should I pay for other people’s parents?

    Your #12 is mostly uninformed, as others pointed out already. Debating about “unwise spending” of tax dollar is one thing, but rhetoric like “illegals” or “other people’s kids” is another thing. Do you have any statistics to support your statement “educating mostly illegals and their progeny”. Or are you listening too much Glen Beck recently?

  21. A. Lewis Says:

    Well, count me in on the renter-getting-screwed who wants Prop. 13 repealed crowd. Amen.

    Prop. 13 should obviously be modified to not apply to businesses.

    It should obviously be modified to do away with the absurd 2/3 tax vote provisions.

    Less obviously, it should be repealed altogether, leaving everyone at the whim of home appreciation when tax time comes.

    Yes, there would be some downsides. No, those downsides would not outweigh the benefits. The free marketeers should be disgusted by such an overt, intrusive government regulation! Let the ‘market’ set tax rates that owners will bear, and let property values follow suit.

    Prop. 13 is of the rich, by the rich, and for the rich.

  22. SEA Says:

    #19 reread- “Going forward I will pay taxes based on actual market value until (or if) my home catches up to it’s prop 13 assessment, which is increasing 2%/year regardless of the lack of appreciation.”

  23. SEA Says:

    “count me in on the renter-getting-screwed who wants Prop. 13 repealed crowd.”

    So it’s cheaper to rent?

  24. A. Lewis Says:

    Oh, for GilroyAlex – I definitely cherish your unique point of view on this blog. Don’t ever stop being you. But I for one learned a LOT in my public schooling in California, and it made me a better person. Much better than home schooling – which wasn’t available because my parents were both working.

    I went to a public university in California, where I also learned a ton. I think the ‘system’ served me well, and the taxpayer dollars were well spent.

    Now I pay taxes, have a steady job, am a decent and informed citizen, volunteer, don’t commit crimes, etc. (And darn it, people like me!) That’s the friggin’ point.

    Sometimes, when it starts to get bad, pure anarchy starts to look like a better alternative to the corrupt yucky system ruled by the fatcats.

    Turns out, pure anarchy sucks. Real bad. Like your kids dying young bad. Like being killed for food and no one burying your body bad. Doesn’t mean I am saying “Yay” to the corrupt yucky system. It means I want to fix it, not destroy it entirely.

    P.S. I expect no change to Prop. 13 whatsoever until CA goes through a far more severe financial crisis than we have to date. The 2/3 rule is truly effective, and so is the Tax Foundation – evil, lying, rich bastards.

  25. A. Lewis Says:

    It is cheaper to rent, still, in my neighborhood. Much cheaper. The being screwed part is about so many others who bought in the 70’s and 80’s enjoying an advantage I can’t take part in.

    By the time I end up buying, Prop. 13 probably WILL be repealed (which will be why home prices will be reasonable compared to rents again), and I’ll be NOT enjoying an advantage over the renters. But my wife’s uncontrollable urge to remodel the place will be satisfied. And I can put in all the insulation I want to enjoy the ‘seasons’ here. Single-paned, aluminum frame windows suck.

    I’ll buy when it’s a good time to buy. Still waiting.

  26. nomadic Says:

    #19 reread- “Going forward I will pay taxes based on actual market value until (or if) my home catches up to it’s prop 13 assessment, which is increasing 2%/year regardless of the lack of appreciation.”

    Okay, #22. I re-read it. See bold above. A lack of appreciation does NOT increase the assessment. At least not now. I suppose the OP meant the ceiling (Prop 13 basis) will continue to increase. Yeah, true. Just another failing of the system.

  27. ms Says:

    Sunnyvale Kim,
    California’s schoolchildren turned majority Hispanic around 2008. The birth rate is 3.1 as opposed to 1.8 for whites. CDCR rate = 40 percent Hispanic, and 35-plus prisons in 2007. In 1980, the stats were different. Any census page will verify this.
    Those are the atats.
    As to my opinion: Glenn Beck is a shill. Rachel Maddow is a shill.Neither would be sending their kids to schools populated mostly by progeny in migrant housing. Under all the painfully politically correct posturing, no one’s camping out to send their kid to a school where English is the second language, let alone one where “14” or “13” is in all the graffiti.
    Back to Prop. 13: If you paid for generations and are now paid up–no mortgage, paid up–it’s monumentally unfair to jack the taxes up and take the house away. This is not a strategic default. This is someone who paid off the house.
    Without Prop. 13, a lot of us would not make it.

  28. BigLandlord Says:

    I’m a big big landlord. Change Prop13 and the big boys will leave this State faster than the Mexicans crossing the border!

  29. mark chile Says:

    The relationship between revenue and quality education is not one for one. I tried teaching in a middle school. 5 classes, 40 students per class. Each student was funded at $7,500/shcool year. That’s $300,000 in revenue for my average class of 40. I got $40,000 as salary plus another $10,000 in benefits (high estimate). Where did the other $250,000 go. the classrooms were falling apart – so maybe another $10,000 for maintainence that did not happen. Still a missing $240,000.

    The problem is not revenue, it is spending on everything but the classroom. Prop 13 although not perfect, stopped the out of control tax raises on real estate. If we were to double the tax rate, I bet still only 10% to 20% gets into the class room. As it is, I pay $10,000 in taxes in the city of Oakland at a 1.5% rate because Prop 13 could not stop all the ways the states and cities have to tax me.

    Revenue will not solve the education problem.

  30. A. Lewis Says:

    BigLandlord: please do leave. You rent-seeking types who seek only to avoid more taxes as your incomes go up are a drag on the rest of us. Your leaving is an opportunity for someone else. Maybe they won’t be as greedy.

  31. Change Prop 13 Says:

    Im on the local school board and I can tell you Prop 13 is a joke. It makes budgetary planning near to impossible. I run a business, have worked in corporate America, and have a master’s degree in business, so I am no shill for either side. Any business that wouldn’t be able to count on steady revenue and just relies on cuts, cuts, cuts would be in real trouble.

    Gilroy Alex, you seem misguided and uninformed. Maybe you went to one of these holding pens, but I know firsthand what a quality education my kids and the other students in our district are receiving. I’ve attended both public and private schools in my life and can tell you our district works hard at providing kids an education for this century. As for Hispanic kids being the majority, don’t equate them with illegal aliens, who are an easy scapegoat. Our district is more than a quarter Hispanic, has test scores in the 900s, and maybe 1/2% are kids of illegal aliens.

    The answer to school funding is providing ADEQUATE funding. When your ADA funding is $6,500, and in other states in the Northeast it is closer to $14-$15K/year, don’t be surprised if your schools underperform.

    Those that don’t want to pay their fair share of taxes (Im looking at you, Prop 13 defenders), don’t forget that your parents and grandparents didn’t turn their backs on you when you were growing up. They paid their fair share and sacrificed.

  32. ching Says:

    The state/county/city government spent too much money on pension and other wastes. Governments need to fix the house before asking for more money. I would agree to eliminate the 2% cap every year and replace with CPI.
    For retirees, it is very difficult to pay property taxes without digging into the savings. The government currently is robbing the retirees, paying no interest incomes to their savings.

  33. Sunny(vale) Kim Says:

    California’s schoolchildren turned majority Hispanic around 2008. The birth rate is 3.1 as opposed to 1.8 for whites. CDCR rate = 40 percent Hispanic, and 35-plus prisons in 2007. In 1980, the stats were different. Any census page will verify this.
    —-

    Ms,
    I asked for the stats about “mostly illegals”. Why are you showing stats for Hispanics? Now I get it. What you refer “other people’s kids”, you are really talking about Hispanics. So anyone with different skin-colors (non-white) is “other people” in your mind. And you don’t want to pay for their education. Am I correct?
    Then why should a Hispanic guy (non-illegal) should pay for your Social Security? After all, you are also “other people” to them.

    Population growth has more to do with economic condition and poverty than skin color. Yes, there are more poor Hispanics in California, many of them legally immigrated from Mexico. They are not all “illegals”.

    Your property tax argument has nothing to do with tax system or policy. It’s full your racist attitude towards non-white people.

  34. Sunny(vale) Kim Says:

    Without Prop. 13, a lot of us would not make it.
    —–

    And people who bought homes in last decade are subsidizing you. A city has all kind of services – fire dept, police dept, roads to repair, street lights. And you are using those utilities in the same way like others. But yet, you pay lot less than those newcomers.

    So, what you call “other people” – they are actually paying for you. But yet, you don’t want to pay for the education of “other people’s kids”.

  35. madhaus Says:

    This Prop 13 article has been picked up by both patrick.net and Dollar Collapse.

  36. CB Says:

    #26 Okay, #22. I re-read it. See bold above. A lack of appreciation does NOT increase the assessment. At least not now. I suppose the OP meant the ceiling (Prop 13 basis) will continue to increase. Yeah, true. Just another failing of the system.

    Essentially, yes, the prop 13 ceiling continued to increase. Most who bought during the boom will never realize the financial benefits of prop 13 because it will take a decade at least for real appreciation to catch up with the prop 13 ceiling.

    I’ll generalize and estimate that most effected by this caveat are younger than 50, which I hate to say it is just another reason for me to put some focus on the boomers who, to steal an en vogue term are “not paying their fair share.”

    Regardless, the inequity is astounding in every aspect of the law.

  37. SEA Says:

    “Without Prop. 13, a lot of us would not make it.”

    Translation: We cannot afford to pay taxes, so you newer buyers should pay substantially more. You know it’s worth it.

  38. Netreality Says:

    Brown and other politicians can’t repeal the corp part of prop 13 because of all their donors: big businesses.

    This is one the public would have to get on the ballet, but would probably be killed by a disinformation campaign by the above.

  39. Menlo Park Says:

    Our school district (in the top tenth percentile) now gets the vast majority of it’s funding from fundraising and parcel taxes, very little from the state.

    I shudder to think what would happen if we didn’t have a small group of loyal (and wealthy) parents raising millions of dollars each year to pay for things like music teachers, technology teachers, art teachers, librarians, classroom aides, etc.

    And I do shudder to know many school districts in Calfornia don’t have the above “optional” teachers, which should NOT be optional.

    While repealing the business loophole parts of Prop 13 won’t solve California’s problems, it would be a good start.

  40. DreamT Says:

    “(…) the vast majority of it’s funding (…)”

    Must be contagious, I just shuddered as well.

  41. madhaus Says:

    #39 did say top tenth percentile. I am trying to figure out if that means 99.9th percentile or 10th percentile. Raising millions suggests the former, “it’s funding” does not.

    I seriously doubt, though, that any school district anywhere gets “the vast majority” of funding from “fundraising and parcel taxes.” Property taxes, yes, not parcel taxes. Those are add-ons to property taxes. Even a thousand dollar parcel tax (the highest I’ve heard of) won’t fund one sixth of one student’s costs for a year. I think #39 is saying s/he lives in a Basic Aid district with no additional state revenues given per student.

    As to #38, Brown can’t “repeal” the commercial part of Prop 13 because it was a fracking constitutional amendment. That means legislative bill or vote, and there’s poison-pill language in Prop 13 requiring a 2/3 vote of the electorate.

    When I become dictator, no law will be allowed to require a higher threshold for removal than it needed for passage, and any existing language will immediately become null and void. Talk about pulling up the fracking ladder after you!

  42. bob Says:

    Its been awhile since I was on here. But I’ll throw my 2 cents in the hat. I’ve mentioned this a few times before.

    The primary argument I hear those for Prop 13 is that it helped keep older folks in their houses. The only problem with that argument is that almost all of the other states have tax laws that help protect older residents by giving them a tax break or a tax freeze once they reach a certain age. This should have been done for California if this really and truly was the reason for its passage. But instead Prop 13 it was passed universally and that’s the problem. It effectively created a generational impact where by interrupting the natural turnover in housing- as also explained by PKamp3, home prices began an unnatural cycle of appreciation.

    There’s a reason for this. Those that bought in the 70’s and early 80’s suffer zero consequence for higher home prices and in turn are only too happy to see the values climb. They owe no more in property taxes than what they paid so by all means- let the values climb out the wazoo- which they do since there is a restriction in housing not only as a result of this but also due to the strict anti-development, red tape stuff that makes building here difficult and discourages growth.

    I would argue that having a progressive tax system is actually good for everyone. I’ve used this state before but TX is a good example. They have a fairly high property tax which is set depending on whatever amenities ( schools, libraries, parks) exist in your area. So anywhere from 2-3% which works out to be as much as $7,000 a year for a modest $200,000 house. We visited there a few years back to scope things out. There was most definitely a sort of resistance to higher prices on the part of buyers not necessarily because of the current taxes they would have to pay, but more for the realization that the taxes were adjusted annually per the value of the property in lock-step with values. Therefor in many ways this has had the effect of curbing rampant out of control home price inflation.There was a consequence for higher prices and people were highly aware of it.

    The problem with Prop 13 is that its one of those laws that will likely not be repealed easily simply because people will cry foul since they didn’t get “their piece” or that they can’t have it taken away from them. This is especially troublesome given that the average age of the state is rising with every year and thus even if the law were grandfathered out, there are still enough older people in those homes where it would take well past a generation for there to be any noticeable effect if that were to happen.

    Either way, I and many others strongly feel that Prop 13 is a significant reason why California stopped being the golden state- a state for a prosperous middle class- and instead became the state known for exorbitant real estate and crumbling state infrastructure. It has created the strange, counter-intuitive result where the most productive, highest-earning professionals have to pay huge sums of money for what amounts to a mediocre living situation and small, often entry level homes while older residents whom likely had significantly lower incomes in working and middle class careers get to live in much nicer houses, paid a tiny fraction for those houses and could ironically never afford them if they were to buy them today.

  43. A. Lewis Says:

    bob is back! hi, bob!

    The key way that I distill down bob’s arguments in his last paragraph is this: Prop. 13 is unsustainable. Texas’ property tax and home price situation is sustainable (not that I’m moving to TX anytime soon, but for other reasons).

    Only people with a vested interest can’t see this and agree to it. It’s quite obvious.

  44. nomadic Says:

    Hey A., did you find any logic in the 4th paragraph? Maybe I’ve been drinking too much but it didn’t make any sense to me.

  45. SEA Says:

    #44- My guess: “If all California property taxes were based on today’s market value, sellers would be more realistic, like high “space rent” driving selling prices down.”

    How anti-RBA can one get? Does he realize that part of what makes the RBA so great is the automatic price double, and there are buyers (70,000 if I remember right) standing in line to buy in the RBA.

  46. Menlo Park Says:

    Geeze Madhaus, don’t take every word literally.

    Yes, I did mean to say property taxes and parcel taxes.

    “revenue sources” From the school website:
    65.2% Property Tax and Revenue Limit
    19% Parcel Tax (Measures A, B and C)
    8.3% MPAEF Grant (i.e. wealthy parent fundraising)
    3% Federal
    2.7% State Aid
    1.9% Other Local

    Now the same website proclaims State Aid was 10% of annual revenue just five years ago, and property tax revenue is down too, so fundraising and parcel taxes are taking it’s place.

    And no, Brown can’t “repeal” any law, but he or another politician could champion the change, as long as they have no desire to be reelected and thus need powerful business supporters. :)

  47. ching Says:

    Need to look this article. http://reason.com/blog/2009/06/03/has-prop-13-really-robbed-cali

    The main reason we had a budget crisis was not collecting enoygh property tax, we spent too money way ahead of inflation. We did not save any money during the rainy day and tried to spend all

  48. madhaus Says:

    What terrible “reason”ing in that article. Because population went up X%, property tax revenues should not have gone up Y > X%? Does he really think economics is all straight lines with slope = 1? If population doubles, prices should also double, no other options possible?

    Seriously, when I was writing my thesis I got ahold of some Treasury publication that made a prediction on how cutting back a tax deduction 50% would affect spending. I couldn’t find the math behind it. I finally called the person who wrote it. Yup. They assumed an elasticity of 1.

  49. OldBillFromCA Says:

    Prop 13 was intended to protect old people from losing their homes to taxes. It keeps many here in Cali along with their pension money, which CA started taxing long ago, sending many away when they did.
    This issue would be mute if the Fed wasn’t inflating everything up (houses, food, cars, energy, hookers, you name it) with it’s money creation out of thin air. Our monetary system is the real problem; it is coupled with government propensity for debt. The future is not funded, the money has already been spent by the same folks that want more taxes. Leave us old fkrs alone, please, or I’ll take my income/business elsewhere.

  50. DreamT Says:

    “with it’s money creation out of thin air”

    There! Proof that it WAS contagious.

  51. Sunny(vale) Kim Says:

    Leave us old fkrs alone, please, or I’ll take my income/business elsewhere.
    —-

    I am perfectly fine with leaving old folks alone, provided young generation doesn’t have to subsidize those old folks. Please take your income/business elsewhere ASAP. I certainly don’t want to subsidize you anymore.

  52. Sunny(vale) Kim Says:

    BTW, I liked the “threat” from tantrum kid: If you guys don’t play my way, I am going to take all my toys ELSEWHERE and play alone

  53. OldBillFromCA Says:

    My tax situation is worst case: single, no dependents, standard deduction. Please, just how do you subsidize me? My auto gets fees paid and stays in the garage. I never sent kids to school. I built a business and have employed dozens of people.

    You subsidize government fungal growth, unless, of course you are gov fungus.

  54. OldBillFromCA Says:

    Glad I could liven up this forum a bit. The fungus stuff was a bit too much, sorry.

    Tell you what: let me keep my savings, which I sacrificed for, and you can keep the Social Security socialist garbage that FDR stole from Bismark (who explained that it makes people loyal to the state by making them want their gov check; it pacifies them.) I know, I paid all that money into it to pay to my parents generation; but I don’t want our young inflicted with this generational GIANT RIP OFF. End SS. Keep the money, it’s dirty, it’s an instrument of state power over all the people.

  55. Fungus Says:

    Are #49 poster (who couldn’t keep his home without Prop 13) and #53 poster same person? I am confused.

    In any case, #34 should explain how fungus is subsiding the whole food-pyramid.

  56. madhaus Says:

    Prop 13 most assuredly was NOT “intended to protect old people from taxes.” Instead, it was sold under that premise. It was intended to hamstring the state government, and lower taxes for the wealthy. If it was really to protect old people, why wasn’t it written the way such exemptions work in other states? Why are commercial and corporate-owned property not excepted? Why is there no income limit? Why can parents bequeath their low tax basis to their children? This has nothing to do with you, Old Bill, and everything to do with the people who manipulated you into thinking otherwise.

    The best way to keep people like you in your homes would be an age and income exemption, residential property only, first home only. New tax basis when the property is sold or passed on to whoever you leave it to.

    If the problem was the elderly couldn’t afford their property taxes, Prop 13 was the equivalent solution as unclogging a toilet with a depth charge.

  57. nomadic Says:

    #50, that apostrophe was mute. ;-)

    #48, madhaus, that article’s math was f*cked, but I took his theme to mean that because population only grew “x” then spending should have grown less than 5x, although in the comments someone else worked the real math and figured that spending actually grew around 270% IIRC. One big problem, left unspoken, was what the money was spent on and of course the fact that most of it was borrowed money.

  58. madhaus Says:

    Heh, I haven’t even brought up the inappropriate use of CPI (consumer) for property tax revenues. Cost of buying a house isn’t in CPI, but light bulbs and Drano are.

    Reason is a libertarian magazine. Those people think they should pay zero taxes and they got everything they did with zero government help. They probably go to bed angry that there are laws against them throwing sulfuric acid in the river, and they wake up angry that they can’t put out contracts on Michael Moore.

    I have only met two married libertarians, and only one with children. The others are all single dudes over 40. The one with kids seems pretty disinterested in them.

  59. Fungus Says:

    Why can parents bequeath their low tax basis to their children?
    —–

    That’s for Petelin Dynasty to “pass to the children”.
    Prop 13 was intended to protect old people children of old people from losing their homes to taxes. Leave old folks children of old folks alone, please, or they will take their income/business elsewhere.

  60. OldBillFromCA Says:

    Now madhaus, that is a load of garbage you’re projecting on libertarians.

    Oh well, got to go. The best of luck to all of you. Love the internet.

  61. nomadic Says:

    Oh, people are funny! I know a libertarian who is a single mom. Has gotten government assistance for education, food stamps for awhile, had no problem collecting unemployment, etc. Still convinced the government is evil…

  62. Petsmart groomer Says:

    I actually like the idea of Prop 13: keeping old people in their houses.

    What I don’t like though is that the police are not enforcing the rule and old people keep going out ;-)

  63. Fungus Says:

    Those people think they should pay zero taxes and they got everything they did with zero government help.
    —–

    Most of the third world countries (many of them are pretty much lawless) are actually libertarian’s heaven. Virtually no government, no law enforcement, no 9-1-1 service, no fire department, no sidewalks, no road, no regulation, no (put anything else). Best of all, probably you don’t have to pay tax either.

    The downside is of course, you need your own vigilante force to protect you. You need to keep bunch of buckets handy (in case of fire). In addition, you need to keep your neighbors happy so that they let you use their water-tap, in case of fire.

  64. SEA Says:

    “They assumed an elasticity of 1.”

    Let me guess, a marginal propensity to save of 0. Likely a elasticity of demand of -1 also.


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