Reaching for the 'Third Rail' of Politics: The Future of Prop. 13

Fair or Unfair?
Fair or Unfair? | Photo: 401(k)2013/Flickr//Creative Commons License

I had been on the job in Lakewood for less than a year when California voters passed the constitutional amendment that cut property taxes 57 percent, restrained future assessments, and required a 66.6 percent super-majority to impose new taxes. Howard Jarvis and Paul Gann -- anti-tax advocates and the measure's cheerleaders -- were elated.

In a city like mine -- a "low property tax" city -- the passage of Proposition 13 provoked anxiety about our ability to pay for the services that residents had come to expect from city hall. Our worry was moderated by a strong retail economy in most of the years following 1978 and by a state revenue sharing plan that backfilled some of our early losses.

"No property tax" cities were less inconvenienced. They had no city-imposed property tax at all.

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We were called the "no and lows" to distinguish us from big cities -- Los Angeles, San Diego, Long Beach, San Jose -- where property taxes had been a significant source of local revenue. The "no and lows" depended on sales taxes and frugality.

The passage of Proposition 13 benefited the elderly in 1978, whose property taxes had risen with the assessed value of their home but whose income had remained fixed. Today, Proposition 13 continues to benefit corporate property owners, particularly shopping mall operators, manufacturers, and big agri-businesses.

Some supporters argue that Proposition 13 also disciplined local governments by limiting how far property assessments could inflate before a bust in property values depressed tax receipts. A property tax roller coaster had threatened some cities with bankruptcy at the start of the Depression.

Critics of Proposition 13 point to the ways in which government finance became distorted after 1978. California is too dependent on volatile income tax receipts and retail sales taxes. A proliferation of business fees, "bed taxes," and utility user taxes have taken the place of property tax increases at the local level. Parcel taxes -- a flat annual cost no matter the size or value of the property -- have made property taxation less and less fair.

Although Proposition 13 has been called the "third rail" of state politics for its presumed ability to take down any politician who dares meddle with it, the tangled system of government finance handed to us by Proposition 13, court rulings, and newer initiatives has reached a dead end.

Tentatively, some in the state legislature have begun to meddle with Proposition 13 with the goal of bringing something to voters, perhaps as early as the mid-term election of 2014 (but more likely in 2016, a presidential election year).

The "something" might split commercial tax assessments from residential assessments -- a "split roll" that would accelerate business property tax increases while leaving residential property taxes to rise at the current rate. Or "something" might close the loophole in Proposition 13 that lets corporations escape reassessment when their property is sold or transferred, as long as none of the new owners holds more than a 50 percent interest.

But the "something" that would have the greatest effect would reduce to 55 percent the 66.6 percent super-majority required to enact a new tax. The Measure J transit sales tax extension, which failed to reach 66.6 percent by about .5 of percent -- is an example of thwarted majority rule that advocates of a lower threshold point to.

Government financing in California is in serious trouble, with policy distortions that seem undemocratic, picking some classes of taxpayers as winners and others as tax losers. Californians need to talk about a reformed system of taxation that evens out booms and busts in revenues, gives businesses a predictable tax burden, allows cities to respond dynamically to change, and restores the idea of a common good.

Meddling with Proposition 13 might, at least, begin that conversation.

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