From: dbailey@wk49.nas.nasa.gov (David H. Bailey)
Subject: Prop. 13 and California's fiscal crisis
Organization: NAS, NASA Ames Research Center, Moffett Field, CA
Date: Wed, 2 Sep 92 16:57:12 GMT
Distribution: ca

"The Chipmunk" (asylvain@felix.filenet.com) raised some good points
about the issue of Prop. 13 in general and Lawrence Stone's San Jose
Mercury article in particular.

: OBVIOUSLY these people are all LEAVING because our LIBRARIES are in dire
: need.  >>cough cough<<

I'm afraid I have to disagree here.  When I have chatted with people
who are leaving California, the sorry state of public services IS what
is usually cited.  Indeed, the most often mentioned single reason is
concern about the schools.  Many friends who move to other areas
report about the superior condition of the buildings and grounds, the
high teacher-pupil ratios, the superior pay (and resulting high
quality) of the teachers, and the fact that they aren't continually
being dinged for donations to fund supplies, equipment, programs, etc.
Another frequently mentioned reason is concern about crime.  But isn't
this in large part due to inadequate police staff?  Cities the size of
San Jose outside of California have police forces two to three times
ours.

One other commonly cited concern is traffic congestion.  But isn't
this the predictable long-term result of inadequate investment in
infrastructure?  And before you say "too many people is the real
reason behind our traffic jams", remember that these people are being
hired to fill office buildings approved by local governments desperate
for the property taxes.  Office space is particularly favored by local
governments because it doesn't require schools to be built (let some
other community house those people), and it can be taxed at full
market value, at least for the first few years.  If long-term
Californians really want to get serious about limiting development,
then it's high time they started paying their fair share of property
taxes, so their local governments don't have to continually approve
new development to pay their bills.

: Again, I plea for numbers.

I heartily agree on this one.  I have personally tried hard to find
hard facts about the impact of Prop. 13, but with only limited
success.  I tried calling state offices a few months ago, but I wasn't
able to even get past the receptionists.  The best data I have is from
a U.S. Census publication, "The American Housing Survey for the San
Francisco-Oakland Metropolitan Area in 1989".  I have similar
publications for San Jose in 1988 and Los Angeles-Long Beach in 1985.

This data underscores the uneven impact of Prop. 13, and it also sets
aside the common belief that the principal beneficiaries (i.e.
long-term homeowners aged 45-64) earn less than the younger set.  For
example, in SF-Oakland the median household income of homeowners aged
45-64 is $67,000, whereas that of homeowners aged 25-29 is $60,000.
When typical mortgage payments are deducted from these figures, we
have "disposable" incomes of $64,000 and $44,000 respectively.  Young
renters' incomes are even lower.  Also, we have that fully 52% of
homeowners with incomes over $100,000 pay less than $150 per month in
property tax, even though their homes are worth an average $400,000.

The other tidbit I can quote is a recently published study by the
California Franchise Tax Board that 47% of California properties have
not changed hands since 1978.  Since a large percentage of California
properties (not property) are homes, this figure can be taken for
homes.  It certainly holds in my area of San Jose -- I'd say it is
closer to 75% in my neighborhood.  It is in fact 75% in some smaller
cities in Silicon Valley, such as Palo Alto.  Further, those lucky
enough to have stayed in the same home since 1978 pay on average only
1/6 the property tax of their hapless neighbors who have bought during
the past year or two.

: Oh, I am so sick of this old line [the inequity issue of Prop. 13].

Although I do agree that the 1% newcomer tax is not as bad as some who
moan about it, I do feel that the inequity of Prop. 13 is a serious
flaw, and, if nothing else, is extremely divisive among generations
right at a time when this society badly needs to start pulling
together and recover some sense of community.

: Prop 13 has now been in effect for 14 years.  In another 16 years, anyone
: who bought a house in 1978 will have paid off their mortgage.  Eventually,
: every house in existance in 1978 will be sold.  At market value.

What is the long-term outlook of the "inequity" issue?  Even if we
assume that eventually all property turns over [this is not
necessarily true -- more on this in a moment], we still have Prop. 13
discriminating against persons who have to move every few years as
part of their line of work, and against growing families.  It sadly
discriminates against new immigrants, often disadvantaged Asians or
Central Americans.  Perhaps the most insidious feature of the current
system is the "loophole" that allows parents to pass property to
children without reassessment if they do it right.  This means that
100 years from now, we still could have many homeowners paying
1975-plus-2%/year taxes.

Another aspect of the inequity issue is the "freeloading" factor.  The
long-term 60-year-old may claim that he no longer has kids in school
etc., so he shouldn't have to pay for services.  But he does benefit
in a very big way from the taxes that everyone else besides him pays
-- the resale value of his home, which very much is keyed to the
quality of local services, particularly the schools.  If such people
would agree to a limit on their resale value in exchange for limited
property taxes, maybe I could go along.

:    What are the ratios of houses
: which HAVE been sold since 1978 compared to those which have NOT been
: sold?  Didn't someone mention they were around half?  Let's be
: conservative, and say the numbers were around 60%.  This equates to
: roughly 4% increase in property tax revenues.

I admit, Stone's assertion that property tax revenues on existing
properties do not increase as fast as inflation is questionable.
Assuming a somewhat complicated model of resales, which takes into
account the observed fact that most current sales are of homes that
have already resold at least once since 1978, I come up with an annual
increase of about 5.5% in property tax revenue for existing
properties.  This actually is close to the average annual increase in
the CPI over the last 15 years.  I would like to see some more
reliable data here.

: Jarvis and Gann guaranteed that California would have to choose between
: unbounded tax increases, and a nice, normal, controlled increase.  It's
: unfortunate the legislature has been unable to live within those means.

Now we come to the heart of the matter.  Even if one is a die-hard
libertarian, determined to cut "big government", why pick property
taxes?  In the civilized world (i.e. outside of California), property
taxes are voted locally by the people and are used for the closest
thing to real government services that most people see -- neighborhood
schools and police and fire protection.  They feel that they have
control of their own community and its services.

If Californians were so outraged about high taxes in 1978, why didn't
they first demand cuts at the state level, or even at the federal
level?  Why didn't they demand reforms in the California penal system?
For that matter, why didn't they demand of their U.S. congressmen a
stop to the inexorable growth in entitlements, which with interest on
the national debt now consume 70% of the federal budget?

One valid objection many Californians have about the K-12 school
system is that local schools have almost no leeway or flexibility --
they are hemmed in by a thousand restrictions and requirements from
the state.  Well, why did Californians, by Prop. 13, cede funding and
therefore control over public schools to the state?  Look in the
mirror, California.

Newsgroups: ca.politics