The Economist Mag Assaults Prop. 13

MAY 2, 2011

By K. Lloyd Billingsley

The surfer, posed by what appears to be the Pacific Ocean, wears star-spangled trunks and his surfboard bears a peace sign, a highway placard bearing the number 13 and a banner reading “Direct Democracy.” The section of his board emblazoned “California” is bent, like a failed design for a boomerang, and pointing downward. In case you Don’t Get the Imagery, the headline of The Economist magazine (April 23-29 issue) explains: “Where it all went wrong: A special report on California’s dysfunctional democracy.

This is indeed one whopper of a cover story, but not exactly in the way The Economist intends. They even promote it in a “leader” (editorial) headlined “The perils of extreme democracy: California offers a warning to voters all over the world.” This charts some California woes such as the worst credit rating among the 50 states, and wonders how a state with so much going for it can be so poorly governed.

“It is tempting to accuse those doing the governing,” the editorial says. California legislators are “a pretty rum bunch,” and second-chance governor Jerry Brown has “struggled to make the executive branch work.”  But “the main culprit has been direct democracy,” as the special section, “Democracy in California: The People’s Will,” argues. That claim also requires some investigation, even though direct democracy does get a workout.

The special report provides background on the Greeks, ancient Athens and the founders of the United States. Direct democracy in California, however, is not quite the same. It was to counter the mighty Southern Pacific Railroad, which bestrode the state like a colossus.  “Direct democracy in California is thus an aberration…. Instead it encourages special interests to wage war by ballot measure until one lobby prevails and imposes its will on all.” But not so fast.

To correct gerrymandering “the initiative process, in this case, may prove to have done some good.” So direct democracy can be beneficial after all. The report might have mentioned Proposition 209 (1996), which curbed institutional discrimination by eliminating race, ethnic and gender preferences in state employment, education and contracting. Or Proposition 227 (1998), which dumped failed bilingual education programs.

The report contends that James Madison, et al., would not recognize California-style democracy, lacking in checks and balances. This ignores the courts. Whatever one thinks of Proposition 187 (1994), which eliminated many benefits for undocumented persons, voters passed it handily but the courts nixed virtually all of it. Proposition 63 (1986) declared English the official language of California and 73.2 percent of voters, including many of Iberian descent, passed it. The Ninth Circuit declared the vote “largely symbolic” and the U.S. Supreme Court reversed that ruling.

Attacking Prop. 13

So checks and balances exist, and initiatives can do some good. The villain of this special report is not direct democracy but an “unprecedented initiative that shapes the state to this day: Proposition 13.”  The report notes that Prop. 13 cut the property tax rate from an average of 2.6 percent of a property’s value to 1 percent, and required a two-thirds supermajority in the Legislature for any tax hike. The report does not note that, prior to Prop. 13, some Californians were literally taxed out of their homes while the state was running a surplus.

Gov. Jerry Brown opposed Prop. 13 with an apocalyptic zeal that would have put Al Gore to shame. The report says Brown “tried to make a cerebral case for an alternate initiative,” implying that Prop. 13 was visceral and stupid.  Then Brown “made a stunning U-turn” to endorse the initiative. He does not note that Brown declared himself a “born-again tax cutter” and, as a presidential candidate, even promoted a flat tax.

The special report charges that Prop. 13 launched an orgy of initiatives “from environmentalists and potheads to evangelical Christians and Indian tribes, from insurers to oil and tobacco companies.” It did cut property taxes for homeowners and put some restraints on the Legislature, but the report neglects to outline what this supposedly all-powerful initiative did not do.

Political activist Lenny Goldberg told The Economist that Prop. 13 centralizes “virtually all finance in Sacramento,” but that is debatable. The measure had nothing to say about state distribution of money. More important, Prop. 13 did not mandate any state spending and certainly no spending beyond state revenues.

Prop. 13 did not create any new government agencies. Curiously, Proposition 71, the 2004 state stem cell bond initiative, did precisely that, creating the California Institute of Regenerative Medicine, funded with more than $3 billion in state money but providing none of the promised medical cures and therapies. The Economist’s report does not mention Prop. 71, nor Proposition 20, which created the California Coastal Commission, an unelected body with vast powers and staffed by zealots.

Collective Bargaining

Prop. 13 did not authorized government employee unions for California, nor collective bargaining with the state. Jerry Brown did that in his first stint as governor by signing the Dills Act. Prop. 13 did not impose any onerous regulations based on bad science, such as AB 32, the Global Warming Solutions Act of 2006. The proposition did not mandate any new state hires and did not approve pay raises for California legislators.

Prop. 13 did not authorize state employees to retire in their 50s with most of their salary for life, nor did it spike any pensions. Prop. 13 did not approve welfare cards that can be redeemed at casinos and on cruise ships. Prop. 13 did not attempt to tax editorial cartoons as though they were works of art purchased in an art gallery, as in the 1996 “laugh tax” that made California a national joke. All that came through legislators and unelected bureaucrats.

Prop. 13 did not mandate that California bulk up the state to consume more than 20 percent of the state economy, about twice the amount that best facilitates economic growth. Prop. 13 did not set a top income-tax rate of 10.55 percent, one of the highest in the country, and a second-highest rate of 9.55 that kicks in at $47,055. “Those doing the governing” did that –legislators. The report acknowledges that the tax system is volatile, but reserves its wrath for Prop. 13, which did not mandate term limits either.

The Economist believes Prop. 13 wrecked California education. The figures cited understate education spending and the special report does not note that, in California’s government monopoly K-12 system, such spending must trickle down through four layers of bureaucratic sediment. Long before Prop. 13, the system was a vast collective farm of ignorance and mediocrity.

The special report’s main source on this theme is John Mockler, billed as an “expert in California education,” ergo, an outside, objective observer. This is like describing former Assembly Speaker Fabian Nunez as an “expert in California government.” Mockler is an insider’s insider and strident apologist for the system, from which he has drawn considerable profit.

Mockler  served as a consultant to the Assembly Education Committee in 1965 and went on to advise Assembly Speaker Willie Brown and to work for former state Superintendent of Public Instruction Wilson Riles. As president of the lobbying firm Strategic Education Services in Sacramento, Mockler did a fine job channeling countless millions in state funds to the clients he represented. These include the Association of American Publishers, who lobby furiously to sell their overpriced and often deficient textbooks.

A lucrative lobbyist career did not prevent Gov. Gray Davis from hiring Mockler as executive director of the State Board of Education. This was after, as the report notes, the California Teachers Association, “the largest spender in California politics,” hired Mockler to write Proposition 98, which unlike Proposition 13, does indeed mandate spending.

California Crackup

Another major source for the special report is “California Crackup: How Reform Broke the Golden State and How We Can Fix It,”  by Joe Mathews and Mark Paul, a classic of anti-Prop 13 demonology. The authors want to restrict the initiative system but add more legislators. In similar style, the report wants California to “re-invest the legislature with the credibility it once had.” The report wants a bigger Legislature, and a unicameral model, like Nebraska’s.

In the end, The Economist seems to understand that propositions, like laws, are a mixed bag. “The problem is not direct democracy as such but the details of its California variant. It needs to be fixed, not eliminated.”  Further, California might see the “liveliest debate about freedom and governance since the Federalists and anti-Federalists,” with “lessons for everyone.”

Unlike most pieces in The Economist, a publication of high reputation whose authors mostly are anonymous, at least readers know who wrote this piece on California. The author is Andreas Kluth, who writes their other California pieces, and who speaks three languages. He’s obviously a smart fellow, but as Saul Bellow wrote, “a great deal of intelligence can be invested in ignorance when the need for illusion is deep.”

Kluth’s special report is indeed a cover story, ignoring California’s main problems, and maintaining the illusion that Prop. 13 is to blame. As long as that illusion prevails, the prospects for meaningful reform remain dim.  Californians would be better off following The Economist’s editorial. The Golden State has a lot going for it but remains “so poorly governed.” Better, then, to accuse those doing the governing. As the The Economist says, they’re a “pretty rum bunch.”

 

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  1. Richard Rider
    Richard Rider 4 May, 2011, 18:51

    Recalls of politicians seldom happen in CA, though it’s tried from time to time. The only governor recalled in the last 100 years was the disastrous Gray Davis. VERY few of the 120 state legislators face a recall in their tours of duty in the state capitol (perhaps 3-6 in the last 20 years). It’s a non-issue on the state level, and quite uncommon on the local level as well.

    Gosh, aren’t parliamentary elections more often than not attempts to “recall” the current ruling party and its leaders? I hear tell it’s a common practice in Europe, but I wouldn’t know about such things. Maybe Italy and France house the parliaments I’m thinking of — though some of my smarter friends assure me that these places too are in Europe.

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  2. Richard Rider
    Richard Rider 4 May, 2011, 18:52

    Ah yes, the hoary Prop 13 canard — the politicians’ all-purpose excuse for everything that goes wrong in CA.

    But it turns out that when it comes to gathering sufficient property taxes, Prop. 13 is no problem at all — except for profligate spenders. Look at the history of my San Diego County — a history that pretty much reflects the history of property taxes in the urban/suburban counties that hold over 90 percent of California’s population.

    According to the San Diego County Tax Assessor, in 1977 — the year before Prop. 13 took effect — our countywide property tax revenue was about $639 million. For this past June 30 concluding the 2009-10 fiscal year, our county assessor reports revenues of $4.596 billion. For every property tax dollar collected in 1977, the county this last year collected $7.20.

    During that time frame, our county population has grown about 85 percent, and inflation has gone up about 260 percent. Hence property tax revenues today are substantially higher than the bloated pre-Prop. 13 year, even after adjusting for inflation and population growth.

    According to the Tax Foundation, for 2008, California was ranked 14th highest in per capita property taxes (including commercial) — the only major tax where we are not ranked in the worst 10 states. But CA property taxes per home were the 10th highest in the nation that year.

    (To see how California ranks against the other states on various taxes and other economic factors, go to: http://www.RiderBlog.NotLong.com and read the latest updated version of my fact sheet, “Breaking Bad — CA vs. the other states.”)

    But there’s another advantage of Prop. 13 that few understand.

    It turns out that, under Prop. 13, property tax revenue is far more stable than our other forms of tax revenue. Income tax revenue is plunging, and sales tax collections are dropping.

    But property tax revenue seldom goes down at all. Since the year Prop. 13 passed, San Diego County property tax revenue has always gone up — every year — until this 2009-10 fiscal year.

    The San Diego County assessor reports that real estate property tax revenue for the fiscal year ending June 30, 2010 is down — but only 1.0 percent. This tiny drop comes in the fourth year of California’s real estate meltdown. The year before, real estate property tax revenue was actually up 4.1 percent.

    Revenue is up because Prop. 13 has the little-known added benefit of smoothing out real estate property tax revenue from year to year. Most properties this year (generally those purchased prior to 2003) had their property tax go up 2 percent. Add to that the resales, property improvements and new structures (which establish new tax assessment levels), and the revenue stayed rather constant in the teeth of our economic downturn.

    Consider what happens without Prop. 13 protection: In the real estate boom years from 1998 through 2005, property taxes would have soared. (Even with the Prop. 13 limitations, San Diego County property tax revenue collection during this period still rose 111 percent.) But then in the last four years, without Prop. 13 our dropping property values would have caused a dramatic plummet in property tax revenues — revenues that governments would now be hooked on — just like we see with our volatile sales taxes, and especially with our erratic income tax revenues.

    Whatever problems you might think Prop. 13 causes, insufficient property tax revenues is not one of them.

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  3. Richard Rider
    Richard Rider 4 May, 2011, 20:00

    Is CA under-taxed? Is that the problem? I think not.

    We have the third highest state income tax, the highest state sales tax, the highest petrol and diesel tax, the highest state car tax and the highest state corporate income tax west of the Mississippi (our primary competitors).

    We drive away our best taxpayers. Consider California’s net domestic migration (migration between states). From April, 2000 through June, 2008 (8 years, 2 months) California has lost a NET 1.4 million people. The departures slowed in 2008 only because people couldn’t sell their homes. In 2010 we lost “only” 72,000 net people to domestic migration.

    These are not welfare kings and queens departing. They are the young, the educated, the productive, the ambitious, the wealthy (such as Tiger Woods) – and retirees seeking to make their pensions provide more bang for the buck.

    Some of these departing seniors are retired state and local government employees fleeing the state that provides them with their opulent pensions – in order to avoid the high taxes that these same employees pushed so hard through their unions. And once they move out of California, our state can no longer tax their California-paid pensions.

    Perhaps our biggest single problem is that we grossly overpay and over-pension our state and local employees compared to other states — and direct democracy has not been implementing these increases. Indeed, the only way to REDUCE these runaway expenses IS direct democracy — most of our politicians are owned and operated by the public employee labor unions.

    For a complete current comparison of CA with the others states on many, many dreary factors, go to an article in my blog:
    http://open.salon.com/blog/richard_rider/2011/04/19/breaking_bad_ca_vs_o

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  4. Jim Groom
    Jim Groom 8 May, 2011, 16:14

    This article written by Lloyd Billingsley is very interesting. Interesting for the information that it provides and reading between the lines for what it does not. Many of us who live in California understand the Prop 13 was a very flawed proposition. It was presented as something to save grandma from losing her home. Lloyd makes the claim that ‘some Californians were literally taxed out of their homes while the state was running a surplus.’ Really? How about providing statistics to prove that point? Just how many homes were being lost? I recall the argument in our county (San Mateo) at the time Prop 13 was being pushed. A handful of cases at best among hundred of thousands of homes.

    Yes indeed Prop 13 did not create the California Institute of Regenerative Medicine..Prop 71 did. He further makes the claim ‘funded with state money but providine none of the promised medical cures and therapies.’ Does he actually expect medical cures in such short order. Prop 71 was only passed in 2004. Just how many years have billions and billions of dollars been spent to curing cancer, diabetes and a host of other health problem areas? His staw-man argument does not cut it in this debate. Instead of offering substance he falls back on tried-and-true ideological arguments. Disappointing at best.

    Yes indeed Prop 13 did not create the Global Warming Solutions Act of 2006, but his comment ‘onerous regulations based on bad science, such as Prop 32’ are again only political and not based upon actual scientific evaluation. Who says the science is not sound? Certainly not the 97% of scientists whose field is climatology. Again just an ideological argument not backed by facts or, for that matter, sources of his point of view. Disappointing at best.

    The initiative process in California was brough some good and some bad to the political process. Many citizens support that process because the legislature is certainly a dysfunctional democracy. Californai has been under minority rule for many, many years and the resulting inability to govern is obvious. The people often vote against their own best interest and faith in representative government, at the state level, is at its all time low.

    Prop 13 did not start the decline of California, but it certainly did help the process along. When it passed the implementation certanly caused pain and suffering to the citizens. In San Mateo County, a wealthy suburban area of San Francisco, lost many services due to the cut in funding. It took several years for local governments to adjust to the lack of funds and just what services were to be trimmed or eliminated altogether. Not a pleasant time indeed.

    It did not take those of us in the middle class to see just who benifited from Prop 13. The Jarvas group put forth the Prop for the benefit of the wealthy and commerical property owners. The last 15 years that we lived in Burlingame we paid twice or more than most of the property owners living in Hillsborough. Homes in Hillsborough started at $1 million plus when our neighborhood homes were less than half. We paid over $4K in property taxes, provided police and fire services to the wealthy community while many homeowners there paid less than $1K. A great many still do.

    Prop 13 kept taxes low on those who are not in the practice of moving often. Those of us who moved for a variety of reasons paid more than those who don’t move up the housing ladder. The wealthy are already at the top of the ladder, so the community cost trickle down to the rest of us.

    I wish the author had kept his arguments to the pro and cons of the initiative process instead of defending the status quo of Prop 13. The same is true for the Economist article.

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  5. Jim Groom
    Jim Groom 9 May, 2011, 10:53

    A tale of two homes…further to Prop 13.

    One of our neighbors, a surgical nurse with two children, has a home next to our last home before we retired. Her family purchased that home back in 1960’s and we purchased our home after Prop 13 was enacted. Both homes were built in the early part of the 20th century and are comparable in size, condition and resale value. When we sold our home in 2011 our property tax rate was just over $4K per year while our neighbors was still nearly $900.

    We were certainly not the only folks in the same situation. A large percentage of the homes in our neighborhood were purchased after the passing of Prop 13. Ours was a family neighborhood full of folks that used to be called yuppies. Our neighborhood was, and still is, a so-called bedroom community of Silicon Valley and San Francisco.

    My point is that for those who still remain in homes purchased before passage of Prop 13 are most likely still fans of the proposition and the resulting inequity in tax rates. I’ve read statistics that state that the average turnover in housing is every 7 years. If true then certainly most homes are taxed under the mandates of Prop 13. Unequal taxation on the face of it does not seen fair to me. I believe that the time has come to make correction of the flaws inherent in Prop 13. Instead of having the newly arrived neighbors subsidizing those pre-Prop 13 owners, perhaps the taxes should be evended out. Those pre-Prop 13 would go up and those after would go down.

    If you look into the movement of homes in the more affluent neighborhoods you will find fewer homes being bought and sold. No surprise since the wealthy are already living at the top of the heep and upward mobility in home owning is not an issue. It was these folks who benifited the most from the implementation of Prop 13. They had their tax rates rolled back and futher home owners paid the price of future rates of taxation. Including vital services that a civil community depends upon.

    I am not against the wealthy and I have no axe to grind against them. However, I believe the facts show that overall Prop 13 was a Trojan Horse used to bamboozle a gullible public.

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