Bills take aim at Prop. 13 tax limitations

by CalWatchdog Staff | June 21, 2013 9:55 am

[1]June 21, 2013

By Dave Roberts

If you think taxes are already high in California, to paraphrase Ronald Reagan, you ain’t seen nothin’ yet.

Winding through the Legislature have been a gaggle of constitutional amendments[2] that would make it easier to raise local parcel taxes. The bills would  lower the vote-approval threshold to 55 percent from the current two-thirds requirement.

Four tax-hike-enabling bills were debated in the Senate Elections and Constitutional Amendments Committee[3] on Tuesday, where they passed easily, 3-0. They were:

* SCA 3[4] is by state Sen. Mark Leno, D-San Francisco. It would affect “school districts, community college districts, and county offices of education.”

* SCA 7[5] is by state Sen. Lois Wolk, D-Vallejo. It would affect “cities, counties, or special districts.”

* SCA 9[6] is by state Sen. Ellen M. Corbett, D-San Leandro. It would affect “local government for the purpose of providing funding for community and economic development projects.” So it would bring back redevelopment, which the Legislature itself killed in 2011 [7]to save the state money. Redevelopment commonly used eminent domain to condemn and seize homes and businesses in supposedly “blighted” areas — meaning middle-class and poor communites — to give the property to wealthy developers.

* SCA 11[8] is by state Sen. Loni Hancock, D-Oakland. It would affect “cities, counties, and special districts…. It would apply to nearly all services, from schools, to transportation, to public safety agencies.”

Tuesday’s debate was a preview of the one that will take place when the amendments (or perhaps one comprehensive amendment) are placed on a statewide ballot, where a simple majority of statewide voters would be needed to pass.

Already back in 2000, voters approved Proposition 39[9], which dropped the threshold for passing local school bonds from two-thirds to 55 percent. Referring to Prop. 39, Leno[10] said, “So there’s already precedent for it. This will just make it the same” for local parcel taxes.

Democrats and representatives of government agencies, government labor unions and social service organizations argued that state government is no longer able to adequately fund schools, libraries, roads, parks, economic development projects and the like. This has forced cities, counties and special districts to try to make up the difference. But it’s difficult for them to do so when just over one-third of voters opposed to a tax hike can thwart the will of the nearly two-thirds who want to raise their taxes to pay for those amenities.

Tax failures despite majority support

Last November several school district parcel tax hike measures gained more than 55 percent of the votes, but fell short of the necessary two-thirds to pass:

* A $39 annual tax per parcel in San Leandro received 65.6 percent;

* A $65 tax hike in Pacific Grove — 65.1 percent;

* A $199 tax in San Bruno — 58.5 percent;

* A $48 tax in Fort Ross — 65.4 percent;

* A $60 tax in Three Rivers — 61.6 percent.

Business groups and taxpayer advocates countered that making it easier to raise taxes would place additional financial burdens on many businesses and homeowners that are still struggling in the wake of the Great Recession. They point out that many tax hikes are approved, despite the two-thirds threshold, showing that voters will support improvement projects when they are convinced of the need for them.

Also, according to Ballotpedia[11], “Prior to the passage of Proposition 39, about 60 percent of local school bond ballot questions succeeded in getting the previously required two-thirds vote. In the wake of its passage, about 75 percent of local school districts are passing with the 55 percent requirement.”

Moreover, tax opponents argue that the two-thirds requirement is needed to provide badly organized taxpayers protection against the well organized unions of state employees, such as the California Teachers Association and the Services Employees International Union. These unions take dues from the salaries of their rank-and-file members to fund pro-tax campaigns. Because the salaries are funded through taxation, ultimately the unions are using the taxpayers’ own money to raise taxes even higher.

There are millions, probably billions, of tax dollars at stake in California in the coming decades, depending on which side wins the debate.

Pro-tax arguments

Two of the arguments for the pro-tax side may appeal to moderates and even Tea Party conservatives:

* Taxation at the local level allows for more local control than relying on the state or federal government for funding. “This is a way to give local districts the opportunity to be able to reinvest in public education,” said Leno. “We have taken control away from them. Due to crises and other reasons in Sacramento, we have been unable to invest in public education to the degree that we need to. So [this provides] a tool in the tool box to let the majority rule.”

* The founding fathers restricted the two-thirds voting requirement to major issues like presidential impeachment and ratification of international treaties. Leno quoted James Madison in Federalist Paper 58[12] that requiring more than a simple majority for most votes means “the fundamental principle of free government would be reversed. It would be no longer that the majority would rule. The power would be transferred to the minority.” Leno himself added, “In the end it would be a recipe for a dysfunctional government.”

That dysfunction has manifested itself in the fact that, despite many schools needing additional funding, “only 10 percent of school districts currently have school parcel taxes in existence,” said Leno. “So this is an underutilized tool.”

Leno is optimistic that voters will support lowering the tax-hike threshold. He said a recent Public Policy Institute of California poll[13] shows 57 percent of Californians support lowering it to 55 percent for local parcel taxes for public schools.

Majority opposed to lowering tax threshold

But that May PPIC poll actually shows that likely voters oppose by a 53-44 margin lowering the tax-hike threshold. It does have slight support among all adults, 46-44 percent.

David Wolfe, representing the Howard Jarvis Taxpayers Association[14], cited another finding in that poll: 61 percent of likely voters say that Proposition 13[15], which in 1978 imposed the two-thirds threshold for both state Legislature tax hikes and local special tax hikes, has been mostly a good thing for California. Even 55 percent of Democrats agree with that, as well as majorities throughout the state and racial, ethnic, age and income categories.

“So it just goes to show that even 35 years later, support for Prop. 13 is very strong, and support for lowering the two-thirds for various special taxes is not popular at all,” said Wolfe.

Leno countered that most Californians are unaware that Prop. 13 includes the two-thirds threshold requirement for tax hikes.

“The way Prop. 13 was sold was that property taxes were rising at the local level to fund school operations, and retirees and those on fixed income were being taxed out of their homes and we had to protect grandma and grandpa,” he said.

Grandma losing her home

Wolfe, however, is concerned that grandma and grandpa are in danger of once again being taxed out of their home if the tax hike threshold is lowered. That could lead to foreclosures, decreased property values and residents moving out, resulting in a loss of property and sales tax revenue for local government and perhaps leading to more bankruptcies.

“Undercut the threshold. Go ahead and do it,” Wolfe dared. “And you know what happens? Stockton happens, Vallejo happens, San Bernardino happens, Mammoth Lakes happens.” Vallejo declared bankruptcy in 2008; the other three cities did so last year. “Because that’s where the majority of the revenue comes from.” So raising property taxes is “incredibly damaging not only to homeowners but to local government.”

It will also be incredibly damaging to small businesses, according to Ken DeVore, legislative director for the National Federation of Independent Business[16], which represents about 23,000 small businesses in the state.

“Over 90 percent of the business owners from all demographics are opposed to anything that makes it easier to raise taxes,” he said. “Because at the end of the day it’s the small business owner that gets hit. It costs almost three times as much to comply with taxes for a small business owner over a big business. It’s 37 percent more expensive to comply with regulations. It’s over 20 percent more expensive for health care.

“The whole reason why we have a two-thirds majority required is to ensure that local government will make the case for why a project is needed. They have done so almost 60 percent of the time over the last two decades in California. It also guarantees that a significant number of people who actually are going to pay the taxes will be included in the vote as well.”

Potential for business tax targeting

The California Chamber of Commerce[17], which has added the constitutional amendments to its list of bills dubbed “job killers,” is also concerned about the impact of tax hikes on larger businesses.

“There are few parameters or restrictions under which the tax may be imposed, other than that the revenue be used for the designated purpose,” the Chamber states on its website[18]. “With such broad discretion in the type or scope of the tax to impose on real property, the CalChamber is concerned that the constitutional amendments could lead to targeted taxes at the local level against unpopular taxpayers, industries, products or property.

“For example, a parcel tax could be disproportionately directed at commercial property within the local jurisdiction, thereby potentially undermining Proposition 13 protections and discriminating against commercial property versus residential. Similarly, a special sales tax could be imposed solely on sweetened beverages or high calorie items.”

The constitutional amendments will next be considered by the Senate Rules Committee[19].

Source URL: https://calwatchdog.com/2013/06/21/bills-take-aim-at-prop-13-tax-limitations/

---