Underappreciated Prop. 13 fact: It protects vulnerable in housing bubbles

Underappreciated Prop. 13 fact: It protects vulnerable in housing bubbles

prop-13-june-19-1978As the push builds in Sacramento to undercut Proposition 13 by weakening its limits on how fast business property taxes can increase, it’s worth making two basic points in defense of the 1978 initiative — one of which doesn’t get the attention it deserves even from fans of Howard Jarvis’ measure.

The first has to do with its allegedly devastating effect on revenue.

It didn’t turn off spigot

There’s something about Proposition 13 that induces derangement among the political and media establishment in California. You can make an argument, as Joe Mathews has, that using direct democracy to shape key state policies is a formula for straitjacketed government. But then the argument should apply to lots and lots of props, not just 13, starting with 1988’s Proposition 98, which made permanent teachers unions’ dominance of state spending and budget decisions. Why should one result of direct democracy bear the blame for other exercises in direct democracy?

But to argue that capping one source of taxes has ruined the state, as the Peter Schrags and the George Skeltons of the world like to do, is bizarre. By any measure, tax revenue in California has gone up far faster than inflation plus population growth since Prop 13’s adoption in 1978. By any measure, California has among the nation’s highest sales, income and gasoline taxes and the highest corporate taxes in the West. Only in property taxes are we in the middle of the 50 states.

We have enough to live within our means. The only reason it sometimes seems like we do not is because of political decisions that place the interests of public employees ahead of the interests of the public, in pay, benefits, job protections and more.

This is pretty well understood among libertarians, conservatives and small-government advocates.

Not just about limiting taxes; it’s about protecting homeowners

But the second grounds for offering a vigorous defense of Prop 13 is often not appreciated enough by people across the California political spectrum — including its admirers. The measure was drafted and passed in a landslide for a very specific and powerful reason: to protect people from losing their homes or suffering financial disaster because of housing bubbles.

This is from a June 5, 1978, Newsweek story about the mood in California on the eve of Prop. 13’s adoption:

housing-bubble

“Shaken homeowners and landlords wobbled out of the country assessor’s office in Los Angeles last week with rebellion in their eyes. In the suburb of Palos Verdes, Don Johnson, a certified public accountant who earns $25,000 a year, returned dumbstruck to his four-bedroom ranch home. When he and his wife, Ellen Ann, bought the home in 1959 — for $33,900 — their tax bill was $600 a year. But inflation ballooned the assessed value of the home, and by last year, the Johnsons’ taxes were $1,593. Last week, the tax man released the latest listings. Overnight the assessed value of the Johnson home has soared to $135,000 and the Johnsons’ taxes threatened to skyrocket to $4,139.

“At the assessor’s office in West Los Angeles, an ashen-faced husband emerged to give similar bad news to his wife, a woman in a matronly blue dress. ‘Sam, Sam, don’t tell me,’ she cried. ‘I’m going to have a heart attack right here.'”

Why can’t members of the political-media establishment (including occasional contrarians Joe Mathews and Dan Walters) grasp that we’d have seen a wave of such stories during the housing bubble from 1998 to 2006 without Proposition 13?

Home prices in some markets nearly tripled over that span.

Retirees, those living on fixed incomes and middle-class families with big mortgages would have been devastated  if their property taxes had nearly tripled. We’re talking about millions of people.

So while we are used to seeing Prop. 13 as an artifact from a distant era, we don’t realize it remains an enormous protection TODAY for current homeowners who can barely make ends meet and who would be ravaged by a huge tax hike.

This may not be central to the fight over whether businesses should be exempt from Prop 13’s caps on how fast property taxes can increase. But it should be central to the broad debate over whether Prop 13 is bad or good for California. During the latest housing bubble, as in all the housing bubbles that preceded it, Prop 13 did far more to protect regular Californians from financial disaster than any other single factor.

That should matter much more than it seems to.

7 comments

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  1. us citizen
    us citizen 7 September, 2013, 09:55

    Long live prop 13

    Reply this comment
  2. Steve Mehlman
    Steve Mehlman 7 September, 2013, 10:59

    “This may not be central to the fight over whether businesses should be exempt from Prop 13′s caps on how fast property taxes can increase.”

    Of course it is not central. It is a ploy to divert attention from the fundamental issue of whether we should have a split roll for Prop. 13. Making businesses pay their fair share will not affect the homeowners being protected from housing bubbles.

    Reply this comment
  3. I fear no fish
    I fear no fish 7 September, 2013, 12:05

    Of course it’s not “central to the fight whether businesses should be exempt.” It’s totally irrelevant to that!

    One of the issues that *is* central to that fight is another fact that’s never mentioned. Namely, that many commercial properties end up being exempt from having their taxes raised to market levels even when the properties are sold. That’s because many are owned by corporations, and if the corporation changes ownership there’s no change in the property tax rate. The owners simply sell the corporations, not the properties themselves.

    The rich get richer and the poor get poorer, and you libertarians rejoice.

    Reply this comment
  4. Rex the Wonderdog!
    Rex the Wonderdog! 7 September, 2013, 16:04

    What most people do NLT KNOW is that tax revenue went UP after the passage of Prop 13, instead of raising property taxes they raised everything else under the sun, mostly “fees”……School spending in CA has QUADURPLED in the last 42 years….

    Reply this comment
  5. SeeSaw
    SeeSaw 8 September, 2013, 16:05

    Yes, the author is right about how Prop. 13 has helped the homeowners. Going back to the status quo, prior to 1978, would just start the saga all over again. (My spouse and I have a vacant, residential lot in AZ–it is assessed, for property taxes, every year–and we have paid those taxes, according to the assessment, even though nothing has changed with the property. In 2007, the assessment was $80,000; the most recent assessment, for the property, puts the retail value at $7,500.)

    “I fear no fish” is correct in how we feel about Prop. 13, as it pertains to commercial property. The loop-hole needs to be corrected–when the ownership changes, the property should be reassessed for taxes–just like they with the individual residences.

    Reply this comment
  6. Ulysses Uhaul
    Ulysses Uhaul 8 September, 2013, 20:32

    That meanie RAGWUS taking your money again.

    Where is Donkey?

    New moderation censoring got to him?

    Reply this comment
  7. A bit late
    A bit late 27 February, 2014, 09:04

    Here is another point that doesn’t ever seem to be mentioned with relation to prop 13, not only was it saving peoples homes, it was telling the government that it was not doing it’s job, and the people were not going to put up with it.

    Taxes are not a right, they are not a guaranteed income. They are a shared responsibility. Anyone who “wants” to pays taxes (or more in taxes) is an Imbecile and deserves the lost of money. The point is, taxation should always be a fight. That is what our founding fathers setup in our constitution. When government has an easy time of raising more more more, it does. Every argument levied against Prop 13 has been about ease of money. So we don’t have property taxes, now we have huge every other tax, and bond measures like Melroose. Those are supposed to support schools, highways, police, fire, etc. So why all the bitching? Free easy money on a people that are too stupid to defend themselves against it.

    Prop 13 is a statement that says “We won’t pay more just because it was an easy way to get it. Do your jobs better, and cut your spending on frivolous things (say like retired police officers getting 200+ k a year illegally? look up that string of news stories and many others like it). While the necessary side of people keeping their homes drove the emotional side that put this over the top, I am tired of hearing how “God given” taxes are. We revolted from England for much less. Has no one learned from the story of Robinhood? While it may be an interesting story, it bears telling the moral of the story. Wealthy will seek to gain more, faster. The politicians seek to keep their favor (money), and stay part of the ruling class. When the government stops fighting, and starts working together for the good of government, we’re all in trouble. We rule them, not the other way around.

    WHY HAVE WE ALL FORGOTTEN THAT?

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