Proposition 13 Has Destroyed California's Vitality

The state and local budget shortfalls of the past began when Proposition 13 passed and drastically cut needed revenues. Commercial property pays far less in taxes now than before, and homeowners pay far more.

The budget shortfalls at the state and local levels are largely due to Proposition 13 and will continue and worsen unless the inequities that Proposition 13 created are corrected.

In 1978, commercial and industrial property paid 60 percent of property taxes, while residential paid 40 percent.  Residential now pays 60 percent, and commercial and industrial pays 40 percent. The disparity is because residential property sells and is reassessed more frequently than non-residential property. Additionally, the legislature defined sale of commercial property as over 50 percent to a single buyer. Commercial property therefore gets sold to multiple “buyers”, some of whom can be associated with the true buyers but remain separate for tax purposes.

Howard Jarvis worked for an apartment owners association seeking lower taxes. Proposition 13 was structured so that two-thirds of the tax reductions went to commercial and rental properties. Jarvis promised that if Proposition 13 passed, the lower taxes would be passed on to tenants in lower rents.  

Many landlords in Southern California raised rents after Proposition 13 passed!  Less than 25 percent of landlords cut rents, and by 1981 those whose rents were cut were paying full market rents again. Meanwhile local property tax revenue to counties, cities and schools fell by half. The state initially covered the losses, but over the decades state support for schools and cities diminished, leaving them underfunded.

My letter in the Palo Alto Times of June 1978 pointed out that the biggest winners if Proposition 13 passed would be landlords, resulting in impoverishment of schools. That would be disastrous because the prime reason companies locate in an area is the presence of educated, skilled workers. Home values correlate directly with school quality, so cutting property taxes threatens education quality and the value and saleability of homes.  

We have seen this happen.

California used to have one of the finest K-12 and college systems in the nation, providing quality college education at low cost; now we face deteriorating schools and college education priced out of many people’s reach.  

Decades of this property tax disparity has already weakened our educational system and starved vital government services. San Jose and Oakland laid off public safety employees when crime and murders were increasing because they had no funds to support this vital service. In time this will destroy our economic viability.

Unfortunately the legislature has no guts to fix Proposition 13.  They are terrified of the No Tax fiends and the inheritors of Jarvis, so the loopholes for commercial property transfer reassessments remains.

Inequities in residential property assessments depending on when the home was purchased continue. The result is that people who have been in their homes for many years get the same services as recent buyers while paying a fraction of the property taxes. This is unfair. I know people that bought homes within the past five years who pay six to seven times the property taxes we do.

Proposition 13 must be corrected to assess commercial property at actual values, eliminate loopholes in defining commercial property sales, and over at least a 10 year period reassess all residential property equally while adjusting and reducing tax rates, so that eventually everyone is treated equally and local governments and schools have more reliable funding.

William Russell January 10, 2012 at 11:24 PM
What distroyed California's vitality is; The collapse of the defense industry in the early ninties. Years of liberal law making, legislating businesses out of California. Years of liberal legislating bi lingulism and other waste projects. Years of incompetance at the government in Sacramento. Years of Welfare waste. Don't blame this on Prop 13, this prop has run it's course and is not tied to the bulk of homes in California
CDC January 11, 2012 at 01:31 AM
Prop 13 has saved us from the entitlement driven vampires draining every last drop of money out of our wallets. Back off! We did not have this problem till it was announced that the teacher retirement funds were mismanaged and lost 30% of their value a few years ago. Since that announcement every teacher in the state has been screaming for the repeal of prop 13. Nice, lets kick grandma to the curb and throw her out of her house and everyone else on fixed incomes! Just so you can have your gold plated retirements that were agreed on in some dark and shady room in the state capital years ago. Maybe one of you rich and selfish retired teachers can buy it out from under her and make a quick flip. It's money, right? Grandma can go live in Iowa in a rusty old trailer and eat cat food. This insanity has to be stopped now. Only state employees get these nose bleed retirement deal which they want the tax payer to foot in these bad times. Many get 100% of their salary if vested and many make over 8,000 a month! This is NUTS and unsustainable. The word of the day is greed! I and others won't be voting for tax hikes since it will ALL go to pay for these. The truth will set us free... http://citizensagainstnewlocaltaxes.com/uploads/CalSTRS_IR47610_Sept_2011_415_bnft__paid_in_Oct__full.xlsx
Milan Moravec January 11, 2012 at 10:45 PM
Save $'s for Californians. Californians subsidize the tuition of foreign students at UC Berkeley (UCB) in the name of diversity while instate student tuition/fees are doubled. UCB Chancellor Robert J Birgeneau replaces Californians qualified for public UCB with a $50,600 payment from foreign students. UCB is not increasing enrollment. Birgeneau accepts $50,600 foreign students and displaces qualified instate Californians (When depreciation of assets funded by Californians are in foreign and out of state tuition calculations, out of state and foreign tuition is more than $100,000 + and does NOT subsidize instate tuition). Like Coaches, Chancellors Who Do Not Measure Up Must Go: remove Birgeneau.
Bob Moss January 16, 2012 at 05:54 AM
The collapse of the defense industry was far lessimportant than the huge increase in the Internet andcomputer industry and was irrelvant by 1998. Far more businesses have started and come to California in the last 25 years than left, thanks to the liberal laws. The biggest waste is tax breaks for the wealthy, not welfare. Proposition 13 has in fact decimated schools and local governments, making Sacramento more of a player in local governance. The pension excesses for government employees came more than 20 years after Prop. 13, and was due to huge profits in state pension fund investments thanks to the dot com boom; that convinced Sacramento and later local governments that they could afford bigger benefits. They were wrong, and I opposed them.
Michael Khouw June 27, 2013 at 07:59 PM
Prop 13 is significantly flawed, unfair and economically harmful generally. Recall though that there were people who were being taxed out of their homes. It was an imperfect fix to a real injustice, something needed to be done. However the notion that the tech industry "came to California" thanks to liberal laws is just silly. Young entrepreneurs tend to start their businesses where they live. This is true of Intel, Cisco, Google, and Ebay in California, Microsoft in Washington and Dell in Texas. Jeff Bezos who founded Amazon may have considered the fact that Washington has no income tax (good for him) and didn't tax out of state customers (good for customers). I work for a technology firm, we didn't locate for liberal laws, nor do we prosper because of them. We started where the founders lived. We prosper because we work hard to develop innovative, game changing technology. Lawmakers and their constituents, however well intended, tend not to know the harm they do. That applies to Prop 13, and it applies to the many headwinds to business both local and federal. I live in California, and I am leaving the lifestyle reluctantly along with other employers and entrepreneurs I know. The blame? Sacramento. The state may consider me wealthy (I don't). It seems my accountant doesn't know of these "tax breaks for the wealthy" that Mr. Moss speaks of, not for me, or for himself - he just moved to Nevada. To its credit California has lead the way in many areas I appreciate, environmental policy for example. The state is scenic, has tremendous natural resources, and arguably the best weather on the planet, but those tremendous benefits weren't conjured up by zealous lawmakers. Now we are faced with cutting funding for schools, but don't blame tax receipts. California is in the top 5 states for tax revenues per capita, and net of retirees and high unemployment that burden falls squarely on the shoulders of a relative few. The problem is that years ago politicians traded votes for pensions beyond generous, and beyond our means. Whether Prop 13 or those pensions though, these are the hazards of demagogues. Relish the surplus while ye may.


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