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.
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