My turn: Changing Prop. 13 could worsen housing crisis. Here’s how

By Joel Fox, Special to CALmatters
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For four decades, Proposition 13, the property tax reform that passed in 1978, has been blamed for many of the ills that have befallen California.

Working with Howard Jarvis, a Proposition 13 co-author, and later running his taxpayers association, I have followed the multiple attacks on the measure, many silly and outrageous. Now the attacks are amped up along with a supposed, but flawed remedy.

In discussions of where new money would come from to solve the Los Angeles Unified School District labor dispute and teacher’s strike, a ballot measure designated for the 2020 statewide ballot to change to Proposition 13 often is mentioned.

The initiative promises to split the property tax roll between commercial and residential properties.

If approved, the split roll initiative would come with long-term problems and exacerbate issues that were raised during the teachers’ strike that would affect all of California.

Implementing a split roll would mean that commercial property would be taxed at market value. That would bring in more revenue to schools and local governments. But supporters of the split roll stop the discussion at that point, and fail to discuss the far-reaching consequences of undoing Proposition 13.

High housing costs were a constant refrain during the teachers strike. The lack of housing makes it more difficult for teachers to live near where they work, a curse for many middle class Californians.

Imagine what would happen if split roll were a reality. What do you think would happen when local governments would choose between green-lighting a commercial venture that would bring in gobs of new revenue for government as opposed to approving a housing project?

Just as taxpayers make adjustments to reduce their taxes, government officials embrace projects that will increase revenue. There are many examples of such behavior on both sides of the tax equation such as the infamous window tax of the 18th and 19th centuries in Europe.

In response, homeowners boarded up windows to avoid the tax. Tax collectors have similar reactions in the opposite direction. They will certainly okay revenue-producing developments ahead of housing projects.

Apparently there was no concession by the teachers’ union in the strike settlement to control pensions and health costs, two items that are driving the district toward insolvency, according to the Los Angeles County Board of Education and Los Angeles Unified School District Superintendent Austin Beutner.

Pension and heath costs are a big problem for local and state governments, just as they are for schools. The alternative is to turn to taxpayers to fund these generous benefits while taxpayers themselves struggle with their own retirement and health care situations.

But there is an element to the troubled pension situation that could be further damaged by a split roll. Many pensions rely on commercial properties to increase portfolios. With raised property taxes, commercial properties will be devalued and another debilitating weight would be added to government pensions holding business properties.

Under Proposition 13, property tax revenues have increased well beyond inflation and population growth. The property tax under Proposition 13 is the steadiest tax in the state because during economic downturns only recently purchased property is re-evaluated downward.

Under Proposition 13, most property taxpayers continue to pay the expected taxes due while both sales and income taxes reduce sharply in a recession.

If all commercial property tax rates are pegged at market value, and a recession hits, commercial property would be reassessed downward and local and school budgets will take a huge hit.

In addition to these problems, business owners forced to pay higher property taxes would pass those costs onto consumers, and that would diminish the state’s economy.

For residential property taxpayers there is another thing to keep an eye on. Is the move toward a split roll the first step to taking away Proposition 13 protections from homeowners?

At a recent speech to the Palos Verdes Chamber of Commerce, noted Los Angeles area economist Christopher Thornberg raised the issue saying he would flip the split roll, keeping Proposition 13 on commercial property and getting rid of it on residential property to help local governments fund services related to homes.

You can bet the idea of eliminating all of Proposition 13 is on the mind of those advocating more and more government spending and the split roll ballot fight will be the first test.

New homes in Simi Valley, a southern California suburb near Los Angeles.

Republished with author’s permission


Joel Fox, former president of the Howard Jarvis Taxpayers Association, publishes FoxandHoundsDaily.com on California politics and is an adjunct professor at Pepperdine University’s Graduate School of Public Policy, [email protected]He wrote this Commentary for CALmatters.


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4 Responses to My turn: Changing Prop. 13 could worsen housing crisis. Here’s how

  1. Timothy Bond February 11, 2019 at 3:58 pm

    If CA voters cannot even rescind a gas tax, we have to expect they can be persuaded to sell out their neighbors and sacrifice their own future protections under Prop 13, to try to satisfy all the promises of the predominant ruling party which faces almost no opposition.

    We must be prepared to defend this with simple powerful language.

    Reply
  2. NILS O ANDERSSON February 5, 2019 at 6:02 pm

    Voucherize the school system. Lay off all who are employed by public schools, and sell or rent out the buildings. Private entrepreneurs will find ways to do more with less. This is a long term solution, but there will be minor bumps too.

    Reply
  3. c e voigtsberger February 5, 2019 at 5:48 pm

    There is no question if Prop 13 were eliminated on residential dwellings, I would be forced to sell and move to another state. It wouldn’t take me a new york minute to make that decision. I have already figured out where my taxes would be on the residence I have lived in for 51 years. I would say while governments continue spending like a drunken sailor, except I once had a sailor protest, “Hey, I was a drunken sailor in my youth but I only spent my own money. I never spent other peoples’ money.” Perhaps the phrase should be “Spending money like a crazed politician.”

    The teachers said they deserved a raise. Well, I worked very hard all my life, starting at age 12 when my first job was helping the milkman deliver milk. Couldn’t do that today, running across streets with six quarts of milk in glass bottles! My goodness, CALOSHA, CPS, the Labor Board—I can’t even imagine all the state regulatory agencies who would descend on the poor milkman and my parents for daring to allow me to work during summer vacation for a whole dollar a day and lunch. “Order anything you like, kid.”

    So, considering I entered the labor market at a tender age, I deserve to drive around in a Mercedes. The only problem is I can only afford a used Civic. And therein lies the rub. LAUSD cannot afford the raise they gave to the teachers, deserving or not. They can only go to the well so many times. What are the teachers going to do when LAUSD declares bankruptcy? What is the union going to do when all the teachers are fired and are hired on a per diem basis as licensed independent contractors with self-funded health care and retirement? Heed my warning, that is where they are headed.

    Don’t scoff and say it will never happen. It has happened to other licensed occupations that continually forced raises until they were out of full time employment but were hired on a daily basis and it can and will happen again. That is the cure for any overpaid professional on the payroll of a public entity. Fire them and re-hire them on a per diem basis. They fund their own sick leave, holidays, vacation, retirement and health benefits. Think people won’t line up for work on that basis? Then you live in a never-never land.

    Reply
  4. Jay Murphy February 5, 2019 at 9:35 am

    Interesting perspective. Certainly something I hadn’t considered before.

    Reply

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