Proposition 13 was the “biggest tax revolt” in California’s history.
KPBS San Diego did an interesting piece on raising taxes in California and Prop 13′s effect on this.
Thirty-two years ago, Californians en masse went to the polls and approved the largest tax-limiting legislation in recent history. Basically, it limited the property taxes that could be assigned to a property.
In response, many municipalities responded by building more hotels, retail, and more while limiting the amount of houses (municipalities earn more money from sales and occupancy taxes than on property tax). This leaves the state perpetually building too few houses, and worse, restricting adaptive reuse of residential real estate into higher density because of the reassesment rules.
Personally, there are 3 major qualms I have with Prop 13.
1. This is not a homestead exemption, so it does nothing to favor homeowners over landlords (who already have strong incentives through. This is landlord welfare.
2. Commercial properties are not exempted (they have a fixed base as well). This is fundamentally flawed, since it favors property-owning companies who lease as their primary business. This is corporate welfare.
3. There is no means test. Millionaires have the same exemptions as indigent elderly. This is welfare for the rich.
Unfortunately, taxpayers were sold that little old ladies were getting kicked out of their homes. While this is true, we could avoid the landlord, corporate, and rich welfare by instituting some changes to the original proposition.
Instead, we have serious imbalances because cities favor not building homes unless they have significant Mello-Roos attached to them, allow corporate transfer of assets to perpetually avoid reassesment, and allows non-citizens and non-tax payers of California to receive the benefits of everyone else’s pain. How do you feel about prop 13?
The money shot for me?
RAND (Caller, La Jolla): Thank you for taking my call and thanks for this discussion. I would just like to put two issues on the table. The main one is something that really shocks me, never comes up in these types of discussions, which is the distinction between commercial properties and homes. Of course, nobody wants homeowners to be taxed out of their homes but Prop 13 also holds down the property taxes paid by shopping malls, office buildings, all kinds of commercial properties. And they have a loophole that homeowners don’t have, which is that they can sell the holding company that owns the property and then someone else can take ownership of that property but, theoretically, it hasn’t changed hands, just the company has changed hands. And so there’s many commercial properties in the state that have not been reassessed for many years and they’re not paying the cost of the essential services that they need to stay in business. And I think that that aspect of Proposition 13 is very unfair and needs to be changed.
Also, lower property taxes due to Prop 13 means higher taxes everywhere else. This mostly hurts the poor. Prop 13 is like the landlord’s version of rent control.
Glad that you’re broaching this topic.
Prop13 should be abolished, sorry little old ladies…. no other state has something like P13 as far as I know.
If the taxes are so high,, that means the home value is also high. Sell the home & cash out (move), or take out a reverse mortgage.
Just think if the stock market & taxes worked like that. If your stock does really really really well, don’t worry, you’ll only pay 3% more taxes, not double.
P13 also significantly reduces house turnover (“I couldn’t afford to buy my own home these days”).
What makes everyone think Prop 13 lowered property taxes? It capped them and allows that cap to rise.
The deficit problems faced by California aren’t a result of insufficient revenue, it’s the result of irresponsible spending. Let’s keep ALL taxes low.
Oregon also caps property tax increases. And has no sales tax.
Currently, homeowners annual taxes in Calif. are approaching 2 percent in taxes. On a $600,000. house, that is $12,000. a year. This,of course, will have to rise, in order to fund pensions for public employees.see
pensiontsunami.com
My wife and I inherited a house in San Francisco that was bought new by her grandfather in 1951. As a result of prop 13, we only pay about $700 a year in taxes on it while the next door neighbors pay many times that. While this is a good situation for me, I think it’s clear that we’re not paying enough.
I disagree strongly with Dan’s comment however. I think that little old ladies should not be forced to “cash out” or take out a reverse mortgage on a home that they may have owned free and clear for years. Remember, property values can go up AND down, and if there’s a temporary increase in the perceived neighborhood property values then the old timers should not be forced to leave. I think that the solution is to have some level of capital gains taxes levied against the house when the owner does sell, so that they can live in it as long as they want, but still have to pay some taxes on the profit they make when they do decide to sell if the house has increased in value by 10 times.
I agree with many of your points, but I have to say that the idea that Prop 13 is “landlord welfare” doesn’t hold water.
Property taxes are an expense of doing business on rental properties. If property taxes were higher on these properties, they would simply be passed on to the renters, and monthly rents would become more expensive. Applying Prop 13 to rental units can just as easily be described as “renter welfare”–which is only fair in a state that already has homeowner welfare.
Landlords will and should increase rents to whatever the market supports and rent control allows, so I do not agree with David – rents are not lower because of Prop 13.
Prop13 just allows landlords to rake in higher profits – at most it should only apply to landlords who are subject to rent control, but only for that portion of their units that are truly impacted by rent control laws.