Assignment #8

PROPOSITION 13

Up until the late 1970’s, property owners in California were subject to costly, annual property tax increases based on the assessed value of their homes. In June of1978, however, California voters passed a bill that cut property taxes by two-thirds and limited future increases until the property was sold. Often referred to as a modern-day Boston Tea Party, Proposition 13 was an American tax revolt.

The need for Proposition 13 was brought on by the California real estate market’s rapid growth in the 1970s. Home prices rose considerably and upon value assessment, so did property taxes. When assessments were not done annually, home owners would wait a few years and then be hit with an unbearable tax raise. Californians were losing their homes as a result of the unexpected and unrealistic property tax increases.

Howard Jarvis, a California republican and member of the Los Angeles Apartment Owners Association, saw a need for controlling the tax increases that the state Legislature seemed to be ignoring. In 1978, Jarvis teamed up with Paul Gann, an anti-tax activist from Sacramento, to write Proposition 13 and campaign to get it on the ballot.

The particulars of Proposition 13 can be found at californiataxdata.com and are as follows:

· Property tax rates were capped at 1%. Homeowners paid no more than 1% of the assessed value of their homes in property taxes.

· Baseline home values were set by the1975-76 assessed value.

· Property tax increases are to be based on the Consumer Price Index (CPI) and cannot increase more than 2% per year.

· Upon sale of a property or improvement to it, a reassessment at the current market value will occur. The new and current assessed value is then subject to an annual increase of no more than 2% each year.

Early in its campaign, Proposition 13 was not thought to be likely to win. It followed a line of tax cut initiatives that had made it on the ballot, but lost in election, and was supported by a patchwork group of homeowners’ organizations. Those who opposed Proposition 13 included many influential politicians from both parties, organized labor unions, and big business. The opposing campaign was fielding large donations, while pro-Proposition 13 groups were depending on homeowner contributions to fund their campaign.

In preliminary polls the vote seemed to be split down the middle, but the homeowners prevailed and the final vote on June 6, 1978, was 2 to 1, with 4.2 million people voting yes over 2.3 million voting no. The result was a 57% tax cut, amounting to $7 billion in savings on property taxes. Jarvis, the man behind the revolt, then created the Howard Jarvis Taxpayers Association to protect Proposition 13 and further their fight against tax increases.

According to the association, their mission is to promote the “advancement of taxpayers' rights, including the right to limited taxation, the right to vote on tax increases and the right of economical, equitable and efficient use of taxpayer dollars.” Their battle cry is “Through education and awareness, we strive to empower you, the taxpayer, to take control of your rights and influence the momentum of ballots and initiatives supportive of your rights.”

While Proposition 13 saved California homeowners a lot of money on their property taxes, it created three main problems. One: The proposition’s decrease in taxes for homeowners means a decrease in revenue for the state. Schools and public programs have lost funding as a result. Two: It has created a situation in which neighbors can be paying incomparably different income tax rates while living in two identical houses. It is hard to claim the system is fair when property taxes across a neighborhood span a $20,000 range. Three: The tax increases that come with moving homes can be a huge threat that decreases the ability for homeowners to move.

Proposition 13 has been a very controversial issue for the last 30 years. In 1994, Richard Reeves’ front page story in Money magazine blamed the legislation for causing a recession, decreasing family incomes, and costing 600,000 people their jobs. In 1998, National Public Radio argued that Howard Jarvis and Proposition 13 ruined California, claiming that it “drained the California school system of money.” NPR reported that test scores declined, teachers were let go, libraries closed, and municipal services were cut as a result of the tax revenue loss.

On the other side of the coin, Proposition 13 is credited for the 1980’s economy surge in California. According to the Cato Institute, average incomes grew twice as fast in California as
they did in the rest of the nation for the 10 years following Proposition 13’s passage. The Cato Institute also sites California’s budget as having increased between 1980 and 1992 from $55 billion to $97 billion. State tax revenues rose from 11 to 12 percent in the 1980s.

Proposition 13 is still an issue today because California currently has a near $15 billion budget gap that many argue is a direct result of Proposition thirteen. Earlier this year, Governor Schwarzenegger began to address the deficit issue in a proposal that would give the government greater control over California’s homeowners’ taxes.

The San Francisco Chronicle ran an article on February 17, 2008 in which Schwarzenegger answered readers’ questions about the state’s spending and future plans. When asked how he would change current taxation to prevent a growing deficit created by Proposition 13, Schwarzenegger replied that increasing revenues is not the answer, “You cannot tax your way out of this.” Schwarzenegger has also expressed that it would be impossible to get a majority vote on a measure to increase property taxes. Californians seem to be too overwhelmed by taxes in general and are not interested in paying more for their property.

The governor emphasized making it “easier for business to do business in California.” He is supportive of new and/or expanding businesses and encouraging of national and international trade with California as a means of creating more jobs and bringing in more funding for state programs.