By JON COUPAL
For millions of California homeowners, Saturday was a day that will live in infamy. Without a single public hearing, the California Assembly passed Assembly Constitutional Amendment No. 8 (ACA 8), the most egregious attack on Prop. 13 ever to come out of the Legislature.
ACA 8 would repeal Prop. 13’s requirement that local “special taxes” (taxes intended for a specific purpose or purposes) be approved by a two-thirds vote. Instead, special taxes imposed for the repayment of local bonded indebtedness would be reduced to 55%. The ostensible justification for ACA 8 is to make it easier to finance local “infrastructure.”
There are several reasons why ACA 8 will inevitably inflict severe harm on California homeowners. First, while state bonds are repaid out of the state’s general fund—into which most Californians contribute through income or sales taxes—the same is not true for local bonds. Local bonds, usually referred to as “general obligation” bonds, are repaid exclusively by property owners. That means that voters who do not own property can vote to raise taxes on those who do.
Second, making it easier to pass local bonds will only add to California’s debt crisis. A recent study from the California Public Policy Center calculated total government debt in California as being $1.1 trillion. This figure dwarfs the $27.8 billion “wall of debt” Governor Brown himself has acknowledged as part of budgetary borrowing. Making it easier to incur local debt for “infrastructure financing” raises the obvious question: Does any sane person believe that California needs even more debt?
Third, while building local roads and libraries may be a worthy cause, the interests backing ACA 8 are hardly motivated by the goodness of their hearts. The usual cabal of unions, construction interests and the Wall Street bond industry all are chasing more tax dollars. The amount of money at stake—your money—is staggering. They care not a whit for the broader interests of California’s fiscal health or the interests of citizen taxpayers.
Is there any good news here? Yes. First, the passage of ACA 8 occurred in just one house of the Legislature. It must also pass in the Senate. There are a lot of reasons to believe that passage in the Senate is anything but automatic. The details of the politics here are too complex to go into at this time. But suffice it to say that liberal members of the California Senate might not be so quick to drink the anti-Prop. 13 KoolAid as did their colleagues in the Assembly.
Second, we are heartened by the fact that all Republican members of the California Assembly voted against repealing one of Prop. 13’s most important protections. We say this as non-partisans as more than a third of HJTA’s members are registered Democrats. However, it has usually been the Republicans who have stood up to defend Prop. 13.
Just three weeks ago, my weekly column was entitled “Will Republican Legislators Betray Taxpayers?” While Republican support for homeowners can’t be taken for granted, on Saturday the Republicans in the Assembly forcefully defended Prop. 13 on the floor of that chamber. We couldn’t be more pleased for their courage for standing up to the special interests.
Finally, because Prop 13. defenders—in this case, Republicans—spoke as one voice, this forced Democrats who portray themselves as “moderates” to either stand up to their ultra-liberal leadership and vote “no” on ACA 8 or cave to the pressure of Speaker Perez and the special interests and vote “yes.” This time, the so-called “moderate” Democrats failed—miserably. ACA 8 passed with zero votes to spare.
While passage of ACA 8 is a horrible insult and injury to homeowners, at least now we know who our friends are. Come election time, when some “moderate” Assembly Democrat tells you how much he or she represents citizen taxpayers and homeowners, you will now be armed with the truth. After all, legislative votes should have consequences. Especially, at the next election.
It turns out that, under Prop 13, property tax revenue is FAR more stable than our other forms of tax revenue. Since the start of the recession, income tax revenue has plunged, and sales tax revenue has tumbled.
But property tax revenue seldom goes down AT ALL. Since the year Prop 13 passed in 1978, San Diego County real estate property tax revenue has ALWAYS gone up – every year – until the 2009-10 fiscal year, when it dropped (drum roll) 1.0%. In 2011 property tax revenue slipped another 1.2%, but this 2011-12 year it’s up 1.1%.
This in the 6th year of California’s real estate meltdown! In 2008-09, real estate property tax revenue was actually up 4.1%. Not one person in a thousand knows about this revenue stability – the press has not covered these amazing facts.
Revenue is up because Prop 13 has the little-known added benefit of smoothing out real estate property tax revenue from year to year. Most properties this past year (generally those purchased prior to 2003) had their property tax go up 2%. Add to that the property resales, property improvements and new structures (all of which establish new tax assessment levels), and the revenue stayed rather constant in the teeth of our economic downturn.
Consider what happens without Prop 13 protection: In the real estate boom years from 1998 through 2005, property taxes would have SOARED. Even WITH the Prop 13 limitations, San Diego County property tax revenue collection during this period STILL rose 111%. But then in the last four years, dropping property values would have caused a dramatic plummet in property tax revenues – revenues that governments would now be hooked on – just like we see with our volatile sales taxes, and especially with our hugely erratic income tax revenues. Property tax revenues are CA governments’ one reliable source of income, thanks to Prop 13
When it comes to gathering sufficient property taxes, Prop 13 is no problem at all – except for profligate spenders. Look at the history of my San Diego County – a history which pretty much reflects the history of property taxes in the urban/suburban counties that hold over 85% of California’s population.
According to the SD County Tax Assessor, in 1977 – the year BEFORE Prop 13 took effect (when everything was working great, according to Prop 13 critics) – our countywide property tax revenue was about $639 million. In the 2011-2012 fiscal year, our county assessor reported real estate property tax revenues of $4.550 BILLION. For every property tax dollar collected in 1977, the county in 2011-12 collected $7.12. And BTW, according to the County Assessor, since Prop 13 passed, 97% of the pre-Prop 13 county owner-occupied homes has changed hands (and been reassessed) at least once.
During that time frame, our county population has grown about 85%, and inflation has gone up about 253%. Hence property tax revenues today are substantially higher than the bloated PRE-Prop 13 year, even after adjusting for inflation and population growth.
California in 2009 ranked 15th highest in per capita property taxes (including commercial) – the only major tax where we are not in the worst ten states. But CA property taxes per owner-occupied home were the 10th highest in the nation in 2009.
http://www.taxfoundation.org/taxdata/show/251.html and http://www.taxfoundation.org/taxdata/show/1913.html (2009 latest year available)
To see how CA ranks numerically against the other states on tax, regulation, litigation and other economic factors (with confirming URL’s), go to: http://www.TinyURL.com/CA-vs-other-states and read the latest updated version of my dreary fact sheet “Breaking Bad – CA vs. the Other States.”
Thanks Richard, this is a great article, I’ve put it up on our front page. Hope you will write more often!
I hope renters realize their rent will go up too right along with the homeowner’s property tax.
Peggy, I’m pretty sure they won’t get it, but that’s just my jaded view these days of CA voters and also I’m in shock over the market crash today…ouch!
Thanks for your work Jack. ACA8 is an Illustration what happens with one party Rule.
Peggy I told one of my friends who has property to post a sign in the laundry listing the things that cause rents to increase…including overuse of electricity like leaving the lights on when no one is present in the laundry area!
We gotta find new ways to inform and train the folks!
This great comment/article is another way…thanks!
A landlord is a small business. All households should be run as a small business. Keeping a roof over your head is the same as keeping the doors open. Both require operating in the black, not the red, to pay the bills and put food on everyone’s tables.
If we ever get the democrats out of control of our educational system I hope high school graduation requirements and all college degree requirements will be changed to include a small business management courses. Everyone should understand how to read a P&L statement and how to run a balanced budget with gross vs. net income/accounts receivable and expenses/accounts payable.
Tina, My mom and dad made us put a nickel in a jar every time we left a light on in a room we weren’t in. We got a quarter a week. If we wanted to go to a movie on Saturday we learned to not leave any lights on.
Your mom and dad had that Ben Franklin kind of wisdom. It was simple and to the point with lessons well learned!