Who benefits most from Proposition 13? Hint: It’s not homeowners

San Luis Obispo.
San Luis Obispo.

As described in The Tribune editorial published June 11, new homebuyers face a serious and disproportionate property tax challenge compared with people who have owned their homes for any length of time.

On its face, this situation is unethical and unfair, especially for young families trying to purchase their first home, and particularly in an expensive real estate market such as we have in San Luis Obispo County.

A native Californian and young professional when Proposition 13 passed in June 1978, I have studied the issue carefully over time. Below are some facts about Proposition 13 which many people may not know and which were not explicitly mentioned in The Tribune editorial:

▪  The California Constitution requires that constitutional amendments submitted to voters address only one issue at a time. This common sense requirement allows voters to consider one issue at a time, and vote it up or down. The text of Prop 13 addresses a half-dozen or more issues. Several legal challenges to the multi-issue nature of Prop 13, before and after the election, were turned aside.

▪  In June 1978, 23.4 percent of eligible California voters gave Proposition 13 a 62.6 percent approval rating, well below the much higher, 66 and two-thirds percent threshold it established for voter approval of any new funding measures at the local level. Passage of Prop. 13 was supposed to usher in an era of “tax revolts” nationwide. While some tax-cutting measures did pass, as in Massachusetts in 1980, the draconian super-majority vote requirement (66.67) was almost unheard of outside California.

▪  Proposition 13 removed the ability of county boards of supervisors to set property tax rates, based upon local needs and conditions: Local governments could no longer control their own finances. California counties, as an arm of state government, were hit especially hard. To make matters worse, state government lost no time in establishing a host of unfunded mandates on local governments.

▪  Fiscal stability became fragility. The historic tax “engine” of the California economy, prior to 1978, was the property tax, which was a modest but stable source of revenue. After 1978, income taxes and consumer spending (sales taxes), much more volatile than property taxes, became the state’s new tax “engine

▪  Prior to 1978, corporate landowners paid about two-thirds of statewide property tax revenues; homeowners paid about one-third. Proposition 13 flipped that equation to where homeowners paid two-thirds and corporations one-third. Consider that the primary supporters of Proposition 13 were corporate property owners. Howard Jarvis was a paid lobbyist for the Los Angeles Apartment Owners Association and opined that groups like his would be the big “losers” if Prop 13 did not pass. The not-so-hidden detail, the key to Prop 13’s almost holy status, is the frequency with which private vs. corporate property is sold on the open market.

Private homes are sold and re-sold, on average, about every seven years. Under Prop 13, property taxes on private homes are reassessed at the point of sale, which generally occurs every five to seven years. Corporate properties are almost never sold like a private home; the name of the company may change, as does its board of directors or shareholders, but corporate real estate is typically not sold separately or outright.

Thus, Prop 13 gifts corporate property owners with a massive and permanent property tax cut. Corporations, which can charge more for goods and services to accommodate a higher tax obligation, were given a pass while homeowners who cannot give themselves salary increases or bonuses to pay higher taxes were made to pay more so corporations could pay less.

Some historical context: Has there ever been a time or place in history where taxes were popular? Is not the purpose of a representative democracy to have elected leaders propose and approve tax measures that average voters would likely not approve on their own? If direct voter approval in raising tax levels is problematic, what happens when a favorable majority vote (50 percent + 1) is raised to a super-majority level (66.67 percent)?

There are several tangible outcomes of requiring fundraising elections to pass by a super majority. The most obvious is that far fewer of these elections are successful. Our most recent example locally was SLOCOG's effort to gain funding for road and bridge repair, which was approved by more than 66 percent of voters but failed to reach the two-thirds majority threshold.

Also, who knows how many measures never even make it on the ballot due to discouraging polling numbers. Supporters tend to quit before they even begin.

Consider, too, the pervasive view that government is inept. Government budgets are considered "ripe for the cutting," which fosters the belief that existing funds could/should be revealed that would eliminate the need for higher taxes. For many voters and interest groups, tax increases are anathema no matter what the purpose. This strikes fear in the hearts of civic-minded residents who might want to publicly support a tax measure but do not want to be demonized.

I am in no way alleging that all taxes are worthwhile or that all tax increases are a good idea. I do support strong governmental services, especially local services. I believe in equity and fair play. Local control of political and tax issues is paramount. Proposition 13 goes against all of these beliefs.

Its status will probably not change in the near future, not because of the parsimony of existing homeowners, but because corporate property owners continue to enjoy the gravy train of massive tax cuts which they have ridden for almost 39 years and counting.

Brian Reynolds served as library director for San Luis Obispo County from 1993 to 2013. He enjoys reading and learning about contemporary issues. Of all the taxes he pays, he values the property tax the most because it supports local services.