In its more than 160-plus year history, few things have remained constant in California. However, since the 1800’s California has taxed all classes of property the same.
Thus, when the iconic Prop 13 passed in 1978, it did not differentiate between different kinds of property. All real property – whether residential or commercial – was bestowed with the benefits of a reasonable one percent tax rate cap and, just as importantly, a two percent limit in the annual increase in taxable value.
In 1978, the predominant fear permeating California was an exploding tax burden that was forcing people out of their homes. The one percent rate cap was important, of course, but a rate cap by itself does nothing to control a property tax bill that is based on the “market value” of one’s home. If market values double – as they frequently do in an overheated real estate market – then property owners remain vulnerable to wild fluctuations when tax time comes around.
By limiting the annual increases in “taxable value” or “assessed value” of property to two percent per year, Prop 13 gave property owners something they never had before – absolute certainty in what their tax bills would be in future years. No more would property owners open their tax bills with trembling hands because they knew that, thanks to Prop 13, any increase would be modest.
The certainty and predictability of property taxes is just as important to owners of business properties as it is to homeowners.
First, let’s dispel the myth that Proposition 13 created a loophole for business properties. As noted above, California has always taxed property at the same rate. Proposition 13 didn’t change that. Second, we often hear that, during the campaign in 1978, the fact that Proposition 13 protections would be extended to business properties wasn’t presented to the voters. Not true. The opponents hammered those arguments throughout the campaign and, specifically, in the official ballot pamphlet itself.
Moreover, during the Proposition 13 campaign, it was predicted that, over time, homeowners would pay an increasing percentage of the total property tax revenue because residential properties change hands more frequently than commercial properties and thus would be taxed closer to market value. But for many years the percentages remained relatively static. Only more recently has there been an uptick in the percentage of property taxes paid by homeowners. And this appears to be due to land use changes, such as a shrinking industrial/manufacturing sector and luxury home development than it is to Prop 13.
Californians need to keep in mind the stability and predictability of Proposition 13 is as important to owners of business properties as it is to homeowners. Indeed, this is more true now than it was in 1978. Back then, California was a pro-business state with a growing economy, a vital aerospace industry and an infrastructure system that was the one of the world’s best. Now, California is rated dead last as a place to do business, we have the highest poverty rate and a tax and regulatory environment that has caused countless businesses – both large and small – to move elsewhere.
Stability and predictability of future property tax liability afforded by Prop 13 is one of the few remaining pro-business policies in California. Why on earth would we want to repeal that?
Apology Accepted, But We Still Don’t Trust You
The Sacramento Bee wrote, “Finally, war on Proposition 13 breaks out” and the paper is correct, attacks are coming from all directions.
Tax raisers, primarily an alliance of government employee unions and Bay Area radicals, are pushing attacks on Proposition 13 in the Legislature and through the initiative process.
In the Legislature, Senators Holly Mitchell and Loni Hancock have introduced a bill, Senate Constitutional Amendment 5, to alter Proposition 13 so as to increase property taxes on businesses. Then there is Assembly Constitutional Amendment 4 by Assemblyman Jim Frazier. ACA 4 would lower Proposition 13’s mandated two-thirds vote to 55 percent to increase certain special taxes.
On the initiative front, a measure that would increase property taxes on both business and residential property has been filed with the Office of the Attorney General. With the benign title of “Lifting Children and Families Out of Poverty Act” it proves, once again, that children are used like “human shields” by tax raisers to deflect criticism as they try to wring more out of already beleaguered California taxpayers.
As homeowners become alarmed at these developments and fear that the avarice of the tax raisers could once again threaten property ownership, just as it did prior to the passage of Proposition 13, backers of higher taxes are trying to dismiss these concerns as unfounded. It is their version of “Move along, there is nothing to see here.” But the fears are justified. (You’re not being paranoid if they really are out to get you).
Those who did not experience the beating property owners were taking before Proposition 13 — with thousands of homeowners being forced from their homes because they were unable to pay their taxes — should hear what former U.S Representative Howard Berman recently told the Los Angeles Jewish Journal. Berman, a member of the California Legislature when Proposition 13 passed, said, “I don’t blame the taxpayers and the voters for supporting Prop 13. Prop. 13 came about because the Legislature, which I was in, failed miserably to provide alternative tax relief to property owners. We made a terrible mistake, and that’s what led to a taxpayer revolt that led to Prop. 13. We had the funds; we had a surplus at the time.”
Is this an apology? We hope so. At least Berman acknowledges how brutally property owners were being treated in the late 1970s, prior to Proposition 13, and that the politicians did not lift a finger to help.
While the former lawmaker deserves credit for candor, his remarks underscore why taxpayers have so little confidence in Sacramento.
Californians staged the 1978 tax revolt that passed Proposition 13 because they could not depend on the politicians, including Howard Berman, to look after their interests. And with recent polling on the popularity of Prop. 13 at a near-historic high, it is clear that distrust of politicians hasn’t diminished much either.
Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.