Proposition 13: The Drama

Plot Summary

What is Proposition 13? “People's Initiative to Limit Property Taxation” Caps property tax rates at no more than 1% of full cash value and caps increases in assessed value per year are capped at either 2% or the percentage growth in the Consumer Price Index (CPI), whichever is less. New construction and the sale of property, with some exceptions, also increase assessed values. Required a two-thirds majority in both legislative houses for future increases in all state tax rates or amounts of revenue collected, including income tax rates Received an enormous amount of publicity throughout the United States.

Setting the Scene

Serrano v. Priest 1971 and 1976 Supreme Court rulings saying that educational funding was favoring the wealthy. State legislatures responded by capping the rate of local revenue that a school district could receive and distributing excess amounts among the poorer districts Property owners in wealthier neighborhoods were unhappy that they could no longer see the immediate benefits from their taxes.

Housing Demand Growing population in the state caused an increase in demand for real estate As demand increased, prices also increased, along with taxes Elderly citizens on fixed income became unable to afford their homes with the growing tax rates, a fixed income, and inflation. The Proposition 13 campaign felt that elderly citizens should be able to keep their houses (and then increased wealth they acquired) without being forced to pay the property taxes that go along with it.

Playwrights Proposition 13 was originally popularly known as the “Jarvis- Gann Amendment” Howard Jarvis and Paul Gann’s actions had a greater impact as a symbol of citizen initiated reaction against what was perceived as big government

Howard Jarvis Born in Magna, Utah Father was a state supreme court judge and member of the Democratic Party. Jarvis was active in the Republican Party and also ran small town newspapers Primary candidate for the U.S. Senate in California in 1962 Founded the Howard Jarvis Taxpayers Association, which basically opposes all new and old taxes on Californians

Paul Gann Born in Clark County, Arkansas Founded People's Advocate in 1974, an organization “dedicated to educating and mobilizing the public regarding issues of taxation, government spending, personal freedoms, property rights and maintaining government responsiveness to the will of the people.” 1980 Republican challenger in the United States Senate race Avid crusader for lower taxes Died of AIDS, contracted from a blood transfusion, in 1989.

The Aftermath The effects of Proposition 13

Nordlinger v. Hahn Acquisition value system of Prop 13 created dramatic disparities in the taxes paid by persons owning similar pieces of property because of the differences in the terms for which they were owned. Newer buyers were paying far greater amounts for their property. Former Los Angeles apartment renter who had recently purchased a house in Los Angeles County, filed suit claiming that the proposition violates the Equal Protection Clause of the Fourteenth Amendment Court dismissed the complaint, saying that states had the right to discourage the rapid turnover of housing through taxation.

AB 80 Home values skyrocket, particularly after AB 80, a reform bill, was passed AB 80 held tax assessors to keep assessments a uniform percentage of market value so tax figures could not be fudged to reward friends Cities rely more on the state government Since cities cannot collect as much property tax, they must look to the state government for funds

Sales Tax Sales tax is heavily relied on Cities must impose a harsher regressive sales tax in order to make up the difference In the place of a progressive tax Fair? Housing is scarce because cities attempt to build sales- tax generating businesses, not houses House prices are inflated

Schools School funding by property tax is declared unconstitutional (Serrano vs. Priest) Money from taxes is not going to the immediate community, but is distributed evenly across California Total amount of money put into education declines until Proposition 98 is passed in 1985

Cities Public services in cities suffer from the loss of revenue Firefighting programs, police departments, and libraries all suffer major budget cuts Cities cannot afford the upkeep of roads and public utilities

Food for Thought

Is it fair? Equity and Efficiency These two ideal characteristics of a tax law are absent in the freezing of the property tax The better established and wealthier are subsidized Properties of the same value may be taxed differently depending on the year bought No incentive to sell houses for fear of a new assessment and higher taxes creates a stagnant house market Cities lose so much revenue that public utilities suffer Corporations, if the deed is kept, can avoid paying higher taxes even if the property physically changes hands

Why not repeal it? Proposition 13 is the “third rail” of California politics It would completely upset the system that is already in place Realistically, people will not volunteer to pay extra taxes

As the Curtain Closes It’s all relative From the view of an elderly homeowner, an established homeowner (any income), or a homeowner in a position to sell at a profit, Proposition 13 is undoubtedly beneficial As a buyer or a new family, Proposition 13 is awful Utilities, school funding (investment in future generations that will support the vast majority in old age and advance progress), and other essential public services might be a better long-term investment, even if property taxes are unappealing Is it worth the loss?

Bibliography data.k12.ca.us/Articles/Article.asp?title=Proposition%2013http:// data.k12.ca.us/Articles/Article.asp?title=Proposition% F931A2575AC0A96F948260http://query.nytimes.com/gst/fullpage.html?res=950DEEDF133 1F931A2575AC0A96F