Is Proposition 13 in Jeopardy?
Last week on the television game show Jeopardy! an answer in the category California History read: In the early 20thC. the state got more than half its revenue from these, later to be limited by the 1978 Yes vote on Proposition 13.
The question in the Jeopardy! format was: What are property taxes?
Now the answer has special meaning to me. You see, I worked for the chief proponent of Proposition 13, Howard Jarvis, and ran his taxpayer advocacy group for more than a dozen years after he passed away.
Proposition 13 is still around and is still relevant to California property owners—although it is still the dream of advocates for more government revenue to dismantle it in some way.
The protection provided by Proposition 13—assessing property at its sales price and limiting increases to a set inflation factor, becomes more important to property owners as the price of housing soars.
Recently the Wall Street Journal published a long article on increasing home values—and while the article pointed out that the paper profit looks appealing to long time homeowners, the Journal revealed a potential downside: rising property taxes.
Property taxes are usually calculated on a home’s current value and a tax rate set by government officials. Without limits on either the tax rate or the value property taxes can, and do, increase dramatically.
Because of big increases in home values in many locales around the United States property taxes have been supercharged in many cases—over 100% in only two years in at least one Ohio city, according to the Journal.
In California, Proposition 13 protects against that downside.
Proposition 13 was designed to protect against this double whammy of increasing tax rates and increased property value and has done so successfully for more than 45 years. Even new home buyers who pay a set 1% tax rate on the current value of their home enjoy the protection against future dramatic increases because of the Prop 13 rules that limit yearly increases to 2%.
Imagine the danger taxpayers would be facing without the Prop 13 protections when you consider for example the current City of Los Angeles budget is running a one-billion-dollar deficit. The mayor went to the state and asked for bailout money. Without Prop 13 in place, city officials would look at rasing property tax rates. You can bet state officials would prefer local governments have the power to raise more revenue—perhaps via the property tax.
Which brings us to the question, while the Jeopardy! show asked about California history let’s look at California future and ask: Is Proposition 13 in Jeopardy?
In 2020, there was a state ballot measure designed to begin picking apart Prop 13 by separating commercial property from residential property. Such a proposal is labeled a “split roll” adjusting the tax requirements on businesses property so they would pay more in property taxes. Voters rejected the proposal, Proposition 15, knowing increased taxes on business property would add to consumers’ cost of living.
Talk in Sacramento is that another effort should be made on a split roll to tax commercial property at market value.
What was revolutionary about Proposition 13 was the certainty it provided taxpayers. Before Proposition 13 passed, that certainty belonged to the tax collectors. After Proposition 13, certainty in property taxation was in the hands of individual taxpayers. They knew what they had to pay and how much the tax bill would go up year to year. No surprises.
Certainty is no small thing when it comes to taxation. Adam Smith, author of the seminal work on economics, The Wealth of Nations, wrote in his book, “The certainty of what each individual ought to pay is, in taxation, a matter of so great importance, that a very considerable degree of inequality…is not near so great an evil as a very small degree of uncertainty.”
Proposition 13 preserves tax certainty for voters.
Still, there is a constant drumbeat to undo Proposition 13. Keep an eye out on any attempts to put Proposition 13 in Jeopardy.