June 6, 2008
Twenty Thirty Years Ago Today, Prop 13 Came Into Play...
It’s the 30th anniversary of Proposition 13. And if you don’t already have plans, UC Berkeley is holding a free all-day conference titled, “Proposition 13 at 30: The Political, Economic and Fiscal Impacts.”
This conference on the thirtieth anniversary of the passage of California's Proposition 13 examines the political, economic, and fiscal legacy of this revolutionary amendment to the state constitution. Proposition 13 imposed a 1% cap on the local property tax rate for Californians and launched a national tax revolt movement. The one-day conference will consist of three panels, with a mix of academic, policy experts, and journalists, that will assess the varied fiscal, economic, social, and political ramifications of this watershed tax movement.
And as a special bonus (we know, it's a full day of tax talk), the results of a new statewide survey of voter attitudes regarding Proposition 13 will be released for the first time. Or perhaps the third (see UPDATE below).
Our apologies in advance to the Beatles, but not to those who spend the rest of the day singing Sgt. Pepper’s (which is encouraged to be done out loud).
UPDATE: From the aforementioned field poll: "Across the state, 57 percent of voters said they would vote for Prop. 13 if it was on the ballot today while just 23 percent would vote against the measure. Support for the initiative was even stronger among homeowners, with 64 percent saying they support it."
∙ Proposition 13 at 30: The Political, Economic and Fiscal Impacts [berkeley.edu]
∙ Poll shows Prop. 13 still has strong support [SFGate]
First Published: June 6, 2008 4:00 AM
Comments from "Plugged In" Readers
Did you delete my comment from yesterday about the history of "open housing" in the civil rights legislation of 1964? It wasn't a great comment or anything but why?
Some advice: don't delete comments unless they really cross the line. Ticks me off to spend time commenting to only have you cavalierly dismiss my contribution. It's so . . . . early blogosphere. I guess conservative blogs still do this as well: vigilantly scrub out any opposing viewpoint or any viewpoint that doesn't coincide perfectly with the moderator/editor.
It shows you have little respect for your readers.
I was going to comment on the history of Prop 13 but why bother . . . .
[Editor’s Note: We didn’t. It’s still there. Right where it’s always been. And we can only assume you thought you left it somewhere else (most likely on the results thread). We'll save the advice, but talking about ticking people off…]
Posted by: SFHawkguy at June 6, 2008 10:52 AM
Sorry! Weird. Ok.
You're the best!
Posted by: SFHawkguy at June 6, 2008 11:16 AM
I'm very curious to hear what some folks on this blog have to say as I am new to the city.
it seems to me that while this may superficially appear to benefit homeowners, it may be a root cause of some of California's (and SF's) monetary woes. For example, in the tech boom, SF should have had money flowing in with the rise in property values, yet the city is reeling from crime, filth, poor transit, and poor schools.
I don't know, though there are more likely nuances I don't get, so I'd love to hear some of the smart folks chime in.
Posted by: melinda at June 6, 2008 11:27 AM
The decline in the ability to tax for social services is a sign of the decline in social cohesiveness of our country. It is the middle and working classes who will suffer the most, because education and health care will continue to soar and pensions shrivel.
It's ironic that our culture of hate (Americans for Americans) arrived with globalization, a challenge for which we need to stand together.
The developed countries best adapted to the globalized economy are those that are open, with flexible labor markets, and a high level of social insurance of all kinds - the Nordic model.
In America, we get the worst of it. Hammered by globalization, hammered by inequality, hammered by declining access to higher education and social services, hammered by outsourced jobs. Most of all, we're hammered by our culture of hate.
Posted by: dissent at June 6, 2008 11:29 AM
Anyway . . . .
Prop 13 does actually go hand in hand with the "open housing" link I posted before. Interesting to me how much Goldwater and other California Republicans really influenced modern conservatism with their anti-tax and anti-open housing positions. So much of modern conservatism is based on the "my home is my castle" attitude and the idea that the Democratic party ignored law and order as middle class neighborhoods declined. Of course there is a huge racial component to this. Much of the conservative issues re: housing and tax policy is a reaction to the end of segregation and the civil rights battles going on through the 50s and 60s.
Funny how this all seems like ancient history.
Posted by: SFHawkguy at June 6, 2008 11:32 AM
"Hammered by globalization, hammered by inequality, hammered by declining access to higher education and social services, hammered by outsourced jobs."
Plus some of us just enjoy getting hammered!
Back on topic, I still think that the best time to push for repeal of this inequitable redistribution of wealth would be at the bottom of a housing trough, when values are low and the "mark to market" would be easiest to swallow for the folks affected. But obviously no one will ever vote to pay more taxes, period. And combined with the greying population we have in the city and state, good luck getting people to even consider it. Seniors would be most directly affected, and they all vote.
Posted by: Dude at June 6, 2008 11:39 AM
I don't understand how universal health care and larger pensions are going to solve a city/state tax crisis in relation to Prop 13. Should cities be able to tax properties to infinity and get more tax money from people that held on to their investment instead of selling? If, so, why bother owning at all? The money has to come from someone, right? I'll never believe in socialism. It has never worked. If people can do less and still get everything they need, they will do less and there will be no money to take to fund these items. People always want to rip capitalism, but it works.
Posted by: Not Socialist in SF at June 6, 2008 11:45 AM
It must be the silly season again. Why must Americans be so quick to throw out the pejorative, "socialist"? Do you know what it means? I've already seen the usual suspect slamming Obama as "Marxist" and "socialist". It's beyond silly.
I don't think anyone that is intellectually honest can claim that there are significant numbers of people calling for socialism or Marxism in this country.
And just because someone wants to increase social services does not make them socialist. Dissent may be socialist, I don't know. But it does no good to throw around "socialist" and to act like you have to defend capitalism--as if capitalism is under attack in this country and as if there are large numbers of people advocating socialism.
Posted by: SFHawkguy at June 6, 2008 12:02 PM
SF Hawk - Increasing social services means taking more from those that produce that money. I think that is wrong, whether or not it fits the absolute definition of socialism. It is all a slippery slope. There will always be people that want more. While we should support one another, and there are people in need, we shouldn't have to support those that can do it for themselves. I didn't post here to argue really. I just thought dissent was a ranting in a crazy fashion. I like America and see nothing wrong with that. If you want to pay more for social services, feel free, but I already pay plenty of taxes. Maybe if we could trust the bozos in office to spend a little more wisely, we could get a little more service for our buck. The larger the government gets the more inefficient it is run. I doubt very much that you could counter that in a way I would buy. We can just agree to disagree. Isn't that the SF way?
Posted by: Not Socialist in SF at June 6, 2008 12:20 PM
"it seems to me that while this may superficially appear to benefit homeowners, it may be a root cause of some of California's (and SF's) monetary woes. For example, in the tech boom, SF should have had money flowing in with the rise in property values, yet the city is reeling from crime, filth, poor transit, and poor schools.
I don't know, though there are more likely nuances I don't get, so I'd love to hear some of the smart folks chime in. "
The City is doing well in regard to Property tax revenues. From The City's Budget report:
"Property Taxes: Property tax revenue is expected to grow to $934.7 million in fiscal year 2007–2008,
11.6 percent over the prior year’s budget."
Posted by: Balanced view at June 6, 2008 12:34 PM
Exactly right. The growth in state and local tax revenues has consistently outpaced inflation since the passage of Prop 13. While there may be an equity argument over taxing equivalent properties at wildly different rates, Prop 13 cannot be plausibly be blamed for government budget deficits (witness SF's deficit despite its impressive revenue growth this year). The problem is one of *spending* - in particular, spending on lavish public employee salaries, benefits and retirements (Vallejo, anyone?). Only when spending on labor costs is controlled can government services start to become adequate.
Posted by: zzzzzzzz at June 6, 2008 1:25 PM
^^^ Housing costs have far outpaced inflation during that time. How is the state supposed to keep a lid on "expenses" when "inflation" doesn't count the largest expense for everyone?
Posted by: anon at June 6, 2008 1:55 PM
"Exactly right. The growth in state and local tax revenues has consistently outpaced inflation since the passage of Prop 13."
What about in population adjusted terms?
Posted by: Amen Corner at June 6, 2008 2:52 PM
It's a sign of the sloppiness of right wing thought that the pejorative 'socialist' is slung around - really to silence, not to engage.
Dude, I'm an entrepreneur, not a socialist.
Obviously, for anyone who pays attention to capitalism as it is practiced (instead of living in an absurd fantasy), there are a variety of ways to implement it. The Nordic model by many measures (combining strong economic performance with a healthy and well educated citizenry) is the most successful.
Some implementations of capitalism come with high death and incarceration rates: that is the American model. Tens of thousands of our citizens die every year from lack of health insurance. But that's okay, because "we" resent "them". Maybe their darker or poorer or maybe they got laid off because their job went to China or maybe they have some dumb chronic disease. Don't Support Stupid, let them die! Similarly, we incarcerate something like 10X the per cent of the population that Germany does.
The American model is less effective at providing upward mobility across generations than the Nordic model, by the way. It is a myth that we provide more opportunities.
The truth is that we are dominated by a class of predatory and self-dealing elites. This system of starving social services to keep taxes low serves their interests. They don't need universal health care, good public schools, affordable public tuition.
I read a comment not long ago on the WashPo site. The fellow said, why should I support social services for anyone who is less well off than myself? Their children will only compete with my children.
That's the American attitude, in our culture of hate.
Posted by: dissent at June 6, 2008 3:43 PM
Right on, dissent, I am right there with you.
yet the city is reeling from crime, filth, poor transit, and poor schools.
None of these things are true and San Francisco is hardly "reeling." The population is booming and employment is at an all time high. A strange idea of what reeling means, at the very least.
Things can always be better, I guess.
San Francisco tourist economy is booming and The City has recently won an award for the best urban school system in California. Crime from 1995-2003 dropped over 40%, much higher than in the "get tough on crime" places like NYC. It is true that things have slipped back a bit since then, which is puzzling, but we are still pretty low for an urban area in the United States.
I don't know where you claim to see "filth," do you spend a lot of time in the Tenderloin or something? The streets I see are mostly clean and free of trash. There is natural beauty wherever you care to look. Muni is okay, could probably be better, but it still is the most ridden system west of the Mississippi. BART is petty good, if you ask me.
Posted by: NoeValleyJim at June 6, 2008 4:49 PM
But back to the topic at hand: yes we should at the very least amend Prop 13 so that property tax rates go up with the rate of inflation. Constantly asking government to do more with less money is stupid and self-defeating. I actually think we should go back and inflation adjust up all those years of people how have been free-loading off the rest of us, but I know that is going to be a hard sell.
I think there is some pretty strong evidence that as population density increases, you actually need to increase the tax rate a little bit to maintain the same level of services, since rural areas get some things for free (like parks) that you have to provide at higher densities, but there are some things that get cheaper, too, like delivery of fire protection.
Posted by: NoeValleyJim at June 6, 2008 4:55 PM
SF has a record high murder rate last year and is on track to exceed that this year. Why should that be the case?
The city is indeed filthy, once you get outside of, ahem, Noe Valley. I live south of market (near Moscone) and I can tell you that the streets are literally filthy. Walking home from the theatre one night down Market street I felt I had to come home and wash my feet, with all the litter and dust that blew over my feet. There is feces on every block, either dog poor or human, because I step over a homeless person sleeping on the street in *every* block that rings my building.
Muni is a joke, if you have ever lived in Manhattan, London, Paris, Or Tokyo. Our transit system to the peninsula is broken; else Google, Yahoo, eBay, etc wouldn't feel compelled to have a parallel private shuttle bus system to take their employees south. (and while we're on the subject, why aren't those companies in the city and paying taxes here?)
And let's not get started on the schools---are your kids in public schools in SF?
Posted by: Melinda at June 6, 2008 5:29 PM
All I can say is I am glad not to be as unhappy as dissent. Would hate to have to call people hate filled because they don't want to fund all the new kooky left wing ideas that come forward. Have a pleasant weekend if you are able.
Posted by: Not Socialist in SF at June 6, 2008 5:37 PM
I ride Muni every day and it is not an exaggeration to say that I have ridden it thousands of times. Do you ride it or do you drive a car? Most Muni bashers I know have only a passing experience with it.
I have ridden transit in every one of those cities except Tokyo. Public transit is definitely better in Paris, not really better in any of those other places. Have you tried to ride the buses in Queens? I have. It is no better than Muni. For the size of San Francisco and the density and especially for the limited amount of public resources we throw at it, Muni is fine. I have no car and have not since right after I moved here fifteen years ago and are doing just fine thank you.
My child is not old enough to attend public schools, but she almost assuredly will once she is old enough. I know all the parents on my block and all but one sent their kids to public schools. Sure, there is the usual griping, but they can all afford to send them to private schools if they want and they do not, so that tells you something right there.
Your claim that there is feces on every block in SOMA is an out and out lie and I will take my camera with me on my walk to work tomorrow to prove it. I work in SOMA and walk from the Montogomery Street station to work every day. I have made this walk thousands of times. I have never even once seen human feces on my walk. This line is the classic BS that I hear over and over again. I don't believe you live in San Francisco at all, in fact.
Posted by: NoeValleyJim at June 6, 2008 5:46 PM
Not sure what you're smoking, but I agree with some of your points. However, the murder rate last year and this year is NOWHERE NEAR the record. It's merely the highest in ten years - bad, sure, but record? We need to double our current rate to get to the record.
Funny too that you compare Muni with three national capitals and the largest city and business capital of this country. How about comparing us to some like-sized cities in size and importance?
Posted by: Brutus at June 6, 2008 5:46 PM
@ Dude: "But obviously no one will ever vote to pay more taxes, period."
Not so. San Francisco voters did just that on Tuesday by voting a $198 annual parcel tax increase for SF schools.
Posted by: sanfrantim at June 6, 2008 5:49 PM
Oh, and the murder rate was higher in the 80's, so there goes another one of your "facts."
Posted by: NoeValleyJim at June 6, 2008 5:52 PM
Oh, I guess it is Friday. Okay, I will take my camera with me on my walk to work Monday.
Posted by: NoeValleyJim at June 6, 2008 5:57 PM
Neighborhoods in San Francisco that are clean and beautiful: Pacific Heights, The Marina, Cow Hollow, St. Francis Wood, Forest Hill, Noe Valley, Glen Park, Russian Hill, Nob Hill, Telegraph Hill, Presidio Heights, Seacliff, Ingleside Terrace, Laurel Heights...
I could probably go on.
Get out of SOMA and walk around a little bit and get back to me about how "filthy" San Francisco is. Sure, there are dirty spots. Every big city has them, at least every big city in America.
Posted by: NoeValleyJim at June 6, 2008 6:15 PM
I've lived in the same apartment in south of market for 5 years. I find it funny people are so quick to jump to conclusions.
Sorry if my facts aren't perfect, but I'm willing to be corrected, that's why I said I was looking forward to what people have to say.
I think on blogs it's easier to attack people then just comment factually. I'm not out to troll, I just say what I think I know, and if I'm wrong, so be it. That's why I engage on a blog like this (which is quite rare), because I want to be challenged and I want to learn. I usually don't do blogs because it's always some nut who thinks he knows it all instead of listening. that's why we have 2 ears and one mouth, by the way.
That said, I too have lived and worked in this neighborhood (SOMA) for 5 years. The crime rate is rising in this neighborhood; car breakins, drive by shootings, etc are all becoming more frequent in my observation. Compared to Manhattan (which is a bigger city so it should be harder to police), SF is dirtier. My partner, who was born and raised in SF, also feels this way. I see the feces every day in my frequent walks in the neighborhood.
Public schools. Here's my thoughts and you can correct me if I am wrong. I understand that you can be forced to have to send your child to a school outside your area. I say, why bother to go to the trouble to scrimp and save for a house in a good/convenient neighborhood, only to be forced to bus your kid to hunter's point? If I am wrong, again, correct me. We are straying way off topic, so that's all I'll say on that.
PLEASE don't accuse me of not living here, not only is THAT false, it smacks of defensiveness and not the rational logical debate I typically come here for.
Thanks and have a good night.
Posted by: Melinda at June 6, 2008 6:47 PM
Sorry if I came across too strong. If it is an excuse I just had my wisdom teeth pulled and I am kind of cranky.
Crime *is* rising in San Francisco and this is a problem. It is still much lower than it was in the 80s but the trend is clearly in the wrong direction. I honestly don't know why this is, but suspect the economy has something to do with it.
My neighbor across the street is the author of The K Files, a blog about the trials and tribulations of getting into the public schools in San Francisco. Right now it works like this: you put down seven schools that you are interested in, ranked by preference. About half get their first choice, about 90% get one of their top seven. Now there are about seventy public elementary schools in San Francisco and many of them are quite good. Many of them are pretty bad, as well. So what ends up happening is that the top ten schools or so are all widely oversubscribed and if you only put those schools down, you are likely to not get into one at all.
Amy (my neighbor) did this and ended up placed by The City into Paul Revere Elementary School in Bernal Heights instead, which she was not happy about. But after your placement, you can transfer and if you didn't get any of your choices, you are first to transfer, so she was able to transfer to Jose Ortega, which she is happy about.
But this has been kind of a hassle for her, as you can imagine. She almost sent her kid to private school over it.
And to tie it all back to our supposed topic, if we paid more in property taxes, we would probably have better schools...
Posted by: NoeValleyJim at June 6, 2008 7:46 PM
Compared to Manhattan (which is a bigger city so it should be harder to police), SF is dirtier.
Manhattan has more police per capita, which makes it easier to police since the density is also higher (more police covering less ground geographically). We could have more police if we had more property tax revenue.
Posted by: anon at June 6, 2008 7:50 PM
Any discussion about public services and budget deficits has to look at labor cost, which constitutes the lion's share of local budgets. The more that's spent on salaries, benefits and pensions, the less service that ultimately gets delivered to the taxpayers. So take the cast of SF. Its stunning $6 plus billion dollar budget is larger than that of 20 states; its ~28,000 municipal work force works out to one city worker for every 27 residents, the highest ratio in the country; and pay and benefits tend to far exceed what exists in the private sector. Yet the roads are potholed, the parks are neglected, trash collects on the streets and basic needs go unmet. Blaming Prop 13 for municipal budget shortfalls, at least in the case of SF, is utterly and completely missing the point.
Posted by: zzzzzzz at June 8, 2008 9:54 AM
SF is a COUNTY as well as a CITY. Compare the city/county workers to residents in other places and you'll find that 27 to 1 is not that bad.
There are certainly problems here, but you need to compare apples to apples.
Posted by: Brutus at June 8, 2008 2:13 PM
Also, it should be noted that the GDP of San Francisco County is higher than that of 16 states, so considering our higher cost of living, it is not at all surprising that our city/county budget is larger than that of 20 states. Throwing out things like "Our budget is bigger than 20 states!" doesn't really accomplish anything when you know full well that most of those states are very small (in population) and have very low per capita incomes compared to SF.
Posted by: Brutus at June 8, 2008 2:22 PM
My point still stands. SF's municipal workforce is 2 1/2 times as large as the city of San Jose and Santa Clara county combined, even though they constitute a larger population than San Francisco. Moreover, the city/county combination in SF should produce *efficiencies*, not redundancies. By any conceivable measure, SF has a staggering number of city workers whose salaries and benefits tend to greatly exceed anything in the private sector. It's simply indefensible. City government here has devolved into a jobs program, not a provider of services.
Posted by: zzzzzzzzz at June 8, 2008 6:17 PM
Again. Why is SF's budget the same size as Chicago's, a city with 4X as many people, proportionately more children to school, a much larger area and requires expensive things like snow plowing?
Even if you throw in the Cook County budget of $3.2B, SF's budget is still bloated. Period. Adjusting for population growth in SF? Please. SF's population is STILL smaller than it was in 1950, and certainly hasn't gone anywhere since 2000's mini peak.
Pols and their enablers in the press like to whine about Prop 13's constriction on their budgets, but as has been amply pointed out here, judging by the actual growth in prop. tax revenues, there's no reason why cities should be complaining. Even the little burb of San Leandro in the East Bay has seen its property taxes more than double in 10 years, yet the population has massively grown (sarcasm) from 79,000 to 81,000.
Tie property taxes to inflation? How about we first tie spending to inflation+population growth?
Posted by: David at June 9, 2008 12:06 PM
Most of the problem is the proposition system itself. Prop 13 was the one being discussed here, but we can also discuss the other propositions that have increased spending time and again (especially in SF) without giving adequate thought to how they would be financed.
I'm for eliminating ALL propositions and going back to a representative government - how about you? The current system is too open to corruption from special interests.
Posted by: Brutus at June 9, 2008 2:27 PM
Willie Brown really went on a hiring spree at the end. Does anyone know what the City workforce numbers looked like before and after his reign?
I think spending should track GDP, not inflation + population. This is only a slight bit more, but it adds up over time. There is no particular reason that public employees should expect their incomes to decline compared to everyone else.
Posted by: NoeValleyJim at June 10, 2008 12:43 AM
Brutus, as a policy I established since the passage of the hideously stupid proposition banning the sale of horsemeat for human consumption, I vote "No" on all propositions.
I agree, the proposition system is seriously flawed.
NoeValleyJim...tracking GDP is a compromise I could live with a little more, but the problem is that the current spending level especially in SF and other places needs to be ratcheted down before it can be allowed to rise again.
Posted by: David at June 10, 2008 11:11 AM
SF's population is STILL smaller than it was in 1950, and certainly hasn't gone anywhere since 2000's mini peak.
This is false. San Francisco's population is now at its all time high.
Posted by: NoeValleyJim at June 10, 2008 9:45 PM
Prop 13 and the elderly.
I was thinking about the argument the prop 13 is needed to allow the elderly on fixed incomes to remain in their homes.
It occurred to me that a better system to allow people to avoid being priced out of their homes would work like this:
Anyone over 65 who owned their own home outright could have the county take out a first lien on their home to which all property taxes would accrue. On the owner's death or sale of the property the county would collect all of it's back taxes when the lien cleared.
Heirs would inherit the home subject to the lien and would have to pay it off.
There would be no cap on assessed value.
Posted by: diemos at January 7, 2012 12:37 PM
On the owner's death or sale of the property the county would collect all of it's back taxes when the lien cleared.
I have always thought that this idea is the best. It allows Grandma to stay in the house, but the value of the tax benefit doesn't accrue indefinitely by being embedded in the capital value of the property.
Posted by: El-D at January 8, 2012 7:52 PM
Yes, this makes good sense. But it will never fly as it will get get spun as the county takes over ownership of your home a little bit more year by year.
On property taxes, note this change in the state property tax deduction. Your whole property tax bill is no longer deductible on state taxes - actually, it never was, but I never knew that and it appears nobody else did either. Starting this year the state will actually begin enforcing the law limiting the deduction:
Posted by: A.T. at January 9, 2012 7:11 AM
I have always also thought the approach in diemos's post to be best. (Actually, that's not true. I think the best approach is to force granny to sell the home -- sorry, granny, but it's too much house for you. But I know this will definitely never fly, so am fine with diemos's plan as a backup.)
Posted by: NJ at January 9, 2012 9:02 AM
Stop being such an easily manipulated group.
There is a reason, and then there is an emotional tug that everyone can get behind that has absolutely nothing to do with the reason, but is used to sell it.
The reason for prop 13 was to cut taxes: property taxes specifically. Property taxes fund local schools, and the courts were redistributing that income, via school busing and via rule that all schools in the state had to spend equally per pupil. The rich conservatives, and even the rich liberals, put their kids into private schools, watched the poor kids enter "their" schools, and lost interest in funding the public schools at that point.
Thus, the reason for prop 13 was to cut taxes, and specifically property taxes. No one was going to state such a politically incorrect reason. So they came up with "keep grandma in her home" of which there are ten alternatives, all of which work better, but don't cut taxes, so none of them were proposed or passed.
Jerry brown is currently doing the same thing. He wants to raise taxes. There is a reason and then there is an emotional tug. The reason is to preserve the union pensions and benefits he was brought in by the unions to preserve. But that isn't a politically popular reason, so he says he'll need to cut school funding if the taxes don't get raised. There are ten alternatives to cutting school funding, all of which work better, but none of them are proposed, because none of them satisfy the real reason for the tax increase.
No need to present the ten alternatives that work better. We already know they are out there and we simply don't care. Because they solve the emotional tug but not the reason so no one is going to propose them.
Stop being so easily manipulated. Figure out the REASON and then you'll see why your ten alternatives are a waste of brain cycles. No one cares about them.
Posted by: tipster at January 9, 2012 9:42 AM
Sorry, tipster. Doesn't work for me.
My problem with Prop 13 has nothing to do with the overall level of taxes. High or low, not my issue.
Why I hate Prop 13 is that it gives an extremely unfair taxation benefit to long-time owners over new owners.
All I want is frequent reassessment of value. As to the tax RATE, I don't care. You can even make it zero -- then the rich private school parents get what they supposedly want, too.
Posted by: NJ at January 9, 2012 11:41 AM
NJ, I'm with you that the most grating aspect of Prop 13 is the unfairness you note. And I share your lack of concern regarding a granny who has to sell her home because - boo hoo - it is now worth too much! But it has been upheld as constitutional. And the only way to make sure that the Pols don't raise rates/taxes up, up, up forever was to cap assessments, so that's what the drafters did and the voters approved.
The long term owner advantage has dwindled considerably as prices plummeted then stagnated and inflation disappeared, so the pretty small percentage of owners who benefit from this in a material amount shrinks with each passing year. Still grates, but it is low on my list of economic injustices.
Posted by: A.T. at January 9, 2012 11:58 AM
"The long term owner advantage has dwindled considerably as prices plummeted then stagnated and inflation disappeared, so the pretty small percentage of owners who benefit from this in a material amount shrinks with each passing year. Still grates, but it is low on my list of economic injustices."
It ranks pretty high on my list, since I'm paying roughly $25,000 per year, whereas I have neighbors paying less than $2,000 for similar properties.
Posted by: NJ at January 9, 2012 12:26 PM
Prop 13 not only creates injustices between neighbors, between generations, but it also starves markets of very much needed turnover. Say you pay $700/y in Prop taxes on a property acquired in 1970 worth $1.2M today. I have actually seen this. You want to move to a smaller more convenient condo but in the City it will cost you $600K plus a $7000/y tax bill.
Why move out? There's a disincentive and it reduces the pool of available houses.
Of course at some point the market will rebalance itself. But a typical 65-y-old lady who could move out right now will leave only in 20 years or more.
It temporarily decreases supply. We're 33 years after prop 13 was voted in. There's a huge pool of owners in their 60s and 70s delaying the sale of their property. It could take 20 years to work itself out and things will rebalance.
Families cannot wait 20 years.
Posted by: lol at January 9, 2012 1:45 PM
lol, you can take your lower assessment with you when you move (if you are over age 55). Couple that with the 500k no-caps-gain and there is really no good reason not to trade down in the situation you describe.
Bottom line is that Prop 13 was approved because voters wanted to make sure politicians never raised their property taxes a ton, which they would have done (particularly in SF). I am not a fan of prop 13 at all, but it seems like a necessary evil to me.
We had a hedge fund client who made over $100 million in 2009, and paid 1.5% federal income taxes through a combination of offshoring and timing - all completely legal. A few thousand dollars difference in property taxes - with that difference shrinking each year - is peanuts.
Posted by: A.T. at January 9, 2012 2:03 PM
I am not familiar with this possibility. An older neighbor of mine did this precise "scale down" move from NV to a condo tower (early 60s). She did not "grandfather" in the lower assessment. Maybe she missed out on free money?
Posted by: lol at January 9, 2012 2:15 PM
Sounds like it - Prop 60 (I think) lets one who is over 55 trade down and take their original assessment as long as you move in the same county. Some counties even let you move among them.
Posted by: A.T. at January 9, 2012 2:31 PM
lol, I bet your neighbor knew about these things: http://www.wwlaw.com/prop60.htm . Are you certain she did not? I don't know whether I've spoken to anybody eligible who is not aware of these laws.
Posted by: [anon.ed] at January 9, 2012 2:46 PM
NJ, here is a good illustration of my point above - that the prop 13 long term owner advantage is fading away. This 1BR Potrero Hill place sold for $395k in 2006 but just sold again for $254,800, down 36%.
Sold in 1999 for $164,000, so let's use a hypothetical neighbor who bought an identical place at the same price in 1999. The 2006 buyer would owe $5900/yr in property taxes while the 1999 buyer would only owe $2800, less than half. Unfair! But now in 2012, with sale prices having plummeted and the 2%/yr annual assessment increases continuing on the 1999 place, in 2012 the tax difference is only $3800 vs $3200. Pretty insignificant. The prop 13 effect has largely disappeared. There are still a number of old-timers who are hanging on, but the numbers and scope of the long term owner advantage are fast diminishing. I suspect the 2% assessment increase will surpass real estate increases for quite some time, so even with no resales, the long-time prop 13 owners are catching up on their tax bills.
Posted by: A.T. at January 9, 2012 3:08 PM
While I agree that examples can be found where the gap is less than it once was, I don't think the problem is naturally going away over the long run. To the contrary -- I think the problem gets worse every year.
The reason is history and simple math. History tells us that real estate appreciates at the rate of inflation, which is, on average, greater than 2%. Prop 13, by contrast, caps property tax increases at 2%, less than inflation and the rate of appreciation of real estate. Sure, there will be periods in which real estate will appreciate less than 2% per year. But in the long run, to the extent properties are not sold, their tax bases will fall further and further below market value.
For this reason, there is an incentive to keep properties unsold. And accordingly, there will always be properties with old tax bases. Indeed, one of my own neighbors basically inherited from his parents, and I would take a bet that one day he will pass on that property to his children. Tax base stays ridiculously low, and it gets worse over time on average.
Sorry, I just don't buy that the problem will fix itself. It will only get worse.
(And don't get me started on the loopholes to keep commercial property taxed low.)
Posted by: NJ at January 9, 2012 5:38 PM
Yeah, you are both correct, she moved to the EB therefore probably couldn't qualify.
Posted by: lol at January 9, 2012 6:38 PM
"Prop 13, by contrast, caps property tax increases at 2%, less than inflation and the rate of appreciation of real estate."
But NJ, the math is not so simple. While assessments on long-term owners have continued to go up 2% each year, SF real estate has depreciated by 30-40% over the last 5 years. Prices may or may not rise more than that 2% over the next several years - I don't think they will, but who knows. But even if the scope of the Prop 13 differences is not further reduced, the numbers of those benefiting is likely to continue to decline as people sell. Sure, there will always be some number (a shrinking number) who bought pre-1978 and who hold on forever, but unless we see a return of inflation and high real estate appreciation - which is not likely - the Prop 13 effect will decline.
And if we do see that unexpected return of inflation and high real estate appreciation, then you will become one of those unfairly benefited long-term owners whose neighbors loathe you!
Posted by: A.T. at January 10, 2012 8:33 AM
"SF real estate has depreciated by 30-40% over the last 5 years"
You can't make blanket statements like that. It's nonsense.
Posted by: [anon.ed] at January 10, 2012 8:52 AM
Actually, the math *is* simple. You are complicating it by focusing on a particular short-term window. I am talking about long term effects, where the rules have held for more than a century.
Evidence here: http://www.ritholtz.com/blog/wp-content/uploads/2011/04/2011-Case-SHiller-updated.png (housing prices have generally tracked inflation for the past 100 years)
and here: http://www.tradingeconomics.com/united-states/inflation-cpi (average U.S. inflation from 1914 to 2010 was 3.38%)
Housing grows at more than 2% per year. Over time, the effects of Prop 13 will get worse. Simple as that.
Posted by: NJ at January 10, 2012 12:03 PM
Oh, and also, I have no desire to be eventually unfairly advantaged by Prop 13 myself. I would rather the system be set up correctly to begin with -- fair in this regard.
(BTW, I'm not saying I'll donate tax gains back to the government; rather, I don't think the system should allow these types of gains, whether or not they benefit me.)
Posted by: NJ at January 10, 2012 12:06 PM
Well, the chart you attached shows about a 50-year period when housing prices trailed inflation, then a 50-year period when it tracked it, then 10 years of utter madness (with recent massive declines and a projection of more declines). That is not simple support for any proposition.
As I said, if housing prices start to rise more than 2%/yr -- you're right. If they continue to decline or increases stay below 2% -- I'm right. Let's check in after January 1, 2062.
By the way, we bought our place in 1999 and thus have a current nice prop-13 advantage, but it has dwindled a lot, and we're looking to move up.
Posted by: A.T. at January 10, 2012 12:51 PM