Last month I took the LA Times to task for framing the current budget deficit as a spending problem, and wondered why nobody at the paper seemed interested in focusing on the fact that what California has had for decades is a structural, deliberate revenue shortage.
David Lazarus has taken up the challenge. In today’s column he says what many of us have been arguing for many, many years: Prop 13 must go.
It’s pretty simple, though. Either we spend less money or we raise revenue, or both.
All things considered, our friends in Sacramento aren’t going to suddenly discover the value of frugality — unless packed schoolrooms, broken bridges and crumbling levees are your idea of satisfactory quality of life.
So that means we need to get our hands on some extra cash. And like it or not, that means taxes. That’s a bad word, I know. But it’s how things work in the real world.
Proposition 13 is as good a place as any to start if we want to raise some serious coin and we want to do it soon.
“It’s terrible economics,” said Lenny Goldberg, executive director of the California Tax Reform Assn. “We have the heaviest tax on new investment and no tax on windfall.”
What he means is that Proposition 13 allows the state to reach deep into the pockets of people and businesses that buy property at market value. But it does precious little to get a piece of the action from those with long-held properties that have soared in value over the years.
Amen.
Lazarus does a good job of explaining some of Prop 13’s basic unfairness while also proposing some fixes that avoid hitting elderly and working-class Californians with unaffordable tax bills.
One proposal, which the California Tax Reform Association has already discussed, is to again assess ALL commercial property at market values, instead of giving them the same protections Prop 13 gives to residential property:
Assessing all commercial property at market values could add $5 billion more to state coffers, Goldberg estimated.
“The assessment of commercial property is the biggest hole in the state’s tax system,” he said. “It’s completely indefensible.”…
If the older portions of the Disneyland resort were assessed at the same level as newer ones, he observed, Orange County would be raking in millions of dollars more each year in revenue. This, in turn, would make the county less reliant on assistance from the state.
“It’s only fair,” Goldberg said.
Not only is it fair, but it’s fitting. This WHOLE tax and budget mess got its start not with Prop 13, but with the little-known AB 80, enacted way back in 1967. AB 80 was the Prop 13 of the commercial real estate market, limiting dramatically the ability of local government to use commercial property to pay for its services.
This began the cascading effect that brought us to Prop 13 and, ultimately, to the present crisis. Many California cities had artificially low residential property taxes in the ’50s and ’60s, using higher assessments on commercial property to fund services. When AB 80 disallowed that, the residential rates had to rise. The inflation of the 1970s saw the cost of providing services soar, and that had to come from higher residential property taxes. However, many homeowners had come to see the low taxes of the ’50s and ’60s as a kind of birthright. And so California in the 1970s was consumed by a series of property tax battles, especially at the local level. Prop 13 was the right-wing’s endgame, designed to radically settle the issue in favor of a small group of homeowners at the expense of state government and future buyers.
Even though commercial property values have already begun and will continue to fall along with the collapse of residential values, there is hardly any viable scenario that sees commercial property returning 1980 levels. In fact, at the moment, even the pessimists see real estate returning to 1998-2000 levels, maybe 1994 (the previous bottom) at worst. Assessing commercial properties at fair market value would still capture billions in new revenue even in a recession.
The Cal Tax Reform Association has a number of similar proposals that they claim can raise $17 billion, even without a direct frontal assault on Prop 13. I’ve mentioned their proposals before and will do so again later this week – it’s time we put them at the center of the conversation in California.
But on a deeper level, David Lazarus has begun a discussion that is 30 years overdue. Even if the discussion isn’t easy. Whenever anyone even mentions tweaking Prop 13, people tend to freak out – even at Daily Kos, so-called liberal Democrats in California attacked yours truly for daring mention Prop 13 reform.
The problem is that not enough Californians yet see how Prop 13 works against their interest. The savings on the property tax bill isn’t worth the lack of health care, the inaccessibility of education, and the decaying infrastructure that is starting to cripple our economy. Prop 13’s effect was to create a homeowner aristocracy in this state, where a lucky few who bought homes before, say, 1985 are able to withstand better the economic storms lashing the state, while the rest of us suffer to maintain their privilege.
Lazarus’ column was sparked by an LA Times report that Arnold planned to assess a “fee” on homeowner insurance policies to pay for fire protection. As Lazarus so aptly puts it:
A surcharge on insurance that’s based on a property’s replacement cost, and hence much of its market value. That may not be an honest-to-goodness property tax increase, but it’s about as close as you can come without getting your hair mussed.
It’s too much to hope that Arnold instinctively understands the problem of Prop 13, and in fact he has positioned himself as one of the staunchest defenders of it and its legacy. But as I explained back in October, much to the OC Register’s chagrin, the lack of fire protection is a direct consequence of anti-tax activism. If Arnold is willing to raise revenues for firefighting, he is implicitly opening a door that the rest of us should run through.
Right on, David Lazarus, for reminding us that we’re never going to get out of this budget crisis until we revisit Prop 13. At least someone at the Times gets it!