The Magazine

Have I Got a Proposition For You

California's tax revolt, 30 years on.

Jun 9, 2008, Vol. 13, No. 37 • By ARNOLD STEINBERG
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Prop. 13 detractors are still saying these things. Howard Jarvis, who died in 1986, would love that they're still whining about his mischief. He was a sort of precursor to Ross Perot, but of decidedly modest means. In his own way, he told people to look under the hood. Things were not that complicated, he maintained. Jarvis was the consummate anti-politician who appealed to this populist preoccupation: Government does not need more money, it merely must stop wasting what it has.

Jarvis was crusty and fiercely independent. He felt more comfortable among Republicans but was hardly a party man. In fact, he tilted toward Jerry Brown in the general election. That's because he went with the power, and Brown assured him he would faithfully implement Prop. 13.

Jarvis was involved with an association of apartment owners, many of whom were not wealthy but middle-class, owning a few units the income from which they were counting on in their retirement. But to Jarvis, Prop. 13 was about much more than limiting property taxes on apartment buildings; it was the fiscal embodiment of "a man's home is his castle." Jarvis felt, and rightly so, that longtime homeowners, especially the retired and elderly, were being forced out of their homes because property taxes were rising at a seemingly uncontrollable and unpredictable rate.

For government expansionists, Prop. 13 represents all that is wrong with the conservative movement. They have chafed at its restraints for more than a generation. Because of it, they feel, people in the Golden State are denied the public sector resources necessary to provide vital services and to fund public education adequately. But California has done quite well since 1978. If Prop. 13 really has bankrupted state, county, and city government here, then why didn't Silicon Valley move elsewhere?

The truth is, it's hard to imagine California without Prop. 13, or to argue the state would be better off without it. After all, is it so tragic that people who own a home can look into the future and know they will not lose it over runaway property taxes? Gas prices may go up, costly home repairs may be needed, but your property taxes can only increase incrementally each year.

There have been problems for California, to be sure, but these are not the fault of Prop. 13. Lots of people come here. And many, while they contribute to the economy, also claim substantial public services. Immigrants here illegally may benefit consumers or business, but government must fund, for example, the growth in school enrollment.

A study commissioned by the Howard Jarvis Taxpayers Association reviewing the first quarter-century of experience with Prop. 13 found that school district revenue--per student and adjusted for inflation--had increased 30 percent. In that same 1978-2003 period, state government revenue, as a whole, had increased 25 percent; even the revenues of the chronic complainers, city governments, had increased 20 percent--adjusted for inflation and population.

In the three decades since Proposition 13 passed, big business has been less than grateful for its property tax breaks, which disproportionately favor large properties like, say, Disneyland and skyscrapers. Ever courting the state's increasingly liberal state legislature, the corporate interests have funded efforts to undermine 13, such as ballot measures to lower the threshold for approving local special taxes for school funding. In trying to change Prop. 13, they should be careful what they wish for, or they could end up with a "split roll"--a higher tax rate for business property than for residential real estate. After all, the Jarvis coalition was centered not on business, but on homeowners.

Perhaps the most controversial manifestation of Prop. 13 is that it treats different homeowners differently--favoring longtime owners over newcomers. When you buy a home, the purchase price is the assessment, and that assessment (and consequent property taxes) can increase only by 2 percent annually, regardless of real estate appreciation. When you eventually sell it, the new owner is assessed his purchase price, and the process starts again. This means that a new homeowner could be paying two or three times the property taxes of his neighbor, who has lived there a long time. But trying to change this formula could open the door to large increases for everyone. So it has retained popular support.