For starters when talking about possible changes in Prop. 13, it’s important never to forget that as with other California initiatives passed at the ballot box, the landmark property tax-cutting measure that passed handily in 1978 only can be changed via a popular vote.
It’s just as important to know that the regulations and definitions governing Prop. 13’s enforcement are different. Adopted by state lawmakers early in 1979, several months after the initiative passed, they can be changed by legislative vote.
These realities soon may come into play both because of growing uncertainties about basic assumptions in the current state budget and the vocal backing Los Angeles Mayor Antonio Villaraigosa has just given to the idea of reducing the benefits commercial property gets from Prop. 13.
Among the major troubling areas are these three: 1) the Legislature’s June estimates of how much money the state will take in during the next year are turning out to be inflated; 2) the state’s cities are suing to overturn the Legislature’s elimination of redevelopment agencies, a move that threatens $1.7 billion budget dollars, and 3) Amazon.com and other Internet firms may qualify a referendum to overturn the new budget-related law forcing them to collect state sales taxes.
Chaos Predicted
Taken together, these threats could lead to a new budget shortfall of at least $6 billion, which would trigger even more massive disruptions of government functions than already seen. Courtrooms could be shut down by the hundreds, delaying judgments in all manner of cases from divorces to traffic tickets to small claims, large lawsuits and murders. Public universities and colleges would likely have to raise tuition far beyond the 21 percent increase students are paying this fall. There would be further layoffs of police, firefighters, teachers, sewer workers, librarians and many other categories of public employees.
When this happens, it may become time for a hard look at both Prop. 13 itself and its associated enabling regulations. Although Gov. Brown says he doesn’t want to re-examine Prop. 13, cash shortages may force his hand.
Merely amending the administrative rules could produce as much as $5 billion a year for state and local governments. One such rule allows some properties to escape reassessment when they change hands so long as no one new owner holds more than a 50 percent interest in them.
Far more would be raised by adopting the “split roll” setup that’s been bandied about for at least 25 years, most recently by Mr. Villaraigosa.
A split roll would not touch residential properties, letting them continue to be assessed at 1 percent of the latest purchase price, with yearly increases of no more than 2 percent of the tax. But commercial and industrial properties would be assessed at their current market values. This could produce at least $10 billion per year in new revenues without affecting homeowners and renters, except when merchants raise prices to compensate for their somewhat increased property tax bills. But competitive pressures likely would keep such price hikes to a minimum.
There could be several justifications for a split roll. One is that when anti-tax crusaders Howard Jarvis and Paul Gann wrote and campaigned for Prop. 13, they spoke only about residential properties, their advertising repeating the mantra that homeowners were being forced out because of the rapidly-rising property values of the 1970s. They emphasized Prop. 13’s very real benefits for fixed-income seniors, never mentioning the benefits their measure would bestow upon large corporations.
A Telling Sea Change
One study by the California Tax Reform Assn. earlier this year showed that in 55 of the state’s 58 counties, the property tax burden has shifted hugely away from the commercial and industrial category to homeowners and renters, who pay property tax as part of the rent. In Contra Costa County, for one example, the residential share of property tax went from 48 percent to 73 percent. In Los Angeles County, it rose from 53 percent to 69 percent over the last 33 years, while business property owners’ share dropped commensurately.
One reason Mr. Brown doesn’t want to touch this is that the moment anyone begins any such move, the Howard Jarvis Taxpayers Assn. and the state Chamber of Commerce will bleat loudly. Whenever the split roll concept is mentioned, the Jarvis group immediately blasts it as the first dangerous step toward an attack on homeowners.
That’s where California’s basic rules come in: There can only be a change in the treatment of homeowners and renters if they vote for it. The likelihood of that is very slim, no matter what flim-flam Prop. 13 purists might purvey.
Nor would a change in assessment regulations for commercial property and large apartment complexes affect homeowners.
If government services deteriorate enough that Californians can see what they once had but now are missing, they might even be willing to look past the fearmongering of the Jarvis group and its business allies and vote for their own self-interest. California hasn’t reached that point yet, but who knows what might happen next year if all the threats to the budget actually materialize?
Mr. Elias may be contacted at tdelias@aol.com. His book, “The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It,” is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net
