Proposition 13 Tax Curbs Face Attack In California
By Tom Gray, For Investor’s Business Daily
The tax revolt that swept California and the nation starting in the 1970s may have run out of steam, but its landmark law, Proposition 13, is still largely intact.
That could change in the next two years as Democratic state lawmakers with a new two-thirds majority in both houses take aim at Proposition 13 tax restraints in their hunt for money.
Taxpayer advocates are girding for battle. “This year, for us, will be devoted entirely to defending Proposition 13,” said Jon Coupal, president of the Howard Jarvis Taxpayer Association.
Backers of Proposition 13 warn that changes could pinch family finances and hurt businesses, large and small, in a state with joblessness still near 10% and costs higher than many locales.
Passed in 1978 with nearly 65% of the state voting yes, Proposition 13 is a shield and political symbol. It has kept California property taxes moderate and predictable, capping them at 1% of a property’s value when it last sold, plus a 2% annual inflation factor.
Critics long blamed the law for state fiscal woes. But mainstream politicians knew it was popular and didn’t want to touch it.
Read More At IBD: http://news.investors.com/011013-640144-prop-13-tax-curbs-targeted-for-attack-by-calif-lawmakers.aspx#ixzz2HpnyCpjH
Prop 13 was funded by people that didn’t care a whit about Grandma losing her home. It was funded by real estate millionaires in SF, LA, SD and the other large cities.
In Prop 13 they included two things that can cause a reassessment of property taxes.
1) Adding square footage to the structure on the property
2) The property changing ownership.
Sounds good until you think back to you realize that the 20 story buildings don’t ever actually add a 21st floor. The building, once erected, doesn’t actually ever gain one square foot. A homeowner may add a new bedroom and bathroom, they may add or extend the living room or den and get reassessed. They may do a teardown and rebuild, and get reassessed. But those big towers…. never.
Sounds good, until you realize that they guys that funded the bill never actually sell the property. They sell the stock in the corporation that owns the property. So those big buildings in downtown LA, Century City, Sunset Blvd, downtown San Diego, All through San Francisco. They never actually get sold. Their ownership changes by transfer of the corporation rather than transfer of the actual property. Homes get sold and reassessed, but not those monster buildings.
So the two things that would actually cause a reassessment don’t actually cause a reassessment to they guys who pain millions to change the law. Yep, they gave grandma a small savings,. but they walked away with the real money.
Now, the sad part is that they not only walked away with the big bucks, but that they really scammed the system to enrich themselves. You see, if you look at the commercial rents in two building sitting one right next to the other, and one is a pre-Prop 13 property and the other is built in say, 2010 the rental rates are very similar. In fact, the other building is generally less than 5% savings per square foot. But of the new building is paying property taxes at the 2010 rate and the old is paying 1978+2% (substantially less) why is the cost to rent so close when the costs for the older building should be 1978 rents + 2% (keeping the old profit margins) or even 1978+3% (mildly increasing profit margins)?
This is where the big rip off comes in. See the market rates are established by supply and demand. Since there is demand and the supply is lower, the old building CAN charge more, and just shave a few percentage points off and get full occupancy at massive profit margins.
So, what can be done? Well if the evil Democrats were smart they would make ONE change in the law that wouldn’t have any affect on Grandma. They could change the law that says that any non-agriculture property that is over 15,000 square feet will be reassessed every two years.
That would NOT affect grandma at all. It would not affect most business at all. It would have a drastic detrimental effect to those property owners that paid for Prop-13 and the loopholes that they have used for more than 40 years to extract massive profits, and kill the State of California’s ability to actually provide for the public good.
The great part is that the State can point out that the current law creates two classes of people. Those of us that actually have to pay our fair share, and those that have not had to pay their fair share for the last 40 years. All this change does is make sure that everyone pays their fair share. Including the commercial property owners that own those huge buildings who have been getting out of it for the last 40 years.
Now all we need is a few “smart” (or “evil” if you were one of those commercial property owners) Democrats and a decent PR agency to explain why the change is good for the people of California (and finally fair to the people of California).
JM, you couldn’t be more wrong.
Prop 13 gave us an acquisition cost basis for taxation of our real property.
This makes taxes predictable and what was happening in the 70s doesn’t happen anymore. What was happening then was someone owned a home they had lived in since maybe the 50s.
Property values go up over time and as long as that was slow the old assessment system wasn’t horrible. But in the 70s was when the runup of real estate values occurred, partially by speculation, people were buying houses, keeping them a few months and selling them and making money. Lots of people were doing it then.
So go back to the person who is not a speculator, is living in their home, maybe retired an on a fixed income now. A house sells down the street for $400,000. The assessor reassess all the similar homes around and your $800 tax bill is now $4800.
People were getting thrown out of their homes because someone sold for a lot of money down the street. They didn’t sell, didn’t get any money, but now they have to pay their value based tax on what happened to someone else? How can they possibly do that?
They can’t, so we passed prop 13.
Complain all you want about commercial buildings, but the limitation on property taxes has worked out fine for California and we don’t have to be afraid of someone selling for a lot of money across the street and the assessor demanding money. And guess what, commercial buildings, we pay for those too, when we buy things. There is no deed to re-assess values, this works great.
It’s not a small savings, it’s huge and we need it.
Basing taxes on assessed value (opinion) is a terrible idea that just doesn’t work anymore. It worked in the 50s, where you bought a house for $8,000 and sold it 15 years later for $12,000. No more.
We don’t want that much money in government.
We don’t want them taxing us “for the public good” as you mentioned. We want the government to be on a strict budget.
No more money!