Proposition 13: The Drama

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Proposition 13 The Drama
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Plot Summary
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What is Proposition 13?

• People's Initiative to Limit Property Taxation
• Caps property tax rates at no more than 1 of
  full cash value and caps increases in assessed
  value per year are capped at either 2 or the
  percentage growth in the Consumer Price Index
  (CPI), whichever is less.
• New construction and the sale of property, with
  some exceptions, also increase assessed values.
• Required a two-thirds majority in both
  legislative houses for future increases in all
  state tax rates or amounts of revenue collected,
  including income tax rates
• Received an enormous amount of publicity
  throughout the United States.

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Setting the Scene
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Serrano v. Priest

• 1971 and 1976 Supreme Court rulings saying that
  educational funding was favoring the wealthy.
• State legislatures responded by capping the rate
  of local revenue that a school district could
  receive and distributing excess amounts among the
  poorer districts
• Property owners in wealthier neighborhoods were
  unhappy that they could no longer see the
  immediate benefits from their taxes.

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Housing Demand

• Growing population in the state caused an
  increase in demand for real estate
• As demand increased, prices also increased, along
  with taxes
• Elderly citizens on fixed income became unable to
  afford their homes with the growing tax rates, a
  fixed income, and inflation.
• The Proposition 13 campaign felt that elderly
  citizens should be able to keep their houses (and
  then increased wealth they acquired) without
  being forced to pay the property taxes that go
  along with it.

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Playwrights

• Proposition 13 was originally popularly known as
  the Jarvis-Gann Amendment
• Howard Jarvis and Paul Ganns actions had a
  greater impact as a symbol of citizen initiated
  reaction against what was perceived as big
  government

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Howard Jarvis

• Born in Magna, Utah
• Father was a state supreme court judge and member
  of the Democratic Party.
• Jarvis was active in the Republican Party and
  also ran small town newspapers
• Primary candidate for the U.S. Senate in
  California in 1962
• Founded the Howard Jarvis Taxpayers Association,
  which basically opposes all new and old taxes on
  Californians

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Paul Gann

• Born in Clark County, Arkansas
• Founded People's Advocate in 1974, an
  organization dedicated to educating and
  mobilizing the public regarding issues of
  taxation, government spending, personal freedoms,
  property rights and maintaining government
  responsiveness to the will of the people.
• 1980 Republican challenger in the United States
  Senate race
• Avid crusader for lower taxes
• Died of AIDS, contracted from a blood
  transfusion, in 1989.

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The Aftermath

• The effects of Proposition 13

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Nordlinger v. Hahn

• Acquisition value system of Prop 13 created
  dramatic disparities in the taxes paid by persons
  owning similar pieces of property because of the
  differences in the terms for which they were
  owned. Newer buyers were paying far greater
  amounts for their property.
• Former Los Angeles apartment renter who had
  recently purchased a house in Los Angeles County,
  filed suit claiming that the proposition violates
  the Equal Protection Clause of the Fourteenth
  Amendment
• Court dismissed the complaint, saying that states
  had the right to discourage the rapid turnover of
  housing through taxation.

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AB 80

• Home values skyrocket, particularly after AB 80,
  a reform bill, was passed
• AB 80 held tax assessors to keep assessments a
  uniform percentage of market value so tax figures
  could not be fudged to reward friends
• Cities rely more on the state government
• Since cities cannot collect as much property tax,
  they must look to the state government for funds

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Sales Tax

• Sales tax is heavily relied on
• Cities must impose a harsher regressive sales tax
  in order to make up the difference
• In the place of a progressive tax
• Fair?
• Housing is scarce because cities attempt to build
  sales-tax generating businesses, not houses
• House prices are inflated

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Schools

• School funding by property tax is declared
  unconstitutional (Serrano vs. Priest)
• Money from taxes is not going to the immediate
  community, but is distributed evenly across
  California
• Total amount of money put into education declines
  until Proposition 98 is passed in 1985

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Cities

• Public services in cities suffer from the loss of
  revenue
• Firefighting programs, police departments, and
  libraries all suffer major budget cuts
• Cities cannot afford the upkeep of roads and
  public utilities

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Food for Thought
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Is it fair?

• Equity and Efficiency
• These two ideal characteristics of a tax law are
  absent in the freezing of the property tax
• The better established and wealthier are
  subsidized
• Properties of the same value may be taxed
  differently depending on the year bought
• No incentive to sell houses for fear of a new
  assessment and higher taxes creates a stagnant
  house market
• Cities lose so much revenue that public utilities
  suffer
• Corporations, if the deed is kept, can avoid
  paying higher taxes even if the property
  physically changes hands

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Why not repeal it?

• Proposition 13 is the third rail of California
  politics
• It would completely upset the system that is
  already in place
• Realistically, people will not volunteer to pay
  extra taxes

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As the Curtain Closes

• Its all relative
• From the view of an elderly homeowner, an
  established homeowner (any income), or a
  homeowner in a position to sell at a profit,
  Proposition 13 is undoubtedly beneficial
• As a buyer or a new family, Proposition 13 is
  awful
• Utilities, school funding (investment in future
  generations that will support the vast majority
  in old age and advance progress), and other
  essential public services might be a better
  long-term investment, even if property taxes are
  unappealing
• Is it worth the loss?

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Bibliography

• www.wikipedia.com
• http//www.caltax.org/research/prop13/prop13.htm
• www.krankyscartoons.com/local.htm
• http//blogs.indystar.com/varvelblog/09122006.jpg
• http//www.ed-data.k12.ca.us/Articles/Article.asp?
  titleProposition2013
• http//www.caltax.org/research/prop13/prop13.htm
• http//everything2.com/index.pl
• http//query.nytimes.com/gst/fullpage.html?res950
  DEEDF1331F931A2575AC0A96F948260
• http//www.law.cornell.edu/supct/html/90-1912.ZS.h
  tml