patrick.net

Controlling prices leads to shortages. Gas lines in the 70s come to mind. Fixing property taxes, as well as capital gains taxes, discourages an owner from selling their home and reduces the supply. So they rent it out for cash. I still can't believe how many houses are available for rent in California.

Prop 13 isn't just about residential housing. Its about ensuring the corporate owners of California don't have to contribute to the towns where they "live".

It works both ways, and it's possible Prop 13 generates more tax revenue in the long run. Here are the reasons:
- It discourages sales
- Fewer sales reduce inventory
- Fewer sales means less turnover, which creates nicer communities
- These factors force "values" up
- So when sales do occur, they're at inflated prices and incidentally, we get higher tax revenue
Repealing Prop 13 would be like a huge margin call. Hundreds of thousands of people would be priced out of their homes and forced to sell. That would drive prices and tax revenue down across the board.

Prop 13 was created by landlords as a giveaway to landlords. They claimed rents would go down if property taxes go down, but of course rents are fixed by salaries so no such thing happened. Landlords simply took and kept the money that otherwise would have gone to taxes. It was business-government incest at its finest: extra profits for landlords at the expense of the public. Very much like what happened in DC with the REIC.

Rents are fixed by salaries because most people will rent about the nicest place they can afford, and the upper bound of that is limited by income, because you can't get a loan to pay rent, or pay rent out of savings in the long term. So if you reduce property tax, rents stay the same, but landlords make a bigger profit. Henry George could have told you that. http://en.wikipedia.org/wiki/Henry_George

Prop13 got political support by claiming to be for the benefit of poor old people, which is laudable. But in reality, RICH old people and landlords benefited the most, and for no good reason.

So CA taxes were shifted to income tax and sales tax. And that's far less reliable, oscillating wildly with the stock market, and discouraging commerce.

And yes, Prop13 contributes to the bubble, because people have the same amount to spend on a house, but that money goes to interest rather than property tax, leveraging prices upwards dramatically.

patrick your argument doesn't make sense to me. Anyone buying a house today is not benefitting from prop 13. New owners are paying the largest amount in property taxes so if prop 13 were repealed and distribution were more evenly spread out taxes should go DOWN for new owners.

which would leverage prices upwards...

Don't forget about the fact that supply is significantly diminished because of Prop 13 which puts upward pressure on prices.

thomas.wong89 says

knewbetter says

Prop 13 isn’t just about residential housing. Its about ensuring the corporate owners of California don’t have to contribute to the towns where they “live”.

not only do corporations who own the propert pay for real property tax like homeowners, they also pay for the personal property taxes. Property tax on equipment, computers, furniture, lease improvements, cars at the facility and supplies consumed. So they pay far more.
However corporations do financial analysis and negotiate on lower costs before they purchase.
They do not run on their wives emotions like most consumers do and overpay for worthless property.

Property tax on equipment? So when a corporation buys a car, or stapler, or office chair, there is a year tax assesed on that equipment?

Prop 13 is a separate issue from the housing bubble. The problem w/ Prop 13 is that the state is broke because people (and corporations) aren't paying high enough taxes. W/ Prop 13 in place people vote for all kinds of ridiculous spending via referendum but the state can't raise taxes to pay for the spending so the state borrows. The key here is that Prop 13 has done NOTHING to control spending while at the same time it has decreased revenues to the state resulting in even larger deficits. If you want to control spending you need to get involved w/ your legislature.

Repealing Prop 13 is about fairness in the tax code. And I don't want to hear any BS about Grandma on a fixed income being forced to move. MANY states have figured this out. Heck, my parents live in Oklahoma, not exactly a progressive state, and there, once you turn 65 your property taxes are frozen and cannot rise unless you move. This isn't rocket science people.

The other huge problem w/ Prop 13 is the loophole for Commercial property. thomas.wong89 you are wrong. Corporations do not pay anywhere near their fair share (although this isn't just a state of California problem). Here is why:

W/ Prop 13, property taxes are only re-assessed if a new owner takes a >50% stake in the property. For residential this is a no-brainer - nearly every time you will take a 100% stake. However, corporations don't have this limitation. There is a story about (IIRC) the Gallo family up in Napa bought a multi-million dollar vineyard. However, since there were something like 13 kids, each took a share of the new vineyard and because none of them took >50% the property tax was not adjusted to the new purchase price and they are still to this day paying 1970's taxes.

That is criminal. Prop 13 must be repealed. Let the market work.

knewbetter says

Property tax on equipment? So when a corporation buys a car, or stapler, or office chair, there is a year tax assesed on that equipment?

Yes. It's the same with your car. You can deduct a portion of your yearly license fee from your income tax because it is a property tax and property taxes are deductible.

But w/ corps they are tons of loopholes to allow accelerated depreciation so the effect is they pay almost nothing.

Let me clarify, Prop 13 is good for home owners that plan to live in their homes for decades (or rent them out), bad for mobile workers. In the long, long run, homes values in Cali would come down for everyone, and as a result property taxes would come down for new owners. Overall, I don't think it would make a huge difference in tax revenue. But it could take decades for things to balance out. The way to rebalance quickly after repealing Prop 13 would be to reduce property taxes across the board by about 0.5% (new valuations on grandpa's and joe-landlord's home would subsidize the discount). Then as values come down, raise taxes back up to around 1%, little by little over about a decade. And then hopefully, or better yet, write it in as new legislation, a reduction in state income taxes. Cali is too high.

Well I still fail to see any obvious connection to the housing crisis.

There appears to be many opinions but as far as I can see they are dogmatic e.g. if you write prop 13 resulted in less houses being sold and hence higher prices a la supply and demand can this be justified by the statistics on churn over rate of houses in CA? I don't think so there was plenty of buying and selling going on and besides just because the argument seems logical it doesn't mean that's what people are doing after all humans can be highly illogical as this whole debacle has shown.

Further Patrick remarks that the landlords profited from prop 13 in that they did not drop the rents consequently but some how I find it remarkable to think that if prop 13 hadn't passed that landlords wouldn't have increased rents proportionally and eaten the "loss".

I still think prop 13 is a red herring, state spending needs to be controlled and as some one mentioned that because prop 13 passed sales and income tax had to be put up so hence the state did not in theory lose overall tax. However it was remarked that that form of taxation is less "secure". Again that doesn't make sense to me as it implies home owners don't kinda work or buy things. If state taxation was so reliant on property taxes in bad times many people would be losing their houses due to sale of tax liens, it would appear to be what you lose on the swings you gain on the roundabouts.

Also remember prop 13 allows property taxes to go up but in a controlled manner.

In the UK property taxes are now largely paid by the occupants and based on their number. This essentially would trounce the landlord argument. You may have heard of Mrs Thatchers attempt at a so called Poll tax which supposedly failed (wherein tax on a property was a complete function of the number of occupants), however a somewhat modified form of it had been snuck in.

In the end yeah the state needs more money but what for? those generous pensions none of us grunts are gonna get, if you ever did buy a house you would lose it once job ageism kicks in.

Most overlook the obvious, neither California nor the United States government have an income problem, they have a SPENDING PROBLEM. But no politician will ever address that issue...it would take moral courage and would be political suicide (term limits might cure the latter issue).

In other words we don't need more taxes, we need less spending.

thomas.wong89 says

camping says

Don’t forget about the fact that supply is significantly diminished because of Prop 13 which puts upward pressure on prices.

Supply was diminshed due to ‘anti growth measures’ imposed by local cities. However that has changed over the past 10 years. There has been more supply put up due to high margins.. the difference between inflated sales prices and actual costs. The bubble has motivated builders to increase production and revenues/profits regardless of Prop 13.

There's no where (or at least very limited space) to build in Saratoga, Palo Alto, etc. However, people who bought their house 30 years ago are paying $500 in property taxes when their homes are worth $1.5M+. If they had to pay $20k in property taxes, there would be more turnover, thus a higher supply which would cause prices to drop.

thomas.wong89 says

If prop 13 didnt exist..
How would you predict your residential prop taxes.. or at the state level your spending?
At least prop 13 gives the state and residence predictiablity regarding revenues and costs.

Uh, look out the window. Our state and local governments are screwed. So "predictability" gained them nothing. Granted every other state (except North Dakota!) is screwed as well.
So at best we have a massively unfair tax system that provides no benefit to the government.
Honest Abe and thomas, I agree that spending is the problem. I'm not arguing for more taxes, I'm arguing for everyone paying their fair share.

thomas.wong89 says

How would you predict your residential prop taxes..

If I were king I wouldn't tax owner-occupied single-family homes that are built up to the zoning density (couples would essentially get 200% tax credit to distribute among their properties).

All other taxes would be based on land value and not improvement value, again, based on the zoned density of the land granted by the title.

The state would be bringing in so much revenue with this tax it wouldn't have to worry about "predictability", LOL.

thomas.wong89 says

camping says

There’s no where (or at least very limited space) to build in Saratoga, Palo Alto, etc.

Actually if you been around for 2-3 decades you would have noticed lots of occupied space converted to residential or commercial to residental.
Much of it has been converted to residential already. So the argument .. no more land is untrue.
Driving off Alama st in PA i noticed what was a small strip mall/shoping center being turned over to TH. Certainly saw this off El Camino across the Volvo dealership. Go down to Sunnyvale, Mt view you have land on Moffet Field and Golf Course .. look at the Sat. Map… not to mention the Westinghouse plant. What is going to happen with the former Mayfield Mall in Mt View.. its just sitting there? How about Stulsaft Park ? Take a look from a Sat Maps on Google/Yahoo.
Overall, the demand over the long run isnt there. Many jobs are being moved out anyway..

Hence, the parenthetical "very limited space." A few townhouses going up here and there is not a sufficient supply. The prices for these areas are the proof. If there were more houses available for sale, a 1400 sq ft house in PA would not sell for $1.5M.

As for the predictability...you do understand that just about every other state in our country does not have a Prop 13 equivalent, and they are all doing better financially than CA. Aside from a few pockets here and there, they don't have ridiculously bloated house prices either.

Guys,

There is a floor for P.A. prices, and its all the affluent immigrants who "settled" for Outer Fortress communities like Cupertino. And last time I looked, the most Escher-esque looking townhomes shoehorned into all sorts of nooks and crannies still look like the Wide Open Spaces compared to where those affluent folks brought their repatriated wealth from.

The increasing of density will level off when the San Francisco Peninsula looks more like the Kowloon Peninsula

Prop 13 has been copied in other states, however latter copies avoided some of Prop 13s stupidness. Why does Prop 13 apply to anything other than owner-occupied properties?

As a CA property landlord I've greatly benefited these last few years while new buyers picked up double or more property tax bills right next door.

However my nearly 70 yr. old CA relative living in the same home for 40 years certainly is a senior citizen who truly might not be able to afford the property taxes if not for Prop 13. So yes, it does reduce some property turnover.

Prop 13 does provide a stability to revenues, even if the annual increase ought to be bumped to a max 2%/year for owner-occupied properties. I think non-owner occupied properties ought to have a max 4% gain/year.

Ultimately the problem is California politics. The idiots in Sacramento have no concept of long-term planning. Extra one-time money from a bubble like tech stocks and they lock in new spending increases. Idiots.

Frankly, I believe CA would be best served with a new constitutional convention but absent that I suggest a new Proposition that any revenue increases in excess of 3%/year to the state treasury pay off debt before increasing expenditures.

Oregon does this, sort of. If revenues exceed projections by something like 2%, the excess is returned to the taxpayers. (Though Gov. Kulongoski (sp?) in '07 or '08 took the business portion of the refund and set up a state "rainy day" fund).

Problem is the politicians, of both parties, who spend like drunken sailors in good years. Actually, that's not fair to sailors as they probably pay in cash. And the politicians are only as bad as the idiots who elect them. So there ya go.

And to the previous poster who thought term limits were the solution, CA has term limits on the legislature and Governor.

California is where I was born, and hope to return to someday. Right now it just isn't all that great of a place to be. Hope it can be turned around.

Rather than term limits I think it'd be a great experiment to abolish the political parties and corruption/influence therein. If people had to actually look at candidates rather than just voting for the party candidates, maybe they'd elect some better people to Sacramento.

Is it the singular CAUSE of California housing bubble and crash? No.

Is Prop 13 a continuing source of mayhem? Yes.

My own little college town is FILLED with rental houses run by absentee landlords.
They may have moved away many decades ago but the houses they bought is
now rented out by the children and in some cases grandchildren of original purchasers.
The houses are poorly cared for because DUH college student renters and absentee
landlords. The property managers do the minimum required and that's it.
It's a distorted market.

In a sane market property turns over to new owners and Prop. 13 discourages that.

Other states have lower sales taxes but higher property taxes.

As previously noted Prop. 13 was nothing more than a wealth transfer from
the renters pockets and state coffers, to the landlords and corporations.
Why does Disney get to pay a small fraction of what a new business would
if it started up now in same location? YOU pay higher sales taxes so that
Disney etc. DO NOT have to pay what they should. Where's the sense in it?

Poor retired teacher Ms. Grundy was nothing more than Prop. 13 Poster Girl
and is not in fact the pimary beneficiary. If you reduced it to JUST Ms. Grundy
and not to businesses or descendants I could live with it. As it stands it's
an absolute blight.

thomas.wong89 says

If we didnt have prop 13, then how would you calculate prop tax each year, such as property base and rates going forward? would it be accurate? could you as a homeowner or anyone else test if your property tax was accurate or a mistake by some appraisor or state gov worker?
The answer is no! there are no real other alternatives.

Presumably it would be calculated the same way it is done in every other state in the US. Don't know about everywhere, but most places have a process for appealing property tax valuations. Usually you can present your case to the appraisers first, then take it to the board if you're still not happy. I was successful last year actually and lowered my property tax bill quite a bit.

Really is this rocket science? As a rocket scientist I can state it isn't. Plenty of states make do without Proposition 13 somehow. There are numerous operating state systems in which there is normal give and take between county tax assessor and citizens. If they want to raise the millage rate there's a vote. If your assessment is wrong you appeal it. Stating it's the ONLY RIGHT WAY is flatly nonsense unless you're one of those native Californians that's never left home and believes the rest of the world doesn't matter and is anyhow inferior to ANYTHING that Californians do.

lookforevan says

Prop 13 is one of those rare victory for tax conservative people who truly believe enough is enough. It is not fair and logical per se, but symbolic. The issue of tax is largely an issue over the contributor and beneficiary, it is a complicated and fundamental social issue.
If you let the state reverese this, you are voting for more right for the federal, state and local ability to tax. Where will it end?

We in NH have some pretty high property taxes. I can remember 15 years ago being cut up by Massachusetts residence who couldn't believe how high the taxes were. Now 15 years later most Mass property taxes are approaching the same threshold as NH. Every 4 years we get a promise that a new sales/income tax will lift the burden from the poor and make everthing all chocolate and gumdrops.

I'll keep my high property taxes, because I can go down to a town meeting and look my reps in the face when I tell them NO!

lookforevan says

Prop 13 is one of those rare victory for tax conservative people who truly believe enough is enough. It is not fair and logical per se, but symbolic. The issue of tax is largely an issue over the contributor and beneficiary, it is a complicated and fundamental social issue.
If you let the state reverese this, you are voting for more right for the federal, state and local ability to tax. Where will it end?

There's nothing logical about Prop 13, nor is it even symbolically good. What does Proposition 13 establish? It establishes that WHEN you buy something you get to lock in your maximum tax increases in future. It creates a permanent landed aristocracy. That's the first thing I hear around here from the Prop 13 brats it's "yeah Grandpa bought this place in 1968 so we pay only a small FRACTION of what latecomers pay, I am so smart and lucky".

I thought "tax conservatives" were usually those Teabagger types that like to have revolutions against monarchs and aristocrats. I certainly seem to see all the "tax conservatives" invoking Founding Fathers & Revolutionary War metaphors every other sentence. Seems like modern "tax conservatives", they just want to establish themselves as the new aristocracy in the next round.

lookforevan says

t is not fair and logical per se, but symbolic.

What's also going to be symbolic is California losing its A rating. Half or more the people here hurting with the welfare state and juicy government jobs cut, cut cut. 20% or so laughing to the bank.

Now, I stand to inherit my mom's $100/month property tax expense -- can't really call that a burden -- so I'm not really stressed by any of this RE BS.

Prop 13 on commercial properties is fiscal suicide. Taxing new improvements and not old land is economically insane.

Prop 13 was designed to destroy California as a going concern.

I have no problem freezing people's property taxes, hell, property taxes on OWNER-OCCUPIED properties should decline over time as kids grow up and demand for local services declines. But Prop 13 goes far, far beyond that.

wong89,

The jobs necessary for the residency, not the income. Certainly you know immigrants in The Fortress who used dowry money or family dynasty money to pay cash or else make a huge downpayment on their places... and still have money enough left over for all the Lexus, the ski trips, the every other year family junkets "back home", all the tutoring and private lessons for the kids.

thomas.wong89 says

you can transfer your tax base from one county to another

not all counties, and it has to be a downgrade, home-value wise.

Prop 13 may not help with falling prices, but it does in fact help keep prices up. The expectation of essentially free housing costs after 30 years of inflation wipes out the tax burden has significant present value compared to renting (and being fully subject to inflation year after year).

Repealing Prop 13 on owner-occupied residential is a non-starter, politically. As is repealing it for commercial or rental properties, because we're not smart enough to vote that intelligently on a somewhat subtle legal issue (owner-occupied vs rental), alas. cf. the recent Senate election. Plus many, many people now have a vested interest in their rental residential empires, no matter how pathetic.

thomas.wong89 says

Again, how did Prop 13 prevent prices from falling back in early 90s and why isnt it preventing prices from falling today?

you're confusing ds with ds/dt. Prop 13 tax benefits do not control the market, they just influence it by limiting supply.

Also, without Prop 13 the rational buyer would have to discount future tax burdens into his offer price.

This is not going to prevent the meltdown of the mother of all credit bubbles 2003-2006, or the late 80s bubble-bust in LA and elsewhere, which were driven by defense job outflow and rising interest rates doing a 1-2 on housing in LA and the South Bay.

thomas.wong89 says

As you can see we had lots of new construction over the past 10 years. No limiting new supply from coming into the market.

LOL. Sure, in Palmcaster, where they're now knocking down houses that nobody wants. Me, I want to live in a nabe that was subdivided before I was born. Unfortunately, the Prop 13 owners got there first, and thanks to Prop 58 this basically nonexistant tax expense will be passed on to the next generation.

I posted a study of a semi-random block I did in nabe very walkable to the Apple campus. 12 houses, average zillow value of $1,026,500, average property tax of $4,800, for an effective 0.5% tax rate. These houses rent for $3000/mo easily, so the $250/mo tax "burden" on the ones held the longest will never be sold and are essentially gone from inventory. 5 of the 12 houses on this block were paying under $250/mo.

Prop 13 has been around for a long time. Had it never been implemented, the landscape around here would look fairly similar. Some companies would be making less due to higher taxes, some landlords would be making less. There might even be higher turn over rates in some areas. I'm guessing that some in palo alto would be forced to move, due to high rates they could never afford on their retirement funds. Any money "gained" by not having it, would have been spent long ago.

Really prop13 just pushed some of the burden onto others, it isn't something that would have "saved" california had it never been brought in.

Someone should do the math on how much the state is losing because of prop 13 (maybe it's already been done). I know there is a bad spending problem in the state; I completely agree. But as others have said, when you see clusters of million dollar homes like in Cupertino, PA, Los Altos, Atherton, etc., and then you look at the taxes many of them are paying - $500/yr instead of $15000/yr - that lost money adds up pretty quickly.

thomas.wong89 says

Well Vincent, Instead of rocket scientist lets make you a budget director for the state of California. Any idea how your going to project next years revenues from property taxes ? Yes I am a native, and no it isnt the world is some how wrong, just the spendaholic liberals.

Fine I don't see this as difficult. Other states do it, why do you think it's hard? You make some educated guesses and project best/middle/worst case numbers based on historical data and housing starts etc. and get on with your life.

The larger problem with Proposition 13, is the entire PROPOSITION system in the first place. It's madness to let citizens check a box "yes for high-speed rail" or "yes more prisons please" when they are not assigning any budget increase for that. If it were a "check here to raise your property tax by X% to pay for project Z" then people would be much more prone to pick NO on that.

I would eliminate the Proposition system entirely. Let the state legislators decide both the projects and how it will be budgeted for as is generally done in other states and at the Federal level. I come from Georgia a very Red state, and we had numerous "spendaholic conservatives" like Newt Gingrich. But at least the accountability was simple, the Senators proposing a program had to find the votes for funding it and had to justify that to their constituents.

Wong, I agree with your observation about the HongKongers in the 1990's. That was two decades ago. Nowadays there's folks bringing a) dowry money and b) family dynasty money from other places besides Hong Kong. I personally know of cases a) and b) buying into Fortress in recent years. They could not care less about their salary; just needed the job (that happened to have came with the income) to get the US residency.

pkennedy says

Prop 13 has been around for a long time. Had it never been implemented, the landscape around here would look fairly similar. Some companies would be making less due to higher taxes, some landlords would be making less.

Thing is, being a LL qua LL is totally unproductive, other than cashing the rent checks.

Granted, rental mgmt itself is work to some extent, but, overall, ground rent is a simple, pure wealth transfer from the productive to the unproductive.

Ground rent is basically the rent we pay to keep other people out of our personal and work space, plus the convenience of being close to external amenities. There's no reason the LL should pocket this, he did nothing to create it, it should go to the gov't.

Ideally, residential housing would work as leasehold of the land from the county or city, with a declining burden as the owner of owner-occupied property pays into the system. Non owner-occupied should be taxed maximally to break this particular business model.

At some point residential, owner-occupied could even enjoy total tax abatement, with any abated tax attached as a lien perhaps.

This alternative makes too much sense to be ever considered.
The land was all here in 1848. Some of it has been improved, but few LLs actually have much investment in that these days.

pkennedy says

Prop 13 has been around for a long time. Had it never been implemented, the landscape around here would look fairly similar. Some companies would be making less due to higher taxes, some landlords would be making less.

Prop 13 radically changed the education system in CA. Basically destroyed it from what I can see.

On a side note, I'd love to compare how much money is spent in CA, particularly in SF, for private education because people have withdrawn from the public education system after it was stripped of cash by prop 13. In some sense this constitutes/can be equated to a tax, though its just not called it.

Troy says

Ideally, residential housing would work as leasehold of the land from the county or city, with a declining burden as the owner of owner-occupied property pays into the system. Non owner-occupied should be taxed maximally to break this particular business model.
At some point residential, owner-occupied could even enjoy total tax abatement, with any abated tax attached as a lien perhaps.
This alternative makes too much sense to be ever considered.

This is interesting. Another alternative is that there also could quite easily be a system in place to 'pro-rate' tax burdens for housing based on income. Account for the length of time an owner has been in a property and factor in their income level, to reduce the burden for lower income families.

-

Whether you're considering education or housing Prop 13 is not something that should be treated as a scapegoat, it should be simply smashed and repealed.

Wong! Oops, I'm wrong! :)

But you're right about transferring your tax base. Sadly, it's for 55-year-old's or older. And the new home must be of equal or less value. Shux! Why bother moving? Prop 13 discourages sales, plain and simple. Just because we've had over-building and bubble corrections here and there doesn't change that.

thomas.wong89 says

housingcasino says

It works both ways, and it’s possible Prop 13 generates more tax revenue in the long run. Here are the reasons:

- It discourages sales

- Fewer sales reduce inventory

- Fewer sales means less turnover, which creates nicer communities

- These factors force “values” up

- So when sales do occur, they’re at inflated prices and incidentally, we get higher tax revenue

Repealing Prop 13 would be like a huge margin call. Hundreds of thousands of people would be priced out of their homes and forced to sell. That would drive prices and tax revenue down across the board.

How do you explain the price drops in SoCal from 88-91 down 30-40%. Did Prop 13 do anything to discourage price declines?
Not a single thing.
As for property taxes, you can transfer your tax base from one county to another. So it doesnt discourage future sales of homes from happening.

Absolutely positively correct. I learned this back in the 90's when a cash register sales man told me how wasteful government agencies were. He was selling a few cash registers to some division of the city, but the city worker (the buyer) said he wanted top-of-the-line, which was much more expensive. The salesman tried to talk him out of it saying it was overkill for their purposes. The city worker said, "that's okay, if we don't spend the money they'll take it from us and next year we'll get less".

Back then I thought these practices would eventually stop. Totally contrary to what you're supposed to do in a competitive business environment. Has anything changed? It's gotten WORSE.

wish i was lucky says

The biggest reason the State is broke is because of poor money management.
Private Enterprise is about minimizing expenses, maximizing profits and paying as little taxes as possible.
Government is about spending all the revenues and when you run out - you ask for more. Generally they cut services that the public needs like police, firemen and healthcare. And don’t give me that Liberal - Conservative BS - All the departments try to get as much money as they can - and they have to spend it before the end of the Fiscal Year or they will get a reduced budget the next year. There is nothing about this system that lends itself to conservative money management.
I don’t claim to know everything -but I did work in Gov’t Accounting for many years and what I saw made me ill.
For starters - someone in our Gov’t invests. Not sure how it works but whenever I had a multimillion dollar check on my desk - I was told to get it into the Bank before noon and get it deposited into the General Ledger because the investors were chomping on the bit. Are these guys qualified to do this?
Second of all - I was handed a job that had not been reconciled in years and several million dollars crossed my desk. Many things had changed = but they decided that now it needed to be reconciled. I was new but they left it up to me because no one wanted the responsibility for anything if it went wrong. My immediate Supervisor wanted me to do my job and then put the data into a Lotus Spreadsheet - and the Accountants couldn’t give me any pointers except to make it work. I was, however, given a programmer to work with for awhile. So we at least set up a program that allowed me to collect the data I needed. It took me a year to learn all the pieces, collect the data and get an idea of what kinds of reports I might need. By this time the programmer no longer had time for me so I got about a 1 hour tutorial on how to do Crystal Reports. However, my computer did not create the same kinds of reports because I only had the custom program on my computer - not the software it was written with.
So I stumbled around and created reports. My Boss didn’t have a clue as to what he wanted the reports to look like - so with trial and error I worked out something with the Accountants. I ended up running some reports from the custom program and then creating spreadsheets in Excel to create the final report.
When I was finally able to reconcile and I was correct to the penny - My Boss did not say “Job Well Done” — He said “Oh - I didn’t think it could be done”. They did not want Auditors to know that I had this program either - because they had some other way of presenting the NUMBERS they wanted for their reports. This is for a desk that had 80 - 120 million dollars coming across it. Just imagine what it’s like at the Federal Level.
I don’t know how the State and the Federal Gov’t can even begin to know how badly things really are - because so much of the paperwork is just that “Paperwork” that is not part of the main reports that they run.
I personally am very worried about where we are heading.

No no! Don't go there, man. The government has a little trick, it's called inflation. First they say, "let's tax the rich! ra ra! ... we need to help uhh... the elderly and uh... children!!! and school teachers too!!!". Then the sheeple say, "yeah, tax those greedy bast@rds!". All seems well for about a decade (except for the "rich"). Then eventually, through the miracle of inflation, you end up in the "rich" tier yourself, and pay higher taxes. Then when the sheeple wisen up (wise sheep? yikes - well some of them) and say, "hey doods, ummm...cost of living has gone up, hasn't it!?" The politician, shysters say, "yeah, we'll get to that, promise!" But they never do (see AMT).

Notice how $100K annual income has been the magic number for "good pay" for the last two decades, and over $250K has been the magic number for "rich"?

If you were making $100K in 1990, you should be making $161K today to keep up, otherwise, you've taken a huge pay cut. And that's according to the lying arse BLS.

kentm says

pkennedy says

Prop 13 has been around for a long time. Had it never been implemented, the landscape around here would look fairly similar. Some companies would be making less due to higher taxes, some landlords would be making less.

Prop 13 radically changed the education system in CA. Basically destroyed it from what I can see.
On a side note, I’d love to compare how much money is spent in CA, particularly in SF, for private education because people have withdrawn from the public education system after it was stripped of cash by prop 13. In some sense this constitutes/can be equated to a tax, though its just not called it.
Troy says

Ideally, residential housing would work as leasehold of the land from the county or city, with a declining burden as the owner of owner-occupied property pays into the system. Non owner-occupied should be taxed maximally to break this particular business model.

At some point residential, owner-occupied could even enjoy total tax abatement, with any abated tax attached as a lien perhaps.

This alternative makes too much sense to be ever considered.

This is interesting. Another alternative is that there also could quite easily be a system in place to ‘pro-rate’ tax burdens for housing based on income. Account for the length of time an owner has been in a property and factor in their income level, to reduce the burden for lower income families.
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Whether you’re considering education or housing Prop 13 is not something that should be treated as a scapegoat, it should be simply smashed and repealed.

Look, Prop 13 hasn't affected eduction one bit. There is an obvious correlation between higher eduction funding and stupider kids. The charts are out there. Look them up if you're interested. Regardless, don't forget the hefty school impact fees builders must pay (and incidentally pass on to you, the buyer) when they build a home. I believe some parts of California are/were as high as $50K even per-small-medium-house.

Annnnd further more, don't forget "special assessments", which includes YET MORE FEES -- IN ADDITION TO PROPERTY TAXES. I should know, I have them. I pay over a thousand bucks a year at one of my houses to fund just one school bond. That does not even include the "special assessment" that pays for the local "college" bond. I think it's over $1400 total in "education" taxes to be somewhat exact. Yeah, "poor schools"!

Well, prop 13 is just stupid to transfer the value to heirs. I'll inherit a 1970 or '72 or w/e value on a Los Altos property. It'll probably rent for 4-5K per month, and taxes under prop 13 are currently about 2K per YEAR. Yea, that pays for services...

W/e, until jobs return, I won't return. Quite happy here in Texas at the moment with quality schools, a reasonable property tax system (counties can vote whether to allow senior citizens to freeze taxes at age 65 or something). My kid was FAILING in grade 1 to learn anything. The teacher was a noob who just trying to keep 30 kids speaking 5 different languages in line.

It's not just prop 13. CA needs to seriously revamp top to bottom. Lots of educated immigrants I believe is a good thing, but only if they're working into the system (English). What was it, Prop 187? Might be time to try some reform in CA.

SF ace says

Private education runs bewteen 12K to 20K a year after tax $ per child...

Thanks for the explanation! San Francisco's arrangement for public schooling seems like a real mess. I appreciate what they're trying to do, level the playing field for all so to speak, but they're doing this by mixing and 'leveling' the kids instead of leveling the funds and spreading them evenly across all neighborhoods, which would be a better way, I think, as it would preserve neighborhoods, reduce commuting, and encourage local community involvement.

The pro-rate of property tax system is simply impractical and irrational. First, that would layer in another layer of information...

Its not irrational and its certainly not impractical, in the least. I think as a culture we have the mental capacity to add one field from an income tax form into another and calculate the result without tipping the scales to chaos.

The great success everyone claims to like about prop13 is that it has in some cases allowed some low income families to stay in their old houses. Well Pro Rating property tax would be another way to do that while removing the waste of having the richer folk and absentee landlords skimming off the cake.

I'm reading between the lines here that perhaps you think that rewarding the rich is better than aiding the poorer folks, and that keeping the poorer folks in their homes is not really a concern but is just a pleasant fringe benefit that you can point to as a support for prop 13?

Second, property tax is a tax based on the value. Should you be charged more on your rent because you make more?...

Should you be charged less simply because you've been there longer? Same thing.

And I actually might argue "yes" to your question. Because for one thing its not rent, its property tax. Rent is whats payed to a landlord for the permission of using their private property. Tax is whats payed to a collective system in return for the benefits you receive back from that system.

As an aside, I'm one who believes that those who have benefited more from a system should feel no compunction about paying a bit more back into the system. Besides, they can much better afford it.

Tiering makes no sense in a transaction type tax. We have an income tax based system that accounts for income tax level already.

um... yeah. so how come it make no sense in a similar and totally related context, as above?

So do you think we ought to go to a Pole Tax system then? Would that be more fair, and also be what we're really only capable of calculating?...

The fairest property tax system is to assessed the land and improvements based on historical information over 10 years.

okay, well, talk about getting complex... and why only over ten years. This sounds rather arbitrary to me...