patrick.net

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.

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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.

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.
-
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...

thomas.wong89 says

LOL! and somehow back after Prop 13 passed, we somehow managed to have a highly educated workforce which propelled a tech boom in the 80s? so where did the Engineers and Business workers come from who started to work in places like Silicon Valley?

Dood. You come on like you're such a math whiz, please make more sense or stop expounding on with such a lofty tone all the time.

Prop13 was passed in 1978 and the effects were cumulative from that point, starting in small increments.

The kids who were making those tech booms happen, the Engineers and Business workers, were educated in system that was designed and funded prior to 1978. *

Every year after that its gotten worse and worse, to the point we find ourselves in now, in a cash starved system that has created whats now the (?) third or fourth lowest education rating in the country. The CA world those kids grew up in is not the CA world we find ourselves in now.

Ix-nay on the one-tay.

-

* Besides, anyway, didn't the boom occur partially because of tax incentives to business that drew a lot of that innovation to the area?

2 comments

1 - Prop 13 was also about the stopping of the raising any taxes. It required 2/3 majority to pass any tax raises - hence the minority legislators rule the process - very ineffective.

2 - In either the state of NJ or a city in NJ, they calculate property taxes by taking the median house price and then comparing all houses to that price. They set the value for the median house price. Some will owe more taxes if their house is valued over the median price and less if below the median price. They re-evaluate it every 3 years and they have a total pool amount that they want (that may increase 3% each time) - so it's distributed over all the houses - so not based on percentages. It seems more fair because it's equitable and doesn't matter that you were able to purchase a home before 1978.