Anonymous Comments Will Be Removed

Anonymous posts can be confusing and hard to follow with several users posting anonymously in the same thread. Please create a User Name/ID when adding to our comments section.

Thursday, August 16, 2007

Proposition 13 - Pros and Cons

My wife and I lived in California in the late 1970s when Proposition 13 was created and passed by a state wide voter initiative. It was opposed by most state legislators along with most County and City governments. What follows is our personal view on the effects of Propsition 13 over the last 28 years in California.

The supporters of the Jarvis-Gann initiative (prop.13) were realtors and a majority of the state’s property owners.

Prop 13 was attractive to many since it promised to cap property taxes that were increasing at an unprecedented rate. Many older and retired homeowners were being forced to sell their homes because they could not afford the ever growing property tax bite.

What was not apparent during the campaign to pass Prop. 13 were some unintended consequences that would follow this major tax code change.

The opposition forces to Prop. 13 were the Police, Fire and other County or municipal leaders that were threatened by a possible reduction in tax funding for their services impacted by a fast growing state population.

Prop. 13 succeeded in California because of the high mobility of many of its residents. California residents move around or upgrade their home status at a very high rate. This activity is an important ingredient for tax based services under Prop 13.

Positive results of Prop. 13 in California:

A cap on your property taxes at the existing level. Minor increases in the future taxes as long as you remained in your
present home.

The sale of homes around you had no negative influence on
your property taxes as long as you remained in your existing home. This protected older and retired property owners from continuing increases in taxes.

Implementation of Prop. 13 in California prodded State and local governments to initiate tax programs such as impact fees and other bond based taxes that directly taxed only the new property owners for some government services.

Unintended Consequences of Prop. 13 in California:

Inequities in property taxes on identical or similar homes.

If you and your neighbors had similar homes and property taxes, those that remained in their existing homes saw almost no increase in property taxes. However, those that wanted to upgrade their lifestyle and sold to buy a larger home in the state, paid property taxes at 1.27% of the purchase price of their new home. The appraised value was adjusted to the price of the purchased home. This tax rate is also applied to the property tax amount on new construction.

As a result of these tax changes, similar houses next to each other may have a large disparity in property taxes depending on how many times one house sold. This may negatively impact the ability of a homeowner to sell the higher taxed home in the future.

Utah is growing very quickly, but most Utah residents are less mobile and stay put in their existing homes. This could cause a tax revenue shortfall due to a statewide Prop. 13, thus creating serious tax based funding problems for those services such as Police and Fire, as well as many other City, County, and State services.

Prop.13 did not result in serious tax shortfall problems in California because of the never ending movement of homeowners and new construction. However, it may be something to consider when we consider a similar tax option in Utah.

For many property owners in California, the overall posititve effect of Prop. 13 was that it forced the tax supported entities at all levels to start implementing fiscal responsibility (living within a budget) instead of having open access to the taxpayers checkbook.

Larry and Sharon Zini

No comments: