Nearly four decades after its passage, California’s Proposition 13 is still a contentious political landmark.
To conservatives, its property tax limit and restrictions on raising other taxes are bulwarks protecting Californians from rapacious demands for more spending.
To liberals, Proposition 13 is the devil’s work, starving education, health and social programs of badly needed support and fostering economic injustice.
However, it’s evident that many of those debating it really don’t understand how it has affected state and local finance.
Moreover, the purported analyses of Proposition 13’s effects tend to be self-serving, ginned up by those in the debate – particularly over whether its limits should continue for all taxable property or be stripped from commercial property via a “split roll.”
The Legislative Analyst’s Office, a fount of straightforward information about government finances for 75 years, stepped into the void Monday with a booklet that delves into the many “common claims about Proposition 13” with facts and analysis about each.
Most importantly, the LAO’s analysis separates fact from fiction about the split-roll concept, which unions and other liberal groups have promoted for decades by arguing that homeowners are shouldering an ever-larger share of the $50 billion in property taxes that schools and local governments collect each year.
Fundamentally, the LAO’s analysis rejects that claim, concluding, “Proposition 13 likely did not cause the slight increase in the share of property taxes paid by homeowners.”
As comprehensive as it is, the LAO’s booklet does not answer the most intriguing question about Proposition 13 – what would have happened on property taxes had voters not passed it in 1978?
That’s because there’s no way to know how taxable values would have changed in the absence of the measure’s 2 percent annual limit on increases, or how local government officials would have altered tax rates that Proposition 13 now limits to 1 percent of valuation (plus bonded debt).
We know that California’s taxable property, with the measure’s limits, is valued at about $5 trillion now and that’s 10 times as much as in 1978, when Proposition 13 was passed.
We know that commercial and industrial property is roughly 40 percent of that total, or about $2 trillion, and that were it to be fully assessed at market value with a split roll, it would jump by 40 percent to $2.8 trillion, thus generating approximately $8 billion more in revenue at a 1 percent tax rate.
Given those known factors, in the absence of Proposition 13 we could assume that taxable values for all California property would reach $7 trillion, which at a 1 percent rate, would generate $70 billion a year, or $20 billion more than the system produces now. Were California taxing $7 trillion in property at the same 2.67 percent rate it was prior to Proposition 13’s passage, the system’s revenue would approach $190 billion, nearly four times the current total.
Obviously that would be politically unsustainable, so something would have happened to limit the increase. It just happened to be Proposition 13.