Millions of Californians will be paying billions of dollars in local government and school property taxes this week.
The exercise will be repeated next spring as the second semi-annual property tax installment payment comes due and the grand total for the 2015-16 fiscal year will be somewhere north of $55 billion.
That’s a lot of money for anyone not named Gates or Buffett, but it could be several times as much were it not for Proposition 13, passed by voters in 1978.
Nearly 40 years later, the argument still rages between those who are thankful and those who are resentful that Proposition 13 limits property taxes. The conflict may wind up on next year’s ballot via a measure that would impose higher taxes on properties worth more than $3 million, with proceeds going to children’s programs.
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It’s impossible to precisely quantify Proposition 13’s financial impact, so some round numbers will have to suffice.
Prior to its enactment, land and buildings, both commercial and residential, were periodically reassessed to reflect their market value and local government and school governing boards were free to set property tax rates.
Overall, the state had less than a half-trillion dollars of taxable property at the time, and the average tax rate was more than 2 percent, thus generating roughly $10 billion a year in revenue.
Proposition 13 limited annual property reassessments to inflation, with a 2 percent cap, although property that changed hands and new construction were placed on the rolls at their initial market value. And tax rates were fixed at 1 percent plus voter-approved bonds.
Even with those limits, taxable property has since increased more than tenfold to about $5 trillion, thanks largely to new construction, and with an overall tax rate of 1.1 percent, including bonds, revenue is more than $55 billion.
Were Proposition 13’s limits not in place, and property tax values had reflected market values for the past 37 years, the total might be twice as much, or perhaps $10 trillion, a 1993 UC Davis study indicates. And were the pre-Proposition 13 tax rate, 2-plus percent, also still in place, revenue would be over $200 billion.
That number – equivalent to all California non-property taxes – would have been politically unsustainable, however. So even if Proposition 13 had not passed, state and local politicians would certainly have faced a tax revolt of some kind.
A hint of the inherent conflict emerged in two official reports that were, coincidentally, issued on the same day last week.
The Legislative Analyst’s Office reported that median home prices had jumped 45 percent in the last four years.
Meanwhile, the state Board of Equalization told county tax assessors that due to low inflation they could increase taxable values next year by just 1.525 percent – well under Proposition 13’s 2 percent limit – for properties that had not changed hands.
It’s new fuel for California’s perpetual debate over property taxes.