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[academic_cog]

Prop 13 is why, as a recently new homeowner, I am paying top dollar for taxes on my house while the house next door to me is held in a family trust and being put on the rental market as `income property' for which the family will make a lot of money because they pay a fraction of the taxes I pay.  On top of that, my town recently voted some add on taxes based on `assessed value' which means we got a 25% increase in our property taxes, which were already maxed out at top value.  Another house across the street is also income property.  And this is in a neighborhood where lot value is over $1M.  Neither house has been occupied by elderly people on fixed income.  In one case the prior property owner passed away but the house is kept in the family, none of whom live anywhere near the property.  Something is wrong with this broken system.  At the very least they could tax rental income at a rate that is commensurate with the tax break people are getting from prop 13.    

I was in high school in LA when Prop 13 passed.  It was catastrophic almost immediately in the public schools--out went art, out went music, up went class sizes, etc., etc.

The situation that UC prof mentions is real.  My folks house--for which they paid $23,000 in 1963, and which they remodeled and added a pool in the summer of 1975 (I remember it well--the summer between 6th and 7th grade!) for $20,000, was reassessed back to its 1975 (pre-remodeling, oddly) value in 1978.  They paid, get this, something like $420/year in property taxes until they sold the house in 1992 (in the midst of a downturn) for $218,000.  The people who bought it in 1992 still live there, if Google is to be trusted, so they've been paying in the neighborhood of  $2,200 in property taxes, without increases, since then.  Houses in the neighborhood two years ago were going for the mid-500s to mid-600s (this is astounding, as it was a crap neighborhood of late-50s ranch houses with nothing particular to recommend it), and thence new buyers then were paying $5,500-$6,500 in taxes.

Wow, I didn't know about the renting-out shenanigans! I'm pissed off about Prop 13 because corporations, as "persons," benefit from it exactly the same way. (And corporations don't die, so these tax rates could theoretically extend forever.) We have some old McDonalds's from the late 70s that pay pennies compared to the new restaurants built right next to them in my town. Someone told me that Disneyland pays annual property taxes "in the hundreds" for all it's socal land. Grrr....

[ucprof]

Wow, I didn't know about the renting-out shenanigans! I'm pissed off about Prop 13 because corporations, as "persons," benefit from it exactly the same way.

Believe it.  You can even check yourself by going online as many houses for rent are listed on the MLS by real estate agents and they include the property address online.  So you can see what they are asking for rent.  Then you can go and look up the address online on the assessor's web page and find out how much that property pays in property taxes. http://www.boe.ca.gov/proptaxes/assessors.htm

[navydad]

Not defending all of Prop 13 here, but it might be useful to point out the very real and valid reasons it passed and is unlikely to be repealed. Examples of "low tax" houses held in trust and rented out certainly seem unfair and unreasonable, but they hardly reflect the reality facing most homeowners in California. The main purpose of Prop 13 was to limit dramatic increases in homeowners' property taxes. People were being taxed out of their homes, or were afraid they would be, due to increases in tax rates, but most especially due to dramatic increases in residential real estate prices. It seems to me to be manifestly unfair to tax me for gains in the "market value"  of my house (determined by whom, btw?), gains which I can't really spend or invest, which might not be there if and when I sell my house, and which often reflect the irrational decisions of buyers at the top of a market cycle. So 18 months ago my house was "worth" at least 100k more than it's "worth" today. So what? The only "value" of my house that matters to me is the price I can get for it if and when I sell it. So I'm supposed to pay more taxes because some speculative fools overpaid for their houses, thus jacking up "values"? Many, if not most, people buy houses they can afford (and those who don't deserve little consideration). If you buy a house at a given cost (including taxes) today, presumably you have decided you can afford the cost. No one forced you to buy at that cost and I should not have to bear higher costs that I might not be able to afford based on your decision about what you can afford. I certainly am not an economist and I fully understand that Prop 13 is about much more than residential real estate taxes. I also am aware that Prop 13 has had many unintended consequences (e.g., disincentives to sell, which restricts supply, which increases prices). My point here is not to make an economic argument in favor of Prop 13, but to explain the psychology behind it, psychology that is based in reality and which makes Prop 13 politically untouchable. Finally, focusing on Prop 13 misses the point. It was passed in 1978. California state and local governments have had 31 years to adapt to Prop 13 and they have failed abysmally. That is what's wrong with the Golden State.

[temporaryname]

<snip>

Finally, focusing on Prop 13 misses the point. It was passed in 1978. California state and local governments have had 31 years to adapt to Prop 13 and they have failed abysmally. That is what's wrong with the Golden State.

Actually, given my observation of Florida's experience with similar laws, it may actually be impossible for state and local governments to adapt to any law that restricts tax inflows without keeping pace with, at least, inflation.

[jonesey]

Many, if not most, people buy houses they can afford (and those who don't deserve little consideration).

Not in California, where the average price is still around $400,000k in most areas.  In 2005, when I left, it was common for people making $40-50K/year to use piggy-back mortgages to buy homes in the $400K range, hoping to flip and sell them in 6 months when they'd go up $50-100K in value, then refinance in a different home.  

If you weren't there, you don't know how fear was used to sell homes to people.  "If you don't buy now, you'll never be able to afford a home in California!" was a common refrain.  I watched houses shoot up $50,000 in value in a matter of weeks that year.  People overbid by tens of thousands just to get a house.  They showed up early, camped out in new subdivisions, all to get a shot at the American Dream.  

The biggest issue with Prop 13 is that, because of the artificially low property tax rates compared to market value in California, it actually served to help fuel the skyrocketing real estate costs.  Furthermore, it robbed the state of an incredibly lucrative source of income; property taxes, which are used to fund schools, roads, and social welfare programs.  

[aandsdean]

Not defending all of Prop 13 here, but it might be useful to point out the very real and valid reasons it passed and is unlikely to be repealed. Examples of "low tax" houses held in trust and rented out certainly seem unfair and unreasonable, but they hardly reflect the reality facing most homeowners in California. The main purpose of Prop 13 was to limit dramatic increases in homeowners' property taxes. People were being taxed out of their homes, or were afraid they would be, due to increases in tax rates, but most especially due to dramatic increases in residential real estate prices. It seems to me to be manifestly unfair to tax me for gains in the "market value"  of my house (determined by whom, btw?), gains which I can't really spend or invest, which might not be there if and when I sell my house, and which often reflect the irrational decisions of buyers at the top of a market cycle. So 18 months ago my house was "worth" at least 100k more than it's "worth" today. So what? The only "value" of my house that matters to me is the price I can get for it if and when I sell it. So I'm supposed to pay more taxes because some speculative fools overpaid for their houses, thus jacking up "values"? Many, if not most, people buy houses they can afford (and those who don't deserve little consideration). If you buy a house at a given cost (including taxes) today, presumably you have decided you can afford the cost. No one forced you to buy at that cost and I should not have to bear higher costs that I might not be able to afford based on your decision about what you can afford. I certainly am not an economist and I fully understand that Prop 13 is about much more than residential real estate taxes. I also am aware that Prop 13 has had many unintended consequences (e.g., disincentives to sell, which restricts supply, which increases prices). My point here is not to make an economic argument in favor of Prop 13, but to explain the psychology behind it, psychology that is based in reality and which makes Prop 13 politically untouchable. Finally, focusing on Prop 13 misses the point. It was passed in 1978. California state and local governments have had 31 years to adapt to Prop 13 and they have failed abysmally. That is what's wrong with the Golden State.

Proposition 8, on the ballot at the same time, accomplished exactly the same ends without providing the same break to corporations, etc.  It would have helped people not be taxed out of their homes at the same time as it didn't quite do so much to strangle public services in California.

But the right-wing supporters of Prop 13, led by Paul Jarvis, made so much noise that the much more rational policy of Prop 8 was simply drowned out.

What's wrong with the Golden State and everyplace else in the country is that voters are not rational, and don't seem capable of paying attention to the nuances of policy.  But that's another question for another day, and we educators certainly have some responsibility for the problem.

[inthelab]

Not defending all of Prop 13 here, but it might be useful to point out the very real and valid reasons it passed and is unlikely to be repealed. Examples of "low tax" houses held in trust and rented out certainly seem unfair and unreasonable, but they hardly reflect the reality facing most homeowners in California. The main purpose of Prop 13 was to limit dramatic increases in homeowners' property taxes. People were being taxed out of their homes, or were afraid they would be, due to increases in tax rates, but most especially due to dramatic increases in residential real estate prices. It seems to me to be manifestly unfair to tax me for gains in the "market value"  of my house (determined by whom, btw?), gains which I can't really spend or invest, which might not be there if and when I sell my house, and which often reflect the irrational decisions of buyers at the top of a market cycle. So 18 months ago my house was "worth" at least 100k more than it's "worth" today. So what? The only "value" of my house that matters to me is the price I can get for it if and when I sell it. So I'm supposed to pay more taxes because some speculative fools overpaid for their houses, thus jacking up "values"? Many, if not most, people buy houses they can afford (and those who don't deserve little consideration). If you buy a house at a given cost (including taxes) today, presumably you have decided you can afford the cost. No one forced you to buy at that cost and I should not have to bear higher costs that I might not be able to afford based on your decision about what you can afford. I certainly am not an economist and I fully understand that Prop 13 is about much more than residential real estate taxes. I also am aware that Prop 13 has had many unintended consequences (e.g., disincentives to sell, which restricts supply, which increases prices). My point here is not to make an economic argument in favor of Prop 13, but to explain the psychology behind it, psychology that is based in reality and which makes Prop 13 politically untouchable. Finally, focusing on Prop 13 misses the point. It was passed in 1978. California state and local governments have had 31 years to adapt to Prop 13 and they have failed abysmally. That is what's wrong with the Golden State.

I thought the reassessment came only after one sold.
Thus now you have the situation where my brother, who lives in Hancock Park, LA (swimming pools, movie stars) pays ~$5k per annum in property taxes on a mansion (yes, mansion) with an acre, a swimming pool, a guest house, etc.  Something's not right here.

[navydad]

A short addition. I happen to believe that ballot initiatives are almost invariably problematic, if not downright disastrous, and my previous post is not a defense of Prop 13. The problem of rapidly escalating residential real estate taxes should have been addressed in limited and specific ways by the legislature, not by the legal dirty bomb that is Prop 13. Nevertheless, it was passed 31 years ago and our governments have neither adapted to it nor fixed it. In fact, one could argue that the failure of our state and local governments to function effectively has encouraged government by proposition, which has then further impeded the ability of government to function effectively, which then....... 

[jonesey]

A short addition. I happen to believe that ballot initiatives are almost invariably problematic, if not downright disastrous, and my previous post is not a defense of Prop 13. The problem of rapidly escalating residential real estate taxes should have been addressed in limited and specific ways by the legislature, not by the legal dirty bomb that is Prop 13. Nevertheless, it was passed 31 years ago and our governments have neither adapted to it nor fixed it. In fact, one could argue that the failure of our state and local governments to function effectively has encouraged government by proposition, which has then further impeded the ability of government to function effectively, which then....... 

California relies almost exclusively on propositions to get things done due to the current set up of its Assembly and State Senate (All issues require a 2/3's approval to enact, rather than the 51% most states require).  This has led to decades of gridlocked government, where nothing gets done, ever.