Howard Jarvis the leader of California’s most famous tax revolt passed away more than 20 years ago but over the past year his name continually popped up in newspaper articles across the United States. Property tax troubles were brewing throughout the country and Jarvis’s prodigy property-tax-cutting Proposition 13 was remembered by beleaguered taxpayers as something to be emulated to protect against out-of-control taxation.
As Proposition 13 reached its 30th anniversary on June 6th there were no protests over high property taxes in the Golden State. Proposition 13 still has it opponents and critics but in recent polls voters still support Prop 13 by the same two-to-one margin it passed by three decades ago.
Under the provisions of Proposition 13 California taxpayers enjoy a sense of security knowing what their property taxes will be year-to-year. The same cannot be said for taxpayers in other states. Over the course of the last year from Florida to Indiana to Arizona to Washington the shock over dramatically rising property taxes led to swamping tax officials with appeals for lower assessments organized protests and threats of citizens’ initiatives to overhaul state property tax systems.
Meanwhile in California the taxpayers seem satisfied. Proposition 13’s acquisition-type property tax system set the property tax assessment when a property is purchased and it capped future increases. Placed in the state constitution by initiative in 1978 Proposition 13 stated the property tax rates could not exceed 1% of the property’s market value and absent a sale or major remodeling of the property property value increases were capped at a maximum of 2% per year. If a property was purchased the property could be reassessed at 1% of the new market value with the 2% cap put in place for yearly increases.
Despite Proposition 13’s initial tax cut property tax revenue has been the most reliable of any tax revenue source in the state. It has not ebbed and flowed like the sales tax or particularly the income tax. California is currently facing a severe budget shortage because of the downturns in sales and income taxes coupled with legislative spending that exceeds revenue collection. However because of the 2% yearly factor and change-of-ownership re-assessments under Proposition 13 there has even been a steady increase of property tax dollars exceeding the inflation rate year in and year out.
That is true even in difficult economic times. Because most properties are taxed at acquisition value plus 2% yearly increases a property’s value on the tax roll is usually much lower than current market value. So when the current market value drops unless recently purchased most properties continue to pay the same taxes plus the 2% inflation increase. Overall property tax revenue in California counties has generally increased.
Since 1980 Los Angeles County’s property tax revenue has gone up by an average of seven percent a year. Last year the increase in revenue was over 9% and even with the housing market taking a hit with the subprime loans crisis officials indicate that the county will still show a positive property tax revenue flow this year of about five percent.
While local governments have enjoyed reliable property tax revenue under Proposition 13 taxpayers have enjoyed something they rarely if ever had under subjective property tax re-assessments — something taxpayers in other states are yearning for: tax certainty.
The beauty of Proposition 13 is that it not only makes taxes predictable for property owners which allows them to budget for taxes but it also stabilizes revenue to those government agencies that depend on the property tax.
Looking out across the property tax landscape the trail blazed by Howard Jarvis still beckons others to follow.
Jon Coupal is president of the of the Howard Jarvis Taxpayers Association. Joel Fox is past president of the Association current president of the Small Business Action Committee and editor of Fox & Hounds Daily dedicated to California business and politics.