The Prop. 13 Money Machine

What if you could make an investment that returned 9 percent annually tax free? Not good enough? How about a 12 percent return in good times and no less than 3 percent in bad times — all tax free? Still not interested? How about if you received the money and didn’t have to invest even one red cent?

Now many readers are probably asking where they can get this deal. Unfortunately it is not available to the general public. This lucrative proposition is only available to cities counties and other local governments that receive funding from property tax revenue.

Los Angeles County the only county in the state with property valuation in excess of $1 trillion (that’s trillion with a "T") has seen a 9.3 percent jump in revenues this last fiscal year.

An isolated occurrence? Napa County revenues are up 9.4 percent — Napa’s yearly average increase since the passage of Proposition 13 has been 9.3 percent — and in Kern County the increase is 12 percent. By comparison Ventura County officials must feel almost poverty stricken at only 8.1 percent.

Still not every county will see a nearly 10 percent increase. Due to declining home prices Santa Cruz County is estimating only a 3 percent increase in property tax revenues for the fiscal year just ended after a 10.6 percent increase the previous year. But this decline is the exception according to Mike Coleman a fiscal policy expert with the California League of Cities. And keep in mind we are talking about a drop in the rate of increase not a decline in absolute terms.

Indeed even in down times in the real estate market thanks to Proposition 13 local governments can anticipate some increase in revenues. During a recessionary period in the early 1990s when sales and income tax revenues were actually declining a senior spokesman for the Los Angeles County Assessor’s offices told a reporter "Thank God for Proposition 13." This is because even with a shrinking economy the structure of Proposition 13 continued providing a nearly three percent increase in property tax revenues.

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. This is because Proposition 13 permits assessments to be increased by two percent per year in response to inflation. The result is that taxes are increased by two percent on all properties except those whose value on the assessor’s books is greater than the current market value — owners of these properties can actually apply for a tax reduction. Additionally new construction and properties that are sold while still under Proposition 13 go on the books at their new higher value.

The result is a system that produces an increase in property tax revenues that can reach the double digits in good times and still provides increased revenue in a down market.

In spite of this guarantee of more money for government year in and year out get ready for the whining from local officials as the housing market declines. It doesn’t take a rocket scientist to figure out that officials at every level of government will complain if they are not receiving their accustomed 8 9 or 10 percent annual revenue boost. After all most of them complain in good times when they are receiving increases in revenue that are well beyond what most of us in our jobs businesses or with our investments could ever dream of.

But here’s the real irony. These same critics of Prop 13 also complain — rightfully — that other revenue streams to government are very unpredictable. California’s overly progressive income tax system and heavy reliance on sales tax revenues make both the state and local governments susceptible to boom and bust cycles.

Will these "experts" in public policy ever acknowledge that Prop 13 — drafted by two amateurs named Howard Jarvis and Paul Gann — not only saves homes but also created a tax system that provides government with its most reliable source of revenue? Don’t hold your breath.

Jon Coupal is President of the Howard Jarvis Taxpayers Association — California’s largest taxpayer organization — which is dedicated to the protection of Proposition 13 and promoting taxpayers’ rights.