Prop. 13: Will It Be the Victim of Its Own success?

In order to "solve" California’s massive budget crisis the tax-and-spend lobby and left-leaning academics are again suggesting that we revise Proposition 13 which changed the state’s tax structure in 1978 by lowering property tax rates and limiting annual increases.

Ironically these new efforts to change the highly popular initiative are based not on the argument that Proposition 13 has failed California but on the grounds that Proposition 13 is working precisely as intended.

California’s budget problem is a result of unrestrained overspending coupled with unstable sources of revenue. Because we overspend we immediately experience budget shortfalls when the economy dips. It bears noting that unstable sources of revenue by themselves would be no problem if elected leaders had the discipline to save money in good years. But they don’t so here we are again.

Governor Schwarzenegger has repeatedly complained about the volatility of California’s revenue sources. "Traditionally property taxes show more stability than other kinds of taxes" he told the San Diego Union Tribune noting that states that rely more on property taxes than California have been able to avoid severe budget crises.

But the Governor is only partly correct. True property taxes generally are more stable but — and here is the important part — in California it is only Proposition 13 which has rendered the property tax stream stable. Because California has seen some of the largest market value drops in America our property taxes would be just as unstable as our income and sales tax revenue if it were not for Prop. 13.

Earlier this year the governor established the California Commission on the 21st Century Economy tasked — in the language of Sacramento — with coming up with a plan to "stabilize revenue" to the state. Although the stated purpose was to adjust taxes in a "revenue neutral" manner (no net increase in taxes to government) there is little doubt that some members of the Commission would like nothing better than to impose new taxes — including "carbon taxes" — which would serve only to grow the size of government.

When this writer testified before the Commission earlier this year I pointed out that Proposition 13 has been just about the only thing that has saved government particularly local governments in this recession. While income tax and sales tax revenue are way down by double digit percentages property tax revenues have simply flattened out notwithstanding dramatic drops in market value. True some counties will see slightly larger drops in revenue than others but some counties will actually see increases in property tax revenue. There are few places in all of America which can make that claim.

Here is the real irony. Our sales tax and income tax system has evolved over many years in ways dictated by our political elite and smartest policy advisors. Thus the volatility that we now complain about has been brought to us by people who are oh so much smarter than the rest of us. Proposition 13 on the other hand was sponsored by two relatively simple men Howard Jarvis and Paul Gann who were seeking first and foremost just to protect homeowners.

And this is what the myopic Sacramento political class does not understand. We did not pass Proposition 13 because it provides government with stable and expanding revenue although most of us are pleased that it does. We passed Proposition 13 because we wanted the realistic expectation that we could hold onto our homes and property and not shudder in fear that we could be forced out into the street every time our property tax bill arrived in the mail box.

Because it is working at both protecting homeowners and has the beneficial side effect of stabilizing revenue why on earth would anyone want to change Proposition 13?

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.