Just making mention of Proposition 13 flares tempers. On one side, advocates of the 1978 voter-approved legislation, mostly conservative Republicans but also many others who have lived in California for decades, see it as the only way to live and work in California. The proposition limited property tax increases to 2 percent per year of the assessed value from the time of purchase, though the tax would increase upon sale. As popularity of living in California grew, the value of limited coastal properties also grew, exponentially, while earnings did not. The passage of Proposition 13 served as a way to prevent families from having to sell their homes who otherwise would not have been able to keep up with their property taxes. On the other side, however, there are several consequences of Prop. 13, issues that are compelling some to seek its reform.
A couple of major side effects to Prop 13 include lost tax revenue, which would go toward improving schools, reducing class sizes, etc., and addressing local issues, such as street repairs and other necessary infrastructure issues. Consequently, legislators have had to come up with ways to balance budgets by increasing other taxes, such as voter-approved special assessment districts, bond measures and sales taxes. Also, it created some stagnation in the real estate market as property owners held on to their homes with lower property taxes instead of selling them to relocate for new jobs. The consequent increase in commuting causes any number of impacts on the quality of life, from traffic to air quality. But there is also a less talked-about consequence, a loophole that two state senators want to close.
While the altruistic intention of stabilizing families in their homes has come to pass, commercial property owners have also benefited from Prop. 13. The fact is, commercial property owners have a tendency to hold on to their properties longer than the average family, realizing a substantially greater benefit from Prop. 13 by delaying any sale of the property. Sens. Loni Hancock, D-Berkeley, and Holly Mitchell, D-Los Angeles, authors of legislation that would reform Prop. 13, said that closing one Prop. 13 loophole by making it inapplicable to commercial and industrial properties could free up as much as $9 billion annually to go back to state and local budgets.
This is where it gets ugly. Even the staunchest liberal can get rather defensive over any discussion on Prop. 13. Some contend that any changes to Prop. 13 could result in overturning it altogether. Others say that closing the loophole on commercial and industrial property owners could result in protecting the bottom line by passing costs along or layoffs. (Of note, however, there are tax breaks included for small-business owners impacted by the change.) The proposal also doesn’t fix issues concerning stagnation in the real estate market and increased commutes.
While this proposed legislation, which, even if passed by state legislators, would have to go before the voters, may not be the right fix, the discussion is necessary. As a whole Prop. 13 should be re-examined, as it is unbalanced in favoring those who were able to purchase homes decades earlier, when home prices could have been considered affordable compared to what is on the market now, consequently burdening younger homebuyers simply because of their purchasing capability or lack thereof. But, for now, giving a break to commercial property owners who only infrequently sell their properties while driving up taxes on everyone else (e.g., homeowners who must sell properties more often, new tax measures, bonds, etc.), especially those with low or fixed incomes, isn’t right.