By Dean Bailey

Much has been said and written about the 1978 passage of California’a Proposition 13. The positive benefits for homeowners have been lauded, while the negative effects on tax revenue are decried.

From my perspective, as a former property tax administrator with both the Alameda County Assessor’s Office and the State Board of Equalization, Proposition 13 essentially was a meat cleaver solution to a problem that should have been approached with a scalpel.

While homeowners have benefited, the big winners are Chevron, Safeway, Macy’s and other commercial enterprises that have their property tax level frozen at 1978 levels. Chevron — with its two large California refineries, numerous bulk plants, pipelines and retail outlets — has profited mightily.

In all the reviews of Proposition 13, one important aspect appears to have been largely overlooked. That is the effect this law has had on property values, especially single-family homes in California.

Prior to the passage of Proposition 13, county assessors were required to assess all property, including homes, at 25 percent of market value. Most urban tax code areas had a tax rate of about $12 per $100 of assessed value. Thus, the effective tax rate was about 3 percent of market value. Most California homeowners were paying less because assessors were not keeping up with moderately increasing values.

With the passage of Proposition 13, the property tax burden on all property owners was substantially reduced. Older people, who, prior to Proposition 13, would feel economic pressure to sell their home and find other living arrangements, could now remain in their affordable home and not have to move. The result is that millions of elderly people (couples, widows and widowers) are now living in homes that in prior years would have been sold.

Thus, millions of homes have not been, and are not, on the market. As the supply of homes is stabilized or reduced and demand remains strong, prices are profoundly affected. The economy felt the result of this demand-driven price increase in the years following the passage of Proposition 13 in 1978.

In the 30-year period from 1978 to 2008, the price of homes in California far outpaced the Consumer Price Index for other commodities, due in large part to the reduced supply of homes resulting from the passage of Proposition 13.

The results of Proposition 13 are still with us. Older people are not motivated to sell. Their homes are not sold, and they are not revalued by the assessor to produce more tax revenue for the local community. Young families are denied the opportunity to occupy a home they would previously have purchased at an affordable price. School enrollment declines and teachers are laid off,

Is there a solution? Yes, there are numerous approaches to a solution. One would be to revise Proposition 13 to exclude commercial properties, probably a good thing even at the risk of making California less competitive than other states (California now has one of the lowest property tax rates in the nation).

As a practical matter, the best solution is for a community to encourage the building of attractive, affordable alternative housing for elderly people. Give them an opportunity to move to a good quality, well-planned neighborhood in their community.

As an example, we live in Davis, a town with an indisputable aging population. The city resolutely has refrained from doing anything to encourage attractive senior housing (with the possible exception of the University Retirement Community, and several other isolated developments). City planners appear oblivious to the positive property tax revenue enhancements that would be generated by encouraging older people to move to a senior community.

Many of our friends here in Davis own homes in the $500,000 to $750,000 price range that are currently assessed at $70,000 to $80,000 based on their 1978 assessed value plus the 2 percent annual increase specified in Proposition 13. The tax on these homes averages $810 per year, assuming the $7,000 homeowner’s exemption, or a revenue production difference of $5,940 each year.

Assuming 300 seniors were to sell their homes and move to new housing, the community would benefit in the amount of about $1.782 million per year, not an insignificant amount. In addition, seniors purchasing new housing in a senior community would pay taxes based on current values. Seniors are desirable homeowners because they require less police protection and they do not impact school enrollment.

It is in the best interest of the city, the schools, seniors and young families seeking housing to encourage the development of senior living communities. These communities need to be attractive enough to motivate us older folks to sell our homes and relocate to the kind of housing that is currently unavailable.

— Dean Bailey is a Davis resident.

Comments

comments