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When all else fails blame Proposition 13
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Proposition 13 gets blamed for everything in California.
Now public policy gurus are slamming the 1978 property tax measure for dooming California to decades to come for the government needing to struggle to stay on its high tax dollar diet.
The California Department of Equalization noted that overall property tax revenues increased over the five-year period from 2003 to 2008 (8.38% in 2003, 8.51% in 2004, 11.06% in 2005, 12.55% in 2007, and 4.82% in 2008) but are now going to decrease through 2011 with a 6.14% hit this year, 3.51% drop in 2010, and a 0.82% decline in 2011. Then in 2012 the property tax receipts are expected to increase over 2011 by 1.08% followed by a 5.23% leap in 2013.
This is horrible, we’re told, because this is now putting government on a starvation diet. Funny, no one in power were ever upset when overinflated housing prices from 2003 to 2008 allowed the state to live high on the hog. Sacramento was no different than others who got greedy. They had extra money coming in so they spent, spent, and spent adding a slew of new programs assuming the day of reckoning would never come. Now that it has arrived they of course blame Proposition 13.
Why should government be exempt from the ebbs of the market that they spend so much time manipulating with regulations? Those in the private sector who practice restraint during the excess greed and speculation got hurt but they are the ones who are now buying all that distressed property.
Besides, if the government remains financially whole during an economic downturn calamity, the bottom line would only be to distress the private sector – read that homeowners and businesses – even more.
That is what this whining over Proposition 13 is really about. It took away an easy way for the key bureaucrats and elected officials to keep squeezing Californians for more money to spend on things that went beyond basics and at one time were not considered essential. Class-size reduction is nice, but it wasn’t essential for decades just like top-of-the-line care for incarcerated state prisoners. In a way, those things are the state’s equivalent of big screen plasma TVs and buying name brands without consideration for price and cost effectiveness just like bonding debt for day-to-day government operations is the same as someone using their home as an ATM to eat at Applebee’s, buy toys or take vacations. The state in that aspect is no different than the people who triggered the mortgage collapse. If you can’t afford to pay for something today that isn’t a major essential like house or infrastructure, you don’t go into debt for 15 years. Sacramento feasted when the money was flowing and now they want to continue the same lifestyle, so to speak.
There is a problem with Proposition 13 and it is the commercial property tax rolls. Many firms have made a mockery out of the property tax reform by making sure a minor stake was kept by the original owner even if it required creating dummy corporations so they wouldn’t have to pay assessments based on the sale of property. There are tons of malls, industrial buildings and other commercial properties that have sold a number of times since 1978 but are still valued based on that year and not the sale price. That has to end.
If it wasn’t for Proposition 13, the number of people who could afford a home in California even in today’s bargain basement market would be abysmal.
As a reminder, school districts and cities used to set their budgets by determining how much they wanted to spend and then comparing that with revenue from the state against property tax receipts. If there was a gap, they more often than not raised the tax rate on property to cover the difference.
Passage of Proposition 13 ended that practice.
The state since then has messed things up in terms of replacing the revenue. They even have gone as far as to hijack much of the remaining school, county and city property tax receipts to cover their deficits.
The expectation that the state should always remain whole and spending like drunken sailors is arrogant. It explains the reaction to Gov. Arnold Schwarzenegger’s suggestion to consolidate a ton of state regulatory boards. The reason why many in Sacramento have spoken out against the proposal is because they note it really wouldn’t save that much - maybe $100 million which is nothing against a $40 billion looming deficit.
It is the same rationale used by those who couldn’t really afford a plasma big screen but rationalized it in terms of debt load that it was nothing compared to a $2,400 a month mortgage payment.
The time has come to rethink how everyone goes about their business including the state and to stop trying to go back to the way things were by assessing blame on Proposition 13.