By David Kline, Vice President of Communications and Research
This column was published October 30 in the San Francisco Chronicle.
With property tax bills showing up in mailboxes throughout California, it's the perfect time to thank voters for approving Proposition 13.
Prior to the reform initiative's passage in 1978, opening the property tax envelope was a frightening experience: How much did the tax go up this time? Now when you buy a home or business, you know what the tax will be. The tax is 1 percent of the acquisition value, and that value can increase up to 2 percent per year for inflation. Every time there is new construction – common in business properties – the taxable value will increase.
Under Proposition 13, there has been a steady river of revenue for local government, with assessments growing at an average rate of about 7.07 percent per year (outpacing inflation, which has grown at an average annual rate of 3.57 percent, and population, which has grown at an average rate of 1.43 percent). Property tax has become the most stable source of government revenue.
San Francisco's assessed values increased 10.8 percent this year, so there will be significantly more revenue coming in to fund local programs.
The property tax burden is shared by homeowners and business owners, in roughly the same proportion now as in 1978. Some worried that the burden would shift, under the belief that homes change ownership more often than businesses, but the legislative analyst studied the issue and reported last year that "residential properties do not appear to change owners more frequently than commercial and industrial properties."
Despite Prop. 13's benefits, some critics want to exclude many business property owners from its protections, leading to a $9 billion-per-year tax increase on California employers, and ending the policy of equal treatment of property owners.
Equal treatment has been the law since long before Prop. 13, and has been reaffirmed in several elections (including the very election in which Prop. 13 was approved).
It makes sense not to discriminate against any type of property owner. One of the benefits is that county assessors, already struggling with huge workloads, don't have to audit how properties are used – a factor that becomes more important as more people work from offices in their homes, or develop new technologies from workshops in their garages.
The negative side effects of a $9 billion tax hike would hit Californians at every income level, with job losses for many workers and higher prices for consumers.
The Washington, D.C.-based Tax Foundation reports that California already has the third-worst tax climate for businesses. "Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state's economy," the Tax Foundation added.
The best way to continue to increase government revenue is to encourage economic growth that increases property values, brings in income tax dollars, and improves sales tax collections. Protecting Prop. 13 is an important factor.
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