Has Prop. 13 Really Robbed California of Property-Tax Revenue?

Matt Welch | June 3, 2009

San Diego Union-Tribune editorial writer Chris Reed, in response to the received wisdom that Prop. 13 has wrecked California's finances, runs some quick numbers to see what the state's property tax haul has been the past quarter century:

Remember, Prop. 13 is not a hard cap of property taxes. Levies are adjusted to current market value when property changes hands. And that happens all the time.

According to the latest info from the Board of Equalization [...] total property taxes collected in 2006-07 were $43.16 billion.

The oldest property tax stats I could find were for 1980-81, from caltax.org. That year, property tax revenue was $6.36 billion.

So since shortly after Prop. 13's adoption, property tax revenue increased by 579 percent. That is not a typo. It went up 579 percent.

During the same span, population went from 24 million to 38 milion -- an increase of 58 percent.

As for inflation, as of January 1981, the rough midpoint of the 1980-81 fiscal year, the Consumer Price Index -- which gauges inflation -- was 88. As of January 2007, it was 202.4. That is a 133 percent increase.

So property tax revenue has increased by more than triple the combined rate of inflation and population growth -- 579 percent versus 191 percent. [...]

[I]n 1980-1981, the total of all general and special fund revenue for the state of California was $22.1 billion. For 2006-07, it was $120.7 billion. [...] That is an increase of 555 percent.

You follow? PROPERTY TAX REVENUE WENT UP FASTER THAN OTHER SOURCES OF REVENUE!

Read the whole thing for links to the source material. And make sure to read Brian Doherty's great piece on California's budget realities from earlier today.

Comments

anon|6.3.09 @ 5:29PM|#

Wait wait wait - tax rates went down, but revenue went up?

That is INSANE.

Chad|6.3.09 @ 5:33PM|#

Mr. Reed's analysis is bunk, and I am surprised that Reason would bother to publish it. Stating how fast property tax revenues have gone up says NOTHING about how much more (or less) they would have gone up under some other tax scheme.

It is a mathematical inevitability that Prop 13 lowers property tax revenue. In my mind, it is also unconstitutional, unfair, and reduces workforce mobility. It should be repealed immediately.

|6.3.09 @ 5:35PM|#

Is that a picture of Troy McClure's house accompanying this post?

DHS Thinks I\'m a Terrorist|6.3.09 @ 5:37PM|#

"Is that a picture of Troy McClure's house accompanying this post?"

I thought it was the Wookie home from Star Wars Holiday Special. But I was very small when that was on TV.

Solanum|6.3.09 @ 5:39PM|#

Looks like the house from Body Double.

|6.3.09 @ 5:41PM|#

It is a mathematical inevitability that Prop 13 lowers property tax revenue.

Revenue increased by 579 percent, sparky. Reading comprehension isn't your long suit, is it?

In my mind, it is also unconstitutional,

Nope. The voters passed it as a ballot initiative. It's constitutional by definition.

unfair,

FUCK YOU. Whenever someone wants to keep what he earns, some sniveling little git like you bitches that he's being "unfair" by not handing it over to scumbags like you to spend as YOU see fit.

and reduces workforce mobility.

Say what?

It should be repealed immediately.

Put it on the ballot, asshole. You'll lose.

-jcr

|6.3.09 @ 5:44PM|#

Clearly, prop 13 didn't go far enough. Instead of simply limiting tax increases for people who stay put, it should have been a hard limit on total property tax revenues. As PJ O'Rourke observed, giving money to government is like giving whiskey and car keys to teenage boys.

-jcr

DHS Thinks I\'m a Terrorist|6.3.09 @ 5:46PM|#

Why doen't the state of California just go bankrupt like any private business would have to do. Maybe they could sell the whole thing to Fiat.

Chad|6.3.09 @ 5:52PM|#

John C. Randolph | June 3, 2009, 5:41pm | #

Revenue increased by 579 percent, sparky. Reading comprehension isn't your long suit, is it?

And math isn't your strong suit. Prop 13 lowers some peoples' taxes, and therefore lowers tax revenue relative to what it would have been. Duh.


Nope. The voters passed it as a ballot initiative. It's constitutional by definition.

The Federal Constitution, not the California Constitution. It seems to be a flagrant violation of the equal protection clause to me, as two otherwise identical people can be charged vastly different amounts of taxes based on how long they have gone without moving, which is totally arbitrary.

and reduces workforce mobility.

Say what?

It punishes you for moving in many circumstances, as even if you buy a similarly-valued home, your property taxes could sky-rocket. This encourages people to remain in inefficient jobs rather than move to a new place in order to work at a job that is better suited for their talents.

|6.3.09 @ 5:59PM|#

A 58% increase in population plus a 133% inflation increase equals 191%?

You flunk math.

Brett Stevens|6.3.09 @ 6:06PM|#

Revenue increased, but so did unrealistic parasites and special interests looking for a handout.

The result: bankruptcy.

Same will happen to the USA at large. Drift too far from reality and it waits patiently to bite you in the ass.

|6.3.09 @ 6:10PM|#

Warren beat me to it...

(1+1.33)*(1+0.58)=3.6814 ~ (1+2.68)

So, that's an increase of 268%.

http://en.wikipedia.org/wiki/Fisher_equation

|6.3.09 @ 6:10PM|#

Looks like the house from Body Double.

Looks like you are correct: http://en.wikipedia.org/wiki/Chemosphere

|6.3.09 @ 6:24PM|#

It is a mathematical inevitability that Prop 13 lowers property tax revenue.

Not necessarily. It has complicated effects. Extra revenue could still be squeezed out of newcomers. Perhaps the rates on those buying new homes are higher than they would be without Prop 13, and it's a straight transfer from newcomers to long time residents.

It also raises the cost of housing that can be constructed. It also made it easier to pass various growth-management and zoning laws that increased the price of housing-- but at the same time limited the supply, perhaps reducing the total revenue.

The "mathematical certainty" is a first-order effect that ignores a lot of other possibilities. That said, it certainly could reduce revenues compared to what they could have been.

In my mind, it is also unconstitutional, unfair, and reduces workforce mobility.

It is unfair to newcomers, and it does reduce workforce mobility. But people love being unfair to newcomers. (Just ask LoneWacko.) It certainly does reduce workforce mobility and cause inefficiency. A house becomes worth much more to someone who has already lived there. It prevents one form of dynamism.

Liberals should in some sense like Prop 13, though, since in most states local property taxes fund schools and Prop 13 makes it easier for California to equalize school spending if it wished. I'd prefer more equalized school spending, though I'd prefer student-based budgeting where everyone gets a voucher or spending that travels to the school of her choice.

However, there are some to my mind positive effects as well. I will concede, though, that it's far from the optimal way to reduce taxes (or spending). It's popular, though, because it discriminates against the new in favor of the old.

|6.3.09 @ 6:29PM|#

Not only does Matt think he comes out ahead by 100% if the makes a 200% profit followed by a 100% loss...

He also thinks that property value only increases nominally by inflation and not because people accumulate wealth over time.

Matt funks math AND living in the real world.

|6.3.09 @ 7:09PM|#

Prop 13 is retarded, not because of its role in capping taxes (for some) but because it creates big imbalances, distorts incentives, and creates wildly fluctuating revenue based on home prices. Much better is a system like TN, where home prices don't matter (except in relation to each other, i.e., someone in a more expensive home pays more than someone in a less expensive home)- prices go up, the percentage goes down, so it's all revenue-neutral, by law. Newcomers tax imbalance goes away, and revenue doesn't fluctuate with the real estate market.

|6.3.09 @ 7:20PM|#

I'll agree with dead_elvis that Prop 13 is screwy but not with chad and his screwy views on Prop 13.

|6.3.09 @ 7:24PM|#

If Prop 13 didn't cut property taxes, why is Reason in favor of it?

Prop 13 is popular with California homeowners because it's a ponzi scheme where current residents get to levy a tax on anybody coming after them. As long as property values don't fall terribly enough to affect anybody who bought previous to the last decade, who cares if the state goes bankrupt?

Enjoy the state while it still has roads, the schools are already dead. Anybody young enough to face putting kids through public schools, who can't afford private school after paying their drastically higher tax burden, is stupid or trapped if they don't flee the state. If you hang around long enough for property values to stop falling and reinflate enough that you're at the top of the Prop 13 ponzi scheme, your kids will be in gangs or uneducated.

Gene Berkman|6.3.09 @ 7:30PM|#

Proposition 13 did not prevent huge numbers of home sales when the market was in speculative overdrive a couple years ago. Indeed, the big run-up in housing prices is part of the reason property tax collections have gone up so much.

Also, sales of houses are subject to California sales tax, which also yielded much new revenue for the state. California state government should be flush with cash right now. Of course we have politicians who in my mind are unfair, unconstitutional, limit mobility and drive down efficiency.

Michael Ejercito|6.3.09 @ 7:47PM|#

What was per capita spending in California in 1998?

|6.3.09 @ 8:08PM|#

Why won't you answer the question. What was per capita spending in California in 1998?

It just sits there, this question, like a vacuum of knowledge.

|6.3.09 @ 9:20PM|#

"Proposition 13 did not prevent huge numbers of home sales when the market was in speculative overdrive a couple years ago."

Sounds awesome for the people at the top of the ponzi scheme as of a couple years ago. If the n00bs can just wait for similar circumstances to arise again (ha!), maybe they can make it to the top of the ponzi scheme. Not that it matters to the bulk of the support for Prop 13, who are sitting on extravagant equity still and can't move but don't care if the schools suck or the state fails. Or think they don't care, because they haven't been impacted yet.


"Indeed, the big run-up in housing prices is part of the reason property tax collections have gone up so much."

Good luck sustaining that tax base as we enter year 2 with people in prime loans sitting on taxable appraisals north of 800K on places worth a third less. Though I guess there are enough suckers trapped in Prop 13 hell that it will stumble along just fine.

All I can say is, it must be fun to have your state's future resting on the most screwed people ever.

fortyouncer|6.3.09 @ 11:29PM|#

First there is no sales tax on houses in California(maybe some types of manufactured homes, depending on the year built I think). We aren't that bad, yet.

Taxes, whatever their rate, should be fairly applied. In that sense I can't support prop 13.

fortyouncer|6.3.09 @ 11:35PM|#

Also, should the proper comparison be between property value growth and property tax revenue? Not revenue vs. population and inflation, since property values far outgrew inflation (the whole housing bubble thing).

|6.3.09 @ 11:53PM|#

Enjoy the state while it still has roads, the schools are already dead.

Funny thing, but schools being funded by property tax was going to go away anyway. Prop 13 just accelerated that in CA. I do have to agree that since the funding has been controlled by Sacramento the schools have gone straight to hell.

The plain and simple truth is CA does not have a revenue problem, it has a spending problem.

|6.4.09 @ 12:04AM|#

Using figures from the original posting here, and the BLS calculator for CPI, I came up with the following:

Property tax receipts 1980-81: $6.36B
Adjusted for CPI to 2006 dollars: $15.56B

Property tax receipts in 2006-07: $43.16B

Approx. CA population in 1980-81: 24M
Approx. CA population in 2006-07: 38M

Expected property tax haul in 2006 if proportional to population growth: $((38/24)*15.56B) = $24.64B

Dividing the actual haul by the "expected" haul gives us a ratio of about 1.75, meaning that the actual haul was 175% of -- or 75% greater than -- the haul we would have expected after factoring in inflation and a reasonable increase in property-owning taxpayers.

Fortyouncer's suggestion, that a big factor was the far-greater-than-inflation rate of property value increase during the past several decades, is very relevant. Myself, I think the real "engine" of property tax revenue growth was a combination of bubble-supercharged inflation and population increase. Still, I think the estimate can only be crudely approximate, if one assumes, as we did here, that the increase in property-tax payers will neatly correspond to the general increase in population. On the other hand, the more people we have, the more property values must increase because population growth means that more people are chasing the same amount of land that "they're not making anymore."

Anyway, it is clear that the total haul of property tax went up by a very healthy amount, even if not quite as sharply as Welch's analysis indicates. Given that, it is even clearer that our State government has been spending the revenue even MORE quickly than the healthy rate of increase allows. It also seems clear to me that nasty ol' Prop 13 isn't the culprit here.

|6.4.09 @ 12:57AM|#

In trying to understand the source of the "extra 75%" of property tax growth, it seems reasonable to attribute it largely to the skyrocketing increase in property values within the State. And obviously, if more people come into the State, chasing all the same real-estate, values should go up (though this isn't necessary inflationary unless the government pumps more money into the economy -- which it did, alas).

Also noteworthy, however, is the fact that nearly half of the State's acreage is owned by the Federal government and not available for settlement. Add this to prevailing land-use policies, and the result is that more and more people keep being squeezed into the long coastal strip, and the relatively few inland urban enclaves, rather than fanning out to populate California in a more even distribution. Uncle Sam could let go of just a few percent of his vast holdings in California, putting those millions of acres, for example, up for homesteading with preference going to current California residence, perhaps based on seniority -- and this would practically DOUBLE the amount of land available for human settlement.

While a 21st century homesteading program would radically LOWER California real-estate values, and corresponding property taxes, it would also dramatically increase the number of property OWNERS, thus the number of people subject to the property tax. So the revenue situation could be a wash or might even end up net positive after all the land-rush dust settled.

JB|6.4.09 @ 1:12AM|#

Democrats are nothing but clumps of cells that need to be aborted.

|6.4.09 @ 1:24AM|#

# Michael Ejercito | June 3, 2009, 7:47pm | #
# What was per capita spending in California
# in 1998?

Adjusted for inflation into current dollars, and including general fund, special fund, and bond expenditures, I am going to say around $3000. Why do you ask? Do I win a prize?

Sources:

BLS calculator: http://data.bls.gov/cgi-bin/cpicalc.pl

Historical spending: http://www.dof.ca.gov/budgeting/budget_faqs/information/documents/CHART-B.pdf (used 1998-99 figures, assumed they were historical, not adjusted, as footnotes indicated no CPI adjustment)

California population: http://www.lao.ca.gov/1998/1998_calfacts/1998_calfacts_demographics.pdf (see text box in graphic #12)

Sam Grove|6.4.09 @ 1:33AM|#

What's wrong with prop 13?

It had no impact on state spending.

|6.4.09 @ 4:00AM|#

xxx for example, up for homesteading with preference going to current California residence,

should be "current California RESIDENTS."

|6.4.09 @ 8:07AM|#

Prop 13 isn't particularly libertarian. It reduces mobility by imposing higher costs. It also taxes un-equally.

I'm surprised that there isn't more discussion about how the run up in rev from property taxes from the 80's-'07 could have bee caused by the insane run up in CA home prices and property values.

All said this is one of the poorer posts I've read on this site.

|6.4.09 @ 8:08AM|#

By "imposing higher costs" I mean incentivising people not to move by imposing higher costs on moving relative to staying put.

|6.4.09 @ 11:50AM|#

Funny thing, but schools being funded by property tax was going to go away anyway.

My understanding is that funding for schools has reverted in California largely to the local level, except it hits only the families of current students. If you live in a decent school district, when you go to register your kids, they extort thousands of dollars in "donations" from you. If you live in a bad school district, they assume you are poor and they don't give your kids books, because they don't have any.

Try not "donating" some time and see what happens when you raise a complaint about your kids' teacher or their reading levels.

Anyway, all the old people who don't want to pay any taxes don't care, because who cares if the person who's gonna clean drool off your chin in ten years can read or do math well enough to know that San Diego Union-Tribune editorial writer Chris Reed is full of shit?

|6.4.09 @ 12:03PM|#

My understanding is that funding for schools has reverted in California largely to the local level, except it hits only the families of current students.

By the way, it's understood that this is called "Libertarian Paradise" to people who think having an education system for everybody is a "Robin Hood" system.

Please realize the sane people who live around you may get so sick of your greedhead philosophy they vote to make you pay for your own private police service to keep the illiterate gangsters off your lawn, right before they move somewhere that has a plan for residents not to slip into a sea of illiteracy.

|6.4.09 @ 2:27PM|#

By the way, it's understood that this is called "Libertarian Paradise" to people who think having an education system for everybody is a "Robin Hood" system.

Ah yes, those "education systems for everybody" where you pay your tuition each month as part of your mortgage payment. Nothing like "public school systems" to hide that sort of greediness under a veil of pretending to be public.

Naturally, LoneWacko, you support student-based budgeting and vouchers, then, that would truly make things equal for students, unlike "public" school systems everywhere where you buy a nice house in a nice neighborhood to get good schools?

|6.4.09 @ 2:28PM|#

Prop 13 is popular with California homeowners because it's a ponzi scheme where current residents get to levy a tax on anybody coming after them.

So you should love it LoneWacko, right? After all, isn't your guiding philosophy that people who are current residents here should get to levy a tax or screw over or just plain keep out anybody coming after them?

|6.4.09 @ 2:34PM|#

Prop 13 isn't particularly libertarian. It reduces mobility by imposing higher costs. It also taxes un-equally.

I'm surprised that there isn't more discussion about how the run up in rev from property taxes from the 80's-'07 could have bee caused by the insane run up in CA home prices and property values.

Agreed, those were both my points. If Prop 13 hasn't reduced revenue, then it's just shifted revenue from current residents to new ones, including immigrants (since renters pay property taxes through higher rents). So good for LoneWacko, who wants immigrants and other newcomers to pay more, bad for libertarians.

It was passed because of a time of rapidly rising house values due to land-use restrictions and community growth management, and was designed to allow current residents--the Carl Fredericksens of the world-- to remain in their current houses as prices skyrocketed. But by removing any pain of higher prices from current homeowners (and voters), it reduced political restrictions against making zoning restrictions even worse.

So Prop 13 probably did contribute to the housing bubble in CA, if indirectly, by delaying the day of reckoning and passing even more of the costs to the unseen, unknown, future homeowners.

It's a highly flawed solution by libertarian standards. I don't disagree that CA needed to restrict spending, and perhaps with sufficient convincing I could believe that the flawed tool was the best one that could pass, but it obviously hasn't done enough, has it?

|6.4.09 @ 6:48PM|#

Instead of simply limiting tax increases for people who stay put, it should have been a hard limit on total property tax revenues.

It should have, but it still would have been pointless. Since the state can raise fees any time it wants with a simple majority, and other taxes (income, sales, excise) with a 2/3 majority, limiting the take from property tax is meaningless. California can always make up the shortfall from elsewhere. What California needs is a limit on total government revenue from all sources, and a limit on total spending (to prevent borrowing).

|6.4.09 @ 7:02PM|#

My understanding is that funding for schools has reverted in California largely to the local level, except it hits only the families of current students.

You don't have a very good understanding of it. Not that that appears to cause you any angst in developing and holding the opinion that the whole problem is wrapped up in "not enough taxes". Hint: we spend more [adjusted for inflation] per student in the state now for an inferior education then we did 30 years ago (i.e. pre prop 13) for a good one. Blindly throwing more money at the problem is not a solution.

|6.4.09 @ 7:19PM|#

My opinion is: Not enough taxes for people sitting on bleeding fortunes in equity from a housing boom whose deflation will be exacerbated greatly by the flight of overtaxed younger people with kids and no chance of reaching the top of the ponzi scheme you set up 30 years ago.

Argue the right amount to spend per kid if you want, but you should do that quick while there are anything but poor people and trapped people still left there. Those people start voting even weirder than you do, and they're getting more and more numerous by the day.

|6.4.09 @ 10:33PM|#

# Who are you kidding? | June 4, 2009, 12:03pm | #
## My understanding is that funding for
## schools has reverted in California largely
## to the local level, except it hits only
## the families of current students.

# By the way, it's understood that this
# is called "Libertarian Paradise" to people
# who think having an education system for
# everybody is a "Robin Hood" system.

It is NOT understood that this is any kind of "Libertarian Paradise." The thing that Libertarians want is for government to stop collecting the money in the name of education AND stop operating the schools; this way, people could use their own money to purchase private-sector education for their children or themselves. Those who didn't have enough money to pay for school could apply for scholarships, of which there would be many if the government allowed full tax-deduction or dollar-for-dollar tax credit for money paid to schools to defray ANYONE's tuition.

But we don't have that situation. Instead, the State takes the money in the name of education and keeps it, whether or not "everyone" gets an acceptable education (much less an excellent one). The observation that most school funding seems to have devolved to the local level omits the key fact that this funding occurs AFTER the State has already collected the money it demands in support of education. The current school funding situation is like paying money for a personal bodyguard who REALLY watches your back, after the gangsters have already taken even more of your money for "protection."

|6.5.09 @ 9:25AM|#

Not enough taxes for people sitting on bleeding fortunes...

Ah, envy. Thanks for clearing that up.

|6.5.09 @ 10:25PM|#

Prop 13 lowers some peoples' taxes, and therefore lowers tax revenue relative to what it would have been.

Guess again, pinkbot. Raise the tax rate too high, and people leave. When people vote with their feet, revenues fall.

-jcr

|6.5.09 @ 10:27PM|#

CA does not have a revenue problem, it has a spending problem.

This is a problem that all of the high tax rate states have. The more they get, the more they spend, and they never limit the spending to what they actually collect.

-jcr

|6.6.09 @ 3:32AM|#

Those who didn't have enough money to pay for school could apply for scholarships, of which there would be many if the government allowed full tax-deduction or dollar-for-dollar tax credit for money paid to schools to defray ANYONE's tuition.

In other words, you'll help defray education costs for children to the extent that you are credited on a dollar-by-dollar basis. That is paradise.

While we wait for this utopia, under the system being praised by the San Diego paper above, many or most aren't paying squat for anything.

They're social service-sucking squatters. Playing bingo with their winnings from the proposition lottery.


Ah, envy. Thanks for clearing that up.

Yeah, envy of your ability to be a citizen of the same state, with the same house, with not only your completely legitimate equity but the pride that comes from having ridden so far up the ponzi scheme that you can't believe your underwater neighbor is still paying his taxes.

Oh, wait, he's about not to. He's about to foreclose and leave the state. Oh well, f him and his freeloading kids. You got there first.

It's the Amway state.

|6.14.09 @ 6:26PM|#

There is no justification for inequality in terms of treatment but you have to remember you're talking about classes of persons. The "class" is what makes the thing legal.

Property ownership is not some kind of constitutionally protected right anyway. Remember the Constitution guarantees only two things regarding private property, one is that it shall be free from unreasonable search and seizure and the other is that the military shall not be quartered in it in peacetime and in wartime only as allowed by the law.

Here is one thing that trumps the ERA arugment (which is faulty anyway) and thats the contractual rights of a homeowner , the contract they have with the municipality and adjacent contemporaneous homeowners should be inviolate. So therefore Prop 13 is NOT unconstitutional. It is however, fundamentally UNFAIR. That doesn't mean it is unconstitutional.

Remember, property ownership is the exercise of a right, not an affirmative duty. You don't HAVE to own property. But in any case, Prop 13 does create inequalities that need to be remedied. Essentially some people pay not enough and others far too much, so what needs to happen is that subject to some limitation on annual increases (like PRop 13 provides now), the actual apportioned costs of services provided to the occupants of a parcel need to be similarly charged to all other similar parcels. Ie, all SFR pay the same rate and its calculated not on value of the property, but on the occupancy being some baseline. Like "you get K-12 education for 2 children, any more and you pay for the costs", something like that. Meanwhile, the tax scheme should account for the fact the MFR residences incur more costs on the community so they should pay the SFR equivalent per unit. Right now you can have two parcels, one a 2M SFR, the other a 2M MFR with 10 units, both paying the same rates even though there might be 20 kids attending schools and 40 people using community services in the MFR but only 2 kids going to school and 4 people total using community resources in the SFR. How is that even remotely fair? The renters are getting 90% of their services for free. That's not right. Charge everyone according to a baseline that fits the category/use type of the property, and don't allow government to balloon out of control either. 2% increase is actually way too much. If anything we should be encouraging smaller populations, while making government more efficient and the public more self sustaining, so the amount required each year could theoretically even go down sometimes too.