Proposition 13 has been under attack ever since Californians approved the historic property tax reform initiative, and this year is no exception.
The argument is more of the same, a rehash of the complaint that the property tax system is unfair – a claim that has been rejected repeatedly by the courts and the voters.
Those who are pushing to end Proposition 13’s taxpayer protections claim that California’s property tax system gives businesses a tax break at the expense of homeowners. They allege that Proposition 13 caused a shift in tax burden from businesses onto homeowners.
The California Taxpayers’ Association decided to put this claim to the test. We looked at the property tax data published annually by the State Board of Equalization, and compared property taxes on homeowners to the taxes on all business and non-homeowner property subject to Proposition 13 assessment.
Our examination of 31 years’ worth of official state data found that Proposition 13 has not shifted the tax burden from businesses to homeowners. In fact, since passage of the initiative in 1978, the assessed value of all business and other non-homeowner property subject to Proposition 13 has grown an average of 8.4 percent per year, while the assessed value of homeowners’ property has grown an average of 8.1 percent.
In dollar terms, the assessed value of business and other non-homeowner property was $827 billion higher than that of homeowner property in 2008-09. That means the property taxes paid on those properties were more than $8 billion higher than those paid by homeowners, for that year alone. Cal-Tax’s research also found that commercial and industrial property is assessed much closer to current market value than is homeowner property. Since 1988, commercial and industrial property has been assessed, on average, at 74.3 percent of market value, while homeowners’ property has been assessed at 65.7 percent of market value. This indicates that because of changes in ownership, market conditions or new construction, these commercial properties are being assessed much closer to the current market value.
Finally, our study revealed that despite major ups and downs in California’s real estate market, the property tax has been a stable source of revenue for local governments thanks to the system created by Proposition 13.
Unfortunately, the anti-Proposition 13 activists don’t seem concerned with these facts. They are looking for any new tax they can find, and repealing Proposition 13 protections for business owners is high on their list. Ironically, labor unions are among the most vocal supporters of this idea, despite the obvious damage that the tax hike would do to the state’s jobs climate. We’ve all seen friends, family members and neighbors get hit hard by the recession. If the proponents of business tax increases have their way, we will see even more unemployment, and more California entrepreneurs will go through the emotional and financial upheaval of having to close down a family business and lay off loyal employees.
Lenny Goldberg, of the union-backed California Tax Reform Association, tried to discredit the Cal-Tax report by claiming it was wrong to include rental homes in the definition of business property. That argument holds no water. The Cal-Tax study used correct definitions that resulted in an accurate comparison of properties.
Rental property, which may include rented single-family homes, apartments or vacation rentals, was not included in the homeowner column because the study sought to utilize a realistic understanding of rental property. By definition, rental properties produce income, either directly from rent payments or from anticipated capital gains. Because the rental property business is indeed a business, rental property is classified with “business and non-homeowner property,” where it belongs.
Our study defines homeowner property as an owner-occupied housing unit that obtained a homeowner’s exemption. This exemption is available only to owners who use the property as their primary residence, and the data is reported by assessors to the Board of Equalization. (The BOE keeps data on the assessed value of homeowner-occupied property only. There is no statewide data on values of rented single-family residential property, and the data cannot be computed for years prior to Proposition 13 for proper comparative analysis.)
California is facing many problems these days, but Cal-Tax’s study shows that Proposition 13 is not one of them. State data shows that there has been no unfair shift in tax burden, and the state’s experience with property taxes prior to Proposition 13 indicates that doing away with property tax protections would only stifle the economy, inhibit job growth, and make our real problems even worse.
Teresa Casazza is president of the California Taxpayers’ Association, a non-partisan, non-profit association founded in 1926 to protect taxpayers from unnecessary taxes and to promote government efficiency. For more, visit Fox & Hounds Daily.