Monday, December 27, 2010

Correcting mistakes of Prop. 13 - by Judge Jim Gray

This column has already discussed the "sacred cow" issue of Social Security, and I have not (yet) been run out of town, so summoning up all of my courage, I will now turn my attention to a discussion about correcting the mistakes of Proposition 13.
Proposition 13 was passed with more than 84% of votes in June 1978 by California voters who were (appropriately) angry about the never-ending raising of their property taxes. The ballot measure, which was opposed by most legislators and virtually every city and county government in the state, put a ceiling on property tax assessments at 1% of the assessed value, and also placed a limit of 2% on how high property taxes could be raised in any one year. And those assessments and formulas could not be changed unless and until the real property was sold.
Unfortunately, over time there surfaced at least three substantial inequities with this ballot measure, which, to this day, people are afraid even to discuss, much less rectify:
First, large corporations, which seldom sell their real property, have been the gigantic beneficiaries of these reduced taxes. Thus every year since the early 1980s, businesses like Southern California Edison and oil companies have paid substantially lower taxes on their real property than other more transient businesses. This was almost certainly not intended by the voters.
Second, Proposition 13 has resulted in a huge discrimination against more recent buyers of real property. This includes most of our grown children who are trying to enter the real property marketplace for the first time. The higher adjusted tax base has also retarded new home construction, and that is even before considering the additional expenses of Mello Roos. In addition, it has further resulted in numerous people being forced to make decisions about whether to buy or sell real property for tax reasons, instead of personal, family or business reasons.
And third, Proposition 13 has resulted in people who are living next to each other in virtually identical properties having widely disparate property tax bills. In my own case, I am still annoyed that when I moved into a house in North Santa Ana, my neighbor, who had a house and lot half as large as mine but who had owned his property before the Proposition 13 era, paid less than half the property taxes than I did. I felt then and still feel now that this was fundamentally inappropriate.
Thus, as people are beginning seriously to look at government and its financing, it is time to make our property tax system more fair, and, yes, it is also time to provide some more money to our deficit-ridden governments and school districts, by correcting the proposition's mistakes. But before doing that, we must ensure that the activity that generated the legitimate voter anger cannot be repeated, and that the homes of those people on a fixed income are not put into jeopardy.
Part of the outrage in the 1960s and '70s was that there were numerous uncovered scandals in which local tax assessors had been rewarding friends and allies with artificially low tax assessments. But, fortunately, today there are more protections, transparency and scrutiny in those assessments. Nevertheless, those safeguards should be reinforced.
Of course, it is much easier to point out the problems with a system than it is to make viable recommendations about how to make it better. Nevertheless, I will try. My suggestion is to go back to having all real property assessed every two years, regardless of when it was bought or sold, but the owners would be required to pay somewhere between a half or two-thirds of a percent of the assessed value each year in property taxes instead of the present 1%. And for those people who are over a set age limit, such as 60, and only if they so choose, all property tax increases could be deferred until the eventual sale of the house, with interest on the balance being paid to the government.
Probably by this time some of my Libertarian friends are having a coronary just thinking that their colleague is discussing the possible raising of property taxes in some instances. But this is a real problem, and the inequities and harmful disincentives should be addressed, and this approach would both be more equitable for more recent buyers, and also raise more revenue overall because those are who now paying artificially reduced rates would be placed on an equal assessment scale.
So please think about this proposal, and give me your thoughts. How else can we reduce inequitable tax disparities, stop unnecessarily punishing our children as they are trying to enter the financial world, not put people on a fixed income more at risk, and also provide some needed revenues to our schools and other institutions that are being forced to cut expenses beyond productive limits?
The "I've got my protections and I don't care about you" state of mind is not the way a government or the tax laws should be run. Yes, taxpayers truly need protections from politicians, but overall fairness to as many people as possible should also be a part of the equation. This suggestion may not be perfect, but your "homework assignment" as we enter the new year is either to refine and promote this suggestion, or to come up with something better. The status quo is not acceptable.
JAMES P. GRAY is a retired judge of the Orange County Superior Court, the author of "Wearing the Robe: the Art and Responsibility of Judging in Today's Courts" (Square One Publishers, 2010), Why Our Drug Laws Have Failed and What We Can Do About It, A Voter's Handbook, Effective Solutions To America's Problems and can be reached at or Judge Jim Gray is also currently offering his 25 years of experience on the bench to ADR Services in Orange County for Arbitration and Mediation services.

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