A New Attack on California's Prop. 13 Tax Cuts

The U.S. Supreme Court in Washington on March 23, 2023. (Richard Moore/The Epoch Times)

Commentary

The Proposition 13 tax limitation from 1978 is the foundation of California’s private-sector economy. It’s always under attack by those who want to raise taxes even higher.

It makes owning property the only activity in the state that’s not taxed at a high rate. Specifically, its main part limits property taxes to 1 percent of assessed value, with maximum annual increases of 2 percent.

Now there’s a new attack based on the hope the U.S. Supreme Court will reverse its previous decision from 1992. In Nordlinger v. Hahn, it ruled 8-1 of Prop. 13: “Article XIIIA's acquisition-value assessment scheme does not violate the Equal Protection Clause ... [i]s not palpably arbitrary, and we must decline petitioner's request to upset the will of the people of California.”

The new attempt to ditch Prop. 13 is being advanced by an op-ed in the Los Angeles Times, “A Supreme Court ruling is a warning for Prop. 13—tax law should be fair.” It’s by Shayak Sarkar of University of California–Davis, also an economist; and Josh Rosenthal, legal director of the Public Rights Project, a civil rights and economic rights nonprofit.

Their new argument is based on recent case decided by the Supreme Court, Tyler vs. Hennepin County. As the authors summarize it, the court “unanimously ruled that a decades-old Minnesota property tax law was unlawful when it allowed the government to seize wealth from an elderly Black homeowner,” Geraldine Tyler. That “serves as a warning about legal defects in other property tax laws that unfairly harm communities of color, including California’s own Proposition 13.”

Housing in Huntington Beach, Calif., on March 17, 2023. (John Fredricks/The Epoch Times)

They make an old claim: That it is unfair for similar houses in the same neighborhood to be assessed at radically different rates, because Prop. 13 sharply limits tax increases on existing home ownership. But once a property changes ownership, it is reassessed anew at the latest, higher valuation.

They quote Justice John Paul Stevens’s dissent in Nordlinger, in which he wrote Prop. 13 created “a privilege of a medieval character: Two families with equal needs and equal resources are treated differently solely because of their different heritage.”

The two lawyers’ own main argument:

"Proposition 13 raises race discrimination concerns. Assessment caps benefit long-standing homeowners—who are often white—at the expense of their more diverse neighbors who arrive later. The effects of such property taxes on homeownership’s demography suggest violations of the 1968 federal Fair Housing Act. Recent estimates show that Proposition 13 gives the average homeowner in a white neighborhood of Oakland, for example, a tax break of nearly $10,000 each year—more than triple the break provided to average homeowners in Latino neighborhoods, and about double those in Black and Asian neighborhoods in Oakland."

They don’t get it. There are two reasons for the differential evaluations. One is inflation, which first struck hard in the 1970s, artificially pushing up property prices and the taxes paid on them, even as incomes were being eroded. This began again as inflation has hit the last two years. Perhaps the authors would ask President Biden and Congress to stop spending and borrowing so much, so the inflation stops?

The second problem is California’s highly restrictive policies on housing construction. These include the labyrinthine California Environmental Quality Act, which everyone keeps saying needs to be reformed, but nothing ever happens. Gov. Gavin Newsom, commendably, proposed a building plan including CEQA reform. But the Democrats who run the Legislature “sidelined” it. Why don’t Sarkar and Rosenthal call on the Supreme Court to rule CEQA unconstitutional and discriminatory?

Another impediment is the Project Labor Agreement, which is always used for low-income housing construction projects. PLAs mandate union labor rates be used even to pay non-union workers. A 2021 Rand Corp. study of housing built under Los Angeles Measure HHH found “per unit construction costs were approximately $43,000 higher for projects covered by the PLA. This amounts to a 14.5-percent increase in construction costs.”

Why don’t our learned counselors call for the Supreme Court to find PLAs unconstitutional and discriminatory?

A resident walks by a house in Huntington Beach, Calif., on March 17, 2023. (John Fredricks/The Epoch Times)

Elderly Evictions

They also bring up the major problem that led to Prop. 13’s passage: Elderly homeowners being evicted from their longtime homes because they couldn’t pay the fast-rising tax rates. I remember this personally because, although I'm from Michigan, in 1978 the U.S. Army sent me to Monterey to learn Russian at the Defense Language Institute. The local folks who became my friends worried about losing their homes.

Sarkar and Rosenthal then then go into a non sequitur:

"But such assessment limits have not lived up to their promise to protect homeowners. Michigan also limits the amount that an owner’s assessment can rise. Yet as real estate values declined in Detroit, those limits did not ensure that assessments fell to match, leaving low-income Black homeowners with inflated, unaffordable taxes. Like Tyler in Minnesota, many residents were forced out of their homes through tax foreclosures.

But how can an equivalence be made between California’s home values, which, despite occasional drops during recessions, rise ever upward—and Detroit’s long-depressed market? The Detroit case also is one of charging too much, not too little. Shouldn’t we want government to err, if it truly is erring, on the side of the people, not the bureaucrats with their tax thumbscrews?

And unlike in Detroit, Prop. 13 gives great certainty to the property taxes paid. A homeowner always knows, with high certainty, how much next year’s tax bill will be—and so on for the duration of ownership. At most, it will go up 2 percent each year.

Moreover, when property values occasionally do drop in California, the property tax actually can be cut after requesting a reassessment. This is from a New York Times story from 2009 as the Great Recession dug in:

"Mr. Kramer, the assessor in Contra Costa County, said homeowners started swamping his office with requests for new assessments in December. As many as 500 people would call in one day. His voice mail message now begins: 'If you’re calling to request an informal review of your property value due to the declining real estate market.'

"Contra Costa has now reduced the recorded value of more than a third of the 350,000 privately owned properties in the county.

"Lisa Driscoll, the county’s budget director, said property tax revenue had been growing about 8 to 9 percent a year but was now projected to decline 5 percent next year. The county has cut $50 million from its budget to offset the decline in real estate and other taxes."

Housing in Huntington Beach, Calif., on March 17, 2023. (John Fredricks/The Epoch Times)

Conclusion: Keep Prop. 13

Sarkar and Rosenthal conclude: “Tax injustice shows up not only in the foreclosure of an elderly Black woman’s $40,000 Midwest condominium but also in the inability of diverse, immigrant families to purchase a $400,000 condominium in Mid-City.”

Then why don’t they call for the two reforms I mentioned above, of CEQA and PLAs, to reduce the cost of building new housing? Why don’t they call for cutting taxes and other regulations so businesses can give more raises to their employees, who then could afford homes? And how about improving the state’s low K-12 achievement scores so kids can get the knowledge they need to compete in the 21st century’s increasing global economy?

Finally, why do people like these two lawyers try to racialize everything, turning people against one another in our increasingly diverse society? If we don’t come together for real reforms, based on opportunity for all, we’re going to have a lot bigger problems than finding the right property tax rates.

John Seiler’s email: [e-mail]

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.