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It's A Gray Area: Correcting mistakes of Prop. 13

December 25, 2010|By James P. 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:

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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.

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