Can California Afford Proposition 13 Tax Constraints?

Los Angeles Mayor Antonio Villaraigosa is treading where others have feared to go – Proposition 13. Some call it the third rail of California politics. Prop. 13 was introduced in 1978, with the original intention to serve as tax protection for homeowners. However, due to loopholes and exceptions, commercial property owners ended up benefitting most from the legislation. Villaraigosa said, “Prop. 13 was never intended to be a corporate tax give-away, but that is what it has become.” The Mayor states that increasing taxes on commercial properties could bring in up to $8 billion, and that such capital should be split evenly to fund public schools and decrease property taxes for homeowners.

I have previously blogged about the need to consider dialing back or even repealing Prop. 13. Somehow California must come to grips with year-after-year budget shortfalls and gimmicks used to close the deficit. We have a structural problem with our budget in part due to the “lost” property tax revenue since 1978. Moreover, the education system is broke—literally – although money is not the only answer to the problem. A declining work ethic and lack of parental involvement plays an important role.

Here are some statistics on how Prop 13 has negatively affected education spending in K-12 through the 2009-10 school year. It comes from a recent study by the California Budget Project.   

• California’s schools ranked 44th among the 50 states in K-12 spending per student, spending $2,546 less per student than the rest of the US for the 2009-10 school year
• California ranked 46th in education spending as a percentage of personal income
• California ranked 50th in the nation with respect to the number of students per teacher.
• California averaged 21.3 students for each teacher in 2009-10, more than 50% larger than the rest of the US, which averaged 13.8 students per teacher.
• More students attend school in California than in any other state. In 2009-10, 6.0 million attended school in the state compared to 4.5 million in Texas.

The 2009 Nation's Report Card, a national assessment of education achievement, shows a decline in both reading and writing from 1992 to 2009. The lack of an adequate education is not just a California problem, but it is most pronounced in our state.

So, would repeal of Proposition 13, the Holy Grail of property tax policy created by Howard Jarvis, help to stem the declining tide of educational achievement in California? Obviously, there is no way to know that in advance. However, the State has tried to fund education for more than 30 years with constraints on the most important source of education funding for most localities -- property tax revenue. Right now, real property is reassessed only when sold or transferred. Between sales the assessed value can be raised no more than 2 percent a year plus the value of improvements. Excluded from reassessment are transfers between spouses. A number of possible amendments to Prop 13 have been floating around for years. One possible amendment is to tax commercial property periodically on its resale value, not when there is a change of ownership. That's a good idea because creative accountants can obscure real ownership changes.  

The bottom line is more revenue must be raised through a Prop 13 repeal or, at least, an amendment that provides substantially larger resources for local governments so they don't have to go hat in hand to Sacramento each year to fund public services. Even if the additional revenues do not contribute to higher achievement by California kids, we owe it to them to try -- to better fund K-12 education. We must do everything in our power to reverse the decline in educational achievement in California. Even those without school-age children must realize that without a proper education young people may very well wind up on the public dole and then we all pay the price. The purpose of education is to make young people contributing members of society. We all have a stake in making sure it gets done.

Blog posted by Steven Mintz, aka Ethics Sage, August 18, 2011