Joint Venture Silicon Valley Wants Changes to Prop 13

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Joint Venture Silicon Valley focused on Proposition 13 at a conference last week issuing a report that Proposition 13 should be part of a discussion about restructuring the tax system. No other part of the tax system was in the report’s crosshairs.

The report authored by Stephen Levy, Director and Senior Economist of the Center for Continuing Study of the California Economy, a long time Proposition 13 critic, argued that a “new normal” of a weak California housing market means that property taxes would not keep pace with the historical gains made under Prop 13, which for three decades outstripped increases in California’s cost of living.

Under Proposition 13, California’s property tax was the most stable revenue source and produced revenue at a faster rate than cost of living increases. Levy reports that, “The average annual increase in assessed value for all counties combined was 7.8 percent between 1980 and 2008, while the average increase in consumer prices was 3.6 percent.”

Because of the recession, things have changed according to the report. Property values will not grow as fast as in the past. As he has done for years, Levy argues California governments need increased revenue.

Is there a “new normal” or are we fighting through a cyclical economic downturn? The report itself envisions an uptick in revenue although it does not anticipate a full economic rebound for some time.

The report makes the argument that there has been a shift of total property tax burden between residential property and commercial property, acknowledging that some of that is because there has been a boom in housing construction over the last thirty years. The so-called property tax shift is a favorite talking point of Prop 13 critics who want to raise property taxes on business regardless of how that would affect the economy or stifle job creation.

The real question: Is this talking point political gamesmanship or a real problem? Homeowners are satisfied with the Proposition 13 protections as poll after poll reveals. The report rightly notes that Proposition 13 gave certainty to taxpayers. That certainty enjoyed by individual property owners is more important to the taxpayers than some nebulous notion of what share of the tax burden homeowners’ pay.

The report bemoans the fact that Proposition 13 prohibits raising property taxes while other states are looking at that option. There is no mention, however, about taxpayer protests that often accompanied the call for higher property taxes in other states.

The report offers no recommendations on changing the tax system except that Prop 13 should be part of the tax reform discussion. There is no conversation about the possible increase in income taxes that currently are headed for the ballot and presumably would nick Silicon Valley executives.

Further, the report noted that sales tax revenue has dropped because consumers are spending more on services instead of goods, and services are not taxed. No mention that a service tax should also be on the table. Such a suggestion is sure to garner interesting conversations in the Silicon Valley’s service oriented economy.

The Proposition 13 analysis is part of the Joint Venture Silicon Valley’s annual Index of the Silicon Valley report. Here is a link to the Index. The Prop 13 analysis starts on page 10.

One correction should be noted. The report twice states that Proposition 13 brought about a two-thirds vote requirement to pass bonds. That requirement originally was included in the 1879 California constitution and was reinstated by a separate ballot measure after Proposition13 passed.

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