California’s State Controller, Betty Yee, normally displays a measured, albeit liberal, view of California fiscal affairs. While viewed as reasonably competent and not given to hyperbole, her recent statement in a local government blog was one she must have known to be flat wrong.
The blog, called County Voice, is disseminated by the California State Association of Counties. In it, Controller Yee pushed her vision of California tax reform – something about which she has written frequently. Yee, like most policy leaders both liberal and conservative, has recognized that California’s tax structure is broken. In fact, Yee is correct when she writes “our system leaves the state budget prey to boom-and-bust cycles, in turn disrupting funding of essential public services.” While the real cause of California’s fiscal distress is that political leadership lacks the will to save money during the boom times, most agree that revenue volatility is a real problem that needs to be addressed.
However, after her observations about California’s volatile and highly progressive tax structure, Yee said this about property taxes: “Meanwhile, in the nearly four decades since the passage of Proposition 13, revenues from the property tax—as well as the sales tax and corporation tax—have diminished.”
All available data – to which Controller Yee has ready access – conclusively shows that property taxes in California have exploded in the last several years. Indeed, since it was adopted by the voters in 1978, property tax revenues have outstripped population and inflation by a significant margin. Even more surprising is the fact that, because of California’s robust real estate market, per capita property tax collections, adjusted for inflation, are beginning to approach pre-Proposition 13 levels.
The real irony, however, with Yee’s erroneous statement, is the context in which it was made. The whole point of the piece was to bemoan California’s volatile revenue structure. That volatility is a direct result of an income tax structure that leaves the state vulnerable to the financial fortunes of just a fraction of California’s population – high wealth individuals.
But California’s property tax system, thanks to Proposition 13, is the model of stability. Indeed, even during the worst of the real estate market meltdown, when other states saw massive declines in property tax revenue, California barely saw any year over year reductions at all. This is even more amazing given that market values in California fell further than most other states.
We can thank Prop 13’s prohibition against taxing runaway paper gains in the market value of property for the stability it brings to property tax revenues upon which local governments rely.
In short, if revenue volatility is the problem in California, the last thing you would want to alter would be the property tax system as created by Proposition 13.