It Doesn’t Take a Genius -- or a Recall Candidate -- to See the Flaws in Prop. 13

When Certified Geniuses speak out on matters of public policy, they usually put their finger on some otherwise overlooked truth. When the subject at hand is outside their core expertise, they sometimes still hit on a truth, just not the one they thought.

So it was when billionaire Warren Buffett opined last week that there was something wrong with Proposition 13. Buffett focused on the inequity between the property tax on his home in Omaha, which is worth $500,000, and the (much lower) tax on his home in Laguna Beach, which is worth $4 million.

The moment I read his words, the inequity struck me too. Except I started thinking about the inequity between the tax on Buffett’s California property and the tax on my California property. (I won’t go into details, beyond acknowledging that my house is worth less than his, while I pay nearly three times his $2,264 a year.)

This is to say that one of the more troublesome flaws to emerge since the enactment of the property tax rollback in 1978 is not that Californians pay less in property levies than homeowners in other states. It’s that over the last 25 years, the law has built in such a massive exemption for those who have held on to their property that the discrepancies among neighbors can be unconscionable. Buffett gets a break because he bought his home for $150,000 in 1971. But the guy who recently spent $5.6 million for the house down the street will pay more than $56,000 a year in taxes, or about 2,373% more than Buffett.

Yet no cow is more sacred to our politicians than Proposition 13. Buffett’s slightly misaimed criticism sent squadrons of gubernatorial candidates haring off to proclaim their lifelong devotion to the measure, the way presidential candidates pay ritual obeisance to Social Security every four years.

Arnold Schwarzenegger, Buffett’s sponsor, came first, repudiating his own chief economic advisor’s very first nugget of economic advice. “My position is rock solid in support of that initiative,” he stated the same day.

When I later raised the subject with Peter Ueberroth, who is trying to position himself as the thinking man’s recall candidate, he bailed out too.

“The state falls off into the Pacific if you begin to mess with that issue,” he said, picturesquely.

Ueberroth and Schwarzenegger are only bowing to political reality. “Proposition 13 is a political article of faith for many Californians, perhaps the majority,” says Phil Isenberg, a former Democratic state assemblyman who is now a Sacramento lobbyist. “Articles of faith are not easily subjected to examination.”

But has there ever been so undeserving an object of reverence?

Any local politician in California can probably cite chapter and verse about the damage Proposition 13 has done to our tax structure, decision-making process and educational system. Many homeowners contemplating the Prop. 13-driven unfairness in the tax rolls in their housing tracts and its role in the disappearance of art teachers and music programs from their schools would probably see the light.

These effects were wholly predictable. But two conditions driving the tax-cutting fervor of 1978 overwhelmed such long-term considerations. One was that the tremendous run-up in property values across California in previous years had produced a run-up in the property tax levied on many homeowners.

“There was true fear, mostly of the elderly, that they were being driven out of their homes because of the inflation in value,” says Isenberg, who was then mayor of Sacramento. Every day another horror story about people losing their homes appeared in the press. (Schwarzenegger trotted out a new one Wednesday, recalling how an old lady he once knew broke down in tears when the initiative’s passage saved her from penury.)

This was compounded by rage over what was invariably described as the state’s “obscene surplus.” Invited to register their feelings at the polls, voters overwhelmingly chose to hack at the state’s budget surplus by slashing revenues to, well, local government.

By rolling back property tax rates across California to 1% of assessed valuation, limiting routine assessment increases to 2% a year and forbidding full reassessments except upon sale of a property, Proposition 13 at one stroke cut revenues for local governments by half. That first year, Sacramento stepped in to cover the shortfalls by fronting them some of the obscene surplus. While the surplus didn’t last, the so-called bailout became a budgetary fixture.

Thus the biggest irony of Prop. 13 -- which nobody noticed at the time because it didn’t fit into Howard Jarvis’ crusty sound bites -- was that its backers had exploited one of the supposed glories of California’s progressive era, the voter initiative, to undo another progressive milestone, the wresting of local government finances from centralized state control.

This has had several lasting drawbacks. It has transferred virtually all major decision-making on schools to the state, which now controls two-thirds of total education funding (up from one-third before Prop. 13). Anyone who has watched a school board wrestle with state educational mandates or with state funding cutbacks knows what that means.

Perhaps most damaging, it has placed the state’s overall budget at the mercy of the sales tax, which hits poor people disproportionately hard, and income tax, which is the most unpredictable and volatile revenue source. Here is the very root of the current budget disaster: It’s impossible to exercise fiscal restraint when you’re hooked on a revenue source that, as my colleague Jim Flanigan has pointed out, rises and ebbs unpredictably.

For all these reasons, Prop. 13 exemplifies the flaws in the participant democracy of which we are so proud. Every few years, Californians decide to get mad as hell and enact an initiative or constitutional amendment that addresses an immediate social concern with an absurdly overwrought and lobotomized solution. Then we spend decades dealing with the unintended consequences.

Thus the 1990 term-limits initiative, largely aimed at then-Assembly Speaker Willie Brown, bequeathed us a state legislature full of junior Willie Browns who are just as venal and arrogant as the original, but not as smart, and who would be overmatched by the task of designating a state bird, much less unraveling energy deregulation or passing a budget. The three-strikes initiative of November 1994, which has filled our prisons with pizza thieves on life sentences, arose from an anti-crime hysteria stoked by “tough-on-crime” hacks such as then-Gov. Pete Wilson. (He who has risen from the dead as co-chairman of the Schwarzenegger campaign.)

There are solutions to the Prop. 13 gallows, awaiting only a “leader” to place them on the table. One hardy perennial is the “split roll,” through which commercial property such as office buildings and shopping malls would be periodically reassessed so that they shoulder a proportionately larger share of total taxes. Proponents such as Lt. Gov. Cruz Bustamante consider this politically feasible because there are fewer office building owners than homeowners, and they can’t move their buildings out of state as a tax protest.

Others note that rebalancing Prop. 13 doesn’t necessitate raising overall taxes, and that you can protect the elderly or poor by allowing them to defer paying higher taxes until they sell their homes, at which point the arrears would be paid out of the proceeds.

But Californians aren’t ready to give up on Prop. 13. People think their high property values are partially the fruit of their low taxes, and if they hamstring state government to preserve their paper net worth, that’s a mortgage they can live with.

“It may be,” says Isenberg, “that only a true fiscal disaster will make voters understand.” But how far are we from that?

Golden State appears every Monday and Thursday. Michael Hiltzik can be reached at [email protected].