How California's Fiscal Woes Began: A Crisis 30 Years in the Making (San Diego: real estate, rental)

[antibes]

How California's Fiscal Woes Began: A Crisis 30 Years in the Making

With California a day away from issuing IOUs instead of paying its bills, Gov. Schwarzenegger and the legislature remain at odds over how to close a now $26.3 billion deficit. Schwarzenegger on Thursday ordered a third unpaid furlough day for 235,000 state employees. With its $1.7 trillion economy sputtering and 11.5% unemployment surging, California's difficulty in balancing its budget could affect the national recovery.
But the Golden State's budget problems are hardly new. The seeds of them were planted more than 30 years ago.
They begin with the 1978 property tax revolt and the victory of Proposition 13. As California experienced a dramatic escalation in home values, property tax assessments skyrocketed. Especially vulnerable were seniors on fixed incomes. When then Gov. Jerry Brown and the legislature dithered, conservative activists led by Howard Jarvis put a seductively simple sounding proposition on the ballot. Under Proposition 13, the annual real estate tax on a parcel of property would be limited to 1% of its assessed value and this assessed value would only increase by a maximum of 2% per year, until a change in ownership. Voters responded and Proposition 13 scored a dramatic victory with 65% of the vote. Property tax rates dropped an average of 57%.
While homeowners celebrated, city, county and school district officials sat in stunned disbelief. There were predictions of drastic cuts to education and social services. But the ax did not fall as Sacramento, flush with a multibillion-dollar surplus, bailed out local governments and the schools. But the state rescue was accompanied by a loss of local control. As a result of Proposition 13, school districts, county governments and cities were forced to compete with state priorities for a slice of the state budget.
"In the first years after Proposition 13 passed, the state was able to get by because it had a surplus," says David Menefee-Libey, a political scientist at Pomona College. "But because the state is now responsible for funding local government and school districts the demands on state resources became too great. The second strategy followed by [Governors Gray] Davis and [Arnold] Schwarzenegger has been to finesse the fiscal crisis by using budget gimmicks and by borrowing to bridge the yearly budget shortfall. Now both options are exhausted."
Proposition 13 has proved to be a two-sided sword. "One side was to protect the people from the government suddenly and wildly raising property taxes," says Bob Hertzberg, a former Assembly Speaker and co- chair of California Forward, a bipartisan reform group. "That was done. But we didn't resolve how to pay for the services that people want. So we have created this crazy government structure in Sacramento held together by duct tape and bailing wire. It's not coherent and needs to be changed."
Proposition 13 further altered California politics by requiring a two-thirds majority for tax increases either at the state or local level. This requirement along with a constitutional provision requiring a two-thirds majority to pass a budget - the result of a proposition passed in 1933 - means it is far more difficult to raise taxes or pass a budget in California than in other states. For more than 30 years California has been living with a system of minority rule in which 34% of the legislature or a local community can stonewall the majority. Facing this post-Proposition 13 system, California's various interest groups have increasingly used the ballot box to protect themselves - but by so doing have mandated budgetary havoc.
For example, pre-Proposition 13, California public schools were among the finest in the nation. After Proposition 13, education spending per pupil dropped to 48th in the nation. The state's educators and parents then rallied behind Proposition 98, which by a complex formula apportions roughly 40% of the state budget to K-14 education. In the past three decades, other special interests have authored - and voters have passed - numerous ballot measures dictating that millions in state funds go to various pet causes. Many of these measures, including a preschool initiative sponsored by Schwarzenegger in 2002, mandate a program but fail to provide a source of funding. Each proposal alone might have merit, but collectively these ballot measures have locked most of California's budget in place. "Gradually, the voters' piecemeal decisions have bound the legislature in a straightjacket," says Thad Kousser, a professor of political science at UC San Diego.
Similar to the Red vs. Blue state clash in the nation as a whole, there are two Californias. Historically, there was the liberal north versus the conservative south. Since the days of Governors Pat Brown and Ronald Reagan, the clash has been between older, predominately Anglo voters, living in the suburbs and rural counties and largely voting Republican, and younger voters, more likely to be Asian or Latino or black or Middle Eastern, who are more prevalent in California's urban centers and hip suburbs and who predominantly support Democrats. As the state's population has become diverse and Anglo voters have seen their own children grow up and leave the public schools, there has been a backlash of the first against the second, as seen in conservative ballot measures such as Proposition 13 (property taxes), Proposition 187 (illegal immigration) and Proposition 8 (gay marriage). Conservative Anglos, a minority of the state's population as a whole, are vocal and continue to exert power beyond their census numbers because they vote in relatively higher percentages, and because GOP votes are required to pass a budget or enact new taxes under the state's unusual two- thirds majority requirements.


How California's Fiscal Woes Began: A Crisis 30 Years in the Making - Yahoo! News (http://news.yahoo.com/s/time/20090703/us_time/08599190750400 - broken link)

[OC Investor2]

Um, Yeah Sure.....

CA has the 6th highest State & Local tax burden in the country. The fact that we don't pay more property taxes is not the issue.

To paraphrase James Carville: It's the spending,stupid.

[Woody7]

We are having the same problem here in Az on a much smaller scale. All of Us need to understand goverment can not do everything.

[mysticaltyger]

I agree with the part about the voters voting in different budget measures piecemeal. That is really bad.

But the thing about ending Prop 13, was that they just jacked up other taxes. It's not like we're a low tax state. Sure, we may be 48th in education spending per student. But what would we be if we didn't have so many illegal immigrants?

[Quatermass]

This article is absurd. Once again, Prop 13 is trotted out as the whipping boy for all California's problems, without a word about the fact that California won't stop spending.

Nothing about runaway spending, nothing about illegal aliens, nothing about the stranglehold of unions; no, it's all the fault of what those evil conservatives did 30 years ago, and the only solution is to repeal Prop 13 and raise income taxes, property taxes, and whatever other taxes they can think of even more, as though California isn't already one of the highest-taxed states in the nation and too many people and businesses haven't already fled the state as a result.

It doesn't help Time's case when it refers to Prop 8 as a backlash measure by "conservative Anglos" against younger, liberal ethnic minorities, when in fact 8 received majority support among Hispanics blacks, and Asians.

[bhcompy]

Too bad I can't find this guy's email or I'd send him some actual statistics, like what Quatermass mentioned about minority support for Prop 8

[JohnG72]

Also no mention of how this would play out:

Couple at age 30 buys dream home in 1970 for $35K. They buy it. They retire in said home at 65 years of age on social security and a modest amount of savings with the house paid off. Except.......prop 13 doesn't exist. And their house is reassessed at its new value in 2005 of $800,000.

Yay property taxes that exceed half their income!

Antibes, I'd suggest you research the reasons WHY Prop 13 was advocated, then report back to us on your findings. In that manner you can present a argument that incorporates all relevent facts, rather than your one sided, biased argument.

[mboyle1988]

Originally Posted by bhcompy

Too bad I can't find this guy's email or I'd send him some actual statistics, like what Quatermass mentioned about minority support for Prop 8

Do you think that would matter? He would deny them. Anyone can look at California, just as we should look at the national health care system, and say "hmm, they are spending much more than the average, and their results are well below the national average. The problem must be administrative, i.e. the delivery of benefits is corrupt and/or inefficient." This guy blames CA problems on lack of funds not because the facts he has support that thesis, but rather because his world view dictates that the government is a loving benefactor and rich people are cash cows that should be milked to pay for a comfortable life style for everyone else.

[OC Investor2]

Who killed CA's economy? See here -

Who Killed California's Economy? - Forbes.com

[jkanderson521]

Prop 13's biggest failure is providing all that tax cover to "investors" and speculators. I agree with protecting "grandma" from being thrown out of the house she has lived in for 30 years because of an outrageous tax bill. However, I don't think The Irvine Company, nor the specuvestors who buy up real estate to rent out for 20 years should be paying 1/10th the property tax of a young family trying to get established and build the community.

In reality, only a small number of people really benefit from Prop 13th original "intent". The rest are businesses who are subsidizing their profit margin at tax payer expense and that should stop.

Some quick fixes for Prop 13:
Only applies to primary residence
Eliminate tax subsidy for specuvestors and rental properties
Eliminate tax provision for commercial real estate

Remember, Prop 13 was supposed to protect Grandma and "families" from being thrown out of their homes, not enhance specuvestor profits at taxpayer expense.