Friday, October 07, 2005

Real Estate Bubbles, Property Taxes, Prop 13, and Edumacation

I hadn't yet moved to California when the original Proposition 13 was passed (besides which I was too young to vote), but I have had to suffer through many election pamphlets offering tweaks to various details. You see, I'm one of those sickos who actually reads the text of a ballot measure, not just the arguments. I did model legislature for three years in high school, so if I can't figure it out from reading the text, then that alone is reason enough to vote against it.

Citizen input is a good thing, but the initiative process has been badly abused by the alignment of the politicians' interests to the big corporations. Far from being embarrassed into tackling difficult issues head-on, politicians have an easier cop-out on anything controversial.

Gee, we'd like to do something about [poverty, war, unreasonable prosecution for low-harm-potential recreational drug use, treating harmful drug use as a medical issue instead of a crime, bringing the science and the education back to science education, etc.] but [those guys on the other side nanny nanny boo boo] won't let us, because we believe in transubstantiation and they believe in that STOOPID consubstantiation, or we say po-TAH-to and they say po-TAY-to or whatever the hell. I guess we'll just have to let Halliburton or Michael Moore or the Mafia or Rupert Murdoch or or whoever can raise the most money, write the law for us — with the approval of a well-informed electorate, of course!
That's not quite what Prop 13 was about, but it was the start of just such a chain reaction. Thing is, elderly people on fixed incomes (not necessarily small fixed incomes, but fixed all the same) were facing rapidly increasing property taxes as their theoretical property value skyrocketed. (Property tax rates, of course, are always expressed as "$X amount per $1000 valuation" or some such number, so if your house goes from $100,000 to $150,000 in one year, your tax bill will go up by 50% even if the "tax rate" stays exactly the same, but you don't get any direct benefit from the increased value until you sell — or get a second mortgage, a home equity line of credit, or a reverse mortgage.) All the politicians have to do is play the game of "They wanted to cut $1.26, but we insisted that we could cut at least $1.49, and we wouldn't settle for a penny less than $1.37," or conversely "any reduction of more than $1.30 would SERIOUSLY ENDANGER CUTE FUZZY KITTENS!" and voilà!, the tax rate remains the same and your taxes go up without anybody to pin the blame on.

The low-income seniors were losing their houses, and the rich elderly were having to cut back on house staff, besides which yuppies were having to cut back on Lexi Lexuses Lexus — something had to be done!

The solution was simple. Your assessed value is whatever you actually paid for the property, for as long as you own it [*subject to ever-increasing caveats and red tape]. Sounds great! If I bought my house in 1951 for 27 cents, it was worth $20,000 in 1975, and now it's worth $4,000,000 or more, the tax is still just $120 a year! If it was valued at the full $4,000,000, I'd be paying $24,000, the same as that sucker who just moved in down the street.

Hey! Wait a minute! I'm only 42 — how the hell have I owned a house for 54 years? Let's see how I feel about it if somehow I scrape together the $750,000 or so that I would need to buy a single-family detached dwelling in a semi-safe neighborhood, and I wind up having to pay $4500 a year in taxes to make up for the retired millionnaire next door paying $120 a year, even though my house is only worth less than 1/5 of his.... [Yes, the numbers do work, by the way.]

Okay, so the tax system has gotten horrifically fucked up, fubar, clusterfucked. [Yes, I know that I've just lost the nannyware hostages from my audience, but look on the bright side — if Dubya ever does read the Internet, you'd better bet he has nannyware on his machine!] But anyway, the tax system is in deep doo-doo. Why does that matter? What is the function of property tax in the overall scheme of things?

Gosh, I'm glad you asked that, Becky. We couldn't make an edumacational filmstrip without bright kids like you!

Local property taxes are the primary source of revenue for local schools, and a major source for local government in general. You want your mayor to have a plan to evacuate your town in the event of a Magnitude 8 earthquake, then you'll have to pay some property tax. (Yeah, we'll just let all those OTHER people who didn't PREPARE get killed, right?) You want to have high school graduates who can read something more complicated than My Pet Goat, then you'll have to pay some property tax. (Hey, if my kids' education is good enough to learn how to say "Do you want fries with that?" in not only Spanish, but also Vietnamese, Korean, two different kinds of Chinese, and Russian, then that's good enough for me! My prosperity as an American doesn't depend on a well-educated workforce — does it?) You want a hospital that will save you from the BIRD FLU PANDEMIC (aah! Aah! AAH!!), then you'll have to pay some property tax. (Would it really be such a bad thing if maybe 7 million Americans — maybe a million Californians — died from influenza? I mean, that's only a couple percent off the bottom. More like weeding out a few bad apples than a "pandemic." The crazy homeless people under the freeway will be the first to go, because they hate our freedom.)

Because of the genuine plight of a few of our most vulnerable citizens — and the greed of both the politicians and the rich old people — all those poor people and young people, exactly the people who are more likely to move around, get stuck paying more than their fair share. If you're not lucky enough to already be in a mansion, then a part of the American dream is to trade up to a nicer house. Do you want to be stuck forever in your "starter" home just because you can't face the taxes if you climb a rung on the socioeconomic ladder?

In the mean time, the public school system in California, pre-kindergarten through post-doctoral, has plummetted from being the envy of the nation to being the great hope for Mississippi to climb out of last place. You think I exaggerate? Sure, there are fantastic programs at the Universality of Californication, and not just the Berzerkeley campus, and I've even been fortunate enough to experience some excellent community college classes (Spanish and ASL through West Valley College, and basic auto tune-up at the College of Alameda), but the kids coming out of high school and even coming out of a lot of 2-year and 4-year colleges just don't have the edumacation to hold down a job in Silicon Valley or biotech or any of them jobs that actually pay more than twice the minimum wage. Some of them can't even cope with basic secretarial duties, and for the record my second job out of college was "Good morning, Xerox service, may I have your machine serial number please?" I had one temp assignment that my supervisor begged me to take, because the last temp she had sent couldn't handle the difficult task of looking at the display on the phone to know to say, "Good [morning/afternoon], [Joe Blow / Jane Doe / Fee-fie Foe]'s office, may I take a message?" (Her distillation of those specific instructions was, "Hello?") All I had to do was sit at my desk doing puzzles or reading a paperback, answer the phone a couple of times an hour, and occasionally send a fax. For that, I got more than three times minimum wage. (Oh, yeah: I did actually have to wear a necktie. Ick.)

If you can't even answer the phone in a professional environment, your economic horizons are pretty damned limited. You might even get turned down by Wal-Mart, and you probably won't get to do cash register at McDonald's.

Strange, isn't it, that 30 years ago California had the greatest public school system in the nation, 27 years ago Prop 13 passed, and now we have the 48th, 49th, or 50th, depending on how you measure?

The conclusion is obvious: we went from making it far too easy for politicians to raise taxes, to making it far too difficult. The economic survival — certainly at least at any level of thriving — of California and America in the 21st century depends on increasing tax revenues to pay for schools, health care, and a common defense not only against Osama bin Laden but against Hurricane Katrina or the Great San Francisco Earthquake of August 19, 2018. (If you can't get a U-Haul on 2018-08-18, don't blame me!)

Proposition 13 was an astonishingly stupid law. The effects have not so much strangled the government as strangled the local school systems to the point of "drowning in the bathtub." [Grover Norquist, one of Bush's main advisors, once said, "My goal is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub."] The problem is, we were kind of depending on the products of that government-funded educational system to pay for our Social Security and Medicare, never mind their own eventual retirement. If "they" can't work because they're too stupid, then a lot of "us" will starve, too. (Used to be, we could've declared bankruptcy if things got really bad, but that's suddenly gotten a lot harder to do.)

Having said that, the concerns addressed by Prop 13 were and still are real. It is insane to have your property taxes rise at the whim of a bubble in the housing market. It's even more insane to be driven out of your own house by taxes you thought you had prepared for. Something needs to be done to address the inequities in the pre-1978 system; a straight repeal of Prop 13 would be disastrous to a lot of people.

Here's my proposal:
  1. In the transition to whatever new system we devise, there will be a cap on the increase to an individual homeowner, and an even tighter cap on the increase to an individual low-income homeowner, but a somewhat looser cap on the increase to a corporation. We will move towards a fair system, but we will move gradually so that no homeowner is left behind. Conversely, the state will help out local areas that have a significant pinch because of this transition scheme.

  2. Property tax on apartments will be eliminated and replaced by a percentage tax on rent, unless the apartment is left vacant for more than a brief period. The tax rate for rent will be calculated to correspond to the tax on home ownership. (The landlord still owes the tax even when the apartment is vacant, though.) That way, tenants don't get the delusion that they somehow aren't affected by property taxes. Yes, the landlord pays the tax, but if the tax goes up, so does your rent, even with "rent stabilization" laws.

  3. Each year, the property tax authorities will tally up how much the assessed value of property in their jurisdiction has increased, and also tally the inflation adjustment in the cost of providing public services, excluding in both cases new or substantially improved properties added to the tax rolls.

  4. The default base tax rate for the new year would follow this formula:

    New Tax Rate = (Last Year's Revenue) × (Inflation Adjustment) ÷ (New Total Assessment)

    The Tax Rate will thus go down automatically if property values go up faster than inflation. The total amount of money the politicians get to play with goes up only by the inflation rate. However, if you have the hottest building in town, your taxes will go up faster than somebody who owns a vacant lot, but if you own an ugly pile of crap, your taxes may actually go down.

  5. To increase everyone's tax bill — not the tax rate, but the tax bill itself — more rapidly than that inflation adjustment, the taxing authority would have to have a roll-call vote, published in a local newspaper of record and posted on the web, to raise the tax rate above the calculated value.

  6. For the first few years, the Inflation Adjustment would be padded to bring overall school funding up to the level needed to get California back into the top 10 within 10 years.
My plan protects low-income seniors on fixed incomes especially, but in general it protects homeowners from shocking sudden increases in property taxes. However, it also provides a funding mechanism for schools (and hospitals, roads, transit, parks, etc.) to give the next generation the education they will need to run our economy, and it re-establishes the principle that similar properties should pay similar taxes.