Evolve California’s Plan to Reform Prop 13

By Ted Lam

On a school night – Tuesday, January 23 – over 20 people sat in El Cerrito High School’s auditorium for an hour to hear Ben Grieff, the campaign director for Evolve California, talk about the drive to reform Proposition 13.

Evolve California is working to reform the infamous Prop. 13 so that owners of commercial property valued at $2 million or more would pay the 1% market rate property tax.

Grieff reminded us that Prop. 13 passed in June 1978, almost 40 years ago, as part of an anti-tax/anti-government campaign by Howard Jarvis, a wealthy property owner. California voters were willing to vote for Prop. 13 even if it meant less money for schools, which it indeed did.

Before Prop. 13, California was tied with New York State in fifth place for spending on education. Forty years later, California is in the bottom ten states for educational spending, and the lack of funding strikes hardest in the communities that can least afford it. California’s Parent-Teacher Associations (PTAs) raise $600 million a year, sometimes to pay for basic needs in schools; and rich communities can raise large sums that poorer communities can’t. Rich communities can also afford to raise parcel taxes or establish private foundations to make up for revenue lost due to Prop. 13.

It’s more important now than ever to talk about reforming Prop. 13. The Trump tax cuts greatly reduce California’s ability to deduct property taxes, while Congress added another huge last-minute benefit to corporations that own commercial real estate. All of this means even less money for crucial services like education.

Proposals to reform Prop. 13 could make huge corporate beneficiaries of the Trump tax bill pay their fair share. They could restore $11 billion every year (approximately half for schools and half for special districts, like fire districts) through the county property tax process. Seventy-seven percent of revenue from this reform would come from the 8% of commercial properties in California that have owned land since 1978. It wouldn’t change Prop. 13 for any residential properties, AirBnB property owners, renters, or those with second homes. No small businesses ($2 million or less) would be affected. In fact, as recommended by small business owners, the reform would eliminate the small business taxes. The reforms would be phased in over time to allow businesses to adjust. The proposed 1% property tax rate is less than in New York and other states.

Grieff offered this thought in El Cerrito High: Disneyland has increased its ticket prices over 800% since 1978. Yet unless Prop. 13 is reformed to require corporations to pay their fair share, when Grieff’s hypothetical future grandchildren go to Disneyland, the park will be paying the same property tax as it did in 1978 – and the average homeowner will be paying more property tax than Disneyland.

Evolve California’s website has estimates for how much money each county in the state would receive if Prop. 13 was reformed to include corporate payments (for example, Contra Costa County would get $350 million every year through commercial property tax re-assessments).  

Evolve California and other coalition partners have submitted their proposition name and description to the California Attorney General, and will begin collecting signatures between February and early May to qualify for the November 2018 ballot. They are looking for signature collectors, and will train them. They need 585,000 signatures in total but hope to get 900,000 signatures by May.

If and when the proposition appears on the ballot in November, it will require only 50% plus one of the total votes cast. Three of the four declared Democratic gubernatorial candidates support Prop. 13 reform. If the facts about Prop. 13 and the need for reform are spread widely, we hope the public will, too.

Ted Lam is retired from the USCG and currently works as a civil engineer.

Republicans Are Using Tax Reform to Loot California

By Rohit Reddy

The GOP tax bills will be catastrophic for California’s communities. While the tax scam is not law yet and there will be some changes from the House-Senate reconciliation process, we have enough information to know that it will raise taxes on millions of Californians, and that it lays the groundwork for dismantling Medicare, Medicaid, and Social Security, and greatly diminishes the ability of local and state governments to implement policies that benefit their residents.

Tax Hike on Millions of California’s Families

The GOP tax plan at the simplest level is a $5.5 trillion tax cut, funded by $4 trillion in tax increases and $1.5 trillion in deficit spending. The tax cuts skew heavily to benefit the ultra-wealthy and corporations. The shocking part is that the tax increases fall on tens of millions of families that live in blue states like California, New York and New Jersey.

For example, the plan eliminates deductions for state, local, and property taxes (“SALT”), resulting in a $1.3 trillion tax increase. The SALT deduction, which has been around since 1862, is valuable because it protects us from being taxed on money we’re already paying in (local) taxes. And the savings from this deduction are huge for us in the Bay Area:

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Source: 2015 IRS Data (Individual Returns)

Congressional Republicans’ Betrayal of Their Own Constituents

Repealing SALT is thus a major tax hike on a broad base of taxpayers. And it is not just a coastal Democratic thing; 54% of taxpayers in Republican congressional districts claimed the deduction.

Yet all but three members of the California Republican House delegation support the GOP tax plan:

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Source: 2015 IRS Data (Individual Returns); Blue indicates voting against House tax bill

The GOP Plan Will Depress Local Economies and Home Values

The GOP tax plan will be a gut punch to our local economies. Here’s one way: Californians claimed $112 billion in SALT deductions in 2015. Let’s assume 2018 would be in the same ballpark if the deductions were allowed: that means that next tax year, with the deductions not allowed, the tax savings from $112 billion will get sucked out of our communities by the federal government and redistributed to millionaires, multinational corporations, and their American and foreign shareholders. Now ask yourself, who is more likely to spend their tax savings in the East Bay: the family earning $150,000 per year with two kids? or Tim Cook, Apple’s CEO? I respect and admire Mr. Cook, but I doubt we are going to see him at Ole’s Waffle Shop on Park Street in Alameda, or any of the Pegasus Bookstores, or the San Leandro Costco.

Eliminating SALT deductions also means the cost of owning your home goes up and home ownership becomes a lot less attractive, leading to a decline in home values that economists estimate to be in the 5-10% range. While many rightly bemoan the high cost of housing in the Bay Area, depressing the value of housing stock isn’t the answer for homeowners, who need to maintain the value of their most valuable asset and a vital source for retirement savings.

Cuts in services to the most vulnerable members of our community

We also want homeownership to remain vibrant because property taxes pay for schools and local needs. New homeowners mean new property assessments, which means more revenue to fund teacher salaries, transportation, and local services. For example: 57% of East Bay households are homeowners, but all East Bay families benefits from our schools. If the revenues from our tax base declines, what are we going to do: raise taxes or cut services?

Because the GOP plan will create a $1.5 trillion hole in the federal budget, we will likely see cuts in services due to a federal rule called PAYGO or “pay as you go.”  The rules requires that if Congress is going to pay Paul, it had better rob Peter. The Peter in this case means Medicare (up to $25 billion in cuts per year) and other federal programs. PAYGO is only the beginning as Speaker Ryan has made explicit his intention to cut entitlement program due to … wait for it … deficit concerns.

It doesn’t take economic analysis, though, to realize this about the GOP tax plan: It demands neither shared sacrifices nor delivers shared benefits. It picks as winners those who least need help and losers those who need tax relief and our support. At a time when our nation faces formidable challenges, we need tax policy that advances our common national interest and provides for shared prosperity.

Rohit Reddy is a marketing professional who has a particular interest in bringing facts and evidence to inform decision-making. He resides in Alameda with his wife and two adorable little boys.