More than a decade ago, I highlighted the dysfunctional ways in which California collects taxes. The state is overly reliant on sales and income tax revenue, which is a recipe for disaster when a recession hits and tax revenues plummet, especially for the working middle class.
Thankfully, a thriving tech sector and millions of small businesses have helped California’s economy remain strong. We’re creating jobs and filling the state’s budget coffers at record levels. This reality, plus some solid planning in Sacramento, is why California boasts a more-than-$22 billion budget surplus.
But some of our political leaders have targeted one of the most successful citizen-approved initiatives in California’s history — Proposition 13 — to raise property taxes on business property by billions of dollars each year.
Under Prop. 13, passed by voters in 1978, property taxes for residential and business properties are calculated based on 1% of the purchase price plus any voter-approved debt. Annual increases in property valuations are capped at 2% per year. Prop. 13 benefits renters, small businesses and virtually all Californians by preventing skyrocketing property tax increases that get passed along to tenants and consumers in the form of higher rent and higher costs for goods and services.
Today, 41 years after its passage, Prop. 13 remains one of the most high-profile and revered citizen-sponsored initiatives that has shaped California for the better.
But, don’t just take my word for it.
In a Public Policy Institute of California poll conducted earlier this year, 64% of likely voters say Prop. 13 has been a “good thing” for the state. Less than half of those surveyed support changing the way commercial property is taxed; voters understand that increased business taxes will ultimately drive up prices for consumers on everything we buy and use. Higher property taxes and prices on everything from gasoline to groceries is the last thing California families need when we’re battling a housing crisis and a rising cost of living.
Prop. 13 has protected homeowners, renters and small businesses by reducing the uncertainty they faced before Prop. 13’s passage. Today’s young voters may not remember the yearly 50-100% property tax increases that occurred before Prop. 13’s approval and the dinner table conversations that families and small business owners had as they struggled to handle their unexpected tax hike. Prop. 13 ended that.
As a lifelong Democrat, I know it’s not in vogue to voice support for Prop. 13. In fact, when I served in the state Legislature, I was critical of the measure. But, as I’ve stepped away from public life, I’ve witnessed the benefits and peace of mind Prop. 13 provides to millions of Californians.
There are ways to improve Prop. 13, including closing a loophole the Legislature created after the initiative passed that allows property to transfer without reassessment by selling partial interests in the property to related persons with none getting a majority ownership in it. Closing this loophole would restore Prop. 13 back to its original goal — to create certainty and predictability for all Californians. Business groups have tried to close the loophole, only to be rebuffed at every attempt.
Why? The answer is simple. Special interest groups desiring more money, in prosperous times or during a recession, have wanted to dump Prop. 13 since its passage. They intend to use this loophole as justification to make that happen. Fixing it would hurt their greater goal.
Voters aren’t stupid. For more than 40 years, Prop. 13 has provided property tax certainty to homeowners, renters and businesses. But efforts to alter Prop. 13’s protections now could lead to an effort to fully repeal it in the future.
We must fight for Prop. 13 — for today’s and tomorrow’s homeowners, renters and business owners.
Don Perata was president pro tempore of the California State Senate from 2004-8. He also served in the state Assembly and on the Alameda County Board of Supervisors.
