Recently I had two very different encounters regarding Proposition 13 that should be wake up calls for both California taxpayers and those that are committed to protecting Prop. 13.
The first was at a reception for leaders of a service organization that I belong to. A group of us were discussing the Orange County cities that we live in and after hearing about one member's beach front home he purchased over 40 years ago, a gentleman remarked how lucky that homeowner was that he was protected by Proposition 13 while those of us who bought our houses post passage of Prop. 13 were not.
The second was at a program sponsored by the Orange County Association of REALTORS that featured a panel that included the newly elected chair of the Orange County Democratic Party, Fran Sdao. Ms. Sdao made the statement that California needed to revisit Prop. 13 and inferred that California taxpayers were not sending Sacramento enough money. And although I was gratified by the negative reaction her comments elicited from the audience, I was also aware that the battle to protect Prop. 13 was going to become even more important than before.
It has become clear that there is a new generation of homeowners that need to be reminded of how they are protected by Prop. 13 and how high their property taxes would be if not for those protections. Every homeowner in California, whether they purchased their home yesterday or in 1978 is protected under Prop. 13. Prior to the passage of Prop. 13, homeowners were at the mercy of an elected County Assessor who based property values on an arbitrary and subjective evaluation. Now, every homeowner has their property tax rate set at 1% of the initial market value and any annual increase will be capped at 2%. The longer someone stays in their home, the lower their "effective" tax rate will be in comparison to market value.
According to the Howard Jarvis Taxpayers Association the average tax rate in place when Prop. 13 passed was 2.6%, and in some counties the rate was much higher. Let's give the California Legislature the benefit of the doubt and say that 39 years later, without Prop. 13, the average would only be at 3%, a modest 0.4% increase. At the end of 2016 the median price for all homes in Orange County hit $665,000. Without Prop. 13 in place, and only applying the average tax rate of 3 percent, instead of paying an initial property tax of $6,650 the new homeowner would be saddled with a $19,950 bill, a difference of $13,300. And that's just the start. Without Prop. 13's yearly increase cap of 2%, who knows what their next bill might be. California home values are always moving up, sometimes a lot more than the 2% cap. There was an over 5 percent jump from the end of 2015 median home price at $631,250 to the 2016 median price.
Ms. Sdao's comments need to be taken seriously. The Orange County Taxpayers Association is hearing more and more that the bureaucrats in Sacramento are looking for ways to increase the flow of money into the state's coffers, and have the repeal or weakening of Prop. 13 in their sites. All property owners must stand firmly together to protect Prop. 13 or see their yearly property tax bills increase to a point where very few will be able to afford to own a home.
This blog post is an edited version of a piece originally published in the Orange County Register.