By Andrew LePage East Sacramento retiree Antonette Wells isn't a rabble-rouser, but mess with the tax-capping power of Proposition 13 and you'll find her marching on the Capitol. "I'll fight it all the way," promises Wells, who lives with her husband, Merlin, in a 4,000-square-foot home they bought in 1971 in the upscale Fabulous 40s neighborhood. For her, Howard Jarvis and Paul Gann -- the two late authors of the landmark 1978 property tax initiative -- are among "the only people that ever really mattered in this life." The Wellses credit the measure with preventing government from taxing them out of their home. Polls show that sentiment remains widespread among homeowners, especially seniors, but it's hardly universal as Proposition 13 marks its 25th anniversary Friday. Critics insist Proposition 13 has made "inequality" a permanent fixture in the state's property tax landscape, unfairly burdening recent home buyers with far higher property taxes than owners of identical homes who've stayed put for years or decades. While the biggest tax bill disparities created by Proposition 13 have dwindled through the years, several voter-approved amendments -- including exemptions for older homeowners and for those transferring property to children -- ensure that some will continue indefinitely. When it passed in 1978, Proposition 13 rolled back the assessed value of most homes to 1975 levels -- known as the 1975 base year -- and limited the basic property tax rate to 1 percent of assessed value. Homes aren't assessed at market value until they change hands, although there are two caveats: Any newly added square footage is assessed at market value, and a house remodeled to the point that it's essentially a new home can be fully reassessed at market value. Normally, however, assessed values can't rise more than 2 percent annually -- the so-called inflation adjustment -- under Proposition 13. The same rules apply to new homes, whose assessed values reflect market value at the time of purchase. For longtime homeowners like the Wellses, the result of Proposition 13 is a basic property tax bill of about $2,000 a year. Their home is now worth about $1 million -- roughly 14 times what they paid for it in 1971 -- and someone buying it today would pay closer to $10,000 a year in taxes. Extremes between longtime owners and new buyers of similar homes are most common in older neighborhoods. "I don't think it is fair. It should be uniform," says Tom Foster, 41. The systems engineer just bought his first house -- a small two-bedroom, one bath -- for $243,000 in Sacramento's UC Davis Medical Center neighborhood. Foster's basic annual property tax will be $2,430 -- 1 percent of the assessed value -- several hundred dollars more than the Wellses pay for their much larger and more valuable home. On Foster's street, a majority of 19 neighbors -- including some who've lived there for decades -- pay less than half as much as he will pay in property taxes. A handful pay about a quarter as much. In February, a poll by the Public Policy Institute of California found that, despite overall support for Proposition 13, 52 percent of Californians oppose such resulting tax bill disparities. "There's something inherently un-American about two property owners, one paying eight times as much for the same services for the same house on the same block built by the same developer at the same time," argues Larry Stone, the Santa Clara County assessor. But Libby Augusta, 31, a recent buyer in Sacramento's Oak Park neighborhood, sees no need to tinker with the system. The elementary school teacher paid $160,000 last summer for a 1,000-square-foot fixer-upper. She says it doesn't bother her that many of her neighbors pay less in property taxes, and she's looking forward to the same protection in the future. "My wages as a teacher certainly won't rise, and without Proposition 13 there would be no way I could keep my house with home value increases and being reassessed every year," Augusta says. "A 2 percent cap helps me a lot ... and I don't think I'd ever vote to repeal it." Proposition 13 critics argue that the measure has encouraged longtime homeowners to stay in place, leaving fewer entry-level homes for first-time buyers and adding pressure that pushes up home prices. Indeed, many economists and academics assert that Proposition 13 is among the major forces restraining the supply and affordability of housing statewide. They contend that it causes cities and counties to approve less housing -- because property taxes don't always support necessary services for new residents -- and to favor retail development for its sales tax revenue. "I wouldn't be so bold to say Proposition 13 is responsible for the whole gap (between housing supply and demand) but it's part of a larger puzzle and we have to look at all of the pieces," says Raphael Bostic, director of the University of Southern California's Casden Real Estate Economics Forecast. Proposition 13 defenders counter that the measure shouldn't be blamed for what they call government's insatiable thirst for revenue. And they say first-time buyers benefit immensely from the measure because it gives them the confidence they need to buy without worrying about surging taxes. As for recent buyers facing relatively high property taxes, Proposition 13 proponents say those same people will reap the measure's benefits in the years ahead. Joel Fox, past president of the Howard Jarvis Taxpayers Association and author of a new book, "The Legend of Proposition 13," recalls that complaints over disparate tax bills date back to about 1985. Rapid home price appreciation resulted in more people paying substantially higher taxes than neighbors who had lived in their homes longer. "People would call and say, 'It's absolutely unfair,' " Fox says. But those people eventually stopped calling, he says, because within a year their bills already were lower than those of newcomers to the neighborhood. Indeed, you don't have to be an "old-timer" to benefit. In some Sacramento neighborhoods entry-level homes that sold for $150,000 three years ago resell today for about $250,000. Some people who have lived in their homes just a few years already are paying 60 percent less than new buyers on the block. Homeowners with a 1975 base year for taxes pay some of the lowest property tax bills, but their ranks gradually have thinned. In Sacramento County, for instance, about 14 percent of all single-family homes have a 1975 base-year value, down from 22 percent in 1995 and down from nearly 40 percent in 1985, county assessor data show. Statewide numbers are not available, but the Los Angeles County Assessor's Office reports the percentage of homes there with a 1975 base year has dropped to 21 percent. Were it not for several Proposition 13 amendments approved by voters, the last of the homes with assessments based on 1975 gradually would disappear as owners died or sold. One amendment allows homeowners 55 and older to move once within the same county -- to a property of equal or lesser value -- and take their base-year value with them. Two other voter-approved measures allow similar exceptions. One says counties can allow other California residents who move to their counties to transfer the base-year values of their previous homes. Such transfers are allowed by Alameda, Kern, Los Angeles, Modoc, Orange, San Diego, San Mateo, Santa Clara and Ventura counties. The other exemption allows people with qualifying, permanent disabilities to transfer their homes' base-year values within the state. They also can avoid reassessment when their homes are modified to be more accessible to a disabled person. Over the past seven years, an average of about 15,000 Californians annually applied for those three exemptions combined, representing about 0.2 percent of the 7.2 million homes in the state and about 2.5 percent of the nearly 600,000 California homes that sold last year, according to state Board of Equalization records. A more widely used Proposition 13 amendment, dubbed "the dynasty provision" by critics, allows parents to transfer their principal residence to their children without triggering reassessment. In addition, parents have a one-time right to transfer any type of real estate with an appraised value up to $1 million to a child without triggering reassessment. A subsequent measure allows the same exemptions for grandparents transferring property to grandchildren, but only if both "qualifying parents" of the grandchildren are dead. Over the past few years county assessors have received just over 50,000 requests annually for the parent-child or grandparent-grandchild exemption -- the equivalent of about 8 percent of all residential sales last year. There were 3,391 requests for such exemptions in Sacramento County in the year ending June 30, 2001, the most recent period for which data were available. Another 2,201 requests were filed in Placer, El Dorado and Yolo counties combined that year, Board of Equalization data show. Proponents say the parent-child exemption benefits people at all income levels. In many cases, they say, children couldn't afford to keep property they inherit if it were reassessed at market value and taxes increased. Critics see a loophole most likely to benefit the rich. "It's another form of inequity that's been put into the system and those who would take advantage of it are going to tend to be the wealthy," said Terri Sexton, a California State University, Sacramento, economics professor and co-author of a book on Proposition 13. Still, polls show most Californians don't seem interested in making fundamental changes to the status quo. The recent PPIC poll found 57 percent of Californians -- and 65 percent of homeowners -- consider Proposition 13 "mostly a good thing" for the state. The poll found that 78 percent of seniors believe that to be true. After all, horror stories of seniors being taxed out of their homes helped pass Proposition 13 a quarter century ago. Lauren Luttig, 55, might be expected to resent the historic measure. She and her husband, Jim, recently purchased a Fabulous 40s home just down the street from the Wellses for about $900,000. They pay about $9,000 a year in base property taxes -- more than four times what some neighbors in similar homes pay. But Luttig says she's happy for the retirees on her block who are enjoying protection from steep property tax increases. Any effort to change the system, she says, would be the equivalent of "casting your vote against the elderly."
June 2, 2003