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Sacramento

Another Proposition 13 Myth Is Busted by Jon Coupal 8/28/07

That loud crash you just heard is the sound of another Proposition 13 myth being busted. It turns out that, contrary to the claims of some county and municipal officials, new housing pays its own way. But before discussing the latest demise of a hallowed canard about California's legendary taxpayer protection initiative, let's quickly review the origin of some of the most often repeated myths about Proposition 13.

Proposition 13 was placed on the ballot through a grass roots effort in 1978. Homeowners were seeing a doubling, even tripling of their property taxes in just a few short years. When state government refused to take action to save their homes, property owners rose up and qualified an initiative, Proposition 13, to limit property taxes and guarantee the right to vote on any new local taxes.

Anything that spoke of limiting taxes was viewed as a threat by politicians, who regarded the ability to spend as the source of their power; public employee unions, who considered the limits a threat to future pay increases; and powerful elements in the business community, who feared that the Legislature would replace any loss in property tax revenue with tax hikes on businesses.

This coalition waged a desperate, vicious campaign to defeat Proposition 13 that included claims that were at wide variance from the truth. For example, voters were told that if Proposition 13 passed, police and fire departments would be unable to respond to emergency calls. And the measure would destroy education, opponents warned.

After Proposition 13 passed, some of the campaign lies were immediately put to rest. For example, public safety services continued to be adequately funded. Other falsehoods, like the ones about education, gradually morphed and became urban myths that were promoted by those who continued to resent Proposition 13 and the popular uprising it represented.

So, we continue to hear that Proposition 13 has decimated school funding, which of course is not true. After adjusting for inflation, California spends 30 percent more per pupil than we did prior to the passage of Proposition 13. The tax limiting measure is also blamed for robbing school districts of local control over finances and transferring this power to the state. Again, not true. The way we now fund education is the result of a California Supreme Court decision that predates Proposition 13 by seven years. In the case of Serrano v. Priest the Court said that the property tax could not be used as the basis for funding local schools because a property tax based system resulted in communities with more valuable property being able to spend more per pupil than those with less expensive property. Still, there are those who perpetuate the myth that, as with many of our state's problems, it's Proposition 13's fault.

So what about the common claim that Proposition 13 has limited the supply of new housing since city and county officials are loathe to approve new homes because they do not pay for themselves by returning sufficient tax revenue? A just released study, The Housing Bottom Line: Fiscal Impact of New Home Construction on California Governments shows that after subtracting for costs to government, new housing more than pays its way.

The study, prepared by Blue Sky Consulting, sought to answer the question: What is the effect on government revenues and expenditures each time a new house is built? The study concluded that for each median priced home that is built, there is a net benefit to both state and local governments. In calculating the net benefit, the study takes the economic "pluses" of new home construction and subtracts the ongoing costs to government attributable to that construction. Despite claims by the tax-and-spend lobby that new home construction "costs" government, the study shows otherwise. One-time net revenues are, on average positive -- producing $3,017 for cities, $1,706 for counties and $15,858 for the state.

But what about ongoing fiscal impacts? There again, there is a net gain. "Ultimately, we found that for a new, median-priced house, the ongoing fiscal impact is positive, at $771, $190, and $3,498 at the city, county, and state levels, respectively."

So next time a member of a city council or board of supervisors says they cannot afford to approve new housing, direct them to the Housing Bottom Line study available at the California Building Industry Association website <www.cbia.org>. If they tell you they must chase after retail development or some other significant tax producer because Prop. 13 makes home construction a bad deal for government, tell them that that myth -- like all the other attacks on Prop. 13 -- is busted. CRO

copyright 2007 Howard Jarvis Taxpayers association

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