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Projected Decline in Local Property Tax Values

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Aired 5/29/09

The San Diego County Assessor is projecting a 2.5 percent drop in next year's property tax values. If the projections are correct, this will be the first time county property tax values have dropped in more than 30 years.

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Above: The real estate market crash is leaving counties strapped for cash. As the assessed value of homes decreases, so does the tax roll. Local editors discuss the issue.

GLORIA PENNER: You know we're in tough times when the mayor of San Diego accuses state politicians of stealing funds from local governments, and that actually happened this week during a press conference held by Mayor Jerry Sanders and several other mayors. The fight over shrinking property taxes is just getting started. After two years of double-digit increases in property values, there were two years of shrinking single digit increases, and the coming fiscal year that's 2009, 2010 the county actually expects a 2.5% drop in the value of the tax rolls. That's the first drop since Proposition 13 was enacted in 1978. So Scott, let's first understand how shrinking property values affects revenues collected by the state, the county, and the cities.

SCOTT LEWIS: Local cities get their tax base, get their money from three basic sources, they get it from property taxes, these are the annual bills that you pay on your home, or property that you own, they get it from sales taxes, these are the 6, 7, 8% that you pay when you buy a car, a vacuum, whatever. And they get it from tourist TOT taxes. These are the, visitors pay 10, 12, 13 percent to stay in a hotel room locally, in different areas and part of that comes to the cities. Property tax gets divvied up between the city, the county, and the state. For years and years and years this has been going quite well because the property values were skyrocketing, every time a property changed hands it was raising itself in value by hundreds and hundreds of thousands of dollars and that translated into higher tax rolls for the cities and counties and locally and that turned into more money that they could spend on parks, that they could spend on police officers and firefighters and their pensions and all kinds of things and they did nothing more but increase their spending as this increased. As this kept coming in, they kept increasing what they were divvying out. Remember the city of San Diego already had financial problems before this economic meltdown, and now the economic meltdown has come, it's affecting the state. It's like every where else it's already affected, but how it affects cities and municipalities is like an avalanche, it's already hit other industries, already hit other things, but it's now finally coming down to the cities and counties and it is going to be, it's going to, I think fundamentally realign our relationship with government.

GLORIA PENNER: Does the state distribute those taxes to the counties and cities? Is that how it works?

TOM YORK: I'm not quite of the mechanics. I know the state collects a lot of property taxes and it funnels some of it back to the cities, and it seems to me that with the decline in property values, somebody should realize that business is cyclical and property values are cyclical, times of distress as well as boom times, and I'm just kind of surprised that everyone is kind of in a state of shock that we're going through this now.

GLORIA PENNER: OK, so--Scott.

SCOTT LEWIS: I don't think we're in a state of shock, but just as the fact that we were so euphoric about how things were growing, and so profligate with our spending, now it's coming the opposite way and it's such a correction downward that it is going to be a very painful correction. Not that it's a surprise, it's that it's going to be very impactful. We can be surprised or we can be anticipatory of it, but it doesn't change the fact that it's going to be massively impactful.

GLORIA PENNER: OK, so let's turn to this idea, Proposition 13 locked in a property tax base rate in 1978. And except for a 2% inflation rate each year, the only tax increase happens when a property is sold, and reassessed at its current value. Is it time, Tony, to repeal Prop. 13, to eliminate this widening disparity between the market value and the assessed value of a property that hasn't changed hands and increase revenues?

TONY PERRY: Any logical look at Prop. 13 would say it is, yes. It has served its purpose, it was a stimulus to the California economy when it was first enacted. But it's the third rail, the electrified rail of California politics. The holiest of holies, even people that are disadvantaged by Prop. 13, that is to say people who have only bought their houses more recently, as far as I can tell are boosters and protectors of Prop. 13, so I just don't think that's within the realm of reality. I would disagree with Scott on one sense, his image, or his template of San Diego city government just shoveling out money and services and such, I would suggest that any look at San Diego city services, we're still pretty marginal. Look at our parks, even during boom years. look at our underfunded Fire Department, look at our underfunded police, you can go all the way down the line. True, we now are going to have to under fund more greatly. We've been living beyond our means. San Diegans do not like taxes, do not like paying for the services they get. There are only two times San Diegans don't think they should pay taxes, when the economy is good, hey, you're already getting a lot of sales tax. Or when the economy is bad. Well, we're now in the second one. And while there is a self pitying streak to the San Diego electorate, I believe, and they tend to cry when there is a small pea beneath twenty mattresses, this time I think the crying is real and we're going to be hurt real, real bad unless rabbits start jumping out of hats very quickly.

GLORIA PENNER: Scott, I know you want to respond, but I want to get to the phones and give our listeners a chance to chime in on this. Alright, we are in big financial trouble, we need more revenues. Either that or more cuts. I don't know how much more can be cut. If you need more revenues is it time to get them from the property taxes by eliminating Proposition 13? That's the question on the table, what's your answer? 1-888-895-5727, 895-KPBS. Rick in Mission Valley is with us now. Hi Rick, you're on with the editors.

CALLER: Hello, good morning.

GLORIA PENNER: Good morning.

CALLER: My question is pretty logistical, which is I mean, what would be the actual logistics of repealing Prop. 13 and, you know, and starting to reclaim some of the lost tax revenue? And as a little aside, I think it is rather amusing that one of the people, you know, responsible for Prop. 13 is running for governor again.

GLORIA PENNER: Which one is that? Jerry Brown?

CALLER: Brown.

GLORIA PENNER: Jerry Brown. Oh wait, Tom York wants to respond to you.

TOM YORK: Well, being old enough to remember that era, Jerry Brown was very much against Proposition 13 during the election and as soon as it passed by an overwhelming majority, he turned in favor of it, so I'm not so sure that's historically correct.

TONY PERRY: And also that profligate liberal Pete Wilson was mayor of the city of San Diego, also against Prop. 13.

GLORIA PENNER: He was against Prop. 13, too. OK, well, thank you very much Rick for your call on that. Longtime property owners have lower assessments under Prop. 13 while new owners can be assessed much greater amounts for similar property. Is it time to make this more equitable during this fiscal crisis, Scott?

SCOTT LEWIS: I'm going to go ahead and reject the idea we have to talk about Prop. 13 before we can make some changes first. For instance, I think, look, it is weird and strange that Warren Buffett was paying less taxes on his mansion in Laguna Hills than I was on my condo downtown for several years. It's a bizarre thing that at some point this you have to grapple with. The City of San Diego for example, there's a path out of this, and that's for city employees and other people to recognize that there is a genuine frustration about where our costs and pensions and other things have gone. After they recognize that it's time for the residents to recognize that they recognize that and also step up and start paying things like for their trash service and other things. If there was--

GLORIA PENNER: But Scott, you don't pay for trash service unless you're asked to pay for trash service. Have you heard anyone asking? Has the city council said we'd like you to pay for your trash?

SCOTT LEWIS: I'm not going to defend their leadership qualities right now. I don't think they've taken this, but the fact is that cuts to city employee benefits are not attractive to city employees. Paying for trash is not attractive to people who would have to pay for it, but they're both more attractive when they're brought together as a package, and I think that's what the leadership of the City of San Diego needs to do.

GLORIA PENNER: OK, more about this in just a moment, we'll be back with Editors Roundtable. I'm Gloria Penner.

GLORIA PENNER: This is The Editors Roundtable, I'm Gloria Penner. And no, you weren't switching over to a concert, we were just sort of refreshing our water here as were getting ready for this hot discussion about Proposition 13. We're delighted to have with us today Scott Lewis from VoiceofSanDiego.org. And Tony Perry from the Los Angeles Times and from San Diego Business Journal, Tom York and you. Let's start right out with one of our many, many phone calls that have come in about this topic and let's start with Tina in Downtown. Tina, you're on with the editors.

CALLER: Hi, thanks for taking my call, I have a couple of comments or questions. From what I understood, only about 8.7% of the homes in San Diego still retain the value of their home from 1978 when Proposition 13 was passed, and also, I'm not sure what the percentages are, but from what I understand, particularly in the past decade, homes have been exchanging hands regularly every few years, it would make Proposition 13 moot, I would think. And one last thing, people that are now reassessing the value of their home to get lower taxes, from what I understand because the value has decreased. From what I understand, when their value increases it would automatically go back up regardless of Proposition 13, once they have instituted the reassessments of their value they'd be lowered.

GLORIA PENNER: OK, all good points, Tina. And I know that Tom York was going to raise that issue, so he's going to respond to you.

TOM YORK: Well, I think that there is a mechanism built in to protect homeowners, and that is the fact that every seven or so years a home turns over on average, and as the caller pointed out only 8% of the homes still fall under the original 1978 provision. It seems to me, that alone, obviates the need to get rid of Proposition 13. Of course there is the commercial side, commercial property doesn't tend to turn over as much, if it turns over at all. Maybe there are some mechanisms there that need to be looked at on the commercial side.

TONY PERRY: There's a mechanism called a split roll, but you try that, if it's not the third rail it's close to the third rail. Remember that the late, sainted Howard Jarvis was not all that crazed on property owners owning little homes in Claremont, but he was in the employ of the apartment owners association and business groups, and they, today, are great beneficiaries of Prop. 13, tried to repeal that on a statewide ballot, wait for the 20, 30, 40, $50 million campaign explaining that those greedy politicians in Sacramento are at it again.

GLORIA PENNER: What side you think the Chambers of Commerce would be on?

TONY PERRY: I think they would trample over anyone who stood in their way to oppose any change in the hallowed Prop. 13.

SCOTT LEWIS: I think everyone needs to realize that what is happening with this correction is something grander than we've imagined before. I think what you're going to start seeing in places like San Diego, is a fundamental restructuring of government in the sense that if you care about something about San Diego, if you care about something in Mission Bay, you're going to set aside funds to protect Mission Bay. If you care about the Tourism Marketing Association, you're going to set aside funds for that. If you care about the Balboa Park you will set aside funds for that. If you care about security in La Jolla, you're going to create your own little government security in La Jolla.

GLORIA PENNER: Who is you?

SCOTT LEWIS: You as a resident. And you're going to realize, what it's going to be is a run on city services. In the sense that a centralized city government is going to be completely weakened by the fact that it can't deliver the services that some of it's most powerful citizens want. And so at some point, and we've already seen this, the example I just gave out aren't fantasy, it's an example that's already happened. The tourism industry has set aside it's own fees. If you care about a park in Ocean Beach, you're going to set aside your own fee to take care of it. But the problem is the communities that aren't able to organize it, there's 30 business improvement districts in San Diego if not more, they've already realized that the city government cannot provide what they want as far as services go, and so they're going to divide and conquer everything they can. The problem is is that there's going to be vast areas of the city that don't get these services, that don't organize themselves that way and you're going to see a fundamental shifting of the services and abilities that these communities get, and it is all because of the fact you can't trust city government to pay for anything anymore.

GLORIA PENNER: Tony, I know you want to respond, but we have just about run out of time on this, otherwise we won't have any time at all to talk about an issue that Scott brought up which is our final issue, and that is what about tourism in San Diego? Is that going to be hit by the bad economy? I want to apologize to all those people who called in. They wanted to really talk about this, but we can't give them a chance. Maybe we'll get back to it really soon. So thank you very much.

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