The Legacy Of Prop 13
Monday, March 29, 2010
SAN DIEGO It’s been 32 years since Proposition 13 passed, but there’s hardly an aspect of economic life in California that isn’t touched by its influence. It changed how we pay for our schools, fire departments, police forces, and libraries. This 30 minute news special explores whether Prop 13 was the best thing that ever happened to home-owners – or whether it’s to blame for California’s fiscal crisis.
HOWARD JARVIS: "We the taxpayers have spoken. We have made clear our golas. Now, we are watching you. It is your responsibility to make Proposition 13 work.
JOANNE FARYON (Host): Proposition 13 is arguably the most significant tax revolt for the state in the past 100 years. Imagine this – California voters told legislators they had to roll back property taxes, restrict future increases and in a final blow to government –imposed strict rules on increasing taxes of any kind in the state of California.
It’s been 32 years since Proposition 13 passed – but there’s hardly an aspect of economic life in California that isn’t touched by its influence. It changed how we pay for our schools, fire departments, police forces and libraries. We explore whether Prop 13 was the best thing that ever happened to home-owners – or whether it’s to blame for California’s fiscal crisis.
FARYON: It’s the spring of 1971, moving day for Bill and Nancy Bamberger and their five month old daughter Amy. The Bambergers paid 29,500 dollars for this house in the Kensington neighborhood of San Diego. Their annual tax bill was less then $1000. In 1978, after Proposition 13 passed in the state of California – the Bambergers’ tax bill was cut in half to about $500. Prop 13 was a victory for the taxpayer. But in every battle there’s a loser. Tonight, we’ll look at how California coped with losing billions in tax revenue. We’ll check in later with the Bambergers.
BILL BAMBERGER: “We did some remodeling so we were reassessed and our property tax bill bill today is, well in 2009, it was about $1300.
FARYON: And with other couples who’ve been in their homes since Prop 13 passed.
CATHY TAYLOR: “We’ve put in 48 years in this house.”
FRANK TAYLOR: “48 years?”
TAYLOR: “48 years.”
TAYLOR: “Oh no.”
FARYON: And we’ll tell you which side of the battle they were on. And how they feel today about the vote they cast 32 years ago.
DONNA BOYLE: “I didn’t realize this was the beginning of a whole anti-taxation campaign.”
MUSIC: "Buddy you're a boy make a big noise, playing in the street, going to be a man someday. You got mud on your face, you big disgrace..."
FARYON: The passage of Prop 13 was the beginning of an anti-tax revolution that fundamentally changed the way we view taxes. It appealed to people on the left and right. It was a populous driven social movement that forever changed the economic landscape of California.
NEWS ARCHIVES: “Good evening, here in California in the primary tomorrow voters have the unique opportunity to vote their taxes down.”
FARYON: It was a revolution – lead by retired businessman and anti-tax crusader Howard Jarvis.
HOWARD JARVIS:” We have a new revolution against the arrogant politicians and insensitive bureaucrats whose philosophy of tax, tax, tax, spend, spend, spend, elect and elect and elect is bankrupting we the American people and the time has to put a stop.”
ISAAC MARTIN:“ Howard Jarvis was quite a character. He had spent his whole life campaigning against high taxes. He spent a lot of his adult years trying to repeal the federal income tax but found that was an unpopular cause and his neighbors were much more excited about doing something about state and local property taxes. “
FARYON: California was growing in the 1970s. The demand for housing and rising inflation sent prices soaring. Homes that cost $50,000 in 1974 would go for more than $100,000 in 1978. And as house values doubled and tripled in some neighborhoods, property taxes doubled or tripled as well.
DAVID BUTLER:”My name is David Butler I’m the assessor recorder county clerk.
In 1978 David Butler was just starting out as a property assessor.
BUTLER: “They were going up no questions, and some of those remember some of those re had reappraised in 1978 might have been 1974, '73 since we had seen those properties so there were certainly some increases at the time.”
Historical tax records for San Diego County show total assessed values for all property in the county had nearly doubled between 1974 and 1978.
Frank and Cathy Taylor's house in Santee was among those increasing in value.
TAYLOR:” We didn’t worry how much it went up or down. The only thing we worried about if we was going to be able to the taxes. That’s what you had to worry about. Taxes come by in December. Christmas comes by in December. Your houses and church comes by in December. Then you had gifts to buy for five little kids. So December was a bad month."
Donna Boyle was a single mom when she bought her house in 1975 in North Park.
BOYLE:”And I remember hearing stories about older people, particularly widows whose homes were fully paid off and who owned them free and clear but who were being forced out of their homes because of the rise in taxes.”
MUSIC: "It's the little old lady from Pasadena."
The picture of the little old lady losing her house because of rising property taxes became the iconic image of Prop 13. At the time, California Governor Jerry Brown was sitting on a huge surplus. But he and the state legislature failed to pass a property tax relief bill.
MARTIN: “The legislature squandered an opportunity in 1977 missed it's chance to cut taxes for homeowners and people stopped trusting the state was going to do something about it. All the while that their property tax bills were going up it was like a perfect storm in 1978. “
FARYON: The Peoples’ Initiative to Limit Property taxation, or prop 13, passed with two thirds of the vote and cut property taxes in half. It also locked in all property assessments at one percent of purchase price and limited yearly increases.
PROP 13 SUPPORTER:” I voted for Proposition 13 because I believe the taxpayers have just got to tell the government a message that we're mad as Hell and we're not going to take it anymore."
PROP 13 OPPONENT: “I think Proposition 13 is probably going to be nothing short of a catastrophe."
FARYON: But Prop 13 did something else. Perhaps even more profound then forever limiting property tax revenues it also made it difficult for state government to increase any kind of tax in the future. The proposition requires a two thirds majority in both legislative houses for all increases in state tax rates including income taxes. It is a constitutional amendment that has made it increasingly difficult for state government to balance its budget. And it set in a motion an anti-tax sentiment that has shaped the future of government and politics in California and the rest of the country.
JARVIS: “We, the taxpayers, have spoken. We have made clear our goals. Now, we are watching you. It is your responsibility to make Proposition 13 work by cutting the barrels of lard out of the government budget.”
FARYON: But just how much lard could be cut from government budgets without affecting schools, police departments, fire fighters and libraries? It’s a question that 32 years later has not been resolved.
PROTESTERS: "No cuts, no fees, education should be free."
FARYON: Arguably, the most profound effect of Prop 13 has been on the way local schools are funded.
JULIAN BETTS: “So prior to Prop 13 being passed, local school boards with the support of voters could increase property tax rates. And that increase in property tax revenue is what flowed directly to the school district. So school boards back then not only set policy but they determined how much money they were going to have. And that’s very different from where we are today.”
FARYON: This flier from an education lobby group in 1978 warns voters schools will lose a third of it’s 10 billion dollar budget if Prop 13 passes.
NANCY BAMBERGER: “Well actually, I was pretty frightened about education for my daughter, who was in the first and second grade. So it was maybe self-interest in a strange way because we believe in public schools and we wanted that to work. And we knew the impact and the fact that the local would have no more money or decision making in what to do with the local public schools.
BOYLE: “And I remember during proposition 13 people saying well I don’t have kids in school why should I pay for them, so you want a city full of ignoramuses running around not being able to get jobs.”
MUSIC: "We don't need an education."
FARYON: After the passage of Prop 13, property tax revenues plummeted.
NEWS ARCHIVES: "Using up all the surplus and other revenue nearly ten and a half billion dollars will be spent throughout the state."
FARYON: Governor Jerry Brown stepped in, spent the states five billion dollar surplus and millions more to bail out schools, cities and counties. And that bailout continues today. In a series of complicated ballot measures and laws, the California legislature guarantees state funding for schools to compensate for the loss of property taxes.
BETTS: “So there's just this wild history in California of voter initiatives and propositions and lawsuits, which have lead to just a sort of a crazy mix. What all this means for spending is that starting around 1978-1979 we saw a sharp reduction in spending on schools. We fell compared to other states dramatically and we still haven’t really caught up to other states.”
FARYON: Here’s a look at California’s per pupil spending for the past four decades in comparison to other states. The last time California was at the top of the heap was 1965 when it ranked fifth. In 1978, the year Prop 13 passed California was 14th out of fifty – the next year the state fell to 22nd place. In 1988 California fell below the national average for the first time and never recovered. The state now ranks 43rd.
BETTS: “ It’s important to look at what happened at the classroom level as well. When you see a big shortfall in property tax revenues after the passage of Prop 13, what do you do as a school district? Well, most of the cost of running a school district is salaries. So you either reduce teacher salaries or you lay teachers off. And it really was the ladder. You see pupil-teacher ratios start to skyrocket in the years immediately after 1978. And a huge gap opens up between pupil-teacher ratios here and in the rest of the country, and we still haven’t recovered from that.”
TEACHER IN CLASSROOM: "We are going to do a quick review."
FARYON: According to several government statistics and independent research agencies, California has one of the highest student teacher ratios in the country at 21 to 1. California teachers are also the highest paid in the country.
TEACHER IN CLASSROOM: "Make sure you get that into your notes."
FARYON: By contrast, the state of New Jersey also pays their teachers top salaries, but their classrooms are almost half the size of California’s at 12 to 1. That state spends twice as much on education than we do. But New Jersey homeowners pay the cost. That state collects nearly 2500 dollars per capita in property taxes compared to 1150 dollars in California.
PROTESTER: "No cuts, no fees."
FARYON: Before Prop 13, more than 50 of school budgets were funded by local property taxes. Today, that number is closer to 20 per cent. Now, schools get most of their money from the state. And when the state is short on cash because of one of the worst recessions in history – schools face huge budget cuts. For a second straight year, thousands of California teachers will be laid off.
PROTESTERS: "Students, united."
Frank and Cathy Taylor bought their house in Santee 1962 for 13,000 dollars.
TAYLOR: “ Of course I was only making 75 – 80 a week, so even them you wonder how you’re going to pay for it."
FARYON: In the late 70’s when house prices started to rise, Frank knew he could be in trouble making his mortgage and tax payments. So he listened to what Howard Jarvis had to say.
TAYLOR: “I thought he was a crackpot. I thought this guy is a Republican he’s not going to be for the people, but he was. And the more I listened to him the more I liked him.”
FARYON: When Prop 13 passed, the Taylor’s, like everyone else in the state, got a break on their taxes. Today they pay about 400 dollars annually in property taxes. They are among the eight per cent of San Diego County homeowners who have lived in the same house since Prop 13 was passed. But the reality is, all California homeowners pay property taxes protected by Prop 13.
Here’s my house. I bought it in 2001 for 340,000 dollars. Based on a one per cent tax rate, my taxes were about 4000 a year. The house next door to me just sold for 640,000 dollars. The new homeowners will pay almost double what I pay in property taxes because they paid more for their home. Prop 13 guarantees your tax bill will always be based on your purchase price – not market value. Even though I've owned my home for nine years and the value has nearly doubled, my taxes have only increased by $578 in that nine year period. Property 13 caps increases to two per cent a year.
BUTLER: “You immediately become a benefactor of prop 13. It doesn’t look good when you first purchase it because you’re looking and saying there’s my neighbor who’s lived there for 20 years how come I’m paying three times or ten times more in property taxes and we get the same benefit we have the same police protection, the same fire protection. It’s hard to swallow that but once you’ve been there ten years, five years, you’re looking at the person buying much higher then you and you’re grateful prop 13 is there.”
FARYON: Here’s how the county’s four billion dollars in property taxes will be divided this year. About 44 per cent will go to schools, just over 20 percent to the county, just under 20 percent to cites, 11 percent to redevelopment agencies and the remainder to special water, sewer and fire districts.
MUSIC: "Cause I'm the taxman, yeah, I'm the taxman."
FARYON: The state bail out after prop 13 was not just for schools, it was also extended to counties and cities so they could pay for fire, police and libraries. According to research published by the Public Policy Institute of California, before Prop 13, counties relied on property taxes for about a third of their revenue – two decades later, in 1998, it was down to just over a tenth.
MARTIN: “State and local governments in California still have to provide all the services we demand of them but the interesting thing about prop 13 people rose up to demand cuts in property taxes but they weren’t ready to demand cuts in services. "
FARYON: All levels of government were forced to look for other ways to raise money.
California now relies on income tax for half of all its revenue – that’s the state tax deducted from your paycheck. According to the Brookings Institute Tax Policy Center, on average, California depends more on income tax, corporate tax, and license fees then other states in the country.
BOYLE: “It was sold, I'm not sure if that's the right word, it was sold to us a more equitable taxation not as anti-taxation.”
FARYON: In 1975 Donna Boyle paid 32,000 for her house. Her tax bill is now 600 a year. but she believes she should pay more.
BOYLE: “you know they say no taxation without representation, you get no representation without taxation."
JOLANTA LEWAK: "It costs us $164 dollars."
FARYON: The entire floor?"
JERZY LEWAK: "The entire floor."
FARYON: When Jerzy and Jolanta Lewak built this house on the out skirts of Del Mar in 1971, they lived in a trailer on the property with their four kids to save money. The Lewaks spent a total of 71,000 to buy this land and build this house. Recently, its value has fluctuated between 1 and 2 million dollars. The Lewaks say they are not rich. They’ve just lived in their house long enough to see its value explode.
FARYON: "Could you even imagine what your property tax bill would be today if not for prop 13?"
JERZY LEWAK: Yes, I could imagine. It would be 1% of what it was valued at a few years ago. Probably a million and a half or something. I don't know what its value is now, but probably around a million. Maybe 900… it depends who the buyer is. But, you know, between ten and fifteen thousand dollars. Yeah. Right?
FARYON: "Could you pay that?"
JERZY LEWAK: "It would be very difficult. It would be very difficult."
The Lewaks believe government collects enough money in taxes, but it doesn't spend it wisely. They’re not alone – polls show taxpayers believe there is as much as 40 per cent waste in government spending. A belief that was also part of the Prop 13 ad campaign.
COMMERCIAL: "Each year California politicians go on expensive junkets all over the world stay in the best hotels and hand taxpayers the bills. Your yes on proposition 13 will mean an end to this kind of wasteful government spending but if you’d rather send a politician to Paris vote no.”
MARTIN: " I believe there is some waste in government. I believe there is much less waste then people think there is. Part of hwat happens the program you see as waste is the program that I cherish most. The program that you cherish most is the program that I see as waste."
FARYON: In an effort to limit what taxpayers saw as waste and over-spending by government – Prop 13 imposed other rules. The proposition also demands a two thirds majority in both legislative houses to pass any kind of tax increase.
MARTIN: "The two thirds super majority has really shackled our state legislature. It has made it very difficult for us to pay for services we demand of our government and it has contributed to the chronic structural budget deficit we have in the state of California."
FARYON: This year, for the second year in a row the state faces more then a twenty billion dollar deficit. With unemployment at record levels California is collecting less in income tax and sales tax. Combine that with the declining real estate market and shrinking property tax pie and you have a perfect storm for a fiscal crisis.
CATHY TAYLOR:"we wouldn’t have a roof over our heads if we had to pay the taxes property tax they have now if it wasn’t for prop 13."
FARYON: Frank and Cathy Taylor voted for Prop 13. They continue to support the Howard Jarvis Tax Foundation – a lobby group that works to protect Prop 13 from legal and legislative challenges.
FRANK TAYLOR: "I send him money today to help them fight it and they’re fighting it like mad."
FARYON:Donna Boyle supported Prop 13 in 1978, but doesn’t anymore.
BOYLE:"i forget who it was so I’m not going to pretend I know who said there are two kinds of people – the wits and the yoyos . the yoyos you’re on your own the wits we’re in this together those two attitudes are moving farther and farther apart. And I think the you’re on your own are wrong."
FARYON: The Lewaks also voted for Prop 13.
JERZY LEWAK: "Just that very fact that if you are in your house, you could be driven out of it because it gets beyond your means when the price goes up. And the fact is that California is a very desirable place. More and more people want to move in, and that drives the prices of houses up and up and up."
FARYON: "How did you vote for Prop 13?"
BILL BAMBERGER: "Well we voted against it and we actually walked precincts to hand out leaflets in opposition to Prop 13."
The Bambergers continue to oppose Prop 13.
BILL BAMBERGER: “We have two significant problems. We have inequities and we just don’t have enough revenue. We’ve got the city going bankrupt, the state having financial problems every single year, and we need more revenue. And that means we all have to be realistic. And if we want the services, we’re going to have to pay for them. There is no free lunch."
MUSIC: "Jingle bells, jungle bells, jingle all the way."
FARYON: The Bambergers' daughter Amy eventually bought her own house down the street from her parents, where she now raises her daughter Zion. She’s decided to send her daughter to private school because the teacher student ratio is much lower than in public school. This makes her mother’s worst fears about schools and Prop 13 seem somewhat prophetic.
NANCY BAMBERGER: "I think it was, like, we’re going to show… it was what people wanted to hear. Like, we can keep our money and have the goods too. And we’re going to show the rest of the US about what a tax revolt feels like. And he just set us up for a big flim-flam, showing people still believe in it. Ronald Reagan was part of that rah-rah group and now I don’t think people would really connect that Prop 13 was sort of the beginning of all of the infrastructure breakdown.
RONALD REGAN: “When you and your fellow California’s passed prop 13 in 1978 you struck a powerful blow for our freedom. You used the initiative process to become citizen lawmakers when the Legislature refused to take action to protect us from confiscatory taxation. With Proposition 13 we told government that since the power to tax is the essence of government we citizens are going to take control of taxation."
FARYON: Poll after poll finds Californians would again overwhelmingly support Prop 13 today if on the ballot. It’s been called the third rail of politics – so charged that if any politician touched it they’d suffer politically.
JERRY BROWN: "And that's why I'm declaring my candidacy for governor."
FARYON: Democrat Jerry Brown is running for Governor again. We asked him repeatedly for an interview to discuss his views on Prop 13. He did not respond to our requests.
COMMERCIAL: "But the Howard Jarvis Taxpayers' Association says Steve Poizner wanted to undercut Proposition 13 and raise property taxes. Woops."
FARYON: And although his republican rival Meg Whitman, ran these ads, she too refused to tell KPBS whether she would support Prop 13 today. Republican Gubernatorial candidate Steve Poizner told KPBS he supports Prop 13 and would be an ardent protector of the proposition if elected.
When the late Howard Jarvis was asked years ago how he felt about his role in leading the anti-tax revolution – he did what he did throughout his campaign. He brought it back to the people – the people who told him if not for Prop 13, they would have lost their homes.
INTERVIEWER: "What do some of the letters say?"
JARVIS: "I tell you I can't even read them they’re so magnificent I can't read them. I went across the street to the bank today and 20 people stopped me and just the words they said its very touching” (cries)
FARYON: Prop 13 limited tax increases for residential and commercial property owners. A victory for taxpayers, but arguably a loss for public services. There are now talks among government officials about changing a portion of Prop 13. One idea is to charge commercial owners more in property taxes. It’s a move that could raise billions for the state, but at what cost to business You can find out more about that story and much more about the legacy of Prop 13 in our special coverage.