Among the many problems California faces the next fiscal year, none is more important than the needs of local governments and the lack of funding. Much of the lack of local financial stability stems from the passage of Proposition 13 in 1978.
Given today's fiscal realities, perhaps it's time to revisit Prop 13.
A little history. Proposition 13 reduced local property taxes by 57 percent. Tax rates would be established at 1 percent of the value of a property as of 1978, unless the property sells, at which time the tax becomes one percent of the new price.
The Howard Jarvis Taxpayers Association proudly points out that this proposition has saved property owners $528 billion from 1978 to today--a sizable chunk of money to be sure.
Meanwhile, absent the money they needed for police, fire, libraries and schools, local governments turned to Sacramento for relief. For many years, the legislature was able to steer some funds collected at the state level to local governments to make up for their property tax losses. That has come to a halt with the current budget crisis, which begs the question: how do we find the funds to meet local needs?
What makes this question even more critical is that as part of his fiscal overhaul, Democratic Governor Jerry Brown wants to offload state management of nonviolent prisoners, public hospitals and other vital public services to local governments.
The plan would reduce the size of the state fiscal footprint, while increasing the financial responsibilities of local governments. All of which takes us back to the dreaded property tax.
Of course, homeowners move more frequently than established businesses. When's the last time that Disneyland or Hewlett-Packard moved? As a result, businesses pay much less today than in the past: In Santa Clara County, viewed as a bellwether for statewide collections, 34 percent of all property taxes come from businesses today instead of the 50 percent of the tab they paid in 1975. Today, local property taxes in California amount to about $50 billion annually--all collected on the 1 percent formula.
But what if we changed the non-residential tab to 1.5 percent from 1 percent? Call it a split rate property tax. The new rate would bring in an extra $8.5 billion from the commercial side. Homes would remain at 1 percent. What does that mean for local governments? In the case of Los Angeles County, which collects about one-fourth of the state's property taxes, it would add about $2.125 billion. For Santa Clara County, which has about 5 percent of the state's population, it would mean about $425 million.
All this adds up to dollars that local governments badly need.
Nobody likes to pay taxes. But nonresidential property owners particularly have been in the same locations for decades in many cases, which has reduced their tax bite disproportionately. All that means they are paying taxes on property values determined decades ago. A slightly higher tax rate will go a long way toward righting that wrong, while providing badly needed funds for local governments, including schools. It's not a perfect solution by any means, but it may be one to consider at a time when local governments are desperate for new revenues.