Prop 13: California's Mother-in-law

July 4th, 1979, I learned that Proposition 13 was evil. From our balcony in Echo Park, we had always watched the various municipal fireworks displays put on by Parks and Recreation and other public entities. It was a heck of a show; we would get our own "safe & sane" sparklers and snakes, and maybe even a fountain, but the real show was after the lights went down, on the public dime.

But that year was different. I was very eager for the shows to start, but my parents cautioned me to temper my five-year-old enthusiasm, because "Since Proposition 13," there would not be nearly as many shows.

They were right. We saw a few poofs of color, dimmed by smog, from the Coliseum and a couple other large venues... but very little else. I shook my head around and pretended that the afterimages of the city lights were fireworks. I also plotted the demise of "Proposition 13."

Nowadays, things have changed. The smog is barely a fraction of what it was, thanks to smog checks, CAFE standards, and a dramatic reduction in industrial activity. And the fireworks are better than ever, thanks to the Internet and a still-porous southern border. With the money saved on property taxes, thousands of Angelenos are able to buy professional-quality fireworks to set off from their backyards. Meanwhile, we spend far more on Independence Day overtime for cops and firefighters than we used to before Prop 13, and we have less money to do it with.

But the truth is, Proposition 13 solved a real and pressing problem. The real estate market is quite a bit more volatile than other markets; before Prop 13, your assessed value could go up tens of thousands of dollars in a single year, raising your tax bill by several hundred dollars. Let's remember, it was 1978, and hundreds of dollars was worth more than three times as much. The fact is, in just a couple of years, a neighborhood becoming suddenly fashionable could push a family out of a home they'd owned for 10 years, just because they could no longer afford the tax bill. Looking at it with today's prices, I sold a house in Echo Park in 2001 for $238k. That same house, at the market peak in 2006 or so, would have sold for probably $650k. Without Prop 13, the property taxes would have gone up by $12,000 in five years. That's unsustainable for most households, and prevents strong communities from persisting.

But it went too far... way, WAY too far. Here's a chart to help explain:
Citation: me. I did this for my term paper in Urban Planning 253 ("Sprawl"). That's why it only goes to 2000; I did this in 2005, and that was the latest data I could get. Someday, I'll update it.

It still illustrates the issue. The line shows the real value (inflation-adjusted value) of property assessments by year of tenure as a percentage of inflation-adjusted purchase value. Basically, every year, inflation pushes prices higher and the value of the dollar lower (those are really equivalent statements), which means that even if your neighborhood is static, your house will be worth a greater number of dollars. However, the limitation that Prop 13 put on how fast your assessed value (the value used to calculate your taxes) could rise meant that assessed value couldn't keep up with real dollar value... in other words, when adjusted for inflation, your assessed value got lower every year. Based on inflation rates (which were very high in the late 1970s - early 1980s, but were very low by the end of the 1990s), the assessed value of a house bought in 1978 would be just barely over half as much as the number you would get if you put the original purchase price into an inflation calculator. This isn't looking at market value in any way... just the extent to which inflation outpaced the maximum 2% increase instituted by Prop 13.

The color coding has to do with what proportion of the housing stock, as of the 2000 census, had been purchased in that year (or before, in the case of 1978). As you can see, a quarter of houses fell into the bottom category, with assessments that were 60% or less of what the owner originally paid for the house. (The selected break points between tenure categories were selected based on large changes in inflation rates, if I recall correctly.)

So here's the problem in a nutshell: Prop 13 totally destroyed our ability to maintain infrastructure, sponsor first-class education, or even give people fireworks displays so they wouldn't have to make their own. But at the same time, it did create one important positive change: it let families plan their expenses when they bought a house, and know that, barring catastrophe, they should be able to continue to live there. Just as many people find their mother-in-law reorganizes the cabinets all wrong, teaches their children things they don't want them to learn, and makes them feel ungraceful or unbeautiful or otherwise unworthy... but she did create someone worth loving and marrying, which balances for a lot of ills.

I hate Prop 13, but we can't throw the baby out with the bathwater. It needs to be fixed, not abolished. But this post is too long already, so you'll just have to wait with bated breath to find out my glorious plan for doing so. (Then I have to somehow get Jerry Brown and the entire California Legislature to read my blog.)