Oh, the irony. San Francisco is perhaps the most progressive city in the United States, although Portland and Seattle might put up an argument. So how is it that the one thing that might save the City by the Bay from the fiscal abyss is Proposition 13, the iconic tax-cutting initiative backed by conservative Howard Jarvis and approved by voters in 1978?
No one disputes that San Francisco is in crisis. The city’s profligate spending and poor management has led to a myriad of ancillary problems. That the city planned to spend $1.7 million for a bathroom in a park may be the source of humorous derision, but it is an example of seriously dysfunctional governance. (Private donations for the restroom subsequently reduced the cost to the city).
A major structural problem is San Francisco’s diminishing population. As people leave the city, they take their tax dollars with them. The steepest decline occurred between 2019 and 2021 when the city lost 6.3 percent of its population, a rate of decline unprecedented for any major U.S. city. The only silver lining is that the rate of decline slowed to “only” half a percent from July 2021 to July 2022.
Making matters worse is the fact that downtown San Francisco has experienced the weakest recovery from the pandemic out of 62 North American cities according to a San Francisco Chronicle article dated January 18, 2023. Its overreliance on high tech and finance, whose workers are able to work remotely, has morphed downtown into a ghost town. Office vacancies are at an all-time high and rents for office space are falling fast.
The exodus of high-wealth individuals and businesses has wreaked havoc on the San Francisco’s budget, which is now projected to be in the hole by $780 million over the next two fiscal years.
So, with all this bad news, how is it that Proposition 13 can save San Francisco or at least slow down its rate of decline? Lost in all the discussion about spending challenges is the fact that the city is still projecting year-over-year increases in revenue. Much of that is due to how Proposition 13 works.
While providing security to homeowners, Proposition 13 also guarantees stable – and almost always increasing – revenue to local governments. Statewide, assessed value of property generally increases in the 4 to 5 percent range. And even in years when market values decrease, Proposition 13 acts as a shock absorber, stabilizing revenue because of the difference between taxable value and market value.
The two percent limit on annual increases in taxable value means that, for cities like San Francisco with historically big increases in market value, no overall reduction in tax assessments is required even when market values are dropping. Revenue to the city treasury is likely to remain stable. In fact, total assessed property in San Francisco from 2022 to 2023 increased 5.3% according to the California Board of Equalization Annual Report.
Proposition 13 has been characterized as “recession insurance” for local governments. Even with its problems, San Francisco can rely on a relatively stable stream of property tax revenue. Whether that will be sufficient will depend on whether the politicians can get spending under control. Raising taxes to “solve” budget problems just drives away more taxpayers and leaves a bigger hole in the city treasury.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.
On Wednesday of last week, Senate Constitutional Amendment No. 4, a major legislative effort to repeal the dreaded “Death Tax,” lost by a narrow margin (4-3) before the Senate Governance and Finance Committee. Although opponents of the tax will continue to pressure the Legislature to act, there is a powerful alternative to address the harm inflicted by this record-setting property tax hike.
Over the last forty-plus years, the Howard Jarvis Taxpayers Association has successfully qualified numerous pro-taxpayer initiative measures starting, of course, with California’s iconic Proposition 13, approved by voters in 1978. In 1996, HJTA qualified, and the voters enacted the Right to Vote on Taxes Act.
Now, HJTA and a broad coalition of minority organizations, taxpayer groups, and property owners will proceed with an initiative to restore the right of parents to transfer their home and limited other property to their children without reassessment to market value.
The legislative effort to repeal the death tax, authored by Sen. Kelly Seyarto, R-Murrieta, sought to reverse the provisions in Proposition 19 regarding intergenerational transfers of family property. Under Prop. 19, which passed narrowly in November 2020, property is now reassessed to market value upon transfer between parents and children, with only limited exceptions.
Support in the legislature for repealing the death tax was bipartisan, with Sen. Catherine Blakespear, D-Encinitas, joining Sen. Seyarto and Sen. Brian Dahle, R-Bieber, in support of SCA 4.
At Wednesday’s hearing, Los Angeles County Assessor Jeffrey Prang, a sharp critic of Proposition 19, emphasized that voters were not informed of the complex and costly effects that Proposition 19 would have on property tax reassessment of long-held family homes as well as businesses built over generations. “These neighborhood markets, auto shops and family-owned restaurants are community staples,” he said, but they are “in jeopardy of closing their doors when they are hit with high tax bills.”
Testifying on the harm inflicted on minority communities was Veronica Nelson, 1st VP of the Sacramento Realtists Association, noting the damage that Proposition 19 is doing to families in communities of color as they try to build economic security for the next generation. The Realtists organization, the California Association of Real Estate Brokers, was founded in 1947 to serve the needs of the Black community at a time when racism and redlining blocked that community’s access to home buying and real estate services. Nelson also expressed concern that Prop. 19 has put tenants at risk of eviction by requiring the reassessment to market value of family-owned apartment buildings when parents pass away.
It’s unfortunate that repeal of the death tax does not yet have majority support in the California Legislature. This is a marked departure from 1986, when the Legislature voted unanimously to place the parent-child transfer exclusion from reassessment on the ballot. This measure, Proposition 58, was approved by nearly 76% of voters, which protected property owners until Proposition 19 took that away and replaced it with the largest property tax increase in California history.
Sen. Kelly Seyarto said many voters were unaware that Proposition 19 would have this effect, because the measure’s title and summary on the ballot emphasized separate provisions that provided benefits for senior or disabled homeowners and wildfire victims.
A previous initiative effort to repeal the death tax fell just short of securing enough signatures, but a renewed effort will likely be much different. First, the number of signatures required to qualify a constitutional amendment is now substantially less than what was needed for the previous effort. Also, the earlier effort was hindered by the pandemic, which impeded the effort to obtain signatures in public places. Finally, since the last effort, the coalition has grown much larger and more diverse, driven by families ambushed by Prop. 19’s draconian tax hikes.
More information on how to volunteer and join the coalition is available at RepealTheDeathTax.com.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.