Prop 13 analysis shows wealthier, whiter neighborhoods pay less property tax

By Jesse Bedayn

Cal Matters

According to a new report based on a study by the Tax Fairness Project and the San Francisco Bay Area Planning and Urban Research Association.

The report takes aim at Proposition 13, a 1978 California law that limits the amount governments can tax property to 1% of its assessed value. The law also limits the value of properties for tax purposes, so properties are taxed at the value at which they were sold – not the current market price of a property. In most cases, assets are only revalued at the time of sale.

The law has been criticized by policy pundits for effectively giving long-time homeowners significant tax reductions over new buyers.

The new analysis, titled Burdens and Benefits, concludes that the law disproportionately benefits white and wealthier homeowners, who tend to live in higher-income communities where property values ​​have risen faster compared to other neighborhoods.

Phil Levin, who founded the Tax Fairness Project to measure the effects of Prop. 13 in the Bay Area, argues that the law offered wealthy, largely white businesses and owners huge tax breaks at the expense of government revenue and school funding.

But “the people who are hurt by it don’t even know it,” Levin said, “So of course all the people who benefit from it care intensely.”

Prop. 13 allows the sale value of a property to increase 2% per year to account for inflation, but median home prices across California have soared well beyond that adjustment.

In the past year alone, median home prices in the Bay Area have increased nearly 14% to $1 millionbased on CoreLogic sales data.

The law creates situations where mansions pay similar taxes to repairers, “because homes in high-income communities have risen in value at a faster rate than other homes, making the effects of the proposal 13 far more important to these owners,” Levin wrote in the report.

While the study focused on Oakland, Levin said the findings shed light on the impact of Proposition 13 on communities across the state.

The owner of a 6,740 square foot mansion in San Francisco estimated at $9 million paid $5,625 in property taxes in 2020, according to the tax fairness project, who analyzed county tax records and market values ​​from home-buying websites such as Zillow. Across the bay in Richmond, the owner of a 991-square-foot home worth $331,000 in need of repairs paid almost as much in taxes at $5,240.

Luke Quirk, 42, bought a four-bedroom house in Concord with his wife and two children for around $697,000 in 2015. While he pays more than $9,000 a year in property taxes, a- he said, his longtime landlord neighbor told him he was paying about $3,700 in taxes, despite their homes being similar sizes.

Yet Quirk, who works in the pharmaceutical industry, also saves. Since 2015, his home has appreciated in value to around $1.1 million.

But Quirk said he thinks the next couple with children who want to buy a family home in the working-class suburb of Concord won’t have it as well.

“Not only are they going to be absolutely devastated by their mortgage payment, but they’re going to be paying four times what their neighbor is paying if their neighbor has been there since 1999. It just doesn’t seem fair for the same services,” he said. declared. mentioned.

People often assume that Prop. 13 brings significant benefits to all homeowners, but “it just doesn’t,” said Jacob Denney, report co-author and director of economic policy at the San Francisco Bay Area Planning and Urban Research Association. .

“Where you live in your city matters,” he said. And race and ethnicity matters too.

For example, Oakland homeowners in white neighborhoods pay taxes on homes that, on average, are assessed $693,924 below market value, according to the study, which translates to $9,631 per house in property tax breaks.

Homeowners in Latino neighborhoods also pay taxes on undervalued homes, but on average $216,430, resulting in about $3,000 in tax relief per home — one-third of the savings in white neighborhoods, according to the ‘analysis.

Although the study identifies neighborhoods as white, black, Latino, or Asian, in most cases these races or ethnicities did not make up the majority of the population but made up large proportions of these parts of the city.

More white Oakland residents have benefited in general from Proposition 13, as more of them own their homes than other racial groups. White residents make up 28% of the city’s population but account for 43% of its homeowners, according to the report.

Latino, black and Asian residents are more likely to rent, a likely legacy of redlining, Denney said, referring to a banking practice that prevented residents of poor, majority-minority neighborhoods from getting bank loans to buy or refinance. Their houses.

“Wealthier neighborhoods get the most (tax breaks), which helps them create more wealth for their communities that were already enjoying a lot of wealth,” Denney said.

Levin added in the report, “Even when people of color own their homes, their tax savings from Proposition 13 are lower than in majority white communities.”

The low property taxes of Proposition 13 also mean fewer tax dollars for Oakland. Critics say scrapping the proposal would be a game-changer for the city.

The report found that if Oakland homes were taxed at their current market value, the city would earn about $400 million in annual revenue. That’s more than the city’s current budgets for its transportation, fire, housing and community development, and social services departments combined.

But such solutions are complicated.

Low-income households may receive a much smaller subsidy, but it is a subsidy nonetheless.

Removing Proposition 13 altogether would have far-reaching implications, including the potential to make property taxes unaffordable for low-income families and retired seniors who depend on fixed incomes and low property taxes to keep their homes, said Susan Shelley, a spokesperson for the Howard Jarvis Taxpayers Association, an organization that works to protect Proposition 13.

“You can look at the data any way you want,” she said, raising property taxes “would knock California’s middle class out of homeownership.”

Levin said he hoped for “a system that would make California look like the other 49 states…All the other states do it in a different way and they’re doing well.”

Other states have higher caps on property taxes and assessed values, and many have higher rates for commercial properties. Massachusetts, for example, allows cities to tax commercial properties at almost double the rate of residential properties, while New York allows an annual reassessment increase of 6% instead of California’s 2%.

But in California, Prop. 13 remains popular.

A 2018 survey from the Public Policy Center of California found that 57% of adults thought the measure was “mostly a good thing”, while 23% thought it was “mostly a bad thing”.

In 2020, a ballot initiative that would have changed some of that by requiring commercial properties to be taxed at market value lost 52-48%, a difference of more than 600,000 votes.

Denney said, “The conversation we need to have with people in California is: Is the personal money saved worth it?”

This article is part of the California Divisiona collaboration between newsrooms examining income inequality and economic survival in California.

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