Budget Woes in San Jose
theatlantic.com
theatlantic.com
It was a bald-faced grab for cash; and it grossly distorted the housing market, been a huge handout to rentseekers and entrenched interests, starved public schools, hugely increased housing prices, prevented sensible house renovations (in order to preserve tax status), allowed an obstructionist ideological minority (33%) to stop any sort of sensible and economically beneficial tax reform, and above all increased inequality.
It's also a political third rail. It's time to change that. Prop 13 is bad, and those who support are making life and the market far worse for general society, for a much smaller tax break for themselves. It's greed, and it's bad.
--Also I think it's time Supreme Court revisits these limits on laws that require more than 51% to pass/revoke a law. Doesn't seem democratic to me--
Edit: Sorry I wasn't clear earlier. This provision in Prop 13 seems undemocratic: 'two-thirds (2/3) majority in both legislative houses for future increases of any state tax rates or amounts of revenue collected, including income tax rates and sales tax rates'
It effectively removes the ability for the tax law to be changed...
So much wrong here.
#1 they can sell their homes at huge profits (otherwise the taxes would not be hurting them).
#2 they can support building enough housing so that prices aren't jumping so unafforably.
#3 They could have set the maximum increase at 5%, or CPI + 2%, or really anything other than 2% which is clearly a hugely bad policy.
Prop 13 is simply a way for people who got in early to prevent anybody else from enjoying California.
Leave alone the fact that when markets are over-heated, those huge profits can only be locked into huge base prices for any other property that's selling in this peak market. Unless the step 2 after hitting those huge profits involves packing up and moving to MidWest.
IF this is the true purpose of Proposition 13, then it would be written far differently. (Greater than 2%, no commercial real estate included, no passing on to children). People are also allowed to sell their home for more than the assessed tax value, precisely because people speculate on price increases of their homes. If that wasn't one of the primary reasons behind Proposition 13 then people would have been OK with only being able to sell their home at the assessed value.
Really though the point of Proposition 13 was to just pay less taxes, "staying in your home" doesn't really come into play. Defending it along those lines is deceptive, and propagates a false narrative.
I am not sure what you're describing is correct - each time I bought a property in California the assessed tax value next year was precisely the sale price.
Here's what California has to say on it:
http://www.lao.ca.gov/reports/2012/tax/property-tax-primer-1...
The process that county assessors use to determine the value of real property was established by Proposition 13. Under this system, when real property is purchased, the county assessor assigns it an assessed value that is equal to its purchase price, or “acquisition value.”
Right now, Prop 13 beneficees have an assessed value of, say $300,000, on a $1,000,000 house. They can sell the house for $1,000,000.
If Prop 13 were actually about keeping people in their homes, then after taking advantage of below-market taxes for so long, they wouldn't be allowed to sell for more than a small percentage more than the tax assessed value.
But Prop 13 is not about keeping people in their homes, it's a selfish grab to not pay taxes, drive up home values, and profit on both ends.
This just has a bad smell to it - not only you're inviting corruption and avoidance into the deal (the buyer is asked to bring the check for the assessed value and a suitcase of cash to the deal), the actual revenue collected by the state would fall, and the federal government is likely to contest this setup as it stands to lose out on capital gains.
> Right now, Prop 13 beneficees have an assessed value of, say $300,000, on a $1,000,000 house.
Assuming a very healthy and robust real estate market that grows gangbusters 15% every single year and never falls, it would take 9 years for a $300,000 property to grow into $917,706. It would go over the $1,000,000 sticker during year 10.
Of course, this is assuming ever-lasting 15% valuation increase and no price correction whatsoever, but even in this ideal market the owner has lived there for 9+ years and does not fall qualify for your definition of "keeping people in their home"?
Even when he sells, the cash he has on hand is enough to (surprise!) buy a comparable house, so this crazy speculation scheme is only doable once in life.
I don't know... The spirit of this reminds me too much of landlords paying off tenants to move out of their rental units so that they can reprice rent controlled units to market.
You often can't afford to live In another place in the area even after reaping those profits, in both the ownership and rental situations. Sometimes, all you want to do is keep living in the place you call home.
And so can't others. Thus you have an incentive to work on #2, from the GP.
Also, there are lots of other factors that make long term financial planning hard, which dwarf changing property tax rates - health, employment changes, children.
Taxes are legal obligations. If you can't afford your taxes, you don't get to keep your house.
Estate taxes also has this kind of concern trolling.
What about family farmers?! This will improverish those hard working Americans!
All 40 of them.
--
It's SO EASY to create easy to administrate common sense rules, so that families can stay in their homes.
Cap property taxes increases and then reassess value when a property is sold.
Provide property tax relief to seniors, handicapped, disabled, etc.
I'm sure there are other strategies.
But, you're probably right, we shouldn't do anything reasonable so long as we can use a few edges cases to create fear, uncertainty, doubt (to better protect the status quo of the money elite).
Lol you just described Prop 13. Except with Prop 13, your property taxes get reassessed after remodel, etc, as well as sale.
"The most significant portion of the act is the first paragraph, which limited the tax rate for real estate:
Section 1. (a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties."
https://en.wikipedia.org/wiki/California_Proposition_13_(197...
Just a suggestion. No pressure.
What you are describing is the maximum yearly increase in property taxes when a property doesn't change hands.
When a property is sold, it is re-assessed to the sale price.
Source: Homeowner who actually pays property taxes.
Your spirited defense of Prop 13 notes that it currently does reset value during select events.
You continue to ignore, conflate, deny, obfuscate the most salient point: the 1% cap has crippled state and local govt. It certainly has prevented providing the level of services expected. Including by anti-tax jihadists such as yourself.
Cue repetition of talking points. Freedom Markets (tm), government corruption, monopoly on violence, blah blah blah. Go ahead. I'll wait.
Your selective credulity is insufferable.
But I see fat cat public servants getting ridiculous pensions and 13% raises, and then the politicians coming back to the people for more money by raising taxes. Police services include web sites to record crimes, since they won't actually come by and investigate them.
This is the original reason why Prop 13 was introduced, because politicians went to the well of property tax one too many times, and the public got sick of it. Prop 13 will never go away, despite your best Internet efforts, but little actual physical efforts.
Then it looks like you got exactly what you asked for. Win/win. I'm so happy for you.
Why, exactly, are you still complaining?
The biggest beneficiary of Prop 13 would be someone who bought his home in 1970s and never sold it since then. Does that describe a lot of the neighbors?
This is like leaving the front door off the law, not like putting a back door into it, so I wonder if it is more of an internet rumor than an actual way to avoid change of ownership. Maybe people do it but it is fraud?
It seems it's more complex than what I implied, though. The property needs to not only be owned by a holding company, but sales of the holding company have to be structured in such a way that overall ownership of the holding company isn't deemed to have changed. If the above article is correct, that's triggered when a new owner acquires a majority stake. So to avoid triggering a change in ownership in this case, Dell structured the sale so that he, his wife, and another business partner all bought interests in the company, split so that no single purchaser acquired more than 49%.
Couple of arguments against such exemption that I can see are
* major real estate property owners can make a case (in court of necessary) that their property prices have not increased as much as single-family residential prices, due to the nature of the commercial market (fewer buyers, larger amounts, larger variety of the market to find decent comparables)
* as property tax is deductible, the revenue would just restructure - what will be collected via property tax would then be deducted at the end of the year from income tax. I guess even in that case owners would be supportive, as property taxes typically go directly to the municipalities, while income taxes are spent by some politicians in Sacramento, but then why would Sacramento be in favor of the exemption that would lower its collected revenue?
Says who?
>The biggest beneficiary of Prop 13 would be someone who bought his home in 1970s and never sold it since then. Does that describe a lot of the neighbors?
This describes huge chunks of many many neighborhoods. When I bought a house in 2010, >75% of the homes on the market were the original owner from the 60s or 70s.
Dallas TX budget: $2,806,427,228 Pop: 1,281,047 $2190/cap
Jacksonville FL budget: $2,166,068,795 Pop: 861,252 $2515/cap
Closest cities I could find on wikipedia.
San Jose gets plenty of money from its citizens. Like most of CA, it has fallen into a pension liability trap. Wringing more money out of people who have lived there for decades will only drag it on for a few more years until they have to stop making fully-funded pension promises they can not keep long-term.
I wonder if in reality we will have the reverse, where young people of the future refuse to live under bonds created in the past and old money just isn't worth anything.
This is, in a nutshell, the basic populist argument in favor of inflation.
If you really expect your real-estate to exactly follow the CPI, I expect you will be disappointed. (or maybe excited... for the last two decades, at least, real-estate has massively outpaced inflation.)
Pensions, and really, most things are more complex, just 'cause there's usually something that attempts to compensate for inflation, but the point being that in general, inflation is good for debtors and bad for creditors. Most of the historical arguments in favor of inflation run along the lines of a partial repudiation of debt. Go read Bryan's "Cross of Gold" speech for an especially punchy example.
A mortgage's interest rate is designed to outpace inflation, so it almost always does.
If you buy a 10 year t bill expecting two percent inflation, and inflation goes up to six percent, you are going to be pretty disappointed.
I know that lately inflation has been hard to find... but it's pretty uncontroversial that these sorts of things happen when the rate of inflation changes.
Now, maybe you are saying that inflation, as long as it doesn't change doesn't matter, and while I still disagree, you have much stronger ground to argue from.
median income in Jacksonville FL: $47,424
median income in Dallas, TX: $56,498
Median income in San Jose, CA: $77,000
So... you're gonna pay more to get anything done in San Jose... not just for the guy with the shovel, but for the whole bureaucracy.
>Like most of CA, it has fallen into a pension liability trap. Wringing more money out of people who have lived there for decades will only drag it on for a few more years until they have to stop making fully-funded pension promises they can not keep long-term.
The thing to understand about pensions is that they are essentially annuities. Promising someone a pension in the '80s, when you could simply back such things up with T-bills or inflation protected T-bills, was a pretty reasonable thing to do. Interest rates were high. The real return on investment was high. You would get a reasonable return from buying an annuity, it was not a crazy thing to do at all.
The problem is that the risk-corrected rate of return of money is dramatically lower now, as one would expect in a situation with negative interest rates, so pension promises made to people like my parents, who worked for the state and negotiated those pensions in the '80s, look ridiculous now. I actually looked into getting the same jobs they had... I could do the job, but the pensions they'd offer me if I signed up now are shit compared to what my dad got.
I guess my point is that at least for the jobs I have researched (state-funded computer-nerd gigs) their new promises line up with the current economic reality.
Certainly, if the city is still offering defined-benefit pensions, that ought to be stopped, because annuities are simply something that aren't supportable in the current economic situation... but considering the situation at the state, I kinda doubt that the city is offering defined-benefit pensions.
First off, California property taxes are high already. Why is it that Vancouver, BC property taxes are 1/3 those of San Jose, with much higher property prices? And their schools are 100 times better, as are most services. It's government waste.
From the deal with police officers in 2015: "The one-year pay agreement, tentatively reached earlier in the week, calls for 8 percent raises, plus a 5-percent, one-time "retention" bonus and return incentive for officers who have left the force for other jobs. The current police contract expires at the end of the year." 13 percent is pretty good for a city that is purportedly suffering from money problems for the last decade.
Also, there are more than enough property sales in the last decade to equalize any "losses" from people who stayed in their houses, who are the far minority these days anyway. In my neighborhood, there is so much turnover and so many young couples moving in, it's crazy. And for those couples who have stayed in their house for a few decades, I'm glad they have prop 13 to protect them. There is no way that a retiree could afford to pay the $25k annual taxes that the rest of us do. They deserve to live in their houses until they deem fit to leave, not because they are priced out of the market.
Just about everyone I know in the computer industry did better than that in terms of raises and bonuses last year. I think the labor market here might just be hot.
That house, for example, is on the market for $848k. The 2014 taxes listed on Redfin are $1,873.
That's very low.
Here's a $1mil house in Vancouver:
https://www.redfin.com/WA/Vancouver/3811-Oregon-Dr-98661/hom...
The taxes on that house are about $11k.
The house you picked in San Jose was assessed at below 100k. Obviously those taxes are going to be low, and to my point, there is going to be turnover since they are selling it. Here is a more reasonable house, at $800k, paying almost $9000 in taxes:
https://www.redfin.com/CA/San-Jose/6303-Nepo-Dr-95119/home/1...
I've noticed Prop 13 becoming the quite the scapegoat for the woes of various California cities lately. I'm not convinced.
The state has a huge pension liability looming over it–most of which grew after Prop 13 was passed. How did they think they were going to pay for it? Example: San Jose's fire chief makes close to $400K/year in pay + benefits. Guess what? When he retires, he's gonna keep getting paid 90% of his peak salary until he dies.[0] Meanwhile, I'm paying $1,400/month out of pocket for my family's health insurance and have to spend time managing my own retirement plan.
No one exemplifies Parkinson's Law [1] better than the government. If you let property tax increase without limits, they will grow spending accordingly and it will hurt cities like San Jose even worse during recessions and times of declining home values.
Finally I'm not convinced Prop 13 inflates housing costs or that repealing it would lower them. If rentseekers have to pay more taxes, won't they pass that cost along in the form of higher rents?
[0] http://transparentcalifornia.com/salaries/2014/san-jose/curt...
The truth is, technology and building codes in the US–and especially California–have significantly reduced the loss of life and property due to fires. That's a great thing. Unfortunately, fire department budgets have increased at the same time. Partly due to pensions, partly due to the fact that cutting a fire budget is political suicide.
Have you noticed how 30-foot, $1 million+ fire engines show up to minor traffic accidents and first aid calls? There's a reason (they need to look busy).
Fun fact: 8% of calls to fire departments are false alarms and 64% are for non-fire medical support.
(Disclaimer: I am a volunteer firefighter in California)
They do that because they can't be caught without the engine if they get an actual fire call. They would leave directly from the accident/medical/CatInTree in the engine and go directly to the fire.
That's why you see them drive to the grocery store in the fire truck. You can't wait for them to go back to the firehouse to get the engine ...
Lifetime cost of living increases, raises and medical coverage for you and your family for life, and that on top of any additional public safety job pension you get makes it really sad that police and fire who are supposed to be protecting and improving society are instead bankrupting it and making it worse by preventing funds from being used for much needed infrastructure improvements.
Here's a retired SJ police chief. $230K/year pension.
http://transparentcalifornia.com/pensions/2014/san-jose-poli...
I'm happy for these guys, that they're able to live in what I'm sure is an upper middle class lifestyle even in San Jose. It's not that I want their standard of living to be lower for sure. But this draws attention to the facts for the rest of us that aren't put on a pedestal by society and government. I'm well compensated, and I know plenty of other people who are well compensated, but unless I stay in the top 5% of my profession I don't expect to be pulling home $200k+ per year during retirement.
When you use the example of free loaders to justify kicking the working stiffs in the teeth, you're just being cheap.
Pawn shops, check cashing shops, clubs and bars (and head shops). That's pretty much what DT SJ is.
Perhaps we should reconsider the idea that people can vote on what homes others (even gasp developers!) are allowed to build on private land.
I wouldn't let Berkeley off the hook so quickly, there is definitely resistance to dense residential development there [1]. I heard in a SPUR talk [2] that North Berkeley in particular has a strong anti-development movement, this despite Berkeley being one of the Bay area cities with the most new jobs being created.
[1] http://www.dailycal.org/2015/08/27/protesters-rally-against-... [2] http://spur.org
Propery and business tax is almost neglible around here in northern Europe, compared to income tax and vat.
http://taxes.about.com/od/statetaxes/a/States-Prohibiting-Ci...
Not sure how that would specifically play out, but employers are probably better at manipulating cities than residents.
I doubt it's the income situation though, from the article:
"Visit the main street of Palo Alto, where Stanford and numerous startups are located, and you’ll see dozens of fancy restaurants and stores and may not be able to snag a parking spot among the luxury cars parked there. Castro Street in downtown Mountain View has a slightly more relaxed vibe, with candy stores and book shops and restaurants and bars."
Palo Alto and Mountain View don't collect any income taxes and are subject to the same Prop 13 restrictions as every other city in California.
For San Jose troubles, you'd have to look towards its pension obligations. For a while the pension system for municipal workers allowed the pension to be pro-rated to the last salary mark, not average salary over the years of service.
That does not seem so bad, but the union contracts had a fairly generous allowance for sick days. That does not sound so bad either (who wants to deal with a sick coworker?) but it also allowed unlimited accumulation of those sick days throughout the years of service. At retirement the accumulated sick hours would be paid out pro-rated at last salary mark.
You can see what incentives this provided for city workers (of a fairly large city): never take a sick day, accumulate the maximum amount of them, push for promotions as you're closer to retirement age, retire the week after you get promotion and salary bump.
Many did play the system that way http://www.mercurynews.com/ci_21438816/bay-areas-250k-club-g... and considering it's a major city San Jose has a lot of former employees that it owns six-figure pensions until the rest of their lives.
Your effective tax rate (on income) in San Jose (if you are someone who is a net tax-payer) is 50%, give or take[1].
That's more than even the nordic darling utopia countries.
[1] 39%, plus either 11.x or 12.x or 13.x, depending on your tax bracket.