California Is in Big Trouble Again, After Averting a Collapse in the 2000s
bloomberg.com
bloomberg.com
On top of that, in many cases, as the property tax is so low, people who otherwise would not be able to afford such high value properties continue to hold them, leading to an artificial increase in the overall property values.
If Prop-13 is abolished, a lot of properties will enter the market, and overall revenue would increase resolving many of CA's and local government's woes, including that of the public education system.
OTOH, I know that abolishing Prop-13 is an impossibility. Our best hope is that the split tax roll is successful that that would require at least the commercial and industrial property to be regularly reassessed and taxed at their full value.
it can be replaced with some very slow tax increase, so market will return into normal pace in 5-10-20 years.
Additionally, Prop 13 is kind of a disincentive to build higher-density buildings because if you tear down a building and build a new one, your tax base will go up to match the newly assessed property value rather than remain at the artificially low level it was at before.
Developers understand this, they want to build, but they are having trouble getting the permits to replace low density SFH with medium- to high-density housing.
Any real solution needs to be a combination of changing zoning/permitting and fixing Prop 13.
I often feel like the whole state and local governmental edifice in this state needs to be liquidated. All of it. Both parties. The incompetence especially in urban planning and infrastructure is just unbelievable.
More importantly, most of California's spending is not to drive growth, but to keep its head above water. Investment is one thing, but never borrow to pay operating expenses if you can help it.
The comparison with Venezuela isn't all that off the mark, structurally. Venezuela also spent dramatically on social programs and redistribution because it could, with an extremely lucrative source of foreign cash. When the gravy train dried up, the whole system collapsed, which is probably what'll happen to California when the tech & entertainment industries dry up (and did happen in 2001 in the wake of the dot-com bust). California probably has several decades before there's a reckoning though: networks of human capital like you have in Silicon Valley and Hollywood are difficult to move or replicate elsewhere.
Eliminating Prop 13 would at least fix some of the misincentives in the housing market so that senior citizens living alone could afford to downsize to a 1BR condo and free up the empty 4BR house for a family with 3 kids.
I think my Mom is typical: because of Prop 13, she can't move. Her property taxes on a new home would be 20X as much.
Due to this, she's kinda 'stuck.' She lives in a house that's larger than what she needs, but she can't justify moving. I think she'd love to "cash out" some of that equity, but she can't.
This is how we got reverse mortgages (which are horrible.)
measures that include an alternative funding source (e.g., new revenue, new taxes, grants, etc) can be considered on their own merits (measure M in SoCal, for example).
This is ridiculous. California is filled with homeless people because:
1) there's a nationwide opioid crisis
2) if you're going to be homeless, might as well move to where the weather is nice
In a recent survey in Los Angeles, somewhere around 90% of the homeless reported a substance abuse problem.
This is impacting Seattle and Portland too; it's a lot easier to be homeless in Portland than Phoenix.
Perhaps, but why let a perfectly useful argument for cheaper housing go to waste, just because it's nonsense?
This is the situation in Seattle. There are tons of people with drug addictions, but there are also clearly lots of people economically pushed onto the street.
So we still need more cheaper housing.
At some point people will decide its too much as the state continues to increase taxes to pay for its overzealous spending and leave, creating an even bigger problem.
This kind of argument always seems a little... short-sighted, to me. Sure, raising taxes has a chilling effect, but spending that money in the right-enough ways has an attractive effect.
AFAIK, LA wants to / has raised taxes in order to put in far more parks (addressing "green deserts") and to address food deserts. This makes more neighborhoods more desirable, which then has an overall attractive effect.
Looking at one part of a system and saying "well, this is bad because it doesn't achieve terminal values", well, look at the _entire_ system, and _then_ measure achievement of those values.
I would never relocate to California if I had any other options, because of how wretched the transportation infrastructure is in all of its metro areas.
[1] https://www.latimes.com/business/la-fi-california-census-mig...
Include all facts if you are trying to make a point.
Yes we have issues when it comes to poverty and housing but we are not doomed.
The Legislature did just that with the ADU bills that effectively abolish single-family zoning throughout the state. Additionally, SB 330 (the Housing Crisis Act) puts a stop to some of the more egregious forms of NIMBYism. Citizens can sue cities that refuse to follow the law under the Housing Accountability Act, which was recently strengthened; no such recourse is available to residents of most other states.
More must be done, but California is now leading the way in cracking down on NIMBYism. I predict that states like Texas are going to see the NIMBY pattern play out in time (if they aren't already—look at Austin), leading to skyrocketing housing costs. They will have to do the same thing in time. California is just ahead of the curve.
Once a few people rent out their ADUs and then find that they can't evict their tenants as their needs change, very few people are going to be willing to invest the several hundred thousand necessary to permit and build one.
And the cities with the strongest rent control--San Francisco and Los Angeles--are also the cities that have been seeing a boom in ADU construction, even though the dysfunctional rent control policies of those cities apply to a lot of those ADUs. The statewide rent cap isn't likely to be a meaningful impediment to ADU construction. Much more problematic is the cost of constructing the ADU in the first place.
Edit: I'm not saying that the state doesn't have high inequality. It does, as does the US in general. I'm saying it's not poor. California is rich, but does not distribute that wealth equitably.
Never cross a river that is "on average 4 feet deep".
Just as an anecdote I live in a 650 sq ft 1 bedroom apartment. The previous tenants were a family of four. My good friend lives a block away - he's cycled through phases of 3-4 room mates in a run-down 2 bedroom apartment.
There are millions of people in this state packed together like sardines and paying 40-50% of their meager income for that privilege.
This state is riddled with economic inequality, we may not be a poor economy but we have an enormous number of poor people shouldering its weight.
And the city itself is a dump outside a few outrageously priced neighborhoods.
I think California is far more tolerable if you don't have kids. Without kids, you don't need a big place. A couple could live comfortably in California in a home that's 1000'.
But once you have kids, you need to live in a zip code with good schools, and you need SPACE.
That gets expensive.
Myriad state and municipal benefit programs overlap with one another; in some cases, individuals with incomes 200 percent above the poverty line receive benefits, according to the California Policy Center. California state and local governments spent nearly $958 billion from 1992 through 2015 on public welfare programs, including cash-assistance payments, vendor payments, and “other public welfare,” according to the U.S. Census Bureau. Unfortunately, California, with 12 percent of the American population, is home today to roughly one in three of the nation’s welfare recipients. The generous spending, then, has not only failed to decrease poverty; it actually seems to have made it worse.
And you know who gets hit the worse when we enact punitive "climate change" policies? The poor:
Extensive environmental regulations aimed at reducing carbon-dioxide emissions make energy more expensive, also hurting the poor. On some estimates, California energy costs are as much as 50 percent higher than the national average. Jonathan A. Lesser of Continental Economics, author of a 2015 Manhattan Institute study, “Less Carbon, Higher Prices,” found that “in 2012, nearly 1 million California households faced ‘energy poverty’—defined as energy expenditures exceeding 10 percent of household income. In certain California counties, the rate of energy poverty was as high as 15 percent of all households.” A Pacific Research Institute study by Wayne Winegarden found that the rate could exceed 17 percent of median income in some areas. “The impacts on the poorest households are not only the largest,” states Winegarden. “They are clearly unaffordable.”
The fact California is a one-party state is also a huge cause:
California’s de facto status as a one-party state lies at the heart of its poverty problem. With a permanent majority in the state senate and the assembly, a prolonged dominance in the executive branch, and a weak opposition, California Democrats have long been free to indulge blue-state ideology while paying little or no political price. The state’s poverty problem is unlikely to improve while policymakers remain unwilling to unleash the engines of economic prosperity that drove California to its golden years.
https://www.city-journal.org/html/california-poverty-capital...
Many will be stuck well below the poverty line.
Outside of the elite coastal town, interior California has lot of poverty and the other aliments.
So when you take out the distributional concern by looking at the average instead of the median, California goes from being in the bottom 10 to merely being in the bottom half.
(The analysis above combines this list of GSP-per-capita, https://en.wikipedia.org/wiki/List_of_U.S._states_by_GDP_per..., with this list of price deflators, https://files.taxfoundation.org/legacy/docs/%24100%20Map-sta...).
I also don't know if I'd trust the conservative-leaning Tax Foundation to provide an unbiased estimate of state PPP. Doing a Google search for "GDP PPP of US states" and clicking through some citations brings up a very different set of rankings that WaPo cites [1]. It places California in the top 15 along with the other economic powerhouses, right between Switzerland and Norway, not exactly known for being poor countries. UBS [2] says that Los Angeles has the highest purchasing power of any major city in the world!
Who's right? Clearly it highly depends on one's methodology.
[1]: https://www.washingtonpost.com/blogs/govbeat/wp/2014/08/26/i...
[2]: https://www.ubs.com/microsites/prices-earnings/en/explore/?c...
I never feel like I can trust pessimistic opinion pieces on California's economy. Many pundits want California to fail for various reasons, and trying to dredge useful information out of them is difficult.
As a joke I also like to throw in that Ronald Reagan's presidential library is here. Heh.
Prop 13 is widely cited as one of California's biggest weaknesses. I suspect the state will be looking quite closely at other ways to tax property, given that property taxes are relatively easy to assess and enforce, and depending on your economic situation, have a built-in progressive quality to them.
What restrictions does the state have around imposing taxes on real estate sales?
For example, could the state impose a 1% tax on profits from the sale of a private residence under $50,000?
I know this would put the state at odds with the federal government, but could it be a way around Prop 13?
The causes are actually bad laws which are put into place by an increasing majority of people living in want trying to force the "State" into providing it services they cannot pay for themselves.
The "state" can't afford to pay for their services either, and the net effect is to try and coerce people into a redistribution of money from people that have money to those that don't have as much to cover these expenditures.
Because the mechanism used (income taxes) to coerce people to do this now isn't efficient enough now to meet their ever increasing demands, and the voters force the government (who created the problem) to fund these "services" without really thinking about how they will fund their expenditures - making it the governments problem to figure out - which it can't without using coercion.
This thereby allows them to continue uncontrolled expenditure in an ever increasing downward spiral to catastrophe as in effect they are spending 'other peoples money' in the hopes that "eventually these invoices will be paid" through some sort of government sponsored coercion mechanism forcing socialized redistribution by holding peoples and companies properties or income hostage or some other such method with the same result.
Its really quite simple and clever and funny that it still works.