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Comment by yumraj | Hacker News Reader

I believe the fundamental problem of CA is Prop-13 which has a substantial impact of its revenue as lots of very high value properties pay a substantially low property tax.

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.

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Financially, the primary problem of California is that the state spends more than it has, no matter how much comes in. Raising taxes will just increase spending even more. There is no concern whatsoever that spending more than you have consistently causes a problem at some point.

Nor is there any evidence whatsoever that deficit spending harms overall growth. In fact, deficit spending is utterly indispensable for optimizing growth.

The principle of deficit spending is to spend when in a recession and repay when in an expansion. California _always_ overspends, no matter how much comes in. This is not financially sustainable, and when you consider that much of that is the pension system and retirement savings, quite un-ethical. I've seen plenty of people rag on private pensions for investing the money back into the company to prop it up, and justly so; the same people tend to over-look the same behavior when it is a public entity in question. California is having to tax businesses further to pay for the pensions of current retirees; paying out via those currently paying in is referred to as a Ponzi Scheme when conducted by a private entity.

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.

It's more that a lot of California's spending is redistribution "because it can". It's home to several major national (agriculture, defense, finance) and global (tech, entertainment) industries. This funnels a lot of wealth from elsewhere into the world into California, making the people involved in these industries pretty rich. The nearly-socialist politics is a way of maintaining social stability in the face of extreme income inequality introduced by these global industries.

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.

This seems to be a universal property of governments. Or of budgets, really. Within major corporations departments tend to spend up to the limit of their budget (and then some, with debt) regardless of whether it's efficient, and then continue to do until the parent company goes bankrupt.

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.

Not all companies -- we're seeing many companies that have been able to stockpile massive amounts of cash, e.g. Apple.

With the current limits on construction in CA eliminating Prop 13 would mean the fixed income senior citizens would have to sell their house to pay property taxes and then move out of state because they can't afford the rent on a 1BR.

Yep.

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.)

If your mom is over age 55, she can't use that excuse due to Propositions 60 and 90.

... and now we are discussing statewide rent control, which is prop 13 for renters and has the same effect of grandfathering in existing residents and discouraging growth.

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.

yes, economically, both prop 13 and rent control should go away, but they can only go away together, otherwise it’s unfair one way or the other.

> I know that abolishing Prop-13 is an impossibility.

it can be replaced with some very slow tax increase, so market will return into normal pace in 5-10-20 years.

I hear this repeated a lot, and I'm not so sure I buy it. Yes, Prop 13 limits how much taxes can go up, but if that's the case, then why wouldn't you try to build more to capture more tax? I'm willing to bet that easing zoning restrictions would help with revenue generation.

Prop-13 limits the amount of building cities want to approve because the rate of taxation can't keep up with the revenue required to handle all the infrastructure costs associated with more buildings. I build an apartment building my tax rate increase is limited to 2%, but if new infrastructure required grows at greater than 2% due than that screws the city budget even more.

You can, but more residents consume more services, which is a net cost in the long run if property taxes are locked in. As a result, cities in California prefer commercial development that generates sales and income taxes without the need to accommodate more residents. It's a vicious cycle of misaligned incentives.

In addition to what buerkle said, build more... what? The amount of property is fixed and already owned. The state isn't somehow making more land in places people want to live, so there's no real opportunity for the state to get more tax dollars that way.

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.

But that building will be locked into current rates for a long time. So property taxes might hike from $500/yr to $50,000/yr, each rising by 3% pa, but revenues could spike from $40,000/yr to $400,000/yr rising at like 8-12% a year. In 30 years, a $100k/yr property tax bill will be peanuts compared to the $7,000,000 in rent revenues they'll be earning.

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.

I agree, but at the same time there are also a lot of SFH owners who literally could not afford the property tax bill if they even significantly improved their homes, so you get ridiculous situations like entire neighborhoods in LA that are basically ghettos despite the tiny lots being worth close to half a mil each.

Any real solution needs to be a combination of changing zoning/permitting and fixing Prop 13.

Many residents are opposing any new construction, fearing that this would lower their properties values (or even will just slow down growth). It's quite nice setup when you own very expensive property and don't have to pay much in taxes to own it (and that property gets more and more expensive without much hustle on your side)

Fundamentally the problem is not with Prop-13, but with the whole ballot proposition structure itself. It's become nearly impossible to balance the state's budget when individual propositions can dictate both expenditures and limits on the tax structure.

you can vote ‘no’ on bond measures to have some measure of control over this. make legislators make considered choices during the budgeting process rather than giving them more borrowed money to play with. if a new program is as important as claimed, they’ll find a way to fund it with existing funds.

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).

It's too bad that property taxes are the only way that a government can get money.

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