Carrie Hahnel: Proposition 13 is unjust and should be reformed

May 04, 2023

Editor's note: This commentary was published in the June 4 print editions of the newspaper as part of a pro-con debate page about Proposition 13. For the counterpoint, click here.

When it passed in 1978, before most of today's Californians were even born, Proposition 13 addressed the very real fear of rising tax bills pricing people out of their homes. But we now have decades of evidence that Proposition 13 is doing more harm than good. It's bad fiscal policy, unfair to younger would-be homeowners as well as the middle-class residents it was designed to help, and overdue for an update.

After it was passed, Proposition 13 dealt a blow to the state budget that echoed for decades. Sharply curtailed property taxes led to a long period of revenue starvation, contributing to the deterioration of local services like schools, libraries and parks.

State coffers have since rebounded, but California's budget is now more dependent on personal income taxes, including taxes on capital gains, which means the budget swings wildly based on market changes. This volatility was on display during the Great Recession, when school districts experienced cuts of almost 14% over several years. Even today, California schools are routinely funded below the national average and struggle to recruit and retain teachers.

Beyond its fiscal impact, Proposition 13 is making housing less affordable, not more. It has created a "lock-in" effect, with owners less likely to move: for example, a 2016 study found that in San Diego County neighborhoods with low effective tax rates, housing turnover was a third of that in fully-taxed neighborhoods. And by limiting local governments’ ability to control property taxes, the law has discouraged new home building. Recent research found that property tax reforms could increase Los Angeles County’ housing production by 15% to 32%.

These and other factors have reduced supply and driven up the cost of housing. As younger Californians seek to buy a home and take advantage of the wealth accrual that can come with it, they increasingly find themselves forced into less desirable neighborhoods or priced out of the market entirely — in stark contrast to the experiences of older generations who more easily purchased homes and benefited from decades of tax subsides.

This generational divide is just one of many inequities Proposition 13 has exacerbated. Although it wears a veneer of fairness, Proposition 13 benefits corporations and wealthy individuals the most. A recent study found that the measure's biggest beneficiaries in terms of absolute dollars are the owners of commercial and industrial parcels, especially high-value properties that have not been reassessed in decades.

Among residential property owners, those enjoying the largest tax discounts often live in wealthy enclaves where home values appreciate rapidly — a trend that in turn widens racial income gaps. Last year, I co-authored a study finding that homeowners with the lowest effective tax rates are disproportionately white, older, and higher income. Another 2022 study reached similar conclusions: White homeowners in Oakland save an average of $10,000 annually, while Latino homeowners save just $3,000.

Proposition 13 didn't cause all the wealth disparities, unaffordable housing, and inadequate funding for schools and local services California is now experiencing. But thoughtful property tax reforms can help address those challenges while maintaining some of the important protections Proposition 13 sought to create. A first step would be refocusing tax protections on the middle-class homeowners Proposition 13 was intended to help — not the owners of commercial properties, vacant lands, and vacation homes who have pocketed deep discounts. Many other states treat these properties differently than residential properties, and California should, too.

It's also time to allow tax rates or assessed values to rise modestly above Proposition 13's rigid caps. Other states offer lessons on how to do this without penalizing fixed-income seniors or other house-rich, cash-poor homeowners. Some offer tax exemptions for seniors, veterans, people with disabilities, and others. Increased tax bills could also be phased in, means-tested, or come due upon sale of the property.

These changes would help expand access to housing and economic opportunity at a time when income inequality is rising and our neighborhoods and schools remain stubbornly segregated. Calls for neighborhood stability by some Proposition 13 defenders don't reflect the much larger, more diverse state California has become since 1978 — and in some cases are dog whistles harkening back to an era California has left behind.

Policies need to evolve with the times, and Proposition 13 is no exception. It's time for Californians to fix the measure's unintended consequences and create a better, fairer property tax system.

Carrie Hahnel is a senior associate partner at Bellwether, a national nonprofit that works to improve educational opportunities for underserved students.

Get the latest news delivered daily!