Proposition 13: Tax revolt turns 25

May 12, 2003

The Mercury News

Either revered or reviled, cap on property taxes has changed lives, reshaped state government


By Patrick May
Mercury News

Maybe the hot-tub incident was an omen.

Twenty-five years ago, as Californians debated the merits and madness of Proposition 13, neighbors soaking at a block party in Sunnyvale nearly came to blows over the property-tax revolt.

It happened to be in the neighborhood of Larry Stone, now the Santa Clara County assessor and a staunch foe of the tax break that changed life forever in this state.

``There were almost fistfights over 13,'' recalled Mike Kowalski, 59, a fan of the ballot initiative who still lives down the street from Stone on Bedford Avenue. ``I can remember sitting there with people arguing so much I had to leave the hot tub.''

Proposition 13 sailed to victory on June 6, 1978. With inflation driving up housing prices, and the property taxes linked to them sometimes doubling in a year, many seniors on fixed incomes feared being taxed out of their homes.

Today, the initiative that slashed property taxes -- vaporizing $6 billion in revenue for cities, counties and schools in its first year -- is embedded in California's status quo. Loved or loathed, Proposition 13 is either praised for saving California by reining in runaway government, or blamed for ruining it by decimating public services.

But in neighborhoods like Stone's, its most infamous impact lives on in the tax bills that show up each fall in mailboxes. Because the assessed value of a property under Proposition 13 is based on its purchase price, neighbors often pay wildly different taxes for identical houses, depending simply on when they bought their homes.

``All the inequities of Proposition 13 are illustrated right here in my neighborhood,'' Stone said. He pointed to a house down the street whose owners paid $90,000 in 1975, and an identical model over on Albion Court, purchased last year for $830,000. The old-timer pays $1,600 in taxes, the newcomer about $8,300.

``So,'' Stone said, ``now you have two houses, same builder, same year, same schools, same police, same fire, same street maintenance, yet one tax bill's much higher than the other. There's something inherently un-American about paying eight times as much for the same government services.''

Up and down the block, and up and down the state, Californians still have dramatically diverse takes on Proposition 13. Kowalski says the initiative sent free-spending politicians a much-needed message to restrain themselves. But his neighbors across the street are seething.

In 1998, Kathryn and Greg Paquin bought their three-bedroom home for $700,000. Both are now jobless. In a curious echo of their 1970s predecessors, who were clobbered by inflation-fueled tax bills, the Paquins wonder how long they can afford to stick around.

``We pay $8,600 a year and I have real mixed emotions about it,'' said Kathryn Paquin, who was laid off from Altera. ``When I see original owners on fixed incomes, I think it would be terrible if they were suddenly hit with a huge tax increase.

``But it still bothers me to know my neighbors are paying a quarter of what we pay, for a bigger house on a bigger lot, just because they happened to buy at a certain time.''

Revolution begins
• Success at ballot box echoes across the nation

With 1970s inflation and a surging population pushing up property values at a rate nearly three times the national average, political gadfly Howard Jarvis and retired real-estate salesman Paul Gann fired an anti-tax salvo that reverberated across the nation.

Joining with neighborhood associations, particularly in the San Fernando Valley, Jarvis and Gann waged a holy crusade against taxes and unbridled growth. Their groundbreaking measure immediately chopped property taxes in half and began an era of anti-tax and spending-control initiatives that changed the way California is governed.

Time magazine likened the middle-class revolt to a cross between an earthquake and a Pacific tidal wave. The landmark initiative was seismic: Rolling back assessments to their 1975 levels and reducing the tax rate to 1 percent from an average of 2.7 percent; shifting much of the function of allocating property taxes to Sacramento; further limiting cities, counties and schools by requiring a two-thirds vote to approve most local tax increases.

In the process, not only did Proposition 13 hammer services like libraries, parks and recreation programs with blows from which they've never recovered, the initiative to limit bureaucracy unleashed a bureaucratic monster of its own. ``They were trying to shrink the size of government, but actually made it bigger and more complicated,'' said former Assembly Speaker Bob Hertzberg. ``Cash was coming from local revenues, but with power moved to Sacramento, the result was a loss in local control over their own resources.''

While Proposition 13 was intended to give voters more say over government spending, its requirement of a two-thirds vote to pass new local taxes for a specific purpose and for the Legislature to raise state taxes allowed a minority of voters to block the wishes of the majority.

And the majority, increasingly, was made up of non-white immigrants.

In his book ``Paradise Lost,'' Peter Schrag described Proposition 13 as a door slammed shut between the state's post-World War II optimism and a new era of ``declining confidence and shrinking public services.''

``Those who now disproportionately depend on public services and who suffer the consequences when they're reduced are those new California immigrants and their children,'' Schrag wrote. ``Meanwhile, those who dominate the voter rolls are still white and middle class.''

Effect at home
• Neighborhood reflects on initiative's fallout

In the afterglow of Proposition 13, Larry Stone's neighborhood was tight. There were block parties along Bedford Avenue, progressive dinners and wine tastings. Everyone had kids and the kids were the glue. For roughly 15 years, the low taxes kept homeowners happily rooted in place. When the U.S. Supreme Court upheld Proposition 13 in 1992, justices wrote that tax relief was helping preserve neighborhoods. This block was living proof.

Now, ``those days are gone,'' Stone's wife, Carmen, said. ``The kids grew up, neighbors retired and moved off, and we've been remiss in welcoming the newcomers.''

People will argue about whether Proposition 13 held this place together or broke it up. It's clear, however, that the tax revolt did eventually change the communal feel of life: Those who have been able to afford to move in lately are no longer starter families with young children, and the tax inequities are causing resentment among these two dozen households.

Greg Paquin, laid off from Advanced Micro Devices, said that with his unemployment and a steep mortgage, he wonders how long he and his wife will be able to stay. He's not the only one who believes that California's tax rebellion helped drive up home prices. After all, when less money had to go taxes, there was more to spend on the house.

``I'm afraid 13 will be a factor in pushing us out of here,'' he said, ``just like it pushed out our kids who couldn't afford to live here and will never come back.''

John Maher is an original owner across the street whose taxes are $1,600, a fraction of what the Paquins pay. Like it or not, he said, that's life.

``We bought this house when it was priced really well,'' said Maher, who has worked 33 years at nearby El Camino Hospital as a radiology technician. Speaking of a nearby house just like his that sold last year, he said: ``I can't explain why an identical house today cost them $830,000, but I'm not terribly upset about the disparity in taxes we pay. I feel very fortunate.''

Maher said newer homeowners are feeling the same pinch he did 25 years ago -- but with a twist. Back then, taxes were jerking up like crazy, with properties reassessed each year in a white-hot real-estate market. Today, the market's hot, but the taxes are predictably steady.

``We had to skimp so much to move in here we didn't know how we were going to pay for drapes,'' he said. ``I had to work two jobs for five years. Back then, nobody was much concerned about our struggles.''

Original owner Martin Quilala, who pays $1,500 in taxes, agreed. ``The guy who recently bought next door pays about $7,000 a year,'' he said. ``Is that fair? If he can afford to buy in this neighborhood, he can afford to pay the taxes. That's just part of being able to live here.''

Still a hot potato
• Critics, backers argue about need for reform

For a quarter-century, Proposition 13 has remained the so-called ``third rail'' of California politics that politicians were loath to touch. Polls have shown that Proposition 13 would pass today by a slight majority, but there is talk of reform, especially concerning commercial property taxes, which also benefit from the initiative. In residential and business communities, the subject remains ``almost like the abortion issue,'' said Stephen McMinn, president of a small Silicon Valley chip maker. ``It's totally polarizing.''

Considering that everyone receives the same services, he said, ``Taxes are too high for one set of people, about right for those who've been in a house 10 years, and too low for people who've had a house for 30 years. How do you ever fix that?''

Despite talk of reform, the two camps remain far apart. Jon Coupal, president of the Howard Jarvis Taxpayers Association, said Proposition 13 ``has been beautiful in its simplicity. California has a spending problem, not a revenue problem.''

His predecessor, Joel Fox, said that ``even today, most critics of 13 accept the fact property taxes were out of control in 1978. Now it's taxpayers, not the tax collector, who have control.''

But critics like Lenny Goldberg, a Sacramento campaign consultant, call the effects on government ``death by a thousand cuts.'' The two-thirds vote rule for new taxes is especially hard on local governments struggling to pay for the services they're legally required to provide.

``Twenty percent of voters are opposed to any new tax right off the bat,'' Goldberg said. ``To get 67 percent, for example, on a transportation measure is very hard.''

Marlon Boarnet, professor of regional planning at the University of California-Irvine, said ``the super-majority rule brings a lack of investment in infrastructure and local programs. Most citizens of this state don't see how perverse this has all become.''

Haves, have-nots
• Divergent viewpoints of initiative's legacy

Larry Stone's neighborhood hardly looks like a fractured community. But as the landmark measure that helped keep it intact for years turns 25, neither is it the picture of cohesion old-timers remember.

Many of the original owners are gone. Some have died. Others have moved on to retirement havens in the Gold Country or California desert. They no doubt remember with fondness this place and the ballot initiative that sheltered them. How current owners will look back years from now on this neighborhood is anyone's guess.

``We're lucky if we're here another five years,'' Kathryn Paquin said. ``You can already see things being slowly destabilized. A neighborhood depends on people knowing each other. For example, there's a home for the elderly up the street and those people depend on us at 3 a.m. when they need help. If we're not here anymore, the whole neighborhood will lose something.''

Paquin can't help but blame Proposition 13 for some of this fragmentation. ``Thirteen's disparities make this a we-they equation: `We in our homes don't care what happens to those of you who came later.' ''

``It's subtle,'' she said. ``But it's insidious.''

Several houses up, Annie Moyer sees an entirely different post-Proposition 13 world. She grew up on this street, and when her mother died, she bought the family home from her sister. Under Proposition 13, the 28-year-old retained her mother's 1975 assessment. The annual tax bill on her home, now worth over a million dollars? About $2,000.

``We really lucked out,'' Moyer said. ``Without 13, we couldn't have moved in here. I had a great childhood on this street and now I have one foot in the past and one in the present. We even have some of my parents' old friends babysitting our son. I guess I've sort of come full circle.''