It was the best of times, it was the worst of times — except in California, it seems to have been that way for quite a while. And for countless Californians who are unable to share in the state’s economic growth due to ludicrously high housing costs and a badly underfunded education system, that’s a problem.
A significant (if not the most important) cause of California’s contemporary socioeconomic woes is just one ballot initiative — Proposition 13, adopted in 1978. Right now, there is another initiative gathering signatures to qualify for the Nov. 2020 ballot, one that would be a crucial first step to undoing the dangerous underinvestment in our state that Prop. 13 fostered.
Known as Schools and Communities First, while its changes are relatively minor, passing it would reflect a tremendous shift in the way California politics operate, with a renewed focus on making the investments in the future that Californians of all backgrounds need to thrive.
First, a bit of background: Reborn from the ashes of the 2008 recession, in recent years California has outpaced the U.S. on practically every macroeconomic indicator — GDP growth rate, return on investment, job growth, personal income, median household income, you name it.
But, if you look closer, it’s a starkly different story. California may be the richest state by GDP, but it’s also the poorest, with 18.2 percent of Californians living in poverty under the supplemental poverty measure, which researchers say better captures the state’s high cost of living.
The state’s astronomically high cost of living is the main reason why so many Californians have not shared in the post-recession expansion. According to CNBC’s 2019 ranking, California is the second most expensive state in the nation, after Hawaii.
This unaffordability is rooted in the state’s underfunded education system and the high cost of housing. California ranks 41st in the nation in per pupil funding, factoring in cost of living. My readers probably won’t need data to appreciate this, but California has some of the highest home prices and rents in the nation, according to Business Insider.
Prop. 13, as we will see, has played a key role in both these issues. Passed in 1978, winning 65 percent of the vote amid the taxpayer revolt of the late ’70s, the initiative capped property taxes for residential and commercial property, by mandating that taxes be assessed based on price at purchase, not present value. Under Prop. 13, initial property tax is set at one percent of value at purchase, and annual increases are limited to two percent or inflation (whichever is lower) until sale.
It was passed amid rhetoric of upstanding citizens being priced out of their suburban dream homes, purchased in the postwar construction boom and subsequently having appreciated in value; a full-throated defense of the California Dream.
Except, far from protecting the California Dream, Prop. 13 has made that dream unreachable for countless Californians; benefitting a relatively small (and increasingly smaller) group of homeowners, predominantly white and upper-middle class, at the expense of everyone else.
Since a new home would be taxed according to purchase price, Prop. 13 encourages homeowners to stay in their homes; as a result, California’s home turnover rate has declined from 16 percent in 1977 to under 6 percent today. Furthermore, decreased property tax revenue has discouraged municipalities from zoning land for housing.
Consequently, California faces a severe shortage of affordable housing. A 2016 McKinsey & Company report found that California has the second-lowest housing units per capita of any state, and that California needs to build 3.5 million new units by 2025 to adequately meet demand.
According to McKinsey, 70 percent of low-income California households would have to spend more than half their income on the local cost of housing, and the housing shortage costs California six percent of its GDP each year. Instead of making it easier to buy a home, Prop. 13 has done the opposite: California has the nation’s second-lowest homeownership rate at 55 percent.
A 2016 report from the Legislative Analyst’s Office found that “two-thirds of [Prop. 13’s] tax benefits go to those with incomes above $80,000, and most of that to homeowners earning more than $120,000.” (In 2016, median household income in California was $67,739.)
Prop. 13’s distortion of the housing market had devastating effects on renters, as well as on people trying to enter the housing market — especially young and low-income people. But there is yet another group that has been seriously harmed by reduced property taxes: public school students.
Prior to Prop. 13, public schools in California, as in other states, were funded primarily by taxes on local property. However, with property tax revenue slashed by 60 percent the year after Prop. 13 was passed, public schools have since become more and more reliant on Sacramento for their funding; and thus it has become increasingly difficult for school districts to keep up with rising cost of living.
Fortunately, the severity of these problems isn’t stopping people from trying to solve them; and, though they may be intractable, they are far from insurmountable.
If enacted, Schools and Communities First would remove Prop. 13 tax protections from commercial property valued above $3 million, while keeping protections for residential property in place, thus protecting homeowners and small businesses from tax increases. The additional $12 billion annually would be invested into public schools and into local communities, including the building of affordable housing.
If it gathers enough signatures, any California resident will be able to vote for Schools and Communities First in November. I know I will.
Let’s do this for the homes that many of us will hope to buy or rent in the future. For the schools where someday, we might send our children. For the real California Dream.
Ben Reicher PO ’22 is from Agoura Hills, California. He joined his high school newspaper in ninth grade because he loved to argue, and hasn’t stopped since.
This article was last updated March 6, 2020 at 5:05 p.m.