Are California property taxes too low?

Are California property taxes too low?

Voters are being peppered with that question this year. Ballots are filled with propositions seeking, in one way or another, to increase property tax collections.

On March 3 voters will decide the fate of the newest Proposition 13, a statewide school-bond issue that’s different than than the 1978 property tax cap law. It includes provisions that would let school districts borrow more money, loans repaid with property taxes.

There’s also slew of local school district bond-sale propositions, also typically repaid with extra property taxes.

Come November, a “split-roll” proposition will ask voters to remove the valuation limits placed on many non-residential commercial properties by 1978’s “original” Prop. 13 tax cap.

Look, nobody likes paying more taxes. But the original Prop. 13 has put financial stresses on municipalities that are dependent on property taxes to pay their bills.

Supporters of the Prop. 13 tax cap fight any change to it, arguing it’s a rare tax break for otherwise highly taxed Californians. And governments should live within their means.

At the same time, supporters of tax change suggest the 42-year-old limit on property levies has outlived usefulness and creates unfair taxation.

To give you some property tax context, ponder how big California residential property taxes look when compared nationally by WalletHub.

First, let’s look at the “effective” tax rate — that’s a median tax bill vs. the median home value. By this yardstick, California’s property taxes rank 16th lowest among the states at 0.76%.

The lowest rate was found in Hawaii at 0.27%, then Alabama (0.42%), and Colorado and Louisiana (0.53%). Highest? New Jersey (2.47%), Illinois (2.3%); and New Hampshire (2.2%).

California’s rate is so low largely because, under Prop. 13 caps, the properties of long-time homeowners are assessed for taxes at the purchase price plus no more than 2% a year. And that’s well below historical appreciation.

Others argue California property taxes are unfairly high for more recent buyers and that years of buying, selling and even the limited tax hikes allowed has pushed many property tax bills too high.

Look at WalletHub rankings when you factor in California’s lofty home values — $475,000 median, third-highest by Wallet Hub’s math. The “effective” tax rate on the median-price home translates to a typical California property tax bill of $3,617 a year. That’s the eighth-highest among the states, by WalletHub’s math.

(Psst! Thank that’s high? Try New Jersey at $8,104, Connecticut at $5,746 or New Hampshire at $5,550. The lowest states include Alabama at $572, West Virginia at $678 and Arkansas at $776.)

Let’s be honest. The battle for education dollars tugs at many emotionally charged issues.

“It’s for the kids” is just as overly simplistic as is “school administrators are overpaid.” Just the thought of unionized school employees sets off some folks. And then there are the purported shortfalls of rigid mandated curriculums vs. the alleged “free thinking” created by charter schools.

The spending numbers can be equally divisive.

My trusty spreadsheet, filled with Census Bureau stats, shows $87 billion was spent on public elementary and secondary education statewide in 2017. California schools directly spent $22 billion in property taxes.

“That’s enough,” some might say?

But those expenditures equal only $12,000 per pupil, roughly the national average and No. 18 among the states.

“We’re not keeping up,” others might argue.

Yet over the previous five years, California per-pupil spending jumped 32% — the biggest increase in the nation.

“Haven’t we done enough?” the counter-argument might go? 

What about post-recession 2012? Thanks to spending cuts, California per-pupil spending fell to 13% below the national average and 16th lowest among the states.

“That was unacceptable,” some might say.

California’s original Prop. 13 tax limits mean that local education, once heavily funded by property taxes, is now more dependent on state cash to operate. That translates to a loss of local control with certain spending decisions.

It’s also allowed an achievement gap to grow between schools in wealthier communities — where new housing projects and/or donations can make up for shortfalls — and lower-income neighborhoods — where such aid is rarely available.

Now, supporters of the original Prop. 13 tax cap suggests school districts can balance their budgets by keeping labor costs in check, especially workplace benefits like pensions.

But many of these tax-increase propositions would raise targeted funds to be used solely for infrastructure projects: from adding cutting-edge technology to classrooms to bringing structures up to modern building codes and basic repairs.

Another chasm in this debate is the recent homeowners vs. old-timers. In many cases, neighbors can pay wildly varying tax bills in similar homes supporting the same school district. The more recent buyer probably has a higher assessed home value, will be hit harder by a tax hike and might be more likely to vote no.

Of course, many new homebuyers have (or will have) kids. They may be willing to “invest” in education. And many long-time owners are empty-nesters. Despite smaller tax bills, this crowd may not see value in improving local education.

Who wants to pay more to the government? But as I said, the property-tax debate doesn’t have simple answers.