Prop. 13 a boon for wealthy towns
Measure protects high-income areas from tax hikes even as property values increase
When California voters overwhelmingly passed Proposition 13 in 1978, the intent was to lock in low property taxes for average homeowners — to protect them from getting priced out of their houses by escalating taxes.
“The poster faces for that campaign were longtime elderly residents — the grandmother who’s owned her home for 40 years and suddenly can’t pay her taxes,” said Ralph McLaughlin, chief economist for Trulia.
But a new study by Trulia shows that the homeowners who wound up best protected
— whether grandmothers or otherwise — are those who live in some of the wealthiest coastal communities in Northern and Southern California. Of the state’s 10 communities with the lowest effective property tax rates, thanks to Proposition 13, five are in Silicon Valley: Palo Alto (No. 1 on the list, with an effective tax rate of 0.42 percent), Millbrae (0.48 percent), Los Altos (0.50 percent), Burlingame (0.51 percent) and Sunnyvale (0.53 percent).
Malibu (0.50 percent) and Beverly Hills (0.53 percent) are on the list, too.
Why do wealthy communities benefit disproportionately from the law?
Proposition 13 reduced property tax rates to 1 percent of home value while capping the annual appreciation of a home for taxation purposes at 2 percent. The law additionally prohibits reassessing a home until it changes owners or undergoes a major renovation. In the end, the study explains, “the effective tax rate is in essence a function of how long a property owner owns their home. The longer a homeowner owns their home, the lower their effective tax rate becomes.”
In upscale communities, the rate of appreciation far outpaces the growth of the tax rate. If longstanding homeowners are fortunate enough to live in one of those communities — where home values have climbed to startling heights, while taxes have barely increased — then they benefit from a low effective tax rate.
Conversely, cities with the least affluent residents pay some of the highest effective property tax rates in California. Those include Palmdale (1.33 percent) and Lancaster (1.27 percent).
In 2015, California homeowners received more than $12.5 billion in property tax savings as a result of Proposition 13. That makes life easier for many — but, as Trulia points out, those funds might otherwise “have gone to local government spending on public goods and services.”
Trulia computes that San Jose residents would have paid about $431 million in additional taxes in 2015 if California were permitted to increase taxes as swiftly as home values went up. Likewise, San Franciscans would have paid more than $447 million in additional taxes, and Oakland residents would have paid about $85 million more in taxes.
Here are the effective tax rates for a few more Bay Area municipalities: 0.6 percent in San Francisco; 0.7 percent in Walnut Creek; 0.8 percent in San Jose; 0.9 percent in Oakland; and 1.1 percent in Brentwood.
Brentwood is a bastion of affordability in eastern Contra Costa County, yet its effective tax rate is nearly twice that of San Francisco, the epicenter of housing appreciation.