Part Three: Why is Proposition 13 & Prop 58, Avoiding Property Tax Reassessment & Property Tax Transfer Relief, Attractive to so Many Californians?

There was so much instability within the real estate tax system in California before Proposition 13 and Proposition 58, that it had become downright dangerous and unhealthy – with severe anxiety spreading throughout the state, with home owners worrying constantly about losing their home, and with some people actually losing their beloved home. This was pre-1978, before Proposition 13 and Proposition 58 revised tax law so that Californians can keep parents property taxes.

Consider if this was you.  What do you do if state tax collectors put a lien on your home, or actually take your home? Your life spirals downward, you go and live with relatives, which is typically not an attractive direction to go in – or, worse, you become homeless… or reside in some other circumstances that are not to your liking.

This property tax relief called Proposition 13 finally brought a close to the chronic instability, fear and terrible yearly financial pressure on residential and commercial property owners throughout the state that was causing California property owners to literally buckle under. It was affecting peoples’ health… especially older folks – as severe stress tends to be more difficult to handle  as people grow older. The most obvious financial benefit Californians could see, and experience right away, was “property tax transfer” – that is, consistently eliminating property tax increases from present-value property tax reassessment.

All of a sudden, Californians had (and still have) a reliable and predictable system in place, serving them not the tax collectors. Californians finally had the ability to avoid present-day property   tax reassessment, directly after Proposition 13 was in effect. And   a decade later after Proposition 58 and Proposition 193 came on board, property owners had a tax shelter with Proposition 58 – protecting property transfers, for parent to child transfer, with parent to child exclusion of tax reassessment… as well as grandparent to grandchild exclusion  of tax reassessment from Proposition 193.  All of these tax benefits were suddenly in effect for all Californians – regardless of income, age or total property value.

As we all know,  with these remarkable changes in effect, Californians can keep parents property taxes, and can transfer parents property taxes when inheriting property of any type  (commercial or residential) or value – legally avoiding property tax reassessment… which is where all the trouble stemmed from in the first place.

As residents recall, you could actually see the relief in peoples’ faces, all over California, from Los Angeles up to San Francisco. Even renters, who don’t own property, noticed that their rents remained low – and can see the same difference now, 24 years later – due to Proposition 13 relieving landlords of tax increases that would otherwise motivate them to raise rents on their tenants.

Part One: Why is Proposition 13 so Attractive to so Many Californians?

In examining and analyzing tax relief from Proposition 13 property tax transfer, as well as the financial and political drama surrounding the initiative – with all the on-going conflict between detractors and supporters; between critics and advocates – it is important to note that prior to Proposition 13 in California, from one end of the state to the other, property taxes were pretty much out of control, and tended to increase arbitrarily, whenever it was deemed appropriate to do so, for the benefit of one local city or town government or another.

Anytime local townships and city governments needed extra money to fund this or that, they felt free to increase property taxes, and take large amounts out of “redevelopment agencies”, or RDA – particularly when it involved commercial land development, questionable funding for certain school programs, and possibly tax rebates for certain business verticals aligned politically with local government. Frequently spearheaded by special interests.

Specifically, property tax revenues were, and still are, distributed to K-12 schools and community colleges; various counties, cities & “special districts”, generally with redevelopment agencies at the bottom of the list.

The irony was that redevelopment agencies that were the most critical for local residents received the least amount of money from property tax revenues… And this trend still continues, to this day. We’re talking about redevelopment agencies that purchase property for local government; that raze and build non-residential structures; that provide municipal infrastructure like bridges, city or town streets, rural roads, and lighting, for public safety; that develop affordable housing (at the very bottom of their list) as well as renovating local commercial areas.

Before Proposition 13 property tax transfer tax relief was in effect it was particularly obvious how paltry funding was from property taxes that were supposedly going, in equal parts, to support local infrastructure needs – generally to help middle and lower middle income residents with public safety, health and welfare.

Finally, years later, the excellent organization provides in a recent study – four recommendations to local California law-makers that should help resolve the controversy surrounding redevelopment agencies:

a) The legislature should formally clarify the goals of re-development.
b) The definition of blight should be aligned with the goals of redevelopment and should be made more precise.
c) Some form of oversight authority should be established to monitor RDA behavior.
d) If the legislature intends redevelopment to be self-financing rather than heavily subsidized, the pass-through rate should be increased significantly.

At any rate, these issues obviously continued to breed resentment prior to 1978, from residential property and small business owners… and eventually that collective resentment morphed into a rush of significant public support for a solution – and that solution turned out to be Proposition 13, promoted and driven forward mainly by Howard Jarvis’ Taxpayers Association.

How Has California Proposition 13 Evolved Over the Years?

Before 1978, rising California property taxes were escalating out of control. Since 1978, Proposition 13 dramatically lessened the accelerating anxiety that was negatively affecting middle class California home owners, who were, at that time, constantly worrying that their property taxes were going to continue going up.  Now, children keep parents property taxes in CA… and anxiety over property taxes has abated considerably. Prop 13 has evolved over the years, and has continued to provide positive tax relief for California home owners; industrial properties, and companies…

Click Here: to see how this is reflected in a recent survey (co-managed by Associate Survey Director) mirroring likely voters and/or real property owners in California.

To everyone’s relief, things changed when California Proposition 13 began protecting property owners and city or town local governments right away from financial insecurity largely caused by unpredictable property tax increases; as well as unexpected economic boom-bubbles and bursting bubbles within the real estate market.

That type of unpredictable financial stress hurt a lot of people in California; and often forced families to leave the beloved home they had grown up in… Unpredictable, rising property taxes caused a great deal of growing anxiety and fear among many middle class home owners, both young and old – often causing parents and grown children to reside far apart, against their wishes; frequently forcing families to downsize, or move to less desirable area; often doubling or even tripling the commute time to work. These issues do add up, and frequently affect quality of life.

From 1978 forward… as Proposition 13 took hold, this fear and disruption abated and decreased to a large degree… and California became a much happier, more secure state for home owners to live and raise families in.

Proposition 13 also put in place a much more reliable property tax revenue system that has grown roughly 7% per year since Proposition 13 has been in effect, and economists estimate revenue from property taxes will soon grow to a record high $74 billion.

All in all, Proposition 13 began and has remained a win-win proposition for Californians, along with Proposition 58 in 1986… strengthening family bonding and overall net worth, and providing an enormous blanket of peace of mind for home owners of all stripes, cultures, ages and incomes…. as well as those looking to become happy home owners.  Click here for more discussion on these positive affects, from both Proposition 58 and Prop 13.

Moreover, the ability to avoid property tax reassessment also works in concert with the need many home owners have for immediate funds from a trust loan, bearing in mind the ability for trust lenders to extend loans to irrevocable trusts, regardless of beneficiaries’ income status,  credit score or income.  Especially for new home owners, it’s critical to be able to keep parents’ property taxes, when inheriting property taxes that might otherwise be unmanageable.

Avoiding property tax reassessment is invaluable within the unique process of keeping real property “in the family”, by enabling real estate, home & land transfers, from parent to child  or child to parent – without present day tax value reassessment.

And now, although children keep parents property taxes in CA. and this tax relief goes unquestioned by home owners, California Proposition 193 has expanded this tax relief even further, allowing grandchildren to be excluded from reassessment when real property is transferred from grandparents to grandchildren. This shores up the close-family circle nicely.