Initiative eyes major cuts in property tax
By Ed Mendel
San Diego Union-Tribun
March 31, 2002
SACRAMENTO For the first time since voters approved the landmark Proposition 13 nearly a quarter-century ago, major reductions in the property tax are being considered.
A proposed initiative and a lawsuit in Orange County are firing up interest among taxpayer groups, but alarming some officials who fear that schools, public safety and other government services could lose billions of dollars.
The Republican candidate for governor, Bill Simon, and the Howard Jarvis Taxpayers Association plan to put an initiative on the March 2004 ballot that would increase homeowners' property-tax exemption and renters' tax credit.
An Orange County judge, in a decision awaiting an appeal, ruled in December that when property values drop, the county assessor cannot "recapture" the lost value later by an amount that exceeds the 2 percent annual increase allowed by Proposition 13.
It was a much different era when California voters approved the big property-tax cut in June 1978, triggering a nationwide wave of tax cuts. Voters were in a rebellious, if not punitive, mood amid reports that retirees on fixed incomes were being taxed out of their homes, while state lawmakers sat on what became known as an "obscene surplus."
Now state lawmakers, facing the hangover from an economic downturn, are struggling to close a budget gap that could reach $17.5 billion. As the government tightens its belt, spending cuts are beginning to ripple through education, health, welfare and other programs.
One example of the deep roots behind the Proposition 13 movement, going back a decade before the initiative was finally passed, is the homeowners' property-tax exemption that would be increased by the proposed Jarvis-Simon initiative.
The late Howard Jarvis and Los Angeles County Assessor Phil Watson tried to place property-tax relief initiatives on the November 1968 ballot, but only Watson succeeded. To counter the Watson initiative, the Legislature placed a competing measure on the ballot creating the first homeowners' property-tax exemption.
The Legislature's measure prevailed, exempting $750 of the value of a home from the property tax. Legislation in 1972 increased the exemption to $7,000, a significant savings for taxpayers at a time when the median value of a typical California home was less than $35,000.
Backers of the Jarvis-Simon initiative say the $7,000 exemption is long overdue for an inflation adjustment, now that the average home sells for more than $285,000.
The Jarvis-Simon proposal, being developed, could raise the exemption to $30,000. At the same time, the renters' tax credit, $60 for individuals and $120 for couples, would be increased to $266 for individuals and $532 for couples.
The proposal would save taxpayers or cost the government, depending on your point of view, more than $3 billion a year, said Jon Coupal of the Howard Jarvis Taxpayers Association.
"Together with the Howard Jarvis Taxpayers Association, we will fight to increase the exemption," Simon said in San Diego in February when he announced that he would be co-chairman of the initiative campaign.
The Orange County lawsuit centers on a decision made by a task force formed by the Legislature to implement Proposition 13. Dealing with an omission in the initiative, the Legislature placed a measure on the November 1978 ballot allowing the assessed value of property to drop when the market dips.
A recommendation from the task force the following year resulted in legislation allowing county assessors to "recapture" the lost value when the market rose, even if it meant exceeding the 2 percent annual increase allowed by Proposition 13.
"This was the toughest issue for the task force," said Dave Doerr of the California Taxpayers Association, a former longtime legislative aide who wrote many tax bills and has since written extensively on the history of taxes in California.
Doerr said he and a majority of the task force voted to allow the recapture of lost value, despite the view of the state Board of Equalization staff that it was a violation of the 2 percent limit placed in the state constitution by Proposition 13.
"Naturally, we thought this would go to court right away," Doerr said.
But the recapture issue did not go to court until a San Diego ophthalmologist, Dr. Louis Kartsonis, was stunned by a 24.6 percent increase in the assessed value of his condo in 1990.
Kartsonis, acting as his own attorney, lost in superior court and appellate court, and the state Supreme Court declined to hear an appeal in 1994. He believes the judges were reluctant to make a ruling that could cost the government billions of dollars in tax revenue.
"I was relieved to know," Kartsonis said of the Orange County ruling, "that there is at least one open-minded judge in this state with some guts, who would read the words of the constitution and the revenue and taxation code instead of merely plagiarizing the government's articles."
The ruling of Orange County Superior Court Judge John Watson has resulted in some debate about whether there should be an appeal, which could result in a legal precedent affecting assessors in other California counties if the ruling is upheld.
Orange County Assessor Webster Guillory said he is waiting for Watson to make a class-action decision, probably in late April, about whether the ruling affects other property owners or only the homeowner involved in the suit, Robert Pool of Seal Beach.
Guillory said about 1,400 Orange County residents have filed claims for refunds since the judge's ruling. In addition to an appeal, he said without elaborating, options being considered include asking "some questions of the California Legislature."
Pool, a property-tax attorney, said he is confident that the judge's ruling will stand. Pool said he filed a similar suit on behalf of a Los Angeles County homeowner in December, and his law firm is reaching out to homeowners through a Web site, http://www.propertytaxrefunds.biz.
The president of the California Assessors Association, Larry Stone of Santa Clara County, is urging Orange County officials to appeal the ruling. He believes appellate judges will study the issue in detail and conclude that values that fall with the market should also rise with the market.
In Santa Clara County, Stone said, a $5.7 billion decline in property values from 1990 to 1995 has since been recaptured. Under the Orange County ruling, he said, probably less than $1 billion of the value would have been restored.
"People want to pay their fair share, no more and no less," Stone said. "We cannot fund public safety and education and those kinds of things when one's definition of fair share is as close to zero as one can get."