Property Taxes Are Another Bubble Problem
When the real estate bust of the 1980's hit the problem that vexed homeowners was the property tax. The local and state governments had grown used to the funds and were very slow to adjust appraisals down. When they could no longer fight the public, the various entities had to slash services in response.
This Des Moines Register story shows that scenario is replaying itself now. "'I don't mind paying an inflationary increase, but mine is like 17 percent. That's out of line. I haven't done anything to the house to lift it up that much,' Ben Veach said. 'This is just a way to raise taxes without saying you're raising taxes. And it's so blatant. But there are still some of us out here who'll fight it.'"
"Ralph Fetters and his wife recently paid off the mortgage on their home and retired. Fetters worries now, on a fixed income, he can't continue to absorb the mounting tax burden."
"'You keep getting those raises year after year, and you can have a problem,' Fetters said. 'I'm 65, and I've lived here all my life. And I've never seen a property tax (bill) go down. It'd be nice to see that once in my life.'"
20 Comments:
When this first became a big problem in California, the voters created Proposition 13. While this has helped keep tax increases manageable for people who have lived in their houses for awhile, it also shifted the burden to people who have purchased their homes more recently. That's why you can have two identical houses next to each other, but one owner pays thousands of dollars more each year in taxes. With housing prices skyrocketing in California, it's a tax system that will get more unfair as time goes by, kind of like rent control in New York City.
It wasn't 'siphoned' away from public schools. Instead, it was never 'taken' from the citizens.
If you have to spend your own money on basic school supplies, complain to your superintendent, or recall your school board. Don't tell us that 40%+ of the General Fund (plus untold property bonds) isn't enough.
I think the increase cap part of Prop 13 should be repealed. But the 66% vote requirement should stay, and the recent modification that lets school bonds pass with 55% should be put back to 66%.
bookish betty,
so the solution is to raise taxes... yeah, right... i live in new jersey and that's all they do... sometimes taxes go up by 15% a year... and that's just from the board of education... and the schools just get worse... it's not a money problem at all... it's a demographic issue... or should i say it's an english as a second language issue...
Oh, Santa Barbara. Say hi to Meredith Brace for me.
Bookish Betty
What ever happened to all the Lotto money that was suppose to go to the school system. I think it's a crime how they have deverted the lotto money for other purposes.
I also think it is a crime how underpaid teachers are, and how the Governator now wants to base their compensation based on their performance. Is the performance based compensation plan so they can pay them less or justify paying them more.
It's ridiculous how they will pay a high school drop out millions of dollars per year just because he can throw a ball through a hoop. But only pay the teachers who are educating the children of the future, about $40,000 per year.
I assume we will see many states begin to pass Prop 13-type initiatives. After all, it's the American Way. When prices skyrocket, no one complains as long as it benefits them. When taxes rise to meet the new prices, all hell breaks loose.
California has been thru many of these property bubbles. The one in the '70s created the atmosphere for the passage of Prop 13. California public schools---in aggregate---have gone downhill ever since.
Now that other states are experiencing their first little bubbles, they go running to fix the property tax. If these initiatives pass, they will have decades of declining school performance (and other state services) to look forward to.
You either pay taxes to the state to support education or you cut taxes and pay out of your pocket for private schools or for the "extras" that public schools no longer provide. There is no free lunch. You pay one way or the other. It's disingenuous to think otherwise.
Anyone who thinks public schools waste inordinate amounts of money should compare the tuition at private schools. It isn't that much lower.
Of course, my personal belief is that students learn as much as they want to learn and teachers and schools are essentially irrelevant. Ghetto kids don't seem to have any trouble learning to be excellent basketball players and musicians for example, despite lack of facilities, coaches and music teachers. For whatever reason, Americans don't take math and science seriously and that is why students do so poorly in this area--it has nothing to do with underpaid teachers. As a former engineer myself, I can hardly blame these students. Math and science are hard work. Why bother when it's so much easier to get rich quick as a real-estate "investor"?
As a former teacher (and student) in L.A., I would agree that the quality of schools has gone down. I don't believe this has anything to do with Prop. 13, though. One thing that everyone is afraid to talk about is the exponentially increasing number of students from poor families, many of whom are on public assistance. These families can not afford to provide their children with supplies and materials needed for school. The parents often lack even the most rudimentary educations themselves. They cannot help their children with homework or teach them the skills necessary to succeed in school. Many only speak foreign languages, and their children have to learn double (language and skills) in order to catch up. The parents often work long hours and are not available to get involved with school activities, etc.
I'm not sure what the answer is, but it's not "money" as schools have plenty; but are forced to spend on "teaching coaches" and lots of in-service, not to mention materials, in order to just get kids to the "starting gate" of education. These families pay less in taxes and use more resources than in past generations.
My sister works in a school district here in San Diego county, she makes about 60,000+ for 180 days of work per school year. 180 days! She doesn't want to work any more. She chose that line of work. As did ALL the other school teachers out there. No one forced them to work only 180-185 days per year. I'm sure they could get more work if they wanted it.They are in a labor union (just like truck drivers, machinists and janitors)and union work means less work for more $, and the taxpayers suffer for it. So, cry me a river about how much you all don't get paid...
Florida has a tax cap similar to FL prop 13 I assume, but the counties' coffers are experiencing a ballooning because of incredible transaction volume. I guarantee you, if and when this market declines, all the "investors" and new homeowners go on the warpath complaining about how the tax burden is making their housing cost a burden. No, its not the ARM loan that has adjusted 4 percentage points, they'll say, its the taxes.
6:14 Anon,
i completely agree with you... i have a couple of friends who are teachers and they always complain about their income... it's so annoying... mostly because i always have to remind them that they're only working about 180 day a year and that they have the summer completely off... and can easily get another job... and work all year-round like everyone else!!!
Also... i really think that these vice principals are a complete waste of money... they're just paper-pushers... and they make on average $125,000 per year!!!... and again... these people also only work for 180 days or so!!!
As a relatively new follower of this blog, I don't mean to be impertinent relative to the old hands, but I, and I'm sure many others, read this to get a feel for the effects of rapidly rising real estate prices and predictions about the future of those prices.
Public and private school education are great topics and I'm sure there is a blog for that somewhere. I was disappointed that most of the feedback on this particular topic/thread/whatever-you-call-it has just been sparring about tangent issues.
Sunny,
In Texas, it wasn't just the taxpayers pain that got the attention. The taxing entities had to cut and cut for years. You know how governments are, they grow to fit the funds available; but when asked to cut, lookout.
BTW, the investors disappeared in 6 months, compounding the problem for owner/dwellers. Thanks for the comment.
deb, goleta,
The tax districts are forced to lower vlaues if you have proof, but they can drag their heels and if you don't appeal, you get stuck. Also, our experience in TX was that the value declined year after year, so it became an annual headache to dig up comps and head down to the tax office.
Great on-topic points, thanks.
bingobongo:
If the long-run increase in real estate values is 1% per year, then the 1% increase cap of Prop 13 should be perfectly fair. It would smooth out all increases; the increases continue even during down markets, until they match actual value.
I think the problem with Prop 13 is that assessment is allowed to jump up immediately upon a sale. This leads to many market distortions and the 'unfairness' aspect. Assessment increases should either be 1% no matter what the circumstances, or there shouldn't be a cap at all. If there was no cap, a lot of people would be mad -- and vote. As always, I support 66% approval for taxes/bonds.
California's Proposition 13 was pushed by commercial real estate interests, and they have achieved their goals: real estate tax revenue from commercial real-estate is now 1/4 of all real estate tax revenue. (It used to be 1/2.) That's because commercial real estate is sold (and therefore re-appraised for tax) much less frequently than residential real estate. The commercial real estate guys suckered the California taxpayers.
Other states, such as NY, have a "circuit breaker" tax system. If you're over 65, you can petition to have your real estate tax frozen. That keeps taxes affordable for fixed-income retirees without distorting the tax base.
Here in MA, we have the best of both worlds.
Property taxes are regulated and contained by Proposition Two-and-a-half, whilst our schools are amongst the best in the country.
MA has continued to provide excellent education for its children even as house prices have skyrocketed over the last few years.
As an appraiser for a Virginia suburban county assessor's office, I agree that in some states high taxes could be a legacy of this bubble. However, property tax systems vary by state. Where market value is used as in Virginia, the time lag between the sales period used and when assessments are released can be a few months to a year. This means that when prices drop, assessments will not drop immediately because they had never caught up with the market. We have properties selling now with a 75% sales ratio (assessment/price), 33% over 2005 assessments. So prices will have to drop considerably before assessments are reduced. I reduced assessments in 1991-92.
goleta said...
I think the poorer performance of California kids also have something to do with the ideal weather here.
California probably has the best weather in the world.
Before I moved to California, I lived in New Jersey and Pennsylvania for 9 years, so I know kids tend to study harder in NE. Because over half of the days in a year there, it's either too cold, too hot and humid, or raining outside, so kids have no where to go but home.
You may have been a bookworm during your years in NJ/PA, but here in New England active kids spend half the year snowboarding, snowtubing, snowmobiling, skiing, playing hockey etc. and the other half hiking, rock climbing, windsurfing, mountain biking. Kids in MA are much better educated that kids in CA because CA schools really suck whereas MA schools are excellent.
9:16 Anonymous had an excellent point about Prop. 13 and why it's not the reason California schools underperform.
The problem is not a shortage of money; schools receive more money, in constant dollars, per student today than they did before Proposition 13 passed.
Essentially, Prop. 13 prevented property from being taxed at its bubble-driven paper value. The consensus on this board appears to be that speculation-driven bubble prices are disconnected from economic fundamentals. It follows that during a bubble in which house prices are increasing by 25% a year, there is no reason to expect that the cost of educating a student is also increasing by 25% a year. All Prop. 13 did was to prevent the state government from garnering a windfall from the speculation-inflated property prices of the late 1970s.
Now, you can question whether the annual increase in appraised taxable value Prop. 13 permits is a fair or accurate one; maybe it ought to have been set higher to be more in line with actual fundamentals-driven increases in property value. But the basic premise is sound, I think: people shouldn't be taxed out of their longtime homes just because some arsehat speculators have bubbled the paper value of those homes up under their feet.
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