The pronounced swing to the political left that has happened over the last many decades in California is detrimental in several ways to the overall health of the state but I tell you about one that will affect your wealth if you are a homeowner.
Skip this section if you are familiar with Proposition 13. The ballot measure which passed in the late in 1970s has been sacrosanct with a Republican party willing to viciously defend it. The measure caps the climb in property taxes (via capping the climb in the assessed value of your home) to 2% per year. Property taxes are set at 1% of assessed value. If you are paying slightly more, these add-ons come from local ballot measures and tend to be a matter of basis points. California property taxes are deliciously low. For example, places in Connecticut, another liberal state, charges much higher taxes. New Haven, Connecticut, recently increased it’s mill rate to 42.98—that’s a 4.3% tax on assessed value of the home. Keep in mind assessed value rises with the market. It is not protected by a cap as it is in California.
Proposition 13 has created a very favorable argument to buy real estate in California vs. other states (with a comparable culture and climate). It is also blamed for the underfunding of public schools, a system which is one of the lowest ranked in the country. This is where homeowners should be very afraid: Teacher’s Unions would love to see Proposition 13 repealed. They were powerful enough to pass tax hikes on individuals. Their eyes are trained on this. Once the repeal of Prop 13 is on the ballot, given the robust political machine the Teachers have at their disposal, getting the votes is what they do well. If Prop 13 is repealed, your property taxes will go up in 2 ways: the assessed value will rise from the amount on your bill to something closer to market and the percentage will increase. It may not become New Haven’s 4.3%, but something in between 1% and 4% is a reasonable guess. The funds will be earmarked for schools but also for funding the $1T public pension liability that California has accumulated. The precedent has been set–other jurisdictions in other states have raised property taxes to address their pension crisis.
The bottom line: your property taxes are at risk of rising because California does not have the political will to rationalize its pension scheme just like the liberals running San Francisco don’t have the will to keep the homeless from using the streets as their bathroom.
It is an easy rebuttal to say this is far fetched but it is not. The Teacher’s Union wants this Proposition repealed. They have the funds to put such a measure on the ballot when the time is right. Once that is accomplished, some version of what I just described will play out. And our property values and pocket books will be covered in tears from here to Nevada.