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Report: Proposition 13 will save LA homeowners $7.4B in 2018

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But schools and local governments will lose out

Los Angeles houses
Passed in 1978, Proposition 13 slashed property tax rates statewide.
Atsushi Hirao/Shutterstock

Forty years ago, when California voters approved Proposition 13, homeowners and other landowners immediately realized a massive savings: $7 billion.

Since then, that number has more than quadrupled.

A new report from Cal Matters and Zillow reveals that homeowners alone will save roughly $30 billion in 2018 thanks in large part to Proposition 13. In Los Angeles County alone, those savings amount to more than $7.4 billion.

Under Proposition 13, the longer homeowners have owned a residence, the more they save on annual tax payments.

Since its passage, it has limited property tax payments to 1 percent of a property’s assessed value, plus a small percentage used to pay off voter-approved bond measures. The taxable value of a property is also locked in once it changes hands and can only rise 2 percent annually.

That means if you bought a house in 2012 for $500,000, you’d pay property taxes today based on an assessed value of around $563,000, even if the market value of your home is now closer to $700,000.

Savings for those who have owned for decades are more dramatic. In 1980, shortly after Proposition 13 passed, the median home price in California was $84,500. Assuming no change of ownership, annual tax payments on that home would today be derived from an assessed value lower than $200,000, about one-third of the current statewide median.

In Los Angeles, tax savings for homeowners vary dramatically by neighborhood. The report finds that in some census tracts of South LA and the San Fernando Valley, where property values are lower than the countywide median, property tax savings among all homeowners will likely amount to less than $500,000 in 2018. In pockets of Venice, on the other hand, homeowners will collectively save up to $18 million this year.

Critics of Proposition 13 argue this kind of disparity is one of the measure’s greatest failings: It disproportionately benefits homeowners in wealthy communities where land values have soared since passage of the initiative.

Supporters counter that the measure’s limits on tax increases makes it easier for homebuyers to calculate payments down the road and make financial plans for the future.

But as the report notes, savings for homeowners can also be seen as lost revenue for local governments and school districts, which rely on property taxes to function.

The $30 billion in savings that homeowners will enjoy this year amounts to roughly 15 percent of the state’s total budget for the 2018-19 fiscal year.

Since Proposition 13 passed, state and local leaders have implemented a host of alternative taxes to compensate for some of that lost revenue, but those savings for property owners diminish what’s available in government coffers.

Soon, California voters will decide on a pair of measures that could restructure some of Proposition 13’s key provisions. Proposition 5, which will appear on ballots on November 6, would allow homeowners over the age of 55 and those with a severe disability to take their property tax savings with them when buying a new residence.

The California Legislative Analyst’s Office estimates that schools and local governments would lose out on more than $100 million annually if the measure passes—though eligible homeowners would save the same amount.

A separate initiative has qualified for the 2020 ballot. It would end Proposition 13 benefits for large commercial businesses, but leave in place savings for farmers, small businesses, and homeowners.

According to initial estimates, the 2020 proposition could result in between $6 billion and $10 billion in new revenue for schools and local governments.