My Mom asked me the other day if I thought the state, in its frantic search for additional revenue, would change Prop 13. It’s been over 30 years and it’s still a lighting-rod whenever the topic of property taxes is broached. Although generally despised property taxes are essential for the functioning of local governments and school districts and despite its universal disdain, the property tax is still the only tax common to all 50 states.

Property taxes are a tax on “real property” as opposed to “personal property”. Real property is generally defined as land and the things permanently attached to the land. Things that are permanently attached to the land, also referred to as improvements, include homes, garages, and buildings. Property taxes are unavoidable. If you own property, you will pay the taxes.

Prior to Proposition 13, the tax rate throughout California averaged a little less than 3% of market value, and there were no limits on increases either for the tax rate or property value assessments. Some properties were reassessed 50% to 100% in just one year and their owners’ tax bills jumped correspondingly. During the seventies, the real estate market experienced dramatic growth, which lead to a rapid escalation in the value of homes. Because assessors were required to keep assessed values current, property taxes were skyrocketing at a substantial rate. Taxpayers rebelled. On June 6th, 1978, nearly two-thirds of California’s voters passed Proposition 13, reducing property taxes by about 57%.

Proposition 13 amended the state constitution and sharply limited property taxes. The property tax rate was set at a 1% cap. This means that the amount in property taxes you have to pay can only be up to 1% of the assessed value of your home. Subsequent annual adjustments in assessed value were limited to the rate of inflation, not to exceed two percent per year. However, once sold, the property is reassessed at 1% of the new market value with the 2% yearly cap placed on this new assessment. Now we have the inequity that allows identical homes on the same street to be taxed at completely different levels based on nothing more than a calendar.

Proposition 13 also shelters industrial and commercial property. Generally speaking, property owned by a corporation or partnership will not be reassessed until more than 50% of the ownership of the corporation or partnership changes hands. If real property was owned by a corporation or partnership prior to the passage of Proposition 13, it will never be reassessed, barring a sale, unless there is a shift of control of the corporation or partnership to a single individual or a single entity. That means, for example, that property owned by PG&E prior to the Proposition 13 passage will essentially never be reassessed, since no one person or entity is likely to ever gain control of PG&E by owning more than 50% of its stock. Prop 13 has shifted the burden of paying property taxes for commercial property to homeowners.

Property taxes are collected by the County and distributed to the cities based on a formula determined by the state. Based on this formula Oakley receives about 6 cents for each dollar collected. That amount is between 2 and 25 cents less than any other city in the county. State wide, cities, on average, receive 11 cents out of every property tax dollar collected, counties receive 19 cents, schools 52 cents, and other districts 18 cents. Through a convoluted process that begins with Prop 13 the city receives roughly the same portion that the county was using to provide services to the Oakley area in 1978.

For the first time in the state’s history, the state was put in charge of allocating the proceeds of the locally levied property tax, with the rate and base defined by the statewide initiative. In past tight financial times, the Legislature and governor have shifted significant amounts of property taxes to education in order to ease the strain on the state budget. Cities, counties, and special districts have had to cut or find alternate means to fund their budgets.

Getting back to the original question; Mom, no one will mess with Prop 13.