I went looking today for my blog posting about Prop 13, and was stunned that I couldn’t find it. I was sure I had written one, but I guess I hadn’t.
This is a story of unintended consequences of lowering taxes. As a result of Prop 13, it costs cities more to provide services to residents than it can get from the residents in property taxes. They only make money from business (in sales taxes). Cities thus work really hard to avoid zoning for residential — especially high-density residential! — and do everything they can to attract businesses The result is that the cost of housing close to jobs has gone way, way up.
Meanwhile, there is a loophole that lets cities get some money from residents: developers’ fees. If a big developer wants to put in a subdivision, cities are allowed to charge the developer fees for that. (I think the fees can be arbitrarily high, but don’t know for sure.) Some cities can use the fees that developers pay now for future housing to allow them to cover the costs of services to the current residents. It’s a Ponzi scheme, however: you have to keep building in order for this to work. Thus this only works for cities that have a lot of land, i.e., ones way out in the exurbs.
This means that the housing is waaay far away from the jobs. Note that the long-haul roads are paid for with either state money or federal money, so neither the city with the jobs nor the city with the housing cares how much the road costs. Massive sprawl has ensued.
This means that housing is expensive in general, and even higher in cities close to jobs. Meanwhile, cities’ revenues increase at a little bit more than 1% per year, but inflation — which influences how much they have to pay — has gone up way faster than that. In particular, the salaries they need to pay are influenced by the cost of housing, which has skyrocketed.
Meanwhile the state has no money. It got hammered by the difference between what they took in and what they had to pay out, just like the cities. Furthermore, in the 1980s, the federal government either took money from the states or stopped giving as much (I forget which) as part of the Reagan Revolution. Thus the state just took money from the cities. Just took it. And because it was bigger, it could. This contributed to cities’ difficulties.
Because of the sprawl, building public transportation is expensive. Because the state has no money, it can’t afford to build public transportation. This means that people have to spend a looooong time in their cars. This is expensive in time, and more recently, in money.
Because the state has no money, the public education system has gone into the toilet. California ranks 36th from the top in per-pupil public school expenditures (just below Missouri) and 35th from the top in SAT scores (just below Virginia). There are only two states that spend less when you adjust for the cost of living. Because the public school system is so bad, many people send their kids to private schools, which decreases their desire to pay taxes for the public school system.
Because of Prop 13, the citizens of California pay significantly extra housing, schooling, and transportation for the privilege of spending more time in their car.
How do you fix it? Well, you can’t really raise taxes because the citizens are already getting squeezed — they aren’t going to want to raise taxes. Furthermore, the ones that already own houses have a strong disincentive to make housing in general more affordable. They get rewarded if the price of their house goes up. The only thing I way I can see to fix it is to amend Prop 13 so that over a long period of time, the amount that property taxes can rise loosened — perhaps capped by inflation. I left California because, in part, I am very pessimistic about the chances of this structural weakness in the California economy changing.
Where did all the money go? It went to people like my husband: people who bought a house, held it for long enough for it to appreciate, and sold it for a huge profit, and then left the state. It went to people who owned land and sold it to developers.