Wednesday, July 27, 2011

Wall Street Journal Cries Us a River on California Counties' Shrinking Tax Revenues

Every once in a while, we're reminded that the Wall Street Journal isn't nearly as laissez faire as its reputation suggests, and a piece in today's Journal offers one of those moments. Forget the homeowners and businesses that have been wiped out by the recession, and the rest of us continuing to struggle through it; Justin Scheck has found the real victims of California's economic crisis: county governments whose tax take has been devastated by falling property values.

Scheck takes us on a tour of California counties to demonstrate a pattern: while Prop 13 places limits on how quickly property taxes can rise, it places no floor on how far they can fall. As such, the plunge in home values since 2007 has meant steep declines in property tax revenues for many counties. San Diego County's property tax revenues dropped by $100 million in 2010, Stanislaus County has seen such revenues fall by almost 12% in the past two years, and over the past three years, Calaveras County has seen its property tax rolls shrink by 18%. Predictably, this has led to steep cuts in services and personnel, and put county assessors in a difficult position of having to defend re-assessed values against political criticism.

Scheck frames this as an unintended consequence of Prop 13, but this misses the point by a fair margin. While few people anticipated a day when California property values would decline steeply, the point of Prop 13 was precisely to prevent governments from hiking property taxes during recessions to cover their budget shortfalls. This is absolutely a feature, not a bug. Furthermore, the article fails to ask whether it was ludicrous for governments around the state to base spending decisions around a real-estate boom that was impossible to sustain. It also ignores a couple of important facts: government spending in California continued to skyrocket right through the economic recession, climbing 60% between 2006 and 2010, and many local governments continued to sweeten public employees' pension packages at the same time. In other words, these county governments have no one but themselves to blame for failing to take the state's economic weaknesses seriously by cutting back.


  1. RobJul 27, 2011 06:08 PM
    My personal half-remembered pre-history of Prop. 13 pretty much jibes with the Wikipedia version; the state assessors had wide latitude to set valuations and rates, and did so for their pals. Meantime, state supreme court decisions forced a more "equitable" distribution of property taxes from rich districts to poorer, thus negating much of the point of living in a more expensive neighborhood. With inflation rampant in the 70's, and assessors legally required to be even-handed (so they couldn't cut Gramma a special break), the combination of "money going to distant shores" times "a lot more of it" equaled a taxpayer revolt. The fact that Prop. 13 provides ballast to the public till (by limiting downside) is something that is little appreciated by government fans. These days, it's some other revenue source that's filling in for whipsaw property valuations (income taxes, for instance).