Property Tax:
Legislative Analyst Finds Growth in Property Tax Revenue Exceeds Economic Growth, Criticizes Allocation Among Local Governments

In a 44-page report on California's property tax, released November 29, the Legislative Analyst's Office examines the strengths and weaknesses in the tax. Of significance is the finding that property tax revenue has grown faster than the state's economy since the passage of Proposition 13 in 1978.

According to the report, the state's economy has grown at an average of 6.3 percent, while the property tax has grown at an average annual rate of 7.3 percent. As of 2011-12, the ad valorem property tax and other taxes and charges on property produced more revenue than any other single tax source.

However, the analyst is critical of the body of law that has evolved regarding the allocation of the property tax, saying it is "not well understood, transparent, or responsive to local needs and preferences." Any change in existing law on property tax allocations would be "difficult," the analyst concludes, as the League of California Cities has successfully sponsored initiatives to place in the state constitution restrictions on significant changes.

The property tax is "California's most stable major revenue source" since the passage of Proposition 13, and the personal income tax has been "three times more volatile," the report noted. This is due to the acquisition-value assessment system "insulating property tax revenue from year-to-year real estate fluctuations," the analyst stated.

On the composition of the tax base, the analyst found that "there is little statewide information regarding the composition of California's property tax base over time." The share paid by homeowners is roughly 36 percent to 39 percent, a slight increase from 32 percent in 1986-87. A factor cited by the analyst is that newer homes are larger and have more amenities than homes built earlier. (CalTax: A principal reason is that the values of personal property and state-assessed property, both of which are not subject to Proposition 13 assessment limitations, have grown substantially more slowly than locally assessed real property subject to acquisition-value assessment provisions.)

Residential investment and vacation properties are said to be 34 percent of the tax base, and commercial properties account for 28 percent. Due to limitations in data available, there is no speculation if the relative shares of these two categories have increased or decreased. (CalTax: A recent CaxTax study comparing locally assessed property subject to Proposition 13 acquisition-value assessment concluded that Proposition 13 did not shift the tax burden to homeowners, as the percentage growth rate of homeowner values was less than the percentage growth rate of all other locally assessed real property.)

According to the report, parcel taxes "represent a significant and growing source of revenue for some local government," but there is a void in information about these taxes. The report states that between 2011 and 2012, voters approved 180 parcel taxes to fund cities, counties and school districts, and approved 135 measures to fund schools. The most recent data (from 2009) indicates that schools received approximately $350 million, but the analyst was unable to locate information on the statewide amount of parcel taxes collected by cities, counties and school districts.

December 7, 2012
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