40 Years with Proposition 13

Al Jacobs

It may be hard for some of you oldsters to remember, but once upon a time in the somewhat distant past, property taxes in California ate you alive. With a new valuation by the tax assessor each year, the assessments seemed always unhappily current.

As for the tax rates, no established limits existed; they amounted to whatever the traffic would bear – with no shortage of traffic in those days. But that era ended on June 6, 1978 – exactly 40 years ago – when the state’s voters informed the Sacramento establishment: We’re mad as hell and we won’t take it anymore.

Prior to the confrontation, properties were valued on the basis of “highest and best use.” This enabled an assessor to determine, for example, an empty lot in a multifamily residential area might be suitable as a site for possible erection of a 4-story apartment building.

By simulating such an improvement and then calculating the land value by an appraisal technique known as the land residual method, the vacant lot suddenly triples in value – and with it the property tax based on the new assessment.

The system was highly subjective, of course, but served as a convenient device to raise taxes, whether warranted or not.

As to the actual tax rates on homes prior to 1978, I recall vividly what homeowners actually paid in the portion of Southern California where I worked as a property manager. In general, the rates ranged from a low of about 2½ percent of assessed valuation in the highly valued areas such as Beverly Hills, Laguna Beach and the Palos Verdes peninsula, to a high approaching 4 percent in the least affluent locations, much like Compton, Hawaiian Gardens and Pacoima.

We’ll pick 1975 as our sample year. For a reasonably priced tract home in Huntington Beach of $40,000, at a three percent rate, the annual property tax came to $1,200. A typical owner’s likely gross annual income amounted to $10,000, so after income withholdings and the property tax payment, there remained about $615 monthly to live on. Understandably, for many Californians, just getting by becomes challenging.

By 1977, although both interest rates and property values escalated rapidly, average incomes didn’t keep up. As a result, home foreclosures steadily increased in number. It became clear: Unless homeowners’ expenses might somehow be reduced, a massive economic cataclysm loomed in the offing. As expected, our public officials provided no solution, as their specialty is not reducing the citizens’ financial burden, but rather increasing it.

Instead, the offer of help came unexpectedly. The source: a septuagenarian employee of the Los Angeles Apartment Owners Association and repeatedly unsuccessful politician, Howard Jarvis. His approach: an initiative measure to substantially chop property taxes on every parcel of real estate in California.

The initiative measure, officially named the “People’s Initiative to Limit Property Taxation,” and popularly known as the “Jarvis-Gann Amendment,” provided for – among other provisions – the annual real estate tax on a parcel of property to be limited to one percent of its assessed value. Furthermore, the assessed value may be increased by no more than two percent per year, unless and until the property ownership changes. At the time of any change in ownership the assessed value might then be reassessed to current market value, but future assessments were likewise restricted to the two percent annual maximum increase of the new base year value.

It’s unlikely, during the 20th Century, to find any ballot measure held in lower repute with the establishment than this one – with Howard Jarvis and his associate Paul Gann, a Sacramento-based conservative political activist and founder of People’s Advocate, Inc., as the prime movers.

As an appropriate introduction, election officials managed to slip it onto the ballot as Proposition 13 in an effort to stigmatize it with a recognizably unlucky number. They proved to be unsuccessful, for it passed with almost 65 percent of those who voted in favor and with the participation of nearly 70 percent of registered voters. Of course, prior to its passage, few if any elected officials supported it, for if it passed, the money flowing to the politicians in charge would be severely reduced.

Then-Governor Jerry Brown – yes, the same Jerry Brown currently occupying the chair – campaigned ardently against it, right up until the day he discovered the mass of voting Californians favored it. Thereafter he extolled it, reminding everyone how enthusiastically he supported the concept of property tax reduction.

Rather than discuss the machinations related to Prop 13 over the past 40 years – easily filling a multitude of books – I want instead to relate a story, known by virtually no one, as to how Howard Jarvis came within one vote of neither authoring nor enacting his pièce de résistance. It begins in 1969 with the formation of the Greater Los Angeles Education Association (GLAEA). With school desegregation having then become a national obsession, the composition and political posture of local school boards took on a political bent. Those of you around then will recall the hostility created by enforcement of laws enforcing school busing.

In May of 1969, the seven-member Los Angeles School Board consisted of a majority of members supportive of student busing. GLAEA, formed as a citizens group to oppose such action, fielded a three-member slate of anti-busing candidates: Donald Newman, Laurel Martin and Richard Ferraro. Two of the slate members, Newman and Ferraro, were elected to four-year terms. The school board then found itself split, with four members favoring busing and three opposing it. Matters became tense.

The next election, scheduled for May 25, 1971, held the promise of major change if a fourth anti-busing board member became elected. A host of potential candidates announced their interest in the race, one of them Howard Jarvis. GLAEA, by then a major actor in the process, once again assembled a slate of three candidates, with two of them prominent longtime busing foes, Dolly Swift and Charlie Prince; a third would have to be selected.

One evening the seven directors of GLAEA held interviews of eight prospective candidates, among them Jarvis, with the final choice to be decided by their majority vote. Six of the directors split three each for Jarvis and retired Navy Rear Admiral (first name forgotten) Chambliss. Selection of the third member of the slate then relied solely on the discretion of the seventh director. His decision: Chambliss. The slate became Chambliss, Swift and Prince. Just so you’ll know, he confided afterword he voted for Chambliss because he found Jarvis to be “an overbearing loudmouth.”

For whatever reason, Jarvis remained on as a candidate, splitting the anti-busing vote for that particular seat with Chambliss, and thereby ensuring election of the pro-busing candidate.

With yet another political loss, after his prior unsuccessful campaigns for both the U.S. Senate and Mayor of Los Angeles, Jarvis simply stayed on with the L.A. Apartment Association, which became a springboard for his anti-tax activity and Prop 13 crusade seven years later. However, had he become a member of the GLAEA slate, with his recognizable name, he’d most certainly have become the fourth anti-busing member of the school board, thereby devoting his next decade to school busing.

It’s undeniable the political and economic effects of Proposition 13 are among the most profound events California ever experienced. It obviously required a true fanatic – in the most charitable way – to pull it off. And in deference to the GLAEA director who picked Chambliss over Jarvis for a position on the slate of candidates, he may well have been entirely accurate in his evaluation.

Without a doubt, different talents are required for different types of jobs; perhaps Jarvis didn’t deserve a seat on the Los Angeles School Board. But he certainly seemed to be in his element while ramming the anti-tax Initiative down the throat of an undeniably hostile oligarchy. It’s quite likely only an overbearing loudmouth was capable of accomplishing what Howard Jarvis did.

Al Jacobs, a professional investor for nearly a half-century, issues weekly financial articles in which he shares his financial knowledge and experience. You may view it on http://www.roadwaytoprosperity.com



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