
Budget Woes in San Jose - danans
http://www.theatlantic.com/business/archive/2016/02/budget-woes-in-one-of-americas-wealthiest-cities/470877/?google_editors_picks=true&amp;single_page=true
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epistasis
Proposition 13 is one of the worst failures of California's experiments with
direct democracy.

It was a bald-faced grab for cash; and it grossly distorted the housing
market, been a huge handout to rentseekers and entrenched interests, starved
public schools, hugely increased housing prices, prevented sensible house
renovations (in order to preserve tax status), allowed an obstructionist
ideological minority (33%) to stop any sort of sensible and economically
beneficial tax reform, and above all increased inequality.

It's also a political third rail. It's time to change that. Prop 13 is bad,
and those who support are making life and the market far worse for general
society, for a much smaller tax break for themselves. It's greed, and it's
bad.

~~~
dreamdu5t
And what about home owners that couldn't keep up with rising taxes after
purchasing their home? Rising real estate prices were hurting families who saw
their tax bills jump based on local housing sales, and it prevents people from
being able to accurately budget long-term purchases like housing when they
can't anticipate a stable tax rate

~~~
epistasis
>And what about home owners that couldn't keep up with rising taxes after
purchasing their home?

So much wrong here.

#1 they can sell their homes at _huge_ profits (otherwise the taxes would not
be hurting them).

#2 they can support building enough housing so that prices aren't jumping so
unafforably.

#3 They could have set the maximum increase at 5%, or CPI + 2%, or really
anything other than 2% which is clearly a hugely bad policy.

Prop 13 is simply a way for people who got in early to prevent anybody else
from enjoying California.

~~~
prostoalex
Most people who buy their homes for long-term buy it to settle in their
neighborhoods and have kids go to the same school, not speculate on price
increases and profit from them.

Leave alone the fact that when markets are over-heated, those _huge_ profits
can only be locked into _huge_ base prices for any other property that's
selling in this peak market. Unless the step 2 after hitting those huge
profits involves packing up and moving to MidWest.

~~~
epistasis
>Most people who buy their homes for long-term buy it to settle in their
neighborhoods and have kids go to the same school, not speculate on price
increases and profit from them.

 _IF_ this is the true purpose of Proposition 13, then it would be written far
differently. (Greater than 2%, no commercial real estate included, no passing
on to children). People are also allowed to sell their home for more than the
assessed tax value, precisely because people speculate on price increases of
their homes. If that wasn't one of the primary reasons behind Proposition 13
then people would have been OK with only being able to sell their home at the
assessed value.

Really though the point of Proposition 13 was to just pay less taxes, "staying
in your home" doesn't really come into play. Defending it along those lines is
deceptive, and propagates a false narrative.

~~~
prostoalex
> People are also allowed to sell their home for more than the assessed tax
> value, precisely because people speculate on price increases of their homes.
> If that wasn't one of the primary reasons behind Proposition 13 then people
> would have been OK with only being able to sell their home at the assessed
> value.

I am not sure what you're describing is correct - each time I bought a
property in California the assessed tax value next year was precisely the sale
price.

Here's what California has to say on it:

[http://www.lao.ca.gov/reports/2012/tax/property-tax-
primer-1...](http://www.lao.ca.gov/reports/2012/tax/property-tax-
primer-112912.aspx)

The process that county assessors use to determine the value of real property
was established by Proposition 13. Under this system, when real property is
purchased, the county assessor assigns it an assessed value that is equal to
its purchase price, or “acquisition value.”

~~~
epistasis
You misunderstand what I wrote.

Right now, Prop 13 beneficees have an assessed value of, say $300,000, on a
$1,000,000 house. They can sell the house for $1,000,000.

If Prop 13 were actually about keeping people in their homes, then after
taking advantage of below-market taxes for so long, they wouldn't be allowed
to sell for more than a small percentage more than the tax assessed value.

But Prop 13 is not about keeping people in their homes, it's a selfish grab to
not pay taxes, drive up home values, and profit on both ends.

~~~
prostoalex
> they wouldn't be allowed to sell for more than a small percentage more than
> the tax assessed value

This just has a bad smell to it - not only you're inviting corruption and
avoidance into the deal (the buyer is asked to bring the check for the
assessed value and a suitcase of cash to the deal), the actual revenue
collected by the state would fall, and the federal government is likely to
contest this setup as it stands to lose out on capital gains.

> Right now, Prop 13 beneficees have an assessed value of, say $300,000, on a
> $1,000,000 house.

Assuming a very healthy and robust real estate market that grows gangbusters
15% every single year and never falls, it would take 9 years for a $300,000
property to grow into $917,706. It would go over the $1,000,000 sticker during
year 10.

Of course, this is assuming ever-lasting 15% valuation increase and no price
correction whatsoever, but even in this ideal market the owner has lived there
for 9+ years and does not fall qualify for your definition of "keeping people
in their home"?

Even when he sells, the cash he has on hand is enough to (surprise!) buy a
comparable house, so this crazy speculation scheme is only doable once in
life.

------
callmeed
_(Disclaimer: I have multiple rental properties in CA)_

I've noticed Prop 13 becoming the quite the scapegoat for the woes of various
California cities lately. I'm not convinced.

The state has a huge pension liability looming over it–most of which grew
after Prop 13 was passed. How did they think they were going to pay for it?
Example: San Jose's fire chief makes close to $400K/year in pay + benefits.
Guess what? When he retires, he's gonna keep getting paid 90% of his peak
salary _until he dies_.[0] Meanwhile, I'm paying $1,400/month out of pocket
for my family's health insurance and have to spend time managing my own
retirement plan.

No one exemplifies Parkinson's Law [1] better than the government. If you let
property tax increase without limits, they will grow spending accordingly and
it will hurt cities like San Jose even worse during recessions and times of
declining home values.

Finally I'm not convinced Prop 13 inflates housing costs or that repealing it
would lower them. If rentseekers have to pay more taxes, won't they pass that
cost along in the form of higher rents?

[0] [http://transparentcalifornia.com/salaries/2014/san-
jose/curt...](http://transparentcalifornia.com/salaries/2014/san-jose/curtis-
p-jacobson/)

[1]
[https://en.wikipedia.org/wiki/Parkinson%27s_law](https://en.wikipedia.org/wiki/Parkinson%27s_law)

~~~
tdicola
I find it ironic you're criticizing the pay of a man who leads the people who
would happily _save you from your burning properties_ if they were on fire.

~~~
callmeed
How is it ironic? How many people were saved from burning buildings in your
city last year?

The truth is, technology and building codes in the US–and especially
California–have significantly reduced the loss of life and property due to
fires. That's a great thing. Unfortunately, fire department budgets have
increased at the same time. Partly due to pensions, partly due to the fact
that cutting a fire budget is political suicide.

Have you noticed how 30-foot, $1 million+ fire engines show up to minor
traffic accidents and first aid calls? There's a reason (they need to look
busy).

Fun fact: 8% of calls to fire departments are false alarms and 64% are for
non-fire medical support.

~~~
rsync
"Have you noticed how 30-foot, $1 million+ fire engines show up to minor
traffic accidents and first aid calls? There's a reason (they need to look
busy)."

 _(Disclaimer: I am a volunteer firefighter in California)_

They do that because they can't be caught without the engine if they get an
actual fire call. They would leave directly from the
accident/medical/CatInTree in the engine and go directly to the fire.

That's why you see them drive to the grocery store in the fire truck. You
can't wait for them to go back to the firehouse to get the engine ...

------
Lind5
I've lived in San Jose area for over 20 years now. The downtown area has made
some improvements, but at an extremely slow pace. It would be nice to go to
lunch/dinner and then have a place to walk around that had a few interesting
shops, but there aren't really any. I find it very strange given the economic
vitality of the area. I think the current mayor is on the right track. I hold
out hope that in 5-10 years, it will be a completely different story downtown
(hopefully sooner).

~~~
ZanyProgrammer
I really hate going to downtown San Jose-its my least favorite spot in the
entire Bay to wait for transit. I just don't feel quite safe.

Pawn shops, check cashing shops, clubs and bars (and head shops). That's
pretty much what DT SJ is.

~~~
rhizome
The Santa Clara part of DTSJ has always been a wreck.

------
CalRobert
Oddly we have a situation where people who own homes can pay very low property
taxes while voting to restrict new building on land they do not own within
their city. Most of the bay area is low density sprawling asphalt hellscape
(think Fremont, not Berkeley) where people can enjoy their grandfathered in
tax rates AND oppose any and all new housing construction - the same
construction that could help the city increase its tax base (not to mention
allow workers to live closer to jobs and other amenities). Of course, that
construction would also mean their property values weren't quite
stratospheric, and regular folks could maybe, just maybe, cover rent.

Perhaps we should reconsider the idea that people can vote on what homes
others (even _gasp_ developers!) are allowed to build on private land.

~~~
danans
> (think Fremont, not Berkeley)

I wouldn't let Berkeley off the hook so quickly, there is definitely
resistance to dense residential development there [1]. I heard in a SPUR talk
[2] that North Berkeley in particular has a strong anti-development movement,
this despite Berkeley being one of the Bay area cities with the most new jobs
being created.

[1] [http://www.dailycal.org/2015/08/27/protesters-rally-
against-...](http://www.dailycal.org/2015/08/27/protesters-rally-against-
contentious-downtown-berkeley-development/) [2]
[http://spur.org](http://spur.org)

~~~
CalRobert
Makes sense, North Berkeley is full of fabulously wealthy people who know they
will become ludicrously wealthy if they can forbid any new construction. I
lived by Ashby BART and the neighborhood didn't seem as worried about these
things.

------
kpil
I live outside US. I don't get it; What stops San Jose from drawing income
tax, or increase it if they already do?

Propery and business tax is almost neglible around here in northern Europe,
compared to income tax and vat.

~~~
prostoalex
Voters would have to approve such income tax. Considering they would be the
ones affected, the proposition is unlikely to pass.

I doubt it's the income situation though, from the article:

"Visit the main street of Palo Alto, where Stanford and numerous startups are
located, and you’ll see dozens of fancy restaurants and stores and may not be
able to snag a parking spot among the luxury cars parked there. Castro Street
in downtown Mountain View has a slightly more relaxed vibe, with candy stores
and book shops and restaurants and bars."

Palo Alto and Mountain View don't collect any income taxes and are subject to
the same Prop 13 restrictions as every other city in California.

For San Jose troubles, you'd have to look towards its pension obligations. For
a while the pension system for municipal workers allowed the pension to be
pro-rated to the last salary mark, not average salary over the years of
service.

That does not seem so bad, but the union contracts had a fairly generous
allowance for sick days. That does not sound so bad either (who wants to deal
with a sick coworker?) but it also allowed unlimited accumulation of those
sick days throughout the years of service. At retirement the accumulated sick
hours would be paid out pro-rated at last salary mark.

You can see what incentives this provided for city workers (of a fairly large
city): never take a sick day, accumulate the maximum amount of them, push for
promotions as you're closer to retirement age, retire the week after you get
promotion and salary bump.

Many did play the system that way [http://www.mercurynews.com/ci_21438816/bay-
areas-250k-club-g...](http://www.mercurynews.com/ci_21438816/bay-
areas-250k-club-government-retirees-wont-be) and considering it's a major city
San Jose has a lot of former employees that it owns six-figure pensions until
the rest of their lives.

~~~
rsync
Also, it's worth noting that effective tax rates in California are some of the
highest in the first world.

Your effective tax rate (on income) in San Jose (if you are someone who is a
net tax-payer) is 50%, give or take[1].

That's more than even the nordic darling utopia countries.

[1] 39%, plus either 11.x or 12.x or 13.x, depending on your tax bracket.

~~~
danans
While it's true Californians pay high effective tax rates, the specific rates
you are referring to are the top marginal fed and california rates, not
effective rates:

[http://www.investopedia.com/terms/e/effectivetaxrate.asp](http://www.investopedia.com/terms/e/effectivetaxrate.asp)

------
danieltillett
One question I have always wondered about Californian residential property is
why more people don't move their property into a holding company like is done
for commercial real estate. This way when you go to sell you should get a
premium as the buyer won't have the valuation reset?

