The Crushing Blow of Howard Jarvis

See complete coverage on PROP 13:
Andrew Gumbel: The Anti-Tax Psychosis
Andy Klein: Origin of the mantra: ‘I’m mad as hell’
William J. Kelly: The environmental cost
The Biggest Loser: Schools
Wal-mart vs. The Poor"
3rd Degree: The tale of a Ventura homeowner"

Margaret Todd is L.A. County’s top librarian, but in 1978 she was nearly done in by Howard Jarvis and his Proposition 13. Not that the tax-cut monomaniac would have cared, of course. Asked what Prop. 13 would do to libraries during a televised debate three decades ago, Jarvis underscored his broad disdain for libraries and public schools when he guessed that “63 percent of the graduates are illiterate, anyway,” and would have no use for books.

Todd clung to her job and fought for the library system’s survival during one of the darkest times for public institutions in California history. “I was fourth on the layoff list for four years,” says Todd, who was 23 and working at the county library’s La Mirada branch at the time. “It froze everything. We didn’t buy books for a number of years. We did not hire anybody, and it was very, very difficult.”

The way the measure insinuated itself into the routines of everyday life surprised many of its supporters, who arrived at the La Mirada library to find it with neither recent encyclopedias nor bestsellers. “What we found over and over again, people would come in and say, ‘We needed to control our property tax, but we never meant it to affect the libraries,’” recalls Todd. “That was the hardest thing for the communities, because when they voted for Prop. 13, their property taxes were out of control, and they needed to do something to protect their homes. But they never intended that local services be devastated, and that’s what Prop. 13 did.”

Proposition 13 celebrates its 30th birthday this year. Revolting against out-of-control property taxes that outpaced growth in wages, 65 percent of California voters passed the anti-government measure and state constitutional amendment on June 6, 1978. It not only rolled back property taxes, but forced residents to rethink, virtually overnight, the role of government. A generation ago, the “forced-out-of-home-by-property tax” story had become a staple of California newspapers, and many considered the measure badly needed tax relief. And relief they got: Prop. 13 cut property taxes – the locally-controlled revenue source that city and county governments, school districts, and special districts had relied on for their funding since the early 20th century – to 1 percent of a property’s assessed value, reducing local governments’ property tax revenues by 57 percent at the time. Properties could only be reassessed after a sale instead of every year. To punish politicians, it also stipulated that taxes could only be increased by a two-thirds majority in the state legislature.

Controversial from the start, the measure was denounced by major newspapers and, in the early days, even politicians. The L.A. Times editorial board surmised that Prop. 13’s “passage would surely result in chaotic conditions in the cities and the schools.” Governor Jerry Brown declared its property tax relief “a temporary mirage that in a few months will blow up in everybody’s face.”

Prop. 13’s coauthor and public face was a 75-year-old businessman-turned-Republican organizer-turned-landlords’ lobbyist named Howard Jarvis, an oft-belligerent L.A. government gadfly, best known previously for his failed single-issue Los Angeles mayoral campaigns. (The single issue: Taxes.) In his ballot argument, Jarvis asserted that Prop. 13 would have no negative effect; he even went so far as to claim that school funding would be basically untouched by the amendment, which a state judge ruled to be “misleading and perhaps even false,” before striking the assertion from the ballot. It couldn’t have mattered less to Jarvis what happened to education in California; during his 1977 mayoral run, he declared, “What we’re really doing in the public school systems is nothing short of manufacturing people for the welfare rolls.” Asked how he felt about the cancellations of summer school programs post-Prop. 13, Jarvis chided, “If they have a babysitting thing for nine months, I don’t think they need it for three months more.”

That Californians turned to Jarvis speaks to their desperation. By 1978, astronomical tax bills had whipped the anti-government fervor into a force that could no longer be denied. Previous attempts to knock down property taxes had failed, including one pushed by Ronald Reagan.

In the 30 years that have elapsed since Prop. 13 became the rule of the land, L.A. County’s population has grown by 50 percent, adding plenty of residents who can’t plunk down $35 for the new Harry Potter, but its county libraries haven’t even been close to keeping pace. “Until the last, maybe, five years, the newest libraries I had were built prior to Prop. 13,” Todd says. “We were almost 30 years without any capacity to build anything. That really shows in my libraries. If you go to Lennox, which is my oldest, from the late ’40s, [it’s a] tiny, tiny library … huge population to serve. My Cesar Chavez Maywood Library, a postage stamp with a huge population now in Maywood. Even my communities like Rowland Heights and Hacienda Heights, where lots of construction has taken place since those buildings were built in the ’60s and ’70s, there’s been no capacity to really increase the size of community libraries to fill the need of the population.”

California has lived with the effects of Prop. 13 for a generation now. While the unmitigated anarchy that the Times predicted didn’t pan out – Brown’s state government, sitting on a fat budget surplus, bailed out the programs it mandated, which saved welfare but left libraries in the lurch – Prop. 13 created a new and often disturbing status quo in California:

By neutering local governments’ incomes, Jarvis’s amendment made beggars of city and county governments. When they need money to provide services their constituents demand, they must crawl to the state government on their knees – the political equivalent of calling a plumber in Sacramento to fix pipes in L.A.

California’s mostly embarrassing, 47th-in-the-nation public schools remain pitifully under-funded and understaffed, particularly in poorer districts that have lost their property tax revenues. (Meanwhile, in the richest communities, puny taxes on valuable properties flush schools with money, maintaining the educational inequities that have made the state infamous.)

Up against the wall, city governments court big-box retailers because they bring in sales tax, and snub affordable rental housing because it generates a piddling amount of property tax.

And, because assessments only happen when property is officially sold to a new owner, businesses exploit ownership loopholes to ensure they never get reassessed at higher rates, even when their property in fact changes hands.

CityBeat’s challenge to cowardly legislators: Fix Prop. 13

Yet, despite the obvious problems, many of California’s elected representatives are, at best, reluctant to discuss (or, at worst, silent) about Prop. 13, earning it the dubious distinction of the “third rail” of California politics. Attorney General Jerry Brown doesn’t return phone calls about it, having flip-flopped to supporting it after it passed. State Senator Gloria Negrete McLeod, who thinks Prop. 13 is a disaster, maintains that she won’t legislate to reform it. In 2003, when Berkshire Hathaway zillionaire Warren Buffett called for reforms from his perch in Gov. Arnold Schwarzenegger’s first campaign, the tough-guy candidate ducked and covered, distancing himself from his volunteer financial adviser. The governor, who recently remarked that “you can’t find even 1 percent” of the state’s budget deficit in government waste, prefers to run up the state’s credit cards with bonds and license more pai gow tables for Morongo Indians, rather than reconsider the state constitutional amendment that lands students, affordable housing, special districts, and local governments at the state government’s fiscal mercy. Assemblymember Mike Feuer, one of L.A.’s representatives in Sacramento, tells CityBeat he is “open to looking at” reforms to the way Prop. 13 treats business properties, but offers no specifics.

With three decades’ hindsight and what has become a perennially disastrous state budget, California’s residents and elected officials must examine the Prop. 13 watershed and fix the torrent of problems unleashed by Jarvis a generation ago. While some homeowners would surely suffer if the measure was repealed, it’s proved a lucrative deal for businesses who can take advantage of it in ways impossible for homeowners. There’s no reason for Prop. 13 to remain taboo when it creates hardship and inequity.

This is the first installment in CityBeat’s year-long crusade to bring about reform. In the coming months, we will put politicians on the spot and force them to stake out their turf. At the very least, they must fix the loophole-riddled system that allows businesses and corporations to make off with billions of dollars on the shoulders of under-funded public schools. We will make, “What are you doing to reform Prop. 13?” a seminal question for state legislators this year in the same way that members of Congress face scrutiny on their votes on the Iraq war.

Jarvis made him sick

Former L.A. County Supervisor Edmund Edelman came down with a case of what he called “Jarvis pneumonia” trying to defeat Prop. 13. “It was serious! I had to go to the hospital, because I kept fighting against this thing, speaking against it, and I saw the impact it would have,” says Edelman, who represented the Westside’s 3rd Supervisorial District from 1974 to 1994. “I fought against Prop. 13 as hard as I could, because I saw that it would shift the power of local government to the state, and take away our ability to control our own destiny. I debated Jarvis many times, trying to educate the public as to what this thing would do.”

Understanding Edelman’s fear requires understanding a little history of local government finance in California: Until Prop. 13 became law, California’s city and county governments, school districts, and the special districts that in some places handle water, sewage, fire and other services, funded local programs largely through property taxes that they levied. If voters called for new government services or expanded spending on old ones, or if the state mandated that local governments carry out programs, local lawmakers could raise property taxes on the people of their jurisdictions.

Elisa Barbour, who recently authored a paper on Prop. 13’s aftermath for the Public Policy Institute of California, observes how the measure undid the old system. “It removed [the local control] that allowed the property tax to reflect, more than any other source, the community-wide taxing decisions of a given set of residents. The state was now responsible for allocating what had been the single largest local revenue source, yet local governments were still responsible for implementing programs locally.” Many theorists agree, she says, “You need to connect revenue raising ability with policymaking responsibility. The point I’m making is that, after Prop. 13, those waters got far muddier in relation to property taxes.”

Over the intervening years, having lost their independent income source, local governments turned into the state’s financial peons. Now the mood in Sacramento effects the means of the local governments; in the 1990s, for example, an increase in funding to education in turn deprived local governments of funds. Local governments fought back with Prop. 1A to guarantee themselves infrastructure money. (That measure has had mixed success; last year, Gov. Schwarzenegger drained the 1A money in hopes to balance the budget.)

The outcome of these types of battles: While cities’ and counties’ inflation-adjusted total revenues are now about the same per capita as before Prop. 13, their general revenues – the funds they actually get to allocate – have shrunk to the tune of more than one-third for cities and more than one-half for counties, according to reports compiled by budget guru Michael Coleman for Californiacityfinance.com. Coleman says that, with so much money already earmarked when they get it, city governments “have less latitude to be able to govern.” The general revenues that cities still get, he says, go to emergency services at the expense of other programs. “It’s not police and fire that are likely to get hit the most,” Coleman explains. “It’s parks, libraries, and streets. You can tell a city is in [budget] trouble when there are potholes, park closures, and cut library hours.”

Edelman governed through these dramatic changes, and their damage has been far reaching, he says. “It has made our education system, made our local government system – we used to have the best in the United States – now ... we’re way down at the bottom. Now, people are going to Sacramento, fighting for their own little areas, and it takes away the flexibility of local government to meet the needs in their area as they see them. We had to go up to Sacramento to get money to keep the county afloat. Eventually, they took the [revenue] they gave us as a substitute [for property taxes], and used it for their own needs,” he says. “We lost control of doing the things that we should be able to do as elected officials. We should be able to tax, and if we tax too much, the voters can vote us out of office!”

Edelman says that, despite the best efforts of the supervisors, county programs evaporated. “All the county services were cut ... whether it be for schools, whether it be for libraries, whether it be for mental health, whether it be for police and fire, it set us back,” he says. “We still have to go hat-in-hand up to Sacramento, and we can’t really run the county with the same ability we ran it previously. We have to release people from prison earlier than we should, the sheriff doesn’t have enough money, we’re still trying to do the best job we can, but revenues are not there.”

Even his conservative peer, Peter Schabarum, on the Board of Supervisors from 1972 to 1991, and who has no qualms whatsoever with Prop. 13 in principle, bemoans the loss of some county services. “Public health had been a pretty good program in the ’50s and ’60s in my memory, largely financed by local monies. I don’t think it’s that significant now,” Schabarum says.

The battles to retain local services occasionally united the two political foes. “I know when I was concerned about mental health services, he supported me,” Edelman says, “and we tried to keep our mental health services intact by some budget devices. But look: [Prop. 13] was a bad deal then. It wasn’t crafted carefully. Jarvis was an employee of the apartment owners. He was a paid staff person. His desire was to help, mainly, the apartment owners.”

Ah yes, Jarvis’s motives. There was little doubt from his rhetoric that Howard Jarvis, who penned Prop. 13 with his on-again-off-again political ally Paul Gann, hated taxes of all kinds. But his intentions were, at best, turbid; Jarvis was at the time employed by the Los Angeles Apartment Owners Association as a lobbyist. In a fundraising letter to the landlords that employed him, he claimed, “We are the biggest losers” if Prop. 13 fails. (Not to mention: The Yes on 13 headquarters were located in a Los Angeles Apartment Owners Association office.) He tried to persuade renters to vote for Prop. 13 by saying it would drive down rents, by decreasing the property taxes that landlords paid. Post-13 news reports found rents weren’t going down, despite Jarvis’s promises – apparently landlords were just pocketing their property tax savings. That revelation prompted many of the rent controls still in effect around California.

Any brave politicians still standing

An inadequate affordable housing market, paralyzed local governments, and a train wreck of a public school system – and yet, no heroic legislator with a white Stetson, galloping in on a silver steed, to rescue California’s local governments?

Last March, freshman Assembly Member Jared Huffman, from northern California, introduced a constitutional amendment that would have lowered Prop. 13’s two-thirds vote requirement to 55 percent at the local level. (The bill got gutted, but it would’ve been a start.) So, Assembly Member Huffman, are you going to revive the bill? Oh, that’s right – you couldn’t fit in the time to reply to CityBeat’s numerous calls asking you about your courageous legislation. The third rail. Got it.

But there’s been one man, at least, who has been willing to talk about reform: Lenny Goldberg, a longtime Sacramento lobbyist and the mouthpiece of the progressive California Tax Reform Association. He’s been agitating for reform of Prop. 13 since he started as a fresh-faced legislative aide in the late ’70s, just out of grad school at Berkeley, and was partially responsible for the early statewide rent controls that followed its passage.

Goldberg thinks California ought to keep Prop. 13 for homeowners, but reform it for business properties. Prop. 13 treats both the same, leveling new assessments only on a sale, but that means, he says, that as far as businesses are concerned, Prop. 13 “is economically irrational, legally full of loopholes, makes no sense as fiscal policy as well as economic policy, and is bad for land use. It stands good economics on its head! It stands good tax policy on its head.”

He argues there would definitely be a cost to uncapping property taxes on homeowners, but not with business. With a commercial property, he says, “the property value is directly related to the money you can earn from it. You can’t tax a business out of its property, because the tax is based on how much money you can make from the property.”

He adds that businesses demand, and benefit from, government investment in new freeways, sewers, subways and other infrastructure, but don’t have to pay for those improvements in property tax. “One of the reasons for our huge infrastructure deficits is that we don’t tax the rising land values at all. A good tax policy would tax businesses that benefit from infrastructure improvements.”

What’s more, Goldberg says, the current system allows business owners to take advantage of it to keep their taxes tied to decades-old assessments. “Whatever number of martini partners can sell to whatever number of other martini partners and not get reassessed. In the early 1990s, when property values were in a major slump, property owners in downtown L.A. changed ownership intentionally, just in order to lock in their property tax rates. They changed ownership, and then went to the assessor and said, ‘We need to get reassessed.’ It doesn’t take a smart lawyer to figure this stuff out; it only takes a dumb lawyer. It’s more loophole than tax.”

He estimates that by simply reassessing every business property in California, which now only happens at the time of an official sale of property, around $5 billion would go into local government coffers. And if it seems like it’s just a lefty plot to punish businesses, Goldberg says, it’s not even completely opposed by pro-business groups. “At one point in the 1980s, the Bay Area business lobby said, ‘We can accept reassessments of business properties if you put the money into a fund for infrastructure.’ Nothing came of that, but the reason I bring it up is just to show that I’ve never been in the company of anybody who can defend the current system.”

Goldberg’s longtime sparring partner on the topic of Prop. 13 reform is Joel Fox. He was the head of the Howard Jarvis Taxpayers Association, its namesake’s progeny, from Jarvis’s death in 1986 through 1999. “Lenny’s one of my favorite guys,” says Fox, with a hint of sarcasm. “I think that one time, we discussed that we probably had debated each other 150 times.”

Fox counters that reassessing business property values would scare businesses away. “I know for a fact that the California Chamber of Commerce, at least in the past, the past president told me that one of the selling tools they gave to businesses in California was that Prop. 13 would give them certainty in their taxation. When you take that away, I don’t know how many jobs and how many businesses are going to say, ‘I’ve had it with California! I’m leaving!’ Business is constantly attacked by the legislature, constantly talking about taking away certain benefits, raising these taxes on business, and at least Prop. 13 has given them some protection.” And, he adds, even if there was something wrong with treating commercial and residential property taxes the same, it’s not the fault of Jarvis’s legislation. “[It] didn’t change the relationship between residential property and commercial property. Prior to Prop. 13 they were treated the same way, identically. And when Jarvis wrote 13, he didn’t change it.”

But, in the end, Fox believes that discussion of reform is moot. “Prop. 13 passed with 50 percent plus one of the vote. If [anyone wants] to make a change, then they should present their change to the voters, go for 50 percent plus one and they’ll make a change. The reason they don’t do it is because they know the voters are happy with Prop. 13; they know that Prop. 13’s protecting them. But there’s nothing written in stone that says they can’t make an effort to try to change it. In fact, some efforts have been made, at least on pieces of it. I would say: Be my guest!”

Goldberg concedes that business reassessments would be a tough sell in the state legislature, because of, sure enough, Prop. 13’s two-thirds vote requirement to raise state taxes. “Republicans will block it. I always say that I’ll retire when commercial property tax is reformed. People tell me, ‘You’ll work till you’re 100!’”

Maybe Goldberg will be hollering about Prop. 13 reform from a walker – or maybe a compassionate politician with some cojones will stick up for cities, counties, students, libraries, and low-income families by trying to change the parts of Prop. 13 that hurt the state. Californians have 80 representatives in the state Assembly, 40 in the state Senate, one at the governor’s desk; let them spoil the 30th anniversary of this anti-education, anti-public service, anti-government measure and lead the way to reform.

We want more than lip service. It’s time for action.