How has Prop. 13 affected tax distribution in Santa Clara County?

Most Californians are aware that the way property taxes in the state are divvied out is uneven, skewed by a state law known as Proposition 13 that could be amended next year through a vote at the ballot box.

But a recent report outlining property values in Santa Clara County breaks down the disparity in some creative ways, offering a deeper dive into how the law, passed in 1978, has affected assessed property values in Silicon Valley.

The Santa Clara County Assessor’s annual report, released in full in November, shows that across the board, a smaller portion of new property owners are paying for a larger portion of the county’s property taxes. But how much would assessed property values — the values on which property is taxed — change without Proposition 13?

“The global answer is nobody knows what that might be,” said Larry Stone, assessor for Santa Clara County. “My guess is that the fair market value of all of the property would probably more than double (the current assessment roll).”

Single-family & condos

When it comes to single-family and condominium properties, 22 percent of property owners — those who purchased their homes before 1989 — are paying 6 percent of the property taxes that are collected on the homes in Santa Clara County.

Meanwhile, the 39 percent of single-family and condominium homeowners who purchased after 2008 are paying 55 percent of the taxes on those types of homes in the county.

“It’s shifted the burden to new homeowners in the form of fees and other types of taxes,” said David Ginsborg, deputy assessor for the county. “It’s shifted the burden to younger, newer homeowners.”

Multifamily & apartments

For multifamily properties, the disparity is even greater. While 29 percent of the multifamily buildings in the county were purchased before 1989, those properties make up just 8 percent of the assessed — or taxable — value of all multifamily properties in Santa Clara county.

At the same time, multifamily property owners who purchased their buildings after 2008 are paying 61 percent of the multifamily property taxes in Santa Clara county, though they own just 35 percent of the properties in the county.

Commercial space

On the office, retail and industrial side of the equation, 24 percent of taxed properties were purchased prior to 1989, but their assessed value make up just 15 percent of the total assessed value on those types of properties in the county.

The 44 percent of commercial properties purchased after 2008 make up 61 percent of the assessed value in the county for those types of properties.

As the graphic below shows, Proposition 13 has had impacts on each city to varying degrees.

Why the difference?

Proposition 13 caps the amount the assessed property value can raise annually at 2 percent. However, when a property is sold, it is reassessed and taxed based on its current market value, which is why sales are often a major tax boon.

It also means that, generally, longtime property owners are paying significantly less in property taxes than their counterparts who bought property in more recent years, according to the report.

That’s not always the case, however.

“During a recession, the gap between the market value and assessed value of single-family homes declines,” the assessor’s report notes. “However, as the economy recovers, the gap widens.”

And as Silicon Valley enters the 10th consecutive year of economic growth — the longest in history — the gap has certainly widened, according to numbers in the report, which recorded assessed values of property as of Jan. 1, 2019.

Back to the ballot box

As disparities grow, many Californians are starting to re-think Proposition 13, the measure that was sold as the “keep grandma in her house” bill to combat rising property values that once taxed people out of their homes.

But now state leaders and residents are wondering whether the law should also apply to commercial properties, a category that typically includes multifamily buildings.

While the verbiage and details of what will appear on the ballot in Nov. 2020 is still being worked out, a vote is on its way about whether Proposition 13 will become a “split roll” proposition that would keep the benefits of lower tax increases for single-family and condo homeowners, but tax commercial properties based on their fair market value.

Stone and Ginsborg have many thoughts on the topic, but their main message is whether a split roll is beneficial to Californians will be determined in the details and the roll-out, which will take significant resources to implement and, Stone estimates, doubling the county assessor’s staff.

“Our sirens song is, ‘Pass whatever you want, but if we can’t do it — if the assessors can’t get the job done — you may as well just add in some pixie dust, too,'” Ginsborg said.

Contact Janice Bitters at [email protected] or follow @JaniceBitters on Twitter.