On Deadline blog: Impacts of Proposition 13 to be explored Feb. 10 at Silicon Valley conference | Off Deadline | Jay Thorwaldson | Palo Alto Online |


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By Jay Thorwaldson

On Deadline blog: Impacts of Proposition 13 to be explored Feb. 10 at Silicon Valley conference

Uploaded: Jan 24, 2012

A third of a century ago California voters enthusiastically supported Proposition 13 as a way to cut taxes and curtail the costs of "runaway" government. The "tax revolt" followed years of property-tax increases, rapid growth in government and a mid-1970s recession.

Based on the successful "Jarvis-Gann Amendment" to the California Constitution, Prop. 13 was seen as a conservative rebellion against the let-government-do-everything approach. It was approved by just shy of a 2-to-1 vote in June 1978.

It still has many avid supporters for its Tea Party-like philosophy.

But it also has had a number of severe side effects, including some that even its sponsors might consider undesirable, if not disastrous for California's future. Maybe.

Those impacts include a devastating effect on California schools, from kindergarten through college -- although other complex factors were also involved in the demise of school funding. Those factors included state Supreme Court rulings requiring equalization of funding between richer and poorer school districts. The 1970s recession coupled with rapid growth of government services drove up home taxes to the point that some residents were threatened with loss of their homes.

The impact on schools was starkly documented by education-reformer John Merrow in his "First to Worst" film that debuted in early 2004 at the Carnegie Foundation for the Advancement of Teaching above Palo Alto. (An excellent summary is at http://news.stanford.edu/news/2004/january21/schools-121.html .)

Merrow concluded that California schools slipped from the top tier nationally to near the bottom of funding because of Prop. 13 combined with the state-mandated equalization and other factors.

By severely limiting increases in property taxes for homes and businesses (until they are sold) Prop. 13 shifted the burden of funding government from business properties to homeowners -- because business properties are sold much less frequently than residential.

Prop. 13 also created extreme inequities between pre-1978 homeowners and post-1978 owners, with the latter paying many times higher property taxes. This created grumbling and complaints, but thus far there has been little or no organized protest -- certainly no politically effective protest. Politicians still consider the amendment a political "third rail" they dare not touch.

The current statewide funding crisis and the multiple crises in school districts, counties and cities have made effects of Prop. 13 catastrophically worse due to the crash of property values and related tax revenues.

Every tenth anniversary of Prop. 13 different "side effects" reports -- mostly advocacy documents -- have been produced by different groups, most recently in 2008. But that was before the impact of the national Great Recession that is still upon us.

So there hasn't really been a current, concise, politically neutral compilation of the impacts that people could use to understand the amendment's full implications in today's economic environment, whether or not they agree with Prop. 13's intent.

That is about to change. On Friday, Feb. 10, Joint Venture Silicon Valley will hold its annual "State of the Valley" conference at the McEnery Conference Center in downtown San Jose and Prop. 13 will be center stage.

A few days earlier Joint Venture is scheduled to unveil a special report on Prop. 13's side effects, prepared by Palo Alto-based economist Steve Levy. The commissioned report will be a centerpiece of the conference, along with the annual Silicon Valley Index, a detailed assessment of the Valley's economic health produced each year by Joint Venture.

The conference promises to be another full-house event with well over a thousand attendees. Music and food will mitigate the heaviness of the content.

The Prop. 13 report itself is under tight wraps until the media briefing preceding the conference -- considered necessary to avoid a "media war" of criticism that erupted when Joint Venture in 2010 released information early under an embargo to a certain date. But the Wall Street Journal published a story early, known in the trade as "breaking the embargo," of course. That triggered a harsh protest from the New York Times and a subsequent inter-newspaper debate about who knew, or did, what when.

That conference warned urgently that Silicon Valley was a "region at risk" because of international competition, especially from China and India.

"We choose something every year on which to focus, in addition to the Index," Joint Venture President and CEO Russell Hancock said of the special Prop. 13 report -- the first comprehensive assessment of the impacts since the current recession.

"The reason we're choosing the tax issue is that the public sector is holding us back" in terms of economic recovery, he said in a telephone interview -- echoing an emphasis of last year's conference.

"The tax system is out of date. It was created in the 19th century, and it doesn't track the driving forces of the economy -- being based on sales taxes and property taxes.

"That made sense when those were our major assets as a society," Hancock said.

"But the problem now is that housing valuations are in a slump, and we're not going to see any value increases (from property taxes) in the near future. A similar slump exists in the retail system, while much of our economy is in services."

Hancock said the intent of commissioning the third-of-a-century-later study of Prop. 13 impacts is constructive, not to trigger "an ideological debate."

"We're trying to find how to tax in a way that makes sense today. The spirit of this document we've produced is to produce a factual base." The report "very carefully lays out what all those side effects are."

"In the next year we will be involved in discussions on this issue, and may make recommendations at some point," Hancock said. "The spirit of the Feb. 10 gathering is that of an old-fashioned town-hall meeting, a forum.

"We will be discussing what the facts mean and how we address them."

The urgency of a year ago is still there.

"Silicon Valley's economy is making slow but noticeable progress recovering from the major blow delivered by the recession, but unless we address the fundamental structural issues in our local governments we cannot sustain continued growth," Hancock warned in the 2011 Index.

The warning was underscored by Emmett D. Carson, president and CEO of the prestigious Silicon Valley Community Foundation.

"The trend in our cities and counties is clear: expenses are rising, revenue is declining and the building blocks that help create strong communities are crumbling," Carson said in the report.

"Without new solutions to the public sector financial crisis that is spreading across the country, our region's quality of life and economic health will continue to erode.

"We need to begin asking ourselves what kind of government we want, what we can afford and what we must leave behind in favor of a more sustainable future for ourselves and our children," Carson said.

Big questions, still unanswered a year later -- and facing a highly polarized, deeply political year ahead, a virtual Perfect Storm.

NOTE: Former Weekly Editor Jay Thorwaldson can be e-mailed at [email protected] with a cc: to [email protected]