May 6, 2008

Unlucky Prop. 13

History is against city when it comes to property taxes

By Mark Abramson / Daily News Staff Writer

San Carlos' late city manager, Bob Allen, was well known for running a tight ship.

He knew how to keep a lid on expenses, and as a result city residents enjoyed some of the lowest property tax rates in the area.

"To him it was a matter of pride to keep it low, and he did," Assistant City Manager Brian Moura said.

But then in 1978 California voters fed up with soaring property taxes passed Proposition 13, a sweeping initiative that has drastically changed how the state does business.
Proposition 13 gave parcel owners immediate relief by freezing property rates so they didn't exceed 1 percent of the assessed value and by limiting annual increases to 2 percent a year.

Suddenly, San Carlos city government found itself essentially punished for being so frugal because its already low property rates were locked in, and the revenue stream to city coffers almost choked off.

Today, with the state in a near fiscal crisis and local governments braced to suffer the consequences, the ghost of Proposition 13 is looming scarier and scarier for city officials, who often mention the seeming unfairness of it all at city council meetings.

"I think the reason we keep talking about it is, I don't think the average citizen realizes that all cities are not created equal under Proposition 13," Mayor Brad Lewis said.

San Carlos officials point out the city gets about 13 cents for every dollar collected in property taxes. East Palo Alto, in comparison, collects the most in the county, 33.75 cents per dollar. Neighboring Redwood City gets 25.88 cents and Pacifica 23.66 cents.

In San Mateo County, only three cities receive less than San Carlos - Menlo Park, 12.2 cents; Portola Valley; 4.3 cents; and Half Moon Bay, 6.65 cents.

"I don't know how you revisit Proposition 13 and switch things around to make things more fair," Council Member Matt Grocott said.

"I think it is important to show we are in a different situation than (other cities) on the Peninsula," Vice Mayor Bob Grassilli said. "Other cities don't have to worry about the sales tax quite as much" to bail them out, he added.

Property tax revenues will account for $8.7 million of San Carlos' $26 million 2008-09 budget. The next largest source of revenue for the city is sales tax, at $5.1 million.

The city projects a $2.7 million budget shortfall, which means services and positions could be cut.

If San Carlos' property tax rate matched that of Redwood City and Belmont, it would get an additional $8 million, Moura said.

Among ideas San Carlos officials have tossed out for raising revenue are levying a utility users tax on cable TV, telephone land lines or other services. Parcel taxes or sales taxes are other options, but those measures would have to be approved by voters.

Officials with the Howard Jarvis Taxpayers Association, which spearheaded Proposition 13, said the measure isn't to blame for cities' economic woes. Public employees' bloated salaries and benefit packages are the cause, they say.

"They need to quit whining and get on with their work. They have more money than ever. Most of these cities end up being run for the benefit of public employees," said Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association.

Several studies have shown that every level of government gets more in property taxes now than before Proposition 13 passed after those figures are adjusted for inflation and population growth, Vosburgh said. Before Proposition 13 passed, property tax rates could fluctuate, so the owner did not know what to expect, he said

Another group, the California Tax Reform Association (CTRA), has argued that Proposition 13 needs to be tweaked when it comes to commercial properties because it puts some businesses at a competitive disadvantage. Tech companies moving into Silicon Valley are paying more for land and in property taxes than competitors here since the 1970s, CTRA Executive Director Lenny Goldberg said.

Commercial properties should be 1 percent of the market value, which means those parcels should be reassessed every few years, Goldberg said.

"It would mean a lot more revenues for the cities and it would still be a low property tax rate compared to other states," Goldberg said.

E-mail Mark Abramson at mabramson@dailynewsgroup.com.