Ryan Nelson: Split roll would give universities, municipalities more funds

The original version of this article contained an error and has been changed. See the bottom of the article for additional information.

Last year, Governor Jerry Brown, in the face of fiscal austerity, tied education spending to his proposed tax hike, Proposition 30. Now, with the passage of the sequester putting research and education-related jobs on the chopping block, lawmakers once again have the ability to stimulate conversation about education funding through tax reform.

As in the case of Proposition 30, lawmakers would face a decidedly uphill battle, this time to reform one of the state’s most talked-about amendments: Proposition 13.

Proposition 13 was passed in 1978 in an effort to reduce the amount citizens had to pay on their property taxes. Under Proposition 13, property tax was capped at one percent of the value of the property, and could only be reassessed upon sale or redevelopment. Prior to its passage, local county government assessed the properties within their borders every two to three years and citizens were taxed around two to three percent of the property’s value.

However, during the housing market boom in the late ’70s, property taxes rose sharply – coupled with a post-Watergate distrust of government, voters approved Proposition 13. Now, if your house bought in 1980 was worth $100,000, you would pay nearly $2,000 in property taxes so long as you never sold or redeveloped it. If you later sold the house, the value would be reassessed and the new owner would pay much more in property taxes.

The same works for businesses. Commercial venues bought in the 1970s in Beverly Hills are much more valuable now than they were then, but Proposition 13 disables the state from collecting on the market value of the property if the business was not redeveloped or sold.

With Proposition 13 in place, local districts were hit by a massive loss of potential revenue, which in turn made cities and counties more dependent on state funds. Additionally, the state began directing the use of funds within localities, taking the decision-making power from individual counties and sending it to Sacramento.

Arguments on the utility of Proposition 13 are ongoing in the capital. State legislators should tap into the vast student and alumni populations of California’s public higher education systems and encourage them to support an amendment that would guarantee extra revenue for universities.

One proposal commonly floated by Democrats would periodically reassess the value on commercial venues while keeping residential properties at their current rate. Such a proposal, known as a “split roll,” would raise billions that could be distributed between local municipalities and higher education.

Amending the proposition and changing the constitution would require a two-thirds vote in both chambers of the California Legislature, followed by a victory in the popular vote . With a Democratic supermajority in place, the real obstacle is obtaining the votes.

Proposition 13 is popular, which is why amendments haven’t gained much traction. However, many like the idea of a split roll, and if lawmakers bring higher education funding to the table as part of the reform, it could go a long way toward making change possible.

With campuses that stretch from Davis to San Diego, and tens of thousands of new graduates emerging from their institutions every year, the University of California, not to mention the California State University and community college systems, could provide a distinct base of support that has the ability to reach a multitude of people in different parts of the state.

Steven Sheffrin, a professor of economics at Tulane University, published a study in 2009 that concluded – based on data from 2006-2007 – that California missed out on about $9.1 billion in new revenue because of lost reassessment value.

In the study, Sheffrin said that, based on his numbers, even a 30 percent depreciation in commercial property value would have netted the state $2.1 billion. Although these figures are based on data gathered before the housing market crashed in 2008, recent trends indicate that the real estate market is bouncing back and returns could build steadily.

If the state, for instance, raises $2 billion from reassessing the value of commercial property, a student-backed property tax amendment could include an 80/20 split on the gained revenue. As a result, the state’s higher education systems would take home 20 percent of the revenue while the other 80 would be sent to the local municipalities. That would still net $400 million for California higher education, with room to grow with further reassessment.

By bringing state universities a new revenue stream, politicians can more likely depend on additional votes from those with something at stake in the alma mater’s funding.

Critics would argue that this mandate discourages businesses from continued investment in California, but private enterprise would hardly be squeezed.

According to an April 2012 report from the California Budget Project, the total corporate net income filed for California tax purposes rose 485 percent in 2010. Given that the Governor’s Budget Forecast for 2013 highlighted continued economic growth and that California ranks as the ninth-largest economy in the world, as of the most-recent data taken from 2011, a business exodus from the Golden State seems far-fetched.

Additional revenues would provide the kind of bottom-up approach the state needs to continue its recovery in the wake of the federally mandated budget cuts. A city like Los Angeles could use the new funds to expand public transit, start construction on new projects and have more money to invest in the public school system. Meanwhile, institutions like the UC could cover some of the 14,500 research jobs in peril because of the congressional sequester.

There’s a deal to be made between Californians invested in quality higher education and those who want Proposition 13 changed. If the passage of Proposition 30 illustrates anything, it shows that education motivates people, especially students.

Correction: Under Proposition 13, if your house bought in 1980 was worth $100,000, you would now pay nearly $2,000 in property taxes so long as you never sold or redeveloped it. If you later sold the house, the value would be reassessed and the new owner would pay much more in property taxes.