Prop 13 After 45 Years: Unfulfilled Promises And Cautionary Tales For Tennessee

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By Rob Mitchell [Rutherford County Assessor of Property] –

Proposition 13 has been a cornerstone of property tax policy in California for 45 years, promising relief for homeowners. However, a closer look reveals that its impact has been far from the intended benefits, providing a cautionary tale for states like Tennessee contemplating similar measures.

Corporations Benefit More Than Homeowners:

Proposition 13’s freeze on property tax reassessment upon a change of ownership has disproportionately favored corporations, which have exploited this freeze to retain properties for extended periods, paying lower tax rates than homeowners.

Consumers Bear No Benefit from Commercial Tax Protections: 

Despite claims that consumers would bear the cost of higher commercial property taxes, evidence contradicts this notion. Studies indicate that states with higher commercial property taxes often see lower prices for goods and services.

Detriment to New Businesses:

New businesses face a competitive disadvantage due to higher rents and property taxes than established businesses. This dynamic discourages new ventures, hindering economic growth and potentially leading to increased prices for consumers.

More Frequent Property Reassessments Ensure Fairness:

Having more frequent reassessments of properties is a fair and necessary measure to ensure equitable contributions from corporations and commercial property owners to public services. It is a much preferred alternative to artificial caps on taxes.

Impact Fee Caution in Tennessee: 

In California, Proposition 13’s limitations have led to onerous impact fees replacing reasonable property taxes. Tennessee must approach impact fees cautiously, considering a change in state law will be necessary before implementation.

Learning from the examples of California, Prop 13 shows that they will not be possible in Tennessee until a wide ranging expansion of impact fees is approved by the General Assembly. The same banner that brought Prop 13 to fruition in California 45 years ago, “make growth pay for itself”, is what may be unwittingly presented to our citizen legislators.

As California grapples with the repercussions of 45 years under Proposition 13 (and people fleeing their state in droves because of it) states like Tennessee must tread carefully.

As a real life example, a 3,100 sq/ft home in Los Angeles built in 1940 is valued at $5 million dollars and pays a property tax of $39k dollars per year. While a $5 million dollar home in Rutherford County might be closer to 16,000 sq ft and only pay $23k in property taxes. Prop 13 didn’t keep their taxes low. Local governments in California impose additional impact “fees” for various services in order to circumvent the property tax cap.

The lessons learned from the corporate benefits, lack of consumer advantages, and hurdles faced by new businesses caution us against implementing similar measures blindly. As discussions around impact fees emerge, citizens should be cautious. State law regarding allowable expansion of impact fees is the first step necessary to a successful implementation of California’s Prop 13 tax policy.

“Beware of Greeks bearing gifts” was the lesson the citizens of Troy learned. In this instance, the well-intentioned call of “make growth pay for itself” may actually be the prelude to the gift of Prop 13 and higher taxes for us all.

Tennessee, be wary!