April 4, 2008

Lowering Your Property Taxes: The Ripple Effect

ripple Lowering Your Property Taxes: The Ripple EffectMuch is being bantered about the reduction of property taxes, due to the tank in the market. Larry Ellison’s recent request for a $100 million dollar tax break garnered a firestorm, with mentions in newspapers and blogs around the country. But what about the average joe?

Generally, a tax break will only be afforded to those whose home value is less than they paid. This means that if you have a recent purchase, say the last 3 years or so, that you may be eligible. But for most homeowners, this will not be an issue, as your assessed value is lower than the value in today’s market. The San Francisco Chronicle ran an article in Thursday’s paper about just this topic, along with a whole county-by-county sidebar detailing how things are being handled. Kathleen Pender did a good job explaining the situation, so I suggest you start there if you are considering such a request of your county.

One concern I have over the lowering of taxes, is that while justified, it will impact the funding of our schools. Property taxes, levied by counties, provide a substantial amount of funds to schools. During the 2003-4 tax year, $31.8 billion was raised for local governments through property taxes alone. Funds were allocated to 4 areas:

18% to Counties
11% to Cities
53% to Schools (School districts and community colleges)
18% to Special Districts

Prior to Prop 13 (1978), real property was reviewed and re-appraised at least every 5 years. These updates resulted in higher assessed value, meaning more money for the counties on a regular basis. Following the change in law due to Prop 13, assessed values could increase no more than 2% per year, unless a property is sold or undergoes new or reconstruction. This meant that some big deficits occurred in the first few years after Prop 13.

Thirty years later, there has been stability with this system for a good long time, and counties, cities, and schools base budgets around funds from property taxes. They are, of course, negatively impacted by any downward adjustments. Case in point is the aforementioned Larry Ellison request. The Wall Street Journal reports that the Portola Valley School District will lose $250-300,000 per year (equal to 6 teachers). While this is only one property in an already affluent city, the San Mateo County schools stand to lose a total of nearly $1.5 million, a rather sizeable impact. Add to that the scores of homeowners requesting re-assessment, and you’ve got a problem.

As you can see, what started with inflated property prices, spread to the mortgage meltdown, to a credit crisis…and the ripple effect continues right on into our schools. What will be next?


Comments (14)

David said:

School budgets are overinflated anyway.

It’s the same thing every time there’s a downturn. They always threaten to cut firemen, cops, and teachers. The “leaders” never seem to threaten to cut bureaucrats or try to change ridiculous overtime rules or pension benefits.

When they start cutting make-work admin jobs, then I’ll know they’re serious.

David said:

Additionally, I don’t quite get why local/state budgets had to go up 40-60% over the past few years. Population sure didn’t go up (certainly not that much). Where did the money go? Are you getting 40% more city services? I don’t see 40% more cops on the street, nor are test scores 40% higher. I’d like to know where that money went, and why it’s such a horrible thing to cut back now.

Toady said:

That’s certainly an unique perspective on school funding.

As for the California state budget as a whole:

Fiscal year Total expenditures percent change
(in millions of $)
2000-01 137,654.30 12.7%
2001-02 145,842.60 5.9%
2002-03 161,511.20 10.7%
2003-04 156,643.10 -3.0%
2004-05 159,712.90 2.0%
2005-06 173,180.80 8.4%
2006-07 182,903.10 5.6%
2007-08 203,639.70 11.3%
2008-09 198,568.30 -2.5%

David said:

Your point Toady? My “unique” perspective just might be the right one.

California spends over $10,000/pupil. That’s not too far off the mark for many, far superior private schools. Why aren’t we getting those kind of results? Why are we spending so much money to get inferior results? School spending and student performance are not correlated in any case.

Finally, as your own numbers point out, the state budget now is nearly 50% larger than what it was in 2000-2001. How many more people live in the state? 7.6% more (census numbers). Throw in 20% for inflation (BLS CPI numbers), and per capita, real spending is up by over 20%. Have state services gotten even 10% better? Are roads 20% better? Schools? Crime? Gov’t employee pensions might be 20% better, but that’s not exactly why I feel I should be paying one of the highest state tax rates in the country.

susan.brady said:

I think the big difference in cost per pupil between public and private schools is the admin/overhead. With private schools, there is one set in-house administration. With public schools, you have the school admin, school district admin, and the state takes a cut. That all adds up into less money per pupil.

Toady said:

Actually, it’s 44% larger than fiscal year 2000-01. Since that’s nine years, it’s a little hyperbolic to say that the state budget has gone up “40-60% over the past few years.”

Moreover, the year-by-year increases that we see for this decade are right in line, and in fact a little lower, than the trend in this state over the past 30 years.

As for property taxes, California ranks 31st among U.S. states in per capita property tax collections. I think that’s pretty remarkable for a state with some of the most valuable real estate on the planet. All whining aside, Californians enjoy extremely low property taxes.

Lastly, I’m not certain where you get $10,000/pupil. The latest data available from the state dept. of ed. is for 2003-04, when it was $7,860/pupil, which ranked 33rd among U.S. states, and well below the national average. The U.S. Census Bureau reports $8,067/pupil for California in 2004-2005, which moved us up to 27th, but still below the national average. In exchange for that, in 2004-2005, California ranked 44th in math and 48th in reading.

I guess if you multiply those numbers by the same percentage increase as applied to the rest of the state budget, you’d come close to $10,000 for fiscal year 2008-09. But, of course, that wouldn’t take population growth into consideration.

The point is that, prior to 1976, California had the finest public education system in the U.S., and arguably, the world. While it’s difficult to directly correlate education spending with academic performance, there’s no way to avoid the conclusion that the defunding of California schools post-Prop. 13 has decimated an education system that was once the envy of the world.

Susan Brady said:

I really appreciate all the thought and effort that is going into both of your comments. Toady, you are a wealth of information! Maybe you’d like to do a guest post for me some day…

David said:

Daily Review pegged California school spending at $10,064/pupil, 25th in the country.

It’s “difficult” to correlate spending with performance because there is no correlation.

There’s a way to avoid your conclusion–spending on California schools went up significantly, even after adjusting for inflation and population growth, yet performance declined rapidly. Ergo, throwing more money at the system is unlikely to improve performance unless you find the other reason(s) for the decline. I believe one definition of insanity is doing the same thing over and over and expecting a different outcome.

Here’s a nice breakdown of just how much $10,000+/pupil amounts to:

http://www.reason.org/outofcontrol/archives/2005/05/tom_mcclintock.html

Maybe it’s time you started asking hard questions about how you’re taxes are spent rather than call people “whiners” who point out that California’s spending might be right in the middle of the pack, but we’re buying Mississippi-quality schools. At least they don’t spend as much money in Mississippi (~$6500/pupil).

Finally, Toady, I said local/state budgets had gone up 40-60%. So, as you point out, the STATE budget went up 44%. How about your local budget? I bet there are plenty of cities around the state that expanded their budgets significantly as more property taxes rolled in from property turnover, etc. Naturally, of course, you avoided the real question, which was, given a state budget increase of 44%, a population increase of 7.6% and inflation of 20%, are your state services 16.4% better (as long as you have the calculator out to check all my off-the-cuff estimates)?

Are the roads 16.4% better? Test scores? Graduation rates? Is crime 16.4% lower? What are you buying with that 16.4% real, per capita spending increase?

Toady said:

I’ve never heard of the Daily Review, and Tom McClintock is ideologically opposed to public funding of education (indeed, McClintock seems opposed to public funding, period), so I’m going to have to stick with the numbers from the California Department of Education and the U.S. Census Bureau.

The budget increases we’ve been discussing are all post-Prop. 13. I don’t have historical numbers at hand, but I can tell you that California ranked 18th in per-pupil spending in 1975. Since 1978, there has been a significantly lower fiscal commitment to public education in California. I’m not sure why you think that education funding is increasing beyond inflation and population growth, because it certainly isn’t. $4.5 billion of the $8 billion being cut from the state budget next year comes from school spending.

And you’re not doing your math quite right. Those percentages compound one another, so we’re actually looking at an increase of more like 14.8% over inflation and population growth. Considering that a big chunk of that increase in state expenditures over the past three years has been Schwarzenegger’s $22 billion in infrastructure bonds, I’m not sure it’s fair to ask if there’s been concomitant increase in other state services. But we are getting that wildly expensive causeway to Treasure Island.

Finally, I certainly don’t have time to calculate budgetary increases for every municipality in California, but I’m not the one making blanket statements sans evidence. We can quickly see that the state budget hasn’t gone up “40-60% over the past few years.” Can you point us to a specific locality where the budget has gone up “40-60% over the past few years?”

Thanks for the compliment, Susan. I’m not certain others would appreciate a guest post, but I really appreciate the thought.

Toady said:

I almost forgot. Could you recommend to me that private school that only costs $10,000 a year? My kid’s preschool is about 25% more than that, so I’d be interested in hearing where these bargains can be had.

David said:

Plenty of Catholic schools are under $10,000/year.

David said:

Remember, the bonds don’t count. Just the interest does.

So again, are test scores 14% better? Come on, what’s even 10% better? You still haven’t answered my question.

Your “significantly lower” fiscal commitment to education is poppycock. You’re talking about relative proportions of the budget versus absolute, real dollar spending, which has only gone up since Prop 13, while test scores have only gone down. Again, why are we spending so much money for inferior results? Why not spend Mississippi’s $/pupil, since that’s the education system we’re getting.

Always find it interesting when you, like others, can point out the ample waste in gov’t projects like that “causeway to treasure island” but can’t see the massive waste in things you think are starved for funds, like schools.

PS. the Daily Review is the Oakland Trib for Hayward, etc.

Toady said:

Well, since the numbers we’re looking at are overall state expenditures, I’m not entirely certain why the $22 billion that Schwarzenegger borrowed (and spent) doesn’t count. So I think I did answer the question. We’ve seen a massive investment in state infrastructure over the past several years. There you go.

Actually, I don’t believe that there’s “ample waste” in government. The Bay Bridge’s cost overruns are pretty well documented, but we do really need that bridge. But the state budget has been starved for decades. Arnold was elected on a platform of eliminating waste and redundancy in the state bureaucracy. Did he actually find any waste and redundancy? No. What he found was that he needed to borrow $22 billion to address the extreme neglect that this state has experienced over the past couple of decades. For the record, I believe we need to increase local and state taxes and increase spending across the board. But I am a statist.

Please stop insisting that education spending is increasing in real dollars, when it clearly is not. State education expenditures in 2000-2001 were $38.9 billion. For 2008-2009, it’s $39.4 billion, a 1.3% increase, also known as a real dollar decrease.

In comparing California’s per-pupil spending to Mississippi’s, we get into why it is *difficult*, though not impossible, to correlate academic performance with education spending. You have to deal with complicated confounders. For instance, Mississippi has a relatively homogenous population and low cost of living. So California’s education spending is necessarily higher because we have to deal with, among other things, ESL and higher teacher salaries.

When I pulled the current education expenditures out of the Governor’s budget summary, I happened across his own per-pupil spending calculation, which is $8,458 for 2008-2009. So with all due respect to the fine journalists down in Hayward, I’m still going to have to go with official sources.

And Catholic schools are, of course, heavily subsidized by the Catholic Church, so a Catholic school’s tuition is certainly not anywhere near its actual per-pupil expenditure.

OK, weekend’s over, so I’m going to need to go back to work. Always nice chatting with you.

Lisa said:

I’m curious David – do you have kids in public school? Do you
have a clue what’s happened in the last thirty years?

A couple of things rarely mentioned when comparing private and public school results per dollar are special ed and services public schools are required to provide to all children, for free – even private school students. A private school has no obligation to provide any “extras” – from speech therapy to classes and services for profoundly autistic children – and as a result do not. Find a private school with even one ESL class and I’ll eat your hat. They, unlike public schools, can and do routinely remove “underperforming” and “disruptive” kids w/o a second thought. Amazing the effect this has on test scores.

The effects of Prop 13 were and continue to be devastating to public school kids. Cuts in art programs, after school sports, field trips, cultural events, and the like have been massive. Music in most elementary schools, in San Mateo County anyway, survive only through the practically volunteer efforts of middle and high school band teachers. Oh, BTW – forget learning the trumpet, or anything else, if you can’t provide it yourself.

No question waste and mismanagement occur in all districts, and priorities have often been badly set at the expense of the kids. This is not new or unique to schools. However, I believe the increased spending can be largely accounted for by the rise in special needs children are presenting with. Take the previously mentioned ESL (huge in CA) and autism services, add the rise in ADD/HD and other behavioral issues, mix in the number of kids entering kindergarten/1st w/o knowing basics like letters and numbers, stir in a lack of qualified professionals willing to work for ridiculous wages, through in expensive and pointless initiatives like No Child Left Behind and you begin to understand the crux of the matter. (Note – the social and political causes of these issues are debatable elsewhere, the overburdening effect on public education is not.)

When I was in elementary school, we went to at least one play, one musical performance along with the Exploratorium and at least one other museum a year. Twenty some years later, my kids, at the same school mind you, went to the Legion of Honor in 2nd grade (because the teacher paid for the bus herself!), Filoli, the SF Zoo, and precious little else they could not walk to – not much out here in the ‘burbs. I am fortunate enough that I can fill the cultural gap left myself, but how many less fortunate kids will never see a live performance of a classic work of art, like Swan Lake or Othello? My guess is most.

Maybe these things don’t influence a well rounded education by inspiring a love of reading or an appreciation of the arts. Maybe rap and MTV are all kids need anymore. Maybe having a classroom where 20% are eager to learn, 10% can’t speak, write or understand English, where 10% can’t sit still, 20% haven’t had breakfast and can’t concentrate, 20% think Big Bird is not a proper noun and the rest are somewhere in the middle is conducive to a good education for all. Maybe I’m just another idiot liberal windbag. Who knows?

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