Prop. 13 offers higher tax breaks for homeowners in White neighborhoods

Prop. 13 was intended to help all homeowners, but a new study finds that White homeowners in Oakland benefit the most.

Homeowners in White neighborhoods receive thousands of dollars more in property tax breaks than their counterparts in neighborhoods with largely Black, Asian and Hispanic populations, according to a new report based on a study by the Tax Fairness Project and the San Francisco Bay Area Planning and Urban Research Association.

The report, which focused on a comparison of neighborhoods in Oakland, takes aim at a 1978 California law, Proposition 13, which limited how much governments could tax property to 1% of its assessed value. The law also constrained property values for tax purposes, so properties were taxed at the value at which they originally sold – not a property’s up-to-date market price. In most cases, properties are only reassessed when they sell. The law has been criticized by policy experts for effectively offering long-time homeowners hefty tax discounts relative to new buyers.

The new analysis reveals that the law disproportionately benefits White and wealthier homeowners, who tend to live in higher-income communities where property values have risen faster.

Critics of Proposition 13, such as Phil Levin, who founded the Tax Fairness Project to measure the effects of Proposition 13 in the Bay Area, argue that the law has offered businesses and largely White, wealthy homeowners huge tax breaks at the expense of government revenue and school funding.

While the law allows for a 2% annual adjustment to account for inflation, median home prices in the Bay Area have soared in the past decade, rising nearly 14% year-over-year in January to $1 million, according to CoreLogic sales data.

The owner of a mansion estimated to be worth $9 million in San Francisco’s Presidio Heights neighborhood paid $5,625 in property taxes in 2020, according to the Tax Fairness Project, which analyzed county tax records alongside estimated market values published by home buying websites such as Zillow. Across the Bay in Richmond, the owner of a $331,000 home in need of repairs paid nearly the same property tax, at $5,240.

Luke Quirk, 42, purchased a four-bedroom home in Concord with his wife and two children for around $697,000 in 2015. While Quirk pays more than $9,000 annually in property taxes, he said, his neighbor, who has a comparable property but has owned the home for longer, pays around $3,700 in taxes.

Still, Quirk, who works in pharmaceuticals, is saving, too. Since 2015, his house has risen in value to around $1.1 million.

But Quirk thinks of the next couple with children who wants “to buy a family home in the blue-collar suburb of Concord,” he said. “Not only are they going to be absolutely devastated by their mortgage payment, they are going to be paying four times what their neighbor pays if their neighbor has been around since 1999. It just doesn’t seem fair for the same services.”

People often assume that Proposition 13 has large benefits for all homeowners, said Jacob Denney, co-author of the report and economic policy director at the San Francisco Bay Area Planning and Urban Research Association, but “that’s just not the case. Where you live within your city matters.”

Homeowners’ race matters, too.

For example, Oakland homeowners in White neighborhoods pay taxes on homes assessed an average of $693,924 below their market value, resulting in an average of $9,631 in property tax breaks. Homeowners in Latino neighborhoods pay taxes on homes under-assessed by an average of $216,430, resulting in only about $3,000 in tax breaks, according to the analysis.

White residents make up 28% of the city’s population, but represent 43% of Oakland’s homeowners, the report found. Latino, Black and Asian residents are more likely to rent, a likely legacy of 1930s redlining, Denney said, which kept residents of poor and largely minority neighborhoods from taking out bank loans to purchase homes.

“The wealthiest neighborhoods receive the most, which helps them build more wealth for their communities that were already benefiting from lots of wealth,” Denney said.

That also means fewer tax dollars for Oakland.

The report found that, if Oakland homes were taxed at their current market value, the city would gain an estimated $400 million in annual revenue. That’s more than the budgets of the transportation, fire, housing and community development, and human services departments combined.

Solutions are complicated.

Low-income households may be getting a far smaller subsidy, but it’s a subsidy nonetheless. Doing away with Proposition 13 altogether would have far-reaching implications, including the potential to make property taxes unaffordable for low-income families and retired seniors who rely on a fixed income and low-property taxes to keep their homes.

“You can look at the data any way you want,” said Susan Shelley, a spokesperson for the Howard Jarvis Taxpayers Association, an organization working to protect Proposition 13, but raising property taxes would only “knock the middle class of California out of homeownership.”

Levin said that he hopes for “a system that makes California look like the other 49 states. … Every other state does it another way and they do fine.”

Other states have higher caps on property taxes and assessed values, and many have higher rates for commercial properties compared to residential.

But in California, Proposition 13 remains popular, with a 2018 poll from the Public Policy Center of California finding that 57% of adults felt that the measure was “mostly a good thing,” while only 23% believed it was “mostly a bad thing.”

A 2020 ballot initiative that would have required commercial properties to be taxed at their market value lost by a narrow 52-48% margin, a difference of around 600,000 votes.

“The conversation we have to have with the people of California,” Denney said, “is: ‘Is the personal money saved worth it?’”

This article is part of the California Divide, a collaboration among newsrooms examining income inequality and economic survival in California.