For homes whose values decreased more than average,
Figure 5: San Francisco Market Value Minus Factored
the decline in assessed value and property tax revenue
Base Value (as of July 2011) for Typical
would be even larger than show on Figure 3. For
Home Bought at Different Dates
-$150,000 -$200,000
assessed value equaled the property’s market value.
-$250,000
The overall result in any given jurisdiction will reflect
-$300,000
Figures 4 and 5 present similar information for San
2010
2009
2008
-$450,000 2000
become based on market prices.
-$400,000
2007
year predictably and those whose assessed value has
-$350,000
2006
the mix of homes whose assessment is going up 2% a
2005
a tax rate—would be smaller than it would be if the
-$100,000
2004
under Prop 13 the volatility of tax revenue—given
2003
change and just goes up 2% a year. As noted earlier,
$0 -$50,000
2002
factored base year value, their assessed value does not
$50,000
2001
homes whose market values are still larger than their
S o u r c e s : C a l i f o r n i a A s s o c i a t i o n o f R e a l t o r s a n d S & P / C a s e - S h i l l e r.
Diego and San Francisco. For both of these cities the declines of property values should (would) have had
A key issue with respect to tax revenue is that under
a relatively larger effect on assessments and property
Prop 13, municipalities cannot raise tax rate to
taxes than in LA. While the three cities considered are
compensate for declines in property values and thus
not representative of all of California, they illustrate
cannot prevent declines in tax revenues following a
an important impact of Prop 13 on revenues from
negative demand shock. That situation is a change
property taxes. We can conclude that during normal
from the situation that existed before Prop 13. At that
market conditions, Proposition 13 tax revenues are
time, property assessments were based only on market
less volatile than revenues would have been if the
prices and localities could change their tax rates.
same rates were applied to an assessed value that was There is an odd distributional effect of Prop 13. In
always reflective of the property’s market value.
periods of generally rising real estate prices, comparable Figure 4: San Diego Market Value Minus Factored
properties pay different taxes depending on when they
Base Value (as of July 2011) for Typical
were acquired. But this odd effect tends to be reversed
Home Bought at Different Dates
by a negative demand shock in which the assessed value becomes the market value. If real estate prices fell so
$100,000
low that all properties were assessed at market values,
$50,000
comparable properties would all pay the same taxes.10
$0 -$50,000
2010
2009
2008
2007
2006
overhang of defaults and foreclosures, it is unlikely
2005
is likely to be relatively short lived. But given the
-$350,000 2004
during the mid- to late-1990s, the effect on tax receipts
-$300,000
2003
property values recover relatively quickly, as they did
-$250,000
2002
property values in the short-to-medium run. If
-$200,000
2001
At this point no one knows what will happen to
-$150,000
2000
-$100,000
S o u r c e s : C a l i f o r n i a A s s o c i a t i o n o f R e a l t o r s a n d S & P / C a s e - S h i l l e r.
146
that property values will return to their before shock level for a substantial period of time.1 1
u c l a L u s k i n s ch o o l o f p u b l i c a f f a i r s
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