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The Problematic Numbers of Add-On Property Taxes

By Mimi Willard

Although Marin already has the highest property tax rates in California, voters seem hard-pressed to say no to additional tax measures.

In November 2016, the Marin County ballot featured eleven add-on (parcel and bond) property tax measures.

New taxes pass by promising enhancements to the most popular programs: education, safety and roads.

The real story emerges from a close look at the numbers:

5% automatic annual escalators are increasingly commonly baked into Marin’s parcel taxes, such as those in place for school districts in Mill Valley, Larkspur/Corte Madera, and Kentfield/Greenbrae.

63% is how much a parcel tax grows if it increases 5% annually over 10 years.

1.7% was the estimated CPI for 2016; over 10 years that compounds to 16%. The difference between CPI-like private sector wage growth and 5% automatic tax escalators crushes moderate income residents.

$73 Billion is the ostensible unfunded pension liability for CalSTRS teachers’ retirement program. The true liability (using realistic investment return assumptions) is much larger.

1469 is the Assembly Bill mandating school districts sharply ramp the amount they pay CalSTRS – more than doubling by 2021. This saps our schools and mitigates just a portion of the unfunded liability.

5-10% annual hikes in employee health costs further challenge budgets.

Negligible is the likely amount of educational or teachers’ take-home pay enhancement that comes from a school parcel tax.

One parcel is one parcel. A parcel tax stresses the owner of a modest home, who pays the same amount as the owner of a large commercial property.

20% of Marin adults are over age 65. They are exempt from paying school parcel taxes but get to vote for them.

25 years is the life of a typical bond measure. The money is spent in a handful of years, often on assets and technology that don’t last long. Districts pile on additional bonds before old ones expire.

There are more taxes than meet the eye. Eleven separate bond measures roll up into one “school bond” figure on my tax bill. There’s also a hospital bond. Our grandchildren will pay this off if they can afford to live here.

Financing expense roughly doubled the cost of a new 25 year bond in 2016 (when rates reached a generational low). When Novato taxpayers approved the Measure G school bond in November 2016, it was estimated to incur $209 million in interest and issuing costs, on top of repaying $222 million principal. With rates rising immediately after the measure passed, it is likely that the interest costs (and the amount on property owners’ tax bills) will be substantially higher than the voter pamphlet estimate.

2% annual cap in property tax growth was Prop 13’s promise. Marin’s parcel and property tax measures have vitiated the financial security Prop 13 intended to deliver. Many homeowners’ total tax bills are now double their Prop 13 levy. Some can’t stay in their homes.

An 8% increase in property taxes was collected in Marin in fy2016, followed by another 5.5% spurt in fy2017. Yet schools and other essential public services seek new add-on taxes to cover costs.

A 14% plummet in Marin’s 35-44 age population over the past 10 years testifies that young people can’t afford to live here. It’s not just the cost of purchasing a home. Young people disproportionately bear the total property tax burden. A starter home’s parcel taxes are the same as a mansion’s. Prop 13 and bond-related taxes are apportioned based on assessed value: the brunt falls on those who bought most recently, at peak prices.

There are no simple solutions.

Most local districts’ budgets are being stressed by rising pension and health benefit expenses. Wasteful spending can compound the problem.

Popular programs are held hostage to add-on tax measures. No one wants to vote no.

But voters have engaged in a Faustian bargain – feeding the add-on tax devil in order to forestall service cuts that are inevitable unless we do something different.

At some point the socio-economic consequences become unsupportable.

It’s time for sensible taxpayers to get educated and work toward fiscally responsible solutions.

Voters should demand transparency regarding how specifically new tax revenues will be spent. Long-term budget projections should back up the promises.

Taxpayers should press their districts and agencies to develop strategies for living with revenue increases that match residents’ income growth.

Voters should lobby for reasonable pension reform and sustainable fiscal stewardship – and elect representatives committed to those goals.

You can help effect these changes by getting involved with CO$T.

And as you vote on the next crop of add-on taxes – and vote on the next slate of elected officials — think hard about the numbers.