The politically explosive real estate tax, severely limited in the nationwide tax revolt launched by California homeowners five years ago, has made an unexpected comeback in the wake of the recession and the Reagan administration budget cuts.
New U.S. Census Bureau figures show that last year, the share of all state and local government revenues drawn from real estate and other property taxes rose from 30 to 31.7 percent. This sudden growth exceeded the expansion of the national economy and marked the first nationwide increase in the property tax share in more than 50 years.
The census data suggest that the much-publicized national tax revolt, despite initial success in California and other places, has fallen far short of its backers' goal of permanently curbing real estate taxes and may now be on its way out. Tax experts suggest that the same conservative movement to reduce the role of government that triggered the tax revolt may have led to its undoing.
Allen D. Manvel, former chief of the U.S. Census Bureau's governments division, said in an article in this month's Tax Notes, a Virginia-based private information service, that a severe drop in federal grants to states and localities, along with a decline in other tax revenues because of the recession, left local officials with little choice but to increase their reliance on property taxes or drastically reduce public services.
John O. Behrens, taxation section chief in the Census Bureau's governments division, said total national property tax receipts rose from $76.3 billion in 1981 to $86.8 billion in 1982, about a 14 percent increase and far more than the approximately 5 percent increase in other kinds of state and local taxes. The District of Columbia apppeared to follow the new national trend, with its share of local government revenues from the real estate tax increasing from 21.7 to 25.2 percent.
In California, where the citizens' movement to cut back real estate tax growth triumphed with the 1978 passage of Proposition 13, state and local officials now say the anti-tax fervor has begun to subside as public services have been caught in the financial crunch. Last week the San Jose school district declared bankruptcy, the first one in the state ever to take such action, because it could not pay $3.5 million in back pay and benefits promised to teachers.
In Los Angeles, Mayor Tom Bradley has asked the City Council for a 15.4 percent raise in the average family's real estate tax, about $90 more per year per household, in order to meet a $142 million deficit. In a television appeal for his city's tax increase, Bradley said that without the new revenue he would have to eliminate the jobs of 900 police officers and 200 firefighters and close all city libraries and recreation centers.
Prospects for the boost are uncertain, but it would represent a circumvention of Proposition 13, which was overwhelmingly voted by Californians angry at escalating property taxes that, in some communities, were doubling in a few years. The ballot initiative froze real estate taxes that local governments could levy at 1 percent of assessed value and limited annual assessment increases to 2 percent if an owner did not sell or enlarge his home.
Last year, however, the state supreme court said localities could raise real estate taxes beyond that limit to cover voter-approved debts incurred before passage of Proposition 13, such as Los Angeles' police and fire pension fund debt.
California's real estate tax revenues plummeted from $10.3 billion in fiscal 1978 to $4.9 billion in fiscal 1979 after Proposition 13 was passed. Total real estate collections increased to $6.4 billion by 1981, increasing at roughly the same rate as other taxes, state officials said.
But many California legislators are convinced that voters are ready to accept other tax increases to improve lagging public services. Democrats in the state legislature are moving to pass a $702 million tax increase bill that would fund educational improvement by increasing levies on cigarettes, candy, alcohol and major corporations.
The recent increase in property tax shares appears to reflect increased local use of the tax, since housing prices have stabilized in the early 1980s.
According to the Census Bureau, property taxes provided four-fifths of state and local government tax revenues in the 1920s. Then many states began to collect sales taxes, reducing the property tax share to about two-thirds of the total by the 1930s. By the end of World War II, the property tax share had fallen to 50 percent and, by 1981, it hit an all-time low of 30 percent.
Manvel said that property tax receipts dropped from 3.83 to 2.6 percent of the gross national product between 1971 and 1981. Then their percentage of the national economy climbed back to 2.84 percent in 1982. Although the increase was small, Manvel said, "It suggests a prospect that property tax yields in the years immediately ahead will continue to rise more rapidly than nominal GNP."
Manvel's figures also demonstrated the pressure localities have come under as federal grants decreased. In 1978, the year California helped launch the revolt against real estate taxes, federal grants in aid to state and local governments totaled 3.57 percent of the gross national product. By 1982, that figure had declined to 2.73 percent.