Revolt of the Homeowners

They 're mad as hell, and they don't want to take it any more

It seems only reasonable that the more a person's house increases in value, the happier he will be. Yet for millions of homeowners that is not the case at all. As inflation pushes housing prices through the roof, property taxes are shooting up as well, ripping gaping holes in family budgets and sending homeowners into angry protests against local taxes and spending of all sorts. Says James Tobin, president of the National Taxpayers United of Illinois: "People are in a rebellious mood. They feel school taxes are out of control when they have to pay for courses on kindness and ethnic studies, while reading and writing skills decline."

Spontaneous taxpayer crusades are popping up from Connecticut to Oregon. In Idaho and Arizona, homeowners are pushing petitions to limit property taxes. In Florida, a proposed state constitutional amendment would force a 29% rollback in local property taxes and require a two-thirds vote of the legislature to increase taxes in the future. Legislatures in at least ten other states are considering property-tax relief of one form or another.

The most dramatic protest is in California, where 1.5 million people have signed petitions and forced a statewide vote to be held June 6 on Proposition 13, the so-called Jarvis-Gann initiative. If approved, Jarvis-Gann would force all property to be reassessed at the market value that prevailed in 1975-76 and prevent local authorities from increasing the assessments in the future by more than 2% a year, at least until the property is sold. After that, the rate would be based on what the new owner paid. The amendment would produce an immediate cut of as much as 60% in property taxes for homeowners, but it could create mind-boggling distortions in the entire property market: the longer a person holds on to a home as inflation keeps driving up its value, the greater becomes the eventual property-tax burden that the new owner will acquire. As a result, two identical homes on the same street could have wildly different taxes. That does not seem to worry the state's growing legions of tax rebels, however. A victory for Jarvis-Gann would give enormous new momentum to tax revolts everywhere.

Property taxes constitute the biggest nonfederal tax burden for most families. From 1953 to 1975, the property-tax bite on an average family's income grew from $110 to $560, and for families with twice the average income it increased from $180 to $896. On top of that, homeowners must also pay Social Security and a whole range of other state taxes that have been growing explosively in recent years (see chart). The nibbles from those taxes come a little at a time every day or every payday and thus seem less aggravating. Only the property tax looms up once a year (or sometimes once a quarter) as a lump-sum payment of hundreds or thousands of dollars. As such, it is an easy target for people who often feel that the very homes they live in are being threatened.

In Boston, that could be the case. More than half of the city's real estate belongs to tax-exempt institutions, such as churches and universities, and homeowners pay the nation's highest rate: a stunning 8 1/2% of their property's market value. Typical of homes in some deteriorating neighborhoods is Diane Roberts' three-story wooden frame house in Dorchester. Its market value is only $17,500, yet she is paying $1,472 a year in taxes. These rates have moved some 12,000 Massachusetts homeowners to join a mostly blue-collar group called "Fair Share." It aims to get residential property taxed at lower levels than commercial and industrial sites and to enact a "circuit breaker" law to rebate up to $500 of any property taxes that exceed 8% of the payer's taxable income.

In Georgia's affluent De Kalb County just outside Atlanta, 12,000 irate homeowners have signed a petition to dump the county's chief executive, Walter Russell, nephew of the late Democratic Senator Richard Russell, whom they blame for putting in a computerized system that reassessed property annually instead of every four years. Homeowner fury has forced the De Kalb assessors to unplug the infernal machine. In Chicago's Cook County, property taxes for many homeowners jumped anywhere from 20% to 100% last year. Some of the most extreme increases are in California, where demand and speculation have inflated real estate prices, and state spending under Governors Ronald Reagan and Jerry Brown has increased an average 12% a year. Says Andrew Smith, 68, whose taxes on his West Los Angeles house have jumped in five years from $650 to $2,780: "Half of the income for Los Angeles County comes from property taxes, and 12% of that goes to policemen's and firemen's pensions. Why do I have to pay for these pensions? Everything is out of balance."

The battle in California over the Jarvis-Gann initiative to reduce property taxes has reached an almost religious intensity. Reports TIME Correspondent Joseph Kane: "Reason and logic seem to have been put to flight, and taxpayers want revenge. The real propulsion behind the amendment is the need for people to send a message to government that enough is enough."

Critics of the initiative, who include most leaders of state politics, business, labor and California's 1.5 million-member state and local bureaucracy, contend that it would lead to mass layoffs of teachers, police and firemen. Backers of Jarvis-Gann say that the warnings are preposterous and that the state is already running a $3.5 billion surplus that would soften the actual cutbacks to little more than moderate retrenchments.

Polls show the outcome uncertain, with nearly half the electorate still undecided. In a desperate effort to defeat Jarvis-Gann and appease homeowners, Governor Jerry Brown is backing a more modest Behr amendment. It uses a complex valuation formula to prevent local governments from increasing property taxes for homeowners by much more than the inflation rate. That is part way to a good idea. The solution is not holding down any one tax, but holding them all down, and the best way to achieve that is to curb spending by government itself.

Last year Colorado passed a law to do just that by limiting the growth of state spending to no more than 7% annually. Earlier this spring, Tennessee adopted a similar restriction. In November, Massachusetts voters will decide on a proposal of their own: to limit spending increases to the rise in the state's personal income. These are sensible approaches. Putting a lid on spending is a far more effective way of providing relief than merely trying to restrain property taxes. qed

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