It’s not just higher education, of course, nor UC campuses: Cal State and community colleges are hurting worse
. K-12, foster kids services, kids in trouble and kids at risk, you name it.
Author: Michael O'Hare
Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb. View all posts by Michael O'Hare
As much as I empathize with their frustration, the students protesting across the UC system yesterday have misdirected their anger. The Regents are not responsible for this mess; they're just doing what necessity dictates: cutting costs in the face of enormous budget cuts. Students should be directing their protests at the obstructionist minority of Republicans who prevented the passage of even a partially reasonable state budget. They should direct it toward profound reform of the broken state governing structure.
I say, three cheers for Proposition 13. Crippling a stable source of tax revenue and shifting to those that follow the gyrations of the economy (income, sales tax) means more excitement for all. When the economy is good, spend like a drunken sailor. When the economy is bad, then tighten your belts. Roller coaster budgeting is for thrill-seekers. Thank you, Howard Jarvis.
I agree, Jake. However I don't think the blame lies solely at the feet of congressional Republicans. Californians have been described as having "political schizophrenia" – they want to spend without paying the taxes to support it. Then they complain about their elected representatives…
Lately I've been thinking about the "starve the beast" concept in reverse. Proposition 13, which made it incredibly difficult to raise taxes, is now forcing the state to cut spending on services across the board. This is the idea behind starving the beast. And now class sizes are through the roof, clinics are closing, tuition is hiking, etc., etc. As people start to see the effects of low levels of spending, will they finally turn around and "put their money where their values are"?
I believe that people want these services. But they have bought into the conservative myth that cutting taxes will solve all of our problems – force government to be more efficient, stimulate the economy, create jobs and ultimately increase government tax revenue. Republicans repeat this over and over – their solution to everything is to cut taxes. And when government goes broke it isn't because of low taxes, it is because of inefficiencies, unions, or illegal immigrants – that's a really popular one. The strangest part of this to me is how little taxes end up being for so many of us. Supporting a wife and 2 kids on an income of $45K last year, with no property I paid $147. On a $250,000 home I would have paid a state average of $1500. That's an average monthly payment of $137, or 3% of yearly income. And that's for the privilege of living in the beautiful state of California.
Of course many simply don't want to pay for health care, education, etc. – and although their political views are at least more consistent, they don't represent anything like a, well, moral majority.
The worst analogy is the macro = micro. You know, the one where government budgets are equated with family budgets. "When our family can't pay the bills, we have to cut spending". Of course, no one would ever say, "when our family can't pay the bills, we stop working and reduce our income". But this is level at which many people approach economics.
I think in the end it is a fundamental ignorance of the citizenry – not of what they actually believe, but in their understanding of what policies will get them there.
In response to Eli's bend and Quddity's cries of foul on Prop 13, I'd like to ask if anyone can give me a good source on the full details of Prop 13 and what tax income it actually limited. This bile spewing for the measure comes up every time there's a discussion on California's various economic troubles so I'd like to get the facts right. From my limited understanding, it constrained property taxes only, But I might be wrong on that and I'd like to find out how so.
Within the limits of my understanding however I am 100% in favor of prop 13 and what it has done for me. You see my husband and I bought our first home here in San Jose back in 2003. Right now our annual property tax bill constrained at 1% comes in at a bit over $6,000 per year. And we've got no mansion either. It is a 40 year old 1,400 square foot home in the aging suburbs. Without prop 13 I hate to think what our property tax bill would look like for our starter home. I'd venture a guess that we'd have never been able to afford this house in the first place. Many other would be in a similar situation I suspect and that wouldn't exactly be stimulating for the housing market in the state.
To me it seems misdirected to rail at prop 13 alone. Jiggering with prop 13 would have negative consequences that would surpass any expected benefits. The problems go back to how were spending those tax revenues. Government pensions, jam packed prisons, overpriced health care, and I'm sure many other areas. Where's that constitutional convention we so direly need anyway?
I am another who is grateful for Proposition 13, and who has seen friends and relatives in other states without such protection driven out of their long-time homes due to overwhelming property tax burdens. It seems to me hideously unfair that (for example) a retired couple on a modest fixed income who have been in their home for 20, 30, or more years, should be forced to leave it because the "value" of their property has been driven up by an inflated local real-estate market fueled by speculation, gentrification, or new cachet as a second-home colony.
I am more than willing to pay my fair share of taxes, and beyond. I would gladly pay a flat parcel tax. I believe in strong spending for social services and education and intelligent infrastructure. And the Grover Norquists of the world make me sick, as does the dysfuntional California Legislature. But between the irresponsible spending of entrenched interests (eg. the Cal athletic department, the prison-industrial complex, etc.)and the grotesque loopholes engineered and exploited by corporate interests, it seems unfair (though intellectually easy) to continually pick on the salvation that Prop. 13 has constituted for many people of modest means.
Prop 13 cut and then limited the growth in property taxes, effectively defunding school districts and local governments and making both dependent upon the State for their budgets. The "backfill" from State tax revenues was a feature of the bill. But it also requires a 2/3rd majority to pass budgets and to increase State taxes.
In effect, it defunded local governments and then hobbled the State government that was supposed to help local governments be successful. Prop 13 was an attempt to monkeywrench California government at every level, and it has worked! It's a perfect law if your vision for the future of California is 1960s Mexico.
To understand the problem with Prop 13, go ask some of your neighbors—who, perhaps, bought houses in the 1960s or 70s—what their property taxes are. It's possible that your neighbor (or your neighbor's parents or grandparents) bought a house identical to yours in 1970 for about $70,000. Their property tax was therefore 1% of 70,000, or $700 a year, and has increased only 2% per year since then, giving $1500 today. You feel like you're getting soaked (as do I) because you're a recent homebuyer. On the other hand, if my neighbors and I were all paying the same, it would be totally fine. Without Prop 13 this would average out, with many good effects (mobility, fairness) and some bad, although the bad (primarily: older people get re-assessed out of their lifelong homes) could be fixed by smarter legislation. Many other states manage this just fine.
Problem #2 is that this oddity applies to corporations as well. How much do you think IBM paid for some empty San Jose farmland in the 1950s? Well, it's still paying that now, with 2% inflation, and will apparently still pay that forever. In other states businesses pay property tax on the value of their property, not the dollar figure on the yellowed parchment of their 50-year-old purchase agreement.
Problems #3,4,5,6,etc., are that Prop 13 instituted the horror that the California Legislature was, for all revenue and taxation questions, put under the control of its minority. As long as there are 33% of pro-status-quo legislators, we're stuck with the status quo.
If you're worried about older people getting taxed out their homes, put a loophole in the law for them — people over 65 with incomes/assets under x, have a tax rate ceiling of y% — I'm not a tax policy wonk, don't know what such a loophole would look like, but I imagine someone smarter than me could think of something.
For those of you who feel prop 13 is the fault, I suggest that you goto Wikipedia, prop13.
BenM: am I getting this right, that the Californian local property tax base is the last recorded resale price of the property? Not a universal rating of all properties at intervals, which is the only system I've ever heard of in Europe (and I've lived in the UK, France, and Spain)? Sounds extremely amateurish to me. [see below -MO'H]
For those of you who feel prop 13 is the fault, I suggest that you goto Wikipedia, prop13.
LOL. That article doesn't say what you wish it said….pretty much limits its discussion to the property tax aspect of the law and likewise says "Proposition 13 has introduced major problems of equity and efficiency into the state's tax structure.["
Perhaps you were thinking some other wiki?
Jake has it right. I would also say that worthy as their cause is, the protests just make the students look like petulant babies. Could not some of the faculty be educating and helping students organize to get politically involved, to educate the older voters in their families, to advocate doing something about the absurd crime and punishment policies which funnel huge amounts of wasted money into the prison system at the expense of things like education?
The regents are powerful people who have NOT ONCE suggested as a group that income taxes should be raised or that the 2/3 majority for budgets is wrong. These are the structural problems. Anyone who has studied California has known this is the problem for at least 5 years. So YES the regents are at fault for taking the easy way out without even hinting that they would fight for an alternative solution.
Mike, I have mixed feelings here on the UC front. I went to Berkeley and got a truly swell education for, as I remember, $212.50 a quarter. It was good. I got out of school with no debt, and my middle class parents paid very little. The taxes supporting Berkeley came from the Calif. tax base, including burger flippers who made far less than my parents, or than I made after leaving UC. And I left the state immediately after graduating – so have paid bupkis into the upkeep of the U.
I'm with you on kids in foster care, K-12, etc. But I kind of think university students ought to be paying their own way. I got a wonderful deal, the people of California, not so much.
In order to educate taxpayers about the nobility of sacrifice, why not take a cue from Professor Kleiman, who in a November 8, 2009 post chastising Larry Summers about his insensitive comments regarding job sharing, employed utilitarian principles familiar to all of you to illustrate how much better-off we all are by reducing everyone's salaries 5% in order to permit everyone to keep working. It seems like such a good idea, why not vary the idea slightly to include students; that is, why doesn’t the UC faculty in a show of solidarity with other UC workers and the students voluntarily cut their salaries by ….say 10% (which, for the religious left, has the added advantage of being consistent with the Biblical notion of sacrifice). You can work out the details amongst yourselves but the salary reduction should allow all the UC employees to maintain their jobs and meaningfully reduce tuition. With the UC faculty leading the way, it is only a matter of time before the spirit of sacrifice spreads to the rest of the UC family, and all the other state and local governmental workers, although I admit that the prison guard's union may be a tough nut to crack. If you are hesitant to accept the wisdom of this idea, note the November 12, 2009 editorial by Paul Krugman, and, if you are still not convinced, my final argument is that this idea has to be right, it was “made in Europe.”
Dave, it's true that cheap higher education is an imperfectly targeted subsidy if the point is to collect value created by educated people in California. But unlike what happens in many states, a very large proportion of people who go to college here stay here (this may change if we keep trashing our public services) so despite your escape, it works well enough on that score that Mark thinks we should aggressively recruit very good out-of-state students, not for the extra tuition they pay but because we add to our long-term human capital that way.
The pros and cons of subsidized higher education, and how to transition away from it if we want to do so, is subject for another post.
James, the county assessors keep property values up to date on the books (and correct them upon sale). But the collector is only allowed to increase each year's taxes 2% from the year before, in nominal dollars, until a sale. Thus my easterly next-door neighbors, my family, and my neighbor to the west pay property taxes of about $6K, $12K, and $21K for very similar houses, the difference owing exclusively to when we bought. Massachusetts' much less destructive tax limit initiative from the same era, in contrast, limits property taxes to 2.5% of a property's value in any year.
From what I've heard, this has led to other problems:
Since selling/buying a house openes one up to (using Micheal's example) up to $10K/year in extra tax payments, people are far more reluctant to do so, even when they otherwise would. That means longer commutes, increased traffic congestion and extra costs of roadwork.
Local communities tend to push for/allow increased commercial development, due to the increased taxes; this has led to strip malls growing like kudzu.
Greedy liberal colleges are raping our kids. This needs to be examined as closely as healthcare.
Mike, when you do address the subsidy question, here's a piece by Henderson from Econlog you may be interested to see – features the irrepressible Steve Sailer in the comments. http://econlog.econlib.org/archives/2009/11/uc_tu….
Some of the people leaving comments are completely ignorant of the way Prop 13 works. When you bought your home with the $6000 property tax forever the price you paid for the home was too much because of the hesitancy of many, many who make a rational calculation that they cannot afford to sell and possibly move to a less inhabited part of the state because their property tax will reset from maybe $1500 to $10000 annually on the new home. They rationalize that even were they to take a breather and get out of a terrifying real estate bubble before property values and the entire economy crashes their new landlords will certainly charge whatever the market will bear and they will be paying for the higher property tax as renters also. Thus they stay in a house which is totally unsuitable to their needs by the distorting economics of Prop 13. I know how this works because that is how my 89 year old Dad thinks, and thought when he was 82 and 72 and even 62. Prop 13 even contains provisions that pass on the fixed original property tax to the heirs of the property when the current owner dies, or even before. There is thus an incentive for the heirs to decide amongst them who will occupy the house for another generation. This sort of thing is happening right now. Prop 13 has had the end result of keeping property taxes low for retirees at the expense of their children, who are forced into longer commutes by zoning that favors single-family homes on larger lots than current incomes can afford. California voters bought the idea that it was sad for retirees to have to pay increased property taxes as the decades unrolled. They thus insulated them from the effects of inflation. As a result prices have been higher than they need to be. The value of a fixed property tax over a property tax that rises with the value of the property is factored into the price of the home in the same way that the price of a bond reflects the advantage an investor gets over the long haul with his fixed interest rate as opposed to a changing interest rate. California's woes reflect an utter ignorance of basic economics and finance on the part of its voters. I observe this phenomenon from afar, in Oregon, where in the last year economics has been substituted for part of the history curriculum in order to graduate from high school. Part of solving California's budget woes is to educate it's citizens better.
TG is right about P13 freezing people in their homes; empty nesters with houses bigger than they want, or want to maintain and heat. The climate effects of the induced sprawl alone are pretty appalling. It's not good to make public policy with slogans.