Measure H and Balancing those Fences

Letter in Burlingame Daily News - An issue of balance

Dear Editor: Lorne Abramson's analogy [Letters, Sunday] about splitting fence repair costs based on assessed value is compelling, and accurately demonstrates how many "new" property owners reacted after buying into California communities after the implementation of Proposition 13. On the surface, of course, it appears unreasonable and unfair that I should pay far more to replace the communal fence. But my neighbor reminds me that while he is retired on a fixed income, I will have many more years to reap the benefit of a new fence along with higher income-earning power. He also points out that it will not be too long before he sells his property to move into a retirement community. Ten years later, he sells to a developer who proceeds to demolish the existing home to construct a five-bedroom, five-bathroom minimansion, which goes on the market for many hundreds of thousands of dollars more than I paid for my home. Three years later, a storm damages our shared fence. Would you expect me to be content with a 50-50 shared replacement cost?

The bottom line: When someone says, "It's not fair," it merely underscores his inability to comprehend that balance, unlike fairness, is only achieved over time. Pat, Burlingame

- Written by Fiona

Comments

[rich]

Yes, Pat, I would expect you to be content with a 50-50 shared replacement cost. And I'm not sure what your statement about selling to a developer who builds a minimansion has to do with anything, rather it merely underscores your animosity to new residents who moved to Burlingame.

I live next to an 85 year old man on a fixed income. If the fence between our houses fell down, I would probably offer to pay for more than half. I would probably offer to pay 2/3 of the total, with him paying the rest. In this example, I would pay 2x more than him. However, with Measure H, I would pay 22x more than him for the shared infrastructure improvements. Are you telling me that is fair?!

There are two funding options on the table: a Mello-Roos tax where all homeowners pay the same rate (~$160) or a GO bond where a new homeowner might pay 10 times more than many residents? Perhaps neither is "fair" but I think most people would agree that the Mello-Roos is "fairer."

PS- the argument that things balance out over time is absolutely incorrect. That would be true if 1) home prices kept rising at the same pace and 2) all homes were regularly sold to new buyers every 10-20 years. I'm happy to run through the math if anyone cares.

I think you make a very good point in your analogy of your fence with the 85 year old. As to the balancing over time, I am not sure I agree. I think many will agree that homes in Burlingame will continue to appreciate and that in 10 years the ridiculous prices of today will seem like a bargain. I base this on the history of appreciation. I have not seen the demographics but would have to assume that there are a number of elderly people in Burlingame that will move out in the near future for many reasons. One of which would be to cash in on their tremendous capital gains.

The balance over time argument appears reasonable unless I am missing something. Why do you doubt that homes will continue to appreciate? What math do you have that proves the turnover assumpiton wrong? I would love to compare the number of homes sold in Blgm in one year to the total homes in order to arrive at a good estimate. Does anyone have those two figures (# homes sold in Blgm in 2006 and total number of homes in town)? It seems like they should be fairly easy to obtain.

[rich]

Hi jroc,
Here's the assumptions and math that I used which I think show that things do not balance out over time:

First, I assumed that a house bought 30 years ago is assessed today at $200k. This is somewhat of a guess, so if anyone has better data, please let me know.

Second, I assumed that the median house in 2006 sold for $1.4m (I got this from my a real estate agent).

Next, I figured out that if we had an assessed value tax in 2006, the house bought in 1976 would pay 0.0036% of the total. To arrive at this figure, I divided $200k by the total tax base of $5.6 billion (this data is from the city).

Finally, I figured out that if we have an assessed value tax in 2036, the house bought in 2006 would pay 0.0099% of the total. To arrive at this figure, I divided the future assessed value of the 2006 home (increased at 2% per year) by the future total tax base (increased at 5.2% per year, which is the average over the last 20 years).

I know that this is not very well explained, but it's the best I can do in 10 min. But what it says is that in 30 years, a homebuyer in 2006 will be paying 2.75x more than a homebuyer in 1976 will be paying in 2006.

To answer your other question, 265 homes sold in 2006 and there are 5946 homes in Burlingame. The 265 homes sold is probably much higher than "normal". This would imply that the housing stock turns over every 22 years. But obviously not all homes turnover, evidenced by the fact that 25% of homes in Burlingame are assessed at less than $140k.

Hi Pat -- While I appreciate your own analogy of the 85 year old neighbor living on a fixed income, please bear in mind we do not live in a homogenous neighborhood --- i.e., not all neighbors are seniors living on a fixed income, who can not afford $10-15 per month to help pay for shared infrastructure costs. Furthermore, to accomodate those who simply can not afford the tax, an alternative structure such as a community facilities district could incorporate a means-tested tax deferral for seniors, just like the assessed value/Measure H structure.

Rich-I don't follow much of the math above.

I understand the balance-over-time argument to be based on the assumption that properties will continue to appreciate. As those properties that are assessed at pre-1975 levels begin to be sold at prices above what is being paid today, they will pay a disproportionate amount based on their new assessed values. This is why the turnover rate is important. If 100% of the homes in Bulingame turnover within 20 years. The assessed value of those buying today will be on the low end of the scale well before this bond is paid off.

According to the City website 6,111 single family detached and 409 single family attached for a total of 6,520 single family units. A five year average of homes sold was 340 or 5%. At this pace, it would take 19.2 years to turn the whole inventory.

I also assume that the homes with the lowest assessed values will be the first to be sold because they have been held the longest without major improvements(a substancial remodel will trigger a reassessment).

So the guy who paid $1.5 million last year will pay a larger amount than many others but over time as properties change hands at higher prices, this difference will shrink and eventually they will pay less.

A very wise man(albeit a bit shy)suggested that the city explore a combination parcel tax and GO. Say a flat parcel tax of $70 with the difference under the GO structure. Could that work?

Mr. Abramson-Are you starting an anti Prop 13 movement? The inequity of the total tax bill makes this little measure seem microscopic. All the same arguments you use apply. In order to change 13, you would need a new proposition. Or would it be easier politically to allow time to cure this one?

[rich]

I checked my math with someone else who is numbers-oriented so am pretty sure it works. When it comes to an assessed value tax, the earlier you bought your home, the better off you will be, even after allowing for a lot of time to pass. I think the issue is that the whole housing inventory does not turn over every 20 years. If it did, then the balance-over-time argument would work if home prices increased steadily at the same rate every year. As I mentioned earlier, 25% of homes are assessed at less than $140k, which shows that there are a large number of homes that do not sell once every 30 years (the gentleman who lives next to me has been in his home for 55 years).

One could argue that those who have been in their homes for 30 years will likely sell in the next 30 years. However, I think a lot of people have or will leave their homes to their children. Under Prop 13, if you buy a house and then leave it to your children, your children also inherit your assessed value.

Finally, if you believe in the balance-over-time argument (you pay more now, then pay less later, but it evens out over time), doesn't that mean that it is no better and no worse than a flat tax? As a new homeowner, I would prefer not to have to rely on the housing market to continue going up at the pace that it recently has.

Hi jroc -- I've essentially accepted Proposition 13 via the purchase of my home in Burlingame, in terms of the underlying base state property tax assessment. Otherwise, I could have "voted with my feet," and stayed in my native New Jersey instead. At the end of th day, Measure H - and its potential successor- have nothing to do with Proposition 13, as this 1978 state legislation (almost 30 years old) does NOT dictate how new municipal taxes are structured.

I can certainly understand how you chose this great town. I not a native and thank God every day for landing me here. My reference to Prop 13 has to do with the fact that the assessed values used in the Proposition structure are limited by Prop 13 to what I think is 2% annual increases. This causes inequities much larger in your total property tax bill than those you are opposing. That home with the assessed value of $140,000 that Rich keeps referring to, pays approximately $1,575 per annum compared to say $16,875 for a very similar property purchased recently for $1,500,000. Why do you accept that so easily? Seems to me like a much better cause to pursue.

OK Rich. Back to math. I agree that not ALL properties turn in the 20 years; however, the undeniable fact is that 340 turn every year and granted, there are houses that turn over a short period of time (ie. contractors who buy, remodel and turn). So the vast majority will turn within the 20 years. Do you expect your neighbor that has lived in his home for 55 years to be there in 10? Is someone going to inherit that house?

Anyway, my point is that the 25% below $140,000 will likely be reassesed in the next 15 years due to a transfer or remodel so I firmly believe the leveling over time argument. Even when you factor in those few properties that are not reassessed due to inheritance. If you include this in your math, it completely changes the equation.

So the fundamental difference between your analysis and mine is that I believe that the majority of homes in Blgm will be reassessed in the next 20 years (based and I feel real estate will continue to appreciate at rates similar to the past 10 years. I don't want to put words in your mouth. You did say that you don't agree with either of these assumptions?

Hi jroc - My answer: Because we have an ability as a local community to structure NEW municipal taxes. And, this isn't just about Measure H, and its potential $37 million successor. Remember, the City's original "wish list" for capital improvements was $100 million, which the Council cut down to $44 million for Measure H (and now subsequently reduced to $37 million). So I assume there are rather good odds that there will be additional taxes down the road, assuming the $100 million of aforementioned needs have not evaporated.

[Todd]

jroc - If I read your argument correctly, you're suggesting that instead of opposing a new local tax measure we should try to overturn a codified statewide proposition. You must have a lot of free time to consider that suggestion anything other than a complete non-starter.

The fundamental value of this measure is to protect the city's resources which are enjoyed by all. The value of someone's home is irrelevant in this discussion. I have insurance to protect my home from any flood damage, as I would hope everyone does, regardless of their assessed value. That's MY responsibility and costs me more based on the value or size of my home (and the relative risk based on where in the city I live). The resources that are being protected (city infrastructure) cost more over time to maintain and that is a burden shared by all. I don't pay less for gas today because I bought my car five years ago. I don't pay more or less to send my kids to the rec center for an art class based on my length of residency. And I don't think the tennis courts at Washington Park have a sign-up sheet that ranks people based on how long they've lived in town. Flood protection is a shared cause that in no ways justifies a tax structure that weighs against someone based on when they bought their house. If we wanted to get really arcane, I'd argue that longer term residents should pay more since they ignored this problem for so long and I shouldn't have to compensate them for their negligence. But that argument is as ridiculous as any of the others I'm hearing. If my neighbor's construction damaged our shared fence then I'd expect him to pay more (or all) of the costs for its replacement. But if I ignored a shoddy fence for 20 years and then a neighbor moved in, would it be fair to expect him to pay more because I let the problem fester for so long? If new residents caused the flood risk, it would be a fair argument that we should pay more. But that's not the case.

Hi Todd -- The Community Facilities District option, which the Council voted (4-1) to study further, rather than going with another GO bond/assessed value tax ballot measure in June, is defintely a step towards a more equitable solution. I'm hopeful we can find a specific CFD tax structure for our community which, at the very least, does not disaffect one particular constituency to the extent an assessed value tax does. Thanks as always for your well reasoned comments.