"Equalization" as Redistribution

After the protests sparked in 1958 (described in chap. 6) were quickly extinguished, property tax assessments and rates continued their inexorable climb. The next sharp increases, occurring in the mid-1960s, particularly afflicted homeowners but spared industries, shopping centers, and other businesses. Thus began a trend that would continue as property tax bills escalated.

In the Los Angeles of the early 1960s, assessments on businesses had been running at about 45 percent of market value, compared to 21 percent for residences. Businesses began to file lawsuits on equity

grounds demanding tax refunds totaling more than one billion dollars. A group of shopping center owners succeeded in winning a refund in court and, in doing so, came into contact with a young, energetic appraiser named Philip E. Watson. The shopping center owners, along with James M. Udall, a prominent real estate investor, backed Watson's successful campaign in 1962 to become assessor of Los Angeles County.^[6]

The past practice of assessing property at varying and unannounced rates of up to 50 percent of value, struck Watson as arbitrary and inequitable. Soon after taking office, Watson announced that he would assess all types of property—businesses and homes—at the same standard rate, 25 percent of market value. If he found any areas where the assessments were running below 20 percent or above 30 percent of value, every property in that area would be reappraised.

Watson discovered that some 60 percent of the county's 1.8 million land parcels needed revaluation. Watson began reassessing the areas that deviated most from the 25 percent guideline. In the Malibu-Topanga area, a rustic beach community where actors Ronald Reagan and Bob Hope had bought large holdings, assessments were running at only 4 to 17 percent of current market prices. Malibu assessments were revised upward. In the town of Alhambra, fiscal year 1965 assessments increased 13.8 percent (and tax rates by 4.3 percent), inciting the protests to be described in chapter 4.

After Watson's first round of reappraisals had been completed, he thought that he only had to conduct a small update program, monitoring the real estate market and reassessing only those areas where prices had significantly changed. "Year by year, all will go up or down closely to current market movements."^[7] But for homeowners, it was up, up, up, and never down or even standing still.

Los Angeles County assessments increased by 8.9 percent in fiscal 1967 and another 6.7 percent the following year. Appraisals on homes in Malibu again jumped, as aspiring orthodontists tried to follow the movie stars seeking ocean-view homes that might be pictured in Sunset magazine. As sea breezes fanned a hot real estate market, assessments went up in the Westside of Los Angeles; tax rates were also up for the entire City of Los Angeles, adding to the tax bills. In fiscal 1967, 17,200 people filed formal appeals of their assessments with the county, an all-time record. But the 1967 and 1968 increases were just a foreshadowing of more to come.

Watson's policy in Los Angeles County to assess all property at 25 percent of market price, enforced through periodic revaluations, shifted property taxes onto homeowners and made them vulnerable to the inflation of home prices, which would automatically trigger higher assessments. In San Francisco, too, the tax burden was shifting from busi-

nesses to homeowners. But ironically, the homeowner's greater burden stemmed from the misdirected efforts of progressive reformers, who were trying to make business pay its full share of taxes. The political confusion over who was overtaxed and who would get tax relief would continue, right through the debates over Proposition 13.

A process that shifted property taxes onto homeowners was set in motion during a 1965 scandal involving San Francisco County assessor, Russell Wolden. An accountant provided the San Francisco Chronicle with filing cabinets full of documents detailing how corporations contributed money to the assessor's campaign in return for a reduction of a corporation's property tax bills. The documents were a muckraker's delight—elaborate calculations of what a corporation's taxes would have been, the company's reduced assessment, copies of canceled checks, and explanatory notes: "Enclosed is a check for your campaign for assessor that was volunteered last week after filing the American Can return."^[8]

Newspapers and district attorneys concluded that many businesses were being assessed at unfairly low levels, resulting in revenue losses of hundreds of millions of dollars, made up for by small homeowners and ordinary citizens. At that time, the solution seemed obvious to two liberal State Assembly representatives from the San Francisco Bay Area, Nicholas Petris and John Knox. With their leadership, the Assembly passed the Assessment Reform Act. of 1966, which required that all property, businesses and homes, be appraised at the same rate, 25 percent of market value. To see that its provisions were enforced, the law mandated periodic checks to insure that assessments were in line throughout the state.

But despite their good intentions, Petris and Knox had actually increased the homeowner's tax burden. The scandal in San Francisco focused attention on the corporations that had reduced their assessments through bribes, but these companies numbered only 7 percent of the total. In fact, the overall pattern in San Francisco was for businesses to be appraised at a higher rate than homeowners. Assessor Wolden may have been a little crooked but, on the average, business inventories and equipment had been assessed at around 50 percent of value, and business-owned land and buildings at 35 percent. Petris and Knox had unwittingly cut these business assessments to 25 percent. By contrast, single-family homes in San Francisco had been getting the real bargain—assessments on the average of only 9 percent of value, and 5 percent for older homes.

Assessment reform, in short, meant higher assessments for homeowners, bringing them up to the new 25 percent standard. A few months after the passage of the reform bill, the San Francisco County Board of Supervisors called on the state to delay implementing the reform. But it

was too late. As the assessments on homeowners more than doubled, their reply was a sarcastic bumper sticker that read, "Bring Back the Crooked Assessor."^[9]

In short, the politics of the California property tax in the 1960s seemed, at first, to be a model for the triumph of progressive reform. It was almost a textbook case of "good government" at work—using publicity to expose corruption, professionals to efficiently administer, expertise to resolve conflicts, and enlightened public opinion to make laws more just. In Los Angeles, Philip Watson was an expert civil servant, a UCLA-trained economist with a decade of staff experience in the assessor's office. In San Francisco, investigative journalists had written a series of exposes in the finest tradition of reformer and author Upton Sinclair. Through a free press, the public had discovered that the special interests—certain large businesses—had bribed the assessor. The resulting public outcry had sent the crooked assessor to jail.

And to complete the storybook ending, a law was passed mandating that all taxpayers would be assessed at the same percentage of market value. This reform law was supported by the League of Women Voters, the Assessors' Association, and a host of other groups representing labor, business, agriculture, and local government officials. There were no organized groups testifying in opposition. Everyone thought that assessments could now be based on hard evidence—the price of sales—rather than the assessor's estimate, whim, or favor. Assessments were becoming more rule-bound, more uniform, and more rational.