Monday, October 4, 2010

Oakland's Never Ending Property Tax Nightmare

Readers should take a look at Daniel Borenstein's sobering article from last month about how Oakland's terrible property tax situation came about.

Complaints about overly generous public-employee pensions have (thankfully) become a standard part of the political dialog in California over the past couple of years. Unfortunately, for Oakland, this is the second time employees and their unions have assaulted the city's finances.

According to Borenstein's article, every single homeowner currently pays 0.1575 percent of their assessed home value in property taxes to pay for city pensions promised to employees before 1976. And, as far as I can tell from the article, we will be paying this money basically forever.

0.1575 percent may not sound like a big figure. But consider that state law sets a basic property tax rate of 1 percent. Most cities in the state impose some additional amount, with a typical total set at 1.1 percent.

As I've mentioned here before, Oakland's property taxes are set at more than 1.4 percent per year.

That difference may not sound like a lot, but it means that when a prospective homeowner is picking among Oakland, Berkeley and Orinda, they can expect to pay an additional $2,250 per year to live in Oakland for a $750,000 house.

And for what? The worst school district in the region, and a set of legacy taxes that pay for -- get this -- exactly one current employee. Yes indeed, that $1,200 our homebuyer would have to pay in Oakland to finance the 1976 tax scheme goes almost completely to pay for people who have already retired.

I've spoken to a few realtors about this situation, and they all say the same thing. The property tax discrepancy is already factored into the price of the home. So, when a family looks to buy in Oakland, they simply lower the price they are willing to pay.

What does this mean? In Orinda, the annual cost to own a $750,000 house might be $40,000. The cost in Oakland would be $42,250. So, instead of bidding $750,000 for that house, the buyer will instead bid $710,000, because then the annual-cost numbers work out the same.

My favorite thing about Oakland politics has to be the fact that not a single person of any prominence will talk about this kind of issue.

Oakland's financial mistakes have cost every single homeowner something like 5 to 10 percent of the value of their home. And that's not even counting the additional 10 to 20 percent demolition that takes place when a potential buyer realizes they will have to shell out at least $100,000 per kid (for high school at least) to get any kind of decent education.

What's the point of even voting or participating in the political system if the people you elect are going to make choices that directly and unequivocally rob you and your children of future wealth by reducing the value of your property holdings? Do people really not care at all?

Are Oaklanders so rich, or such nihilists, that they will stand by and watch a completely fake political dialog every year, only to be stabbed in the back again and again with the knife of ridiculous tax rates?

Here's my theory: Everyone in Oakland who has enough money that they could even care about such things has enough that they don't care anymore. And, everyone who cares is poor, so they want taxes set as high as legally possible to fund social programs.

This makes sense to me, since people are constantly complaining about how Oakland has no middle class. Maybe those involved in politics should consider that it is their own policies that have made our town completely uninviting to those in the middle.

1 comment:

  1. Good post! Two comments: 1) Were taxes to be equivalent, an appraiser would still be unable to compare properties in Oakland with those in Orinda. Orinda has much better public schools; Oakland has better logistical convenience. Weather and architecture also contribute to localizing the issues that affect property values. And, 2) In addition to parcel and ad valorem property taxes, Oakland also grabs 1.5% off the top of every "arm's length" real estate transaction (a one time only "Transfer" tax... split between Buyer and Seller by custom) plus a Gross Receipts Tax on all forms of business activity. Measure X on the ballot will add a $360/year parcel tax to raise funds to pay the extortion being demanded by the Police Union... lest we increase the risk of being murdered in our beds.