It’s the Law: The law of parcel taxes

There is no dearth of pithy quotes regarding taxes. The writer Robert Heinlein said, “Be wary of strong drink. It can make you shoot at tax collectors — and miss.” Meanwhile, Will Rogers observed, “The income tax has made more liars out of the American people than golf has.”
Despite the reticence taxes imbue, an alarm has sounded that a parcel tax must be passed to save the Scotts Valley Unified School District from financial collapse.
The district recently had a community meeting to educate the public on the critical situation facing not only SVUSD, but the majority of school districts in the state. The district has addressed the problem by, among other things, increasing class sizes. That means teachers being laid off and more work for the teachers who remain. There’s a limit to the number of teachers that can be laid off, though, because a classroom can hold only so many children.
Karen Jelcick, the district’s business manager, showed that the district will have a $1.2 million deficit this year, and it will grow to $1.9 million in the 2011-12 year.
The district had a reserve of $4.775 million at the beginning of the year. Simple math says insolvency is just over two years away, absent a miracle. (Visit www.svusd.santacruz.k12.ca.us/ and click on “Fiscal Advisory Presentation” for details.)
What is a parcel tax? Parcel taxes are simply annual taxes on each legal parcel of land. They are a product of Proposition 13. As most homeowners know, that proposition limited property taxes. Although the authors of Proposition 13 have been criticized as anti-education, they understood that the new law might critically hurt school districts, so they included a provision for “special taxes,” which include parcel taxes. Despite that concession, the authors made it difficult to pass a special tax, requiring approval by two-thirds of the votes tallied in an election.
Also, a special tax cannot be ad valorem — that is, based upon the value of a property. It can be assessed on a square-footage basis or on a per-parcel basis. If it is a flat tax, (the most common type), a $5 million parcel will pay the same amount of tax as a $200,000 parcel. Supporters say that the anti-ad valorem provision was to protect seniors from getting taxed out of houses that had greatly appreciated in value. Critics say it was to line the pockets of the large apartment complex owners who employed one of the proposition’s authors as a lobbyist. History has shown it has done both.
Parcel taxes are the only legal means a school district has to increase public money for operating expenses. Don’t confuse a parcel tax with a bond. A bond can only be used for building costs — one-time expenditures — not operating expenses. School districts, for the most part, have two completely separate pots of money: a general fund for operations, and capital funds for bricks and mortar, and ne’er the twain shall meet. (Although, building a modern school would free up some operating expenses, simply because it costs much less to heat and maintain a new facility.)
The election a couple of years ago was for a bond. Back then, our general fund was fairly healthy. Not so anymore. Two years ago, the subject was providing teachers and children with better schools — now the subject is simple survival.
Parcel taxes can have one unique feature that bonds cannot: A district can include a provision that senior citizens or those receiving Supplemental Security Income can opt not to pay the tax. Also, parcel taxes do not have to be permanent. To date, most expire after four to eight years. Common parcel taxes in other districts run between $95 and $200, although some districts have passed taxes as high as $795 per year.
There are 7,334 parcels within the local district (as of May 2008). So, assuming that no seniors opt out, a local parcel tax of $150 would raise $1,100,100 per year — close to what’s needed to close this year’s budget gap.
Unlike a bond, parcel taxes are not limited in what they can be used for. Then again, a district has to be careful how it uses the money. If, for example, a parcel tax is used to increase teacher salaries, but then the tax expires, the district might find itself legally obligated to pay the higher salaries but with no means of doing so. A district must carefully work out such problems before a parcel tax is passed.
Do I personally like parcel taxes? No. Indeed, I publically questioned them in an opinion in this paper a couple of years ago. I object to the regressive nature of parcel taxes, because the poorer among us carry a proportionally higher burden than the rich.
But there are times when personal preference must yield to necessity. It’s akin to getting that dreaded shot from the doctor.
This is the question Scotts Valley must ask itself: With a parcel tax as the only shot available to prevent the district from getting much sicker, will the people take that shot?
• Gary Redenbacher of Scotts Valley is an attorney in private practice. Contact him at ga**@re*********.com.