College tuition and public school funding

March 30, 2015

College tuition and public school funding in general are two aspects of
a trend in America which is deeply troubling, and threatening to our
nation’s future. That trend is the loss of equality of opportunity,
leading to the loss of social mobility and the stratification of our

Equality of opportunity is part of the bedrock of our nation. The
Declaration of Independence states that all men are created equal, and
have the right to pursue happiness. In today’s world, this is an almost
meaningless promise unless a good education is available to all. In
today’s world, with ever-advancing technology and globalization, there
is less and less opportunity of any kind for those without an education
that equips them to succeed. Equality of opportunity now requires a
quality education. For the great majority of us, no institution other
than government can fulfill this need.

Instead of recognizing and meeting the challenge of providing access to
quality education, we are reducing such access in a variety of ways.

                – By dramatically increasing tuition in both private
and public colleges and universities. Increased student aid for lower
income families and
                  student loans are partial, inadequate, and burdensome
attempts to respond to the problem.

                – By laws such as Proposition 13 which not only limit
public school funding, but also have shifted the tax burden from
                  to individual homeowners.

                – By laws which require a supermajority vote to impose
local property taxes, even if specifically designated for schools.

                – By rules which make it impossible or incredibly
difficult to cull poor teachers.

                – By pay structures in the public schools that not only
make it impossible to reward good teachers, but also make it impossible
to hire enough
                  good math and science teachers.

Even if one cares nothing for the ideal of equal opportunity as a moral
matter, there are serious practical consequences which should concern
In a competitive world, America cannot afford, economically, a situation
where large parts of the population are poorly educated and therefore
unable to fill the available jobs. Nor can we expect to maintain a
politically healthy democracy if large numbers of potential voters are
poorly educated, since poor education usually means poorly informed. A
recent study by the International Monetary Fund (might have been the
World Bank?) came to the conclusion that excessive inequality, by
itself, had substantial negative effects on the economic growth in both
Europe and the United States.

Other recent tax law changes, at the federal level, are making the
problem worse. When parents, even without any sophisticated planning,
can transfer over $10,000,000 (now increasing each year for inflation)
to their children free of estate tax, it is naturally a recipe for
creating an inherited aristocracy, or plutocracy. Titles such as duke or
baron are not required. Inherited wealth is sufficient. We are allowing
our educational system, which should be the most important counterweight
to inequality, to degrade. At some point, the American people will
conclude that upward social mobility, which has been the American dream,
is dead. That will be dangerous.



March 30, 2015


Note: This was published in the Mercury News Newspaper in August of 2008.

A recent Field poll of California citizens indicated substantial majorities had a positive view of Proposition 13, the law which severely limits property tax increases except when real estate changes hands.

This poll was like asking people if they would like to see their taxes increase, without pointing out what the additional government revenue might be used for, or what the unintended consequences of Proposition 13 have been. For example, no mention was made of the fact that California now spends less than half of the amount per pupil on its public schools than New Jersey. California public schools generally have serious problems, including an unacceptable drop-out rate. The shortfall in funding can be traced largely to Proposition 13.

The great resulting tax disparity can be found in a middle upper class neighborhood here in Northern California. On a West Valley dead-end cul-de-sac sits eleven homes. Six families are pre-Proposition 13 taxpayers that pay a total of $14,200 worth of annual property taxes. The other five pay $125,000. Average age of six original owners is 77, whereas the other five is age 50.

Most people are unaware that, in addition to protecting single family residential property from sharp property tax increases, Proposition 13 also shelters industrial and commercial property. Generally speaking, property owned by a corporation or partnership will not be reassessed until more than 50% of the ownership of the corporation or partnership changes hands. Careful planning can avoid such ownership changes for many decades, even after some of the shareholders or partners die. Even more startling, if real property was owned by a corporation or partnership prior to the passage of Proposition 13, it will never be reassessed, barring a sale, unless there is a shift of control of the corporation or partnership to a single individual or a single entity. That means, for example, that property owned by PG&E prior to the Proposition 13 passage will essentially never be reassessed, since no one person or entity is likely to ever gain control of PG&E by owning more than 50% of its stock.

All of this means that there has been a steady shift of the property tax burden from commercial and industrial property to residential property, while at the same time our schools have been starved of revenue.

There are two additional pieces of Federal and State legislation that when combined with Prop 13 keep millions (especially seniors) of homeowners in their homes.

1. Prop 13 causes seniors who want to move to a less expensive, smaller home to face a steep increase in property tax, except in a few counties.
2. Capital gains (Federal 15% and State 9.3%) are often above the $250,000 per person exemption when sold. Seniors pay the capital gain tax no matter where they move. Assisted living can have heavy up-front fees.
3. The third piece is the ‘current surviving spouse’s’ best friend. It’s the ‘Stepped-Up-Basis-at-First-Death’, part of the current Federal tax legislation. A surviving spouse gets a ‘Step-Up’ on both halves on all ‘community property’ assets, and pays no capital gains tax on a sale following the death of his or her spouse.

A home purchased for $50,000 in 1965 and sold for $2,500,000 in 2008 can have two different results when sold. A current surviving spouse pays zero. A couple selling would pay $400,000 to $500,000, depending on improvements.

Few seniors are aware of the legislation. Assisted living facilities are full of the elderly who paid capital gains plus a large up front fee to get into a retirement home.

Possible Solutions

1. Seniors over 65 should be allowed to move anywhere in California without paying increased property tax, as long as they are moving to a less expensive residence.
2. Prop 13 protections should be gradually removed from commercial and industrial property, allowing our schools to be better funded and stopping the property tax burden from shifting to residences.
3. Capital gains taxes should be completely removed for sale of a residence by seniors over 65.

James U. Hall, MBA, CLU Former President Santa Clara County CLU Society, General Agents and Managers Association (

John E. Upton, MBA, El Dorado County Board of Supervisors, 1990-1998. Former president (1998), California State Association of Counties (

Attached is the copy of the article in the Mercury News.

Solution for education funding drought

March 30, 2015

Why are so few homes for sale in the Bay Area? 001

Pender_Article_2 001

Pender_Article_3 001

The Bay Area housing market has also been suffering from an inventory drought. Real estate activity always slows in winter, but the number of homes and condos sold …

The most thorough article we’ve ever seen. We’ve been trying on and off over 7 years to bring this to light to a legislator….good investigative writing.

We’ve enclosed an article we wrote to the Mercury News 7 years ago.

Our constructive comments are as follows:

1.Education funding at all levels is hurting directly based on lack of home sales, especially by seniors over 65 not wanting to pay huge capital gains, nor face a Prop 13 increase. There has to be billions of dollars in potential home property tax revenue not being realized, due to low sales.

2.There is little doubt here in California that huge student loans are the result of Prop 13 and potential capital gains at 23.6%. Presently, nationwide student loans are at $1.2 Trillion guaranteed by the federal government. This makes the feds complicit on both sides.

I believe a high percentage of student loans are in default. Thousands are paying interest only. I paid $85 per semester for undergraduate fees at Berkeley which included football tickets. Those were Eisenhower days…a strong Republican. The high, tax rates were around 70% on lower incomes.

Make no mistake, huge student borrowing is the direct result of Prop 13 and large capital gains on the sale of homes here in California.

James Hall