Proposition 13, officially titled the “People’s Initiative to Limit Property Taxation,” was a ballot initiative to amend the constitution of the state of California. The initiative was enacted by the voters of California on June 6, 1978. It was upheld as constitutional by the United States Supreme Court in the case of Nordlinger v. Hahn, 505 U.S. 1 (1992).
The most significant portion of the proposition was a cap that it put on real estate tax, stating in section 1. (a) that “The maximum amount of any ad valorem tax on real property shall not exceed One percent (1 percent) of the full cash value of such property.”
Furthermore, the proposition reduced the tax rates by an average of 57 percent, made necessary a two-thirds majority in both legislative houses for future tax rate increases and required a two-thirds vote majority of the electorate of local governments wishing to raises any special taxes.
When passed in 1978, the proposition received a 65 percent approval vote with the participation of nearly 70 percent of registered voters. Moreover, all but two counties voted in favor of it. Those opposed were Yolo and Kern Counties.
The proposition has gained both positive and negative feedback over the years.
“I really don’t understand how localities can be against Prop 13” said David Wolfe, Legislative Director with the Howard Jarvis Taxpayers Association.
Howard Jarvis, along with Paul Gann, were the most vocal and visible backers of Proposition 13.
Wolfe stated that the protections embodied in the proposition need to be secured.
“Every year there are numerous constitutional amendments that would seek to water down the cap established in Prop 13 and there were six of those this year,” said Wolfe. “I firmly believe that those protections need to be enforced.”
Wolfe stated the most beneficial part of Proposition 13 was the solidity it brought to homeowners.
“Before the Proposition, local governments were able to set their own property taxes,” stated Wolfe. “So you never knew just how much from year to year property taxes were going to increase.”
Wolfe said this unknown increase left people such as seniors on fixed incomes to foreclose on their homes because they couldn’t afford the property tax. There was no predictability or stability on the amount they would have to pay.
“The great thing is that Prop 13 creates homeowner stability,” said Wolfe. “You now are guaranteed a rough idea of how much property taxes you’ll be paying down the road in 20 years.”
Wolfe further stated that local government shouldn’t blame Proposition 13 for their own budget problems.
“Local governments are spending their money on a lot of different things,” stated Wolfe. “They can’t blame Prop 13 for their budget problems.”
Michael Coleman, economist and creator of CaliforniaCityFinance.com, said he can see both the good and bad sides of the proposition.
“When it was passed in ‘78, the real movers and shakers were retirees, fixed income citizens and the Apartment Owners Association,” stated Coleman. “Along with Howard Jarvis and Paul Gann, they advanced this proposal and it became a real grassroots and anti-tax thing.”
Coleman further stated that because of Proposition 13 the bureaucracy has grown and other taxes have needed creation.
“There have been a lot of other taxes that have been created or raised in compensation for the loss in the one percent cap,” said Coleman.
Coleman also stated reasons that Proposition 13 stands out as a good law.
“From a policy standpoint you could argue that it helps people stay in their homes and values homeowners, especially older homeowners,” stated Coleman. “For younger homeowners you have to pay higher taxes initially but get the benefit of Prop 13 subsequently.”
Furthermore, Coleman saw that this law gave taxpayers a voice.
“I think there needs to be some sort of taxpayer protection so they’re protected from volatility from taxes,” said Coleman.
Coleman also pointed out an unintended consequence of the proposition.
“It took away authority from the local level of how taxes can be allocated and gave it to state legislature,” stated Coleman. “It created an unintended power shift that was not the goal and goes against what I believe Jarvis and Gann intended.”
Coleman gave some practical advice on what he thought would make Proposition 13 more efficient.
“The way to address the problems of Prop 13 is to return control to the local level,” said Coleman. “I think cities and counties who have control over local services can be the best deciders on fund allocation.”
“The second thing I would do is give the voters authority to increase their property taxes cap from the current 1 percent. If the voters want to raise it I think they should have the ability to do so.”
Michael Rock, Town Manager for the Town of Fairfax, CA said that Proposition 13’s passage resulted out of what he called a “perfect storm.”
“The issues at the time were that people were being taxed out of their homes, salaries were not going up, unemployment was high, inflation was high, and home values were increasing creating a perfect storm” stated Rock.
Rock finds the proposition an unfair maneuver to a problem that could have been solved via other avenues.
“I’m still mad about how it got on the ballot,” Rock said. “What they got was a proposition that benefited every homeowner, not those being hit hardest such as retirees or fixed homeowners.”
Rock stated that then Governor Jerry Brown and the California legislature had failed to act appropriately the year before and that resulted in the people taking the initiative.
Rock stated that he believes that overall Proposition 13 is an unfair law.
“I believe it’s grossly unfair to lower and younger income people,” stated Rock. “They can’t afford to buy a house because they would be taxed at a current rate. The problem is that if you’re in a house for the last 30 years you’re not paying enough taxes.”
Furthermore, Rock stated that the consequences of Proposition 13 have been dramatic to government efficiency.
“The real problem with Prop 13 is that we’ve had to tack on special taxes,” said Rock.
“Special taxes are all because we don’t collect enough on basic tax rates which have complicated local government. Since we can’t do it under property taxes, we have to create all these other nonsense taxes.”
“It’s really unfortunate because what we’ve done is create a whole other level of bureaucracy,” Rock said.
Rock stated that taxes in other forms may soon be evident to California citizens.
“Californians are under the impression that they pay more taxes than any other state, but we’re actually in the middle of the pack,” stated Rock. “There’s a perception we pay a lot of taxes and it’s really not true.”
“I think a result is that you’ll see a lot of other things happen, possibly dealing with sales taxes,” Rock said. “There could be new taxes on actual services and not just durable goods. You could potentially collect $4 billion more than they do now without an increase in the sales tax rate.”
Rock supported some sort of new tax structure change in California.
“I think it’s long overdue,” said Rock. “We’ve never changed the tax system to modernize the way we do business in California. The retail part of the California tax base is probably no more than half so there’s half of the entire transactions in the state that aren’t taxed at all.”
For an analysis of government revenues since the enactment of Proposition 13 please follow this link provided by the Howard Jarvis Taxpayer Association.
Andrew Carico can be reached at acarico@publicceo.com