Reduction in taxes In the year after Proposition 13 was passed, property tax revenue to local governments declined by roughly 60% statewide. However, by 2003, the inflation-adjusted property tax collected by local governments exceeded the pre-1978 levels, and has continued to increase. In 2009, the advocacy group
Howard Jarvis Taxpayers Association estimated that Proposition 13 had reduced taxes paid by California taxpayers by an aggregate $528 billion. Other estimates show that Proposition 13 may not have reduced California's overall per-capita tax burden or State spending. The think tank
Tax Foundation reported that in 1978, Californians had the third highest tax burden as a proportion of state income (tax-per-capita divided by income-per-capita) of 12.4% ($3,300 tax per capita, inflation adjusted). California has the
highest marginal income and capital gains tax rate and is in the top ten highest corporate tax and sales tax rates nationally. In 2016, California had the 17th-highest per-capita (per-person) property tax revenue in the country at $1,559, up from 31st in 1996. In 2019,
WalletHub applied California's statewide effective property tax rate of 0.77% to the state median home market value of $443,400; the annual property taxes of $3,414 on the median home value was the 9th-highest in the United States.
Property tax equity Proposition 13 sets the assessed value of properties at the time of purchase (known as an acquisition value system), with a possible 2% annual assessment increase. As a result, properties of equal value can have a great amount of variation in their assessed value, even if they are next to each other. A 1993 report from the joint
University of California and State of California research program, California Policy Seminar (now the California Policy Research Center), said that a property tax system based on acquisition value links property tax liability to ability to pay and has a
progressive impact on the tax structure, based on income. It said that a revenue-neutral Los Angeles County reform which raises all assessments to true market value and lowers the property tax rate would harm elderly and low-income households. The think tank
Institute on Taxation and Economic Policy (ITEP) considers property tax caps like Proposition 13 poorly targeted and instead advocates "circuit breaker" caps or
homestead exemptions to levy property taxes based on ability to pay; yet in 2018, ITEP ranked California's tax code as the most progressive in the United States, in part due to its high marginal income and capital gains rates. Since wealth is associated with ownership of "intangible" assets like stocks, bonds, or business equity, which are
exempt from wealth taxes, ITEP says
regressive state tax distributions that rely on property taxes on
real property can worsen inequality, and that of all US states in 2018, California's tax code reduced inequality the most.
Tenure of households By comparing California over the period 1970 to 2000 with other states, (using data from the
US Census Bureau, not state or county-level property records) Wasi and White (2005) estimated that Proposition 13 caused homeowners to increase the duration of time spent in a given home by 9% (1.04 years), and renters to increase their tenure by 18% (0.79 years). They also estimated that this effect was more pronounced in the coastal cities, with the increase in tenancy by owner-occupiers in the Bay Area being predicted at 28% (3.0 years), Los Angeles 21% (2.3 years), and Fresno 7% (0.77 years). They speculate that renters may have longer tenure due to less turnover of owner-occupied housing to move into. Other studies have found that increased tenure in renting can be attributed in part to
rent control.
Funding volatility A 2016 report from the
California Legislative Analyst's Office found that property tax revenue to local governments was similarly volatile before and after the passage of Proposition 13. While Proposition 13 stabilized the base, prior to Proposition 13, governments would adjust the rate annually to counteract changes to the base.
Fiscal impact from new home construction According to the
California Building Industry Association, construction of a median priced house results in a slight positive fiscal impact, as opposed to the position that housing does not "pay its own way". The trade association argues that this is because new homes are assessed at the value when they are first sold. Additionally, due to the higher cost of new homes, the trade association claims that new residents are more affluent and may provide more sales tax revenues and use less social services of the host community.
Taxes targeted to services Others argue that the real reason for the claimed negative effects is lack of trust for elected officials to spend the public's money wisely.
Business improvement districts are one means by which property owners have chosen to tax themselves for additional government services. Property owners find that these targeted levies are more palatable than general taxes.
Sales disincentives, higher housing costs Proposition 13 alters the balance of the housing market because it provides disincentives for selling property, in favor of remaining at the current property and modifying or transferring to family members to avoid a new, higher property tax assessment. Proposition 13 reduces property tax revenue for municipalities in California. They are forced to rely more on state funding and therefore may lose autonomy and control. The amount of taxes available to the municipality in any given year largely depends on the number of property transfers taking place. Yet since existing property owners have an incentive to remain in their property and not sell, there are fewer property transfers under this type of property tax system. California also has high rates of migrants from other countries and states, These rules were subsequently changed; under current law, a change of control or ownership of a legal entity causes a reassessment of its real property as well as the real property of entities that it controls. The application to commercial and rental property can lead to an advantage and profit margin for incumbent individuals or corporations who purchased property at a time when prices were low. This is in contrast to the initial campaign, where Jarvis argued that lowering property tax rates would cause landlords to pass savings onto renters, who were upset at their rapidly rising rents driven by the high inflation of the 1970's. Most landlords did not do this, which became a motivating factor for
rent control.
Property transfer loophole Some businesses have exploited a property transfer loophole in Proposition 13 implementing statutes created by the California Legislature that define what constitutes a change in property ownership. To take advantage of this loophole, businesses only have to make sure that no partnership exceeds the 50% mark in control in order to avoid a reassessment. The Legislature could close this loophole with a 2/3 vote. In 2018, the
California Board of Equalization estimated that closing this loophole would raise up to $269 million annually in new tax revenue. There have been several
legislative attempts to close the loophole, none of which have been successful. Proponents of
split roll have said the intent of Proposition 13 was to protect residential property taxes from spiking and say the broad application of Proposition 13 to commercial property is a loophole while opponents say voters deliberately sought to extend Proposition 13 protections to commercial property by rejecting a split roll measure promoted by then-Governor
Jerry Brown, Proposition 8, in 1978 (on the same ballot as Proposition 13), by a vote of 53–47%, and instead passed Proposition 13 with nearly 65% of the vote. A
Los Angeles Times article published shortly following the passage of Proposition 13 supported the latter interpretation, stating: "There is no question that the voters knew exactly what they were doing. Indeed, The Los Angeles Times-Channel 2 News Survey, in which almost 2,500 voters filled out questionnaires as they left the polls Tuesday, revealed that Propositions 8 [the split roll alternative] and 13 were seen by most voters as mutually exclusive alternatives, even though it was entirely possible for voters to play it safe by voting for both measures. Among those who voted for Proposition 13, only one in five also voted for Proposition 8, while Proposition 8 was endorsed by fully 91% of those who voted "no" on Proposition 13. Proposition 13 was advertised as a stronger tax relief measure than Proposition 8. That is exactly how the voters saw it, and that is exactly what they wanted."
Sales and other taxes Other taxes created or increased Local governments in California now use imaginative strategies to maintain or increase revenue due to Proposition 13 and the attendant loss of property tax revenue (which formerly went to cities, counties, and other local agencies). For instance, many California local governments have sought voter approval for special taxes such as
parcel taxes for public services that used to be paid for entirely or partially from property taxes imposed before Proposition 13 became law. Provision for such taxes was made by the 1982 Community Facilities Act (more commonly known as
Mello-Roos).
Sales tax rates have also increased from 6% (pre-Proposition 13 level) to 7.25%, with cities such as
Lancaster and
Palmdale authorizing an 11.25% tax. In 1991, the
Supreme Court of California ruled in
Rider v. County of San Diego that a
San Diego County sales tax to fund jail and courthouse construction was unconstitutional. The court ruled that because the tax money was targeted towards specific programs rather than general spending, it counted as a "special tax" under Proposition 13 and required approval by two-thirds of the voters, whereas the tax had passed with a simple majority. The imposition of these special taxes and fees was a target of
California Proposition 218 ("Right to Vote on Taxes Act") which passed in 1996. It constitutionally requires voter approval for local government taxes and some nontax levies such as benefit assessments on real property and certain property-related fees and charges.
Cities and localities Greater effect on coastal metropolitan areas than on rest of state Proposition 13 disproportionately affects coastal metropolitan areas, such as
San Francisco and
Los Angeles, where housing prices are higher, relative to inland communities with lower housing prices. According to the
National Bureau of Economic Research, more research would show whether benefits of Proposition 13 outweigh the redistribution of tax base and overall cost in lost tax revenue.
Loss of local government power to state government Local governments have become more dependent on state funds, which has increased state power over local communities.
The Economist argued in 2011 that "for all its small government pretensions, Proposition 13 ended up centralizing California's finances, shifting them from local to state government."
Resultant planning changes, cost or degradation of services, new fees Due to the reduction in revenue generated from property tax, local governments have become more dependent on
sales taxes for general revenue funds. Some maintain that this trend resulted in the "fiscalization of land use", meaning that land use decisions are influenced by the ability of a new development to generate revenue. Proposition 13 has increased the incentive for local governments to attract new commercial developments, such as big box retailers and car dealerships instead of residential housing developments, because of commercial development's ability to generate revenue through sales tax and business licenses tax. This may discourage growth of other sectors and job types that may provide better opportunities for residents. Additionally, cities have decreased services and increased fees to compensate for the shortfall, with particularly high
impact fees levied on developers to impose the cost of the additional services and infrastructure that new developments will require. These costs are typically shifted to the building's buyer, who may be unaware of the thousands in fees included with the building's cost. disputed the attribution of the decline to Proposition 13's role in the change to state financing of public schools, because schools financed mostly by property taxes were declared unconstitutional (the variances in funding between lower and higher income areas being deemed to violate the
Equal Protection Clause of the
Fourteenth Amendment to the
Constitution) in
Serrano vs. Priest, and Proposition 13 was then passed partially as a result of that case. Proposition 13 caused a sharp decrease in state and local tax collection in its first year. One measure of K-12 public school spending is the percentage of
personal income that a state spends on education. From a peak of about 4.5% for the nation overall, and 4.0% for California, both peaking in the early 1970s, the nation overall as well as California spent declining percentages on public education in the decade from 1975 to 1985. For the longer period of 1970–2008, California had always spent a lower percentage than the rest of the nation on education. UCSD Economics Professor Julian Betts stated in a 2010 interview: "What all this means for spending is that starting around 1978–1979 we saw a sharp reduction in spending on schools. We fell compared to other states dramatically, and we still haven't really caught up to other states." From 1977 up until 2010, in California there had been a steady growth of class sizes compared to the national average, "which have been decreasing since 1970." During the 1970s, school spending per student was almost equal to the national average. Using discount rate, "measured in 1997–1998 dollars, California spent about $100 more per capita on its public schools in 1969–1970 than did the rest of the country." From 1981 to 1982 up until 2000, California had consistently spent less per student than the rest of the U.S., as demonstrated by data collected by the
U.S. Bureau of Economic Analysis and by the
Public Policy Institute of California. Pupil-teacher ratios decreased since the passage of Proposition 30, and according to a National Education Association survey, California had the second-highest starting teacher salary among the 50 states in 2018. In addition to the
Serrano v. Priest decision which equalized school funding between school districts, in 2013, California lawmakers created the
Local Control Funding Formula, providing greater resources to school districts with student populations having higher needs, being determined by the rate of children in poverty or foster care and the rate of English language learners in the district, and adding an additional 20% or more in "supplemental funding" to disadvantaged school districts. == Popularity ==