California Proposition 13 (1978)

From Academic Kids

Proposition 13 was a ballot initiative enacted by the voters of the state of California on June 6, 1978.

Its passage resulted in a cap on property tax rates in the state, reducing them by an average of 57%. Proposition 13 received an enormous amount of publicity, not only in California, but throughout the United States. Its passage presaged a "taxpayer revolt" throughout the country that is thought to have contributed to the election of Ronald Reagan to the presidency in 1980.



Proposition 13 rose from a 1971 and 1976 California Supreme Court ruling in Serrano vs. Priest that a property-tax based finance system for schools was unconstitutional and violated the equal protection clause principle enumerated in the U.S. Constitution. Previously, a local property tax would go directly to local school system, which minimized state government's involvement in the distribution of revenue. This led to wealthy homeowners being able to fund their school at a lower tax rate than poor inner-city dwellers that needed higher tax rate to collect a comparative amount of revenue for the school system.

The court ruled that the state would need to find a way to make the distribution of revenue more equitable. The legislature responded by capping the amount of revenue the wealthy school district would receive, while funneling any additional revenue into poorer districts. While more equitable, this diverting of money led to a conservative backlash against property tax because wealthy homeowners were not seeing the tax revenue they were paying as benefiting them.

The Revolt

A movement started, with the late Howard Jarvis as the most vocal and visible backer of Proposition 13. Officially titled the "People's Initiative to Limit Property Taxation," Proposition 13 passed with 65% of voters in favor and 35% against, and with 70% of registered voters participating. Proposition 13 was placed on the ballot through the California ballot initiative process (also known as referendum), a clause in the California constitution that allows voters to place a proposition for a law or constitutional amendment provided that the backers have collected a sufficient number of signatures on a petition. When Proposition 13 was passed, it became article 13A of the California state constitution.)

Under Proposition 13, the real estate tax on a parcel of property is limited to 1% of its purchase price, forever, until the property is resold. The proposition was passed, in part, due to homeowner anger at ever-increasing tax rates. Among those affected by the increasing tax rates were senior citizens on fixed incomes, who could no longer afford to pay the property taxes on their homes because of soaring population and land value speculation in California.

Aftermath in California

Proposition 13 has benefited homeowners whose homes have appreciated in value since it was passed. Owners of commercial real estate have also benefited: if a corporation owning commercial property (such as a shopping mall) is sold or merged, but the property stays deeded to the corporation, ownership of the property can effectively change hands without triggering Proposition 13's provision that fixes the amount of tax based on the property's resale value. Critics of Proposition 13 argued that it unfairly benefits commercial property owners and should be changed. Recent attempted ballot initiatives have not succeeded in rectifying the perceived flaws.

Faced with shrinking revenue, both from Proposition 13 and from the state's loss of most property tax revenue (which formerly went to localities — cities and counties), California localities have recently sought their voters' approval for "special assessments" that would levy new taxes earmarked for services that used to be paid for from property taxes — such as road construction, school, street lighting, police and firefighting units, and sewers.

Faced with the loss of revenues, California localities have taken measures such as condemning property using eminent domain, the act of government to take land property from the people, to attract large retail development. The sales tax revenue generated by the "big box" retailers is more lucrative than the property tax and helped to bolster their original revenue.

In the 2003 California recall election in which Arnold Schwarzenegger was elected governor, his advisor Warren Buffett suggested that Proposition 13 be repealed or changed as a method of balancing the state's budget. Schwarzenegger, aware that to advocate changing Proposition 13 would be to touch a political third rail that could end his gubernatorial career, said, "I told Warren that if he mentions Proposition 13 again he has to do 500 sit-ups."

The Geopolitical Landscape in the United States

California's initiative system, which gives voters the power to legislate and pass laws, is distinct from that of many other states, and residents of states that lack the referendum process have been unable to follow the example of Proposition 13. However, the states that do allow voter-passed referenda (24 in all) have been able to pass laws similar to Proposition 13.

Proposition 13 has been widely regarded as the most visible catalyst that launched the modern conservative movement - dedicated to lowering taxes, decreasing the size of government, and increasing states' rights - into the national spotlight. This, in turn, helped to catapult former California Governor Reagan into the U.S. presidency and later, would help the Republicans regain control of both houses of Congress and of a majority of state governments.

Meanwhile, the Howard Jarvis Taxpayers Association, a special-interest group, continues to lobby for lowered and limited taxes in California and has been the most ardent defender of Proposition 13.

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