Prior to 1978, local governments in the state of California enjoyed own-source general revenues that were significantly higher than the national average. But, the passage of proposition 13 in 1978, and the subsequent passage of proposition 218 in 1997, has significantly reduced the ability of local governments to remain as fiscally independent from the state and federal government as they were prior to the initial passing of Proposition 13. It is my intention to show the history of Proposition 13, the differing opinions regarding it, the laws that govern Proposition 13, and the effect that Proposition 13 has had on the ability of local governments to raise revenue.

In the mid 1970's the real estate market in the state of California began to boom. At the current time, property taxes were based on the full-assessed value of property. Real estate speculation began to push the value of California's property higher and higher. The increase in assessed values of homes in California, with the owner as the primary resident increased one hundred and eleven percent, in just three years (1975-1978). At the same time that owner occupied residential properties were seeing gigantic increases in a

Proposition 13 as written would set the rate of property tax to one percent of the assessed properties value. In addition to setting the property tax at one percent, the date of the assessed properties value was rolled back to the 1975 level for tax purposes. Proposition 13 also limited the increase in the value of assessed value to 2% every year, or the rate of inflation whichever is greater. Properties could only have their values reassessed is when the property is sold, or newly built. If the property is sold, or new it will be assessed at the full market value and then the assessment will start to rise at the rate of 2% per year.

The increased assessed value of owner occupied residential property during 75'-78' began to shift the balance of tax burden increasingly towards the homeowner. In 1975 the percentage share of property tax burden is as follows: 26% property occupied by the owner, 22% property occupied by renters, and 53% to industrial, and commercial properties. In just three years we saw a dramatic increase on the property tax burden of the owner occupied residential properties. The following is a breakdown of the property tax burden by property category in 1978. 36% property occupied by the owner, 19% property occupied by renters, and 45% to industrial and commercial properties. It is not difficult to extrapolate the data from these findings, in just three short years the amount of property tax paid by owner occupied properties rose 10%. At the same time we see a drop of 3% for rental properties, and a staggering 8% decrease in the property tax paid by industrial and commercial properties.

One of the other effects of proposition 13, was that local governments needed money to fund themselves, and would become creative to do so. After the passing of proposition 13, we began to see a proliferation of new fees, and assessments imposed by local governments to raise revenue. One of the most common was a utilities user tax, in this a home that used electrical, gas, or water would pay a small fee each month based upon their utility usage. We also began to see taxes on the usage of hotels and motels, which did not affect the residents, and therefore were passed easily. In certain areas, we saw the implementation of an admissions tax. The admissions tax could be imposed on any recreational type event. For instance, one going to the movies may find a 2% tax added to the cost of the movie ticket, this would go directly to the local government. The admissions tax was challenged somewhat, and it was found to be almost as costly to implement as the revenues it collected. Today, we generally see the admissions tax in cities that have large arenas, which can generate large revenues. .

User Charges: Change and Efficiency since Proposition 13. Institute of Governmental Studies Press.

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