Rethinking Prop. 13
You knew this was coming. Now that Californians have approved Proposition 30 to temporarily raise sales and income taxes, and now that voters have elected a supermajority of Democrats in the Assembly and the state Senate, a lawmaker has introduced a bill to require only 55% voter approval rather than the current two-thirds margin to adopt parcel taxes to pay for local schools. Advocates of Los Angeles County’s Measure J, a sales tax extension for transportation funding, are frustrated that they fell just short of the required two-thirds in November, and they also are discussing a change to 55%, perhaps just for transportation sales taxes, or perhaps more broadly.
Proposition 13 is back on the table. And it should be.
The 1978 tax limitation measure was in many ways the hallmark of a generation of Californians. It capped property taxes at 1% of assessed value. It limited annual increases in value for property tax purposes to no more than 2%, regardless of how high a property’s market value jumped, until ownership transferred or major improvements were made. It banned the state from imposing any new property tax.
And, most important to the discussion at hand, it allowed local governments — cities, counties, school districts, transportation districts — to raise “special taxes” (taxes restricted for use to particular purposes) only with two-thirds voter approval.
Or did it? It took court rulings and a follow-up ballot measure in the 1990s to crystallize the tax limitation landscape that Californians now describe usefully, although somewhat inaccurately, as Proposition 13. Some supermajority requirements have nothing to do with the 1970s taxpayer revolution at all but were part of the state Constitution adopted in the 19th century. Some were imposed by the Legislature in the post-Proposition 13 world.
But it matters little whether supermajority requirements date to 1849, 1978 or 1996; the question for the current generation of Californians should be how to shape the rules they use to tax themselves to finance their government. The laws set down by their forebears in constitutional conventions or at the ballot box may be instructive, but they are not sacred.
At the time of statehood, Californians were wary of following the example of East Coast states that routinely borrowed money to finance government operations. So they set up a system under which borrowing could go forward only at the instruction of voters. For state bonds, only a majority vote was required. For repayment, bondholders would look to the state, which would in turn look to all taxpayers to make good on their collective obligation.
To finance local government, however, there were no local income taxes to repay bonds (and thank goodness). Repayment came instead from property taxes. But what was to prevent landless voters from soaking property owners for bonds to pay all the government’s bills? Drafters landed upon the two-thirds supermajority requirement for local voters approving local bonds. That requirement remains in place to this day, modified only by a 2000 ballot measure that lowered the threshold to 55% solely for school bonds.
What about parcel taxes for schools, the subject of the proposed constitutional amendment coauthored by 14 Democrats and introduced on the first day of the new legislative session by Sen. Mark Leno of San Francisco?
Unlike a regular property tax governed by Proposition 13, a parcel tax is a flat fee assessed against each piece of real estate regardless of big or how valuable the property is. The owner of a quarter-acre lot on the poor side of town pays the same as the owner of a 1,000-acre estate. And that goes to the nub of the issue about changing the parcel tax requirements.
Parcel taxes were a kind of stopgap measure, authorized by the Legislature (which included the two-thirds vote requirement) in the 1980s as a way to allow voters to avoid Proposition 13 problems. But the notion of equal fees on unequal parcels of property is hardly fair or sound policy. If Californians are ready to move past property tax limits, perhaps the real question should not be whether to reduce the margin to 55% for parcel taxes, but whether residents should be able to increase traditional value-related property taxes to fund their schools and keep their children well educated. If so, a statewide ban on property tax increases is getting in the way of local self-government.
And what about a sales tax increase to fund transportation, or indeed anything else? Set aside the question of whether a sales tax is sound policy and focus instead on the degree to which people of a city, a county or a special district should be able to determine for themselves how to run their government and how to pay for it. Not Proposition 13, but one of its progeny, Proposition 218, cemented the two-thirds requirement on local special taxes, even when they are unrelated to long-term indebtedness, and even when the taxes are imposed broadly across the community — for example, certain sales taxes — rather than on a narrower group of taxpayers, such as property owners. The only rationale for the high margin required in those situations is the prevalence of the no-tax philosophy that took center stage with Proposition 13 in the 1970s.
Have we moved on? Recently, local governments have shown some success in winning two-thirds voter supermajorities to pay special taxes for services that voters demand. To reach that threshold, they have had to spell out in meticulous detail how they will spend their money, and the discipline that requirement has imposed on government can only be described as a benefit. Whether that benefit outweighs the obstacles that Proposition 13 imposes is the question before Californians today.
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