Berkeley universities

California Proposition 13’s ‘unjust legacy’ detailed in critical study

A crowded classroom in California in 2010, near the end of the Great Recession.

A new analysis of the lasting impact of Proposition 13, the 1978 initiative adopted by voters in response to rising property taxes, concluded that it had contributed to widening the wealth gap, a severe shortage housing and, for decades, underfunding of public schools.

“Proposition 13 is just one example of what happens when a supposedly progressive state allows a privileged few to hoard opportunities and resources at the expense of the common good,” concluded the “Unjust Legacy” report by the Opportunity Institute and Pivot Learning, published Wednesday. The institute is a nonprofit organization that advocates for equitable outcomes for Californians; Pivot Learning is a consulting organization that works with schools in California and other states to improve outcomes.

The 45-page report did not recommend any particular solution for Proposition 13, though it presented several scenarios that could result in billions of dollars in additional K-12 funding. The remedy would depend on the goal you are trying to achieve, he said: generate more income or increase income stability? Increase tax fairness? Broaden access to property? Increase local control over taxation or give more control to the state legislature? The purpose of the report was to provide a broader understanding of Prop’s legacy. 13 for policy makers and researchers to explore the angles in depth.

Inspired by Republican businessman and hapless politician Howard Jarvis, Proposition 13 won 65% of the vote. Among its features, the Prop. 13:

  • Reduce residential and commercial property assessments to 1975-76 values.
  • Property tax rate capped at 1% of the purchase price of a property.
  • Permissible assessed values ​​do not increase more than 2% per year.
  • Allowing a property to be reappraised only when it is sold or when the owner has made significant improvements.
  • Set a two-thirds majority vote rather than a 50% vote to pass any new “special” tax in a local election.

Prop. 13 coincided with a rapid increase in government spending, double-digit inflation and soaring housing prices which, in turn, led to higher property assessments and higher property tax bills. Seniors on fixed incomes and workers whose raises could not keep up with inflation complained of being taxed out of their homes and out of California.

But the report also suggests a darker pattern. The 1970s was a decade of significant immigration of Latinos and Asians with school-going children, and the composition of the state’s population, then two-thirds white, was changing. There was talk for the first time of a possible majority-minority California.

“Proposition 13 was also just one element of a contemporary wave of state referendums that had xenophobic and racist overtones,” the report said, referencing several studies.

Proposition 13 was preceded by a series of court decisions, known as the Serrano decisions, in which the California Supreme Court ruled that funding schools based on property value violated the rights of children in low-tax-base school districts. The court did not rule out funding schools through property taxes; he said income needed to be distributed more evenly. And that’s what the Legislature did with legislation pushed by Governor Jerry Brown in 1976, said Michael Kirst, a Stanford University professor emeritus, chairman of the State Board of Education and adviser to Brown at the time. . But then Proposition 13 passed, anticipating its enactment, he said.

Funding has plunged for schools

The result was a decrease in school funding, with California falling from fifth in funding per student to 47th in the nation over the next two decades. In 1988, voters approved Proposition 98, ensuring that a portion of the state’s general fund—about 40%—would be allocated to K-12 schools and community colleges. Proponents of Proposition 98 thought lawmakers would treat the requirement as a minimum level of school funding, but for most years it served as a cap, not a floor.

Districts whose land values ​​generate school funding per student beyond what the state funds—primarily high-income communities—are exempt from prop. 98. Today, they make up about 15% of districts serving about 5% of students, according to the report. High-income communities supplemented state funding with parcel taxes, which required two-thirds majority approval due to Proposition 13 — a major barrier contributing to disparities.

But the funding levels of the Prop. 98 for schools has soared since the end of the Great Recession (2007-09), amplified by a top income tax surtax that voters made permanent in 2016. The top 1% of income high now fund half of state income taxes.

As the report notes, in 2019-20, California’s funding per student, unadjusted for regional costs, reached the national average. And the Legislature is poised to pass a state budget in which per-student funding is likely to significantly exceed the national average – with funding for low-income districts that receive additional funding under the financing of local state control even higher.

At least for 2022-23. But the flip side of fiscal progressivity is volatility; a state tax structure dependent on capital gains income follows stock market fluctuations. During the Great Recession, public funding for schools fell by $7 billion, or about $1,200 per student.

“It’s a reminder that the boom and bust cycle is real. Property taxes are one piece of the puzzle to smooth out volatility,” said Carrie Hahnel, senior director of policy and strategy at the Opportunity Institute.

If a recession were to occur this year, as some forecasters predict, school districts are better prepared than they were a decade ago to deal with it, but the impact of a major recession would still be shocking. Property tax revenues have been more stable and predictable – and could still be, depending on how a reform of Prop. 13 was structured.

“I’ve always said school funding should be a three-legged stool, with local, federal, and state involvement for stable and growing funding,” Kirst said. “We need to reclaim local districts in a way that transcends land lot taxes and developer fees.”

One way, briefly mentioned by the report, could be to phase out the 1% limit on property taxation or the 2% limit on the annual reassessment of property values, and split some of the income to supplement the increases. taxes from low-income districts, perhaps in the same region or department. Failure to equalize revenues could rekindle Serrano-style lawsuits and court intervention.

In addition to education funding, the report documents other Prop inequities. 13. Limiting property tax increases has encouraged homeowners to hold on to their properties longer than in other states, resulting in fewer homes on the market. Homeowners could take market scarcity into account when pricing a home, and until recently they could pass the home on at the same rateable value to their children and grandchildren, as an inheritance.

Due to redlining, exclusionary zoning and racism, blacks, Asians and Latinos have been unable for decades to get mortgages or buy in many neighborhoods where they could create the same type of intergenerational wealth that high-income white families were able to achieve, in part at Prop. 13, according to the report.

As the report notes, many factors—the zoning of large lots, high land costs, government fees—contribute to the high cost of housing. By limiting property taxes, the contribution of Prop. 13 was to encourage cities and counties to zone land for retail and manufacturing rather than housing, in order to obtain sales tax and business revenue. Cities fought for big box stores and ignored housing needs.

“Proposition 13 will continue to prevent us from having more equitable resources for housing and local government; it relates to how we support families and children,” Hahnel said. “That’s why we’re calling for another review of the effects of Prop. 13.”

Proposition 13 has remained popular in the polls — and considered politically untouchable for decades. But in 2020, a statewide initiative to revalue commercial properties to market value to produce additional state funding nearly passed, with 47% in favor, and another initiative been adopted. Proposition 19 requires the heirs of an inherited, low-valued property to live in the house, not earn money by renting it out.

In a statement Tuesday, the anti-tax association Howard Jarvis Taxpayers, named after the father of Prop. 13, dismissed the Legacy Report as “a reckless assault on California landowners”.

“Disconnected researchers are wasting their time and yours by publishing yet another report on how much more money the government could raise if only they were allowed to take it,” he said.

Kirst acknowledged that it might be difficult to convince voters to raise property taxes to boost state revenue, but hailed the report as “a first-of-its-kind, equity-focused analysis that hadn’t been well analyzed.

“This is a major contribution to funding schools in California,” he said.

For more reports like this, click here to sign up for EdSource’s free daily email about the latest developments in education.