35 years after Prop 13, has it worked?

Article Highlights

  • Has California's Prop 13 worked, 35 years later?

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  • Have tax and expenditure limits effectively stopped government growth?

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  • Before Prop 13, CA gov spending grew at .7% per year. After, it grew at 2.4% per year.

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Today is the 35th anniversary of the passage of Proposition 13. The California ballot initiative limited the state’s property tax rates and transferred responsibility for allocating local property tax revenues to the state legislature — but did it yield an increase in fiscal discipline?

During the 1970s, California property values, and thus the assessments used to compute property tax liabilities, doubled in real (inflation-adjusted) terms. The political class, enjoying the resulting torrent of new property tax revenues, largely refused to reduce property tax rates. (The assessment times the rate equals the tax bill.) One enormous problem was that individual government agencies — school districts, flood districts, etc. — imposed their tax rates independently, and the total tax rate was the simple sum of all of the above. Any effort to exercise fiscal discipline was a collective good from the viewpoint of any given bureaucracy: a reduction in tax collections by one simply left more dollars on the table for others. In any event, then as now, the bureaucracy and elected officials had powerful incentives to respond to the demands of concentrated spending interests rather than those of diffused taxpayers, and, then as now, government spending was blandly assumed to accomplish much good, with or without the support of actual evidence.

And then as now, it was ordinary people who had to foot the bills, in this case skyrocketing property tax liabilities, too often by selling their houses. Yes, a significant number of people literally were being taxed out of their homes, many of whom were the elderly on fixed incomes, a rather perverse situation to which the central response of elected officials and the bureaucracy was… silence.

Up to the plate stepped Howard Jarvis, a man whose philosophy of public finance was simple: don’t give the bureaucrats and the politicians the money in the first place. The result was a voter initiative, Proposition 13, the official title of which was the People's Initiative to Limit Property Taxation. Notwithstanding the Pravda-like title, Proposition 13 was a constitutional amendment approved by the voters on June 6, 1978, by a margin of about 65–35.

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