BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SCR 25 HEARING: 5/15/13
AUTHOR: Wyland FISCAL: No
VERSION: 5/7/13 TAX LEVY: No
CONSULTANT: Grinnell
35th ANNIVERSARY OF PROPOSITION 13
Commemorates the 35th Anniversary of Proposition 13.
Background and Existing Law
Prior to Proposition 13 (1978), the Legislature could
generally enact new taxes or increase existing taxes by
majority vote, and local agencies could enact taxes by
ordinance. Proposition 13 instead required that any
changes in state taxes for the purpose of increasing
revenues to receive approval by 2/3 vote of both houses of
the Legislature prior to enactment, and additionally
compelled a two-thirds vote of the electorate to enact a
local special tax.
Cities, counties, and special districts set property tax
rates on property within its jurisdiction without an
aggregate cap before Proposition 13. State law required
assessors to revalue property annually; however, in
practice, assessors usually reassessed all the homes in one
neighborhood every three to five years. Local agencies
received property tax revenue resulting from the
appropriate property tax rate fixed by the local agency.
Proposition 13 limited the maximum amount of any ad valorem
tax on real property at 1% of full cash value as shown on
the 1975-76 tax bill. Assessors reappraise property
whenever purchased, newly constructed, or ownership
changes. The Constitution caps the growth in assessed
value to 2% per year. Additionally, Proposition 13
provides that the Legislature allocates property tax
revenue "according to law
Proposed Law
Senate Concurrent Resolution 25 commemorates the 35th
SCR 25 -- 5/7/13 -- PageB
anniversary of Proposition 13. The measure contains
several statements regarding property tax rates, assessment
practices, taxpayer benefits, as well as taxpayer support
for Proposition 13 and potential changes and alternatives.
The SCR states the Legislature's reaffirmation of its
support for Proposition 13 and the benefit it provides to
individual homeowners and the state's overall economy.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "Senate
Concurrent Resolution would commemorate June 6, 2013, as
the 35th Anniversary of Proposition 13.
In 1978, 62% of Californians voted in support of
Proposition 13. Thousands of signatures were gathered
across the state to place Proposition 13 on the 1978
ballot. With an influx of new homeowners in California in
the 1970's combined with rising home prices and high
amounts of inflation, many homeowners saw their property
tax rates increase to unaffordable levels. The
unpredictable nature of these higher taxes and their impact
on residents, especially those with fixed incomes, was
unacceptable to California voters. By passing Proposition
13, voters guaranteed predictability for property tax rates
for homeowners, while allowing for gradual increases in
property taxes annually."
2. Yes, but . Proposition 13 may be the most significant
initiative ever enacted by California's voters: its changes
irreversibly reshaped fundamental aspects of California
governance and public finance. However, SCR 25 celebrates
the initiative from a specific point-of-view, and includes
adjectives, phrases, and causal connections that may not
reflect the views of the entire Legislature, including a
statement of the Legislature's support for the initiative.
Should the Committee wish to amend SCR 25 to celebrate the
initiative's more complicated history as described below,
it can amend it by deleting some of its terms and passages:
While inflation and property tax bills increased
prior to Proposition 13's enactment, are the
adjectives "raging" and "soaring," respectively,
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accurate?
The pre-Proposition 13 method of periodic
assessment of real property is in place in more
jurisdictions than California's current acquisition
price base. However, the measure connects this
method of assessment with the assessor scandals of
the 60s and 70s, which were caused by corrupt
assessors, not by an assessment methodology.
Additionally, Los Angeles County Assessor John Noguez
is currently charged with 30 counts regarding
valuations made under the current, Proposition 13
method.
The measure states that proposed alternatives to
Proposition 13 have "unwelcome effects," including
"substantial tax increases for low-income and elderly
homeowners," What alternatives were these, and did
they target low-income persons and the elderly
specifically?
SCR 25 also cites the defeat of Proposition 167
as an indication of a lack of favor of today's voters
for a split-roll. Can the results from an initiative
election more than 20 years ago be correctly
extrapolated to today's electorate, given the state's
demographic and political change during that time?
The resolution reaffirms the Legislature's
support for the measure, and its benefit to
homeowners and the state's economy. While homeowners
have certainly benefitted from Proposition 13, no
empirical data shows that it produced a net benefit
for the state's economy. Given the initiative's more
nuanced and complicated effects described below,
should the Legislature instead recognize the
anniversary of the initiative's enactment, and its
significance and effect on California's system of
governance and public finance without declaring its
support or characterizing it as a benefit to the
economy?
3. The rest of the story . Enacted over 30 years ago,
Proposition 13 remains controversial today. California
property owners pay less property tax, and enjoy the
additional benefits of increased certainty due to the
initiative's limitations on assessed value growth and
reassessments had the initiative not been enacted.
Additionally, the initiative placed voting thresholds on
the Legislature and local agencies seeking to raise taxes
where none existed before, likely contributing to a lower
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tax burden for Californians. However, enacting Proposition
13 did not occur without tradeoffs. Economists and
academics researched the measure's legacy copiously, and
their findings include: that the initiative shifted the
burden of financing public services from property taxes
onto other revenue streams, with undesirable consequences;
transferred property tax allocation powers to the state;
and created considerable distortions and inequities in the
housing market.
Proposition 13 reduced public revenues initially, however,
the state ameliorated much of the revenue loss, and local
agencies found other ways to finance public services.
Proposition 13 resulted in a property tax revenue loss of
51% percent in the first year after enactment, but the
state assumed health and human services programs from the
counties, shifted property taxes from schools to local
agencies, and provided a $2.7 billion bailout to local
agencies in 1978. Local agencies took other steps, such as
relying more on sales taxes, and increasing fees and
charges, which did not for the most part require voter
approval until Proposition 218 (1996), thereby shifting the
burden of financing public services away from property
taxes. Sometimes, costs were aligned with services; for
example, housing developers now pay significant fees for
infrastructure, permitting, and environmental review, which
they attempt to pass on to homebuyers. Other fees did not
bear such a relationship, such as the 48% increase in
revenues from library fines, garbage collection fees, and
sewer charges between 1979 and 1983. Local agencies often
became more entrepreneurial, using redevelopment until
recently to capture property tax increments, making
land-use decisions based on sales tax revenue consequences
instead of sound land use practices, and offering economic
incentives to businesses that generate significant sales
tax revenue to locate in its jurisdiction, such as big-box
stores and auto dealerships.<1>
The initiative also fundamentally changed California's
state-local fiscal relationship. Proposition 13 required
that property tax revenues be allocated "according to law,"
meaning that the Legislature would determine how property
tax revenues would be allocated among local agencies in a
-------------------------
<1>
Chapman, Jeffrey; "Proposition 13: Some Unintended
Consequences," Public Policy Institute of California,
September, 1998
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county levying a property tax; previously, each local
jurisdiction set the property tax rate within its
jurisdiction. The Legislature decided to freeze current
allocations within a county, locking in each agency's share
of the property tax regardless of future changes in
demographics or service demand (AB 8, Greene, 1979); these
allocation shares have been locked in for the last
thirty-five years. Proposition 13 also laid the foundation
for the Legislature to shift property tax revenues from
local agencies to schools in 1992-93, 1993-94, 2004-05, and
2005-06 to meet the state's public education spending
obligations under Proposition 98 (1998).
While it reduced total taxes, Proposition 13 caused
distortive and inequitable tax consequences for California
taxpayers. Under Proposition 13, the date a taxpayer
purchased a property sets a taxpayer's property tax more so
than its actual market value by locking in a property's
assessed valuation from the 1975-76 fiscal year until
ownership changes or the property is newly constructed.
Property owners have a significant incentive not to move
residences, because a new home's purchase price determines
its property taxes, which could exceed the taxes determined
by the original property's factored base year value. While
Propositions 60 (1988) and 90 (1990) allow disabled
taxpayers or those over the age of 55 to transfer base year
values to properties of equal or lesser value than the
original property, locking in the base year leads taxpayers
to make different decisions on housing to due to tax
implications, distorting the function of a normal market.
Additionally, locking in assessed valuations and limiting
growth caused taxpayers owning identical homes on the same
street to pay vastly different property tax amounts; newer
homebuyers bear a proportionally larger share of the burden
for financing public services than longer term residents.
4. On subsidiarity .Proposition 13 is often regarded as a
critical change in tax policy, however, by shifting control
of property tax allocation from local agencies to the
state, and limiting local revenue raising ability, the
initiative and changes that followed fundamentally altered
the relationship between citizens and their government,
empowering the state to the detriment local agencies.
Before Proposition 13, local agencies exercised "home rule"
powers over its revenue sources: local taxes paid for local
services, with some state intrusions, and voters chose
their priorities when selecting officials to lead these
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local agencies; local elected officials set taxes, and
voters held officials accountable at the next election.
Today, local agencies have little flexibility to raise
revenues due to the initiative's limitation on property tax
rates and the 2/3 vote threshold for enacting new or higher
special taxes. Researchers state that Proposition 13 and
subsequent legislative action severely undercut local home
rule powers by establishing a fiduciary relationship on the
part of the state toward local agencies.<2> Counties
particularly are reliant on state funding and must
implement state programs as legal subdivisions of the
state. Researchers add that any policy discussions between
state and local agencies have deteriorated as a result,
describing the fiscal relationship that evolved between
state and local agencies as "a zero-sum political
atmosphere in which fiscal considerations dominate
intergovernmental policymaking."<3>
5. On the other hand . The Committee will hear five other
measures at its May 15th, 2013 hearing that change the vote
threshold for special taxes enacted by Proposition 13:
SCA 3 (Leno) - allows school districts, community
college districts, and county office of education to
levy parcel taxes at 55% vote.
SCA 4 (Liu) - allows local agencies to levy,
extend, or increase special taxes at 55% vote for
local transportation projects.
SCA 7 (Wolk) - lowers the vote threshold for bonded
indebtedness incurred to construct, reconstruct,
rehabilitate, or replace public libraries; allows
local agencies to levy, extend, or increase special
taxes at 55% vote to fund public libraries.
SCA 8 (Corbett) - allows local agencies to levy,
extend, or increase special taxes at 55% vote for
local transportation projects.
SCA 9 (Corbett) - allows local agencies to levy,
extend, or increase special taxes at 55% vote for
community and economic development projects.
SCA 11 (Hancock) - allows local agencies to levy,
extend, or increase special taxes at 55% vote for any
purpose.
-------------------------
<2> Barbour, Elisa, "State-Local Fiscal Conflicts in
California: From Proposition 13 to Proposition 1A," Public
Policy Institute of California, December, 2007
<3> Ibid.
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Support and Opposition (05/09/13)
Support : None received.
Opposition : None
received.