Approved by voters in June 1978, Prop. 13 requires a two-thirds majority to raise state or local taxes and places strict caps on property tax rates. Taxes can be no higher than 1 percent of a property’s cash value and can increase by only 2 percent a year, as long as a homeowner remains in place. Once a property is sold, however, it is reassessed at current values.
The law has had profound effects on public finance in California. It has altered funding streams for schools, made fiscal relationships between localities and the state into a complicated mess, and put localities on a never-ending hunt for new taxes and fees. Local governments in California are better off financially if they zone property to attract car dealers, who generate hefty sales tax revenues, rather than homeowners, whose payments are capped and partially diverted to the state.
But for most Californians, the law means one thing: a break on property taxes in a state where housing costs are generally a serious burden. “It’s been characterized as the third rail of California politics,” says Jon Coupal, president of the Howard Jarvis Taxpayers Association. “There are repeated efforts to try to weaken it or repeal it, but that’s a ticket to a short political career.” (Coupal’s group is named after Prop. 13’s primary sponsor.)
Nevertheless, a coalition of liberal nonprofits is currently collecting signatures for a ballot measure to end Prop. 13’s protections for commercial and industrial properties. These would be reassessed every three years, with protections for small businesses. The measure would raise an estimated $11.4 billion annually, with roughly half the money going to schools and community colleges. Education has been “desperately underfunded” since Prop. 13’s passage, says Joseph Tomás McKellar, co-director of PICO California, a faith-based group that is cosponsoring the measure. “Proposition 13 contributed greatly to the kind of inequality we see in our state,” he says. “Our economy has grown into an hourglass economy.”
Polling suggests that voters are open to the idea of raising property taxes on commercial enterprises, but support starts to evaporate when they learn about potential impacts on small businesses. That’s without the millions of dollars that the measure’s opponents are certain to spend to defeat it. Despite California’s progressive leanings, the state will be rife with anti-tax messages this year, with a separate ballot campaign seeking to repeal a $5 billion gas tax increase that was imposed in 2017.
Perhaps that atmosphere will lend some momentum to an effort, sponsored by the California Association of Realtors, to make Prop. 13’s property tax breaks even more generous. The group’s measure would allow homeowners who are 55 and older, or who are disabled, to keep their low property tax rates intact, even if they move. The association’s argument is that this will free up housing by making it financially feasible for older homeowners to move out of their large dwellings, rather than feeling they have to stay in place in order to keep their property taxes low. It would turn part of the original logic behind Prop.13 on its head. Rather than reducing property tax rates to allow seniors to stay in their homes, this would give them a tax break that encourages them to move. But making lower rates portable for older and disabled homeowners could cost counties and schools $2 billion annually, according to the California Legislative Analyst’s Office.
Prop. 13 has already created serious disparities between neighbors’ property tax bills. If a family has been in its home since 1980, that home’s taxable value, on average, is $300,000 less than a recently purchased property on the same block. Sometimes the disparity is far greater.
The fact that there’s a serious push to convert tax breaks under Prop. 13 into a lifetime guarantee shows as well as anything the enduring potency the law still possesses four decades after its passage.
