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Low Taxes for Some, Chaos for All

Revolt of 1978 gave us a byzantine government budgeting system and endless fiscal Band-Aids.

June 01, 2003|William Fulton and Paul Shigley | William Fulton and Paul Shigley are the editors of California Planning & Development Report. They are the principal authors of a special report by CP&DR on the effect that Proposition 13 has had on California.

Beyond these unintended consequences lies the sales tax shell game. Because Proposition 13 robs local governments of their ability to raise property taxes, cities and counties must compete for sales tax revenue. They do this by targeting and subsidizing anything that generates retail sales -- shopping malls, department stores, big boxes, auto dealerships, even (if they're smart) industrial parks with lots of business-to-business sales. At the same time, locals will frown on any development that generates only property tax, especially if the development requires a lot of public services. Houses, for example.

The most important -- and peculiar -- side effect of Proposition 13 has been to tether local governments to Sacramento, turning them into lobbyists and dragging them into the annual budget debate. Proposition 13 was intended to empower the people against tax abuse by the government. But, paradoxically, it also took the power to determine what to do with the property taxes away from local governments.

In the old days, property taxes were high, but at least you could have a debate at your local city hall about how much they would be increased and what the money would be used for. No more. Proposition 13 says that the allocation of the property taxes among local government entities is a decision to be made by the governor and the Legislature.

Combined with other state policies, this requirement means that cities, counties and special districts must lobby in Sacramento every year to protect their share of the property tax pie. In bad years, such as this year, the state tends to shift property taxes away from counties and cities to pay for the state's financial obligation to schools. In good years, such as the previous few, the state tends to forget about returning the money to counties and cities.

Not surprisingly, this consequence of Proposition 13 has broken the bond of trust between Sacramento and local government, making it virtually impossible for them to work together to address or solve any problem in the state. Name the issue -- crime, potholes, stray dogs, welfare, health -- and if it requires the state and local governments to work together, it almost certainly will not get done.

Proposition 13 might be changed eventually. The system may become so complicated that even experts can't figure it out. Or houses might become so expensive that only rich people can afford them -- meaning the voting middle class won't benefit and could turn against it.

But none of this is likely to happen in the foreseeable future. The system continues to churn out platoons of experts who have learned how to manipulate it. And thanks to plummeting interest rates (and low property taxes), California's emerging population groups are becoming home buyers so rapidly that the homeownership rate in the state is actually going up.

As economist John Maynard Keynes once said, in the long run, we're all dead. Having survived Jarvis, Gann and the original generation of homeowning tax-cut crusaders, Proposition 13 now seems likely to outlast all of us.

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