The Ambivalent Legacy of California Proposition 13 (1978)

What can be said about the tax revolt after three decades


Bachelor Thesis, 2011

46 Pages, Grade: 1,3


Excerpt

Table of Contents

1. Introduction
1.1 Proposition 13 in 1978
1.2 State of Scholarship
1.3 Methodology

2. Proposition 13’s Ballot Success
2.1 Causes of Proposition 13
2.1.1 The Pre-Proposition 13 Property Tax System
2.1.2 The Escalating Property Tax
2.1.3 State Government Inaction and Unresponsiveness
2.2 Proposition 13’s Sponsors and Opponents
2.2.1 Proposition 13’s Sponsors
2.2.2 Proposition 13’s Opponents
2.3 Voters
2.3.1 A Diversely Mixed Coalition
2.3.2 Requesting a Property Tax Relief
2.3.3 Fighting Big Government
2.3.4 Sending a Message to an Inactive and Unresponsive Government
2.4 Conclusion

3. Proposition 13’s Impacts
3.1 Fiscal Impacts of Proposition 13
3.1.1 Fiscal Impacts on the State Level
3.1.2 The State Bailout
3.1.3 Fiscal Impacts on the Local Level
3.1.4 Long-Term Development
3.2 Socioeconomic Impacts of Proposition 13
3.2.1 Socioeconomic Impacts on Public Services
3.2.2 Businesses in the New Property Tax System
3.2.3 The New Property Tax System and Horizontal Inequities
3.3 Political Impacts of Proposition 13
3.3.1 Political Impacts on Local Governments
3.3.2 Political Impacts on the State Government
3.4 Conclusion

4. Proposition 13’s Role
4.1 Tax Revolt in the Nation
4.2 Proposition 13 as California Citizens’ Darling
4.3 Proposition 13 as the Scapegoat in California Politics
4.3.1 Proposition 13 and Local Finances
4.3.2 Proposition 13 and Public School Education
4.4 Proposition 13 Showing the Path for Direct Democracy in California
4.4.1 Characteristics of the Initiative Process in California
4.4.2 Outcomes of Direct Democracy in California
4.5 Conclusion

5. Conclusion: The Ambivalent Legacy of Proposition

Appendix 1

TIME Magazine Cover: “Tax Revolt!” (19 June 1978)

Appendix 2

State and Local Per Capita Tax Burden in Fiscal 1976-1977

Appendix 3

Election Results for Proposition 13 by County

Appendix 4

Inflation-Adjusted Per Capita Fiscal Data for California

Appendix 5

Major Post-Proposition 13 State and Voter-Approved Actions

Appendix 6

California City General Revenues, by Source, as a Percentage of Total General Revenues, 1972-2002 (in percent)

Appendix 7

Hypothetical Example of Horizontal Inequities in an Acquisition Tax System

Appendix 8

Tax Limitations Spread Rapidly after 1978

Appendix 9

California City General Expenditures by Function, as a Percentage of Total General Expenditures, 1972-2002 (in percent)

Bibliography

1. Introduction

1.1 Proposition 13 in 1978

A public school system in decay, a delayed state budget year and again, sprawling suburbs, closed parks and libraries – these are a few of the problems Californians face. With its seemingly ineffective government system, many of California’s difficulties are often ascribed to one ballot initiative overwhelmingly approved by voters over 32 years ago: California Proposition 13 (1978). This property tax limitation proposition was the initial tsunami of a tax revolt that swept through most states in America around 1980. Proposition 13 has been both the darling of California citizens and the scapegoat for everything that has gone wrong in the seemingly not so ‘Golden’ State.

The initiative’s sponsors, Howard Jarvis and Paul Gann, succeeded in enacting one of the strictest property tax limitations in the United States. With the highest voter turnout for any off-year election ever recorded in California’s history (Martin, Preface vii) and with an unanticipated 2-1 margin of voters in favor of Proposition 13, the tax revolt led to a political earthquake reaching other states and on the national level to a nomination of Howard Jarvis for TIME magazine’s person of the year (Fox 157).[1]

Being a formally simple proposition that changed the property tax from an ad valorem tax to an acquisition tax, Jarvis’s initiative actually affected many levels and branches of government as well as the everyday life of California citizens. Proposition 13 was an amendment to the state constitution with the following provisions (Hoene 53-54):

1. It set the maximum property tax rate at 1 percent of assessed value, except as necessary to cover preexisting voter-approved indebtedness.
2. Property taxes are collected by counties and apportioned by law (state government).
3. The property tax base, or assessed value, was rolled back to the full cash value of property on March 1, 1975, or as of the date the property changes ownership or is newly constructed after March 1, 1975.
4. Increases in property value assessment are limited to the consumer price index, not to exceed 2 percent annually.
5. Any new state taxes must be passed by a two-thirds vote of both houses of the legislature.
6. Any new special taxes from city, county, or school districts must be passed by a two-thirds vote of the electorate.
7. State and local government cannot impose any additional property, sales, or transactions taxes on property.

In addition, if a property undergoes a substantial modification, the changed/new elements are reassessed, which in an acquisition tax system can eventually result in multiple base years for one property (O’Sullivan, Sexton, and Sheffrin, “Differential Burdens” 723). Furthermore, Proposition 60 (1986) allowed senior citizens once in their lifetime to keep their previous assessed value when moving to another dwelling of equal or lesser value in the same county (Haveman and Sexton 5). A number of other propositions and legislative laws are also connected with Proposition 13 provisions and hint at the complex system which followed the implementation of the 1978 property tax limitations.

1.2 State of Scholarship

With regard to these far-reaching provisions of Proposition 13, academia has already looked into the many aspects of the property tax limitations. The latest publication by Jack Citrin and Isaac William Martin (2009) brings together experts from different fields of academia, the media, and politics in order to evaluate Proposition 13’s role in California over the course of the past 30 years. In his book The Permanent Tax Revolt: How the Property Tax Transformed American Politics (2008), Isaac William Martin analyzes the roots, causes, and consequences of Proposition 13 and emphasizes the critical discussion of Proposition 13 and the tax revolt as a ‘grassroots movement.’ In a similar vein, Daniel A. Smith (1999) reveals the background of Howard Jarvis’s campaign and sheds light on the difference between the media coverage and the actual nature of this ‘small people’s protest.’

Starting with Lester Sobel’s early work (1979), various scholars have researched Proposition 13’s immediate impacts on California citizens and politics as well as the initiative’s role in other states and on the national level. Terry Schwadron (1984) focuses on political and socioeconomic effects of the property tax limitation, while Valerie Raymond (1988) discusses ways to deal with the new situation after 1978. David Lowery (1982) as well as Jack Citrin and Donald Philip Green (1985) compare public opinion polls prior to and after Proposition 13 in order to detect the initiative’s impact on people’s attitudes toward Proposition 13, taxation, public services, and the California government in general.

In a different research field, Arthur O’Sullivan, Terri A. Sexton and Steven M. Sheffrin (1994, 1995) calculate indirect effects of the property tax limitations on people’s mobility in relation to the concept of vertical and horizontal inequities in different property tax systems. With a broader time frame and more longitudinal data, Nada Wasi and Michelle J. White (2005) extend these previous findings in their more recent paper. In addition to these aspects, Marla Dresch and Steven M. Sheffrin (1997) deal with the indirect costs of non-tax resources which have been used to replace the lost property taxes on the local level. Proposition 13’s impact on the fiscal and political relationships between the state and local governments is the focus of the work by John J. Kirlin (1982), Christopher Hoene (2004) as well as Gary M. Galles and Robert L. Sexton (2000).

While the previously presented literature analyzed particular aspects of Proposition 13, other researchers have focused on the role of Proposition 13 in the system of direct democracy in California. Scholars like David D. Schmidt (1989), Elisabeth R. Gerber et al. (2001), Ulrich Glaser (1997), John M. Allswang (2000), or Shaun Bowler, Todd Donovan and Caroline J. Tolbert (1998) discuss characteristics, regulations, and outcomes of the initiative process. The corresponding findings are related back to the aforementioned research on state-local relationships or connected to a discussion of various actors’ use of ballot initiatives for particular political agendas and the development of this process over the years. Taking these findings about Proposition 13 to an ever broader level, authors like Mark Baldassare (2002) or Peter Schrag (2004) link the tax revolt that started in the 1970s to California’s state of mind in the following decades.

1.3 Methodology

As the previous listing of scholarship on Proposition 13 shows, almost every aspect of the initiative has been studied since its passage 32 years ago. Authors have often described the legacy of Proposition 13 with regard to solely one element of the initiative, from its immediate fiscal impacts on the state budget or the indirect effects of the property tax limitations on homeowners to the relationship between Proposition 13 and public education in California or the initiative’s role in the nationwide tax revolt. The objective of my work is to bring together findings from these different research fields and organize them in a way that helps to detect the ambivalent legacy of Proposition 13 three decades after its ballot success.

Since this initiative is such a buzzword in politics, the media, and academia, I will show why Proposition 13 has been both the darling of California citizens and the scapegoat for everything that has presumably gone wrong in the state. With this objective, it is not sufficient to solely focus on the changed fiscal structure of local governments or the role of Howard Jarvis as ‘the small people’s hero.’ Therefore, I will extract Proposition 13’s main aspects that have formed its lasting legacy. I will do so by presenting my findings in three parts:

1) Proposition 13’s Ballot Success (chapter 2): The first part will focus on the initiative’s 1978 ballot success and causes as well as its sponsors and opponents. I will show that the voters’ motivation to overwhelmingly approve Proposition 13 was not a sign of sharply reversed attitudes toward government and public services, but was rather based on two essential aspects: voters requested an immediate, substantial, and permanent property tax relief and wanted to send a strong message to their inactive and unresponsive government through the power of the initiative process.

2) Proposition 13’s Impacts (chapter 3): The second part will analyze the proposition’s (unanticipated) impacts on the state and local governments and California citizens – with regard to fiscal, socioeconomic, and political impacts. Among other aspects, I will explain why the hopes of the initiative’s sponsors for shrinkage of big government were dashed while the alarming prophesies of Proposition 13’s opponents were not fulfilled to their anticipated magnitude. With respect to the political impact of the initiative, I will show that the

unanticipated shift in power relations between the state and local governments has been one of the most important effects of the proposition.

3) Proposition 13’s Role (chapter 4): Finally, the third part will turn to the changing debate about Proposition 13’s role in the nationwide tax revolt of the 1970s and 1980s as well as in California over the past three decades. I will proceed to analyze the double-edged legacy of Proposition 13 as both the darling of California citizens and the scapegoat for the state’s problems. I will underscore the relation between direct democracy and Proposition 13 and identify possible positive results and repercussions of the initiative process as it is used in California.

By analyzing Proposition 13 along this tripartite structure, I will indirectly use a chronological approach, starting with the ballot success and then turning to the developments over time. Thereby, I will enlarge the scope of my analysis by zooming out from the story of Proposition 13 in 1978 to its far-reaching impacts and the even broader discussion about the initiative’s role in other fields. With the help of this chronological and deductive approach, I will detect Proposition 13’s ambivalent legacy.

2. Proposition 13’s Ballot Success

In order to understand why Proposition 13 was so overwhelmingly approved by California voters in 1978, one must look at the years preceding the initiative. The period between World War II and 1978 had brought tremendous changes to the Golden State. On the one side, California became the model for the United States offering Americans and foreigners plenty of economic opportunities in a relatively liberal social life. This ‘Golden Era’ is described by journalist Peter Schrag as California’s high tax era (xxiv) with a well serving government and its qualitative and generous public services (making, for instance, the public education system with the flagship of the University of California one of the nation’s best). However, with the Watts Riots (1965) or Republican Ronald W. Reagan serving as Governor of California (1967-1975) during the Bloody Thursday at the University of California in Berkeley (1969), the Golden State also showed its other, conflict-ridden side. Even though the tenure of Democrat Jerry Brown as Governor (1975-1983) lessened some of the sociopolitical conflicts, California citizens became disaffected with their government’s politics (Schrag 44-52). In this chapter, I will deal with Proposition 13’s sponsors and opponents as well as the voters’ motivation to overwhelmingly approve the initiative. But first, one must understand the causes of the tax revolt which are rooted in three major aspects: the modernization of the property tax system, an escalating property tax through a housing boom and high inflation, and the political inaction in dealing with this pressing problem.

2.1 Causes of Proposition 13

2.1.1 The Pre-Proposition 13 Property Tax System

The ad valorem property tax system in California underwent an important change in the 1960s (reference for the following paragraph: Martin 25-49). In the previous, highly fragmented system, local tax assessors set property tax rates at a fraction of the actual market value and used this assessment as a political tool (for votes or sometimes bribes). This resulted in strong inequities in and between districts with corruption and favoritism damaging both the property tax system and the eventual revenues for local treasuries. On the other side, the assessment of property taxes below statutory requirements was an indirect social policy that provided affordable dwellings for senior citizens, subsidized homeownership, and protected homeowners from sharply rising property taxes (Martin 52).

Eventually, this system underwent a modernization in the mid-1960s when the property tax assessment was professionalized, centralized, and standardized. This was the end to the indirect social policy, and the 1970s brought an escalation to this new setting.[2]

2.1.2 The Escalating Property Tax

More and more people were moving into the state, which resulted in a shortage of housing and a real estate boom – both increasing property values and, thus, corresponding taxes (Hoene 53; Citrin, Introduction 2-3).[3] While the national economy stagnated and real income growth slowed, state and local expenditures were rising (Hawkins 15). Together with an even higher inflation rate (which went up from approximately 5 to 9 percent), California residents were not any longer able to pay their rising tax bills (Sexton, Sheffrin, and O’Sullivan 100).

One should keep in mind that homeowners were facing abrupt and huge tax hikes with a re-assessment made only every three to four years, property tax bills being paid each year in a lump sum, and a housing price inflation which, in some cases, jumped from 5 percent yearly to 5 percent monthly (Haveman and Sexton 3). Less mobile residents on fixed incomes were especially at risk of being forced from their homes (Hoene 54). Thus, Jack Citrin succinctly summarizes: “So there is no great mystery about a primary cause of the tax revolt. It was higher taxes” (Introduction 3).

2.1.3 State Government Inaction and Unresponsiveness

Turning to another feature, the inactive and unresponsive state, one must underscore that California citizens, while easily perceiving their rising property taxes and even faster increasing state revenues (cf. Haveman and Sexton 3), were facing a state government that was not enacting a (substantial) property tax relief and was stuck in a gridlock caused by the budgetary two-thirds supermajority requirement (Allswang 109; Kirlin 152). The state legislature was trying to defer a reform and pass on the blame to other government levels (Hawkins 11-12), but after the state government ‘discovered’ what State Treasurer Jesse Unruh later called “’the obscene surplus’” (qtd. in Hawkins 15-16) of roughly $11 billion, state politicians had gambled away the last pit of trust in their work.

The modernized property tax system finally proved its efficiency (with all its repercussions on homeowners) in the case of the newly-appointed Los Angeles County assessor who announced skyrocketing re-assessments for homes (Hawkins 18-19). This “climatic event” was described by Citrin as “a godsend for the pro-13 campaign. It concentrated public attention on the reality of rising taxes and drowned out warnings of lost services” (Introduction 4-5). This leads to the next section, in which I will briefly present Proposition 13’s sponsors and opponents and explain the path from the unsuccessful starts of Howard Jarvis to his tremendous ballot success with the far-reaching initiative.

2.2 Proposition 13’s Sponsors and Opponents

2.2.1 Proposition 13’s Sponsors

Aiming for a reform of the property tax system in California was not solely part of a right-wing agenda, but fiscal conservatives as well as progressive liberals pushed for a change in favor of the people. The picture given by Isaac William Martin about George Whiley as the spokesperson for the poor and militant on the one side, and Howard Jarvis as the spokesperson against big government and wasteful programs on the other side shows how the topic was addressed from both left and right since it concerned so many people (75-78). Eventually, Howard Jarvis took up the issue, and Daniel A. Smith’s description of Jarvis as a political entrepreneur from Southern California deals with the reasons for this development: Jarvis had unsuccessfully tried different initiatives with various objectives before joining with Paul Gann from Northern California in order to advocate a relatively simple written proposition and to receive enough signatures for the initiative to qualify for the ballot (178). Jarvis appealed to the media which was willingly quoting his famous remarks like: “’We have a new revolution. We are telling the government, ‘Screw You!’” (qtd. in Martin, The Permanent Tax Revolt 98).

Besides the major objectives of tax relief and fighting year-long government inaction, Proposition 13’s core proponents wanted to go further in limiting government revenues and expenditures, cutting taxes across the board, restructuring the budget authority between state and local governments, fighting wasteful programs and stimulating growth, everything at once with a state surplus as a compensation to the loss of revenues (Citrin, “The Legacy of Proposition 13” 6-7; Hawkins 18).

Even though local protestors and small homeowners associations played a relevant role in supporting the campaign for Proposition 13, Smith shows by his close look at Jarvis’s campaign that the success of Proposition 13 would not have been possible without the substantial financial and organizational resources of the United Organizations of Taxpayers and the Los Angeles Apartment Owners Association (175, 197-198). By objecting studies on the grassroots aspect of Proposition 13 in the years directly succeeding the initiative’s success (cf. Smith 180-187), Smith underscores:

Populist movements are not solely composed of a rhetoric that is ‘for the people’; they are necessarily ‘of and by the people.’… Prop 13 was a well-orchestrated, top-down ballot initiative campaign engineered principally by Howard Jarvis. Jarvis successfully detected the widespread, albeit diffuse, public mood and crafted a ballot initiative enabling citizens to vent their collective anger. (178)

2.2.2 Proposition 13’s Opponents

Despite the fact that the pro-Proposition 13 campaign was financially backed mostly by a few Southern California developers and businesses (Citrin, Introduction 4), the initiative’s opponents had a serious alternative with the Behr Bill (named after Marin County Senator Philip Behr). The Behr Bill promised a weaker tax relief than Proposition 13 did, and before the primary elections was supported by a whole range of California’s political, business, and social elite. Being put on the ballot as Proposition 8 it was backed by the majority of politicians on the state and local level (amongst others: Governor Brown, the Speaker of the Assembly, prominent Republicans, and most city and county officials), labor unions, public service officials, big newspapers, most business lobbies and large corporations, the Chamber of Commerce, as well as liberal and conservative taxpayer unions (Martin, The Permanent Tax Revolt 94; Hawkins 18; Schrag 145).

Opponents all warned that Proposition 13 would result in massive public layoffs (the Speaker of the Assembly predicted over 450,000 layoffs; Hawkins 18), tremendous revenue losses for state and local governments, an end to public services and programs (leading to the closure of schools, libraries, and parks), and a significant threat to the quality of police, fire, and other emergency services (Citrin, “The Legacy of Proposition 13” 24; Allswang 106). Despite these vocal warnings and the broad-based elite support for Proposition 8, the anti-Proposition 13 campaign lacked popular support and suffered under disorganization and disagreement (Schrag 147).

Eventually, Proposition 13 was approved by 65 percent while Proposition 8 only gained 37 percent of support. In order to determine the reasons for this clear decision, I will take a look at the studies that analyzed voters’ motivation to approve Proposition 13 in the next section. This analysis will show how far voter attitudes match those of Proposition 13’s sponsors or opponents.

2.3 Voters

2.3.1 A Diversely Mixed Coalition

The Field Institute California Polls have been the major source most scholars used to analyze the voting coalition in favor and against Proposition 13. Among others, Allswang has concluded that the breadth of support for the initiative was the most striking result (107). A number of demographic variables (for instance education, region, and income) showed so little differences between supporters and opponents that they did not even play a role in describing the voting majority (Allswang 107).[4]

It is not surprising that families of modest incomes and senior citizens were more favorable since they were the hardest hit by the property tax hikes (Sobel 123). Likewise, African-Americans, public employees and (very) liberal constituencies rather opposed Proposition 13 because they had hardly anything to gain from the tax relief and were more affected by possible cutbacks in public programs and services (Allswang 108; Martin, The Permanent Tax Revolt 106). Concerning the tax relief motivation, homeowners were more supportive than renters (Citrin, Introduction 5). Nevertheless, the initiative eventually gained a majority in nearly every possible constituency (Smith 174). With almost two-thirds in favor of Proposition 13, Martin concludes: “Anyone might be a tax rebel. … [They were] ordinary people of that time” (The Permanent Tax Revolt 3). This tax revolt was politically and geographically diverse, and besides requesting a tax relief, the protestors had very little in common (Martin, The Permanent Tax Revolt 72-75). With this picture of a diversely mixed coalition in mind, I will test three motivations often brought forward in the discussion about why voters overwhelmingly approved Proposition 13:

- they wanted to enjoy a substantial, immediate, and permanent property tax relief
- they wanted to fight big government by limiting taxation and spending
- they wanted to send a strong message to their inactive and unresponsive government

2.3.2 Requesting a Property Tax Relief

By framing the formerly too low-assessed property tax as a security against the huge and abrupt hikes many homeowners experienced in the 1970s, scholars like John Fund (31) and Jack Citrin explain the support for Proposition 13 as a vote for an “inflation security system” (“The Legacy of Proposition 13” 9) which, as a permanent insurance, provided stability and predictability to property tax bills. William A. Fischel describes how during the highly contested campaign, voters could rely on the tax bill as an accurate source of information about the reason for their troubles (94). And Joel Fox, former President of the Howard Jarvis Taxpayers Association, correctly highlights: “Before Proposition 13 passed, the certainty in property taxes belonged to the tax collector. After Proposition 13, the certainty in property taxes belongs to the taxpayer. That is the revolutionary idea behind Proposition 13” (italics in quote, 163).

The underlying idea is that one assumes a rational voter model in which the voter, in the case of Proposition 13, understood and used the ballot initiative as the most direct way to receive an anticipated tax relief (Lowery 334; Citrin, “The Legacy of Proposition 13” 15). If one looks at the actual numbers, this assumption hits the right point: a majority of Californians enjoyed an immediate and substantial property tax relief (Hoene 64). Some authors quote roughly $200 billion as the homeowners’ savings in the first decade (Schrag 152). Furthermore, through the 2 percent increase limit, the tax relief was permanent (Sexton, Sheffrin, and O’Sullivan 104; Hoene 60).

The 1985 study by Citrin and Green (cf. 23) supports this conclusion by showing that homeowners (in contrast to renters) significantly changed their judgment about the tax burden. While 43 percent of them said in 1977 that the tax burden was much too high, only 28 percent expressed this opinion in 1983. On the other side, 24 percent claimed in 1977 that the tax burden was about right, with much higher 41 percent saying this in 1983 (the other third in both years answered that the tax burden was somewhat too high). Bringing these findings together, my first hypothesis is verified: Voters approved Proposition 13 because they anticipated and received a substantial, immediate, and permanent tax relief.

2.3.3 Fighting Big Government

A different motivation for approving Proposition 13 was tested in David Lowery’s 1982 study. He discusses different explanations for the tax revolt, dealing, for instance, with the tax level and its efficiency (334-335). The idea here is that voters wanted to reduce the growth rate or size of government, or favored tax limitations in order to fight wasteful public services. What would support this reasoning is the lesser support of Proposition 13 by public employees and African-Americans in contrast to the stronger approval of the initiative by fiscal conservatives and Republicans (Citrin, Introduction 5). Furthermore, Proposition 13 was perceived by public officials as “a symptom of public hostility to government in general” (Martin, The Permanent Tax Revolt 15). TIME magazine reported after the primary elections in 1978 that voters overwhelmingly would like to see welfare as an unnecessary service being cut back (“Sound and Fury over Taxes”). Voters were also upset about officials threatening with cutbacks in public services as a tactic to convince Californians to vote for Proposition 8 (Martin, The Permanent Tax Revolt 106). Together with the tremendous budget surplus and skyrocketing property tax revenues for state and local treasuries, both government levels were perceived as fiscally not very lean in their activities (O’Sullivan, Sexton, and Sheffrin, Property Taxes and Tax Revolt 94).

However, Lowery’s study and the analysis by Citrin and Green rebut this assumption. Lowery shows that the tax revolt did not fundamentally change the public’s opinion about the government or politics and economics in general (342-344). Citrin and Green reveal the paradox between the general dissatisfaction with the tax level, government size, services, and responsiveness on the one side and the endorsement for sustained or even increased spending on every public service except administration and welfare on the other side (15-19). Lowery concludes with regard to his aforementioned hypothetical explanations for the tax revolt: “Turning to more substantive concerns, the tax revolt does not seem to have exercised a major impact on public attitudes” (342). Much more disturbing is the constant mismatch between the public’s attitude toward taxation and spending. An astonishing 38 percent of the voters believed that the state and local governments would not have to cut back services when facing a 40 percent tax revenue loss (Sexton, Sheffrin, O’Sullivan 100). Citrin has termed this characteristic the “’something-for-nothing’ syndrome” (qtd. in Citrin and Green 18).

Referring back to the original idea of a majority of voters approving Proposition 13 because they wanted to fight big government by limiting taxation and spending, I can rebut the hypothesis with these findings. In the same vein, non-tax revenues, which will be discussed later, are often accepted by voters as compensation to lost tax revenues (Citrin and Green 29), thus contradicting the concept of voters opposing taxing and spending in general.

2.3.4 Sending a Message to an Inactive and Unresponsive Government

This leads to the third idea of voters wanting to send a strong message to their inactive and unresponsive government as the last test to detect voters’ motivation for approving Proposition 13. This concept was studied by Robert B. Hawkins Jr. (1979), Lowery (1982), Smith (1999), and Martin (2008). The vote for the property tax proposition is framed as a message to the voters’ representatives. In this regard, voters show that they are not entirely powerless and can use the unconventional tool of initiative process to challenge the authority – Martin has termed this element of the tax revolt as “politics by other means” (The Permanent Tax Revolt 2).

If one looks at the media coverage and academic comments on this aspect, one can find plenty of examples describing how the message was doubtlessly understood by politicians (cf. Martin, “Proposition 13 Fever” 43; Hawkins 19). They started to put an emphasis on the property tax issue and the related fields of budgetary policies (Martin, The Permanent Tax Revolt 127). Even though state and local authorities tried to preserve the status quo as long as possible (Citrin, “The Legacy of Proposition 13” 40; Citrin and Green 43), Proposition 13, in the words of Governor Brown, marked an end to the “era of limits” (qtd. in Decker). He accepted the election result by stating: “’We have our marching orders from the people. This is the strongest expression of the democratic process in a decade’” (qtd. in “Sound and Fury over Taxes”).

Taking this idea of sending a strong message further, authors like Schrag (153), Martin (“Proposition 13 Fever” 43), and Samuel H. Baker (342) have shown how many politicians (in both parties) were converted overnight, and how tax issues in general and tax cuts as the ‘all-purpose solution’ specifically were climbing on the center stage of politics. With respect to the previously unimaginable approval of the extensive property tax limitations of Proposition 13, Martin underscores: “And Californians did not just approve it; they embraced it, rejecting dire warnings of doomsday from the state’s political, business, and academic leaders” (Preface vii). Along with the abovementioned explanations, one can assume, in accordance to the third hypothesis, that voters not only wanted to send a strong message to their inactive and unresponsive government, but that this message was also doubtlessly understood – in California and even in Washington, D.C. (Martin, Preface vii).

2.4 Conclusion

Over a time period of 17 years (1968-1984), California voters did reject four major tax cut initiatives and approved only one: Proposition 13 (Schmidt 137). As the chapter has shown, the modernization of the property tax system in the 1960s brought an end to an indirect social policy. Together with worsening economic conditions, it resulted in skyrocketing property tax bills that homeowners could no longer pay. Political inaction and unresponsiveness to one of the most pressing problems of California citizens as well as the ‘surprise discovery’ of a huge budget surplus finally led to an escalation. In this situation, Howard Jarvis as the thriving force behind the tax revolt (which was not a grassroots movement) could advocate his property tax limitations. Despite the doomsday prophesies, the alternative Behr Bill, and the support for Proposition 8 by all of California’s power elite, voters overwhelmingly approved the Jarvis-Gann initiative. In the style of Howard Jarvis, Citrin pointed out: “Proposition 13 took dead aim at high taxes, fired, and scored a direct hit” (Introduction 8).

Although the coalition in favor of Proposition 13 was highly diverse, I have proven that two major motivations underlay voters’ decision to favor the initiative: they acted as rational, economic self-interested voters in anticipating and receiving an immediate, substantial, and permanent tax relief. These voters also wanted to challenge the authority of their representatives by sending a strong message through the initiative process. On the other hand, the idea that Proposition 13 significantly reversed voters’ attitudes toward taxation and spending and that they wanted to fight big government has been rebutted with the corresponding findings. This also contradicts the public announcement of Proposition 13’s sponsors that a grassroots movement of small people gained “a victory against money, the politicians, the government” (Jarvis qtd. in “Sound and Fury over Taxes”). Proposition 13’s supporters were reacting to a common set of problems but were not advocating a shared ideological agenda.

After having analyzed Proposition 13’s ballot success, I will now turn to the initiative’s impacts on state and local governments as well as California citizens. Thereby I will draw the connection between the actual fiscal, socioeconomic, and political impacts and the hopes of Proposition 13’s sponsors and the alarming prophesies of the initiative’s opponents in order to show that both groups were not accurate in their predictions about Proposition 13’s outcomes.

3. Proposition 13’s Impacts

Proposition 13 has led neither to the millennium promised by its proponents nor the apocalypse predicted by its detractors. Yet there has been change – in the tax burden, in the pace of public spending, in the mix of government services, and in the process of budgeting. ( 15-16)

This conclusion by Citrin and Green hints at the aspect that major impacts were not anticipated before the passage of Proposition 13. Though, one must go beyond the discussion of budgets and public services in order to understand why Proposition 13 has played a major role in California politics since 1978. For this policy analysis, I will first take a look at the fiscal impacts of the initiative on state and local governments. This will be followed by a discussion about a change in public services and the impact of Proposition 13 with regard to other socioeconomic aspects. In the third section, the most important aspect, the political impacts of Proposition 13, will be presented.

3.1 Fiscal Impacts of Proposition 13

It is important to understand that the ballot initiative Proposition 13 did not simply become a law after the elections. A successful initiative is implemented by a complex work in the state legislature and administration, the courts, and – if further correlated initiatives are passed – by the voters. The most immediate effect of Proposition 13 was a drop in the overall tax burden from 24 percent above the national average to slightly below the national average (Citrin and Green 16). Local property tax revenues were reduced by around 53 percent or roughly $6 billion (Ross 136; Smith 174). A previously unnoted consequence of the substantial tax relief for taxpayers was that the federal government was a prime beneficiary of Proposition 13 since corporate and personal incomes were less stressed by taxes which resulted in much lower income-tax deductions (Hawkins 24; Schwadron 79). Furthermore, the reduced local tax burden led to a decreased federal aid (Hoene 63-64). Therefore, California taxpayers only kept roughly half of their Proposition 13 savings immediately after its passage (Schwadron 86).

3.1.1 Fiscal Impacts on the State Level

Since Proposition 13 cut property taxes to a much lower level, the state government was facing reduced revenues while expenditures were rising. Thus, it had to cut back on the extensiveness or quality of public services and especially on general administration (Citrin, “The Legacy of Proposition 13” 32). If one recalls the hopes of Proposition 13’s sponsors for shrinkage of government size and growth rate, one can say that their hopes were not fulfilled. Even though the immediate growth rate was slowed, the effect had to be mostly attributed to the national trend (Galles and Sexton, “Computing the Extent of Circumvention of Proposition 13” 136-137). As Galles and Sexton show (127),[5] the overall tax burden on California citizens was reduced, but the size of government has increased over the years. New revenue sources were found and a positive economic development swelled public treasuries through increasing revenues from income and sales taxes as well as other corporate taxes. The total general revenue per capita, after decreasing by roughly $400 in 1978, was back to its 1977 value within a decade (Galles and Sexton, “A Tale of Two Tax Jurisdictions” 127).

[...]


[1] See Appendix 1.

[2] William A. Fischel (2008) argues that the Serrano California Supreme Court decisions in 1971 and 1976 were major causes for a shift in voters’ support in favor of property tax limitations (for more information see chapter 4.3.2). Serrano delinked the local property taxes from their use in the approximate neighborhood, thus decreasing residents’ willingness to accept property tax increases. Fischel explains that communities with wealthier (high property tax-paying) residents and communities with senior citizens were dissatisfied with the disconnection between local property taxes and public spending on local schools in their neighborhoods. They started to view their property taxes as “’a pure deadweight loss’” subsidizing poorer districts (Fischel qtd. in Schrag 149). Fischel identifies these districts as “Serrano losers” (92) which were thus very supportive of Proposition 13. Various scholars, among them Stark and Zasloff (Fischel 97), have objected this argumentation because senior voters showed the biggest shift in support for property tax limitations prior to Proposition 13. Fischel meets these objections by referring to studies that have shown that the elderly are in favor of local school spending if it increases their property values (97-99). With this argumentation, Fischel makes a valuable point, though he works with a very complex chain of causation which does not seem to be as stringent as the three main causes I present in this chapter and many other scholars (such as Citrin and Martin, or Gerber et al.) have identified as the major roots of the overwhelming support of California voters for Proposition 13.

[3] See Appendix 2 for a map illustrating the very high state and local per capita tax burden on California citizens in the fiscal year of 1976/1977 in comparison to other American states.

[4] Cf. Appendix 3 showing a map with the election results for Proposition 13 by county.

[5] See Appendix 4.

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Details

Title
The Ambivalent Legacy of California Proposition 13 (1978)
Subtitle
What can be said about the tax revolt after three decades
College
Free University of Berlin  (John-F.-Kennedy-Institut für Nordamerikastudien)
Grade
1,3
Author
Year
2011
Pages
46
Catalog Number
V171852
ISBN (eBook)
9783640916344
ISBN (Book)
9783640916511
File size
2330 KB
Language
English
Tags
ambivalent, legacy, california, proposition, what, Proposition 13, Brown, Reagan, austerity, property tax, tax revolt, big government, horizontal inequities, direct democracy, Gann, Jarvis, ad valorem, acquisition tax, initiative process, golden era, Serrano, Behr Bill, Prop 13, Proposition 8, bailout, lock-in effect, Nordlinger v. Hahn, fiscal federalism
Quote paper
Renard Teipelke (Author), 2011, The Ambivalent Legacy of California Proposition 13 (1978), Munich, GRIN Verlag, https://www.grin.com/document/171852

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