Credit: Andrew Reed/EdSource

A new analysis of the enduring impact of Proposition 13, the 1978 initiative that voters passed as a backlash against rising property taxes, concluded it has contributed to a widening wealth gap, a severe housing shortage and, for decades, inadequate funding for public schools.

“Proposition 13 is just one example of what happens when a purported progressive state allows a privileged few to hoard opportunities and resources at the expense of the greater good,” concluded the report “Unjust Legacy” by the Opportunity Institute and Pivot Learning, released on Wednesday. The institute is a nonprofit advocating for equitable outcomes for Californians. Pivot Learning is a consulting organization that works with schools in California and other states on improving achievement.

The 45-page report did not recommend a particular fix for Prop. 13, although it presented several scenarios that could result in billions of dollars of additional K-12 funding. The remedy would depend on which goal you’re trying to address, it said: Generate more revenue or increase revenue stability? Increase tax fairness? Expand access to homeownership? Increase local control over taxation or give the state Legislature more control? The report’s aim was to provide a broader understanding of Prop. 13’s legacy for policymakers and researchers to explore angles in depth.

Inspired by Howard Jarvis, a Republican businessman and unsuccessful politician, Prop. 13 received 65% of the vote. Among its features, Prop. 13:

  • Cut residential and commercial property assessments to 1975–76 values.
  • Capped property tax rates at 1% of a property’s purchase price.
  • Permitted assessed values to increase no more than 2% annually.
  • Allowed a property to be reassessed only when sold or when the owner made significant improvements.
  • Set a two-thirds rather than a 50% majority vote to pass any new “special” tax in a local election.

Prop. 13 coincided with fast-rising government spending, double-digit inflation and soaring housing prices that, in turn, caused higher property assessments and bigger property tax bills. Senior citizens on fixed incomes and workers whose raises couldn’t keep up with inflation complained they were being taxed out of their homes and priced out of California.

But the report suggests a darker motive, too. The ’70s was a decade of sizable immigration of Latinos and Asians with children in schools, and the state’s mix of population, then two-thirds white, was changing. There was talk for the first time of an eventual majority-minority California.

“Proposition 13 was also just one in a contemporaneous wave of state referendums that had xenophobic and racist overtones,” the report states, referencing several studies.

Prop.  13 was preceded by a series of court rulings, known as the Serrano decisions, in which the California Supreme Court ruled that funding schools based on property values violated the rights of children in school districts with a low tax base. The court didn’t rule out funding schools through property taxes; it said the revenue had to be distributed more fairly. And that’s what the Legislature proceeded to do with legislation pushed by Gov. Jerry Brown in 1976, said Michael Kirst, an emeritus Stanford University professor who was Brown’s president of the State Board of Education and adviser at the time. But then Prop. 13 passed, pre-empting its enactment, he said.

Funding plunged for schools

The result was a hollowing of school funding, with California falling from the fifth in per-student funding to 47th in the nation in the next two decades.  In 1988, voters approved Proposition 98, guaranteeing a portion of the state’s general fund — about 40% — would be allotted to K-12 schools and community colleges. Prop. 98 supporters envisioned legislators would treat the requirement as a minimum level of school funding, but in most years it has served as the ceiling, not the floor.

Those districts whose property values generate per-student school funding beyond what the state funds — primarily high-income communities — are exempt from Prop. 98. Today they make up about 15% of districts serving about 5% of students, according to the report. High-income communities have supplemented state funding with parcel taxes, which required a two-thirds majority approval because of Prop. 13 — a big barrier contributing to disparities.

But Prop. 98 funding levels for schools have soared since the end of the Great Recession (2007-09), amplified by an income tax surcharge on top income earners that voters made permanent in 2016. The top 1% of earners now fund half of the state’s income taxes.

As the report noted, in 2019-20, California’s per-student funding, unadjusted for regional costs, reached the national average. And the Legislature is poised to pass a state budget in which per-student funding will likely well exceed the national average — with funding for low-income districts that receive extra money under the state’s Local Control Funding Formula even higher.

At least for 2022-23. But the flip side of tax progressivity is volatility; a state tax structure dependent on revenue from capital gains follows stock market gyrations. During the Great Recession, state funding for schools fell $7 billion or about $1,200 per student.

“It’s a reminder that the boom and bust cycle is real. Property taxes are a piece of the puzzle to smooth out volatility,” said Carrie Hahnel, senior director of policy and strategy with the Opportunity Institute.

If a recession were to happen this year, as some forecasters predict, school districts are better poised than a decade ago to weather it, but the impact of a sizable recession would still be jarring. Revenue from property taxes has been more stable and predictable — and still could be, depending on how a Prop. 13 reform were structured.

“I’ve always said school funding should be a three-legged stool, with local, federal and state participation for stable and growing funding,” said Kirst. “We need to get local districts back in a way that transcends parcel taxes and developers’ fees.”

One way, briefly mentioned by the report, could be to phase out the 1% limit on taxing property or 2% limit on reassessing property values annually, and to share a portion of the revenue to supplement income-poor districts’ tax increases, perhaps in the same region or county. Not equalizing the revenue could revive Serrano-type lawsuits and court intervention.

Apart from education funding, the report documents other inequalities from Prop. 13. The limit on property tax increases encouraged homeowners to hold on to their properties longer than in other states, resulting in fewer houses on the market. Owners were able to factor in market scarcity in setting the price of a home and, until recently, were able to pass on the house at the same assessed value to children and grandchildren, as an inheritance.

Because of redlining, exclusionary zoning and racism, Black, Asian and Latino Americans for decades were unable to obtain mortgages or buy into many neighborhoods where they could build the same kind of intergenerational wealth that high-income white families have been able to achieve, in part through Prop. 13, the report said.

As the report noted, many factors — large-lot zoning, high land costs, government fees — contribute to the high cost of housing. By limiting property taxes, Prop. 13’s contribution was to encourage cities and counties to zone land for retail and manufacturing rather than housing, in order to get sales tax and business revenues. Cities fought each other for big-box stores and ignored housing needs.

“Proposition 13 will continue to prevent us from having more equitable resources for housing and local government; it relates to how well we support families and children,” Hahnel said. “That’s why we are calling for another look at the effects of Prop. 13.”

Prop. 13 has remained popular in polls — and viewed as politically untouchable for decades. But in 2020, a statewide initiative to reassess commercial properties at market value to produce additional state funding came close to passing, with 47% in favor, and another initiative did pass. Proposition 19 requires that heirs of an inherited, low-assessed property live in the house, not make money by renting it.

In a statement Tuesday, the anti-tax Howard Jarvis Taxpayers Association, named after the father of Prop. 13, dismissed the Legacy report as “a thoughtless assault on California property owners.”

“Out-of-touch researchers are wasting their time and yours by issuing yet another report on how much more money the government could collect if only it was allowed to take it,” it said.

Kirst acknowledged it could be a hard sell to convince voters to raise property taxes for more state revenue, but praised the report as “a first of a kind analysis with a focus on equity that had not been well analyzed.”

“It is a major contribution to school finance in California,” he said.

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  1. Don Cruser 1 month ago1 month ago

    What people like about Prop 13 is that it keeps property taxes low so that elderly people can continue to live in their home in old age when income is low. Hawaii does the same thing by simply reducing taxes for home owners over 65. Chevron is not included.

  2. Bean 2 months ago2 months ago

    Prop 13 is the root cause of all the misery and homelessness we see around us. It rewards unproductive land-squatting, penalizes productivity, induces sprawl, climate arson and eventual economic stagnation.

    It needs to be phased out over say a decade and taxes on productivity needs to be reduced.

    Grandmas squatting in their million dollar homes, using up all the services and leeching off the young and the middle-class families will do fine, just like that do in the other 49 states.

  3. Frank F Noey 2 months ago2 months ago

    Mr. Fensterwald, I grew up in a neighborhood that was home to blacks, whites, latinos and asians. We were all friends and our families socialized together. Everyone enjoyed the property tax break Prop 13 allowed. When I bought my first house, I paid a much higher property tax rate than my parents. As did my friends who left the neighborhood and purchased homes. We continue to pay high property taxes … Read More

    Mr. Fensterwald, I grew up in a neighborhood that was home to blacks, whites, latinos and asians. We were all friends and our families socialized together. Everyone enjoyed the property tax break Prop 13 allowed. When I bought my first house, I paid a much higher property tax rate than my parents. As did my friends who left the neighborhood and purchased homes. We continue to pay high property taxes in the State of California. Do you ever get tired of throwing the blacks, latinos and women under the bus? I find it so offensive that you can make a particular race feel as though they have nothing going on for themselves.

    Maybe schools should look at the monies spent and determine where the waste is. That will never happen, just continue to blame others for your perceived inequalities. I came from a lower middle class family, studied, worked and achieved success. If I had failed, it was no ones fault but my own. What a concept.

    Your article really does not make much sense. You talk of the only folks who benefited from Prop 13 were white. I believe you simply throw out that statement to incite people, but in reality it is a slap in the face to minorities that have done very well for themselves, but then we get back to the personal responsibility issue that seems to have been tossed aside.

  4. Richard 2 months ago2 months ago

    This report is full of ridiculous left wing nonsense. The report writers appear to have no understanding whatsoever of history. The authors ignore all the great programs we have put into place in California that encourage students to succeed. For example, if you do poorly in high school in California - that often happens because students goof off in high school - you can enroll in community college, take 60 units and go to … Read More

    This report is full of ridiculous left wing nonsense. The report writers appear to have no understanding whatsoever of history. The authors ignore all the great programs we have put into place in California that encourage students to succeed. For example, if you do poorly in high school in California – that often happens because students goof off in high school – you can enroll in community college, take 60 units and go to Cal or UC. Community colleges have great tutoring programs if you are deficient in math or your writing skills are sub-par.

    Community colleges, I should mention, have fabulous programs for blue collar workers, welding, auto-mechanics, health care programs (nursing and dental assisting). You can get the skills to succeed in the work force with a two year community college degree. If you are low income community colleges waive tuition. If you can’t afford books EOPS will pay for your books, if you are on Cal Works and you have kids the state will pay for your child care. Many community colleges have child care facilities now on campus.

    Food stamps? 40 years ago college students could not get food stamps – now college students can get food stamps. Pell Grant? Pell Grants are high enough to the point you can just about cover your rent, (max grant $6,400). If you apply for a Cal Grant you get more money on top of that.

    Additionally, community colleges, and state colleges will find you an on campus job – funded via the Cal Grant program . So the feds will pay your rent, feed you with food stamps, the state will pay your tuition to community college, pay for your books, and give you on on campus job.

    I myself got Pell grants and I also worked for the building and grounds when I was going to community college – I made minimum wage working 20 hours a week.

    The authors’ thesis in this ridiculous report is we are “underfunding” education in California, and that racism is built into our educational funding, that’s why some groups don’t do as well as others.

    That’s a tired old tale from 50 years ago; it negates all of the wonderful programs we have now to help kids get ahead (see above) Another thesis is we need to pour billion more into K thru 12 – that this will lead to equitable outcomes for students. The author, apparently, believes if we spend all this extra money on K thru 12 the students who are lazy and never open a book will suddenly start doing well in the classroom!

    In fact, if you pour all that extra money into K thru 12 the most likely outcome will be higher teacher salaries, you will also see more administrators at the schools. As most know, a high school diploma doesn’t get you much of a job anymore, you must train after high school, you need to go college, or get training in blue collar trades.

    Finally, the author of this paper is falling back on that old tired left wing mantra – America is racist, racist at its core. That’s not true anymore, not at all. The programs I have just written about, Pell Grants, Cal Grant’s, tuition free Community college, student loans, EOPS programs – these programs are open to all. The programs were created, in part, to deal with disparities in income in the US, they were designed to give everybody a chance to succeed, a chance to get a good job. Some, sadly, don’t take advantage of these opportunities.

  5. Brenda Lebsack- Teacher 2 months ago2 months ago

    13 billion dollars were given to California public schools through the American Rescue Plan and yet it’s still not enough?? There must be a hole in these school districts’ pockets. Maybe the lack of funds is not the real problem, maybe it’s the leaders squandering the unprecedented influx of money. Placing guilt trips of “racism” on taxpayers is unwarranted and will have the opposite effect when it comes to persuading voters.

    Replies

    • Richard Golfer 2 months ago2 months ago

      At UC Berkley the average adminstrator supervises a whopping three workers, quite a bit of bloat in the UC system, not so at California Community Colleges.

  6. Karen F Cull 2 months ago2 months ago

    Another side effect of Prop 13 was that if local city governments wanted to increase their tax base they needed to focus on commercial property where they can gather sales tax rather than residential. Which is why we have so many empty malls and not enough homes.

  7. W L Clark 2 months ago2 months ago

    Never enough tax money for the black hole of California government. Why should CA homeowners be taxed out of their homes to pay for schooling for illegal aliens and foreigners imported by the US Government from Afghanistan and Ukraine? Prop 13 is a lifesaver for Califonria homeowners – no changes needed or wanted!

    Replies

    • CH 2 months ago2 months ago

      I am a teacher. We upped the taxes in our city to help pay for schools. Did I see it trickle down to the students? No! A resounding no! Our superintendent is making a ton of money, though. Leave homeowners alone and shop elsewhere for money that the kids and teachers never see.

  8. el 2 months ago2 months ago

    Proposition 13 caused a lot of damage to schools in the 1980s. But, one of the things it did facilitate is a more equitable school funding mechanism that follows the student and funds schools at a decent minimum level regardless of where that student lives. Property taxes have stability but they are also fundamentally inequitable. And, as a method of school funding, it causes gating, where parents in other states have literally been sent to … Read More

    Proposition 13 caused a lot of damage to schools in the 1980s. But, one of the things it did facilitate is a more equitable school funding mechanism that follows the student and funds schools at a decent minimum level regardless of where that student lives. Property taxes have stability but they are also fundamentally inequitable. And, as a method of school funding, it causes gating, where parents in other states have literally been sent to jail for “theft” because their students were enrolled in the “wrong” school district. Our funding mechanism makes interdistrict transfers relatively easy (when there’s room) and lets parents more easily take their student to any public school that is appropriate for them – whether that’s the school across the street or the one near grandma’s house so they can go there after school or a school near the parent’s workplace, etc.

    Prop 98 isn’t perfect and sales and income taxes are more volatile. On the other hand, property taxes have no respect for cash flow, so they can be especially painful to people with lower incomes or people who experience financial setbacks.

    Prop 13 is certainly inequitable and it especially favors corporations and people who own land as a business. It favors older owners (especially corporations that never die) over newer ones. But, I prefer the school finance we have now over a scenario where schools rely on their local property taxes to survive regardless of the number of students they serve.

  9. Paul Muench 2 months ago2 months ago

    California lost its first seat in the U.S. House of Representatives last year. The stability of remote work is yet to be seen. There’s much news of us being in a housing bubble. The U.S. is in a proxy war with Russia and to some extent China. I suspect we’re in a time when the past is not as good a predictor of the future as it used to be. I’m wondering what … Read More

    California lost its first seat in the U.S. House of Representatives last year. The stability of remote work is yet to be seen. There’s much news of us being in a housing bubble. The U.S. is in a proxy war with Russia and to some extent China. I suspect we’re in a time when the past is not as good a predictor of the future as it used to be. I’m wondering what the new stable will look like. Maybe it’s time to think of something new rather than fighting old battles.

    Replies

    • el 2 months ago2 months ago

      For clarity, California’s population still grew between 2010 and 2020 – it just didn’t grow as fast as some other states.

      • Paul Muench 2 months ago2 months ago

        True, but all measurement is based on relative sizes.