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In the early 1970 s property tax rates peaked and were still rising each year, which was driving people out of their homes. Even though this gave the state and county governments a surplus of $ 3. 8 billion by the end of the 1970 s, something had to be done. Homeowners were also getting angry because as their property taxes rose the quality and quantity of their public services didnt. Legislature tried to respond with an introduction of three major reform packages in 1977, that was not enough.
When legislature returned in 1978, which happened to be an election year for statewide officeholders, two men have already been working and submitted 1. 2 million signatures for an initiative. This was enough signatures to place what was called Proposition 13 on the June ballot. The Governor at the time disliked the idea of cutting property taxes because he didnt want to use the states surplus to make up for the lost revenue. He put forth an effort against Proposition 13 and legislature rushed to put a competitor proposition, but it was too little, too late. Therefore, in June of 1978 California voters went out to the polls and Proposition 13 passed by a vote of 65 percent to 35 percent. After the dust cleared Proposition 13 reduced tax revenues by approximately $ 6. 1 billion, that is a 53 percent decrease.
After the proposition passed it rolled the property values for taxing purposes back to the 1975 - 76 level and capping property tax rates to 1 percent. The rise in tax prices were slowed by only allowing an annual increase in property tax bill at 2 percent and only allowing reassessment if property changes ownership. Immediately after Proposition 13 pass legislature had the very difficult task of how to distribute a significantly diminishing amount of tax revenue to local governments. The load was slightly lighten by the $ 3. 8 billion surplus, legislature still had to pass a bill (SB 154) to provide relief to local governments to lesson the direct impact of the loss of tax revenue.
Then in 1979 an Assembly Bill was passed (AB 8), which was suppose to be a permanent resolution on how to distribute the reduced amount of money. Assembly Bill 8 was known as the bailout, it gave local government a predictable source of revenue which was hopefully to stop the need for state assistance. The state took approximately $ 2. 7 billion in property tax for the school systems and replaced it back into cities, counties, and special districts. This helped, but in return the state had to take a greater amount of responsibility for school finances. The dependence for state funding from elementary and secondary schools, as well as community colleges were nearly doubled. State financing went from 36 percent in 1977 - 78 to 65 percent in 1979 - 80.
In Assembly Bill 8 the state had to put money into a number of social services and health programs, including the coast of Medicare. One of the downsides of Assembly Bill 8 was that it failed in the ability to adjust proper amounts of funding to areas that need more. In the state of California there are many different areas to live that are very expensive, while there are other that are not, AB 8 gave one flat rate. This meant that cities or tax counties in areas with a lower cost of living didnt collect the same amount of taxes than in high priced areas, but would still receive the same amount of funding from state government. This gave the cities or counties with higher taxing ability a much high budget than low taxing areas. This is only on reason why legislature had to go back to the drawing boards in the early 1990 s.
In many ways Proposition 13 didnt quite help as much as hoped, the winners were the elderly, the poor from being taxed out of their homes, the federal and state governments, and people who owned their own home prior to 1978. The losers were local government, new business owners, and people wanting to buy their own homes after 1978. The elderly and poor were helped out because they dont move into new homes as often, so their property tax stays low. The federal and state government are winners because property tax can be claimed as a deductible by home and business owners on their income taxes. By reducing the amount of deductions claimed, the higher the amount of income tax paid. In the end over one-third the amount of money saved due to lowered property taxes still were paid in income taxes.
After one year alone state revenue increased by $ 1 billion, and federal revenue increased by $ 1. 6 billion. The local government loses because the money that came from property taxes was suppose to go to them. The new home and business owners lose because not only do they have to pay higher income taxes, which is money going to the federal government instead of their own communities. New home and property owners also lose do to the fact that every time a property changes ownership it will get reassessed. Government spending on the public and public services also changed, in fact government as a whole decreased after the passing of Prop 13. Not only have state and local revenues declined in California, they have remained below the national average in all but two years since 1978.
Government shifted the burden of paying for public services from local to state levels. One great shift from local to state government was to school systems, local, and federal dollars have also been spent. Before Prop 13 California was one of the nations leaders in school funding and now we are toward the bottom. State Controller Kathleen Connell has a few ideas of her to help bring up the revenue of California as well as help local governments.
She realizes that it would be very hard to change Prop 13 so she decided to make no new modifications to it. Instead she want to raise sales taxes. She has a sales tax re-allocation proposal that could combine with a state financial commitment of $ 31 million based on the Fiscal Year 1997 - 98 sales tax revenues, which is only a small part of the $ 4. 3 billion surplus. But if the state does not equalize sales tax and guarantee $ 150 million in local assistance all retail revenues would become a non-issue in the future. Kathleen Connell has made the SMART Task Force which is the State Municipal Advisory Team and gave it the job of improving the relation ship between local and state governments.
One of their plans is to make a trade with the state government for either property tax or a sales tax distribution based solely on population. They want to adjust sale tax based on population, rather than were the sales occurred. The overall result of SMART's proposal is to allocate $ 450 million in funding to offset the loss of property tax revenue and increase tax revenue on a county wide basis. A tax policy subcommittee considered whether property tax should be permanently returned to local government and schools and not go to the state. They say local government should get the property taxes because the property is in the local governments jurisdiction; and the taxpaying public should get the money to be put back their local community. The subcommittee also believes that the state should take full funding for items that are within the Legislature's responsibility, such as trial courts.
In Kathleen Connell's report I found that she has no plans to try and change Prop 13, instead change the way government controls its money. In her proposal she insist that local governments should receive property tax because it is closest to that community. That is very smart because local governments know the problems and issues of that area better than the state. The only thing that will be changed in the proposal is the raise of sales tax in some areas. The State Controllers office think that with higher sales tax in higher populated areas is going to make up for the lost revenue from Prop 13.
This might work and it might not, why couldn't you just go to a county with a lower sales tax and buy what they need. Bibliography:
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