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Problem: Perceived runaway local property taxes During the 1970s, home values in California increased dramatically As property values soared, local governments did not adjust rates adequately, creating very high property tax bills California residents, angry about their high property taxes and about what they perceived as unresponsive local government, voted a ballot initiative known as Proposition 13 Proposition 13 was enacted in June 1978 voters passed the measure by a vote of 65 percent to 35 percent California tax revolt continued into 1979 with the passage of Proposition 4, which limited state spending to previous years with allowances for increases in population and inflation Strategy: Proposition 13 Proposition 13 cut local property taxes in California by about $6 billion (53 percent) It set property values at 1975-76 levels The measure limits property taxes to 1 percent of assessed value Proposition 13 limits annual increases in assessments to 2 percent Allows reassessment of property only when the property is sold The measure also made raising taxes more difficult by requiring approval by two-thirds of the legislature to increase state taxes, and prohibits local governments from imposing new taxes without a two-thirds vote of the electorate Impact: 25 Years of Direct and Indirect Consequences On the property tax: Property tax becomes very unfair -- owners of similar houses in the same neighborhood paying hugely different tax bills because one house was bought more recently than another Homeowners have assumed a greater share of local property tax than business, largely because commercial property turns over much less frequently than residences, and business have been able to change hands while circumventing a sale and thus a new assessment On school funding and education: California legislature passed Assembly bill 8 in 1978 increasing the states responsibility for school district funding Because resources are equalized across districts, local voters have less incentive to spend as much on schools, leading to larger class sizes By 1982-83, California per-pupil spending dips below the national average School district funding becomes more prone to fluctuations in the states economy By 1988, California voters, unhappy with state spending on local education, pass Proposition 98, which provides a formula-driven guarantee of state funding for local schools During the 1980s -- a period of relative prosperity in California -- the state met its obligations for school funding The funding impact of Proposition 13 is acutely apparent during the recession of the early 1990s a series of state budget shortfalls prompts the state legislature to shift responsibility for funding services back to local levels Some local jurisdictions especially counties -- experience fiscal crisis California legislature in 1996 passes a class-size reduction measure providing an additional $650 (later $800) for each K-3 student in classes of 20 or less
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