Thinking Outside the Box?
Studies in Fiscal Federalism and State–local Finance series
Edited by Sally Wallace
Chapter 5: California’s State and Local Revenue Structure After Proposition 13: Is Denial the Appropriate Way to Cope?
Robert W. Wassmer INTRODUCTION California’s path on a state and local government revenue structure that is different from that observed in most of the United States began with its citizens’ 1978 approval of the Proposition 13 ballot initiative in 1978. This initiative placed in California’s Constitution the requirement that the ad valorem rate of property taxation anywhere in the state should not exceed 1 percent of a property’s acquisition value. Acquisition value is set at the time of an arm’s-length sale and increases annually from the time of sale at a rate that cannot exceed the higher of 2 percent or inflation. The result of Proposition 13’s nearly 60 percent cut in California’s local property taxes is illustrated in Figure 5.1. In 1977–78, the last fiscal year before the imposition of Proposition 13, nearly 28 percent of state and local general revenue generated in the state came from property taxation. California’s property tax reliance was 26 percent greater than the reliance exhibited in all states in 1977–78.1 By 2005–06, the most recent fiscal year for which data are available, California’s reliance on property taxation as a source of state and local general revenue had fallen to less than 13 percent. This was 24 percent below the property tax reliance occurring throughout the rest of the United States in 2005–06. The purpose of this chapter is to describe how California has coped with its choice to reduce its reliance on property taxation. As the title implies, much...
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