Proposition 13 Case Study

On June 6th, 1978, nearly two-thirds of California’s voters passed Proposition 13 which reduced property tax rates on homes, businesses, and farms by about 57%. The tax rate prior to Proposition 13 was averaged about 3% of the market value, but there were no limits on increases for the tax rate. Many of the properties were reassessed 50% to 100% in just one year and their owners’ property tax bills increased as well. Under Proposition 13 tax reform, property tax value was rolled back and stabled at the 1976 assessed value level. So no property tax on any given home, business, or farm could increase more than 2% per year but only if the property was not sold to a new owner. However, once sold the property would be reassessed at 1% of the sale

One being the Fiscalization of Land Use. Because Proposition 13 reduced the revenues that would be received from property taxes from any particular development (industrial, commercial, or residential), local jurisdictions began to pay even more attention to the fiscal outcomes of land use decisions. In particular, land uses that generated revenues in addition to property taxes became more important. To the extent that land use decisions are now driven by their fiscal consequences. “There are at least three specific instances of fiscalization activities that have been adopted by local government” (Chapman, 11). The Sales Tax and Land Use Choices Local governments receive sales taxes are based on two formulas. The principal method, which originated in the Bradley-Burns Sales and Use Tax Act of 1955, generating sales tax revenues as a function of the dollar volume of sales that occurs in a specific jurisdiction. Under this Act, for every dollar of sales, the local government in whose jurisdiction the sale occurred, receives one cent, which goes into the general fund. To the extent that local governments make land use decisions based on this sales tax revenue, they are acting consistently with the concept of fiscalization of land

Of course, there are cities that do not like retail activity and carefully zone out major retail centers, just as there are cities that will do anything in their power to generate large sales tax revenues. Counties only get the one cent if the sale occurs in an unincorporated area. In addition, counties also receive 1/2 cent for each dollar of sales within the county, which is then divided by formula among all local governments within that county. Most jurisdictions trying to maximize sales tax revenues choose to encourage these types of development over residential development, which generates sales tax revenue only to the extent that the new residents shop in the same city in which they live. It is not surprising to observe the owners of big-box retail and car dealerships attempting to obtain economic incentives for locating in a particular