June 6 marked the 40th anniversary of voters’ approval of California’s landmark property tax protections. The passage of Proposition 13 was born out of a need for fairness, as runaway inflation, corrupt assessment practices, taxation based on government guesswork, and appraisals that could be influenced by revenue needs caused people to lose confidence in the property tax system. To make matters worse, this crisis grew for more than a decade while elected officials failed to take decisive action to protect taxpayers.

Proposition 13 solved this crisis, and in doing so made the property tax a more stable and predictable source of revenue. Proposition 13 improved the state’s business climate and job creation. Business owners now can plan their budgets with more certainty, and the tax savings can be invested in expansion and employees. (Unfortunately, subsequent increases in other taxes, fees and onerous regulations have taken their toll on California employers, and ongoing attempts to repeal Proposition 13’s protections for business properties threaten to completely torpedo our state’s competitiveness.) 

The people knew what they were doing when they approved Proposition 13. In fact, they had two choices for how to lower their property taxes: Proposition 8, a measure placed on the ballot by the Legislature, would have provided tax relief for homeowners only, while Proposition 13 provided property tax relief for all property owners, including businesses. Proposition 13 was easily approved, while Proposition 8 was rejected.

Proposition 13 ended the decade-long trend of escalating taxes and the fear that many property owners faced when opening their property tax bill because they did not know how much their taxes would climb.

The initiative lowered the property tax rate to 1 percent of property value, and limited increases in that value to a maximum of 2 percent per year. It also based the tax on an objective standard – the acquisition value, plus the value of any new construction – rather than continuing to base the tax on county assessors’ subjective opinions. When a property changes ownership, it is reassessed at the price the new owner paid, and this becomes the “base-year value” that can grow by no more than 2 percent per year, absent new construction.

The initiative is evaluated in detail in “The Evolution and Impact of Proposition 13: A Visual Guide to California’s Property Tax System,” published this week by the California Tax Foundation, a nonprofit research association formed by the California Taxpayers Association in 1980.

Some notable facts from the report, which should be required reading in all schools and legislative chambers in the state:

Proposition 13 also helped solve a problem with public school funding. In 1971, the California Supreme Court ruled (in Serrano v. Priest) that relying on local property tax dollars to fund schools is unconstitutional, writing that doing so “invidiously discriminates against the poor because it makes the quality of a child’s education a function of the wealth of his parents and neighbors.” In the wake of Proposition 13, the state assumed responsibility for school funding, which made the system constitutional and ensured that taxpayers in wealthy areas contribute their fair share to support schools in disadvantaged areas.

Under the improved funding system, state spending on K-12 education has increased 66 percent over the past seven years. Without any new tax increases, per-pupil spending will increase approximately $4,600 above 2011-12 levels under Governor Jerry Brown’s proposed 2018-19 budget.

Like all things over the past 40 years, Proposition 13 has changed. The voters have approved changes that expand and clarify what is considered a change in ownership or taxable improvement. The most recent change to Proposition 13 came just this week with passage of Proposition 72, which excludes rainwater capture systems from the being considered “new construction.”

Even under Proposition 13, property taxes can take a big bite out of the owner’s wallet, thanks to the annual inflation adjustments and California’s high property values – not to mention the other taxes and fees imposed on homeowners and business property owners.

Imagine how much worse it would be, though, if we reverted to the days before Proposition 13, when a property’s taxable value could grow leaps and bounds based on the real estate market and other factors out of the owner’s control. Imagine not knowing what your property tax would be until the bill arrived, so you couldn’t plan ahead. Imagine your local government not having a stable, predictable revenue source to fund important services.

Thankfully, a large population of today’s property owners can only imagine these scenarios, because they didn’t own property prior to 1978. For these property owners and others who want to avoid the property tax mistakes of the past by learning more about Proposition 13, the California Tax Foundation’s new report makes a fitting 40th anniversary present.