Did Prop 13 Kill California?
To understand California’s road to insolvency, we need to go back to June 1978, when Californians went to the polls and enacted Proposition 13.
Under Republican Gov. Earl Warren and Democratic Gov. Pat Brown, California epitomized the postwar American dream. Its public schools, from kindergarten through Berkeley and UCLA, were the nation’s finest; its roads and aqueducts the most efficient at moving cars and water, the state’s lifeblood, to their destinations. All this was funded by taxes, which fell heavily on the state’s flourishing banks and corporations.
Amid the inflation of the late 1970s, however, the California model began to crumble. As incomes and property values rose, Sacramento’s tax revenue soared but Democratic Governor Jerry Brown, neither spent those funds nor rebated them. With the state sitting on a $5 billion surplus, frustrated Californians grumped to the polls and passed Proposition 13, which killed property taxes effectively destroying the funding base of local governments and school districts, which thereafter depended largely on Sacramento for their revenue. Ranked fifth among the states in per-pupil spending during the 1950s and ’60s,California sank to Mississippi-like levels the mid-40s in rank by the 1990s.
Since 1978, state and local government in California has been funded more by taxes on personal income and sales. Bank and corporation taxes have been steadily reduced. In the current recession, with state unemployment at 11 percent, tax revenue has fallen off a cliff.
But the problem with Proposition 13 wasn’t merely that it reduced revenue. It also made it very difficult to increase revenue.
Raising taxes now requires a two-thirds vote of the Legislature, though in 47 other states, a simple majority suffices. California has become overwhelmingly Democratic in the past two decades, but Republicans have managed to retain footholds representing just over one-third of the districts in both houses of the Legislature.
The current Republican crop has refused in good times as well as bad to raise business or other taxes. (Increasing the tobacco tax, for instance, has failed each of the past 14 times it has come up for a vote.) They protest that the state already has the nation’s highest taxes. In fact, California ranks 18th among the states in percentage of personal income paid to state government, and its presumably beleaguered wealthiest 1 percent, according to Citizens for Tax Justice, pay just 7.4 percent of their income to the state while the poorest pay 10.2 percent.
The state is facing a $24.3 billion deficit that it somehow has to close. In short order, the state will have to throw 940,000 poor children off its health-care rolls and lay off tens of thousands of teachers.
The nation’s banks are stuck with so many California mortgages gone awry that a huge contraction in state spending would make their assets even more toxic. In the short term, the only way to avoid a further downturn may be a federal loan to the state. The Obama administration ignores California’s plight at its own and the nation’s peril.
A more permanent, homegrown solution to California’s woes would require the state to eliminate the two-thirds threshold for enacting taxes, to repeal Proposition 13’s freeze on the value of commercial properties (some of which are still assessed at their 1978 levels) and to end the process of ballot-box budgeting through the initiative process, which is now more dominated by monied special interests than the Legislature ever was.
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