LogFAQs > #979162218

I remember the controversy over California's Prop 13 in 1978. I was in Kindergarten at the time. This law required that property taxes would be set at their 1976 values, and could not be increased by more than 2% per year, with a maximum rate of 1% of the cash value of the property. This applied to residential and commercial properties. Property values could only be increased beyond those limits when a property is sold or substantially improved, which would cause the property to be reassessed at current market value. In addition, it required a two-thirds supermajority to pass state or local tax increases.

The ballot proposition passed by nearly two to one.

The effect of this law was that long term (generally elderly) home owners would pay lower tax rates than new buyers, making it more difficult for younger people to buy homes, and making older people more likely to hold onto their current homes. Property tax revenues also declined by 60% in 1979. From 1978 until 2012, housing prices increased 170% in Los Angeles, San Diego, and San Francisco, while tax revenue increased only 67% on homes that did not change hands during that time period.

Furthermore, the supermajority requirement made it very difficult to pass new taxes, even when necessary to finance new expenditures. San Diego County fell afoul of this when they raised sales taxes 0.5% to fund a new jail and courthouse; this tax increase passed with a simple 51% majority, not a 2/3 supermajority. The county was forced to reduce their sales tax until the $320 million in illegally obtained income had been repaid (Rider v. County of San Diego).