25 years later: cities still battle the fallout of prop 13.(Commentary)(Proposition 13 and property tax caps)

June marked the 25th anniversary of the passage of Proposition 13 in California, a landmark initiative that changed the landscape of local government in America.

For California, Proposition 13 capped local property tax rates, transferred control over local property tax revenues to state government, and required voter approval of new taxes. Nationally, the debate surrounding the measure's passage ignited a tax revolt. In the years that followed, similar measures were enacted in several other states--Massachusetts, Oregon, Colorado, Washington, Missouri, Michigan, and Florida as just a few examples.

The legacy of the tax revolt continues in cities today. Including legislative actions and property tax limits enacted prior to Proposition 13, nearly every state now has some form of limit on municipal property tax authority.

The broad swath cut by the tax revolt begs the question, What are the consequences for local governments and the people they serve?

One consequence was tax relief for taxpayers, and many of the measures passed around the nation provided some modest relief.

But at what cost? The unintended consequences of the tax revolt are substantial, most notably the demise of the property tax as a local revenue source and the loss of local authority. From 1972 to 1997, the share of municipal own-source revenues generated by local property taxes declined from 47 percent to 29 percent. This decline coincided with the transfer of revenue authority from local to state governments, as local authority was curbed under state law.

Why should we care about the demise of the property tax and local revenue authority? Local government is the level of government closest to the people and is most able to design systems to meet local needs. Property taxes are the source of revenue tied most closely to the delivery of local services such as police, schools, and clean water. Americans pay local taxes for local services. The property tax also remains the most stable form of tax revenue, as evidenced by its strength despite current economic conditions. Deteriorating linkages among local governments, local property, and local services means that local government is less able to meet the needs of citizens and has less flexibility to weather economic ups and downs, such as the current downturn.