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Solimar Research

California Voters Need Crash Course in Effects of Prop 13

Mar 3, 2010

With yet another $20 billion deficit looming, the State of California government appears to be on the verge of a complete meltdown. Dealing with this situation would be trying under any circumstances, but everything is made more difficult by two things: Proposition 13, and voters' failure to understand the consequences of Proposition 13.

During the last few weeks, I had separate conversations with two people one a Republican and the other, I assume, a Democrat with many years of experience in public service and the private sector. Neither conversation started with Proposition 13 or tax policy, but both discussions ended up there. All of us lamented the public's lack of understanding. What the public doesn't understand is that a law that passed handily in 1978 hasn't made the state any more efficient or anyone except for commercial property owners and a few immobile homeowners any richer. 

Then came the results of the latest Field Poll, which disheartens me further. I'm not necessarily talking about people's opinion for solving the State of California's latest budget crisis. (Half of the respondents would rely mostly or totally on spending cuts.) I'm talking about this: 63% said state government is not responsive to voters' needs, yet 75% said constitutional changes are not needed if state lawmakers would simply work together. Essentially, the poll respondents said the system is fine, but the participants are failing.

Obviously, state lawmakers from both parties should work together more cooperatively. But that's only a prerequisite; it's not the solution. I think the poll is one more indication that the public does not know what the state government does or how it spends its money. Field Poll Director Mark DiCamillo told the San Francisco Chronicle that respondents' solution to the budget problem "may be a pipe dream."

So let's lay this out. The 2009-10 state budget is $109.7 billion. Estimated expenditures in 2008-09 were $118.1 billion, and actual expenditures in 2007-08 were $129.7 billion, according to the Legislative Analyst's Office. Of the current year's $109.7 billion budget, $25.1 billion lies in "special funds," the majority of which is dedicated to transportation. The big problem is the general fund, which is budgeted at $84.6 billion this year. That's down about 17% from two years ago.

What does the state spend the general fund on? Health programs account for 19% of the general fund, and social services and criminal justice (mostly prisons) are about 10% each. Meanwhile, 40% goes to K-12 education, and 12.4% goes to universities and community colleges. 

Why does the state spend such a large proportion of its money on education? Proposition 13.

When voters approved Proposition 13 in 1978, they limited property taxes to 1% of assessed value, the effect of which was to cut local funding for school districts by about two-thirds. At that time, the Brown administration and the Legislature could have shrugged and said, "OK, if that's what you want..." School districts could have laid off two-thirds of their teachers, and those remaining would have had 90-student classrooms. 

But Sacramento recognized that response would have been an utter disaster. So the state stepped in and, using money from its general fund, made up for the shortfall in local revenues. Almost overnight the state became the majority funder of K-12 and community college education. When the Deukmejian administration inched toward cutting these state education funds, voters responded by approving Proposition 98, which now guarantees education a percentage of the state general fund thus enshrining education funding in the state's budget the exact same way that voters enshrined the 1% property tax limit through Proposition 13.  

Do voters understand all this funding mix? Not at all. People think that prisons or welfare make up the majority of state spending. A Public Policy Institute of California poll recently found that only 16% of respondents one out of six! could identify K-12 education as the biggest piece of the state budget. The other 84% don't know where to begin to balance the budget. My Republican friend, who served several years in the Schwarzenegger administration, says she grew frustrated with the public's determination that the budget deficit could be solved by slashing the state bureaucracy. You could lay off half of the State of California's employees, she says, and the budget still wouldn't be balanced. That's because what the state does primarily is funnel money to school districts and counties. It's a result of Proposition 13.

But Proposition 13 was passed 32 years ago. Easy enough for it to slip out of the state's collective memory except that there are reminders everywhere you look.  

Not long ago, my wife and I chatted with friends who are moving from an unincorporated area to a city. They wondered how their property taxes would change. We explained that under Proposition 13, their taxes would be 1% of assessed value, and that amount could increase no more than 2% annually thereafter. My wife and I then asked what was on their tax bill now. Any bonds or special assessments? Our explanation and questions met with blank stares even though our friends are college graduates, California natives, longtime homeowners and old enough to have voted for Proposition 13. They don't have a clue what's on their tax bill or where the money goes. The only thing they are sure of is that "the government" wastes most of it.


I don't intend to sound like one of those pointy-headed intellectuals, because I ain't. I do wonder, however, about California's policy options when voters understand so little about the system they have created.

Paul Shigley