EXCERPTS FROM THE NEW TAX REVOLT DIGEST
A report from California
Proposition 13
The roots of Prop. 13 ©1978 by the California Center for Research and Education in Government, Sacramento, Calif. MEASURES generally regarded as the sons and daughters of California's Proposition 13 were on the ballot in 11 states this November. Actually, the tax revolt didn't start in California. And even within the state, there have been several previous attempts to slash taxes via the initiative. But Howard Jarvis and Paul Gann are getting the credit or blame, because the California vote in June was so dramatic. Also, the national media have created the expectation that nearly everything big and new in America will carry a launched-in-California label. The facts: Ohio's Legislature placed a ceiling on property tax increases almost 50 years ago. Since 1970, five states - Alaska, Indiana, Kansas, Washington and Wisconsin — have enacted various tax limits. New Jersey, Colorado, Michigan and Tennessee have passed spending-limitation measures. All of these came before the Proposition 13 vote in June of 1978. A recycled restriction Within California, the basic outline of the Jarvis plan — a restriction of property taxes to one per cent of value — appeared on the ballot on two earlier occasions, under the sponsorship of Phil Watson, then-assessor of Los Angeles County. Watson, not Jarvis, is the true father of Proposition 13. Just five years ago, California voters rejected a spending-limitation initiative sponsored by then-Governor Ronald Reagan. (The placement of economic reform measures on the California ballot has a long history. Among other schemes: the Town-send Plan, Ham 'n' Eggs, Upton Sinclair's End Poverty in California (EPIC) and a pension scheme sponsored by George McLain. All of these proposals were defeated except McLain's 1948 effort. His plan even placed in the state constitution a requirement that an associate of his named Myrtle Williams be designated as state director of social welfare. The McLain initiative was repealed by the voters the following year.) Despite such precedents, Howard Jarvis is getting credit for being the catalyst in the nationwide tax revolt. He is now directing his boundless energy toward a massive cut in federal spending. His "freedom for taxpayers" proposal calls for a 5% cut in the federal budget for each of the next four years, a 25% income tax slash and a reduction in the tax on capital gains from 48% to 15%. He is finding his federal efforts much more difficult than his campaign in California because he doesn't have the initiative process with which to threaten Congress or to employ if Congress fails to act. The state-level impact The Jarvis impact is apt to be much greater at the state level than in Washington. Already, Governor Mike Dukakis of Massachusetts has felt the sting of the tax revolt. He was defeated by a Proposition 13 candidate, Edward J. King, in the Democractic primary in September. And there are 21 states which have some sort of initiative process to place measures on the ballot. Sixteen of these, including California, allow voters to alter their state constitutions without legislative approval, according to the Council of State Governments. It is in these states that the tax reform movement is taking hold very rapidly. It is generally believed that California, under Progressive Governor Hiram Johnson, invented the initiative in 1911. That's another one of those myths about California: Johnson actually picked up the notion from his fellow progressives in Nebraska. Barrage of new levies IN Culver City, the tax on a resident's utility bill is now 14 percent. In Sacramento, there is now a new admissions tax on concerts and sporting events. In La Mesa, the cost of a sewer connection is rising 1200 per cent. In Los Angeles, it now costs more to license a dog. Throughout California, the cost of doing business with local government has increased markedly. In an effort to offset losses in property tax revenue from Proposition 13, cities and counties have increased numerous existing fees and taxes and have instituted many new ones. Most of these increases were enacted between June 6th, when Proposition 13 was passed, and July 1st, when it went into effect. Since July 1st, a two-thirds vote of the people has been required to levy any new or additional tax. After the Legislature passed its $4 billion local-assistance measure, some communities rescinded some increases or delayed their collection. New building fees A survey by the California Taxpayers Association indicates a major part of the new and increased fees are aimed at the construction industry. New or bigger business license taxes and utility user taxes also are common, as are increased park and recreation fees. Fee increases — not limited by Proposition 13 — have been adopted in many cities and counties to make certain services self-supporting or as nearly self-supporting as
TAX REVOLT DIGEST
Illinois Issues subscribers will be sent a complimentary copy of the Tax Revolt Digest courtesy of the Digest's publisher, who also publishes the California Journal, a monthly magazine on California government and politics. For more information on the Digest, write to the California Center for Research and Education in Government, 1617 10th St., Sacremento, Calif. 95814. December 1978/Illinois Issues/13 possible. The city of Los Angeles increased dog license fees to collect about $500,000; it hiked charges for building and safety inspections to raise another $1.8 million. Collection of a residential sewer service charge was moved up from January 1979 to July 1978, adding $2 million this year. Other increases adopted by many localities: parking fees at parks, swimming pool fees, golf course fees, museum and zoo fees, and on-street and off-street parking charges. School charges, too Elementary, high school and community college districts are instituting or raising charges for services and for the use of facilities. A recent survey by the Los Angeles Times of 70 school districts and community college systems in Southern California showed that new or increased fees have been imposed or are under consideration in at least half the districts. Affected are community use of school facilities including swimming pools, racquetball courts, playing fields and classrooms for night meetings, adult education, vocational education, public lectures and student health services. Some Northern California school districts have begun charging school bus fares ranging from 15 cents to $1 a day. A California Building Industry Association report says scores of increased or new fees have been imposed for zoning changes, sewer connections, building plan checks, water connections, filing and processing of subdivision maps, building permits, parcel maps and development permits. For example, the city of Oceanside in San Diego County increased the fee-per-zone-change from $300 to $1,000, the fee-per-conditional-use-permit from $150 to $300 and the fee-per-general-plan-amendment from $300 to $1,000. A sewer connection in La Mesa, San Diego County, wil now cost $300, up from $25. Prop.13 casualty reports COMPARED to the predictions, the Proposition 13 casualty reports are quite light. There have been no massive layoffs of public employees or drastic cutbacks in governmental services in California. This is because the Legislature gave local government $4 billion out of an embarrassingly large state surplus and because some entities were able to enact a variety of tax and fee increases to make up a portion of property-tax losses. The rundown: • State government. State employees received no cost-of-living pay increases this year. Welfare recipients — including the aged, blind and disabled — also received no state-paid cost-of-living increases. The Governor has frozen hiring, and the current state budget is lower than the previous year's for the first time in 17 years. • Cities and counties. These levels of government are generally within 10 percent of where they would have been had Proposition 13 not passed. In some instances, budgets are close to what they were last year. Common economy moves include bans on cost-of-living increases, hiring freezes, leaving vacant positions unfilled, eliminating or sharply cutting capital improvements and reducing operating expenses. • Community colleges. These districts received funding equivalent to 85 per cent of what they received last year. The first community college casualty was summer school. Most districts canceled summer programs completely or reduced the class offerings. As a result of similar class cuts for the fall semester, enrollment appeared to be dropping. In Northern California colleges, enrollments were down 10 to 15 per cent. • School districts. These were particularly hard hit by Proposition 13, but they fared well under the bail-out legislation. According to the California Department of Education, the kindergarten-through-12th grade programs got about a 10 per cent cut from their original 1978-79 budgets. Before Proposition 13, school budgets totaled $7.8 billion — $3 billion from the state and $4.8 billion from property taxes. After Proposition 13, the total is down to $7 billion — $5 billion from the state and $2 billion from property taxes. Summer school was canceled or sharply curtailed in many districts. Other economy moves included reductions in staff, supplies, field trips, athletic programs, maintenance, adult education and conferences. Many district administrators were reassigned to classrooms. • Special districts. These are not in as good financial shape as are the schools, cities and counties. In California, about 4,700 special districts have been established to provide such disparate services as public transit, waste disposal, water supply, mosquito control, fire protection, libraries, parking and port and harbor facilities. Some districts charge fees for their services while others rely largely on taxes levied. The bailout legislation for local governments included $125 million for special districts, but it required that fire districts have first call on the funds. As a result, fire districts took most of the original appropriation to prevent major cutbacks in their services. The state Legislature adjourned without enacting additional legislation that would have granted $125 million more to special districts. Without the infusion of more funds this year, special districts may have to lay off personnel. How do renters spell relief? RENTERS in California have yet to receive much relief as a result of the passage of Proposition 13. The measure contained no requirement that landlords pass along all or part of any property tax savings to their tenants. Before the June election. Howard Jarvis stated that landlords would voluntarily share their savings with tenants. After the election, it appeared that few landlords were reducing rents and some landlords were even increasing them. In July, Governor Brown said he was opposed to any legislatively mandated freeze or rollback of rents. Instead he urged landlords to roll back and freeze rents voluntarily at pre-election levels and to share their savings through a rebate of one-half of December's rent, or a prolonged rent freeze. Brown indicated that landlords' failure to share property tax savings with renters would inevitably result in local and state rent controls being enacted. Landlords responded that they would not know actual property tax savings until tax bills are sent in December. Such savings, they alleged, will be offset by fee increases imposed by local governments in an effort to raise additional revenues. Also, landlord groups claim that their property tax savings will be offset by higher federal taxes, because reduced state property taxes will mean lower deductions for them on federal income tax returns. When it became evident that rents were not being lowered. Governor Brown threw his weight behind a bill moving through the Legislature. That bill would have required landlords to roll back rents to May 31st, 1978 levels, beginning in January 1979, and to further reduce rents by at least 80 percent of the gross savings under Proposition 13. In an effort to obtain the bill's passage, the bill was amended to allow landlords to raise rents any time after January 1979, providing the tenant was given an explanation for the increase. The bill cleared the Assembly but was defeated 12 to 21 in the Senate. Meanwhile, the city councils of Los 14/ December 1978/ Illinois Issues Angeles and El Monte have already enacted rent ordinances. In El Monte, the city council enacted an ordinance July 28th, effective July 29th, that froze all residential rents from July 29th to December 31st, 1978. The El Monte ordinance did not require that any property tax savings be passed along to renters. In Los Angeles, the city council voted 11 to 1 in late August to require rents to be rolled back and frozen at May 31st, 1978 levels for the period from October 1st, 1978, to March 31st, 1979. Unlike the state legislation that failed, neither local ordinance requires landlords to share all or part of property tax savings with their tenants. In addition to the El Monte and Los Angeles ordinances, rent control measures confronted voters in the cities of Berkeley, Davis, Palo Alto and San Francisco on the November ballot. Generally, the various initiatives require that rents be rolled back to June 6th levels and be further reduced by 80 to 100 per cent of the property tax savings resulting from the passage of Proposition 13. Prop.13 constitutional on all counts THE California Supreme Court may have ruled that Proposition 13 is constitutional, but the legal conflict over the measure is far from over. In its historic September 22nd decision, the court itself said that there were several significant legal points yet to be decided. And it is entirely possible that one aspect of the decision will be appealed to the United States Supreme Court. The state Supreme Court action was suprising in a number of respects: • The decision was handed down only six weeks after the court heard oral arguments in the complex case. It would not have been unsual for the seven justices to have spent many months mulling over the issues before reaching a conclusion. • The ruling was unanimous, with one partial dissent. It is rare for the California court to act as a bloc on a case as controversial and as revolutionary as this one. • The decision upheld an initiative in its entirety (pending future rulings). In the past 20 years, the court has repeatedly knocked down initiatives in whole or in part. • The court acted well before the November 7th state election, evidence that perhaps the realities of current politics were a factor in the timing of the decision. Four justices, three of them appointed by Governor Jerry Brown, will have their names on the ballot for 12-year extensions of their terms or for removal from the bench. The decision will help them keep their jobs. Resolving doubts The court's 62-page decision was written by Justice Frank Richardson, an appointee of Republican Ronald Reagan and one of the four facing the voters this November. Richardson wrote that the proposition "survives each of the serious and substantial attacks" made against it. He added: "If doubts reasonably can be resolved in favor of the initiative, we should so resolve them." There were four major issues before the court: Was the ballot measure an illegal revision of the state constitution, rather than a simple amendment? Did Proposition 13 cover more than one subject, as prohibited by the state Constitution? Because it based property assessments on 1975 values except for those persons buying property after that year's assessment date, did the measure violate the equal-protection clause of the United States Constitution? Did Proposition 13 impair contractual relations between employee organizations and public agencies? The court chose to avoid the contract issue on the grounds that it did not have a case of alleged impairment before it. The justices were unanimous in their view that the Jarvis-Gann initiative was an amendment to the constitution covering only one subject. Chief Justice Rose Elizabeth Bird disagreed with her colleagues on the equal-protection issue. She said that this issue "troubles me deeply. Under Article XIIIA (Proposition 13) property taxpayers are not treated equally, and those sections which promote this disparity must fall." The other six justices said there is no legal reason why two identical parcels purchased at different times cannot be taxed differently. Because a federal constitutional issue is involved, this portion of the ruling can be appealed to the United States Supreme Court. Meanwhile, state and local government officials are now free to implement the Jarvis-Gann plan fully — without the uncertainty of constitutionality hanging over their heads. December 1978/ Illinois Issues/27
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