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A tale of two tax jurisdictions: the surprising effects of California's Proposition 13 and Massachusetts' Proposition 2 1/2 - property tax
American Journal of Economics and Sociology, The, April, 1998 by Gary M. Galles, Robert L. Sexton
Real per capita general revenues and expenditures fell after Proposition 13, though not as sharply as they did due to the recession of the early 80s. This similarity to the combined state and local data again indicates that a substantial amount of cities' fiscal erosion that has been blamed on Proposition 13 should instead by attributed to that recession, which was particularly severe in California. They then rose markedly after 1982, largely due to the sharp growth of real per capita charges and miscellaneous revenues, which increased more than 70% between 1982 and 1989 in every city but Sacramento (there was also a post-recession recovery in tax revenues). The result is that, on average, the cities studied had higher real per capita levels of both general revenues and expenditures by 1989 than in their 1977 pre-Proposition 13 peaks (though Sacramento was a significant exception, and Los Angeles, with $2 lower real per capita general revenues in 1989 than in 1977, was a minor one).
Cities with greater real per capita revenues and expenditures than before Proposition 13 cannot blame the Proposition for current fiscal problems. In fact, other things equal, they should be able to provide more services per person, not less, than in 1977, even if their productivity has remained unchanged.
VI
California Counties
THE CALIFORNIA COUNTIES STUDIED (Alameda, Los Angeles, Orange, Sacramento, Santa Clara, and San Diego) followed the same general pattern as the cities. However, they have suffered more fiscal distress than cities since 1977, primarily because property taxes comprised a larger share of the county budgets (so Proposition 13's property tax-reductions hit counties harder) and because real per capita charges and miscellaneous revenue have registered smaller increases since 1977. On the other hand, counties generally fared better than cities in terms of intergovernmental revenue received (in particular, they rebounded in the late 1980s, reducing county fiscal pressures). Still, by 1989, the counties studied averaged substantially higher levels of real per capita general revenues and expenditures than their 1977 pre-Proposition 13 peaks. Only Sacramento and Los Angeles counties were at lower 1989 levels.
Again, except for the unusual cases of Los Angeles and Sacramento counties, Proposition 13 cannot reasonably be considered the cause of recent general county fiscal problems, because by fiscal year 1989, real per capita county revenues and expenditures were both greater than their pre-Proposition 13 peaks.
VII
Comparison Between Massachusetts and California
WHILE DIFFERENT IN DETAIL than California's Proposition 13, Massachusetts' Proposition 2 1/2 also sharply cut back property taxes and limited their future rate of increase. Given the similarity of these two propositions, we would expect the same sort of trends for Massachusetts as for California (Proposition 2 1/2 was passed in 1980, two years later than Proposition 13, so it is harder to disentangle the effects of the early 80s recession from the effects of Proposition 2 1/2). Table 2 reports the same data for Massachusetts' combined state and local governments as Table 1 does for California.
