Proposition 13 and The California Fiscal Shell Game

Abstract

We study the effects of California's tax and expenditure limitations, especially Proposition 13. We find that Proposition 13 was indeed effective at reducing both ad valorem property taxes per capita and total state and local taxes per capita, at least in the short run. We further argue that there have been unintended secondary effects that have resulted in an increased tax burden, undermining the aims of Proposition 13. To circumvent the limits imposed by Proposition 13, the state has drastically increased nonguaranteed debt, has privatized the public fisc, and has devolved the authority to lay and collect taxes and to spend the proceeds so gained. The devolution of authority has been among the swiftest growing aspects of government finance in California, to a far greater extent than in other states. Lastly, we argue that the new tax and spending authorities that have been created to circumvent Proposition 13 have led to a reduction in government transparency and accountability and pose an increasing threat to our democracy.

Fee for Service: Proposition 13 and Municipal Revenue Substitution

“…Analysis of the circumvention of TELs has taken on many names: the "fiscal shell game" (McCubbins and McCubbins 2010), the "politics of circumvention" (Sbagria 1996), and the "circumvention hypothesis" (Kiewiet and Szakaly 1996), to name a few. There has likewise been wide variation in the proposed conduits of circumvention.…”

Institutional Causes of California's Budget Problem

“…2 This article documents the fact that Proposition 13 and other initiatives centralized revenues in the state government and increased transfers to local governments, thereby reducing accountability for overall budget management.…”