New report analyzes the legacy of Prop 13 on education funding and more

In the more than 40 years since voters approved Proposition 13 in response to rising property taxes, the 1978 initiative has contributed to inadequate funding for public schools, as well as a widening wealth gap and acute housing shortage, according to a new report.

“Unjust Legacy,” released on June 22 by The Opportunity Institute and Pivot Learning, found that California fell from the fifth in per-student funding to 47th in the nation in the two decades following the passage of Prop 13. The analysis found that making certain changes to the way the state taxes its residential properties could result in an increase in funding of at least $1,200 per student.

Maria Echaveste, president and CEO of The Opportunity Institute, noted during a June 22 webinar analyzing the findings of the report that “as the eldest of seven children born into a poor Mexican farmworker family, California’s investments in education gave us — all of us — the opportunity to achieve the American dream. When California was among the top five states in per-student education funding, my siblings and I received a high-quality education even in a little rural district in Fresno County. The California that passed Proposition 13 is not the California of today. We can revisit decisions of the past and better align our policies with the California we want for our children.”

How Proposition 13 works

Prop 13 limits how much governments can tax property to 1 percent of its assessed value at the time it is sold, rather than relying on an up-to-date market price. In most cases, properties are only reassessed when they sell. The law also:

  • Cut residential and commercial property assessments to 1975–76 values
  • Permitted assessed values to increase no more than 2 percent annually
  • Allowed a property to be reassessed only when sold or when the owner made significant improvements
  • Set a two-thirds rather than a 50 percent majority vote to pass any new “special” tax in a local election

The passage of Prop 13 was preceded by a series of court rulings, known as the Serrano decisions, in which the California Supreme Court ruled that funding schools based on property values violated the rights of children in school districts with a low tax base. Ten years later, voters approved Proposition 98, guaranteeing a portion of the state’s general fund would be allotted to K-12 schools and community colleges. Districts largely in high-income communities where property values generate per-student funding beyond what the state funds, known as basic aid districts, are exempt from Prop 98.

Currently only about 15 percent of districts serving about 5 percent of students fit this description, according to the report. High-income communities have supplemented state funding with parcel taxes that require a two-thirds majority approval due to Prop 13. Voters in low-income areas are less likely to approve tax increases, which further contributes to school funding disparities.

Additionally, because the state’s education funding relies so heavily on volatile personal income taxes, these funds are highly susceptible to economic fluctuations and are vulnerable during a recession. “During economic downturns, school districts with less property wealth — and thus more dependent on state aid to meet funding targets — are more likely to experience funding cuts,” the report states. “Differences in funding translate into differences in opportunity: Districts with greater and more stable funding can pay higher salaries, offer more programs, and invest in nicer facilities. School districts with more stable revenues and that can more easily raise additional local revenues in the forms of parcel taxes and school bonds tend to be in communities with more property wealth and that are less tax averse.”

Racial and class inequity exacerbated

The passage of Prop 13 coincided with fast-rising government spending, double-digit inflation and soaring housing prices that, in turn, caused higher property assessments and bigger property tax bills — as well as an influx of Latino and Asian immigrants with children in public schools.

Policies and practices such as redlining directly contributed to the segregation of schools by both race and income since district boundaries and school zones closely mirror neighborhood patterns. The link between housing and schooling drove not only segregation but also resource inequities. “For most of the 20th century, California — like most states — funded a district’s schools largely with property tax dollars raised in that community. By the early 1960s, housing wealth and school funding were so tightly linked that California was sued,” the report states.

Parcel taxes and bond measures are unreliable “Band-Aid fixes,” said Evolve California Executive Director Ben Grieff. His group partners with organizations, community leaders and public officials to advocate for fully a funded education system, including through Proposition 13 reform.

“When you actually take a closer look at that, how much are these local revenue measures for and in which communities are these local revenue measures being passed? What we see time and again is we have wealthier whiter communities that are able to tap into a bigger revenue stream locally than are lower income communities of color,” Grieff said.

Part of the issue is reaching that two-thirds threshold required by Prop 13. to pass a new parcel tax in a local election. “Another reason we should be talking about Prop 13 is the fact that we’re the only place I know of in the world where if you put something on the ballot it requires a two-thirds super majority to pass,” Grieff said.

How can the state address these challenges?  

There is no simple fix to address the overall fallout from Prop 13, researchers concluded. Rather, potential solutions depend on what aspect is being addressed. Changes could be made to improve tax fairness, generate more revenue or increase revenue stability, or increase either local or state control over taxation. To chip away at all the challenges would require a significant overhaul.

When it comes to education, researchers sought to answer two questions: How much more revenue could the state theoretically generate if it changed its property tax policies? And how would school districts benefit from such a change?

California could generate anywhere from $2.6 billion to $44.7 billion more if it made changes to its property tax system to tax primary-home residential properties similar to how New York and Florida tax property, according to the report. Were the state to generate $20 billion — a low-end estimate, researchers said — that would mean an additional $1,200 per student on average.

For an average-sized elementary school with 500 students, that would be enough to hire six additional teachers, counselors, nurses or librarians, or expand preschool and after-school offerings, establish new community schools, deepen professional development for staff, upgrade technology and more.

“It’s impossible not to talk about Prop 13 when we’re talking about increasing funding for public schools,” said Grieff.

“Most people in California don’t even realize that Prop 13 is so broad, and that it does cover commercial and industrial property. Prop 13’s corporate loophole allows some of the wealthiest corporations in the world like Chevron and Disney to still be paying property taxes based on what their land was worth in the 1970s,” he continued. “That is the most egregious aspect of Prop 13, and that’s something that needs to be addressed right away because in total, over the last 40-plus years now, we’ve lost $150 billion from Prop 13. That’s money that should be going to our schools and our communities.”