The Elephant in the Room 

California's fiscal mess continues to worsen thanks to the anti-tax, anti-government policies of the GOP.

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But by placing such a steep constitutional barrier on raising property taxes, Prop 13 created intense pressure to increase other taxes, such as sales taxes, causing the state's revenue stream to become both more regressive and more volatile. Linking state and local governments' budgets to consumption taxes also meant that revenues would rise and plummet wildly with the booms and busts of the economic cycle.

Through the two-thirds vote requirement, Prop 13 endowed a small minority of right-wing state legislators with veto power over tax measures. It also gave them a potent bargaining chip to use on virtually all other legislation. This is why in the just concluded budget negotiations, Republican legislators were not afraid to demand that Brown weaken California environmental laws in favor of corporate polluters as a price for getting their votes.

Prior to 1978, local governments funded many public services with property taxes they raised and lowered themselves. Prop 13 (along with a school-funding equalization decision by the state Supreme Court, Serrano v. Priest) ended this arrangement. Afterward, California was forced to fund schools and most other functions of local government with revenues raised mostly through Sacramento, and these revenues were now limited by Prop 13's strictures.

Ironically, then, the much-ballyhooed "conservative measure" effectively centralized power and finances, rather than keeping power in local communities. Lustig believes this centralization of budgets and taxes further empowered the far-right, because it became harder for taxpayers to see a connection between the taxes they pay and the services provided in return. "People ceased to see the local process of decision-making and local results," Lustig explained. "They became ripe for the Republican line that taxes were tantamount to extortion."

Prop 13 and other anti-tax measures also have shifted the burden of funding government from corporations to the middle class. "There's been a redistribution of wealth within the state," Lustig noted. "Global pressures and competition caused some of the loss of income, jobs, and revenue. But it was Prop 13 and subsequent revenue and spending limits, and tax loopholes for the corporations that are most responsible."

The California Tax Reform Association has pointed to the numerous loopholes written into Prop 13 affecting how ownership of commercial real estate is defined as the chief reason why corporations have been able to dramatically reduce their property taxes for decades now. According to Lenny Goldberg and David Kersten, authors of System Failure: California's Loophole-Ridden Commercial Property Tax, a data-heavy research report, "in virtually every county in the state, the share of the property tax borne by residential property has increased since the passage of Proposition 13 in 1978, while the share of the property tax borne by non-residential property has decreased." In Alameda County, for example, assessor data describes a shift between 1973 and 2010 in which the overall share of property taxes paid by residential owners increased by nearly 20 percent while commercial real estate's share decreased 20 percent.

Even in communities where there is strong support for increased funding for schools, parks, and other services, Prop 13's constraints to the fiscal constitution set the stage for increasingly bitter squabbles between otherwise natural allies. Teachers, parents, public-employee unions, neighborhood groups, nonprofits, environmentalists, librarians, social workers, seniors, youth — groups that would normally make up a progressive majority — have instead been pitted against one another in a fight over a shrinking pot of money required to fund community needs. To paraphrase a famous quote, "We are all drowning in the bathtub now."

In Oakland, arguably one of the most liberal cities in the nation, the city council and mayor have had their agenda set for them by the lack of revenue coming from Sacramento. Prevented from closing the budget gap through a focused adjustment of taxes on the $41 billion stock of city real estate in Oakland, the council and mayor have little choice but to push regressive measures, like a parcel tax, once public-employee unions agreed to make significant concessions. Parcel taxes, such as the one pushed by Mayor Jean Quan, generally require each property owner to pay the same amount for each lot, regardless of its market value or the owner's ability to pay. An $80 per year, five-year tax increase like this will be an annoyance to most middle-class homeowners, and probably just a gnat-sized raise for most commercial property owners. But it will be a substantial tax hike for low- and fixed-income homeowners — people who can afford it the least.

Had Prop 13 never passed, and had the property tax system become more progressively flexible instead, Oakland's leaders, using a constitutional authority and discretion they currently don't have, could raise the property tax rate for owners of real estate that is valued in excess of $5 million by just one-tenth of 1 percent, thereby raising millions to fund parks, police, fire, and libraries, without any cuts. Because of Proposition 13 and other constraints written into the fiscal constitution, however, the best Oakland's leaders can offer is an $80 parcel tax, or even worse, a sales tax.

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