With a measure to reform 1978’s Proposition 13 headed for the upcoming November 2020 ballot, the California Chamber of Commerce and everyone whipped into an anti-tax frenzy ever since have wasted no time spreading lies and misinformation about the proposed measure from the get-go. The measure does not adversely affect residential homeowners. Period. Anyone who says anything different is either ignorant of the facts or not telling the truth. The Raucous Rooster will be returning to the Prop 13 issue frequently over the coming year, as the proposed reform could help ensure our fiscal health and public services far into the future.
Read on for UC Berkeley professor Arthur Blaustein’s perceptive, illuminating take on the 1978 proposition that decimated school funding and public services in California, published four months after it’s passage. – RR
Proposition 13 = Catch 22
California’s rush for fool’s gold
Harper’s November 1978
The reactionary dream of George Wallace and Ronald Reagan, repudiated by the nation at large in 1968 and again in 1976, has come to pass in California under the rubric of “a people’s tax revolt.” Four months after the passage of Proposition 13 by an enthusiastic majority in that benighted state, politicians elsewhere in the country have declared themselves in possession of a new revelation. In primary and election campaigns this fall they have been saying that big government needs to be reduced, and they advertise themselves as courageous representatives of an electorate righteously aroused. Before the rest of the nation joins the headlong rush to the sea, the fine print in Proposition 13 deserves a slightly more careful examination than has been provided by the wise men of the doting media.
A number of states have adopted the initiative and referendum process, but none has used it so often as California. Since its inception sixty-seven years ago, the initiative has not proved to be a very sound means of enacting legislation. Initiatives are typically reflexive, emotional reactions to an issue, poor substitutes for the hearings, debates, compromises, and deliberations that distinguish the legislative process. And so with Proposition 13.
A disarmingly simple initiative of 389 words, it limits the taxes levied on any piece of real property – housing, apartments, factories, and businesses – and makes the limitation binding on the state legislature as an amendment to the constitution. Proposition 13 promised to cut California’s high property taxes by some $7 billion per year, from $12 billion to $5 billion. It immediately reduces property tax bills approximately 57 percent by rolling back the maximum rate of tax to 1 percent of the property’s 1975-76 assessed valuation, and restricts future levies to 2 percent per year. The initiative further requires a two-thirds majority in both houses of the state legislature to approve increases in any other state tax.
Under Proposition 13, the tax savings for a typical $60,000 house will amount to about $765 per year, a seductive figure indeed for California homeowners like myself whose taxes have risen 40 percent in the past two years.
Howard Jarvis, the chief architect of the initiative in concert with Paul Gann, a retired real estate salesman, spent $28,000 to secure 1,264,000 signatures, more than twice the 500,000 needed to place his petition on the ballot. And amid the hoopla of his lavish public relations campaign, a number of insidious provisions in the initiative were obscured. For example, Proposition 13 states that property will be assessed at current market value “when purchased, newly constructed, or change in ownership has occurred.”
Unfortunately, California homeowners are the most mobile in the nation: on average, houses are sold once every seven years. Thus the conditions by which assessments will be unfrozen ensure that tax relief for most homeowners will be at best temporary. As houses are built and change hands, they will receive far higher assessments than voters were led to believe. And because families move more often than such corporate leviathans as Standard Oil, Lockheed, Kaiser, and Ford, the heaviest property tax burden must shift from the corporations best able to bear it to individuals. (A recently completed study of the impact of Proposition 13 in San Mateo County found that, by 1983, homeowners will pay 60 percent of the county’s property tax; prior to the passage of Proposition 13, the homeowners’ share of the total was only 50 percent.)
Fewer houses will be built as a result of Proposition 13’s requirement of a two-thirds majority of the electorate to pass the bonds that subdividers depend on to finance such public facilities as schools, fire stations, and water works. Because available housing stock will diminish, market prices are bound to soar and with them the taxes new homeowners will have to pay.
Landlords will realize a considerable tax cut under Proposition 13 that may or may not be passed on in equitable amounts to tenants. Although rent reductions and controls are being debated in city councils throughout the state, appended to local ballots as referenda, and likely to be introduced as bills before the legislature, tenants at present can depend only upon the good will of their landlords – a group not noted for its charity. With profits increasing dramatically, the market value of rental property will inevitably rise. In effect, then, landlords enjoy both an “increase value” windfall and a “tax free” windfall. Thus, here again relief is greatest where it is needed least. The only way these windfalls might have been avoided was through a transfer tax or capital gains tax on property sales, as Jarvis understood only too well and thus prohibited in his initiative. (Voters would have been wise to question Jarvis’s selflessness given his position as head of the Apartment Association of Los Angeles County and the fortune he has made in various business enterprises.)
A less stringent alternative was available to Californians, if they had only been willing to consider it. Governor Jerry Brown and the state legislature, stung by Jarvis’s achievement, drafted a compromise measure that appeared on the ballot as Proposition 8. Sponsored by Republican State Senator Peter Behr, Proposition 8 would have given homeowners a 30 percent cut in property taxes, paid for lost revenue through state budget surplus, and placed a cost-of-living ceiling on state and local expenditures. Proposition 8 offered no relief to landlords and businesses. (Thus the San Mateo study found that if Proposition 8 had passed, homeowners in that county would be paying only 41.5 percent of the total property tax in 1983, against a much higher and more equitable business share of 58.5 percent.)
Proposition 8 was further distinguished from the Jarvis-Gann amendment by offering special tax breaks to tenants – who are ignored by Proposition 13 – and to the elderly. Proposition 8 was designed to limit the growth of the state treasury rather than to diminish its existing size, as Proposition 13 will do. Further, Proposition 8 could have been amended by the legislature. Proposition 13 can be altered only by a two-thirds majority of California voters in another popular referendum, and thus binds the state to a condition of fiscal extremity.
With all its contradictions and at best dubious advantages, the amendment’s passage nearly defies reason. One understands the success of Proposition 13 only by noting the influence of mass media, and the cultivated susceptibility of their audiences to buzzwords like “the new revolution,” “momentum,” “avalanche,” and “steamroller.” By simple repetition, these words established their own credibility and the amendment’s virtue. Thus the three networks, Time, Newsweek, the New York Times, and the Washington Post anticipate the passage of Proposition 13 as a reenactment of the Boston Tea Party and the Battle of Bunker Hill. Howard Jarvis was afforded the celebrity status more appropriately reserved for Charlemagne or Douglas MacArthur. Dazzled by hyperbole and captivated by their own greed, California voters rallied like yokels at a county fair to win something for nothing. Unwilling to evaluate the contents of the amendment, they were singularly unprepared to confront the realities of its passage – which were swiftly made manifest.
At present, the leadership of California is best described as a government by provisional catastrophe. The state legislature is being muscled for funds from all directions and county boards of supervisors are still meeting far into the night trying to figure out priorities. Do they shut down schools or hospitals, museums or transportation systems, firehouses or police stations, senior citizens’ centers, parks, playgrounds, community colleges, or sanitation dumps? Howard Jarvis told the voters that his initiative would trim the rolls of politicians and bureaucrats. But as voters might have guessed, the best estimates are that not one bureaucrat or politician is going to lose his job. Instead, more than a quarter of a million public-service employees and 10,000 CETA (Comprehensive Employment and Training Act) workers will be threatened in the next eight months by the pink slip.
With one pie to cut, some will eat their fill, more will go hungry. Banks, savings and loan associations, and corporate California were written into the initiative as beneficiaries by Mr. Jarvis. It is no small wonder that the United Bank of California chose the day after the election to release its survey of the state’s major corporations. The survey showed that these corporations raised their profits at a rate nearly double that of comparable companies outside California in the first quarter of 1978.
Jarvis made a point of reminding homeowners about their $7 billion windfall. He failed to mention that $2.5 billion will be transferred to the federal government in the form of higher income taxes because Californians will have less property tax to deduct. He neglected to mention that $3 billion would go to out-of-state corporations and individuals who owned land in California. After corporations in California take their share, the bottom line in this “middle-class tax revolt” is less than $1 billion in the pockets of homeowners.
If corporations and property owners are the winners, the losers are the disadvantaged and the poor. Senior citizens will lose their centers and the public transportation on which they depend; fewer young Chicanos and blacks will be educated at community colleges; women who seek jobs will face a market glutted with the sudden addition of numerous unemployed. All this to save the typical homeowner in Orange County $900 in taxes. But he will have ample time to contemplate the consequences of his choice when the local fire department takes fifteen minutes to respond instead of five; at least he will be able to view the fire from the comfort of his kidney-shaped pool.
It is a curious paradox that the so-called revolt of the middle class should begin in suburban California, where the middle class enjoys more material luxury than it does anywhere else in the country. Suburban Californians are a nervous breed of the “newly arrived.” They suffer the neurosis of having too much and not knowing how well they have it. Fear of displacement makes the newly arrived rather unpleasant people to live with, and Jarvis and company played to that fear.
The nervous suburbanites ask themselves every morning what will save them from labor unions, taxes, blacks, Cesar Chavez, the women’s movement, busing, illegal aliens, fluoridation, and, worst of all, from government. They waited for a message that would preserve them from these evils, and Howard Jarvis gave them the message. He said that Proposition 13 was their constitutional guarantee “to life, liberty, and the pursuit of property.” Apparently happiness is property, according to Jarvis. And a majority of California voters agreed. No matter that libraries would close, that schoolrooms would overflow with sixty-five children to a class, that thousands of people would lose their jobs. The crowds danced on election night. We have not come very far from Conrad’s Heart of Darkness: Kurtz sitting on his little piece of private property with his neighbor’s head on a pole.
Mr. Jarvis made no bones about it: he likes money, knows how to amass property, and these activities pose no philosophical dilemma, since his morality and self-interest are conveniently identical. Ironically, Jerry Brown, his chief opponent, had been working the same side of the street for four years, as had Reagan before him.
Taking a page from Don Quixote, if Howard Jarvis played the Knight of the Rueful Figure, then Jerry Brown played the Knight of the Mirror. But we must bear in mind that Cervantes’ characters possessed an ethical consistency not shared by the heroes of California’s contemporary romance. Chanting “limitation” mantras and raising karma, Jerry Brown helped to create the hostile antigovernment atmosphere in the state that yielded Proposition 13. In his four years as governor, Brown failed to secure decent tax reform. He accumulated the largest state budget surplus in the nation’s history, and this proved the most effective weapon in the arsenal of the initiative’s advocates.
The surplus, estimated during the campaign at $3-$5 billion, was intended to be Jerry Brown’s ticket to the White House. The governor could only enhance his candidacy in 1980 by pointing to the huge surplus as evidence of his frugality. But Howard Jarvis discovered Jerry Brown’s pot of gold, and he beat Brown at his own game. When critics of Proposition 13 objected that its passage would cripple the government’s ability to provide essential human services, Jarvis had only to cite the surplus in rebuttal. It was left to the voter to imagine what would become of those services once the surplus was depleted – as it is expected to be within a year.
The conservatives who supported Proposition 13 were betting that the state would step in and bail out the local communities. But they must have known that with the power of the purse comes control. It has seemed to me that the two cardinal tenets of conservatism are home rule and antibureaucracy. Yet the ink was scarcely dry on the amendment before a special bipartisan Proposition 13 committee of the state legislature was organized to work out the necessary legislation that would keep schools, cities, counties, and special districts operating when the amendment became effective on July 1. The committee secured immediate agreement that the state should provide $4 billion in direct assistance and another $1 billion in emergency loans for the coming fiscal year. Oddly, it was the Democrats in the legislature, led by State Senator Leo McCarthy, who urged that the money be distributed by straight formula, with no strings attached. To the contrary, Assembly GOP leader Paul Priolo asserted the conservatives’ preference for “earmarking” to special interests. Although it was argued that local officials were already hard-pressed and needed no additional restrictions on their limited funds, the conservatives fought to sell out the principle of home rule. Now some communities are refusing any state money to avoid becoming enmeshed in the strings attached. Local governments, over which individuals have traditionally been able to assert most direct influence, are now becoming more aware and fearful of the threat of state authority.
Now that the amendment has passed, Brown speaks as if it had been his own idea from the first. His chidings at the National Governors’ Conference late this summer might have been uttered by Howard Jarvis himself. Whatever ideological differences may exist between the two are invisible to the naked eye.
Side by side, the new Left and the old Right spin their fantasies. In the 1960s the Left argued the hothouse notion that one could bring down the system by going after Pacific Gas & Electric, Bank of America, Safeway, and Pacific Telephone. It advocated such direct action as stealing from coin boxes, forging credit cards and checks, and tossing homemade bombs at power lines. It never occurred to these ideologues that the companies so harassed would simply pass the costs on to the consumer, and that people hurt most would be the poor.
In like manner, Howard Jarvis found eager recruits in his battle against “the politicians.” But politicians from Sacramento to Capitol Hill reserve a special maneuver for such assaults: one step to the right and one step backward. They raise a finger to the wind and “get tough.” Getting tough means slashing budgets for social programs. Just as the corporations pass business costs on to those who can least afford them, politicians pass social costs on to the poor, the minorities, women, and young people.
Jarvis’s sales pitch had a deceptively libertarian sheen calculated to inspire backlash. His ballyhoo about cutting government and taxes down to size was so much snake oil to sooth the conscience of landlords and moneyed taxpayers. It expiated their guilt by suggesting that self-interest is consistent with principle: a neat trick.
Proposition 13 indeed proclaims a message, but it is not the one sung in popular chorus. The issue of big government versus small government is moot; big government is here to stay. The real issue is whether government will be dominated by privileged interests and their hucksters or whether ordinary people will have some say through the conventional political process. The paradox of the California referendum is that so many ordinary people voted their power away.
I highly recommend subscribing to Harper’s magazine, one of the oldest continually published periodicals in U.S. history. It’s an indispensable slice of U.S. politics, news and literature that is always timely educational and entertaining. With an archive available online that stretches back to 1865, it is also an extraordinary resource. – RR