Tempering a famous tax revolt

California may alter Proposition 13 to adjust for unintendedconsequences.

Even famous tax revolts can't last forever.

Proposition 13 - California's revolutionary ballot initiative that spawned copycat legislation across the United States - has been almost untouchable since voters passed it in 1978. And for good reason. It did the two things voters wanted it to do: cut billions of dollars in property taxes and force local officials to spend public money more judiciously.

But now, for the first time, Californians in high places are talking openly about making changes. That's because, along with its achievements, Prop. 13 has come with a host of unintended consequences. Key among these: a shift in the balance of power that gives state lawmakers greater control of the purse strings and casts local officials in a somewhat beggarly role.

No one is saying that higher property taxes are in the offing. Yet sentiment is building that Prop. 13's side effects - from run-down schools to exorbitant housing prices to the proliferation of strip malls - must be redressed.

"It shifted much control from local to state government, but did it in such a confounding way that no one can be sure who's accountable for what," says Peter Schrag, former editor of The Sacramento Bee editorial page and author of a recent California history that examines implications of the law.

Now, several moves are afoot to possibly, just possibly, tweak Prop. 13 so that local officials regain greater control over close-to-home issues the voters care most about. Although the California experience with tax reform is more complex than that of other states which followed suit - including New York, Arizona, Ohio, Illinois, and Massachusetts - the current reevaluation is being seen as a case study for others caught in similar disarray.

"The effort is to replace accountability to local government in ways that are understandable by normal people, taxpayers," says Burt McChesney, co-chairman of the California Governance Consensus Project, a coalition of business, government, labor, education, and community groups.

Formed four years ago, the project's goal is to craft agreement among its diverse members and submit a plan for amending Prop. 13 to the state legislature or, failing that, to submit a measure for the November 2000 statewide general election. "We're trying to deal with the huge mess we created with Prop. 13 in creating a morass and maze of overlapping laws and restrictions that almost no one understands," says Mr. McChesney.

Messing with success?

Long considered sacrosanct by politicians and voters alike, Prop. 13 remains highly popular in the polls. The measure, which amended the state constitution, froze property taxes at 1 percent of a home's assessed value and required a two-thirds approval from voters before city and county officials could impose most other taxes.

Backers are proud to point out that Prop. 13, over its lifetime, saved California taxpayers at least $100 billion, by some estimates. It also helped preserve neighborhood stability by keeping thousands of people from being forced from their homes as real-estate prices soared.

But for cities, the balance sheet looked less sanguine. Not only did they lose that revenue, but they also lost their say in how state monies should be allocated for services they used to provide.

Moreover, Prop. 13 forced them to find other ways to raise money to fund their priorities. As a result, many cities increased fees - some say exorbitantly - on everything from speeding tickets to home inspections to tourists staying in local hotels.

But the primary new source of revenue for localities became sales taxes - which were still available to them under Prop. 13. This created huge incentives for officials to attract retail stores to their cities - and as many as possible.

"One of the things we are concerned most about is a host of land-use decisions [by localities] that favor retail strip and auto malls at the expense of everything else," says David Abel, appointed by state Assembly Speaker Antonio Villaraigosa to head a southern California coalition of businesses known as the Metropolitan Forum Project. "Such decisions have killed off Main Streets, adequate housing, industrial uses, jobs, recreational space, libraries."

The zeal to capture sales taxes has also created competition between city and county governments, manifesting itself in drives such as the San Fernando Valley's effort to secede from Los Angeles.

The California Governance Consensus Project and the Metropolitan Forum Project are two of several organizations formed in recent years to grapple with the issue.

In northern California, a public-private partnership known as Joint Venture: Silicon Valley Network is examining the link between Prop. 13 and sky-high housing prices. The theory is that local governments, seeking to recover costs of growth, are imposing high fees on real estate developers - some as high as $30,000 to $40,000 per home.

Senate Budget Committee chairman Steve Peace has held hearings across the state to examine state-local fiscal relationships. And Assembly Rules Committee chairman Robert Hertzberg has launched a commission looking at LAFCOs, local agency formation commissions, which govern annexations, incorporations, and other boundary issues.

"There are all kinds of contradictory statutes that no one has looked at comprehensively for decades," says Paul Hefner, who works on Assemblyman Hertzberg's staff.

Personal political motives

Part of what's driving lawmakers Villaraigosa, Peace, Hertzberg, and others in Sacramento to restore some political and financial heft to local officials is that they themselves may soon return to their hometowns for jobs at city hall. Many have aspirations for local office after they are forced out of office by terms limits, which California passed in 1994.

"A lot of these guys came from or are going back to local government experience and are well aware of the problems they want to fix before going back," says Mr. Hefner.

A cautionary note

With all these moves afoot, some political observers are reminding reformers not to go too far, too fast. They mention a Los Angeles Times poll of 1,409 Californians last month, showing two-thirds approved of Prop. 13's impacts. Conservatives, the elderly, and the middle class like its effects even more.

"We can't have governments run by theorists and civics books," says Joel Fox, president emeritus of the Howard Jarvis Taxpayers Association, which is named after a co-author of Prop. 13. "The fact is, people were losing their homes and wanted clamps on the taxman. That sentiment prevails today."

Mr. Fox acknowledges that Prop. 13 proponents never intended the state legislature to take control of local revenues the way it has, and he accepts the idea of a constitutional amendment that would lessen state interference with local funding. That could come via recommendations by the California Governance Project.

A compromise solution could be allowing localities to impose nonproperty taxes by a simple majority instead of two-thirds voter approval, and letting them keep some property taxes levied on commercial development. Other measures could include constitutionally guaranteed revenue streams.

"The stars are finally aligning," says Ruben Barrales of Joint Venture: Silicon Valley Network. "It's never been done, although people have tried hard and not lived to tell. But if ever we have been close to a period where we can see real changes on the horizon, this is it."

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