Blaming California's Proposition 13 for the state's enduring budget woes is a venerable and enduring exercise among Democrats, bureaucrats, and do-good journalists. Christopher Palmeri's long feature at Bloomberg Businessweek attempts to trace U.S. decline to Californians' fateful decision in 1978 to cap the unchecked growth of property taxes. Despite the article's length and depth--with quotes from such lumninaries as historian Kevin Starr and economist John Husing--the argument is the same as it ever was, and no more persuasive.
Palmeri's story hangs virtually everything that's gone wrong in California on Prop. 13. Cuts in state support to the University of California and California State University systems? Check. Teacher layoffs and cuts to local school districts? Check. An explosion of local government debt? Check.
Prop. 13 did have some consquences both foreseen and unforeseen. One has been the shift in government financing from local governments to Sacramento. Local redevelopment agencies emerged as a powerful counterweight, but also created enormous problems of their own. Another has been the disparity in property taxes among new homebuyers and businesses and those who may have bought their properties 20 or 30 years ago.
But Palmeri and his sources downplay or ignore two of the biggest reasons for California's perpetual budget crisis. Proposition 13 "effectively shifted the financing of portions of local government services and education from the property-tax base to the more volatile income- and sales-tax bases," Standard & Poor's said in a Sept. 8 report. True. Yet Palmeri fails to mention how the state ran budget surpluses until 2002, and local governments were so flush with revenue until 2007 that they would routinely vote to increase pension and health benefits for public employees, sometimes even retroactively.
What happened? The tech bubble burst and revenues from personal income and capital gains taxes plummetted. The Democratic-controlled Legislature and the Democratic governor, Gray Davis, passed budgets approving new expenditures using what was, in effect, one-time money. Although the sudden appearance of a $26 billion budget hole and other mistakes-- including an ill-conceived electricity deregulation plan--cost Davis his job in the 2003 recall, the Democrats and Gov. Arnold Schwarzenegger didn't learn the right lessons from that debacle. And so every year the same story plays out, often with the same eye-popping numbers. Only the budgetary gimmicks change.
Also unmentioned in Palmeri's story is the rise and fall of California's "Gann Limit," named after Paul Gann, the law's sponsor. Voters in 1979 passed Prop. 4, which tied the growth in the rate of state and local government spending to population and cost of living increases. The measure also required state and local governments to reimburse budget surpluses to the taxpayers. Special interests, including (especially!) the California Teachers Association, campaigned to undermine the Gann Limit from practically the day of its passage. Prop. 4 was effectively repealed in 1990.
To sum up: Although it's true Prop. 13 radically altered the way California finances its government, a failure by elected officials to make responsible budget choices, the attendant rise of "ballot-box budgeting" whereby lawmakers defer hard spending decisions to voters, and the erosion and ultimate disappearance of a constitutionally binding spending limit all contributed to the crisis.
"Proposition 13 is sacrosanct for a reason," noted fellow Public Sector Inc. contributor Troy Senik at City Journal California shortly after Los Angeles Mayor Antonio Villaraigosa made his case for "fixing" Prop 13 by creating a two-tiered system for residential property owners and businesses. "California is tied with Hawaii as the state with the highest cost of living and beset with some of the nation's highest income, sales, and corporate taxes." That's a major reason why the law remains wildly popular after more than 30 years.
And yet these guys think making it easier for state and local officials to raise property taxes is going to rouse us from California's waking nightmare? Now who's being naïve?
Update: CalWatchDog's John Seiler dismantles Palmeri's story here.
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