A Law from 1978 Continues to Defund Local Schools and City Services
Adequate funding for local schools, parks, and services seems to be a constant challenge despite the popular image of California as a high-tax state. And the cities and neighborhoods that are the most ethnically and economically diverse often have the greatest need for scarce public funds. How did we get into this mess?
If you’ve lived in California for any length of time, chances are you’ve heard of Proposition 13, a state ballot measure that was voted into the California Constitution in 1978. But you may not be aware of the devastating effect it’s had on building housing and on our city services and public education — and how it has contributed to inequities in our communities.
What did Prop. 13 do?
Prop. 13 was a major overhaul of our property tax system. It consisted of three main policies:
It rolled back property assessments (the value of your property that you are taxed on) to their value in 1976.
It set the property tax rate at 1%.
It mandated that assessed value could increase no more than 2% each year, unless the property was sold or significant improvements were made.
The state was given control of redistributing property tax revenues, which traditionally had been the major source of funding for local schools and city services.
This was a major change from how property taxes were determined before. The greatest difference was in the way that the value of property was calculated. Before Prop. 13, the value of a home was reassessed every few years to reflect changes in the market values of home.
The most widely accepted explanation of the impetus behind Prop. 13 is that rapidly rising property values in the 1970s caused working class people and elderly residents on fixed incomes to fear that increased property taxes would cause them to lose their longtime homes.
Financing public education through property taxes also had led to significant disparities in funding between urban and rural areas and between wealthy cities and those with lower income homeowners. Unfortunately, the effects of Prop. 13 have resulted in even greater inequities over time.
After Prop. 13 was approved by voters, funding to local municipalities was slashed by 60% the first year, and education funding dropped 30%.
With limited access to property taxes, cities had to cut services and find other sources of revenue. Building housing was discouraged, because cities didn’t have the money for infrastructure improvements or to provide services to new residents — and this remains true today.
Cities also looked to wherever they could to increase their revenues.:
They increased sales taxes by encouraging retail developments, such as big box stores and car dealerships, which generate a high dollar amount of sales.
They increased utility taxes.
Local municipalities have also asked voters to approve additional sales taxes that don’t have to be shared with the county and state – in Culver City, these are Measure C (0.25% sales tax, approved November 2018) and Measure CC (0.5% sales tax, approved March 2020).
They built more hotels instead of apartment buildings; hotels bring in occupancy taxes, apartments don’t.
Cities also pay for infrastructure by charging development and permitting fees – which in turn make new housing more expensive and contribute to the housing crisis.
These changes in the taxes cities use have hurt those who can least afford them. We all pay sales and utility taxes at the same rate, regardless of income. In comparison, a wealthy homeowner, like Warren Buffet, paid only $2,264, or 0.056 percent, on his $4 million home in 2005.
A Tale of Two Houses
By capping the increase in property taxes while California’s housing shortage contributed to escalating home prices, Prop. 13 has also created a situation in which the newest homeowners pay a greater share of property taxes than those who purchased their homes decades earlier, even when those homes have equal market value.
Consider two Culver City homes, both built in 1952 on the same block. Property A was purchased in 1998 for $399,000. The standard Homeowner’s Exemption reduced its taxable value by $7,000, so its basic (1%) property tax that year was $3,920. Property B is a nearly identical house on a slightly smaller lot. It was purchased in 2022 for $2,205,000. Redacted 2023 Property Tax statements for the two homes are reproduced below.
Property A:
Property B:
The new neighbor’s property tax is 3.7 times the tax paid by the old neighbor. In addition, the market value of the first property has increased more than 4.5 times, but the property taxes paid by its owner increased only 54%. The new neighbor also pays proportionately more for other taxes that are based on assessed property value, including the Metropolitan Water District, Community College, and CCUSD.
Prop. 13 also devastated education funding in California
In the 1970s, California was renowned for the quality of its public education system. In the next decade, California fell into the bottom 10th of states in per pupil spending. Art, music, and extracurricular activities were cut, class sizes grew, and money for facilities maintenance was limited. By 2011, California’s spending ranked last when adjusted for the state’s high cost of living, and we had the worst disparities in student test scores.
Various voter propositions have attempted to stabilize K-12 funding, and the Local Control Funding Formula, implemented in 2013, made California’s funding distribution more progressive. However, in spite of the state’s overall wealth, per pupil funding remains below the U.S. median when considering the high cost of living, proportion of English language learners, and children living in poverty, and it is still subject to dramatic fluctuations tied to the state’s overall economic well-being.
Direct funding from parents closes some of the gap, but only in wealthier neighborhoods.
Cuts to government funding of education and reductions in property tax available to local school districts have led to a rise in parent fundraising through PTAs, school booster funds, and education foundations. This reliance on private funds has introduced yet another source of inequity into our public schools.
An LAist story in 2022 found “two-thirds of LAUSD’s parent fundraising happens on just 6% of LAUSD’s campuses – mostly in wealthy westside neighborhoods or the southwestern San Fernando Valley.” PTAs at schools where most students are low-income have limited ability to raise money, while the children who already have the learning advantage of coming from wealthier homes benefit from sports programs, counselors, music and art teachers, robotics labs, librarians, foreign language teachers, etc., paid for by funds their parents are able to contribute.
This affects us in Culver City: the PTA of La Ballona Elementary, a Title I school where a large proportion of students come from low income families, cannot raise as much money as the PTA of Farragut Elementary, which has a much wealthier student population.
The other major source of funding for both cities and school districts is the sale of bonds. Bond purchasers are repaid using new property taxes. In essence, bond measures ask voters to increase local property taxes in order to pay for capital improvements (including deferred maintenance) that can no longer be funded using the basic property tax.
In other words, Prop. 13 is key to understanding why:
The Veteran’s Auditorium hasn’t been updated since it was built in 1950
Our schools still hold classes in trailers intended to be temporary
The only way to improve our infrastructure is to increase our property taxes by approving the sale of bonds
What about Seniors?
It’s true that some seniors are both wealthy and low income – wealthy because their homes have appreciated, giving them significant equity, but low income because they didn’t earn enough while working to save for retirement or qualify for higher Social Security payments, are widowed or divorced, have significant health problems, or other reasons.
There are several state and local programs in addition to Prop. 13 to help this population.
The state of California allows homeowners who are 62 or older, blind, or disabled to postpone paying their property taxes if they have at least 40% equity in their home and their household income is no more than $51,762. The state charges simple interest of 5% on the deferred taxes, secured by a lien.
Prop. 19 allows homeowners age 55 and over to sell their home and buy another in California without increasing their property tax; instead of their new home being appraised at the purchase price, the current assessed (taxable) value of the home they sell is transferred to the replacement home.
Culver City homeowners can apply for exemption from the CCUSD Measure K Parcel Tax if any member of their household is 65 or older, regardless of income.
Culver City residents can apply for exemption from the city’s 11% Utility User Tax if they are disabled and receiving Supplemental Security Income, or if they are 60 or older, their Adjusted Gross Income was no more than than $18,200 in the previous year, and the combined Adjusted Gross Income of all members of their household was no more than $21,500.
But Prop. 13 also hurts seniors. One reason many seniors stay in their homes is that there are few other places to move to in the community that they can afford. Many seniors would like to downsize into a smaller home, condo, or apartment. But because of Prop. 13 (and Culver City’s restrictive zoning), those types of housing just don’t exist in large numbers. Instead of moving to a smaller house or apartment and using the equity they’ve built up in their homes to have a comfortable retirement, many seniors are stuck in homes that are too large and require expensive repairs and maintenance, because they have nowhere affordable to move in their communities.
What to do now?
Prop. 13 was sold as a way to make housing more affordable. Yet, the law had devastating effects on funding for our local government and schools. Using a blunt tool – limiting increases in property taxes for everyone regardless of their ability to pay – has meant that Prop. 13 has been a windfall for the rich, but has led to fewer new homes, poor infrastructure and local facilities, like our parks, and crumbling schools.
While we in Culver City cannot change Prop. 13, we can use other tax measures and smart budgeting to solve our city’s problems and make Culver City into a place that better reflects our values. In the coming months, we are going to provide additional information about where our city’s funds come from, how they are currently spent, and how the budget process works.
Add your voice to the conversation. Send your stories to ourculver@gmail.com.