Proposition 13: More to the Story

8/13/2019 Proposition 13: More to the Story

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Proposition 13: More to the Story

Brandon Walker

Political Science 176S: Politics of California

Professor Karthick Ramakrishnan

TA: David McCahon


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Californias Higher Education System: Where its been and where its going

When youthink of California, what comes to mind? Until the 1990s for most people itwas quality education. In the 1960s, California was seen as the national and international

example for higher education because of its commitment to providing a feasible and accessible

higher education system. More commonly known as the Master Plan, this promise made by the

Golden State declared that every student who wanted a college education would be able to do so

at a public college or University. According to the plan, the University of California would enroll

the top 12 percent of high school graduating classes. Moreover, California was committed to

maintaining low tuition and high grant aid in spite of financial hardships. In fact, California did

not believe in tuition. Any expenses associated with higher education were called fees instead.

To maintain low fees, California made a commitment to subsidize higher education through tax

support. In 1971, higher education accounted for 16.8 percent of the states total budget because

it was seen as a priority. However, once Ronald Reagan became Governor, he turned his

attention to the UC budgets and implemented the first fees (St. John, Daun-Barnett, and

Moronski-Chapman, 2012). Higher education slowly started receiving a smaller portion of the

budget. What has caused this gradual decline in funding for higher education? Today, UC

students and their families are faced with the burden of paying a larger portion of their education

than the state. Has higher education become a private good? What has caused the decline in

funding for higher education?Many people blamed Proposition 13 as a major cause forCalifornia's decline in higher education spending. However, critics who focus primarily on

Proposition 13 fail to consider the economic, social, and political trends of California during that

era. Because of California's diversity, one should analyze the consequences of Proposition 13

with more stringent scrutiny .Proposition 13 did contribute to the decline in higher education


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spending; however, I believe it started a domino effect, rather than being the sole reason for the

decline. Following the enactment of Proposition 13, California experienced an economic

downturn, as well as a growth in population. Moreover, there were several political forces at

work that made matters more difficult. In this paper, I analyze the logistics of Proposition 13 and

the direct affects its provisions had on education. Then, I focus on economic trends and

legislation post-Proposition 13both of which played a pivotal role in molding California's

approach to funding higher education. Finally, I present solutions to the higher education

financial dilemma, and the political strengthens and weaknesses of each solution.

Proposition 13:Peoples Initiative to Limit Property Taxation

In 1911, Californians were introduced to the initiative process, which granted them the

power to amend the Constitution. Although citizens had access to direct democracy, tax

initiatives were seldomly passed. Therefore. what made Proposition 13 an exception? In the mid

1970s, voters grew frustrated with increasing property taxes and the lack of legislation that

protected tax rates. California citizens felt they were being over-taxed, and had little autonomy

when it came to their homes and tax dollars. As a result, Proposition 13, thePeoples Initiative to

Limit Property Taxation, was created with Howard Jarvis and Paul Gann, two anti-tax activists,

as the faces of the initiative. Under Proposition 13, property tax rate value would roll back and

freeze at the 1976 assessed value level. Property taxes would be limited to no more than 2

percent per year if the property did not sell (California Tax Data, 2002). Once sold, the property

would be reassessed at 1 percent of the sale price, and the 2 percent yearly cap would become

applicable in the future. This would allow home owners to determine the maximum amount taxes

could increase. In other words, voters would have the power to place a freeze on property taxes


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and on June 6, 1978 they did just that. Proposition 13 not only changed property tax revenue, but

it also changed how state and local government functioned.

There were two important provisions included in Proposition 13 that directly affected

education. First, it placed a cap on the amount of revenue that could be collected from property

taxes. As a result of homeowners having more control over the amount they were paying for

property taxes, property tax revenues were drastically cut. This made it difficult for local

government to raise revenue through property taxes. Local government property tax revenues in

the 1978-79 fiscal year alone fell by roughly $7 million (Legislative Analyst, 1979). The extent

to which the cut would result in lower expenditures and reduce public services was unknown. At

the time, the property tax revenue loss was not a major concern, because Californias economy

was thriving and it appeared the state would be able to withstand the losses. Over the years, the

state had accumulated surplus and agreed to distribute over $4 million of its surpluses to areas

where funds fell short (Legislative Analyst, 1979). Many failed to realize what this decline in

revenue would do because they were blinded by surplus revenues. However, little did

Californians know they would not be as fortunate when it came to surplus revenues in the future.

Second, Proposition 13 not only restricted the ability of local government to raise revenue

through property taxes, but also required a supermajority to pass any special taxes. Proposition

13 created an ongoing issue over public finance between voters and public officials, with state

and local governments seeking creative ways to increase their revenues and taxpayers frequently

using the initiative process to prevent it (David Lyon, 1998).

Although the primary objective of this paper to analyze the effects of Proposition 13 on

higher education, I believe it is significant to look at how K-12 and community colleges are

affected as well. California depends on property taxes because school districts rely heavily on


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property taxes for funding. Although the state receives revenue from other taxes, such as income

tax and sale tax, property tax revenues are more stable. Local property taxes are the primary

source of funding for K-12 schools. Consequently, what exactly did Proposition 13 do? It

reduced K-12 spending on education by nearly $3 million when it was first enacted. Prior to

Proposition 13s passage, community colleges received total federal, state, and local revenues of

$1,321 million, 56 percent of which the total budget was reduced to $1,242 million, a decrease of

$77.8 million, or 5.9 percent from the 1977-78 budget (Legislative Analyst, 1979). As a result,

over 3,500 course and 16,000 sections statewide were cut.

Cuts to K-12 and community colleges matters to higher education for two reasons. First,

the Master Plan was created with the belief that the colleges and universities built within the state

of California would be filled with students from California. Moreover, the CSU, UC, and CC

systems were created for the most competitive and academically prepared students. Under the

Master Plan, any student in the top 12 percent of his or hers high school graduating class would

be accepted to a UC. Does this statute still apply if our K-12 system is not preparing our students

to in the top 12 percent? How can we expect K-12 students in California to make it into one of

the most competitive universities in the country we lack the proper funding needed to educate

them? It is essential that we prepare Californias K-12 students for colleges and universities

because if we do not, our universities will be forced to enroll higher rates of out-ofstate

students. How then will we expect the state and constituents to support a higher education system

that is not filled with California natives? The truth is we cannot. In order for higher education to

thrive in this state, so must its K-12 schools and community colleges.

Second, unlike K-12 and community colleges, higher education is not a state priority

when it comes to funding. A portion of the General Fund as well as other sources, such as the


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lottery, allocate a portion its budget to education. Although community college is one of the tiers

of the higher education system, funding for community colleges works differently. Like the K-12

system, community colleges rely heavily on the property tax for support. On the contrary, higher

education is funded as a special program, and during bad economic times special programs get

cut (Carol Liu, 2003). So what does that mean? It means, the less funding that K-12 and

community college receive from the state, higher education gets even less. Higher education last

priority when it comes to funding. In short, K-12 and community colleges receive a fix amount,

primarily because of Proposition 98, but funding for higher education is dependent on state

revenues.

Boom or Bust?

Although Proposition 13 placed a limit on how much revenue can grow, it is important to

point out that not all of the revenue reduction can be attributed to the tax limitation movement.

California experienced economic downturns over a twenty-year period that also contributed to

the revenue slippage. From 1980 to 2000, California experienced several recessions.. After

limiting property tax revenues, Proposition 13 made California dependent on income and sales

taxes. Relying too heavily on income taxes can be problematic because during a recession,

unemployment rate go up which means income tax revenues go down. Similarly, sales revenues

are not stable, and are contingent on the economy. During the early 90s, California was

introduced to the Dot-com boom, which opened new opportunities for trade and purchase over

the internet. This had a huge negative effect on state revenues because of the tax restrictions

placed on internet. Sales taxes went down significant because it was difficult to tax internet sales

(Carol Liu, 2003) . Governor Pete Wilson found 1994 to be deepest and longest recession


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California had ever faced. His economic advisors suggested a tax cut was necessary to get out of

the recession (David Lyon, 1998).

As previously mentioned, tax revenues are directly tied to education. Direct state support

for higher education fell by $320 million in 1992-93 (Archie-Hudson, 1992). Additionally,

during that same year Cal Grant program resulted in a decline of 3,412 in the number of actual

grants awards. Despite the financial hardships California faced during that twenty year period,

the recession shaped awareness around an important structural issue. Bother higher education

and K-12 lacked a system that governed how it would receive funding, regardless of the state of

the economy. When the economy did well, funding for higher education was generous. But when

the state experienced a decline in revenues, higher education received less funding. There was no

stability or predictability when it came to funding for higher education. Funding for higher

education was driven by the economy. Similar to higher education, K-12 faced the same issue,

however, because K-12 education is seen as a right rather than a privilege (like higher education)

it received more attention. Moreover, constituents were more concerned with K-12 because they

found the decline in funding to be the cause of Proposition 13, since K-12 was primarily funded

by local property tax revenues. As a result, Proposition 98, which established a minimum annual

funding level to support K-14 (K-12 and community colleges), was passed.

Proposition 4: The "Gann Limit" Initiative

Proposition 13 was not the only voter passed ballot initiative that limited taxpayer

support. In fact, an even tighter constraint on tax rates was imposed the following year.

Proposition 4, also known as the Gann Limit, limited most state and local government

expenditures from tax sources (St. John, Daun-Barnett, and Moronski-Chapman, 2012)."The


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Gann limit, as it is often called, was not exceeded until the 1986-87 fiscal year when $1.1 billion

was refunded to tax papers (St. John, Daun-Barnett, and Moronski-Chapman, 2012)".

Proposition limited the growth of funding local and state government could collect. If they were

to go over the amount appropriated for that fiscal year, taxpayers must be refunded the

difference. As opposed to returning funds to taxpayers, any extra funds could have been spent on

education. In 1988 the California Teachers Association shared this sentiment and places

Proposition 98 on the ballot.

Proposition 98: Classroom Instructional Improvement and Accountability Act

After Proposition 13 and Proposition 4 restricted increases in property taxes for schools,

Proposition 98 ensured that other state revenues would be redirected to K-14, thus limiting tax

revenues for colleges and other state functions. Proposition 98 established a formula for

calculating the minimum funding level for k-14. It "puts a legal floor under school spending and

requires that excess Gann Limit money go into education, rather than into rebates to taxpayers

(Walter, 2011)". The floor established a minimum 40 percent in funding to support K-14.

Although Proposition provide immense support for K-14 education, it constitutes only two-thirds

of the funding. The remaining support comes from federal funds, special funds (the lottery), fee

revenues from community colleges, and non-Proposition 98 General Fund dollars (Legislative

Analyst, 2010). It is clear that Proposition 98 solved the structural issue facing the K-12 and

community colleges that was mentioned earlier, however, the provisions of Proposition 98 did

not guarantee any funding for higher education. The 4-year institutions did not even have this

minimal protection in a severely constrained tax environment.


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Proposition 140: Limits on Terms of Office, Legislators' Retirement, Legislative Operating Costs

Amendment

As a consequence of Proposition 140, the ability of the state to conduct policy research

was significantly reduced at the very time that tremendous economic, demographic, and political

changes were pointing to the need for more research. The expertise needed to provide the state

with clear information concerning the cost and expenditures associated with the various activities

and functions within higher education were missing. As a result, policymakers are limited in

their ability to make informed decisions about the allocation of resources for higher education.

Conclusion: Recommendations for the Future

California lacks a consistent fee policy for higher education. Changes to student fee

levels have been influenced more by the availability of state funds rather through an established

policy. The state must implement a system that makes it easier for student and their families to

plan ahead. One solution I would recommend is the establishment of an Education Trust Fund.

Education Trust Funds has been used by several other states. Any annual increase in state general

fund support above a certain percentage amount would be placed into the Trust Fund. "The

Citizens' Commission on Higher Education recommends a 4 percent threshold, excluding funds

for enrollment increases and one-time investment for equipment and deferred maintenance

(Carol Liu, 2003)". Thus, any year-to-year increase above 4 percent would go into the fund, and

the colleges and universities would be able to use their funds if their budget fell or increased by

less than 4 percent. Creating a trust fund would provide more predictability in state revenues and

reduce the boom-and-bust cycle to higher education. Moreover, if successful, the trust could

potentially lead to more moderate and gradual fee increase. On the other hand, in the event of an

economic downturn, the Legislature may try to raid the trust fund to level revenue loss. Another


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viable solution would "group purchasing". I find group purchasing to be a more creative

approach to solving higher education budgetary issues. Group purchasing refers to "a process in

which an organization with expertise in negotiating best pricing for specified products and/or

services of defined quality, provides contracts resulting from these negotiations to a set of

participating colleges and universities (Carol Liu, 2004)". Nationally, approximately 250

colleges and universities are participating in these purchasing groups. Purchasing groups have

the potential to save California's public community colleges and universities $26 million each

year if they utilize purchasing groups for only 10 percent of their purchases. One downfall to this

solution is some purchasing groups may charge fees. Nonetheless, I find purchasing groups to be

the more feasible and successful option. Although advocacy for funding higher education is

essential. We must continue to support our K-12 system. The future of higher education in

California depends on their success. In short, if we want to see more funding allocated to higher

education, we must first invest in our elementary, middle and high schools first.


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Works Cited

Archie-Hudson, Marguerite. Assembly Committee on Higher Education. 1992.Downsizing

Our Future: Access to California Higher Education During Fiscal Decline.October.

California Tax Data. 2002. What is Proposition 13? http://www.californiataxdata.com/

(December 2, 2012).

Citrin, Jack and Isaac William Martin, eds. 2009.After the Tax Revolt: Californias

Proposition 13 Turns 30. Berkeley: Berkeley Public Policy Press.

Legislative Analyst. 1979.An Analysis of the Effect of Proposition 13 on Local Governments:

Pursuant to Chapter 292 and 332, Statutes of 1978. California: Legislature

Analyst Office.

Legislative Analyst. 2010. The 2010-11 Budget: Proposition 98 and K-12 Education.

California: Legislative Analyst Office.

Liu, Carol. Senate. Assembly Committee on Higher Education. 2003. California Higher

Education Finance: Surveying the Alternatives. 21 October.

Liu, Carol. Assembly Committee on Higher Education. 2004.Recommendations for

Changes in California Higher Education Finance. 20 January.

Lyon, David W. 1998. Representation Without Taxation: Proposition 13 and Local Government

In California. Presented at the Municipal Law Symposium at Hastings College of the

Law, San Francisco.

Sheffrin, Steven M. 1998.Proposition 13 in Recession and Recovery. San Francisco:

Public Policy Institute of California.

St. John, Daun-Barnett, and Karen M. Moronski-Chapman. 2012 The Old Liberal Model: The

California Case. InPublic Policy and Higher Education: Reframing Strategies for

Preparation, Access, and College Success.London: George Routledge & Co.

Stocker, Frederick D.Proposition 13: A Ten-Year Retrospective. Cambridge:


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The Lincoln Institute of Land Policy.

Walters, Dan. 2011. "What goes around, comes around." February 21.

http://www.scrippsnews.com/node/59812. (December 2, 2012)

Proposition 13: More to the Story

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