Prop. 25 Will Weaken Prop. 13

SEPT. 27, 2010


What voters and even taxpayers associations don’t seem to recognize about the upcoming November election in California is that if enacted Proposition 25 would provide an opportunity for school districts to pass parcel taxes that would effectively put an end to Proposition 13 property tax protections mainly in blue school districts along the state coastline.

Prop 25 is a potentially explosive ballot measure that would lower the vote threshold for taxes from two-thirds (66 percent) to a simple majority (50 percent plus one) for all forms of taxes.

Parcel taxes are a newer form of property tax in California that is a flat tax not based on the ad valorem market value of a property. If property values go up or down, a parcel tax would remain the same. A parcel tax is a guise for double property taxation.

California presently has two voting thresholds for parcel taxes:

  • Capital improvements (school buildings): 55 percent
  • School operations, salaries, etc.: 66 percent
  • 50 percent plus one under Prop 25

Prop 25 may eventually end up shifting the burden of funding public schools, (mandated at 40 percent of the total state general fund budget) back onto property taxpayers particularly in cities with Democratic voting majorities. Prop. 13 would end up being geographically spotty depending on which school district a property is located in.

Since 1983 approximately 245 school districts out of the 1,042 total school districts in California have adopted a parcel tax. Most of the parcel tax measures approved by voters have been for capital improvements, not teachers’ salaries and school district operations. Of the 132 school districts that put school parcel taxes on the ballot from 2001 to 2009, 83 districts (63 percent) approved the tax. Most but not all of these districts are called “Basic Aid Districts” (also called Community-Funded Districts), meaning they mostly depend on local property taxes and not general-purpose revenue from the state. Basic Aid school districts are quasi-private school districts (e.g., Beverly Hills).

In state-funded school districts the amount of state aid is reduced for every dollar of property tax resulting in no additional funding. In other words, property taxes provide no additional revenues but parcel taxes provide for bonus funding for state-funded school districts. So parcel taxes are preferable to state-funded school districts over property taxes.

The only barrier to shifting from a state-funded to a Basic-Aid district in blue jurisdictions is the two-thirds vote threshold for taxes under Prop. 13. Once approved, Prop 25 would provide state-funded school districts in blue areas with a golden opportunity to shift toward becoming Basic-Aid districts almost at-will. The property tax battle would shift from the state to the local level. It is probably not coincidental that the Tea Party movement has plans to begin running candidates at the local level as well as for Congress.

In communities like Democratic-dominated Pasadena where a large majority of the students in the public school system are children of immigrants who live in rental housing, the shift to a Basic-Aid school district via a parcel tax would severely impact the middle class. In the 1970s Pasadena experienced a similar situation when court-mandated busing resulted in what was euphemistically called “white flight.” Prop. 25 would likely end up with people “voting with their feet” and moving to low-tax jurisdictions in the Inland Empire. If such a tax migration occurs the Gold Line light rail under extension to the Inland Empire may become a pun for property tax evasion.

Prop. 25 would be “secession by taxation.” Secession has been proposed on 26 different occasions in the past in California. A state-splitting measure was put on the ballot in 1864, approved by the voters and the governor, but was vetoed by Congress. The threat of physical secession is often used to gain more autonomy within the original state. Prop. 25 plus the parcel tax is likely to result in Blue-Red tax Balkanization.

Prop. 25 would also promote the increase in “Edge Cities” where there is a concentration of business and industry on the fringe of the L.A. Metropolitan area. The Legislature enacted SB375 to prohibit “urban sprawl” on the urban fringe not so much to reduce pollution but to limit the amount of escaped tax base.

Paradoxically, union-backed Prop. 25 would make school district funding more stable because a parcel tax is a flat tax. But it would rob other local government entities of property tax revenue in a declining economy where the property tax base is decreasing.

The main thing to understand is that voting for Proposition 25 (paired with school parcel taxes) is the weakening and fragmentation of Prop 13.

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