Proposition 13 and the Tax Revolt That Rattled Every Statehouse

Picture the scene in Sacramento in the spring of 1978. The legislature is sitting on a big budget surplus. Homeowners all over the state are opening property tax bills that have jumped like a thermostat in July. Lawmakers have been promising relief for years, and the relief, like a politician's promise to call you back, has not arrived. Then two stubborn men with a petition and a grudge do what the legislature would not, and the voters of the largest state in the Union say yes by roughly two to one.

That was Proposition 13, and it did more than cut a tax. It told every elected official in America that voters were willing to take the pen out of the politicians' hands. Governors who had never heard of Howard Jarvis were suddenly asked what they thought of him. Legislators in states two thousand miles away started counting how much property tax revenue they had been counting on. The tremor did not stop at the California line, and its effects are still working through the system.

I want to tell the whole story, including the parts conservatives like and the parts our critics would stress. Let's go in order.

The 1970s: houses go up, bills go up

The setting is simple arithmetic. In the 1970s, California home values rose fast, and the property tax follows value. A house that was assessed at one number one year was reassessed at a much higher number a few years later, and the tax bill rose with it. The state's tax structure meant that the people who owned their homes, many of them retirees on fixed incomes, saw their bills climb because the market had made their houses valuable on paper, not because their paychecks had grown.

That distinction is the entire revolt. A property tax is a tax on wealth that you cannot spend without selling your house. A retired schoolteacher who bought a modest home in 1955 was not richer in any sense that paid the bill, and yet the bill grew with the neighborhood. Politicians who promised relief had often delivered studies instead.

There was a political backstory too. In 1973, Governor Ronald Reagan had backed a ballot measure, Proposition 1, to limit state spending and taxes, and it lost. The idea did not die; it just waited for a simpler version. The lesson of 1973 was that a complicated limit can be picked apart by opponents, and a clear one is harder to attack. We tell more of the Reagan years in Sacramento in Governor Reagan, Sacramento and the Welfare Fight Nobody Remembers.

Jarvis and Gann

Two names are attached to the measure: Howard Jarvis and Paul Gann. Jarvis was a longtime tax activist with a gravelly voice and a gift for TV, the kind of man who made the establishment nervous because he did not care what it thought. Gann was a Sacramento activist who had a long history of citizen initiatives. The two did not always agree, and they had their own rivalries, but together they supplied the petition drive, the signatures and the energy.

What they had was a measure simple enough to fit on a bumper sticker. You did not need a fiscal analyst to understand it. Your property tax would be limited to about one percent of the value of your property, and it could not rise more than a small amount each year. It is hard to argue with that in a way voters can follow.

Opponents tried. They warned that schools would close, police would be laid off, fire stations would go dark, and that the measure would benefit big business and landlords more than the homeowner it claimed to protect. Governor Jerry Brown, a Democrat, opposed it. A large share of the political class opposed it. The voters were not persuaded.

What Proposition 13 did

Here are the main provisions, summarized. The text is part of the California Constitution, Article XIII A, and you can read it yourself.

1. A cap on the rate. The maximum property tax is one percent of the property's "full cash value," plus any additional levy to pay voter-approved debt.
2. A rollback of values. Assessed values were rolled back to 1975-76 levels as the starting point.
3. A limit on annual growth. After that, the assessed value could rise by no more than 2 percent a year (or by the rate of inflation, if lower), unless the property changed hands or was newly built.
4. Reassessment at sale. When a property is sold or newly constructed, it is reassessed at current market value, which becomes the new base.
5. A supermajority for state tax increases. Increases in state tax rates need a two-thirds vote of each house of the legislature.
6. A supermajority for local special taxes. A local special tax needs a two-thirds vote of the local voters.

That is the architecture: a rate cap, a growth cap and reassessment at sale. Together they produce the feature that defines California property taxes, which is that the tax is tied to what you paid for the house, not to what the house is worth today.

A hypothetical to see the effect

Here is the arithmetic with invented numbers. A house is bought for $200,000 and assessed at that value. At the 1 percent rate, the tax is $2,000. Now suppose the assessed value rises by the maximum 2 percent each year while the market value rises 5 percent a year, and look ten years out.

• Assessed value after 10 years of 2 percent growth: 200,000 × 1.02^10. Since 1.02^10 is about 1.219, that is about $243,799. The tax at 1 percent is about $2,438.
• Market value after 10 years of 5 percent growth: 200,000 × 1.05^10. Since 1.05^10 is about 1.629, that is about $325,779.
• A new buyer who pays $325,779 for the same house next door is assessed at that price, and the tax at 1 percent is about $3,258.
• The difference between the two neighbors is 3,258 − 2,438 = about $820 a year, for the same house, the same street and the same schools.

That is what the measure does. It protects the long-time owner from being priced out by rising values. It also creates a gap between neighbors.

Election day, June 1978

California voters went to the polls on June 6, 1978 and approved Proposition 13 by a margin of roughly two to one. The surprise to the political class was not that it passed. It was how wide the margin was, across lines of party, income and region.

The consequences hit quickly. Property tax revenue to local governments and school districts dropped sharply, and the state had to decide what to do. Here the surplus played its part. The state used its surplus to backfill local governments and schools, and then shifted toward funding schools from the state level. That shift fit with another development of the era, the California Supreme Court's ruling in Serrano v. Priest, which held that financing schools through local property wealth created unconstitutional inequalities. The combination moved power from local school boards to Sacramento, a change that critics on both sides regret to this day.

Governor Brown, who had campaigned against the measure, took the vote seriously and said he would carry it out. That is a point in favor of democracy: when the voters speak, even the people who lost the argument had to govern under the result.

The tremor in every statehouse

The revolt spread. Other states did not copy California line for line, because every state has its own constitution, tax system and initiative rules. But the message was heard everywhere.

• Michigan adopted the Headlee Amendment in 1978, limiting how fast state and local tax revenue could grow.
• Massachusetts passed Proposition 2½ in 1980, capping property tax levies at 2.5 percent of full value and limiting annual increases in the levy.
• Missouri adopted the Hancock Amendment in 1980, limiting taxes and requiring voter approval for increases above the limit.
• Oregon adopted a series of property tax limits through the 1990s, including Measure 5 in 1990 and Measures 47 and 50 in 1996 and 1997.
• Florida adopted the Save Our Homes amendment in 1992, capping the annual growth of assessed value on homesteads.
• Colorado adopted the Taxpayer's Bill of Rights in 1992, a different tool for a related goal, as we explain in How Colorado Voters Put a Leash on Their Own Legislature.

The national political effect was just as large. The tax revolt gave a generation of candidates a message. Ronald Reagan, who had lost with Proposition 1 in 1973, won the presidency in 1980 on a platform that included cutting taxes, and his 1981 tax law is the subject of reagan's 1981 tax cut and the quiet end of bracket creep. Whether Proposition 13 caused that shift or simply showed it was possible, the direction of American politics changed after June 1978.

The honest criticisms

Now the other side, because these are serious points.

Fairness between neighbors. The $820 gap in our hypothetical is the heart of it. Two identical houses, two different bills. A young family that buys now pays more than a longtime owner next door, and nothing about the services they receive is different. The critics are right that this is a real inequity. The defenders answer that the old system's inequity, taxing retirees on paper gains they had not realized, was at least as unfair, and that a family's tax bill should be predictable from the day it buys.

The lock-in effect. Because a sale triggers reassessment, owners who would otherwise sell have a reason to stay. A retiree who would downsize may keep a large house because the tax savings are worth more than the move. That can reduce the supply of homes for younger families. California voters have tweaked the rules since, with measures in 1986 that allowed certain transfers of the assessed value between parents and children and to replacement homes for older owners, which shows that even supporters saw the problem.

Business property. Because reassessment is triggered by a change in ownership, commercial property that stays in the same hands is often reassessed less frequently than a house that sells. Critics argue this gives an advantage to companies that hold property for decades. The argument over whether business property should be reassessed more often has gone on for years. A conservative can fairly note the difference between a family's home and a company's holdings, and fairly ask whether the rule should treat them the same.

Local control. Prop 13 moved decisions about school funding and local services toward Sacramento, which reduced the power of local voters and increased the power of the state. That is a legitimate conservative concern about the measure's effects.

The Supreme Court was asked whether the system violates the Constitution's equal protection guarantee. In Nordlinger v. Hahn (1992), the Court held that it does not, reasoning that a state may have a rational basis for tying assessments to the purchase price, such as protecting reliance interests and neighborhood stability. Justice Blackmun wrote the opinion. So the legal question is settled. The policy question never will be.

What the revolt teaches

Three lessons survive the argument.

1. Voters will act when the legislature will not. The initiative process exists for that. We explain how a measure gets on the ballot in How a Citizen Initiative Gets on the Ballot, Signature by Signature.
2. A tax is about more than the rate. Proposition 13's real power was the combination of a cap and a limit on growth. If you want to see how the pieces fit into your own bill, Work Out Your Own Property Tax Bill With Mill Rates and Exemptions walks through the arithmetic.
3. Every limit has trade-offs. A rule that protects the retiree can disadvantage the new buyer, and a rule that restrains the legislature can concentrate power elsewhere. The best design asks who bears the cost, not just who gets the relief. Sales Tax, Property Tax and Who Really Pays for Your State sets the property tax in its larger context.

My own verdict: Proposition 13 was a justified rebuke to a government that treated rising home values as a windfall for itself. Its flaws are real, and the best conservatives acknowledge them. The right lesson is to design relief that protects the retiree without punishing the next family, rather than to pretend either side's argument has no force.

The bottom line

• Proposition 13, passed in June 1978, capped California property taxes at about one percent of value, limited annual growth in assessments, and reassessed at sale. Voters did what the legislature would not.
• The measure sparked copycats from Michigan to Massachusetts to Florida, and it helped change the direction of American politics. Every statehouse noticed.
• The honest criticism is fairness between neighbors, the lock-in effect and the shift of power to the state. A good tax limit answers those, not ignores them.
• If your property tax is climbing, find out your state's cap, check your assessment, and show up where the rate is set. That is where relief is won.