AB 8’s Inequities: A California Prop. 13 Legacy of Unfairness You Haven’t Heard of Before

• In Event: Tax Limits

Abstract

This paper proposes to offer the first systematic examination the dramatic variations in per capita revenue property tax distributions to towns and cities in California. It focuses on the most radical feature of Proposition 13 (1978), the provision that took taxing control away from local governments and placed it in the hands of the state. After the measure passed, the state passed AB 8 (1979) which created a county-based process by which property taxes were shared among school districts, cities and towns, and other local governments.

The proposed paper will demonstrate that AB 8 creates substantial inequities. For example, the Orange County town of Laguna Beach receives ten-times the revenue (on a per capita basis) than its neighbor Irvine. Remarkably, the share of property tax revenue that cities and towns in California receive is frozen in time as a function of their relative share of the county property tax pie in 1978. The distribution has little to do with changes in their tax base or population. Indeed, Irvine accounts for 14% of the county tax base, but receives only 7% of the revenue distributed to cities. As a consequence, some jurisdictions win while others lose, and local policy makers have no input.

The paper will be of interest to local government policy makers and tax researchers as it exposes another one of the unintended, unequal, and essentially unknown, consequences of Proposition 13.

Author

• Patrick Murphy, murphyp@usfca.edu