Property Tax Limitations Research Articles

Proposition 13 Fever: How California's Tax Limitation Spread

THE CALIFORNIA Journal of Politics & Policy Volume 1, Issue 1 Proposition 13 Fever: How California’s Tax Limitation Spread Isaac William Martin University of California, San Diego Abstract Much of the best scholarship on the economic or fiscal impacts of Proposition 13 probably understates those impacts, because it considers only impacts of property tax limitation in California. Proposition 13 spilled over from California into other states. It spilled over from the property tax into other policies. And scholars have even begun to accumulate evidence that it spilled over from the state arena into fed- eral fiscal policy as well. Proposition 13 was a pivotal moment that changed how Congress perceived public opinion on taxes and government spending in general. KEYWORDS: Proposition 13, taxes, property tax, California politics www.bepress.com/cjpp

The Effects of Rate Limits on Property Tax Revenues and School Expenditures: Evidence from Texas

ABSTRACT: In 1993, Texas established a maximum 1.5 percent property tax rate that school districts could impose for purposes of funding their maintenance and operations (M&O). Tax limits are intended to contain government growth and increase the efficiency of government services. Almost all states use property tax limits, and their use continues to increase as states consider ways to decrease the growth in property taxes. This study examines whether the 1.5 percent rate limit lowered the growth of M&O tax revenues and school expenditures, whether these effects differed in the short-run versus long-run, and whether school districts increased other tax and nontax revenue sources to help compensate for lower M&O tax revenues. This study also examines whether the rate limit affected student performance. We use a sample of 1,033 Texas school districts during the period 1994 through 2004, and the Heckman maximum likelihood estimation (MLE) approach to help control for selection bias. We find that the 1.5 percent rate limit decreased the growth of M&O tax revenues and school expenditures, and that expenditures were affected less than M&O tax revenues. Our results suggest that districts helped cushion the rate limit’s effect on expenditures by increasing their debt-related tax revenues. We find only limited evidence that the rate limit’s effects differed in the short-run versus long-run. Finally, we find that student test scores are lower for districts at the 1.5 percent rate limit, and that the decrease in test scores is larger for economically disadvantaged students relative to other students. This suggests that the rate limit is associated with decreases in education quality.

The relationship between risk and homeland security financing: a survey of florida city managers and fire chiefs

Survey findings from Florida reveal that larger, higher risk communities perceive greater budgetary trade-offs, a view that supports in part the U.S. Department of Homeland Security’s recently implemented strategy in distributing its grants. Per expectations, city managers with graduate education saw higher levels of readiness and lower threat risk than fire chiefs. Consistent with prior research, cities were reprogramming and using existing funds rather than new levies for homeland security initiatives. This finding was buttressed by results that recently enacted property tax limits and cuts in federal aid were seen as the greatest challenges to increased funding. Contrary to mainstream public administration writing, our respondents stated that restrained funding rather than intergovernmental coordination was the biggest issue they faced in meeting homeland security needs. Overall, our respondents saw a low risk of terror threat, a perception that may represent an accurate read of the operating environment or an implicit belief that higher levels of government will provide significant assistance in the event of a major terrorist attack or other conflagration.

Serrano and Proposition 13: Comment on Isaac Martin, 'Does School Finance Litigation Cause Taxpayer Revolt'

The California Supreme Court's 1976 Serrano decision, which required equalization of school spending and property-tax bases, was followed in 1978 by Proposition 13, which severely limited property taxes. This comment explains that evidence supporting a causal connection between the two events is not flawed by the problem of ecological inference. The Serrano decision applied to school districts, not individuals, and so the behavior of voters grouped by school districts is appropriate for testing the connection. Additional evidence presented here emphasizes the need to contrast a rejected property-tax limitation in 1972 with the overwhelming support for Proposition 13 six years later.

The Effect of Property Tax Limitations on Residential Private Governments: The Case of Proposition 13

The proliferation of residential private governments, in the form of homeowners' associations, to deliver public services coincided with a period in which cities faced significant property tax limi...

Taming the Local Leviathan

Democratic political institutions and interjurisdictional competition both put pressure on local elected officials to respond to the tax and spending preferences of residents. But the electoral success of California's Proposition 13 in 1978 and of similar property tax limitations in other states suggests that local expenditures and taxes in many jurisdictions are higher than those preferred by the median voter. I argue that this upward bias in expenditures is greater in communities where interjurisdictional competition is weak and local political institutions provide incentives for rent seeking. Using data from the 1997 Census of Governments and 1996 International City Manager Association (ICMA) Form of Government Survey, I find evidence that municipalities facing weaker competition tend to have higher spending, and political institutions mediate the marginal effect of competition on city expenditures.

Property Tax Limitations: An Interpretative Review

Limitations on aspects of property taxation are widespread in the United States with 43 states having some form of limit. Previous research has focused on a desire by local residents to constrain local government expenditures as the primary motivation for these limitations. Another common motivation for limitation measures, however, may be that property tax limits provide a form of insurance against unexpected increases in individual property tax liability. While a desire by local residents to constrain local government expenditures may exist, the need for insurance explains the presence of limitations in the absence of such desires.

Full Disclosure: Controlling Property Tax Increases During Periods of Increasing Housing Values

This paper examines the outcome of a non-binding full disclosure process to control increases in the property tax. The data used in the study cover a 20-plus-year period in five MS As in Utah. During the period of our analysis, metro areas in Utah experienced rapid increases in the market value of residential housing. The results of our analysis suggest that local assessors in Utah captured this increased value in their appraisal and reappraisal processes. However, our results also demonstrate that the effective property tax rate did not keep pace with increases in assessed property values, implying that a non-binding full disclosure law did limit growth in the property tax. Furthermore, it limited the property tax while avoiding some of the unintended consequences imposed by binding property tax limitations.

Are Property Tax Limitations More Binding over Time?

In 1991, a property tax limitation measure was imposed in five Illinois counties. Dye and McGuire (1997) studied its short-term impact. With the limit now in effect for over a decade and extended to many more counties, we assess its long-term impact. Because jurisdictions brought under the limitation since 1997 have done so after a county-option referendum, our estimation strategy treats the measure as endogenous. We find that the restraining effect of the limit on the growth of property taxes is stronger in the long run than the short run, and that the growth of school expenditures is slowed by the measure.

Property Tax Limitations and Mobility: Lock-in Effect of California's Proposition 13

Property Tax Limitations and Mobility: Lock-in Effect of California's Proposition 13

The Tax Revolt in Massachusetts: Revolution and Reason

The modern‐day tax revolt in Massachusetts was initiated by passage of the property tax limitation measure Proposition 2½ in 1980. Predictions of draconian budget cuts never materialized due to state legislative modification of the initiative's provisions, and judicious use of local voter overrides. Massachusetts citizens have continued to bring tax issues to the ballot, with fairly reasoned outcomes.

Other People’s Taxes: Nonresident Voters and Statewide Limitation of Local Government

Why would voters resort to a statewide tax limitation to force change in their own local government? This paper develops and tests the hypothesis that property tax limitations succeeded because they allowed voters to lower tax rates in other communities. Statewide limitations effectively extend the voting franchise to individuals who have no standing in local elections. Voters may have preferences for tax and expenditure levels in other jurisdictions because they receive rents from employment in those jurisdictions, because they directly own taxable assets in those jurisdictions, or because changes in other jurisdictions might influence their own residential location choice. Empirical tests of this hypothesis focus on the Massachusetts experience with Proposition 2$$\frac{1}{2}$$, which passed in 1980. Voting patterns, household mobility patterns, and postproposition growth in property values all support the nonresident hypothesis.

School Finance Litigation, Tax and Expenditure Limitations, and Education Spending

Since the early 1970s, litigation in many U.S. states has led to education finance reform. Over the same period, many states have imposed new tax and expenditure limitations (TELs) on local governments. The imposition of a TEL may alter how local and state education expenditures change subsequent to court‐mandated decreases in spending inequality. Similarly, the effectiveness of TELs in limiting local education expenditures may be influenced by reform. To better evaluate the effects of reform and TELs on education spending, this article considers them jointly and finds that reform has a negative effect on local own‐source education expenditures only in the presence of TELs. In the absence of court‐ordered reform, TELs decrease own‐source expenditure, but the effect is less pronounced than when TELs are present with reform. When both are present, state government spending on education is higher. Also TELs and court‐ordered reform independently increase state government spending on education. (JEL H72, I22)

Did Serrano Really Cause Proposition 13?

In this article, we examine the relationship between Serrano v. Priest, the landmark school finance equalization decision of the California Supreme Court, and Proposition 13, the state's famous property tax revolt. As school finance litigation continues in several states, opponents of equalization schemes have argued that Serrano Proposition 13. Prior to Serrano, the argument goes, California's local public sector resembled a Tiebout equilibrium in that local property taxes approximated market prices. Serrano destroyed that equilibrium, giving voters new reason to oppose the property tax. This theory has been offered as an explanation for why voters swung from rejecting a property tax limitation in 1972 to embracing Prop 13 only six years later. We present new statistical and historical evidence challenging the connection between Serrano and Prop 13. Using multiple regression analysis, we demonstrate that Serrano had little actual effect on Prop 13 and that the swing from 1972 to 1978 is better explained by considering alternative explanatory variables. We also present original historical research regarding Serrano's effect on the legislature's ability to provide proprty tax relief. Our evidence casts doubt on the thesis that Serrano caused Prop 13 and reveals a more complicated story in which the institutional rigidities of the fiscal decisionmaking process precluded a rational response to the extraordinary housing inflation of the early 1970's.

A Computable General Equilibrium Analysis of a Property Tax Limitation Initiative in Idaho

<i>Idaho voters rejected a property tax limitation initiative in 1996. Before the election, proponents claimed the decrease in revenues would be offset from the increase in economic activity. We developed a computable general equilibrium model based on tradable and non-tradable sectors to hypothesize the impact on Idaho’s public finances, household income, and economic growth, with and without the initiative’s tax policy. The model predicts that each $3 reduction in property tax revenues would result in an overall $2 loss in state and local revenues. The benefits are predicted to be $35 per low-income household and $738 per high-income household. The federal government would receive 1% additional revenues from Idaho.</i> (R51)

Property tax limits, local fiscal behavior, and property values: evidence from Massachusetts under Proposition [formula omitted

This paper examines the impact of a specific property tax limit, Proposition 2 1 2 in Massachusetts, on the fiscal behavior of cities and towns in Massachusetts and the capitalization of that behavior into property values. Proposition 2 1 2 places a cap on the effective property tax rate at 2.5% and limits nominal annual growth in property tax revenues to 2.5%, unless residents pass a referendum allowing a greater increase. The study analyzes the 1990–1994 period, a time when Massachusetts municipalities faced significant fiscal stress because of a 30% cut in real state aid and a demographically driven increase in school enrollments. The findings include the following: (1) Proposition 2 1 2 significantly constrained local spending in some communities, with most of its impact on school spending; (2) constrained communities realized gains in property values to the degree that they were able to increase school spending despite the limitation; and (3) changes in non-school spending had little impact on property values.

Proposition 13 and Its Offspring: For Good or for Evil?

The answer to the question posed in the title depends on which model of local government behavior is operative. If it is the median-voter/benevolent-dictator model, then property tax limits can only be for evil. If it is the Leviathan/budget-maximizing- bureaucratic model, then property tax limits have the potential to improve the welfare of local resident voters. From this perspective, I reassess the empirical literature on state-imposed limits on local property taxes and conclude that the evidence can be interpreted as supportive of the notion that the Leviathan model may be operative and thus that property tax limits have the potential to improve welfare.

Restraining the Leviathan: property tax limitation in Massachusetts

Proposition 2 1 2 , a ballot initiative passed in Massachusetts in 1980, sharply reduced local property taxes. We examine why voters supported Proposition 2 1 2 , using data on votes for the Proposition and for overrides of it a decade later. We find two reasons for the Proposition's support: people perceived agency losses from the difficulty of monitoring government, and people judged government to be inefficient because their tax burden was high. By the 1990s, people either regretted the severity of the Proposition's constraints or felt that its mission was accomplished. Voters in communities with larger initial tax cuts supported significantly more overrides.

Do Limits Matter? Evidence on the Effects of Tax Limitations on Student Performance

The goal of this research is to determine if limits on the revenue-raising ability of school districts translate into constraints on the ability of these districts to affect student performance. We use the recent imposition of property tax limitations on school districts in the Chicago metropolitan area to determine if these limits have translated into slower growth in student performance. We find only limited evidence that student performance in districts subject to the tax limitations has fallen relative to student performance in districts not subject to the limitations.

Restraining the Leviathan: Property Tax Limitation in Massachusetts

Restraining the Leviathan: Property Tax Limitation in Massachusetts