The Continuing Redistribution of Fiscal Stress

The paper begins to examine some of the long-run implications of the passage of Proposition 13—a significant California property tax reduction initiative that passed in 1978. The particular focus is on fiscal stress and local government fiscal autonomy. The paper first advances definitions of stress and autonomy. It then derives some potential consequences for local autonomy if fiscal stress occurs.

The next sections of the paper describe the history of Proposition 13, including the pre-1978 economic and political environment, the initiative itself, and the increasing state dominance of the local fisc after the Proposition’s passage. In particular, the series of state bail-outs and buy-outs are analyzed in terms of their impact on local fiscal autonomy. Also in this section is the identification of other fiscal constraints initiated by voters and the legislature. Finally, there is a discussion of recent state actions that shift a large portion of the property tax to school districts from local governments in order to generate more resources for the state.

The paper then describes how cities and counties attempted to maintain fiscal autonomy after these events. Some initial empirical work illustrates that counties have very little autonomy while cities seem to have at least some discretion in their revenue and expenditure patterns.