upon a time, growth was good. Not just because there was a philosophy that more
people improved a community -- or a state. But because there was a financial
system based on the assumption that as communities grew, the value of their
properties would grow commensurately. And so paying for the cost of new growth
by taxing everybody -- or, at least, all the property owners -- was fair, because
in the end everybody would benefit.
All that went out the window 25 years ago this week -- on Tuesday, June 6,
1978, when the voters of California passed Proposition 13, a citizen initiative
that cut property taxes by more than half.
Prop. 13 is often credited with touching off a national tax revolt that has
continued to this very day -- as evidenced by the Bush Administration's recent
$350 billion tax cut. But as my fellow writers at California
Planning & Development Report and I point out in a new report commemorating
this anniversary, Prop. 13 did much more than increase pressure to cut taxes.
It altered the nation's entire attitude about how to pay for growth -- and,
in the process, it has been a major force in shaping the urban and suburban
landscape we see throughout the country today.
Very simply, the Prop. 13 psychology changed our view of growth from good to
bad. New development that once helped us prosper now threatened to bankrupt
us. As a result, the concept that "growth must pay for itself" became
deeply embedded in our national psyche. And that has changed everything about
the planning and development game.
Fiscal zoning and competition between municipalities for tax revenue is nothing
new. Neither is the vigorous political jockeying within any community over who
pays for new growth, nor the slow-growth desire to "pull up the drawbridge",
nor even the practice of requiring two-thirds voter approval for local school
bonds. All these things existed before 1978. But all were accelerated by the
passage of Proposition 13.
Part of Proposition 13's intent, of course, was to reduce the size of government
by reducing the amount of tax revenue available. But it is not the basic impulse
of government to cut its own size. Rather than do that, local government agencies
throughout the state have gone into survival mode in two different ways. First,
they have intensified their competition with one another for the revenue sources
available. Second, they have been endlessly inventive in finding new sources
of revenue that are not subject to Prop. 13's limitations.
And because local government revenues sources are so closely tied to land and
real estate development, this new "post-Prop 13" culture was quickly
translated into tangible changes on the urban landscape, many of which were
tied to post-Proposition 13 revenue-raising strategies.
The "auto mall" is now common throughout the United States, but it
was invented in California -- not by the auto industry trying to sell cars,
but by local governments trying to capture sales taxes. The plethora of outlet
malls, entertainment retail centers, and regional malls is also partly the result
of Proposition 13. So is the boomlet in the creation of new cities in the last
twenty years -- because for the first time in history, a California community
could incorporate by transferring money out of the county treasury rather than
raising taxes. Many of California's sprawling regional development patterns
are the result of Proposition 13 also. Well-located cities have been able to
cherry-pick retail centers, high-end housing, and other tax "winners".
Meanwhile, starter homes and other tax "losers" have been relegated
to distant locations on the metropolitan fringe, often in unincorporated areas,
where county leaders are desperate to generate any types of revenue they can
Similarly, California has become home to some of the most peculiar revenue-raising
mechanisms in the history of American public finance. Parcel taxes, previously
not permitted, are now common. Mello-Roos taxes were invented specifically to
circumvent Proposition 13, and in the process created a municipal bonding mechanism
that many on Wall Street still don't understand. Development impact fees are
now a basic part of the California landscape -- as is the "nexus consultant,"
whose job it is to prove the relationship between the fee being charged and
the problem being created by the project. The state has also seen creative use
of many different types of assessment districts. The end result has been to
shift most of the cost of new infrastructure from property taxpayers to developers
and new homebuyers.
What is perhaps most surprising is that this basic model of California planning
-- the Post-Prop. 13 model, we'll call it --has survived all the upheavals of
the last 25 years. Slow-growth sentiment has chilled whenever the real estate
market has tanked, but it didn't vanish. Even when there was nary a construction
loan to be found in the whole state, land developers kept going after specific
plans and development agreements, and slow-growthers kept suing them and putting
their projects on the ballot.
Similarly, just when the fiscal zoning fad should have been fading into the
background, the harsh financial realities of the 1990s gave it new life. In
1992 and 1993, the state government reminded the locals of who's boss by shifting
25% of the property tax in the state -- that's somewhere around $4 billion --
away from cities and counties to the schools. Housing and other property tax-oriented
development projects have been a bad deal ever since Proposition 13 passed.
Now they're a much worse deal. And it's pretty clear that when the dust settles
from the current state budget crisis, local governments will be more desperate
than ever for new revenue -- and will use land-use authority more aggressively
than ever to pursue it.
In short, even in the 21st Century, we seem to be operating with more or less
the same planning and fiscal architecture that we've had for close to two decades
-- an architecture that has led to unnecessary competition among cities, ghettoizing
of land uses, and regional imbalances in our large metropolitan areas.
As usual, a whole variety of incremental land-use reforms are inching their
way through the California Legislature this year. But even if they pass, none
of them will have a fraction of the impact of Proposition 13 -- a citizen anti-tax
initiative that has turned out to be the most important planning law in California,
and the bellwether of the most important shift in the psychology of growth politics
that we have since in the United States in the last 25 years.
William Fulton is president of Solimar
Research Group and editor and publisher of California
Planning & Development Report. CP&DR's new special report on the
25th Anniversary of Proposition 13 is available for sale at www.cp-dr.com.