There is definitely something to Conn Carroll’s argument that the state of California is a vivid illustration of labor-liberal governance at work. In the decades since Gov. Jerry Brown expanded collective bargaining rights for state and local employees in California, public sector unions have amassed extraordinary power over public spending, in part through the initiative and referendum process.
Yet it is also true that California conservatives have been part of the problem. In The Homevoter Hypothesis, Dartmouth economist William Fischel argues that the California Supreme Court’s 1971 Serrano decision, which prompted the equalization and centralization of school funding in the state, actually led to the success of Proposition 13, the 1978 measure that capped property tax increases and limiting assessment increases below inflation. His argument rests in part on the fact that property tax limitation measures had failed earlier in the decade (e.g., in 1972, before Serrano had a real impact). Once property taxes were decoupled from the quality of local schools, a factor that is capitalized in the value of homes, they were seen as fundamentally arbitrary. That is, Serrano had effectively disfranchised homeowning voters, and a property tax revolt was a predictable consequence.
In Serrano v. Priest, the California Supreme Court essentially threw out the connection between local property tax payments and the local schools. The California legislature’s compliance with this mandate converted that half of the local property tax that went for schools into the sort of tax payment whose benefits were divorced from how much homeowners paid. Since everyone agrees that property taxes, taken in isolation, are unpleasant to pay, Californians decided en masse to cut property taxes in half.
Alan Post (1979, p. 385), the California legislative analyst at the time Proposition 13 passed, noted that it was not such a had thing in one respect, since it would now require the state-funded system that was necessary to comply with Serrano. Serrano’s fiscal relation to Proposition 13 is also suggested by some strange political bedfellows. Jonathan Kozol (1991, p. 220), who is well to the left of center, noted that Serrano’s insistence on equality of spending may have provoked Proposition 13. On the other side of the political spectrum, Joel Fox, head of the Howard Jarvis Taxpayers Association, has invoked Serrano’s equalitarian goals as a reason to suppress evasions of Proposition 13′s constraints.
So what happened between 1972 and 1978?
The property-rich, high-spending districts had much opposed Watson’s 1972 initiative, as Barkume (1976) had also found. In 1972, they preferred local property taxes and local school spending to the state-funded school spending that Watson offered. (In 1972, no one knew how the 1971 Serrano I decision would work out, so I think it is reasonable to assume that the radical equalization required by Serrano II in 1976 was not anticipated by homebuyers, especially since California was the pioneer in this litigation.) But by 1978, the Serrano II remedy had left the formerly high-spending districts with even higher property taxes. These taxes now had little connection with the quality of their schools.
What in 1972 had been a tax closely tied to benefits that were capitalized in home values had by 1978 become just another tax. After Serrano II, property taxes were no more connected to home values or school quality than any other tax, and they were considerably more obnoxious to pay. So the districts that were stuck with high local property taxes in 1978 swung disproportionately to Jarvis’s tax limitation, shifting the funding burden to the state. Serrano II had killed the Tiebout system for schools, so the formerly high-spending districts joined with voters who had always disliked property taxes to kill the property tax.
There is an obvious reason why this might be the case. Isaac William Martin’s The Permanent Tax Revolt offers an intelligent take on the 1970s anti-tax revolt as a movement in favor of government protection against the vicissitudes of the market. That is, fractional or below-market assessment of home values effectively shield incumbent property owners from rising property taxes, which in turn shields them from churn in the housing market. In the absence of fractional assessment and rigid property tax caps, it would be somewhat more likely that elderly homeowners would have to sell or rent out the homes they acquired during their peak earning years to younger families.
There is such a thing as a good property tax cap. Massachusetts has one, for example. Local school districts enjoy considerable autonomy and voters can override the cap, which they often do because any increase in school quality, or I should say perceived school quality, is capitalized in home values. California, in contrast, is this rigid, highly centralized hybrid that California conservatives defend because they don’t want to rise paying higher property taxes. The better long-term strategy, I would argue, would be to somehow undo Serrano and to allow more flexibility on property taxes. But that is a tall order.
One obvious rejoinder could be that California conservatives simply don’t matter. But California’s legislature has a number of supermajority requirements that give conservative GOP legislators a great deal of leverage. I imagine that Conn and I would agree that the state probably wouldn’t work brilliantly in the absence of these requirements, yet it is worth keeping in mind.