California often is a bellwether for innovation in government and politics. It was the first state to make significant tax reforms based on a grassroots initiative. The effects of those tax reforms have been closely scrutinized by other states considering tax reform.
How does California's experience relate to the present controversial attempt in Utah to cap and cut back taxes?Deseret News education editor Twila Van Leer spent a week in Southern California recently, looking more closely at the issue. She reports in a two-part series Sunday and Monday on significant, intrinsic differences between the two states and on the results of tax reductions in California.
When the subject of tax reform comes up, California's Proposition 13 is advanced as the gold standard.
The proposition, which capped California's property taxes at 1 percent of market values based on 1975-76 assessments, was the country's first successful attempt at a citizen-initiated damper on taxes and has become at least a departure point for all such efforts.
Its results have been used in arguments both in favor of and against the tax limiting proposals Utah voters will address on the Nov. 8 ballot.
A closer look, however, indicates that comparing current Utah tax limitation proposals with Proposition 13 and other California tax reform measures is like comparing shiny red Utah apples with the juicy oranges from California citrus orchards.
Several factors, including demographics, general economic status and basic differences in the two states' approaches to tax reform, confuse most comparisons.
Proposition 13 had its greatest effect on local governments and education units that had relied heavily on property tax revenues. There was no accompanying attempt in California to deal with income and other taxes that primarily fill state coffers.
Utah's tax reform measures, if they pass, would affect property, income, sales, gasoline and tobacco tax revenues. Included is a measure that would limit growth in government spending based on a complicated formula that takes into account population and other factors as well as tax revenues.
Tax reform in California did have a second government-limiting element with the easy passage of Proposition 4 two years after Proposition 13. Proposition 4 ties California state's spending to the national Consumer Price Index, with growth and other factors calculated into the formula. If the state generates more tax income than the formula allows, taxpayers get a rebate.
Proposition 4 has had its greatest effect on California's state-funded services, including higher education and highways.
Whether tax limitation damaged or helped California is a question subject to thousands of interpretations. The effects were as variable as if a tornado had passed through, touching down here and there to devastate some budgets while leaving others relatively unscathed.
Some of the country's leading economists, including prolific author John Kenneth Galbraith, say California's tax reform favored rich property owners and corporations, who realized two-thirds of the overall benefit while the poor paid a higher comparative price and were nudged out of home ownership.
Educators and city and county officials say tax limitation hurt them. They have cut back some programs, reduced others, laid off employees and turned to fees to recoup losses. The state's credit rating went down initially but rebounded because of the general health of the economy, studies show. Transportation officials say a freeway system that once was the pride of the country is deteriorating and becoming increasingly clogged as more vehicles compete for space.
Supporters of tax reform in California say the tax caps have not done any serious damage and have, in fact, spurred efficiencies and cut waste.
Those who say prosperity followed tax reform in California, however, overlook the fact that California's prosperity was never in jeopardy. A strong, historically diverse economy has made the state a mecca for job seekers.
"California's economy is so diverse that one sector can suffer serious difficulty without creating so much as a ripple in the other sectors," said Larry Berg, director of the University of Southern California's Institute of Politics and Government.
"The economy in Utah is very vulnerable," Berg said. "I can't see this (tax reform) inviting industry into your state."
While people still flock to California in droves, Utah has experienced a net out-migration since 1984. Utah's growth comes from within, fueled by the largest families in the United States.
This demographic quirk accounts for much of Utah's present tax problem. The state has fewer adults supporting more children than any other state in the union, including California.
Californians earn more on both a per-capita and household basis. Household incomes are spread over fewer people.
People are lured to California not only by jobs but by the heralded sun-and-fun ambience of a mild climate and diverse recreational opportunities, so the working class is joined by the "yuppie" bunch in heading to the coast.
Californians pay for these amenities in a higher cost of living than in Utah but have significantly larger average salaries to support their lifestyle. For years, government largesse was an expected part of that lifestyle. California's government was providing more services and still accumulating a surplus when tax reformers began to object.
Recently, the Wall Street Journal placed California sixth on a list of the world's most economically sound governmental entities, preceded only by the United States as a whole, the Soviet Union, Japan, West Germany and France. California's gross state product last year, the newspaper noted, was $511 billion, a hefty 13-plus percent of the $3.9 trillion American gross national product.
A large pool of immigrant labor _ primarily Mexican and Asian _ provides a relatively cheap (some say exploitable) labor pool to support the state's industry and agriculture.
Growth in Southern California has been so great and so consistent, in fact, that many people are becoming concerned that it may surpass the ability of the area to support it. An effort was made in June's primary to limit growth in Southern California by putting a cap on construction. The proposal failed.
California's historic prosperity, in fact, added fuel to the tax revolt of the 1970s, Berg said.
Several years of skyrocketing property values and increases in property taxes (approximately 10 percent per year) were literally forcing some Californians from their homes. People on fixed incomes watched an increasingly large part of their money going to pay property taxes, which topped 3 percent in some taxing jurisdictions. In 1977, California ranked fourth in the nation for overall tax burdens. Today, it ranks 24th.
If California's Legislature had addressed the problem at that point, the tax-limiting propositions might never have reached the ballot, Berg said. Some attempts were made, but the Legislature couldn't agree on the mechanics.
Tax protesters stepped into the vacuum created by Legislative inaction.
Proposition 13, which was wavering at 50 percent support early in the campaign, got a boost when the Los Angeles County clerk prematurely released tax data in the spring of 1977 showing yet another increase in property taxes, said Wm. Craig Stubblebine, Von Tobel professor of political economy, Claremont-McKenna College and Claremont Graduate School. The public outrage helped tilt voters toward passage of Proposition 13 by about 60 percent.
Berg and Stubblebine disagree sharply on the effects of California's tax-cutting propositions. Berg said the proposition "basically destroyed local government in California. We are all creatures of the state. I don't know why we even have local school districts any more."
Stubblebine thinks tax-cutting was good for the state. "There is no evidence that anything suffered at all," he said. Studies show that despite the precipitous drop in property tax revenues immediately following passage of the measure, personal income continued its trend upward in California without a flicker, he said.
But the two professors agree on one point. Capping local taxes created a significant funding shift to the state. Anticipating this effect, Stubblebine did not support Proposition 13 as it was written.
Stubblebine, who concedes his anti-government sentiments border on Libertarian, was a member of a committee that devised Proposition 4.
California had a surplus of more than $4 billion in its state budget at the time Proposition 13 passed. Estimates vary as high as $7 billion. That money provided a two-year bailout for cities, counties and schools that lost funding when property taxes were capped.
The state continues to provide the bulk of the money for local governments and schools. It ties strings to many of the funds it now funnels into their budgets, creating frustrations for entities that used to have much greater control of their own destinies.
Utah's state government has a surplus of less than $50 million, including a $43 million "rainy-day fund."
There are basic differences between tax structures in the two states. Utah's Constitution prohibits revenue sharing from state to local governments. Income tax revenues are limited to school funding, leaving sales and other taxes the primary funding source for other state services.
Although local California governments say they were hurt by the tax reductions, they still have 428 employees per 10,000 population, compared with 368 in Utah.
Public education in California pays more per student than Utah and has the fifth-highest teacher salaries in the country. Class sizes, however, did increase,putting California neck-and-neck with Utah for the largest classes in the nation. Utah's are largest based on enrollment; California's based on average daily attendance.
Local educators and government leaders talk about some cuts in programs that have no comparison in Utah - such as free after-school activities for children, free community education classes, Sunday and extended-day services in libraries,an unparalleled extra two years of tuition-free education that formerly was offered California students through a network of community colleges. (Students now pay $50 per quarter to attend these colleges.)
Many California municipalities now charge for ambulance services. Utah ambulance services have historically charged.
In the years since propositions 13 and 4 passed, California voters have foundseveral initiatives on their ballots that address perceived problems created by the tax limitations. On the November ballot this year, which has a total of 29 propositions, are two such measures.
They include the so-called "empty nester" proposal, which would allow people over 55 to transfer their low Proposition 13 property assessments to a new home in another county if that county agrees, and a teacher-supported proposition that would establish a minimum level of state funding for school districts to stabilize education financing.
Another would raise tobacco taxes to fund educational and medical research and help pay the costs of tobacco-induced illness.
Also on the ballot are nine proposals to bond for construction of schools, libraries, corrections facilities, water pollution control and water reclamation programs and housing for the homeless. They total more than $3.2 trillion. In many instances, agencies asking for bond money say the building projects have been too long delayed.
Obviously, propositions 13 and 4 were not the last word on taxes in California. The echoes will continue to reverberate for a long time to come.