How Prop 13 Works

Passed in 1978 by 65% of voters, in response to out of control property tax increases, Proposition 13:

  • Sets the property tax rate at 1% of assessed value
  • Restricts annual increases of assessed value to not exceed 2% per year
  • Establishes property value for tax purposes at its purchase price and requires reassessment upon its change of ownership
  • Requires that local special tax increases be approved by voters with a two-thirds vote, including parcel taxes
  • Requires that state tax increases be approved by a two-thirds vote of each house of the Legislature

Stable, Predictable, Growing Revenue

Proposition 13 creates a reliable source of revenue, protecting homeowners from extreme tax hikes and protecting services from economic downturns:

  • According to a report by the nonpartisan Legislative Analyst, “Property tax revenues increased throughout the recession while other major revenue sources declined significantly.”
  • A Pepperdine study showed that in 2008-09 when California property values faced the dramatic decline in the wake of the economic recession (industrial and commercial properties fell 6.5% in value), property taxes collected from these same properties actually rose 5%.
  • Since passage of Prop. 13, business property taxes have increased at a higher rate than homeowner property taxes. Board of Equalization data shows that the average annual growth of property taxes for business property is 7.34% and for homeowners it is 5.82% from 1979-80 through 2013-14.
  • Local government services and schools can more easily plan their future budgets because property tax revenues are more predictable and stable than other sources of revenue.

Impacts Every Californian – Businesses, Families, Seniors and Public Employee Pension Funds

Proposition 13 protects homeowners, small businesses and seniors with tax certainty and prevents them from being forced from their properties, while providing the government a stable revenue stream that is consistently growing.

All Californians face the impacts of increased property taxes:

SENIORS AND FAMILIES
  • Rents that include property tax charges
  • Property ownership
SMALL, WOMEN AND MINORITY BUSINESS OWNERS
  • Property ownership
  • Triple net leases that require tenants pay for property tax
PUBLIC EMPLOYEES/PENISON FUNDS
  • Commercial property owned by the funds
  • Real estate funds held by the funds
  • If a business’s revenue or an individual’s income doesn’t increase, but property taxes do, property taxes take a greater and more burdensome share of their limited finances.

PROTECTS MINORITY FROM BEING TAXED BY MAJORITY

Proposition 13 requires a two-thirds vote for anyone to impose a new or higher tax in California. For local taxes, Proposition 13 requires a two-thirds vote of the people. For state taxes, it requires a vote of the people, or a two-thirds vote of the Legislature.

This two-thirds threshold protects a minority of voters from being aggressively taxed by a slim majority vote locally or in the Legislature. Over the last four decades, it has been an important check on out of control tax increases and a protection for the taxpayers.