Computing the Extent of Circumvention of Proposition 13: A Response

ROBERT L. SEXTON [*] ABSTRACT. Galles and Sexton (1998) showed that California state and local revenues exceeded their previous real per capita levels as did the sum of property taxes plus charges and miscellaneous revenues within a decade after Proposition 13 passed, and concluded that Proposition 13 was only temporarily successful at shrinking California state and local governments. Khoury and Pal (2000) challenge this conclusion. However, their conclusion that Proposition 13's circumvention "has been only marginal" results from using per $1000 of income comparisons rather than real per capita comparisons and from using growth rate changes, which fail to adjust for U.S. fiscal trends, instead of changes in the levels of variables as their primary measure. I Introduction GALLES AND SEXTON (1998) found that Proposition 13's restrictions on property tax revenues to California state and local governments did not permanently reduce the governments' size. Since real per capita state and local government revenues as well as the sum of property taxes plus fees and miscellaneous charges were once again greater than their pre-Proposition 13 peaks within a decade, we concluded that those restrictions were completely circumvented in that time frame. Khoury and Pal (2000), however, conclude that Proposition 13 was only marginally circumvented by subsequent increased growth rates in other revenue categories in per $1000 of income terms. The difference between these conclusions in large part reflects the use of different evaluation measures, which generate substantially different results. Therefore, which view is more accurate depends on whether, for the question at hand, real per capita measures or per $1000 of income measures are considered more appropriate, and whether the levels of the variables in question or their growth rates are more appropriate indicators of the effects of Proposition 13 on California state and local governments. II Using Per $1000 of Income Measures Rather than Real Per Capita Measures THE PRIMARY QUESTION Galles and Sexton (1998) asked was: Had revenues to the combined levels of California government been so squeezed in the post-Proposition 13 era that state and local governments had been rendered unable to maintain their levels of services? Since even without any increase in government productivity, a government with the same level of real per capita revenues and expenditures should be able to provide its constituents with the same level of services, real per capita measures seem most appropriate for addressing this question. Such measures also accord better with Proposition 13's language, the rhetoric of its supporters, and the critics of its effects, all of which focused on the size of California government, not its share of California's income. They also better reflect many voters' expressed desire in surveys taken at that time to shrink the size of government, not just to slow its growth or its growth relative to the economy. (If such surveys accurately reflected Californians' sentiments, a government that then shrank in real per capita terms would not be a fiscal crisis to be "solved" with additional taxes, fees or charges, but would be the solution to the previous fiscal crisis of an overexpanded government.) In contrast, the per $1000 of income measures used by Khoury and Pal look at the question of whether state and local governments consume a larger share of total California income than before, Their conclusion that California state and local governments are still smaller than before Proposition 13 in per $1000 of income terms does not negate our demonstration that those governments' revenues are greater in real per capita terms than before Proposition 13. Therefore their conclusion that "Proposition 13 has indeed delivered the lower tax burden that the majority of voters had sought," is, in fact, incorrect. …