School Finance Property Tax Caps Research Paper

Excerpt from Research Paper :

Tax Caps/Schools

Tax revolts seem to be an American tradition. Since the American Revolution, American citizens have fought the payment of what they felt were unjust taxes. School taxes have not been any exception to this. Proposition 13 (California), Proposition 2 1/2 (Massachusetts) and the New York State 2% property tax cap all have marked similarities but were born during radically different times. In this short essay, the author will research the three and compare and contrast their initial intentions, successes or failures. We will consider whether these laws were instituted by the vote of the public or of only their representatives. Further we will consider if municipalities or other unites were impacted in the same manner, namely schools, towns, village and/or cities. Primarily, this examination will be from the perspective the educational leadership as these financial topics impact education and the operations of their school districts.


Property taxes are the manna of educational funding. Unfortunately, they are also the source of revolt. In the case of Proposition 13, it has served as the grandfather of these families of laws, in California and nationwide. Proposition 13 ( People's Initiative to Limit Property Taxation) was an amendment to the Constitution of the state of California passed in 1978, by the initiative process. California voters approved it on June 6, 1978. The proposition decreased individual property taxes through the assessment of property values at the 1975 value. It then restricted annual increases of the assessed value of real property to the inflation factor which was not to exceed 2% per year. It also forbade a reassessment of a new base year value except in the case of a change in ownership or upon completion of new construction. Besides decreasing property taxes, Proposition 13 also had language that required a two-thirds majority in both legislative houses with regard to future increases of state tax rates or amounts of collected revenue collected. This further included income tax rates. It also required a two-thirds majority vote in local elections for local government units that wanted to increase special taxes (Ferreira, 2009, 661-662).

The amendment has survived numerous court challenges . The total of these is beyond the focus of this short review. However, what is critical to understand about Proposition 13 is that it "grandfathered" in a set of immutable frozen tax rates not just upon property taxes (the usual meat of school fiduciary support), but also other taxes such as income taxes. Further, it heralded a revolt of older taxpayers, as illustrated its offspring initiatives passed in 1980s in Proposition

60 in 1986 and in Proposition 90 in 1988. Those propositions allowed homeowners who were 55 or older who sell their house and buy another one of equal or lesser value to retain the tax base value of the original property. In other words, the property tax caps have a mobility never seen before (ibid., 662). Obviously, this effectively ties the hands of many school administrators to raise money through new tax levies. They are forced to cut, outsource or find alternative sources of funding.

The wide ranging effect of these low tax rates does not just benefit the middle class. In an interesting case study, financier Warren Buffett announced in 2003 that he paid property taxes of $14,410 (2.9%) on his $500,000 home in Omaha, Nebraska. However he paid just $2,264 (or 0.056%) on a $4 million California home. While Buffett may known as an astute guru, the low California property taxes were not his doing, but due to Proposition 13.

Basically, this is not just a tax break, but one that is not based upon income. A good example of how it would hit a school district is revealed in a Brookings report. They cite a parcel tax of $293 annually per property levied on behalf of the Palo Alto Unified

School District on all property within the district boundaries. This 2001 tax needed a two- thirds majority to pass (Wasi & White, 2005, 61). The income limitation of Proposition 13 are profound and severely limit the ability of schools to raise money.

Proposition 21/2 was passed as a Massachusetts statute that limits property tax increases on the part of Massachusetts municipal units that was passed by ballot…

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