Proposition 13--How California Governments Coped With a $6 Billion Revenue Loss

GGD-79-88: Published: Sep 28, 1979. Publicly Released: Sep 28, 1979.

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Although Proposition 13 in California reduced local government property tax revenues by an estimated $6 billion in fiscal year 1979, an analysis shows it did not have a material impact on local government programs. State and local government surpluses, a strong economic climate, and increased fees and user charges for things such as business permits and fire protection services, all contributed to local governments' ability to maintain and, in fact, increase their expenditures in fiscal year 1979. Because a recently enacted California law has provided for a multiyear replacement of funds to help offset revenues lost by local governments, the predicted dire consequences of Proposition 13 have basically been avoided.

All types of local governments' budgeted spending increases for fiscal year 1979 and funding for certain activities was reduced. The most significant result of the fiscal uncertainties was the cancellation of summer school and reduction of adult education programs. These programs are considered lower priority than regular instructional programs, which were moderately affected, principally library services, parks and recreation, and cultural activities. Layoffs of from 300,000 to 450,000 of public sector employees had been predicted, but less than 18,000 actually occurred. GAO found that the most noticeable result of Proposition 13 has been reduction in the growth rate of government spending. This reduced growth rate can be expected to affect local governments' fiscal ability to participate in new or expanded Federal grant programs. Federal grant requirements that impose additional costs on State and local governments, such as matching and maintenance of effort requirements, can be expected to come under increased scrutiny. California's experience has been unique because State resources were available to cushion Proposition 13's impact and the economic climate within the State is strong. The minimal impact on the government operations observed by GAO does not necessarily portend results which could be expected in other states where similar measures have been or might be enacted.

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