Unintended consequences of Prop 13 and its effects on the transportation sector. (Part 1)

In the mid to late 1970s, voter discontent in California was very high. There were numerous reasons for this discontent, but it was a discontent that was eventually echoed at the national scale as I’ll briefly discuss later. On a worldwide scale, the 1970s resulted in policies that citizens all around the world today are either reaping the benefits of, or suffering the consequences from. Understanding the link between what eventually became a California Constitutional Amendment and our transportation sector is something every resident in California should extremely knowledgeable about. This amendment has created everything that is bad about the current state of California: from poor road conditions to increased highway expansion and suburban growth and worsening air quality that are all now coming to a head. Thanks to the passage of AB 32 (California Global Warming Solutions Act) and SB 375 (the roadmap detailing how California can reduce its greenhouse gas emissions), the recent Regional Transportation Plan (RTP) will attempt to undo the damage caused during the three decades as a result of policies implemented after the passage of Prop 13, popularly called the People’s Initiative to Limit Property Taxation.

San Diego Freeways
San Diego Freeways - continuously expanded thanks to Prop 13. Flickr/Bisayan lady

As I mentioned in a previous post, the State Attorney General rejected SANDAG’s Draft RTP for being too inadequate. In part, the biggest criticism stemmed from the fact that the RTP set the bar far too low to mitigate the damage caused by air quality problems exacerbated in large part from increasing automobile usage in San Diego County.

But to understand the last three decades of land use planning policy that has changed California and San Diego’s landscape, we need to understand the voter discontent that reached an all-time high point in 1977. Back in the 1970s, voters were increasingly dissatisfied with rising property prices and its corresponding increase in property taxes. Voters eventually were able to get a petition on the ballot which passed and was then included in the California Constitution as Amendment 13A, Tax Limitation. The most signification part of the this amendment was this statement,

The maximum amount of any ad valorem tax on real property shall not exceed One percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.

This constitutional amendment also prohibited increasing taxes from any other source,

To prevent the resulting revenue loss from being made up with other charges, Proposition 13 also required two-thirds supermajorities in the legislature for any tax hike

This ballot measure passed very easily in part because the political rhetoric to reduce government spending was gaining much traction. On a national level, this rhetoric eventually resulted in the election of former California governor who then spent 8 years implementing policies that resulted in a series of economic policies that continue to have reverberating effects all around the U.S.

The single important aim of the Prop 13’s proponents was to lower the property tax. While the intent was to reduce the tax burden for families, the benefits of lowered property taxes was also passed onto industrial and commercial property owners [pdf]. So one of the most significant and unintended consequences of Prop 13 was the commercialization of land use policies that began to dictate how and where things would get built in California. Facing the revenue shortfall from the passage of Prop 13, regions around the state turned to the sales tax to close the revenue gap.

This change in focus in how regions around the state would capture their lost revenue stream resulted in a significant investment toward the retail sector. William Fulton, the current mayor in the City of Ventura, has written extensively about how this change resulted in this commercialization of land use policies.

The “auto mall” is now common throughout the United States, but it was invented in California – not by the auto industry trying to sell cars, but by local governments trying to capture sales taxes. The plethora of outlet malls, entertainment retail centers, and regional malls is also partly the result of Proposition 13. So is the boomlet in the creation of new cities in the last twenty years – because for the first time in history, a California community could incorporate by transferring money out of the county treasury rather than raising taxes. Many of California’s sprawling regional development patterns are the result of Proposition 13 also. Well-located cities have been able to cherry-pick retail centers, high-end housing, and other tax “winners”. Meanwhile, starter homes and other tax “losers” have been relegated to distant locations on the metropolitan fringe, often in unincorporated areas, where county leaders are desperate to generate any types of revenue they can get.

Thus, there was a significant incentive to maximize sales throughput. The type of business structure that provided to be the most financially lucrative to provide this sort of sales throughput needed by municipalities turned out to be big box stores that are almost always located in a sea of parking, reachable only through wide, high speed highways. This was a significant contributor to the increase in the retail sector’s dominance in dictating economic policy in California and subsequently also contributed, unintentionally to the explosive real estate market thanks to artificially depressed tax rates.

In part two of this series, I will discuss how the change in revenue stream began to dictate land use policies in California and how San Diego has also undergone a tremendous transformation during the past 30 years. I will also write about how cities and other regional agencies around the state are slowly becoming aware of the consequences of Prop 13 and how they are trying to work within the constraints set by Prop 13. Finally, I will address the issue of how existing land use policies can be changed or dismantled in order to get the sort of bicycle and pedestrian modal share worthy of a world class city such as San Diego.