On June 6, 1978, California voters overwhelmingly approved Proposition 13, a property tax limitation initiative. This amendment to California’s Constitution was the taxpayers’ collective response to dramatic increases in property taxes. Prior to 1978, real property was appraised cyclically, with no more than a five-year interval between reassessments, keeping assessed values at or near current market value levels.
Prop. 13 created an acquisition-based tax system that limits the annual assessment growth of real property to 2% or the rate of inflation, whichever is lower. Taxable values of real property are established or modified only when taxable property is sold or newly constructed. As a result, two identical properties can have different assessed values depending on when they were purchased. These restrictions allow property taxes to be predictable for owners of real estate and for entities that rely on tax dollars for funding.
Prop. 13:
Rolled back local real estate assessments to 1975 market value levels.
Set the maximum tax rate at 1% of a property’s market value at the time of acquisition, with an allowance that the rate may exceed 1% to repay voter-approved debt, such as local school and hospital bonds.
Adjusts taxable values for inflation, but limits the annual increase to no more than 2% per year.
Provides that property is reassessed when there is new construction or change of ownership.
Requires a vote of at least two-thirds of the State Legislature for approval of new state taxes, and support of at least two-thirds of local voters for approval of local taxes earmarked for special purposes. This requirement was modified when California voters approved Proposition 39 in 2000, lowering the threshold specifically for school bonds. Under Prop. 39, local school districts, community college districts, and county education offices can pass school bonds with a 55% voter approval, instead of the original two-thirds requirement, provided certain conditions are met. These conditions include:
A clear list of projects to be funded by the bond
Annual audits to ensure the money is spent as intended
This reduced voting threshold applies specifically to bonds for school facility construction and improvements.
A citizens’ oversight committee to monitor the spending
