California 1978 - Montana 1998: is it time for proposition 13 in Big Sky Country?

• Author: Young, Douglas J.
• Position: Citizen initiative to reduce property taxes by half

A booming real estate market, increasing home values, and sky-rocketing property taxes.... Is this Montana or California? Actually, it's California 20 years ago, but Montana's current property tax situation is similar in many ways to that of California in 1978.

Twenty years ago, California property taxes increased rapidly because of the flourishing real estate market, which saw residential values increasing by as much as 35 percent in a single year. Tax assessors in California were required by law to update property values every year, and they did so. As a result, property tax bills rose rapidly.

Frustrated with rising property taxes, Californians passed Proposition 13 - a citizen initiative that immediately cut property taxes in half, and spawned a series of "tax revolt" measures in other states. Is something similar likely to occur in Montana? What did Proposition 13 actually do, and what were the consequences for California taxpayers and public services? Would Proposition 13 be a good idea for Montana?

California 1978: The Background to Proposition 13

The principal cause of Proposition 13 was rapidly rising property taxes, especially on residential property (O'Sullivan et. al., 1995). Rising property taxes were perceived to be a threat to homeowners on fixed incomes, particularly the elderly who could conceivably be forced out of their homes. Since the real estate boom affected mostly residential and commercial property, these properties paid an increasing share of the taxes, while taxes on agricultural and industrial property were smaller shares of the total.

In addition, many Californians were frustrated with what they perceived to be bureaucratic indifference on the part of government officials. Rising property values could have been offset by reductions in tax rates, so that tax bills would remain roughly constant. But little was done in this regard, despite the fact that the state government was running record surpluses. So taxpayers fumed.

School finance reform also contributed to the tax revolt (Fischel, 1989). A state Supreme Court decision in 1971 required school funding to be more equalized among districts. Thus, by the middle 1970s, property taxes were redistributed from high wealth districts to low wealth districts. With local school funding no longer a function of the local property tax, people were less willing to pay taxes.

Montana 1998: Are Conditions Ripe for Revolt?

The property tax situation in Montana today is broadly similar to that in California 20 years ago, but there are also important differences.

First consider the similarities. Montana enacted school finance reform in the early 1990s, raising property tax rates and redistributing the funds among districts. Between 1989 and 1998, Montana property taxes on all types of property increased 54 percent. Taxes on residential property increased even faster - by 89 percent [ILLUSTRATION FOR FIGURE 1...