Reading summary and questions

Week 1:
1.    Summarize all of the reading in 2-pages.
a.    What are difficult concepts?
b.    What idea that need more clarification?
c.    Which reading did you enjoy reading?
d.    Which reading was confusing or too advanced for you?
e.    Summarize the main concepts in details.
2.    Challenge your classmates and stump the teacher with questions.  Do some outside research on the readings and write 4 difficult questions from the readings to the class.  Write 4 questions and provide a half-page answer to each question.  – total 2-pages.  Note: Make sure to reference your sources using APA style.

Read Chapter 1 from the following textbook:
A Budgeting Guide for Local Government – Robert Bland, 3rd edition

Week 2:
1.    Summarize all of the readings in 2-pages.
a.    What are difficult concepts?
b.    What idea that need more clarification?
c.    Which reading did you enjoy reading?
d.    Which reading was confusing or too advanced for you?
e.    Summarize the main concepts in details.
2.    Challenge your classmates and stump the teacher with questions.  Do some outside research on the readings and write 4 difficult questions from the readings to the class.  Write 4 questions and provide a half-page answer to each question.  – total 2-pages.  Note: Make sure to reference your sources using APA style.

1.    Read Chapter 1 from the following textbook:
A Budgeting Guide for Local Government – Robert Bland, 3rd edition
2.    Carroll, D. (2009). Diversifying municipal government revenue structures: Fiscal illusion or instability?. Public Budgeting & Finance, 29(1), 27-48.
3.    Mikesell, J. (2012). Revenue estimation/scoring by states: An overview of experience and current practices with particular attention to the role of dynamic methods. Public Budgeting & Finance, 32(2), 1-24.
4.    Williams, D. (2012). The politics of forecast bias: Forecaster effect and other effects in new york city revenue forecasting. Public Budgeting & Finance, 32(4), 1-18.

Week 3:
3.    Summarize all of the readings in 2-pages.
a.    What are difficult concepts?
b.    What idea that need more clarification?
c.    Which reading did you enjoy reading?
d.    Which reading was confusing or too advanced for you?
e.    Summarize the main concepts in details.
4.    Challenge your classmates and stump the teacher with questions.  Do some outside research on the readings and write 4 difficult questions from the readings to the class.  Write 4 questions and provide a half-page answer to each question.  – total 2-pages. Note: Make sure to reference your sources using APA style.

1.    Read Chapter 3 from the following textbook:
A Budgeting Guide for Local Government – Robert Bland, 3rd edition
2.    Bell, M., & Kirschner, C. (2009). A reconnaissance of alternative measures of effective property tax rates. Public Budgeting & Finance, 29(2), 111-136.
3.    Hoene, C. (2004). Fiscal structure and the post‐proposition 13 fiscal regime in california’s cities. Public Budgeting & Finance, 24(4), 51-72.

Fiscal Structure and the Post-Proposition 13
Fiscal Regime in California’s Cities
Two and a half decades after the passage of Proposition 13 in 1978, California
state and local governments continue to feel the intended and unintended effects
of tax and expenditure limitations. While considerable time has passed since
voters enacted Proposition 13, the effects of the property tax revolt continue to
be dramatic. This article examines the fiscal structure of California’s city
governments from 1972 to 2002. The analysis reveals that California’s cities
have become less reliant upon property tax revenues and more reliant upon
charges and fees, and have not increased reliance upon sales tax revenues as
much as expected.
Two and a half decades after the passage of Proposit ion 13 in 1978, California stat e and
local governmen ts cont inue to feel the intend ed and uninte nded eff ects of tax and ex-pen diture limitatio ns (TELs ). While consider able time has passed since voter s enacte d
Pro position 13, the effects of the proper ty tax revo lt in Califo rnia con tinue to be dra-matic , especial ly for local gover nment s, and especial ly with regar d to the proper ty tax.
Pos t-Proposi tion 13 initi atives, legislat ive acts, and state takea ways of local revenu es
have significan tly limited the rang e of policy options avai lable to local governmen t
leade rs to meet local deman ds for services . How state and local governmen ts in Cal-ifor nia hav e respon ded Fcity gover nments in particul ar Fis the subject of this articl e. I
argu e that the fiscal structu re of local governmen t in Califo rnia continues to be sub-stan tially al tered by Propo sition 13 and its progeny , and that some of the most dra matic
Christopher Hoene is the Manager of Research and the Municipalities in Transition Program for the
National League of Cities. He manages NLC’s research, including survey efforts and targeted research on
public finance, community and regional development, federalism, homeland security, and demographic
change. He also leads NLC’s Future of Public Finance Initiative, an effort designed to call attention to the
challenges facing America’s public finance system. He can be reached at
Hoene / Fiscal Structure and Post-Proposition 13 51
impacts were experien ced 15–20 years afte r its passage, in addition to the immedia te
afterma th of the initia tive’s pas sage.
The analys is condu cted here examines the fis cal structure of city fin ance in Californ ia
before and after Propo sition 13. Propo sition 13 set in mot ion a series of str uctural
adjustmen ts to state and local finance that have, over time , shifted cities ’ revenu e focus
away from prop erty taxe s toward other revenues so urces. In par ticular, Pro position 13-relate d structu ral adju stmen ts mad e in the early 1990s, amid a deep recessio n in Cal-iforni a, had a substantial impact on state and local fin ance in the state. As a resul t,
exami ning more recent periods is importan t to better un derstand the inten ded and un -intend ed conse quenc es of Proposi tion 13 for city gover nments.
In exami ning the long er-term implic ations of Propo sition 13 and its progen y, I seek to
provide insigh t into three common argu ments mad e abo ut Califo rnia’s resul ting fis cal
structure . One argument commonly forwarded by pr oponents of tax and expendit ure
limits (man y of wh ich are mo deled on P roposition 13) is that Propo sition 13’s impact on
the fiscal structu re of local gover nment s has been minim al, or overstated . A secon d
argu ment, popular among the media and public offi cials in California, is that Propo-sition 13 resulted in a shift awa y from local governmen t reliance upon proper ty tax
revenu es to relia nce upon sales tax reven ues, contribu ting to a ‘‘fisca lization of la nd use’’
that empha sizes sales tax-gener ating for ms of develop ment. A third cont ention, most
often noted among fis cal analys ts and public fin ance scholars , is that local governmen ts
shifted reli ance away from proper ty taxes to non-tax sources of revenu es after Prop-ositio n 13, most notably in the form of char ges and fees for serv ices. Throu gh an analysis
of the fis cal structure of city governmen ts in Califo rnia, I ex pect to find that
! Califo rnia cities’ reliance upon proper ty tax reven ues has decreas ed subst antially
since Proposi tion 13’s pas sage, par ticularly during two periods Fin the immed iate
afte rmath of its pas sage and following the rece ssion of the early 1990s and re-sultin g state actions;
! The shift to reliance upon sales tax revenues has been overstated, or is not borne out
in aggregate across California cities, although it may be true for individual cities; and
! Califo rnia cities have become much more reli ant upon charges and miscellane ous
sources of revenu e, as well as tax sources other than prop erty and sales taxe s.
A discussio n of the relati onship betw een city fiscal structure and Proposi tion 13 must
necessa rily begin with an overview of Proposit ion 13Fthe political context that led to its
introduc tion and passage, its provis ions, and the immedia te afterma th. Ho wever, as the
1. Municipalities in California are referred to as ‘‘cities’’ throughout this article. Cities are the only form
of municipality found in California, as opposed to other states where additional municipal forms of
government, namely townships and villages, are also found.
Public Budgeting & Finance / Winter 2004 52
discu ssion below illu strates, city fisca l restri ctions in California have not been limited to
Pro position 13 alone. Rather, Proposit ion 13 set in mot ion a series of act ions and
reacti ons that led to a sys tem of city fin ance that is increas ingly complex. This syst em is
char acterized here as a fiscal regim e.
The Political Clim ate Lea ding Up to Proposi tion 13
Pro position 13’ s app roval by nearly two -thirds of Califo rnia voters has been attrib uted
to a variety of factors in the 26 years that have follow ed. The conse nsus op inion holds
that the comb ination of econo mic circum stances with gubernator ial and legislat ive in-ac tion led to voter s takin g matters into their ow n hands thr ough the initia tive process.
Li ke much of the nation in the 1970s , California experienced rapid inflation . As large
nu mbers of peopl e cont inued to mov e into the state, creati ng a ho using shor tage, prop-erty values began to increas e dr amatically . Prope rty taxe s subseq uently increased sig-nific antly as assessed pr operty values increas ed to ac commoda te marke t changes. The
risin g ho me val ues most certai nly benefi ted those who sold their homes, but the vast
majo rity of California ns saw rapidl y rising prop erty tax bills. Le ss mo bile home ow ners
on fixed incom es, such as senio r citizen s and the elde rly, were par ticularly vulner able to
increa ses in prop erty taxe s.
Not surp risingly, calls for proper ty tax relief were comm on at the time. The sponsor of
Pro position 13, Howar d Jarvis, had attempted to pass prop erty tax reli ef thr ough Cal-ifor nia’s initi ative process on several occasio ns in the late 1960s and early 1970s. These
ea rlier effort s were us ually thw arted by more mode rate relief packages dr afted at the
state level that wo rked to un dermine the perceive d need for Jarvis’s prop osals. Howe ver,
wh en Ja rvis successfu lly garn ered enough signatures to place Proposi tion 13 on the ballot
in 1978, the legis lature and governor failed to pass a proper ty tax relief packa ge on their
ow n to make Proposi tion 13 unnec essary. A more moderate, state legislature- sponsore d
alt ernative to Proposi tion 13 was place d on the ballot in 1978, but it was too late and a
large major ity of voters passed Proposit ion 13 into la w on June 1, 1978.
Prop osition 13’s Implemen tation
Pro position 13 restructu red Califo rnia’s prop erty tax syst em by amend ing the state
con stitution under the follow ing provisio ns:
1. It set the maximu m prop erty tax rate at 1 percen t of assessed value, ex cept as
necessary to cover preexis ting voter-a pproved indebt edness.
2. Property taxe s are collected by cou nties and appor tioned by law (state govern-ment).
2. The term ‘‘regime’’ is employed in its most literal sense to mean a mode or system of governance.
Hoene / Fiscal Structure and Post-Proposition 13 53
3. The property tax base, or ass essed value, was ro lled back to the full ca sh val ue of
prop erty on March 1, 1975, or as of the date the proper ty changes ownership or is
newly con structe d afte r Mar ch 1, 1975.
4. Incre ases in prop erty value ass essment are limited to the consum er pr ice index, no t
to exceed 2 percent annually.
5. Any new state taxes must be pas sed by a two -thirds vote of both ho uses of the
legis lature.
6. Any new special taxe s from city, county, or school district s must be pas sed by a
two -thirds vote of the electorate.
7. State and local gover nment ca nnot impose any additiona l pr operty, sales, or
tran sactions taxe s on property.
The comb ination of lim iting the proper ty tax rate to 1 per cent, rolling back pr operty
values, and limitin g gro wth in assessed val ue meant that local governmen ts were re-stricted from raisin g local proper ty tax rates or assessed prop erty values to raise ad-dition al reven ues Fpractices used common ly by local gover nments to mee t annual
revenu e needs . Simultaneou sly, the control over the alloc ation of prop erty tax reven ues
collected was transferre d to the state by the clause in the second provisio n that reads,
‘‘shall be apport ioned by law.’’ The pr ovision essen tially tran sferred discr etion over how
proper ty tax revenues are app ortioned to local gover nmen ts, from local governmen ts
thems elves to state governmen t. As pr evious studie s have not ed, the combinatio n of
these provisio ns eff ectively elimin ated the proper ty tax as a tool of local gover nment
revenu e generatio n, centr alizing auth ority over the prop erty tax in stat e gov ernment.
Over the two and a half decades since Proposit ion 13’s pas sage, constrain ts on city
finance have grad ually tightened . A number of additions and alt erations have been mad e
in relation to the initiative’s provisio ns and implemen tation since 1978. A few of the
major chang es are outlined in Table 1 below . The first of the key changes was the
alloca tion for mula ado pted by the state legis lature under Sen ate Bi ll 154 in 1978 and
Assem bly Bill 8 in 1980. SB154 set the allocation formula for property tax revenu e for
cities as the ave rage percenta ge of proper ty taxe s collected by the cou nties in which cities
reside for the yea rs 1975–1 978. The implic ation of this provis ion was that it essent ially
froze the proper ty tax alloc ations for cities at their 1975–1978 levels . Howe ver, SB154
3. In actuality there are a number of ways for additional and new property taxes to be levied, such as
through parcel taxes and special assessments on specifically designated areas within jurisdictions.
4. Gregory Saxton, Christopher Hoene and Steven P. Erie, ‘‘Fiscal Constraints and the Loss of Home
Rule: The Long-Term Impacts of California’s Post-Proposition Fiscal Regime,’’American Review of Public
Administration32, no. 4 (2002): 423–454.
5. Alvin Sokolow, ‘‘The Changing Property Tax in the West: State Centralization of Local Finances,’’
Public Budgeting and Finance 20, no. 1 (2000): 85–104.
6. Michael Shires,Patterns in California Government Revenues since Proposition 13 (San Francisco:
Public Policy Institute of California, 1998).
7. Michael Shires, John Ellwood, and Mary Sprague, Changes in State and Local Public Finance since
Proposition 13(San Francisco: Public Policy Institute of California, 1998).
Public Budgeting & Finance / Winter 2004 54
Major Post- Proposit ion 13 St ate and Voter-Appr oved Actions
Bill or Prop. Description Key Provisions Impacts and Implications
SB 154 (1978) The state legislature’s
response to Prop. 13 F
the ‘‘bail out’’ of local
government finances
using state surplus
Set property tax revenue
allocation formula as the
average % of all property
taxes collected over the
years FY1975–76,
FY1976–77, and FY1977–
Froze inequities among
jurisdictions to FY1975–78
levels; Shift in emphasis in
local financing away from
property taxes
AB 8 (1980) Altered allocation
formula to allow for
increases in tax base as a
result of new developmen t
Allocation formula
figured as average
percentage of all property
taxes collected during
FY1975–78, plus increases
in property tax base
Increase in number of
redevelopment agencies that
have the ability to take
advantage of increased tax
increments from
redevelopment efforts
Prop. 98 (1988) School funding initiative
to ensure stable annual
school funding
Requires that
approximately 40% of
state general fund revenue
to go to public schools
and community colleges;
greater percentage of
surplus funds devoted to
education; can be
suspended in economic
Effectively transferred fixed
percentage of revenues from
cities and counties to school
ERAF Transfers
Property tax shifts to
countywide Educational
Revenue Augmentation
Fund (ERAF) for schools
Requires that a portion of
the property taxes
previously dedicated to
nonschool agencies be
distributed to schools;
does not apply to cities
incorporated after 1978
Results in millions of
dollars in property tax
revenue transfers from cities
to school districts; helped
state balance budget and
education requirements
Prop. 218 (1996) Reiterates intent of
Proposition 13 and
extends Proposition 13
vote requirements to some
fees and assessments
All new general taxes must
be approved by 2/3 vote
and all specific taxes by a
majority; all new increases
in assessments must be
approved by 2/3 vote of
those affected; all
property-related fees must
be approved by 2/3 of
property owners affected
Definition of property-related is unclear; threatens
use of post-Proposition 13
fiscal options, such as the
use of fees and special
Hoene / Fiscal Structure and Post-Proposition 13 55
also provid ed relief to cities in the wake of Propo sition 13. Alarmed at the rep orted seven
billion dollars in reven ue losses that would result from Proposi tion 13, the state provided
bailou t funds to local governmen t out of a state surplus. The state also assumed a greater
share of mandated health and welfare respon sibilities from cou nty gover nment. The
bailou t fun ds and shifts in service respon sibility served to mitig ate some of the immed iate
effects of Pro position 13 on local gover nmen t in terms of cuts in services . Passed as a
tempo rary meas ure in 1978 sh ortly after the passage of Propo sition 13, the allocat ion
formula adopted under SB154 was formally adopted in 1980 as Assembl y Bill 8. AB8
institu ted the same al location formu la with an adjustmen t that allowed for increas es in
the proper ty tax base of cities.
Beyond Propo sition 13
The first of many follow-on initi atives and legislativ e actions to Pro position 13 (see Table
1) was yet ano ther attempt by on e of Propo sition 13’ s spon sors to limit the size of state
and local gover nment. Not satisfie d that Proposit ion 13 wo uld effectiv ely limit the size
and gro wth of gover nment, Califo rnia voters passed Pro position 4, a consti tutional
amend ment to restrict the rate of gro wth in state and local gover nment ge neral fund
expendi tures, in 1979. However, the resul ting expendi ture restri ctions were structu red in
such a way that ann ual gro wth in state and local governmen t spendin g usually fai led to
exceed the caps. Exc ept for long perio ds of sustained economi c gro wth, such as that
experien ced over the mid-to -late 1990s, which allowed for faster rates of growth in
expendi tures, the ex penditur e limits have rar ely been reached at the state or local gov -ernm ent level. Additio nally, becaus e the amen dment was limited to genera l fun d expen -diture s, state and local gover nmen ts in Califo rnia hav e often circumven ted the
expendi ture restri ctions by movin g expendi tures ou t of their ge neral funds. For cities ,
this has primaril y occurred by mov ing vario us city act ivities into enterp rise funds. Thes e
funds operate like propri etary enterprises . Ser vices provided through these funds are
financed by user fees and char ges that are only levied in ac cordance with the use or
consum ption of the given serviceFlike a privat e enterprise. For ex ample, man y cities in
California now provide utilities (wat er, gas, electricity , and other), transport ation (air-ports, transit, po rts, and har bors), recreation (stadiums , golf courses, and librar ies), or
sewer s and solid waste services thr ough enter prise funds, movin g these revenu es and
expendi tures off of the genera l fun d bu dget.
Since AB 8, oth er initiativ es and adjustmen ts have fur ther heigh tened the complexity
of city fina nce in California . In 1988, voter s passed Proposi tion 98, an initia tive that
requi red state gover nmen t to alloc ate approxim ately 40 per cent of its general fun d rev-enues to public schools and comm unity colleges .
While no t app earing to affe ct cities on
8. Proposition 98 has a number of specific tests used to determine minimum levels of state funding for
education, depending upon whether the state is in a period of economic growth or decline. In general, the
requirement hovers at around 40 percent of the state budget.
Public Budgeting & Finance / Winter 2004 56
its surface, the long-term eff ect of P roposition 98 was to ind uce the state gover nment to
tran sfer revenu es away from cities and counti es to sch ool distri cts in order to cover the
Pro position 98 edu cation spendin g requiremen ts. This effect became evident in 1992
wh en, amid a recession that challenge d the state’s abili ty to mee t Proposit ion 98 ed-ucatio n funding requi rement s, the state ex ercised its control over property tax allocat ions
by tran sferring proper ty tax revenu es fro m local gover nments to pay for schoo ls throug h
the Educa tion Revenue Augmen tation Fund (ERAF ). With out Proposi tion 13’s pro-visio n that the state would determ ine property tax alloca tions, the state would not have
had this po wer. The ERAF transfers resul ted in $21. 5 billion in prop erty tax reven ue
takea ways fro m cities, counti es, and special distri cts betw een 1992 and 1999.
One side effect was that the system for funding local gover nment, par ticularly relate d
to the prop erty tax and educatio n, became even more diffi cult to under stand. Fun ding
for cities and school dist ricts, derived prim arily from local proper ty taxes, became in-ex tricably wra pped up in state budgeting and alloc ation for mulas, and divorc ed fro m
local policy makin g.
In the mid-199 0s, voter pas sage of Propo sition 218 (1996) limited the us e of key post-Pro position 13 local fiscal tools by requi ring assessm ents, fees, and charg es for services to
be app roved by a vote of the electorate, or those indiv idually affe cted by a part icular fee
or charge. The initia tive’s vagu ely worded definitio ns of special assessm ents and fees
resul ted in cou rt ca ses that delaye d its implemen tation . But, Proposit ion 218 did have a
sign ificant affe ct on local governmen t in that it disco urag ed attempt s to impo se special
ass essments and fees becau se it requi red a two -thirds vote of the affe cted electorate.
Desp ite this bar rier, man y of the new assessm ents and fees place d on local ballots in the
lat e 1990s and early part of the new century manag ed to garner the nece ssary two -thirds
vote, per haps reflecting stable and growin g econo mic con ditions, and better-prep ared
local campaig ns design ed to garn er the necessa ry two -thirds vote.
9. State government officials argue that the $21.5 billion in ERAF transfers was mitiga ted in part by
state transfers to local governments for police and fire services under Assembly Bill 172. AB172 funds for
public safety totaled $11.7 billion leaving counties, cities, and special districts with a net loss of $9.8 billion.
Local government officials counter that the AB172 funds came with requirements on how they could be
spent, reducing local discretion and autonomy.
10. Some have argued that Proposition 13 and Proposition 98 resulted from the landmark California
Supreme Court decision on school funding equalization in Serrano v. Priest (1971) and the follow-on
validation of that decision in 1976. Those decisions effectively divorced local property taxes from schools
because the requirements to equalize school funding resulted in a need for greater state aid to schools (to
decrease disparities in funding that naturally arise from differences in local property tax bases). This
argument is based upon the idea that voters are more likely to tolerate property taxes if those taxes finance
services that are capitalized in local home values. With the property tax-schools nexus undone, voters were
less likely to tolerate property taxes, leading to Proposition 13. Similarly, with the state forced to set aside a
set share of funding from the state budget for education, the state then looked to available funding sources
and used its power to allocate property tax revenues between local governments Freallocating those rev-enues from cities, counties, and special districts to school districts.
Hoene / Fiscal Structure and Post-Proposition 13 57
As the ER AF education shifts and Proposi tion 218’s pas sage indicated , the post-Proposi tion 13 fisca l regime con tinued to impact state and local gover nment finance in
California 15 to 20 years after its pas sage. The ERA F proper ty tax tran sfers that con-tinued into the 2000s are ev idence of Proposit ion 13’ s long-t erm impact on local gov -ernm ents’ fiscal str ucture . Aside from Propo sition 13’s shorter-te rm, more immedia te
implic ations for local fis cal structure , the most dramatic effects may have come in the
long term, in the post-ERAF perio d wh en city gover nments faced fur ther losses of local
proper ty tax revenu es.
Studie s of publi c finance, tax and expendi ture limita tions, and Proposi tion 13 in par-ticula r, are not uncomm on. One of Proposi tion 13’s lasting effects has been the creation
of a cottage industry of sch olars and public policy analys ts studyin g the initi ative’s
impacts . As perhaps the most well -known and studie d tax lim it, and on e that ignite d the
tax revo lt in this country in the late 1970s, Proposi tion 13 is often times the starting point
for any discu ssion of tax and expendi ture limits nationw ide.
Tax and Expenditu re Limita tions
The research in this area has focuse d on TELs ’ impa cts on the growth of the stat e and
local pu blic sector s.
The perceive d exces ses of thes e sectors were in large par t re-sponsi ble for the tax revolt.
Other resea rch has concen trated on the changes in
institu tional str ucture that resul ted from the impositi on of TELs. The lat ter research,
more germane to this stu dy, centers around the effects on local gover nment respon ses
and fis cal structure .
11. D. G. Bails, ‘‘A Critique on the Effectiveness of Tax-Expenditure Limitations,’’ Public Choice 38,
no. 2 (1982): 129–138.
12. Marcia Howard, ‘‘State Tax and Expenditure Limitations: There Is No Story,’’ Public Budgeting
and Finance9, no. 2 (1989): 83–90.
13. D. G. Bails, ‘‘The Effectiveness of Tax and Expenditure Limitations: A Re-Evaluation,’’ American
Journal of Economics and Sociology 49, no. 2 (1990): 223–238.
14. Kim Rueben, ‘‘Tax Limitations and Gover nment Growth: The Effect of State Tax and Expenditure
Limitations on State and Local Government’’ (paper presented at the Western Economic Association
Meetings, San Francisco, 1996).
15. P. Courant and Edward Gramlich, ‘‘Why Voters Support Tax Limitations: The Michigan Case,’’
National Tax Journal38, no. 1 (1980): 1–20.
16. Helen Ladd and J. B. Wilson, ‘‘Why Voters Support Tax Limitations: Evidence from Massachu-setts’ Proposition 2
,’’ National Tax Journal35, no. 2 (1982): 121–147.
17. D. Sears and Jack Citrin, Tax Revolt: Something for Nothing in California (Cambridge, MA: Har-vard University Press, 1982).
Public Budgeting & Finance / Winter 2004 58
A nu mber of studie s have condu cted analys es of the effects on local governmen t fiscal
str ucture of TELs . A cross-sectio nal study in 1974 by the U.S. Advisory Commis sion on
In tergovernm ental Relations found that stat es with TELs experien ced lower governmen t
ex penditur es than ex pected.
Ho wever, a later study by Lowery fou nd litt le support for
the con tention that TELs reduc e prop erty taxes or governmen t sp ending.
More recent
resea rch found that TELs had a number of significant effects.
The former study
fou nd that TELs reduced the level of prop erty tax revenu es by 45 percent and own-so urce revenu es per ca pita by 13 percen t, while Sha dbegian reported reduc tions in own-so urce revenues and ow n-expenditu res per capita between 6 and 8 percent and reduct ions
in prop erty tax revenues of 3 percent. The authors conclu ded that the effects of TELs are
sh ifts in the fiscal structure of local gover nments away from relia nce upon prop erty taxe s
to oth er revenu e sources .
The qu estion that remain s is ‘‘to where is fis cal reliance shifted ?’’ The answers to this
qu estion are fairly con sistent. One comp arison of proper ty tax revenu e, own-sou rce
reven ue, current char ges, and other revenu e fou nd that reduc tions in proper ty tax and
ow n-source revenu es lea d to increas ed reliance upon other revenu es.
Similarly, Mullin s
and Joyce found that TELs shift local gover nment reliance upon reven ues away fro m
taxe s in general to other for ms of reven ue.
In an attemp t to analyze revenu e shifts more
sp ecifically, Sh adbegian tested whether reductions in pr operty tax revenu es res ulted in
increa sed reli ance upon other taxes, such as sales and income taxes. He found, however,
that TELs had a negative impact on both prop erty taxes and other taxes, a po sitive
impa ct on miscel laneou s revenu es (similar to Mullin s’ and Joyce’s ‘‘other ’’ cat egory), and
an overall negative impact on ow n-source reven ues.
The resul ting implic ation is that
TELs shift revenue away from taxe s and toward miscel laneous and other revenu es.
Howe ver, Sha dbegian was carefu l to no te that the shift in revenu e str ucture was not a
on e-to-one ratio. Increases in miscel laneou s revenu es did not comp letely su bstitute for
losse s in tax reven ues, with a $1 decreas e in tax revenues only resul ting in a $0.27 increase
in miscel laneous revenu es.
18. Advisory Commission on Intergovernmental Relations, State Limitations on Local Taxes and Ex-penditures (Washington, DC: U.S. Government Printing Office, 1977).
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