Staying at Home : The Effect of Proposition 13 on Municipal Revenue Sources

The effects of California's Proposition 13 are far reaching in both California state and municipal government finance. For local governments, who relied most heavily on property taxes to fund infrastructural development and public services, the effects were especially pronounced. Previous findings have indicated that this has caused local governments to substitute away from property taxes towards uncapped revenue sources, such as sales taxes and charges and fees. To better understand the effects of Proposition 13 on local government finance, we leverage a peculiarity in the letter of the law: homes are reassessed upon sale. As such, we test the effects of high homeowner mobility on local government finances. We find that in municipalities with greater mobility have larger proportions of their revenue generated by property taxes, indicating that as more houses are reassessed, local governments are shifting their revenue burdens back towards property taxes