California budget mashed by Prop. 13 and inflation surge

Like a slow-moving but relentless steamroller, the full impact of Proposition 13 finally is upon California. The measure that is often credited with launching an American taxpayer revolt in 1978 with its massive property- tax cutback has brought the nation's most-populous state serious financial problems and the probability of public service curtailments and political turmoil.

This is the warning being sounded this week by Gov. Edmund G. Brown Jr. as he delivers the annual "state of the state" message Jan. 8 and submits his budget to the California Legislature Jan. 9.

Approved overwhelmingly in 1978 by voters here, Prop. 13 cut properly-tax rates 55 percent and reduced local revenues from property taxes by $7 billion. Opponents had warned of dire consequences at that time, but large state budget surpluses (fed by growing inflation) enabled officials here to "bail out" local governments and stave off a financial crunch.

But like a family that has been living off its savings and spending more than it is taking in, California has come to the bottom of the bail-out bucket. The state surplus has dropped from $5 billion to less than $1 billion and is expected to run out by mid-1981. Warns controller Kenneth Cory: "Even a recovery in the economy and resulting higher sales tax receipts cannot reverse the general fund downward spiral."

Governor Brown this week submits a state budget he calls "the most stringent in two decades," one that contains no surplus whatsoever and provides only minimal raises (well below the inflation rate) for government employees and welfare recipients. There will be no general tax increase, he says, but reductions in aid for schools and other services in order to balance the state budget.

The state's cities under Prop. 13 have been hard-pressed despite state bail-out efforts. San Francisco, for example, has received some $500 million from the state since the measure took effect, but it still faces a potential deficit of as much as $103 million this year.

Until now, Prop. 13 for the most part has cut so-called less-essential public services, such as summer school programs and library hours and new book purchases, while rasing marriage license and other fees and charges.

But there have been other more important though less obvious effects, including increased state control over traditionally local programs. State government now pays 70 percent of the cost of public education and has taken over the local share of public assistance programs.

Prop. 13 also appears to have slowed community growth in many areas. Prop. 13-level property taxes on new homes no longer pay the cost of the additional public services new residents need. A state survey of about 100 California communities concluded "that new residential development does not pay its way in the post-Proposition 13 world." Nineteen counties and cities have adopted growth-control measures since Prop. 13 was adopted.

These trends are expected to continue, as well as greater stringencies in such things as police and fire protection (which, until now, have gotten by with leaving vacancies unfilled and curtailing expansion).

Aside from growing restlessness among public employees directly affected by government cutbacks, there is a more general concern about the measure launched by tax crusaders Howard Jarvis and Paul Gann.

Two apparent inequities have developed.Prop. 13 rolled back property-tax rates, but allows for reassessment when property changes hands. This means that neighbors in identical homes can (and increasingly do) pay widely disparate property tax bills.

Since residential property changes hands much more frequently than commercial property, the total tax burden likewise has been shifting from businesses to homeowners. There is a growing movement to amend Prop. 13 so that business property would be taxed at a higher rate than residences.

This push for a "split roll" no doubt would lead to another political fight. But for now, as Governor Brown points out, the immediate problem is how to dea l with the steamroller that finally has arrived.