Property tax limits, East and West: the squeeze is on; California: host of tax-cut measures adds to growing burden of Prop. 13

Whatever Proposition 13 has done to California it hasn't done alone. When Californians in June 1978 voted overwhelmingly for the Howard Jarvis-Paul Gann proposal to chop local property taxes by more than half, they removed some $9 billion a year from the tax side of the economic scale.

It was a huge tax cut, admits legislative analyst Bill Hamm. But he adds: "If the state only had Prop. 13 to deal with, it probably would be in pretty decent shape."

In August 1978 the Legislature passed a law indexing personal income taxes to inflation -- a move to keep wage-earners from being pushed into higher and higher tax brackets. Because of this, the state collected $1.8 billion less in 1980 and will collect $2.7 billion less this year.

Other laws enacted in 1979 and 1980 have exempted certain business investments form property taxes, causing, a revenue loss of some $555 million this year; provided homeowners' exemptions amounting to $335 million; and lowered gift and inheritance taxes at a tax cost this year of $129 million. With other, smaller reductions, the tax cut total amounts to more than $13.5 billion this year.

Because of inflation, state revenue from income taxes has continued to rise in spite of the cuts. But state Controller Kenneth Corey says the effect of the general economic downturn, Prop. 13, and other tax reductions resulted in revenue at all levels of government being down $46 billion as of Jan. 1, 1981. And, he notes, there was no corresponding decrease in expenditures.

California's now famous state budget surplus, built up through several prosperous years, provided a Prop. 13 cushion -- but not a panacea -- for local governments. That surplus, which Mr. Corey says peaked at about $5 billion in 1978, is no more. Though neither Corey nor Hamm thinks the Legislature will have to raise more money this year to balance the budget, they point out that the state treasury has no more "bail out" money.

What's more, as the new federal fiscal year began Oct. 1, California, like other states, faced a sizable reduction in funds coming from Washington. This, according to several local and state sources, will make cities and counties even more dependent on state aid.

After three years of Prop. 13, and with the prospect of further cuts in local services, are California taxpayers ready to loosen the revenue restraints?

*"No," says Oakland Assistant City Manager John Baker -- certainly not in his community. Last April voters were asked to approve a tax increase to provide $8 million a year for maintaining the number of police patrolmen at the 1977 level. Oaklanders, hardly unaware that their city has a crime problem, not only did not provide the two-thirds "yes" vote required, they defeated the proposal 55 to 45 percent.

*"No," says Fred Stabell, finance director-treasurer of Fremont, a fast-growing city south of San Francisco. Fremont had a population of 27,000 in 1956; the figure now is 137,000 and still going up. "Public sentiment here hasn't changed," asserts Mr. Stabell, although Fremont has cut back on services from parks and recreation to street repair.

"We're just putting out fires now," he says. With maintenance and capital improvement being postponed, the city will, "in the long run, be in a very unfortunate situation," he asserts.

What about the state bailouts? It has helped, Stabell explained, but not enough. He cites figures: Fremont's property tax revenue in 1977-78, before Prop. 13, was $6.4 million. In 1978-79, after Prop. 13, it was $2.1 million; state bailout funds added $1.4 million.For 1980-81, he says. Fremont will have about $4.7 million in property tax revenue and no bailout money. Even though new houses being built in Fremont are evaluated for taxation at today's inflated priceS, they still don't produce enough money to pay for the services the new residents require.

*Other local and state officials are as definite as Baker and Stabell in asserting that at no time has public sentiment turned against the "tax revolt."

But even communities that are getting by, say Corey, Hamm, and others, are noting another Prop. 13 effect: a changing relationship between state and local government.

Often cited in pointing out the danger of state control replacing local autonomy is the turn around in public school financing. Figures provided by Sara Peterson, legislative coordinator for the California Department of Education, show the dramatic shift. In 1977-78the state provided 38.55 percent of public school funds; local property taxes, 51.56 percent; federal aid 7.29 percent, and miscellaneous sources 2.6 percent. In 1979-80 the percentages were: state, 68.8; local, 19.5; federal, 7.8, and miscellaneous,3.9.

Local school control was also eroded when Prop. 13 stripped from local schoolboards their ability under certain circumstances to override local budget limitations.

"The supreme irony," said Hamm, "is that Howard Jarvis, who has spent his lifefighting centralization of government, was responsible for the situation that is putting the state in control of local affairs."