Introduction

The principal advantage of a system of local governments is that it can better accommodate a wide array of tastes and demands for government services supplied or financed in accordance with local variations in cost conditions. This added flexibility allows citizens and businesses the option of choosing locations with some consideration of the availability and cost of government services offered at alternative locations. The ability of local governments to provide the array of services desired by its citizens depends on its ability to raise revenues to finance these services. Local governments must have access to a revenue source that they can adjust to meet varying demands. This is one justification for the local property tax. The property tax can be administered by local government with relatively little fear of its tax base migrating to other jurisdictions, thus providing local governments with the needed fiscal autonomy. The property tax has been the source of economic independence of local units of government.

Property tax limitations have greatly diminished local government fiscal autonomy by restricting their power to raise revenue; but limiting revenue is why voters supported tax-limitation measures. Particularly in California, local governments exercised no restraint in failing to lower tax rates as property values soared. The immediate reductions in property tax revenues resulting from the passage of Proposition 13 were severe, and the 2% limit placed on increased assessments did not allow for growth in revenue to match the increasing demand for local public services or the increasing cost of providing those services.