Proposition 13

Proposition 13 (officially the People's Initiative to Limit Property Taxation) is a landmark amendment to the California Constitution enacted on June 6, 1978, that fundamentally reshaped property taxation across the state, including in San Francisco. The measure was designed to cap property taxes and limit property reassessments to when a property changes ownership, and to require a two-thirds majority for tax increases in the state legislature. California voters overwhelmingly approved the initiative, and it represented the taxpayers' collective response to dramatic increases in property taxes and a growing state revenue surplus of nearly $5 billion. Because San Francisco is among California's most expensive real estate markets, the law has had an especially pronounced effect on the city's property tax landscape, generating both measurable financial benefits for long-time property owners and sustained debate over equity, public services, and housing affordability.

Background and Origins

In June 1978, Proposition 13 passed with 65% of the vote. It was a response to the skyrocketing property taxes during rampant inflation, fundamentally changing property taxation by capping the rate at 1% of assessed value and limiting annual increases to 2% until a change of ownership or new construction took place.

Prior to the initiative's passage, local governments in California — including San Francisco — independently set their own property tax rates. Local agencies established their own separate property tax rates and received the proceeds of the tax. For the first time in the state's history, the state was put in charge of allocating the proceeds of the locally levied property tax. This decentralized system, combined with rapid appreciation in home values throughout the 1970s, led to tax bills that many homeowners found unmanageable. The California legislature adjourned in the fall of 1977 without passing any significant property tax reforms, even though 22 different reform plans were proposed, setting the stage for a citizen-led initiative. The measure was championed by anti-tax crusader Howard Jarvis, whose efforts culminated in the June 1978 primary election.

Requiring a supermajority vote of two-thirds to pass any new local taxes or municipal bond offerings was a crucial component of the bill. Proposition 13 also requires that all state tax increases be approved by two-thirds of the legislature and that special taxes levied by local governments be approved by two-thirds of voters.

Key Provisions

Proposition 13 established the concepts of a base year value for property tax assessments, and limitations on the tax rate and assessment increase for real property. The law operates through three principal mechanisms:

One percent rate cap: Under Proposition 13, property taxes are limited to one percent of the assessed value. Additional property taxes may be approved for schools or local projects, which can vary amongst communities and bring the tax rate higher than one percent.

Assessment rollback and base year values: Proposition 13 rolled back most local real property assessments to 1975 market value levels, limited the property tax rate to 1 percent plus the rate necessary to fund local voter-approved bonded indebtedness, and limited future property tax increases. Once Proposition 13 passed, property assessments for the 1978–79 fiscal year were required to be "rolled back" to 1975–76 values, establishing the first base year values in California.

Two percent annual cap on assessment increases: Under Proposition 13, all real property has established base year values, a restricted rate of increase on assessments of no greater than 2% each year, and a limit on property taxes to 1% of the assessed value (plus additional voter-approved taxes). When a change in ownership occurs, whether full or partial, real property is re-assessed at its current market value as of the date of transfer. This establishes a new base year value for both the property's land and improvements.

Effects on San Francisco

San Francisco, as one of California's most expensive real estate markets, experiences some of the most striking divergences between assessed and market values under Proposition 13. Proposition 13 disproportionately affects coastal metropolitan areas, such as San Francisco and Los Angeles, where housing prices are higher, relative to inland communities with lower housing prices.

The gap between assessed value and true market value in the city can be substantial. In a report using data provided by online brokerage Redfin, the San Francisco Chronicle scrutinized the size of the gap between assessed and actual values and the resulting tax breaks in counties around the state. In San Francisco, the average home was assessed at $1.01 million but had an actual market value of $1.58 million, according to the Chronicle's report. Thanks to that difference, typical homeowners were paying about $5,700 less in property tax each year than they would have if Proposition 13 wasn't capping valuations.

This disparity can produce extreme results for individual properties. The owner of a 6,740-square-foot mansion in San Francisco estimated to be worth $9 million paid $5,625 in property taxes in 2020, according to the Tax Fairness Project, which analyzed county tax records and market values. Across the bay in Richmond, the owner of a 991-square-foot home worth $331,000 and in need of repairs paid almost as much tax at $5,240.

Despite concerns about foregone revenue, the law also provides San Francisco with a measure of fiscal stability. Even in years when market values decrease, Proposition 13 acts as a shock absorber, stabilizing revenue because of the difference between taxable value and market value. The two percent limit on annual increases in taxable value means that, for cities like San Francisco with historically big increases in market value, no overall reduction in tax assessments is required even when market values are dropping. Revenue to the city treasury is likely to remain stable. Total assessed property in San Francisco from 2022 to 2023 increased 5.3% according to the California Board of Equalization Annual Report.

The law's impact on local government finance has been significant. After Proposition 13, county property tax revenues dropped from $10.3 billion in 1977–78 to $5.04 billion in 1978–79. As a result, many local governments were in fiscal crisis. Keeping local governments in operation the first two years following Proposition 13 required legislative "bailouts" to offset property tax revenue losses. Local governments became more dependent on state funds, which increased state power over local communities. The state provides "block grants" to cities to provide services, and bought out some facilities that locally administer state-mandated programs.

Equity Debates and Criticism

Proposition 13 has long been the subject of debate in San Francisco and across California, particularly regarding its equity implications. The law has been criticized by policy experts for effectively offering long-time homeowners hefty tax discounts relative to new buyers.

Research conducted by the Tax Fairness Project and the San Francisco Bay Area Planning and Urban Research Association found that the benefits of the law are not distributed evenly. Homeowners in wealthy, white neighborhoods in Oakland received thousands of dollars more in property tax breaks than their counterparts in neighborhoods with large Black, Asian and Latino populations, according to a report based on a study by the Tax Fairness Project and the San Francisco Bay Area Planning and Urban Research Association. The report's authors noted that "the wealthiest neighborhoods receive the most (breaks), which helps them build more wealth for communities that were already benefiting from lots of wealth," as stated by Jacob Denney, economic policy director at the San Francisco Bay Area Planning and Urban Research Association.

The system voters put in place through Proposition 13 in 1978 is estimated to cost the state about $45 billion per year — and possibly a lot more, according to an analysis by University of San Francisco political science professor Patrick Murphy, who is pitching a major reform.

The Economist argued in 2011 that Proposition 13 "ended up centralizing California's finances, shifting them from local to state government." Due to the reduction in revenue generated from property tax, local governments have become more dependent on sales taxes for general revenue funds. In response, local governments in California now use creative strategies to maintain or increase revenue due to Proposition 13, with many seeking voter approval for special taxes such as parcel taxes for public services that used to be paid for entirely or partially from property taxes imposed before Proposition 13 became law.

Proposition 13's supermajority requirement for new taxes was itself challenged in the courts following San Francisco's adoption of Proposition C (2018), a measure to fund homeless services. The First District Court of Appeal ruled that local voters can adopt a tax to fund specific programs by a simple majority, not a two-thirds supermajority. The California Supreme Court preserved the people's right to direct democracy by upholding the appellate court's opinion, which validated San Francisco's Proposition C, which was adopted in 2018 by more than 60% of the vote to fund homeless programs.

Reform Efforts and Current Debate

Attempts to modify or repeal Proposition 13 have consistently met strong public resistance at the ballot box, even in left-leaning areas like San Francisco. Almost 50 years after its passage, Proposition 13 still enjoys broad support: 65% of California adults who responded to a 2024 Public Policy Institute of California survey — and 69% of likely voters — said they considered the proposition "mostly a good thing." The last major effort to reform the law came in the form of Proposition 15 (2020), a measure that would have lifted Proposition 13's protections on commercial properties. Despite the backing of unions, that initiative failed on a 52% to 48% vote.

Regionally, support for commercial property tax reform is highest among likely voters in the San Francisco Bay Area, at 65%. Despite this relative regional openness to reform, statewide majorities have blocked significant changes to the law's core provisions.

San Francisco has also navigated Proposition 13's constraints through local measures. In 2026, Mayor Lurie proposed a parcel tax aimed at raising $187 million annually to help close SFMTA's (Muni) budget deficit and avoid service cuts, to appear on the November 2026 ballot. The mayor's parcel tax uses "a progressive, square-footage–based approach, making it the first parcel tax of its kind in San Francisco."

The constitutional validity of Proposition 13 was established early. Immediately after Proposition 13 passed, its constitutionality was challenged. The California Supreme Court upheld the constitutionality of Proposition 13 in Amador Valley Joint Union High School District v. State Board of Equalization on September 22, 1978. The decision remained the highest judicial ruling on Proposition 13 until 1992, when the United States Supreme Court ruled, in Nordlinger v. Hahn, that Proposition 13 did not violate the equal protection clause of the United States Constitution. This ruling effectively ended speculation about whether the judicial system would ever overturn or modify Proposition 13.

References

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