ASSIGNMENT QUESTIONS:

1. What type of evaluation process would you say is being used in this case? Explain this evaluation process.
2. What effect, if any, do you believe rank and yank evaluations have on managers? Do you see these effects as positive or negative? Defend your position.
3. What role does such a system have in distorting performance appraisals?
4. Write your suggestions/opinions to create better performance appraisal system in the Organization.

Instructions for the students

• The answer to each question is not less than 100 words
• Justify your answers, with the help of course materials, Text Book, Online resources.
• All students are encouraged to use their ow nwords.
• Referencing is necessary and student must apply APA Referencing Style.
• Submit your Answers using the same format.
• Plagiarism is prohibited
• All
  answered must be typed using Times New Roman (size 12, double-spaced) font.
  No pictures containing text will be accepted and will be considered
  plagiarism).
• Case study with attachments

of Human resources of

Source Analysis Exercise #2

part 1:

-The reading materials:

1) Nield Balfanz_Unfulfilled_Promise_Project_U-turn (attached)

2) Promise Worth Keeping (attached)

3) PUTonepager_early2016 (attached)

The Reading Journal has three sections – Summary, Significant Takeaways (I want 3), and Questions.

• Brief summary of the reading assignment. ( try to take out the important facts that the author is bringing to the table.)
• Three most significant takeaways from the readings
• Questions where you list any questions this reading or video suggested to you

Including 3 materials, I want you to write a brief summary of each reading and chapter as separate paragraphs under the broad section called “Summary. This will be followed by “Significant Takeaways”, where you can put 3 main things that intrigued you from the readings. So, while reading all the chapters, what did you find 3 most interesting, surprising, or baffling information that you would like to share with me. Similarly, the third section “Questions” – What questions came to your mind when you were reading these chapters?

_________________________________________________

part 2:

-The reading materials:

1) https://www.nytimes.com/interactive/2018/03/19/upshot/race-class-white-and-black-men.html

2) https://www.nytimes.com/interactive/2017/01/18/upshot/some-colleges-have-more-students-from-the-top-1-percent-than-the-bottom-60.html?mtrref=undefined&gwh=A40C051B6D64C777956EF2660C429D6B&gwt=pay&assetType=REGIWALL

3) https://www.nytimes.com/interactive/projects/college-mobility/

The Reading Journal has three sections – Summary, Significant Takeaways (I want 3), and Questions.

• Brief summary of the reading assignment. ( try to take out the important facts that the author is bringing to the table.)
• Three most significant takeaways from the readings
• Questions where you list any questions this reading or video suggested to you

Including 3 materials, I want you to write a brief summary of each reading and chapter as separate paragraphs under the broad section called “Summary. This will be followed by “Significant Takeaways”, where you can put 3 main things that intrigued you from the readings. So, while reading all the chapters, what did you find 3 most interesting, surprising, or baffling information that you would like to share with me. Similarly, the third section “Questions” – What questions came to your mind when you were reading these chapters?

_____________________________________________

part 3:

-The reading materials:

1) GLSEN (attached)

The Reading Journal has three sections – Summary, Significant Takeaways (I want 3), and Questions.

• Brief summary of the reading assignment. ( try to take out the important facts that the author is bringing to the table.)
• Three most significant takeaways from the readings
• Questions where you list any questions this reading or video suggested to you

Including 3 materials, I want you to write a brief summary of each reading and chapter as separate paragraphs under the broad section called “Summary. This will be followed by “Significant Takeaways”, where you can put 3 main things that intrigued you from the readings. So, while reading all the chapters, what did you find 3 most interesting, surprising, or baffling information that you would like to share with me. Similarly, the third section “Questions” – What questions came to your mind when you were reading these chapters?

Discuss California’s budget process, especially how direct democracy, Prop. 13, and the majority budget rule have affected government financing in the golden state. How does our system of taxation differ from that of other states, what unfunded liabilities do we face, and what reforms should be done to ensure California’s fiscal stability over the next thirty years?

Note: be sure to use, the California budget challenge (i will attach it as file), the online readings(https://lao.ca.gov/publications/report/3497), and the supplemental budget page.

The supplemental budget page:California Politics Resource Page

Introduction: California Rules!

This page has everything you need to write your California Politics essay. I am still building it out a bit, but it’s got the basics here. Be sure to refer to my lecture when thinking about California Rules!

California Rules!

1. Placement of Capitol: Capitol Page ( I will copy all that page and paste it below this discussion) #1
2. Term Limits (Old, Prop. 140 in 1990; New, Prop. 28 in 2012).
3. No more gerrymandering (Changed with Prop. 11, 2008).
4. Primary Election (Changed with Prop. 14, 2010).
5. Budget Rule (Changed with Prop. 25, 2010).
6. Prop. 13: Prop. 13 ( I will copy all that page and paste it below this discussion) #2

Link to an older video form of my lecture:

Key Terms:

top-two primary gerrymandering majority budget vs 2/3 budget Prop. 13

direct democracy mandatory spending Wall of Debt term limits

underfunded liabilities May Revise Big Three Big Five

California Politics Essay Questions

Expected length: 3-4 pages.

• Note: be sure to use the California budget challenge, the online readings, and this supplemental budget page in composing your answer.
• Commonly Suggested Changes to California’s System of Governance ( I will copy all that page and paste it below this discussion) #3

Essay prompts for your California Budget Essay (pick ONE):****************

1) Discuss California’s budget process, especially how direct democracy, Prop. 13, and the majority budget rule have affected government financing in the golden state. How does our system of taxation differ from that of other states, what unfunded liabilities do we face, and what reforms should be done to ensure California’s fiscal stability over the next thirty years?

• Suggested outline: Paragraph 1: Introduction/Budget Basics; Paragraph 2-4: majority budget,direct democracy, Prop. 13; paragraph 5 underfunded liabilities; Paragraph 6-7 your plan; Paragraph 8: Conclusion.

2) Ten years ago California’s system of governance was a complete mess, with nothing but late budgets and gridlock in Sacramento. Today, however, we have come nearly a complete 180, with a large budget surplus, timely budgets, and (at least relatively) efficient governance in Sacramento. Write an essay that details the four major changes California has made to it’s system of governance in the last ten years, explaining how they have affected politics and policy making in the golden state. Finally, consider what further changes should be made, especially in regards to Prop. 13 and direct democracy. although you may wish to discuss other potential changes as well.

• Suggested outline: Paragraph 1: Intro; Paragraphs 2-5: major changes, and how affected behavior; Paragraph 6-7 your plan; Paragraph 8: Conclusion.

California Budget Basics

Governments, like businesses, usually do their budget using a fiscal year that runs from July t-June 30th, or exactly halfway between the calendar year. So, if you see FY 2019-2020, that means July 1, 2019 to June 30th, 2020. 2019-2020 Budget Breakdown HERE

The California legislature spends most of it’s summer working on the budget, which for the most part follows the normal bill process, but with a few modifications. The most important of these is the strong role the governor plays in the budget process. First, in January, he releases his proposed budget for the next fiscal year. This budget looks at everything that is going on right now in the economy. Are tax receipts coming in higher or lower than expected? It also identifies his budget priorities, meaning places where he wants to spend or cut. The January version of his budget is then updated in the May Revise, which properly speaking initiates the budgeting process for the year.

After the May Revise document, the legislature (especially all of the committees and subcommittees) begins working on bill packages that are necessary to pass the budget. Although the governors priorities are important, the leadership in the Assembly and Senate also have legislative priorities, and the budget proposals they work out take into account the wants of the Big Three, or the governor, the Assembly leader, and the Senate leader. If tax increases are on the table, then the Big Five (the Big Three plus the minority leader in the Assembly and the Senate)

One of the most important things to keep in mind is that much of the state budget is constrained by mandatory spending, much of which we have voted for at the ballot box. Remember, budgeting at the ballot box is one of the dangers of direct democracy, and the extremely convoluted nature of California’s budget is largely a result of this. For example, Prop. 98 mandates minimum levels of education spending; Prop. 13 restricted property taxes and installed the 2/3 vote for all new taxes. These are just two of the most prominent examples of budgeting at the ballot box but every two years there are a half dozen smaller ones. When we prioritize money for pet projects, we restrict the flexibility of lawmakers to adjust when a recession hits. These special revenue streams are very hard to touch, even in recessionary periods, and therefore make it harder to have balanced budgets when there is a deficit.

For a good description of the budgetary process, see this helpful powerpoint called Dollars and Democracy, HERELinks to an external site.. You can also see the CalFacts PDF put together by the Legislative Analysts Office HERELinks to an external site..

Because of the switch to the majority budget rule, and the fact that California significantly cut spending during the Great Recession, our budgetary outlook is much, much better then before. One of the biggest dangers still on the horizon, however, are underfunded liabilities, which are mostly promises made to public employees related to their retirements.

Retirement systems (in California the CalPERS and CalSTRS) work by having the employee and the employer each put money aside to fund the retirement plan each month. That money is then invested in stocks, bonds, whatever, with the goal of having enough money to pay the retirement of the employee. The problem is, if the investments don’t reach the amount of money promised then the government is on the hook to ‘pay-as-you-go’ in order to cover the shortfall. The current goal used by the two California retirement systems is 7% average annual return. That means some years you get 10%, some years 2%, and some years negative return, BUT, if the retirement system can hit that goal then the pension systems will be doing just fine.

So, underfunded liabilities are promises the government has made that we don’t currently have all the money for. We have a lot of the money (somewhere around 70-80%) and the liabilities we face are are over a 30 year time period, so there is a long time to try to get this right. Nonetheless, the analysis below is very recent.

Supplemental Readings

Mandatory Budget Facts from (a little bit old) from Selby HERE.

Primer on California’s Budget Process: HERE!

Budgeting at the Ballot Box Analysis HERE!

Supplementary Articles on California Budget and Economy

California low in education spending, high in welfare, Sacramento Bee

Best place for business? Yes, California. Bloomberg

California business taxes are average, Sacramento Bee

High taxed be damned, the rich keep moving to California, LA Times

See California’s Largest Tax Breaks (Links to an external site.), Sacramento Bee

Analysis of Tax Burden: California doesn’t crack the top 10, Kiplinger

On Direct Democracy and the California Legislature

The Perils of Extreme Democracy, The Economist.

War by Initiative, The Economist

What do you know? The Economist

The people’s will, The Economist

The withering branch: California’s legislative, The Economist

Supplemental on California’s many reforms:

How California Became Ungovernable, Calbuzz

Rewriting the Rules, The Economist

Public Employee Pension Analysis

Underfunded Liabilities from the Department of Finance (Links to an external site.) (summarized below):

Underfunded liability (defined): future money that has been promised versus money on hand to pay for it. For example, public employees pay for their pensions but if the investments don’t keep pace with how much we will owe them over their retirement, the difference is underfunded and the taxpayer has to pick up the difference.

Wall of Debt and Pension Breakdown from 2018-2019 (from the Department of Finance)

Wall of debt: “In 2011, Governor Brown identified a $35 billion Wall of Debt…That debt has been substantially reduced, now standing at less than $5 billion.”

Healthcare: 90 billion.

Like I said, this should be prefunded.

CalPERS: 59 billion.

“In 2017, the state made a $6 billion supplemental payment to CalPERS that is estimated to save a net $4.8 billion in required pension contributions”. Basically, we put extra in and in the long-term, it will help a moderate amount. Can we keep prepaying to get out behind of it?

CalSTERS: 100 billion.

This one has been going down as well, because of the 2013 reform that made teachers, districts, and the state increase their payment. Although it is the largest of the pension liabilities, there are currently 313,000 teachers working! By my back of the envelope calculation, that’s a bit under 4,000$ deficit per teacher. Of all of the people on this list regular teachers are the most deserving of a good pension, the largest pool of workers and retirees, and also the largest liability. Unlike PERS employees, teachers are also exempt from Social Security, so it’s all they have.

UC Pension: 42 billion.

Selby note: This one is pensions plus healthcare. UC and CSU are governed differently. CSU is overseen directly by the California government, whereas the UC has an independent Board of Regents. This means that the UC has less oversight than CSU. UC took a “pension holiday” for almost five years, which meant they stopped prepaying pensions and funded executive salaries and (some) programs. Even today, administrative costs at UC are far higher than CSU, which is is also partly caused by duplicate bureaucracy between UC Office of the President and the campuses. In addition, UC has a lot of private funding from business and government, and it’s quite unclear where a lot of this money is going, and student tuition is quite high.

Judges: 4 billion

Judges need pensions too.

In addition to this pension and budgetary borrowing specific debt, California also has a number of bonds, but bonds are fixed rate, and we know how much they will cost. This is also a significant part of our budget, but bonds are borrowing we have done to do things like build new schools, etc…

i will add what i mentioned above that i will paste below”

#1

Capitol Page

Introduction

As our first rule related to how California politics takes shape, I have picked this one because it’s a reminder that rules come in all different shapes and forms. Where you place your capitol does affect political behavior, specifically in how close or far away the capitol city is from a major population center.

Analysis of the Rule

American states with capitols located far way from major population centers see differences in transparency, participation, and corruption in comparison with capitols located in or nearby major population centers.

For example, how many of you read the Sacramento Bee newspaper? My guess is not many!! If we, here in Sacramento, are not reading the Sacramento Bee (the only paper that regularly covers state politics) then how many people in LA or the bay area are paying attention to state politics? The answer: very few. So, in the first case, there is less transparency in government because people just aren’t paying attention.

Similarly, being located far away from major population centers means that it is more difficult for citizens to participate in their state level political life. Whether it is going to a protest, talking to your state legislator, etc… just the fact that it takes a long time to get to Sacramento makes it much harder to participate.

Lastly, the combination of reduced transparency and participation means that levels of corruption are marginally higher in states that locate their state capitol outside of major population centers.

Conclusion

“We show that isolated capital cities are robustly associated with greater levels of corruption across
US states, in line with the view that this isolation reduces accountability, and in contrast with the alternative
hypothesis that it might forestall political capture.”

• Campante, Filipe R., and Quoc-Anh Do. “Isolated capital cities, accountability, and corruption: Evidence from US states.” American Economic Review 104, no. 8 (2014): 2456-81. Read the article itself if you like: <a title="Accessibility score: Low
  Click to improve” class=”ally-accessibility-score-indicator ally-accessibility-score-indicator-low ally-instructor-feedback ally-accessibility-score-indicator-beside-link” href=”https://csus.instructure.com/courses/58651/pages/CapitolPage?titleize=0#” data-api-endpoint=”https://csus.instructure.com/api/v1/courses/58651/pages/CapitolPage” data-api-returntype=”Page” data-ally-file-id=”5794729″>HERE.

#2

Prop. 13

introduction

Proposition 13 is perhaps THE most significant rule in California politics. It strongly affects both California’s overall tax rate and its tax base, that is the mix of taxes, fees, and other revenue that fund the government. Proposition 13 is a also an example of nearly all the tendencies of direct democracy in California, whether they be good, bad, or ugly, but most especially two: first, what I called the ‘lock-in effect’ and second the more general tendency of budgeting at the ballot box.

The Background

Through the 1970s, American political culture was becoming more conservative. Ronald Reagan had been the governor of California, and the soon-to-come tax revolts were on the horizon, starting with Prop. 13 in 1978. Through the 1970s taxes had been increasing to keep up with the costs of new social program (Johnson’s Great Society) and to pay for the Vietnam War. Starting in the late 70s and continuing through to today the Republican Party has had success in cutting taxes and winning elections doing so. The 1980s was the decade of the tax revolts, and Prop. 13 in many ways was the first big battle.

One of the unique features of the American education system is that much of our school funding is done through local property taxes. Indeed, this is a general tendency of most city and county governments, to be funded by property taxes. What this means is that rich areas tend to have very well funded schools and governments, and poor areas vice-versa. Well, through the 1970s property taxes were going up everywhere in California quite quickly as cities were expanding services to new realms, and to deal with increasing costs more generally. There were also some very shady practices being used by the assessors (guys who determine how much your property is worth). In several very public cases, assessors had been shown to engage in conduct that ranged from ethically questionable to absolutely corrupt.

At the same time as this generally fraught situation came the Serrano v. Priest Supreme Court ruling, which mandated more sharing of money between wealthy and poor districts, holding that such extremely unequal education funding violated the Equal Protection Cause of the US Constitution.

Into this mix stepped the Howard Jarvis Taxpayer Association, the sponsor of Prop. 13. Even today, the association is very influential in California politics. They not only deserve credit for the proposition itself, but also for the use of innovative tactics in gathering signatures and electioneering around a proposition. In many ways, Prop. 13 is the first modern use of the direct democracy system, and initiated a period of using the initiative system more and more.

Analysis of the Rule

Prop. 13 did two things:

• • 2/3 supermajority rule for all new taxes in California (small exceptions).
  • Changed how property tax is levied in California from the old “market-price” system to the new “purchase-price” system.

Let’s talk about the 2/3rd supermajority rule first. All supermajority rules which make it harder to do anything, which in this case means it’s harder to raise taxes in California. This has definitely had the effect that the supporters of Prop. 13 had hoped it would: to keep taxes lower. It’s hard to say how much higher California’s tax rate would be, but its unquestionable that it has had a moderate to strong effect here. For example, the City of Los Angeles wanted to raise the sales tax in order to pay for highway updates and public transit, but it failed because it “only” got 66.2% of the vote! So, no new tax because you missed the 2/3rds requirement by 1/2%.

The 2/3rd requirement of Prop. 13 has also had some unintended consequences as well. First, although the 2/3rd requirement applies to almost all taxes, it doesn’t apply to borrowing money and so California has adopted more long-term debt because big projects (schools, freeways, public transit, etc…) need to get funded somehow. Government fees (money paid for certain government services, such as getting a business license) can be increased with a simple majority as well, and they are higher than average. Finally, there is an exception to the 2/3rds rule for temporary tax increases. Why does this exception exist? Well, no one had thought of it until Jerry Brown (who, ironically has been governor when Prop. 13 initially passed), came up with the idea and the California Supreme Court agreed with them. You better believe that the plaintiff in that case was none other than the Howard Jarvis Taxpayer Association!

The second part of the rule has had en even greater tax-savings effect, and initiated what can only be described as a radical change in California’s tax base. Here I will simply describe the basic idea of the rule and the main effects it has had on California’s tax base, in the next section I will consider a longer list.

OK, let me return to the second change that Prop. 13 instituted: a change from the old “market-price” system to a new “purchase-price” system. What is a market-price system? A market-price system is one in which you pay taxes based on how much property is worth that year, i.e. market value of a property. This is how most states do their property taxes, even today. This is the old system.

The new “purchase-price” system works like this:

• • You take 1% of the price of your house in the year of purchase. This is called your base value.
  • Each year, there can be NO MORE than a 2% increase to your base value.

OK, so what does this mean in real life? Let’s take an example. Let’s say you bought your first house in Los Angeles, just before the passage of Prop. 13. How much were you likely to pay for that house?

Think for a minute, let’s say this is a 3 bed, 2 bath house, on a medium sized lot in the San Fernando Valley, which at the time was the suburbs, but now is pretty high-quality real estate. Take a guess? 100,000$? 200,000$? If you guess 60,000$ then you would be correct!!

OK, so you paid 60,000$ for your house in 1976 or 1977, and Prop. 13 locks in your tax rate based on that 60,000$ valuation. Let’s calculate your property tax, if you still owned the house today.

Base value on 60,000$ home = 600$.

1978 tax base: 600.00$.

1979 tax base: 612.00$ (2% increase).

1980 tax base: 624.24$ (2% increase).

etc…

2020 tax base: approximately 1,300$.

OK, so that’s what happening for people who purchased their homes a long time ago. Now, let’s ask: how much do you think the market value of that house is? Now, here’s a little secret: the house we are speaking of is my parents first house, the one I was born in and that, conveniently, they have recently sold.

So, how much do you think that house is worth? The answer: 880,000! Really? Yes, really!

OK, so let’s calculate the property tax of the person who is buying that house. What rate will they pay?

2020 tax base on 880,000$ = 8,800$.

So, let’s look at this: if you have owned your house for a long time then you get really, really cheap property tax rates, but if you just bought your house then your property tax rate is much higher! According to Howard Jarvis Tax Foundation itself the median “tax savings” on a house purchased before the passage of Prop. 13 amounts to over 250,000$ (Links to an external site.) from 1978 to today, and is about 6,000$ a year today.

This inequality in property tax burden is one of the unintended consequences of Prop. 13 and a prime example of the ‘lock-in effect’ as I described it in the chapter on direct democracy. In this case, Prop. 13 locks in very low property tax rates for individuals and businesses that have been in California a long time.

Let’s look at some of the evidence (from the LAO):

So, what is this chart telling us? Let’s look at the color-coding: the lighter the color, the longer you have owned your property and the less you pay in property tax. If the property is white then you are in the ballpark of my parent’s first house: you are paying crazy cheap property tax! If you are dark blue, then you are a recent purchaser and you are paying close to the 1% base value.

Let’s look at one more:

This chart is showing the average tax base versus market value on a 100,000$ home purchased in 1980. Notice that today the market value is about five times the assessed value, and that even during the worst part of the great recession, the assessed value of this house was still 1/3 of market value!!

So, what have we learned here? The first unintended consequence of Prop. 13 was a huge disparity between old purchasers and new purchasers, leading to Professor Selby’s number one rule of property ownership in California: NEVER SELL PROPERTY IN CALIFORNIA!

I mean it: NEVER SELL PROPERTY IN CALIFORNIA!!

Why? Well, because you can rent it out for far more than you are paying in mortgage and taxes and the longer you have your property the cheaper it gets. I was quite annoyed when my parents sold their house because although it’s not wrong to get a big hit now, they could have kept charging about 4,000$/month rent for ever. AND, they can pass that house to me without the property tax going up, so I could have kept renting it out for ever!

A Chain Reaction: Budgeting at the Ballot-Box

OK, with this first lesson in mind, let’s take a look at the chain reaction of events caused by Prop. 13. The cascading series of consequences cannot be underestimated for how much it has effected California today. Let’s start by reviewing what we have seen already.

Effects of Prop. 13 already discussed:

1. Lower taxes overall than California would have otherwise.
2. A shift from property taxes to other kinds of revenue sources.
3. A strong difference in property tax rate between new and old property purchasers.

Let me talk about point number two just for a moment. I talked about how it caused local and state governments to look for other sources of revenue. Let me put some numbers out there for you.

Comparison of Tax Rate by Type (mostly from California Budget Challenge, slightly modified).

• • • • California has below-average property tax rates, but higher property values.
      • Before Prop.1 3 was passed, business paid about 45%% of property tax, today that’s down to about 30%, whereas the contribution paid by individuals has risen from 30% to over 55%. (Los Angeles Times, July 13, 2009).
      • California has among the highest income tax rates for upper-income households and one of the lowest income tax rates for lower-income households.
      • California has the highest state sales tax rate (7.25%) in the nation, but taxes few services compared to other states.
      • California has relatively average business taxes, and is overall a great place to do business.
      • California collects revenue much differently than other states. In many states, property taxes represent a greater proportion of revenues than income taxes. The situation in California is reversed due to Proposition 13, which limits property tax rates, and its highly progressive income tax structure.

Let me give you the short of it: because Prop. 13 so strongly limited the amount of property tax that could be collected, California had to look for other revenue sources and that meant mostly income and sales tax.

Both Prop. 13’s intended effects (lower taxes) and unintended effects regarding shifting tax base and unequal tax rates between new purchasers and long-time owners are examples of the second main way Prop. 13 shows some of the tendencies of direct democracy, in this case budgeting at the ballot box.

Prop. 13 initiated a wave of literally dozens of initiatives that have raised or lowered taxes, mandated spending in certain ways, borrowed money, and funded pet projects from stem-cell research to the bullet train. This complete mess of a state budget is definitely not all Prop. 13’s fault, but Prop. 13 is one of the biggest examples the unintended effects of budgeting at the ballot box, and one the decisions that has had the largest budgetary impact. Remember, a larger view of this subject can be found in the chapter on direct democracy.

in addition to the effect of budgeting at the ballot box, Prop. 13 has affected other budget priorities in three other key ways as well:

• • The majority of the benefits from Prop. 13 accrue to high-income households. According to the LAO, more then 50% of the tax savings from Prop. 13 go to households with 120,000$ or more in annual income. “Because higher–income households own more, higher–value homes and Proposition 13 tax relief is proportionate to home wealth, the majority of Proposition 13 tax relief (in dollar terms) goes to higher–income households. About two–thirds of tax relief goes to those with incomes higher than $80,000, with the bulk of that relief going to homeowners with incomes in excess of $120,000.” (LAO, Common Claims About Prop. 13).
  • Prop. 13 is part of the housing crisis in California, but only part. This results from several reasons, but one of them is from Professor Selby’s #1 rule: NEVER SELL PROPERTY IN CALIFORNIA! What this means is the people hold onto property longer, reducing turnover. It also means there is less incentive to redevelop a property, because you will face a higher tax burned on the other end. “The share of properties sold each year in California has been on the decline since the passage of Proposition 13. Figure 6 shows that 16 percent of properties were sold in 1977–78. This share declined to only 5 percent in 2014–15.” (LAO, Common Claims About Prop. 13). Similarly, vacant land is much less likely to be developed the longer it has been owned. “The chance that land was developed drops significantly the longer the property is owned. Properties owned for five to ten years were close to four times more likely to be developed than properties owned for 20 to 25 years (8 percent compared to 2 percent).” (LAO, Common Claims About Prop. 13).
  • Education, especially higher education faced one of the largest cuts in funding. This one isn’t all Prop. 13’s fault either, but the budget crunch that resulted from the limitation of property tax was a major factor in increasing student fees in higher education, and California falling behind on per capita student spending K-12. “Because Proposition 13 drastically reduced property taxes, they are no longer the major source of school funding. Until 1978 property taxes furnished about two-thirds of education’s revenues. Proposition 13 caused a nearly exact flip-flop when the Legislature bailed out school districts with state funds.” (EdSource, Prop. 13 (Links to an external site.)). Because of Prop. 98, which protects K-14 education from the most extreme budget cuts, but not CSU and UC, higher education has been particularly smashed by budget cuts. “UC and CSU lack the same funding protection. While many budget areas outside of higher education are at least partially protected by dedicated funding streams, court orders, or matching federal funds, UC and CSU are vulnerable when state revenues decline. The universities have faced disproportionately large cuts in their general fund allocations during times of economic hardship. From this vantage point, a funding floor—even one that doubles as a ceiling—is preferable to a funding drop-off.” (PPIC, Proposition 13 (Links to an external site.)).

A Fair Analysis of Prop. 13: The Third Rail

One might think that given some of the problematic budgetary effects, that maybe California should just junk Prop. 13. While that is theoretically possible, it is highly unlikely to happen as Prop. 13 is one of the most cherished elements of California’s system of governance, with nearly two-thirds of California residents saying that its beneficial effects outweigh it’s downsides. Politicians who try to modify or change Prop. 13 are generally punished electorally, either by losing their own election or by having their initiative defeated. That’s why it’s called the third rail: touch it and get shocked. (The third rail on a subway is the one that conducts the electricity).

And yet on an odd way, both supporters and detractors of Prop. 13 both look at one side of the question, but do not see what the other side is talking about. Supporters of Prop. 13 accurately point to it’s tax-suppressive effect and then argue that “it is the only thing keeping taxes down in California,” while detractors point to reduced education funding, it’s effects on housing, and it’s effect on budgeting and say “Prop. 13 is everything that’s wrong with California.”

These are both half-truths. Supporters need to acknowledge that yes, while Prop. 13 has kept taxes lower it did so in a way that led to far more negative unintended consequences than they would have preferred. Low taxes is a principled policy position for many conservatives, but I do not believe that principled opposition necessarily extends to every accidental consequence, and maybe some of these could be improved.

Detractors of Prop. 13 need to acknowledge that California can live within the limits posed by Prop. 13, although they rightly point to decreases in all kinds of public services and California’s chronic budget issues as one of the most general consequences of the initiative.

Conclusion: Possibility for Reform in the 2020s?

It might seem a bit anticlimatic to conclude that Prop. 13 isn’t a good as some say and not as bad as the others do, but despite it’s annoying effects, it is most likely the case that California will be able to live within the confines set by Prop. 13. Although this is probably true, even supporters of Prop. 13 should think about some reasonable modifications that could be done to ameliorate some of the more pernicious negative consequences of Prop. 13. Before we go any further, let’s revisit the two main changes in Prop. 13, and it’s three most important effects.

Prop. 13 did two things:

• • 2/3 supermajority rule for all new taxes in California (small exceptions).
  • Changed how property tax is levied in California from the old “market-price” system to the new “purchase-price” system.

And Prop. 13 had three main effects on California’s system of governance:

• • Lower taxes overall than California would have otherwise.
  • A shift from property taxes to other kinds of revenue sources.
  • A strong difference in property tax rate between new and old property purchasers.

In addition to these three main effects, there were also some other somewhat unintended effects, such as the decrease in funding for higher education, and giving the majority of the tax savings to high income households. For those who want to increase spending, they really should think about modifying Prop. 13 and the list below gives you a menu of options. For the conservatives out there, however, think about the first option in tandem with some of the other options as it gives a way to fix some of the more annoying parts of Prop. 13 while keeping the principle of low taxes in place:

Option 1: Revenue-neutral approach to Prop. 13 that allows the property tax rate to float up, but that is counterbalanced with reductions in income and sales tax. What this means effectively is that we can tinker with the mix of revenues coming in and to balance them in a smarter way, while keeping the total dollar amount the same. Especially for some of these people who have had their property for forty years, letting them pay a bit more (even if it’s still not full market value) is a smart way to rationalize California’s tax structure.

Option 2: “Split-roll” Property Tax System. This one is on the ballot in November 2020, but I doubt it will pass. Nonetheless, if you want to modify Prop. 13, then this is the choice you will be given, so here is how it would work. The “split-roll” proposal would keep Prop. 13 for individuals, but revert commercial and industrial property back to a market-price system. Democrats like this one because they think it has a greater chance of passing, and they note that businesses are paying less than they used to. About 5 billion dollars a year would be brought in from this change.

Option 3: Apply Prop. 13 to ONE property per person or business. This one I like more than the split-roll because it is more even between individuals and businesses and it keeps the intent of Prop. 13 alive, while curtailing some of it’s biggest inequities. For family homes, corporate headquarters or a big factory or something, Prop. 13 provides an important incentive that keeps grandmothers in their homes, and helps longstanding California businesses keep costs low. This is my idea, no-one else is really talking about it, but I think it’s smart. Expected revenue increase of about 5 billion as well.

#3

Commonly Suggested Changes to California’s System of Governance

General comments:

• You can undo any of the changes that did happen. Just because I rated them highly, doesn’t mean that you have to agree. If you are a solid Dem, you might want to undo the top-two primary, for example.
• Various kinds of tax increases. See the SacBee article title, “California’s Biggest Tax Breaks”. There is some money there that can be spent.
• Make the state Assembly (the lower house) bigger and institute proportional representation. This would increase party competition. You could do PR for both Assembly and Senate, if you wanted.

Budget Changes/Employee Pensions:

• Switch to a 2-year budget cycle. This could allow California to plan a bit further into the future, ensuring more stability.
• Create a “Bank of California” that could also be used for marijuana industry. This bank would make business loans to try to stimulate the economy, help those who cannot get traditional business loans.
• Prefund employee healthcare obligations. This one is a no brainer.
• End traditional pensions the way we have them, switch to 401k style retirement benefits where the employee is in charge mostly of saving money, and if he/she runs out then too bad. This is a big attack on unions, and the solution the hard right prefers. You would have to go through the ballot box, and it would be a big nasty fight, but it could happen.
• Reduce benefits, either by delaying retirement age, or reducing benefits.
• Mandate that the employee retirement systems have to stay at AT LEAST a certain percentage of funding. 80% would be enough, some states have 90%. That means if the system is falling behind you have to fix problems before they get too big.
• Depending how things shake out, we will have to do some/all of these, or maybe none of these, Not 100% sure yet.
• Voluntary over-contribute in order to catch up. Jerry Brown did this a few years back. It’s helpful.

Direct Democracy Changes:

• Allow the Secretary of State to deny initiatives that are clearly unconstitutional.
• Mandate that at least 10% of signatures are gathered by actual volunteers. This would reduce the total numbers that are qualifying by around 50% or more.
• Allow the sponsors of initiatives the ability to change some language without having to start the signature gathering process all over again.
• Allow the Secretary of State to reword them to make them clearer.
• Make them ‘pay-as-you-go’ meaning if you cut taxes you also have to specify what spending cuts you have. If you spend money, you also have to raise that money for that initiative. This would help a lot with ballot box budgeting.
• Don’t allow multiple votes year after year on basically the same thing.
• End the direct initiative (where signatures are gathered) and switch to only the indirect initiative (where the legislature put things on there and we vote).
• Empower the legislature to make some small changes to initiative language to make them easier to implement.
• Put a time limit on how long they are in effect, at which point they would have to be reauthorized.

You cannot: ban paid signature gatherers entirely (although I wouldn’t mind).

Prop. 13

• Split-roll. Keep Prop. 13 for individuals, bring back the market-price system for businesses. Approx. 5 bil/year.
• Apply Prop. 13 to ONE house per person or business. This is my preferred solution. Brings in about the same 5 bil., but it’s a bit more elegant and fair than the split-roll.
• Get rid of the 2/3^rd Lots of ways you could do this. Keep it at the state level, but let cities and counties raise taxes by simple majority; lower it to 55% or 60%. Both decent options. For my money, the big pot of money that’s not being tapped is from property taxes, so you really should think about balancing that out, the 2/3^rd isn’t great but it isn’t as much of an issue, in my opinion.