Although Proposition 13 limited property taxes, it failed to impose long‐term discipline on state and local budgets in California. Indeed, total state and local revenues (including federal aid) in California have risen from 19.4 percent of personal income the year after Proposition 13 passed to 24.6 percent today. Rapidly expanding spending since the mid‐1990s has put the state into a fiscal crisis with record budget gaps currently being reported.
Proposition 13’s focus on property taxes was too narrow to limit overall state and local government budgets in California. However, a number of states in the past decade have enacted broader tax and expenditure limitations (TELs) that attempt to control overall government growth. This paper discusses how well‐designed TELs can restrain spending and provide tax relief. TELs combined with other mechanisms to terminate unneeded government programs should be pursued in all state and local jurisdictions to close current budget gaps and counteract the tendency of governments to collect ever‐larger shares of Americans’ income.
