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Open Access Publications from the University of California

Fee for Service: Proposition 13 and Municipal Revenue Substitution


Municipalities in California are highly reliant on charges and fees to fund government services.  This paper tests whether their dependence can be causally attributed to Proposition 13.  We draw our conclusions by leveraging a component of the law that causes constraint from Proposition 13 to be heterogeneous among California municipalities.  Specifically, because home sales lead to property reassessments, municipalities with high homeowner stability are more constrained by Proposition 13 than those with low homeowner stability.  Our analysis shows that homeowner stability is associated with greater revenue per capita and increased reliance on charges and fees following the passage of Proposition 13.  We do not observe the same pattern for renter stability and conclude that Proposition 13 causes revenue substitution to charges and fees.

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