Property Tax Revenue Decline in the State of California and the Implications: An Examination of Selected Local Governments in the State of California

Author

Ryan M. Mauldin, University of Kentucky

Year of Publication

2008

College

Martin School of Public Policy and Administration

Date Available

8-27-2014

Executive Summary

The Center for Responsible Lending projects California local governments to experience a $107 billion dollar decrease in home values and taxable property rolls as a result of subprime mortgage related foreclosures [Lending, 2008]. Due to Proposition 13, property taxes do not account for a substantial portion of local government revenue. They do, however, constitute 53% of statewide K-14 funding, as stipulated by Proposition 98 (Education Revenue Augmentation Fund or ERAF). As a result of ERAF, local governments (defined as counties, cities, schools, and special districts) receive less money through a complex fund shifting process that offsets statewide general fund spending. If property tax revenues decline, the state will have to take a greater share of responsibility to fund K-14 schools [Lin, Bee Capital Bureau, 2007]. There is a major problem associated with this: The state has already proposed to cut $4 billion in education spending to offset a major $16 billion budget shortfall [Lin, Emergency cuts likely today, 2008].

The goal of this research, though limited in scope and nature, was to examine the property tax revenue decline as it relates to property tax delinquency (defined as percentage of property tax levied but uncollected within a given year) in the state of California. For this research, I proposed to measure the property tax delinquency rate as property tax delinquencies serve as local government economic “fiscal health” indicators and display the “lack of ability and obstacles of short-term financial management for governments” [Denison, Yan, & Zhao, 2007]. Therefore, the property tax delinquency rates of 11 California counties were examined to see if there was a statistically significant relationship between the dependent variable—county property tax delinquency rate—and a host of independent variables under the classifications of Race, Age, and Socioeconomic Indicators. It is important to understand this relationship to gain further insight into the complexities associated with the effects of the subprime market and resulting soft-housing market on California’s local government to see if certain criteria make counties more susceptible to experiencing property tax revenue decline. This is all done with hope that if local governments are aware of these factors, then they can prepare and plan accordingly as to mitigate these effects.

The goal of this research, though limited in scope and nature, was to examine the property tax revenue decline as it relates to property tax delinquency (defined as percentage of property tax levied but uncollected within a given year) in the state of California. For this research, I proposed to measure the property tax delinquency rate as property tax delinquencies serve as local government economic “fiscal health” indicators and display the “lack of ability and obstacles of short-term financial management for governments” [Denison, Yan, & Zhao, 2007]. Therefore, the property tax delinquency rates of 11 California counties were examined to see if there was a statistically significant relationship between the dependent variable—county property tax delinquency rate—and a host of independent variables under the classifications of Race, Age, and Socioeconomic Indicators. It is important to understand this relationship to gain further insight into the complexities associated with the effects of the subprime market and resulting soft-housing market on California’s local government to see if certain criteria make counties more susceptible to experiencing property tax revenue decline. This is all done with hope that if local governments are aware of these factors, then they can prepare and plan accordingly as to mitigate these effects.

Recommended Citation

Mauldin, Ryan M., "Property Tax Revenue Decline in the State of California and the Implications: An Examination of Selected Local Governments in the State of California" (2008). MPA/MPP/MPFM Capstone Projects. 160.
https://uknowledge.uky.edu/mpampp_etds/160