Prop 13 and Property Taxes

In 1978, California voters passed Proposition 13. It fundamentally changed how cities, counties, schools, and special districts are funded.

Proposition 13:

• Capped the general property tax rate at 1% of assessed value
• Limited annual increases in assessed value
• Required two-thirds voter approval for local special taxes imposed by cities, counties, and special districts

Before Proposition 13, local governments had more ability to align property tax rates with local service needs. After Proposition 13, the 1% property tax became a fixed pie divided among local agencies.

An Important Irony

Proposition 13 itself did not pass by a two-thirds vote. Yet it imposed a two-thirds approval requirement on local governments for future special taxes.

That requirement has shaped public finance decisions in Palos Verdes Estates ever since.

How Property Tax Shares Were Determined

After Proposition 13 capped the property tax rate, the State needed a way to divide the 1% among cities, the County, schools, and special districts.

That allocation was largely based on historical shares from the late 1970s. In practical terms, agencies that received larger shares before Proposition 13 generally continued receiving larger shares afterward, while agencies that historically received smaller shares continued receiving smaller shares.

This means today’s property tax allocation is not based on current service needs. It is based on formulas rooted in conditions from 50 years ago.

What This Means for Palos Verdes Estates

Palos Verdes Estates cannot simply increase its property tax rate to meet current needs. The City receives only its allocated share of the 1% property tax and must operate within that structure.

At the same time, PVE has limited commercial tax revenue, maintains its own police department, and pays directly for County fire and paramedic services.

That is why parcel taxes have become such an important part of PVE’s public safety funding model.