Proposition 13 Allocation

When Proposition 13 was adopted in 1978, California fundamentally changed how property taxes were collected and distributed.

Before Prop 13:

• Local governments set their own property tax rates. 
• Cities, counties, schools, and special districts could independently levy taxes. 
• Communities with higher spending needs often imposed higher tax rates. 

After Prop 13:

• Property tax rates were capped at approximately 1% of assessed value. 
• The State had to create a formula to divide that limited property tax revenue among: 
  • counties 
  • cities 
  • schools 
  • special districts 

That allocation system is largely why there are major differences today between cities like:

• Palos Verdes Estates 
• Rancho Palos Verdes 
• Rolling Hills Estates 
• Rolling Hills 

Palos Verdes Estates was effectively penalized under California’s post-Prop 13 property tax allocation system for historically operating as a fiscally responsible residential community with limited commercial development and relatively modest pre-1978 spending levels.

Because the AB 8 allocation formula largely froze historical property tax distributions in place, cities that historically operated with leaner budgets or lower tax rates often received smaller long-term shares of property tax revenue. At the same time, cities and counties that historically provided a broader range of services retained larger allocations.

PVE also has very limited opportunities for commercial revenue growth compared to many other California cities. With virtually no hotels, major retail centers, auto dealerships, or significant commercial corridors, the City relies heavily on residential property taxes and parcel taxes to fund municipal services.

Compounding this challenge, PVE later transitioned to contracting directly with LA County Fire for fire and emergency services rather than continuing to receive those services indirectly through County-retained property tax allocations. In practical terms, this meant PVE began paying substantial direct fire service costs through its municipal budget while still operating within a property tax allocation structure that was established decades earlier under very different circumstances.

As a result, simplistic comparisons between PVE and neighboring cities can be misleading because they often fail to account for differences in historical tax allocations, service delivery structures, County cost sharing, HOA-supported expenses, and the limited commercial tax base available to PVE.

See how Proposition 13 allocated property tax revenues among the 88 cities in Los Angeles County in the chart below.

Rancho Palos Verdes, Rolling Hills Estates, and Rolling Hills receive a lower percentage of property tax revenue in exchange for receiving LA County Fire and Paramedic services without paying for those services directly.

Palos Verdes Estates receives a higher percentage of property tax revenue, but unlike those neighboring cities, PVE pays directly for LA County Fire and Paramedic services.

If Palos Verdes Estates operated under the same arrangement as Rancho Palos Verdes, the City would save over $2.5 million per year.