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Busting The Big Property Tax Myth

I was a little surprised the other day when San Diego County Tax Collector Dan McAllister told me the state was trying to “steal” local property taxes for its own means. After all, McAllister is in charge of collecting property taxes in San Diego County and knows better than anyone that all property taxes stay in the county. The state is not legally allowed to take property tax money.

Busting The Big Property Tax Myth

I was interviewing McAllister for KPBS’ Prop 13 coverage, and ironically, was hoping he could help dispel the myth that property taxes are collected and redistributed by state government. It’s simply not true.

Property taxes are collected by the county tax collector, McAllister, and redistributed to schools, cities and county government. The state doesn’t get a penny.


The idea the state is “stealing” a cut has been the political message often reported throughout this recession. And like all myths, there is usually a nugget of truth buried within the tale.

The truth in this case is that three decisions in the past 40 years have combined to create the illusion the state is collecting all property taxes in California and redistributing them.

The first was a California Supreme Court case that began in 1968 – Serrano v. Priest. The court ruled the state had to address the gap between schools in rich and poor neighborhoods. Wealthy neighborhoods could raise more money from property taxes for its schools than poor neighborhoods.

In an effort to close that education funding gap, the state introduced revenue limits in 1972. In a nutshell, the state put a ceiling on how much money schools could raise.

And then in 1978, Proposition 13 was passed. The ballot measure rolled back property taxes, capped them at 1 percent of purchase price and limited yearly increases to 2 percent. Proposition 13 also gave the state the power to tell counties how to divide their property taxes among cities and schools.


It's complicated. But here’s the rub: Proposition 13 dramatically limited the ability of school districts to raise enough money to meet basic budget demands. On average, only about 20 percent of most school district budgets come from property taxes -- it’s simply a limited pool of money. The largest portion comes from the state.

In McAllister’s defense, he did go on to say the state was playing a “shell game” with local property tax money. The state can and does change the formula for how property taxes will be distributed within the county from time to time – sometimes “stealing” from cities and the county to give to schools and other local jurisdictions. In political circles, the distinction appears to be a fine line often blurred.