Proposition 13

Stability of Property Tax Revenue Helps Local Governments Through Pandemic


The stability of property tax revenue under Proposition 13 is proving to be a major benefit for local governments.

The San Francisco City Controller reported May 13 that San Francisco has a budget surplus of $157.3 million in the current fiscal year. “The money comes mainly from a windfall of revenue from property taxes and a tax on the sale of commercial properties,” the San Francisco Business Times reported. “This is a new budget surplus as the $125 million surplus identified in February has already been allocated by Mayor London Breed and the Board of Supervisors for pandemic business relief.”

Property tax revenue increased approximately 5.3 percent in 2020-21, according to data in Governor Gavin Newsom’s revised state budget proposal. That figure is 0.7 percentage points higher than the 4.6 percent growth rate anticipated in the governor’s January budget. Property tax revenue is projected to grow 6.4 percent in 2021-22.

The Legislative Analyst’s Office reported May 12 that “property tax revenue largely has remained stable” for local governments, although there is some variation based on concentrations of different types of properties.

“The state’s housing markets, which slowed briefly in the early months of the pandemic, have seen robust activity over the past several months,” the analyst stated. “We anticipate this trend will continue into 2021, with relatively rapid home price growth, low interest rates reducing the cost of purchasing a home, and a return to normal levels of home building activity, which would help maintain property tax revenue growth. Conversely, the pandemic caused notable slowdowns in commercial property markets, which have yet to recover. Should these slowdowns persist, they could counteract booming housing markets and put downward pressure on property tax revenues, especially in jurisdictions with high concentrations of offices, hotels, and retail properties. Overall, we anticipate that statewide property tax revenues will remain stable moving forward, but outcomes likely will be uneven across jurisdictions.”

The analyst compared this to sales and use tax, which experienced “some significant variation, despite overall decline”; hotel taxes, which are expected to dip due to “significant declines in travel and tourism”; and fees for services, which are expected to decline due to executive orders and public health requirements that closed offices.

“The impact on local governments’ finances as a result of these revenue changes varies widely because local governments’ reliance on each type of revenue differs,” the analyst noted.