Proposition 13 was an initiative that added Article XIII A to the California Constitution. Approved by voters in 1978, it limits property tax rates to no more than 1% of full cash value. Increases in assessed value per year are capped at 2% or the percentage growth in the Consumer Price Index (CPI), whichever is less. In 2002-03, the increase was 1.87%. It has been less than the 2% cap only five times since 1977.
New construction and the sale of property, with some exceptions, also increase assessed values.
Proposition 13 and implementing legislation caused a shift in support for schools from local property taxes to state general funds. Property taxes are still a part of schools' revenue limits, in varying amounts. The percentages allocated to cities, counties, special districts, and school districts were set in 1978 (adjusted somewhat by AB 8, 1979) and can be changed only through legislation.
In tight financial times, the Legislature and governor have shifted significant amounts of property taxes to education in order to ease the strain on the state budget. Cities, counties, and special districts have had to cut or find alternate means to fund their budgets.
Increases in property tax revenues do not benefit most schools because their general purpose income is capped by revenue limits. (An exception: some districts receive and keep property tax revenues in excess of their revenue limit; these are called "basic aid" districts. About 125 districts are basic aid or "excess revenue" districts.)
The California Supreme Court has refused to consider cases; challenges to Proposition 13 were rejected by the U.S. Supreme Court in 1992. The basis of the challenges was unequal tax charges on similar neighbouring properties.