Cupertino struggles with sales tax dependency after Prop 13 property tax cuts

In a recent Board of Equalization meeting held on May 6, 2025, discussions centered around the fiscal challenges faced by cities like Cupertino, California, particularly in light of the long-standing implications of Proposition 13. As the meeting unfolded, it became clear that Cupertino's heavy reliance on sales tax revenue stems from significant cuts to property tax, which cannot be increased due to the constraints imposed by Prop 13. This has led to what some officials described as the "fiscalization of land use," where local governments are incentivized to prioritize sales tax generation over other forms of revenue.

The conversation highlighted a stark contrast between Cupertino and other affluent areas, such as White Plains, New York. While Cupertino struggles with a $15 million budget shortfall, its tax base remains substantial at $27 billion. The meeting underscored that unlike Cupertino, White Plains could easily address similar financial challenges through modest property tax increases, reflecting a broader issue of tax equity and sustainability in California.

Participants delved into the historical context of California's tax system, noting that before Prop 13, local governments had more flexibility in setting property tax rates based on community needs. The drastic reduction in property tax rates from 2.5% to 1% in 1979 created a zero-sum game among local governments, locking them into outdated funding structures that do not adapt to current economic realities.

The meeting also touched on the implications for education funding, revealing that while schools did not collapse after the property tax cuts, they became increasingly reliant on state backfill funding. This reliance has left local governments vulnerable to fluctuations in state revenue, complicating their ability to provide consistent public services.

As the discussion progressed, suggestions emerged for reforming the property tax system. Ideas included implementing circuit breakers to protect vulnerable populations and exploring alternative taxation methods, such as taxing undeveloped land based on square footage. These proposals aim to create a more equitable tax structure that could alleviate some of the financial pressures on cities like Cupertino while fostering development.

The meeting concluded with a sense of urgency for legislative action to address these systemic issues. Participants expressed optimism that even small changes could lead to significant improvements in California's tax landscape, ultimately benefiting local communities and their residents. As the board members took a brief recess, the weight of the discussions lingered, highlighting the ongoing struggle for fiscal stability in the Golden State.