(MONEY Magazine) – The decline and fall of California became apparent to me one autumn night in 1992 soon after I moved back following 10 years away. I was riding with Los Angeles Police Department narcotics officers in a caravan of five unmarked cars. Suddenly the caravan stopped, and the men and women began running from car to car. They had to do that. It was the only way they could exchange the messages they had heard on three incompatible radio and telephone frequencies. ''Our communications systems and equipment are obsolete; some of it is donated by manufacturers,'' said then deputy chief Glenn Levant. ''People in California don't want to pay taxes anymore -- even for cops.'' That discouraging word resonated for me exactly a year later during the public soul-searching after the kidnapping and murder of 12-year-old Polly Klaas in the town of Petaluma, north of San Francisco. The suspect in that horrible crime had been stopped that night for trespassing and then released by Sonoma County deputies who did not know of the all-points bulletin for the hour-old kidnapping 23 miles away. The town and the county operated on different radio frequencies, and no one was quite sure who was talking to whom. ''It's going to take us time to figure out what happened,'' assistant Sonoma sheriff Dale Moore told me two weeks later. ''A lot of agencies have experienced communications problems over the years because that equipment is so expensive -- and there's been no money.'' What had happened to the California I knew in the late 1970s, when I lived in the same town as Ronald Reagan, in Pacific Palisades? You could drive from the center of town to the beach in one minute. It was right down the hill on Temescal Canyon Road, a wide new street built through the ranch that Debbie Reynolds and Eddie Fisher owned when they were married for a while. Palisades High School had been built there too, overlooking the Pacific, and when kids graduated, many of them went on to a college in the University of California system -- one of the best higher-education complexes in the world -- practically for free. -- There were old jobs and new companies, and everyone seemed to be getting richer as the land and the houses on it became more valuable day by day. Life was perfect in the free sunshine. Or so it appeared. And in California, appearance goes a long way. That was once upon a time in a golden land by the sea. The rising real estate prices, 70% from 1975 to 1978, were making homeowners rich -- on paper. But their property taxes were inflating in lockstep -- and those tax bills had to be paid promptly in cash. Politicians let the state's share of the money pile up in the capital, Sacramento -- a golden heap higher than $5 billion -- while people with relatively fixed incomes worried about losing their homes because they could not keep up with the exploding taxes. A lot of Californians were mad as hell and ready to listen to an angry old man named Howard Jarvis, who invented a state initiative called Proposition 13. The result was a tax revolt. Prop. 13 was approved by 65% of state voters on June 6, 1978, reducing and effectively capping property taxes -- and making it damned near impossible to raise other taxes. Prop. 13 worked -- and then some. Property tax revenue dropped 57% the next year, and the cumulative tax reduction on that property has been estimated at more than $200 billion from then to now. But 15 years later, the lessons of Prop. 13 read like cliches: There's no free lunch; you get what you pay for. Inevitably, as revenues fell, spending and critical public services were cut. In California, those cuts have led to crises in education, medical care and public safety. They have triggered a civil war pitting the old against the young, longtime residents against new, whites against black and brown, haves against have-nots. What's more, the repercussions of Proposition 13 have sounded a warning to the 22 other states that have imposed limits on taxes and spending ever since the passage of California's Prop. 13: By going too far to make their life comfortable today, people all over the country may well be selling out their tomorrow. Most recently, in Oregon on Nov. 9, 1993, voters turned down a state sales / tax, a move that was in keeping with their 1990 vote to cap property taxes. And in the state of Washington that same month, voters passed Initiative 601, which requires a two-thirds majority of the state legislature to impose new taxes. Arizona, Hawaii, Louisiana, Massachusetts, Michigan, Nevada and Texas are among the other states that have restrictions. Already, Michigan is facing a crisis in education, with no funds available for the next school year, and Massachusetts has had to defer essential maintenance on crumbling roads. But no measure has as yet had the impact of California's Prop. 13, which became Article XIIIA of the state constitution. As local property tax revenue has declined in California, the power of its principal collectors, county and municipal governments, has been reduced. In reaction to a tremendous shift of power from local to state government, 25 of the state's 58 counties passed what they called Boston Tea Party resolutions in 1993, vowing to refuse to send locally collected tax revenues to the state capital of Sacramento. It was a gesture more symbolic than practical because under state law a local official holding back the money would be committing a felony offense. But anger and economic problems have been particularly intense here ever since two of the state's largest industries, defense and aerospace, collapsed along with Communism and the cold war. While there has been a net gain of more than 900,000 jobs in the nation since July 1990, California has suffered a net loss of more than 600,000. The life that once was perfect has changed. Lately: There have been potholes in Temescal Canyon Road, and its intersection with the Pacific Coast Highway has become a haven for muggers and car thieves. Rather than leaving your automobile on the street, it is wise to spend $7 to get into the beach parking lot, being careful not to run over the homeless as you enter. In Pasadena last summer, children were selling lemonade as part of a successful campaign to privately raise $200,000 to keep their city's public libraries from shutting down. Other cities and counties were not quite as lucky. In Los Angeles County alone between 1992 and 1993, 10 libraries were eliminated, and in November 1993, Merced County announced the largest cutback yet: To save $1.4 million a year, all 19 of its public libraries, which served 180,000 residents, would close in January. ''I want to grow up to be a librarian,'' nine-year-old Jeremy Olguin said at a meeting of Merced County supervisors, ''if there's still a library.'' ''It seems so unreal that this could be happening in California,'' said Jo Wahdan, director of the San Benito County Library, which had to shut down for two months in 1993 because it ran out of money. But it was, and her county also laid off four of its 22 sheriff's deputies even as it took on the additional responsibility of policing San Juan Bautista because that town of 1,600 went broke and let go all but one of its 19 employees. In Riverside and San Joaquin counties, with populations of more than 1 million and 480,000 respectively, police have stopped bringing in people to be booked for crimes such as shoplifting and assault with minor injuries but are merely issuing citations for them to appear for trial at some future date. Reason: no room in the courts. There's no room in the jails either. Lacking funds, state prisons were at 184% of capacity on Nov. 1, with 109,081 inmates crammed into 27 institutions that were built to house 59,385. Moreover, the caseload for state parole agents has escalated from about 50 to 85 felons. So it is harder not only to incarcerate criminals but also to monitor them when they return to the streets. Shasta County, pop. 150,000, ran out of money and was forced to shut down everything but its outpatient and psychiatric services at the county hospital. Humboldt County, pop. 120,000, had to cover its worn roads with gravel rather than with more expensive pavement. Said Robert Hendrix, the former administrative officer of that rural northern county: ''We're on our way back to 1934 in the way our roads are maintained.'' At the University of California, fees have risen from an average of $720 a year in 1978-79 to $4,000, not including books or room and board, thereby outpacing inflation by 320%. And getting a seat in a class at one of the nine University of California campuses or 20 Cal State colleges can pose the same problems as getting one on an airline the day before Thanksgiving. The California State schools, for example, are offering 6,000 fewer courses this year than they did in 1990, so students can no longer routinely compile enough credits to enable them to graduate in four years. But even though money for higher education has declined from $2.1 billion to $1.2 billion in the past three years, the problems of college students are relatively minor when they are compared with those of kids in kindergarten through grade 12. California's spending per public school pupil in those grades, which was roughly $4,600 in 1993, has dropped from the top five in the nation before Prop. 13 to the bottom 10, about $1,000 less than the national average and half that of states like New York and New Jersey. Changes in California life have been gradual enough that people no longer seem aware of how bizarre their world has become. While the libraries are closing, the prison doors are opening, and on May 18, 1993, the Los Angeles Times published a breezy feature story under a big color photograph of happy women exchanging high fives -- they were being released early from county jail to save money. In the Haight Ashbury district of San Francisco, where people once taunted cops as ''pigs,'' residents demonstrated against plans to reduce the local police contingent because of a budget crunch. ''If they're upset in Haight Ashbury,'' said A.G. Block, managing editor of California Journal, the state's equivalent of Congressional Quarterly, ''what do you think it will be like in Simi Valley and other suburbs when you can't get a fire engine -- or the police take an hour to get to your house?'' For California's ''Seventy-Eighters,'' the name given to the people who owned homes, apartment buildings or commercial property in 1978, Prop. 13 essentially rolled back taxes to 1% of assessed levels in 1975, the year before the real estate boom started. The taxes on our Pacific Palisades house dropped immediately from almost $4,000 a year to just over $700. Beyond that, and perhaps more important, the new law limited future property tax increases to the annual rate of inflation or to 2%, whichever was lower, and required a two-thirds vote of the legislature to impose any new state taxes; a subsequent amendment required a two-thirds ''supermajority'' of voters to approve local taxes or bond issues for ''special purposes,'' such as fixing roads or hiring more police. Under the law, however, people who bought homes after 1978 had to pay property taxes that reflected the market at the time of their purchase. In Los Angeles County a decade later, the assessment was $106,199 on the big ocean- view house at 2209 Paseo Del Mar in Palos Verdes Estates and $107,000 on the bungalow at 2208 E. 105th St. in Watts, even though the Palos Verdes house was worth nine times more. Which meant each owner paid about the same taxes. The little houses at 923 and 927 Nowita St. near the beach in Venice are / virtually identical, but the 1993 taxes on 923 are $3,710.62, compared with $316 for 927 -- because 923 sold in 1990 for $358,000 and the owner of 927 has stayed put since 1959. A suit challenging Article XIIIA that went before the United States Supreme Court last year speculated that ''within 10 years many new-home buyers will be paying 70 to 80 times the taxes of their stay-put neighbors.'' The suit failed, as have all legal challenges to Prop. 13. ''Stays put'' is in the language of Article XIIIA. It's what old people do in what used to be the land of the young and the mobile. The Seventy-Eighters are staying put, and new laws make it possible for them to pass on their Prop. 13 tax breaks to their children. It's the modern equivalent of a hereditary royal grant. But not only homeowners have benefited. Business properties accumulated 28% of the tax reductions, with Standard Oil of California, for one, saving $47 million the first year alone. And landlords got 12% of the reductions, a gift from Jarvis, who was a lobbyist for apartment house owners. With property tax revenues plummeting, all state and local taxes on Californians dropped during the 1980s -- from $148 per $1,000 of personal income to $110 per $1,000. Much of the margin that had been lost was money that counties and towns had been able to keep for their own use. They now found themselves desperately bidding against one another to get Wal-Marts, automobile dealers or any point-of-purchase business that could drop sales tax crumbs into their bare treasuries. They slapped user fees on parks ($75 to hold a group picnic in Los Angeles County) and even on helicopter rescues ($1,980 an hour in the mountains of Sonoma County). But it has been a losing game: Unable to deal with their own financial problems, communities have had to go to Sacramento, municipal hat in hand. And because money is power, the substitution of state revenues for lost local revenues -- and the resulting state takeover of local control -- has been an especially frustrating turn of events for education. When put comes to take, it has not been towns or roads or prisons that were most affected by Proposition 13; it has been the children. Prop. 13 at its meanest and most enduring was generational warfare. The old chose themselves over the young in 1978. Many Seventy-Eighters, plus their children and often their grandchildren, were educated in good schools, which were backed by the wealth of California property, from kindergarten to the inexpensive university that was once the jewel in the crown of democracy, the University of California system. But they voted to trade lower property taxes for themselves in exchange for diminished education spending for other people's children -- many of them, it happens, black and Hispanic kids. ''The notion is gone completely that if I pay for your education, I get something because the state is a better and wealthier place,'' said Richard Zeiger, the editor of California Journal. ''The most insidious thing Prop. 13 did was to reinforce the haves against the have-nots of California. It severed the tie between most of the people and the few who govern. There is nothing people can do to improve their children's schools.'' Before Prop. 13 became law, 55% of elementary and high school funding was raised locally, almost all of it from property taxes, and was dispensed with communal interest by local boards of education. By the beginning of the 1990s, less than one-third of school funding was local and more than 60% came directly from Sacramento and another 7% came from Washington through Sacramento. Before Prop. 13, the state ranked among the nation's top five in achievement for kindergarten through grade 12, but since then has steadily dropped into the bottom 10 of the 50 states. That may not change, particularly when many schools have to deal with gangs, drugs and immigrants speaking more than 80 different languages in the most diverse of the United States. ''Prop. 13, I think, makes it almost impossible to reverse this fall,'' said Michael Kirst, a Stanford professor who is co- director of policy analysis for California Education. ''The state doesn't have enough money, and you can't get to the local property tax base.'' With local communities powerless to raise or cut revenues and considerable education decision-making centralized in Sacramento, the California Teachers Association became one of the largest financial contributors to state political campaigns. Public interest and participation were replaced by special interest: In many places, most school board candidates were teachers. They were ready and anxious to use the one local power left -- dividing up the money from Sacramento. Classroom size escalated to the second largest in the country, an average of 29 in elementary school. Half the school libraries closed, giving California a student/librarian ratio of 8,512 to 1 today, compared with the national average of one librarian for every 826 students. But California's teachers remained among the highest paid in the nation. Only in the past two years, in Los Angeles Unified and some smaller districts, have teachers been forced to take pay cuts. The necessity of a two-thirds vote to raise most taxes means that 34% of California voters can exercise their version of Alexis de Tocqueville's ''tyranny of the majority.'' In describing how local politics now works around the state, ''buying off the old people'' is the phrase used by insiders. For example, the school budget for the Elk Grove district, which covers part of Sacramento and its suburbs, was approved by voters in 1987 only after senior citizens were given 65% tax exemptions on school costs, their argument being that they have no children in school so why should they pay. In Los Angeles last June, the Howard Jarvis Taxpayers Association opposed an initiative to use earmarked property taxes for the ''special purpose'' of hiring 1,000 more police officers by arguing, in the words of its president, Joel Fox, that ''police service is used by all citizens of Los Angeles, not just property taxpayers.'' The initiative got nearly 60% of the vote, but that was not enough. Since 1978, in fact, more than two out of three local tax referendums have drawn more than a 50% majority, but only about one out of six has received the necessary two-thirds ''supermajority'' to become law. ''It's so shortsighted,'' Zeiger of the California Journal has said. ''Eventually the have-nots are going to win and seize control of the political mechanisms. I would not want to be an old white person in California 30 years from now.'' At the moment, however, the Seventy-Eighters have no financial incentives to move; quite the opposite. Living longer and healthier lives, 82% of Los Angeles County's 900,000 citizens 65 and older are in the same homes they lived in when Proposition 13 passed. In Alameda County in the Bay Area, the ratio is also 82%, and in San Mateo County in the rural north, it is 81%. Moreover, in Los Angeles County, 43% of all householders have not moved since 1978. And as they stay put, California faces constant fiscal crises. There are many things the state might try before more damage is done to the infrastructure once so golden. All property could be returned to market value assessment, for example. But that's not going to happen. Also, the tax rolls could be split, raising billions of dollars a year by taking commercial properties out from under the protection of Proposition 13. But that would seem to be antibusiness and will have little support while the state stays bogged in recession. More palatable might be the initiation of some of the property tax relief that is variously provided in 44 other states, including partial exemptions for the poor and the elderly, and deferral plans that exempt a portion of taxes until a property is sold or the owners die. But in the end there is no real political will to fight Proposition 13. In fact, Proposition 13 may be forever. ''It's a totem like no other totem, kept in place by those who vote and those who benefit: white people over 35, the relatively affluent,'' said Peter Schrag, editorial page editor of the Sacramento Bee. ''It's awful -- but Californians love it.'' Some Californians.