Paul Krugman, dday, thereisnospoon, and others have explained that California is currently ungovernable, and will continue to be so as long as spending but not taxes can be easily raised.
Proposition 13, which caps and freezes property taxes and limits government's ability to raise any tax, has been referred to as the "third rail" (meaning "untouchable subject") of California politics and it is not politically popular for lawmakers to attempt to change it. The reason that a Proposition 13 repeal is considered politically impractical is because the property tax reduction has developed a political constituency consisting of those who do not pay their share of property taxes and who wish that others continue to pay instead.
It is assumed that a repeal of Proposition 13 would effectively raise taxes at least for those who currently enjoy an extremely low rate -- indeed, that would be the purpose of the repeal -- and that therefore a repeal would generate significant opposition.
The first key to solving the problem is recognizing that California's entire system of funding and running government needs to be overhauled, and Proposition 13 can be fixed as part of that larger enterprise.
The second key to solving the problem lies in reframing the tax challenge as a question of allocating the budget against a variety of taxes, so citizens can see that cutting one tax necessarily results in increasing another. This can be done by dividing the budget process into two separate phases: first, how much does it cost to run the state; second, how will the money be raised.
The final key to the problem is to embrace the popularity of low property taxes and scale the reform over time.
Let's make these abstractions concrete. Here is a particular solution:
First, reduce the property tax rate of everyone in California to zero percent. That move both enhances and, more important, equalizes the historic benefits of Proposition 13.
Second, increase everyone's tax assessment to the actual value of the property -- this makes the property tax system rational again, but results in no tax increase.
Third, institute a phased property tax increase: everyone's property taxes increase at a rate of one-tenth of one percent per year for 15 years, at the end of which time property taxes will be back to 1.5%, but without any sudden, shocking results.
Fourth, the new constitutional rule is that everyone always pays the same property tax rate, and property assessments are always at market value. There are no loopholes for senior citizens, veterans, bequests, etc. The guiding principle is equality.
Fifth, in the meantime, to make up for the property tax shortfall until property tax revenues gradually return, income tax rates and the progressiveness of income tax brackets will increase significantly -- enough to fund however much it costs to run the state. Tax increases may also be imposed on inheritance taxes, sin taxes, excise taxes, corporate taxes, and other underutilized revenue sources. Most of the additional revenue will be conveyed back to local governments to make up for the temporary property tax revenue decrease.
Sixth, to protect the restored system and prevent another descent into self-destructive fiscal irresponsibility, the state must separate the budget process into two phases. The first phase determines the amount of the budget, which is the question of how much it costs to run a state the size of California. This phase of the budget process will debate questions like whether we should have state universities, state highway patrols, state beaches, etc., and at what quality level. Once the cost is determined, a separate phase shall consider how to raise the funds from among all available taxes.
This process ends the erroneous and destructive conflation of "how to tax," which is the core of sound tax policy, with the entirely different question of "whether to tax," which is really the same question as "whether to spend". Whether to tax and whether to spend should not be considered separately from each other, but should be entirely separate from how to raise the funds.
The two-phase process should also be supported by the publication of an annual budget analysis pie chart that shows and analyzes the relative sources of taxes, so that citizens can see and consider the proper allocation of taxes among potential sources: income, sales, property, sin, excise, inheritance, corporate, etc.
By separating the discussion of what government we want from how to pay for it Californians can make smarter decisions about both.