In June 1978, California voters approved Proposition 13, limiting property taxes to 1 percent of a property's market value and limiting the property's growth in market value to 2 percent per year. The immediate effect of the limitations was to reduce property tax revenues by $7 billion, of which $3.1 billion would have gone to the schools. The California Legislature responded by allocating $4.1 billion of the state's surplus to local governments, $2 billion of it earmarked for school districts. This "bail-out" lowered the share of educational costs financed locally from 52 percent to 28 percent. Examination of future state revenue projections indicates that the state will continue to generate surpluses that can be used to replace lost property tax revenues and that, despite the 2 percent limitation, property reassessments will lead to higher property tax revenues than once anticipated, though the additional revenues will come primarily from owners of residential property. Other possible consequences of Proposition 13's passage are the equalization of property tax burdens across the state and growing state control over local expenditures. (Author/PGD)