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I an questioning how big of a problem that is empirically.

One can't really arbitrage that effectively.

Municipalities can't run consistent deficits, so the new schools, roads and parks will be built after a wave of newcomers buys properties, locking in higher prices and higher tax base.

In case there are no such newcomers (i.e. everybody is maximizing their Prop 13 benefit by not selling), the municipality just sticks to the last year's budget with a 2% increase permitted by Prop 13. But in that case new schools, parks and roads that make the neighborhood better don't appear either.

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