From our headquarters and home offices in Denver, it’s easy to dismiss the ballot propositions, laws and culture of California as confined to their borders, or at least to the West Coast. We’ve all rolled our eyes at a story from the (new!) Los Angeles office as “only in LA,” but California is a trend setter, and they serve as a test case for ideas and laws that could be utilized anywhere. For better or worse, what happens in California can affect us all.
Propositions on the Ballot
The November election is critical in so many ways, but down the ballot in California, there are two propositions seeking to amend what the LA Times called “the state’s most famous experiment in legislation via ballot measure: Proposition 13, the 1978 taxpayer-revolt initiative that stabilized state property taxes for many but also hobbled the state’s revenue base.” Prop 13 reset property taxes from an estimated 2.67% to 1%, with strict limits on when and how taxes on a given property could be increased. Nearly two-thirds of voters voted yes, and the impact resonated not just through the state, but through the nation. The Howard Jarvis Taxpayer Association (named for one of the bill’s original authors) described it as “the tax cut with a national identity” and it is commonly asserted that the measure helped spark, or institutionalize, the anti-tax sentiment that helped Ronald Reagan rise to victory in 1980.
“Proposition 13: the state’s most famous experiment in legislation via ballot measure”
Prop 13 has been modified before, and it’s unlikely that this year’s measures will be the last attempt to change it. Proposition 19 is typical of propositions that seek to tweak the original measure without making dramatic changes; the measure changes how inherited properties are taxed, and allows eligible homeowners to transfer their tax assessments more easily.
The Split Roll
It’s Proposition 15 where things get interesting, especially in the real estate industry. Prop 15 would create a split roll, where residential properties would continue to benefit from the tax advantages of Prop 13, but most commercial and industrial properties would be taxed at market value. 40% of the increased tax revenue would go to school districts and community colleges. With an estimated $6.5 – $13.5 billion in increased property tax revenue at stake both sides are fighting hard.
On the Yes on 15 side, a laundry list of current and former elected officials endorse the proposition, including Joe Biden and Kamala Harris. As of mid-September, three PACs had raised nearly $43 million in support of the measure. They contend that the proposition will provide much-needed tax revenue to local communities and counties, stimulate growth and entrepreneurship, and resolve a loophole that has allowed corporations to maintain a low property tax rate for 40 years, all while protecting small businesses and homeowners from tax increases.
Rallying against the measure, The No on Prop 15 campaign also has a long list of coalition members that oppose the measure; although without the prominent politicians. Seven PACs had raised just shy of $30 million at the same time last month. Several key themes have been presented in opposition.
- It is the wrong time for the measure, with businesses already facing the economic impact of the Covid-19 pandemic.
- It will deter developers and businesses from building in California; the property tax assurance has provided a measure of security to companies comparing California to other states.
- And it chips away at the sanctity of Prop 13, increasing the likelihood that the residential tax benefits could be impacted in the future.
We are recommending No on 15.
As ICSC succinctly put it, Prop 15 is an unprecedented tax increase that will double or even triple property taxes, put 120,000 jobs at risk, and lead to increased prices for goods and services. This is not the time to increase the burden on business owners, who have already faced so much this year.
Pass or fail, Propositions 15 and 19 will add to the continued legacy of Proposition 13, and have the potential for effects to ripple throughout the country. These two ballot measures are among 19 tax-based measures being considered in 12 states this November. If you haven’t yet voted, let us join the chorus of voices reminding you to VOTE.