California ballot bid seeks to remove Prop. 13 commercial property tax cap to fund schools, hospitals, government
California voters may soon get another chance to decide whether many commercial properties and operations should continue to be protected from the property-tax impacts of a hot real estate market.
Supporters of the measure say reform of 4-decade-old Proposition 13 allows for better funding of local schools, colleges, health care facilities and local government, and for converting long-held real estate into housing.
Opponents say the change will mean higher prices for consumers as owners pass tax increases on to tenants — a provision of many commercial property lease contracts — and in fewer hires as businesses compensate for those higher costs.
In mid-October, California Secretary of State Alex Padilla cleared the supporters of the initiative to start collecting the almost 1 million signatures needed by April 14 to qualify the measure for the November 2020 ballot.
“Our goal is 1.6 million signatures,” said Alex Stack, communications director for Schools and Communities First, a Los Angeles-based organization that’s the largest California campaign committee backers of the campaign. It had raised $7.6 million in 2018 when it launched and through September of this year, the latest state data available. That was before a Nov. 2 launch of a statewide petition drive.
Stack declined to say how many signatures had been collected so far.
It’s the latest attempt to change 41-year-old Proposition 13, which limits property-tax increases. Sixty-five percent of California voters approved Proposition 13 in 1978. It capped property taxes at 1% of assessed value as of the last change in ownership or new construction, and annual increases in the tax were limited to 2%.
The California Schools and Local Community Funding Act of 2020 seeks to create a split assessment roll. All residential and agricultural properties would continue to have Prop. 13 limits.
But commercial and industrial properties over $3 million in combined value would be reassessed to current market levels. The measure also would exempt up to $500,000 in personal property tax for small businesses.
Depending on the strength of the real estate market, the shift to a split roll is estimated by the state Legislative Analyst’s Office to increase annual revenue for education, health and safety services by $6.5 billion to $11.5 billion, after accounting for $500 million to $1 billion a year in lost income tax revenue and additional costs for county agencies involved.
California law allows property owners to deduct property tax payments from calculated income for personal and corporate taxes, so higher property taxes would reduce tax liability, according to the analyst’s office look at a 2017 attempt at a split-roll initiative.
One of the key benefits for property owners from Prop. 13 is locking in taxable value to a low growth rate, even if property valuation spikes. For example, the assessment roll for vacant and improved commercial and industrial property grew 6.4% in Sonoma County’s last fiscal year, which ends in June, and at 3.3% in Napa County to new record levels, according to those agencies.
But the rush for industrial real estate in Santa Rosa with cannabis legalization led to sizable double-digit jumps in resale value over a few years’ time.
The Howard Jarvis Taxpayers Association estimated that it has saved residents and businesses over $500 billion since inception. Problem is that the cap on property-tax revenue has left local governments turning to sales taxes and fees, according to Robert Kleinheinz, research director at Beacon Economics.