Proposition 15 is a ballot initiative on California’s November 2020 ballot. This initiative will create a “split roll” property tax system for the state. Currently, Proposition 13, which passed in 1978, all properties in the state are taxed at a rate that is based 1% of their purchase price. Additionally, property taxes are increased by 2% per year. This has created a system of stability and certainty for all property owners across the state. Now, proponents of Proposition 15 want to split off the commercial property tax protections from Proposition 13 and reassess commercial properties every three years at current market values. They say this could create $7 to $12 billion in annual property tax revenues for cities and schools. What they don’t mention is that everyone in the state will be paying those taxes and our cities and schools will not see all of that revenue. I oppose Proposition 15 for the following reasons.
1. Increases Property Taxes on Owners AND Tenants Still Reeling From the Recession and COVID-19
Initiative proponents talk about how this will affect only the largest corporate commercial property owners in the state. That is wrong. This will hit mom and pop business owners disproportionately. This proposition requires reassessment for all commercial properties with only a small exemption for owners who own property valued at less than $3 million. That sounds like it should be the majority of small businesses right? Wrong. Small businesses overwhelmingly rent their properties and these new taxes will get passed on to the tenants through increased expenses at a time where the state and federal government is trying to provide small businesses with rent relief to keep their doors open. That means restaurants and other small retailers already burdened with recovering from the impacts of COVID-19 will now face a new tax from the state. This will mean more and more businesses will fail and we’ll see a rise in unemployment, bankruptcies and foreclosures of homes as people cannot pay their mortgages.
2. Targets Minority and Urban Property Owners and Tenants
This initiative, if passed, will disproportionately target minority owned businesses and urban business areas. It will impact minority business owners who will see their property taxes increase. If they cannot afford those increases they will have to close down and that could further depress urban property values as blight and vacant storefronts line the streets. Additionally, increases in rents will be passed on in the form of increased costs at the cash register. Higher costs will hurt low income and minority communities the most. That’s why the NAACP, Latinos Vote and all ethnic Chambers of Commerce have all come out against it.
3. Misleading Title and Messaging
The Proposition is called “The California Schools and Local Communities Funding Act of 2020”. It never mentions that this is a major property tax increase. Proponents point to the funding for cities and schools. What they don’t mention is the order that the money gets spent. Any increased revenues will be used for 1) Offsetting income tax revenues that decrease due to changes in the deductions, 2) The costs of implementing the new assessment rules. Those have been estimated to be approximately $1 billion the first year for county assessors to hire, train and implement the new rules and is expected to cost around $500 million annually after that. 3) 60% of remaining revenues will go to local governments and special districts. 4) Finally, 40% of whatever is left will go to schools with an 11% allotment to city colleges and 89% to public schools, charter schools and county education offices. There is still no guarantee as to where the money will go. It will more than likely go towards pension obligations and very little will ever reach a classroom or a pothole.
4. Less Residential Development
Proponents claim that the new tax only affects commercial properties. This is misleading. Residential properties will be directly impacted. A city deciding whether to allow land to be developed for commercial or residential use will lean towards commercial use which will provide larger property tax revenues. This will harm the residents of
California as we’re already in a housing crisis and we need all of the new housing development we can get.
5. Residential Protections Are Next
Last, but not least, Proponents have already said this is just the beginning of their efforts towards overturning Proposition 13. If Proposition 15 passes they will be back for the rest of Prop 13 protections. We could return to the days of 50% to 100% increases in our property taxes on an annual basis.
This is not a partisan issue. Leaders from both sides of the political spectrum are lining up against this. Now is not the time to saddle the residents and small businesses of California with a new tax. Please join me in voting no on Proposition 15 on November 3rd. Save California residents and businesses from a new tax at a time where they need all the help they can get.
If you would like more information about the adverse impacts of Prop 15 upon our small businesses please contact me at email@example.com or the Santa Barbara Association of Realtors at firstname.lastname@example.org.
Brian Johnson is President-Elect of the Santa Barbara Association of Realtors, and the Managing Director of Radius Commercial Real Estate. Brian can be reached at (805) 879.9631 or email@example.com.
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