SAN FRANCISCO, Calif. - For decades, California’s system of limiting property tax increases has been deemed sacrosanct, a third rail for any politician. The system tying taxes to the most recent purchase price now faces one of its biggest challenges.
Since the 1978 ballot measure passed, sparking a national outcry for tax cuts and perhaps easing former Gov. Ronald Reagan’s path to the White House two years later, California has limited tax increases to 2% a year for inflation until a property is sold. With prices climbing at a much higher rate, taxpayers who have held homes and businesses for many years pay far less than what the market value would determine.
Proposition 15 on the Nov. 3 ballot would instead reassess commercial and industrial properties every three years, while residential property, including home-based businesses, would remain under 1978 rules.
“This really is something that is controversial, it’ll be a big deal and the realtors who are the principal opponents of this ballot measure are going to throw a lot at this, so far," said David McCuan, political science professor at Sonoma State University, who studies local propositions.
Supporters say the “split-roll” system will go a long way toward fixing inequities that shield wealthy corporations from Disneyland to Hollywood studios, depriving property tax proceeds for public schools and local governments. Opponents call it a massive tax increase that will further cripple businesses in a pandemic-wracked economy.
The 1978 tax rules have held enduring and broad popularity among California voters. But backers of Prop 15 have mounted a formidable challenge by targeting only commercial and industrial properties, with exemptions aimed at small businesses.
Proposition 15 woud keep tax breaks in place for homeowners and hike taxes on commercial industrial real estate worth more than $3 million based on their current value. The extra taxes collected would go to schools and local governments. “It’s the right thing to do for our schools and community colleges in our communities," said Toby Boyd, president of the California Teachers' Association, one of the organiztaions supporting the initiative.
The measure would raise $8 billion to $12.5 billion a year. After costs to counties to reassess property and some tax cuts for business equipment, local governments and schools would net $6.5 billion to $11.5 billion a year in a 60-40 split.
“Could be more counselors, could be more nurses, it could be more educators, it could be needed resources to give and provide our students the needed educational experience they should have," said Boyd.
Laurie Thomas, who owns two restaurants in San Francisco, said Proposition 15 would be “one more nail in the coffin” for her industry. She laid off 65 employees when the coronavirus struck in March, reopening about four months later with 45 for outdoor seating only.
At Rose’s Cafe in the city’s Cow Hollow neighborhood, Thomas splits property taxes and liability insurance with an upstairs tenant. She paid $6,696 last year but Thomas fears that figure will soar if the taxes are based on the current market value because the owner has had the building since 1980.
“While I understand the intent of the reform, I think that how it is currently proposed is going to have unintended consequences," said Thomas.
Thomas fears landlords will pass the increased tax onto them, based on terms in their leases. “We can’t afford anything else right now, so many restaurants are looking to have to close so I’m very concerned that even though there’s a delayed implementation, this is not the right way to solve this," said Thomas.
Both supporters and opponents of 15 point to the economic crisis caused by COVID-19 as reason to vote 'yay' or 'nay' on this. If passed, properties would begin to be reassessed in 2022, with full implementation by 2026. This would be one of the most significant changes to the California tax system in decades.
“Why shouldn’t they pay their fair share?" asked Boyd, in his final plea to voters. "That’s the key. Their fair share. It has been on the back of the homeowners for the last few decades.”
“Can we make it so it doesn’t unintentionally hurt small businesses and restaurants, and can we increase the property valuation," said Thomas.
The fight over Proposition 15 has become incredibly expensive: so far, supporters have spent more than $42 milion. Opponents, nearly $34 million.
The Associated Press contributed to this report.