The Nov. 3 ballot includes a handful of local tax measures and a pitifully perplexing question about California’s infamous Prop. 13, first passed by voters in 1978 and now trying to be amended by this year’s Prop. 15. California has been in need of major tax reforms for decades. Unfortunately, this election is taking another pass on our Prop. 13 tax problem that everybody likes to complain about but nobody has the political guts to attack it. So it goes.

Prop. 13 limits annual property tax increases to no more than 2% is one of the root sources for our unequal and volatile, “boom or bust” tax structure. Prop. 15 seeks to amend Prop. 13 and bring $8 to $12.5 billion in new annual commercial property tax revenues to schools and local governments. It has attracted lots of opposition and only a slim margin of likely voters (51%) are supporting it in the latest polls.

Rollie column

Rollie Atkinson

Prop. 15 would introduce a “split roll” property tax system used in other states where commercial property annual tax increases would not be limited to just 2%, while keeping the Prop. 13 protections for all residential and agricultural properties. The state and local farm bureaus are opposing Prop. 15 because they do not see enough protections for agriculture-based buildings or infrastructure. But the Community Alliance with Family Farmers (CAFF) is an enthusiastic supporter of Prop. 15, claiming the measure “makes no change to existing laws affecting the taxation or preservation of agricultural land” or “commercial agricultural.” It’s hard to tell who has the right analysis.

But California’s tax problem is bigger than this single issue.

Only nine states have a higher personal income tax rate than California. But California has the 35th lowest property tax rate, thanks to Prop. 13. We also have the highest sales tax rate in the country. Before Prop. 13 was passed in 1978, all property tax collections stayed local and funded local schools and governments. As property tax collections became semi-frozen and fell behind public needs, more and more funds were needed from the state and federal government. Further, to make up for slim property tax receipts, local schools started enacting parcel taxes and local governments concocted new fees and special assessments.

It’s a mess. Too bad, because a less-rushed draft of Prop. 15 would have been a great start to a major fix. With so much powerful opposition to Prop. 15 we may miss a chance to bring California’s tax structure into the 21st century.

Do you think you like Prop. 13 just as it is? Well, consider a few stubborn facts first. Our largest and wealthiest corporations pay the least in property taxes. Seventy percent of all property taxes are collected from private residential properties and not multi-billion dollar properties like oil refineries or Disneyland. Prop. 13 protects older homeowners but it thwarts younger and first-time homebuyers from buying a home. A couple that bought a house 40 years ago is paying a fraction of what a new neighbor would pay on an identical property at 2020 tax rates.

When it comes to sales taxes, households with lower incomes pay a higher percentage than wealthier households. This is because we only tax a limited number of essential goods instead of expanding the list of taxable items such as legal fees, services, internet transactions, etc. The more things we tax, the more we could spread out the tariffs. And, we could probably lower the overall sales tax rate that is now almost 10% here.

Another opposition argument against Prop. 15 claims commercial property landlords would pass on increased tax bills to small business tenants. This might be so, but local market factors drive rental rates more than taxes do.

We should vote for Prop. 15 and force our elected officials to fix the rest of our tax madness. We can do this and protect our farmers, too.

(4) comments

MKH

Landlords charge rent based on market rates not tax rates. Landlords with a 1978 tax basis don't charge 1978 rents. Commercial real estate is rented, bought and sold based on the market, not the tax basis. California is the only state that gives a tax subsidy to commercial real estate.. Real estate companies operates are used to market evaluation on their commercial real estate. Sure, they love the California sweetheart deal so they can make more money but it's the exception not the rule. Commercial real estate is a business; if the landlord can't make enough money, they can sell their asset. Prop. 15 might bring more properties onto the market as legacy landlords might decide to sell or rent their spaces thus lowering commercial rents. A newer investor will be able to calculate their expenses accordingly and has a longer timeline to accumulate equity. While plenty of commercial real estate owners will give the scare tactic of "I have to raise rents"; no person with a paying tenant in this economy is going to raise rents. With commercial vacancy rising and the retail outlook changing, most landlords will be happy to have a tenant. Will they make as much money as they did before - maybe not but they will get appreciation over time and depreciation off their taxes. Commercial real estate has no SALT limits so all mortgage, interest and taxes are written off without any dollar limit. If the commercial landlords were thinking about the community at large, they would pass Prop. 15 as it will create a more stable middle class and fund our public schools, which, in the long run, will help their holdings appreciate and also create good tenants for future rentals. No businesses, landlords, communities or workers profit when you have underfunded schools and a crumbling infrastructure. Prop. 15 is the way toward a better future for everyone. Commercial landlords should look to the future and pass Prop. 15. You can get more information at Yes15.org/debunk

okieflats

New homeowners should pay more than someone who bought 40 years ago. The property tax goes up 2% per year, and that's enough. A new home buyer factors the property tax into the calculation of home much they are willing to pay for a home.

This piece was written from a greedy leftist perspective, based on the assumption "government needs more money." That is a lie. Look at the salaries and pensions.

Dennis

I was with you until the second to last sentence. Commercial lease rates are not the issue. In all leases, taxes are separate from the lease rate which is fixed for the term of the lease. If Prop 15 passes all those taxes levied against commercial property owners will be passed to tenants with not change in the other terms of the lease like rent. The party in power has a super majority they need to do their job and pass legislation that fixes Prop 13 instead of passing it on to special interests.

MKH

Thank you for this excellent analysis of Prop. 15!

Prop. 15 helps to rebalance the tax burden. As you point out, the w2 earner pays a higher percentage of their income in sales tax. Interestingly, Prop. 15 might provide some tax relief for normal home owners. A recent report shows that Prop. 15 will save California homeowners hundreds of millions of dollars on their property tax bills every year.

A recent study found that revenue generated from Prop. 15 will lower the amount that homeowners have to pay each year for local, voter-approved bonds.

This means that on average, California homeowners will save $121 a year on their property tax bill. Bay Area homeowners will save on average more than $350 a year. That won't fix the tax mess but it will help! Also, if we get revenue from Prop. 15, we can hopefully put the brakes on all these local bonds, parcel taxes and other fees. Fees and taxes have increased from 28% of local government’s own revenues in 1978 to 51% of local revenues today; that's why middle income people feel the squeeze of taxes so much. Many of the large, corporate shareholders of these commercial real estate entities don't even live in California. President Trump owns real estate in California. The president co-owns the Bank of America building in downtown San Francisco. In the past 14 years, Trump’s ownership group has avoided paying $164 million in property taxes to the city of San Francisco.

This property, along with 55 of the most valuable office buildings in the city, are massively undertaxed because of California’s corporate property tax loophole. Combined they are robbing San Francisco schools and communities of $360 million a year. This is happening all over California and the tax benefit is not going to Californian residents. Why should Trump get a tax break so he can underfund our schools? Yes on 15! Now is the time for California!

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