I am still undecided on Prop. 15. The non-partisan legislative analyst’s report that accompanies the voter information guide is not helpful, while local opinions by News-Press columnists Andy Caldwell and Bonnie Donovan regarding the negative impacts of Prop 15 are unsubstantiated, if not biased.
Currently, as provided for in Proposition 13 passed in 1978, homeowners and commercial property owners have their property taxes based on the purchase price of the property. Proposition 15, if approved, would keep things the same for residential property owners but require commercial property – valued in excess of $3 million – to be based on current market value.
Those who oppose Proposition 15 cite the following:
Bad timing. In the face of COVID, which has decimated many businesses, now is not the time to change the rules. Prop 15 does not take effect until 2022, and even then, it will be phased in over several years. Plus, there are exceptions (farmers for one) and other offsets that blunt the impact. Nevertheless, the timing will loom large in most voters’ minds.
It hurts the mom-and-pop businesses. While only those commercial buildings valued more than $3 million are impacted, a small commercial office building or strip mall (apartments are excluded) could easily be worth more than $3 million, thereby triggering Prop. 15 and a higher property tax bill.
According to studies done by USC, 6% of the commercial properties in the state would generate more than 75% of the estimated revenue from Prop 15. Thus, the burden of Prop 15 is born by a small number of very large business owners. Think Apple, Oracle and H-P.
But, to be fair, smaller building owners could be impacted and presumably increased property taxes would be passed on to their tenants in the form of higher rents. However, even if one’s property taxes go up as a result of Prop 15, one cannot charge more for rent than what the market dictates. According to a separate study by UC Santa Cruz, half of all commercial properties are already assessed at or near market value and many tenants have leases, whereby increased property taxes are automatically figured into the lease. Thus, the impact on tenants may not be as great as the naysayers declare.
It will drive businesses out of California. This is supposition. A dozen or more states have higher property tax rates than California. There are many variables involved in a company’s decision to relocate. Yes, some may decide to move, but would it be solely due to Prop 15?
The problem is spending. The opponents say the inability to rein in spending at the state and local level is the root of the problem, and higher taxes won’t fix that. Prop 15 is just a ploy to increase revenues without having to do the hard work of living within our means. That’s a fair point.
But California’s rosy $20 billion surplus — thanks to COVID — is now estimated to grow to a $50 billion deficit. Looks like a revenue and a spending problem to me.
Undoubtedly, there are serious issues ahead (homeless, affordable housing, an aging population, climate change, job losses through automation, etc.) that will strain state and local budgets. Starving the beast will not ameliorate these problems.
From an economics perspective (but too detailed to relate here) there are elements of Proposition 15 that make sense.
It’s unfortunate the state legislature shirked its responsibility and foisted Prop. 15 on the electorate while leery voters struggle with bogus claims by politicians and DIY pundits who haven’t done their homework.