Back in 1978, I was struck by a series of ads on television featuring an old widow. She and her husband, before his passing, had managed to pay off their home, and now she was living on a meager pension and social security.
However, she was going to lose her home despite the fact that there was no mortgage on the property. How could that happen?
It is because the property values in her neighborhood had skyrocketed. And, because property values and property taxes were tied at the hip at that time, with no cap on the annual increase to either, the widow was going to lose her home, because she couldn’t afford the property tax.
Enter Howard Jarvis and associates. To remedy this situation, they successfully amended the California State Constitution to limit the annual rise in property taxes after the initial purchase of the property.
According to the Howard Jarvis Taxpayers website, on June 6, 1978, nearly two-thirds of California’s voters passed Proposition 13, reducing property tax rates on homes, businesses and farms by about 57%.
Now, according to the newly amended state constitution, property tax rates could not exceed 1 percent of the property’s market value, and valuations couldn’t grow by more than 2% per annum unless the property was sold. Once a property is sold, it becomes taxed once again at full current market valuation.
As a result of this taxpayer’s revolution, local and state governments did everything they could to make themselves whole by way of charging fees for “services.” This, despite the fact that property tax revenues continued to increase because many properties are bought and sold on a regular basis.
That is, in the long run, the property tax revenues to local and state governments more than kept up with the cost of inflation in this state. Regardless, politicians today are looking for ways to deal with the $1 trillion pension tsunami that is engulfing their budgets. Hence, they have set their sights on Prop. 13.
Accordingly, this November, there is going to be an initiative to rescind Prop. 13 protections for retail, commercial and industrial properties, meaning, if the measure passes, these properties will be continually taxed at current, full market value.
Splitting off commercial properties from residential is the classic divide-and-conquer technique, albeit the proponents of this measure have already indicated they are going to try and eliminate Prop. 13 protections for residential properties too in the future. That is, they plan to come after grandma, along with the rest of us, the next time around!
Of course, there is no good time to raise taxes on brick-and-mortar businesses in the state of California when all the other costs of doing business in this state are already sky high. Nevertheless, the timing for this proposition could not have come at a worse time. In addition to having to cope with the competition from the internet, most businesses are on the verge of closing due to the COVID-19 shutdown of the economy.
That is, even if they are allowed to open, many businesses are discovering that their normal clientele is still too scared to resume their normal consumer spending habits. Furthermore, some businesses are considering downsizing their physical footprint now that they have discovered their workforce can work from home.
Proposition 15 is this year’s measure which will repeal Proposition 13 on the November ballot. It is a disaster in the making any way you look at it. It constitutes the largest tax increase in California history — $12 billion a year! If passed, due to all the other pressures on the business sector these days, it could actually serve to collapse our commercial real estate sector.