SACRAMENTO, Calif. (CN) — Calling a property tax reform intended to spur billions in new education funding “long-overdue,” California Governor Gavin Newsom on Friday endorsed a ballot measure critics claim equates to a death knell for Main Street.
Joining a coalition of labor unions, educators and mayors, Newsom says it’s time to overhaul the state’s landmark 1978 voter-approved property tax reform, Proposition 13.
“It’s a fair, phased-in and long-overdue reform to state tax policy,” Newsom said in a statement. “It’s consistent with California’s progressive fiscal values, it will exempt small businesses and residential property owners, it will fund essential services such as public schools and public safety, and, most importantly, it will be decided by a vote of the people.”
The proponents are looking to stash a central tenet of Proposition 13 that caps property taxes at 1% of purchase price and a complimentary anti-inflation clause limiting annual increases from exceeding 2%.
Right now, if a property is sold, it is reassessed at current cash value, meaning properties on the same street can have vastly different taxable value depending on when they were last sold.
The coalition turned in over 1 million voter signatures and officially qualified the “Schools and Communities First” measure last May. The so-called split-roll measure will appear on the November ballot as Proposition 15.
While the measure was initially proposed prior to the pandemic, supporters are casting the reform as a much-needed means of budget relief for cash-strapped schools and local governments.
They claim a loophole in the decades-old tax code has allowed big businesses and commercial property owners to avoid paying their fair share of taxes, and that closing it will help pull municipalities out of the red. According to the proponents, the reform could produce up to $11.5 billion annually.
Seeking to make property taxes more predictable and stable, nearly 63% of voters in 1978 agreed to amend the state constitution and slow tax increases for both commercial and residential property. The idea was to brace owners from runaway tax bills caused by increased property values.
Securing Newsom’s endorsement is a notable feat for the proponents, as former politicians like former Gov. Jerry Brown have referred to the property tax code as “sacred” and the “third rail” of state politics. Both the supporters and the business groups opposing the initiative have been lobbying hard for the governor’s endorsement.
“Governor Newsom’s endorsement of Prop. 15 represents another watershed moment in the push to close corporate tax loopholes so Californians can reclaim billions for schools and essential local services. This is a critical boost of momentum for the campaign as we head into the final stretch,” said Alex Stack, Yes on 15 communications director.
Other supporters include various labor unions, education officials and a nonprofit run by Facebook CEO Mark Zuckerberg and his wife Priscilla Chan. The California Democratic Party has also endorsed the initiative and former Vice President Joe Biden offered his support for the overhaul last fall.
On the other side, business and anti-tax groups are warning the “tax hike” will force landlords to charge higher rents, which will ultimately be passed down to consumers.
“Today, the governor supported $11.5 billion in higher property taxes, which will mean increased costs for the same small and minority-owned businesses he’s forced to close for the last six months. Now is not the time to support the largest property tax in California history and make our cost of living crisis even worse,” the opposing campaign responded to Newsom’s announcement.
Members of the opposition campaign include the California Business Roundtable, California Farm Bureau Federation, Latino Business Association and the Howard Jarvis Taxpayers Association.
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