SACRAMENTO, Calif. (CN) — Years in the making, a plan to tinker with California’s iconic property tax code and raise fees for commercial landlords wasn’t hatched as a pandemic fix or budget liberator. But much like any experienced politician, the group testing framework often referred to as the “third rail” of California politics isn’t letting a crisis go to waste.
With major cities facing eight and nine-figure deficits and the state itself in an incomparable $54 billion hole, the tax reformers are hoping to rescue local governments by putting the squeeze on corporations and large commercial property owners.
“Proposition 15 is one of the most transformative items on the ballot,” said Oakland Mayor Libby Schaaf in an interview.
Schaaf and the proponents estimate the initiative could spur up to $11.5 billion in new tax revenues earmarked for cash-strapped cities, counties and school districts. As the pandemic and recession wages on, the proponents say the effort is gaining steam thanks to a flurry of major endorsements and favorable polling.
The simmering clash between the proponents and business groups that claim the timing of the proposed tax hike couldn’t be worse, is finally headed to voters.
History lesson: Proposition 13
At stake is one of the main tenets of a measure that has stabilized annual taxes for property owners in the Golden State for decades.
Seeking to make taxes more predictable and stable, 63% voted in 1978 to amend the state constitution in order to slow tax increases for both commercial and residential property.
Advocates credit the system with preventing runaway bills during times of extreme property value growth. Jon Coupal, president of the Howard Jarvis Taxpayers Association — named after the author of the original ballot measure — says Proposition 13’s legacy is indisputable.
“It’s done for the business community precisely what it’s done for homeowners: provided predictability and stability in being able to budget costs in the future,” said Coupal.
Critics counter the system has created unfair scenarios where property owners in the same business park or neighborhood pay radically different tax bills. Property taxes currently raise about $65 billion annually for local governments and schools, according to the state Legislative Analyst’s Office.
Proposition 13 has remained largely unchanged despite the fact it’s long been a target of some of the state’s most influential labor unions. Former lawmakers and governors, even during previous economic downturns, have hardly dared to challenge the tax code, wary of its popularity.
For example, Governor Jerry Brown, who was in office when the measure passed, called Proposition 13 “sacred” 36 years later while running for a fourth term.
The reform and its supporters
Coined “Schools and Communities First” by the supporting labor unions, special interest groups and elected officials, the proposed constitutional amendment would increase how often some commercial properties are reassessed and erase a 2% cap on annual tax increases. The changes would only impact properties worth more than $3 million and farmland and residential properties are exempt under the proposal.
Of the billions in predicted new revenue, 60% would go to counties and cities and 40% to schools and community colleges. If approved, the new tax code would be applied incrementally with full implementation by 2025.
The proponents claim voters have a golden opportunity to close a decades-old “corporate loophole” that has robbed local coffers of billions by mandating large industrial and commercial properties be assessed at market value rather than original purchase price.
Schaaf says the decision should be simple for voters in places like Oakland, who have watched city leaders slash over $120 million from the budget to survive the pandemic. The state Legislative Analyst’s Office projects Oakland could receive up to $63 million in new revenues if California switches to a split-roll property tax scheme.
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