SACRAMENTO, Calif. (CN) — The coronavirus pandemic and California’s shattered finances have injected urgency into an initiative that qualified for the November ballot Friday which — if passed — would reform the state’s landmark property tax code to raise billions for cash-strapped schools and counties.
California Secretary of State Alex Padilla announced the group looking to revise Proposition 13 and raise commercial property tax rates has surpassed the required 997,000 signatures needed to put their bid before voters this fall.
The announcement primes a simmering clash between a coalition of labor unions, educators and mayors pushing for tax reform and business groups hoping to preserve the decades-old and voter-approved framework. The sides have been preparing and fundraising for the fight for nearly two years but are amplifying their efforts due to the pandemic.
“We were all in this for the right reasons before the pandemic happened, but now it’s just that much more critical,” said Alex Stack on behalf of the proponents’ coalition Schools & Communities First. “It’s really more important now than ever.”
Instead of a budget-liberator, the opposition claims the new tax burden would equate to a death knell for Main Street and the small businesses lucky enough to survive the pandemic-induced shutdown.
Rachel Michelin, president of the California Retailers Association, says property owners will undoubtedly raise rents if the measure is approved, leaving businesses with no choice but to pass costs to customers.
“There’s two ways you’re going to make up the income; you’re going to cut expenses and jobs, or you’re going to have to increase prices to consumers,” Michelin said.
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.
Critics claim the “tax loophole” has robbed the state of billions in revenue over the decades and are pushing to revert from the current acquisition value system to a market rate tax scheme.
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. To top off the anti-tax package, Proposition 13 required new state tax hikes be approved by two-thirds of the Legislature and local measures by majority vote.
In the decades since, politicians have routinely resisted calls to alter Proposition 13 even during bad economic times, including recently when former Gov. Jerry Brown called the measure “sacred” as he guided the state’s Great Recession recovery.
Even with the state facing a potential record-high $54 billion deficit and bracing for sweeping cuts to education and social services, Gov. Gavin Newsom has refused to fully wade into the fight over the future of Proposition 13.
The November ballot measure would install a “split-roll property tax” where commercial properties with values over $3 million would be reassessed every three years at market value while smaller businesses, farming properties and residential homes would be exempt and remain under the current framework.
Proponents claim the change could produce up to $12 billion annually, with 60% of the windfall earmarked for local governments and 40% for education. Schools and cities could start benefitting from the new revenue stream as soon as fiscal year 2021-22, according to a study by the University of Southern California.
The split-roll system wasn’t specifically devised to help with the current pandemic, but the mayors of some of California’s largest cities are unsurprisingly encouraging voters to embrace the reform due to the ongoing crisis. They say raising taxes on the state’s largest businesses and corporations will prevent cities from making critical cuts post-Covid-19 and help curtail looming budget deficits.
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