Knitting a Solution

The pandemic has unraveled California’s economy. Local governments are knitting fragile nets out of hope and debt. California schools need $20 billion next year to avoid widespread layoffs and cuts to essential programs, according to estimates from the Education Coalition. Across the nation, cities, municipal governments and pension funds face similar budget shortfalls.

At the same time, the stock market has risen to historic highs and federal tax rates on businesses profits have been reduced to historic lows.

What are the options?

1. Do nothing and hope the problems disappear.
2. Identify fair ways to collect taxes to fund our schools and communities.

That’s essentially what voters will decide this November when they vote on Proposition 15. (And yes, there is a long back story that involves political intrigue and heated debate — more on that later.)

What Does Proposition 15 Do?

Prop. 15 does something relatively straightforward: It requires commercial and industrial real property worth more than $3 million to be taxed on the basis of its current fair market value. Right now, the tax is based on property's market value at the time of purchase (adjusted annually for inflation with increases capped at 2 percent per year) even if the purchase was decades ago.

If passed, this measure will not change residential property taxes. It will, however, bring California in line with the way other states tax commercial and industrial property: based on market value. Existing property tax rate limits remain the same. That’s it!

Wait Wait Wait!!! It must do something more than that.

A great deal of money will be spent on campaigns both for and against Proposition 15. And sometimes this results in muddled thinking by voters. Just to be clear, here is clarification for some common confusions.

• I’ve heard people warn me that it will increase taxes on my home. (NOPE.)
• I’ve heard that agricultural property will be taxed. (NOPE.)
• What about the personal property tax on small businesses? Won’t that go up? (NOPE.)
• Doesn’t it get rid of Prop. 13? (NOPE.)

The official Title and Summary for Prop.15 states that it exempts “residential properties; agricultural land; and owners of commercial and industrial properties with combined value of $3 million or less. It also exempts small businesses from personal property tax; for other businesses, provides $500,000 exemption.”

How much money will schools and communities get?

By taxing properties on the basis of their current value, Prop 15 will generate between $6.5 billion to $11.5 billion in new funding according to the California Legislative Analyst. About 60 percent of these funds will go to cities, counties, and special districts. The other 40 percent will go to K-12 schools and community colleges.

Money for K-12 schools will be distributed based on the Local Control Funding Formula (LCFF). All school districts and charter schools will get more money, with additional funds directed toward schools where needs are greatest.

Now let’s get to the politics!

Discussions of property tax policy in California are dominated by Proposition 13. Since it was passed in 1978, Prop. 13 has been the third rail of California politics. Don’t touch it!

In effect, Proposition 13 protects property owners by limiting increases in taxes on their property, even if their property goes up in value. California voters passed this initiative to protect Californians from being taxed out of their homes at a time when spiraling inflation was driving property prices (and thus property taxes) through the roof.

Prop 13 is the "third rail" of California politics.

California's low property tax rates on residential properties are overwhelmingly popular, and Proposition 15 doesn't touch them. The scope of the initiative is limited to commercial and industrial property.

Under Prop 13, California businesses that have owned property for a long time have enjoyed significant protection from property tax increases, even as the value of their property has risen. (Disneyland is a frequently cited example.) If Proposition 15 passes, this tax protection — basing taxes on the original purchase price — will be phased out for commercial and industrial property worth more than $3 million. As this change takes effect, businesses in California will pay taxes on property they own based on the market value of the property.

The sale of a property generally triggers reassessment of its taxable value, because it establishes a clear price. Transactions involving real property owned by a business entity, however, can sometimes be structured to avoid reassessment. Proposition 15 aims to close these loopholes.

According to former legislative staff member Jim Shultz, the politics of property taxes have evolved over the decades. In 1978 some business leaders were vocal opponents of Prop 13, which Shultz describes as a multibillion-dollar tax break they didn’t want.

Battle over ballot language

Prop. 15’s political season started with a court battle over the statements submitted for the voter pamphlet. The court ruled that the arguments below, submitted by opponents, were false and/or misleading.

A separate lawsuit challenged the title in the voter pamphlet: “This blatant manipulation of the ballot label as well as the title and summary is in direct contravention of the Attorney General’s fiduciary duty to prepare impartial ballot material,” said Jon Coupal, President of Howard Jarvis Taxpayers Association. As of this date, this challenge was unsuccessful, as reported by Calmatters: Judge Earl wrote that while one portion of the title “may be somewhat misleading, the Court is not convinced the sentence is so misleading that it justifies judicial intervention.”

Because the stakes are high, court rulings may become part of the political message on both sides of the issue.

Campaign Messages for and against Proposition 15

https://www.yes15.org	https://noonprop15.org
While the wealthiest corporations avoid paying their fair share, our schools have the most crowded classrooms in the nation and our local communities are struggling to respond to the impact of COVID. Just 10% of California’s most expensive nonresidential commercial properties account for 92% of Prop 15’s loophole-closing revenues. Prop 15 will reclaim billions every year for our schools, community colleges, and essential local services in EVERY county to invest in things like: Class sizes Health care services Fighting homelessness Firefighters and their equipment Safe drinking water Preparing for future disasters such as wildfire, pandemic or earthquake	Amid an unprecedented economic crisis, special interests are pushing Prop. 15 on the November 2020 statewide ballot. It will be the largest property tax increase in California history, and it will destroy Prop. 13’s property tax protections. The measure will raise taxes on business property. Those taxes will ultimately be passed on to consumers in the form of increased costs on just about everything people buy and use, including groceries, fuel, utilities, day care and health care. If businesses lose their Prop. 13 protections, homeowners will be next. Supporters of Prop. 15 even admitted that this initiative was the first step in a plan to end Prop. 13, which could mean skyrocketing property taxes for all California homeowners. Proposition 13 is working exceedingly well at keeping homeowners and small business owners from losing their properties, while delivering government a reliable source of revenue.
Major supporters Tony Thurmond, California Superintendent of Public Instruction Latino Community Foundation California Teachers Association League of Women Voters California State PTA California Democratic Party and Green Party Full list from Ballotpedia	Major opponents: Howard Jarvis Taxpayers Association California State Conference of the NAACP California Small Business Association California Taxpayers Association California Chamber of Commerce California Restaurants Association California Black Chamber of Commerce Full list from Ballotpedia