The California Attorney General’s Office released on Tuesday its summary of a proposed state constitutional amendment that could split California’s longstanding property tax law Prop 13 right down the middle.
In part, the text of the proposal reads:
[If passed, the new law] taxes certain commercial and industrial real property based on fair-market value—rather than, under current law, the purchase price with limited inflation.
Exempts agricultural property and certain small businesses. Dedicates portion of any increased revenue to local services and to supplement, not replace, state’s minimum-funding guarantee to schools.
[...] Net increase in annual property tax revenues of $6.5 billion to $10.5 billion in most years, depending on the strength of real estate markets. After paying for county administrative costs and backfilling state income tax losses related to the measure, the remaining $6 billion to $10 billion would be allocated to schools (40 percent) and other local governments (60 percent).
Under Prop 13, which passed in 1978 with 64.79 percent of the vote, the state has limited opportunities to raise property taxes, only assessing properties at new values when they’re sold and capping tax hikes in other years at around one percent.
In December of 2017, Anthony Thiggpen, the president of California Calls (a network of state activist groups), laid out the appeal of the proposed Prop 13 split in a letter to the state Attorney General’s Office:
A loophole in California’s tax system has been the primary driver of disinvestment by failing to reassess commercial and industrial real property on a regular basis.
[...] Closing this loophole would raise billions in new funding for schools, and local city and county services to extend library hours, fix roads, expand health access, and re-open fire stations each year.
This loophole creates an unequal playing field for new and small businesses in California. Thousands of large commercial property owners are paying a small fraction of what many other businesses and property owners are paying.
Earlier this month, the state assessed that higher taxes on large commercial properties would generate billions in new funds, although the analysis cautions that this is not necessarily the most reliable revenue stream to float on:
The measure [...] would increase annual property taxes paid for these properties by $7 billion to $11 billion in most years. The amount of revenue raised in a given year would heavily depend on the strength of the state’s real estate markets in that year. As a result, this new revenue stream would be considerably more volatile than property tax revenues have been historically.
Criticizing the proposal in a December editorial for the OC Register, John Coupal, president of the Howard Jarvis Taxpayers Association (a lobbying group named for the 1970s-era lobbyist credited with Prop 13’s success), complained that, if the change happens, “owners of business property would be hit with higher taxes whenever property values went up.”
The Sacramento Bee notes that the initiative is not yet at the signature gathering phase of the process but will soon be canvassing for enough support from California voters to make the ballot later this year.