SUPPORTING PROP 15

POWER UP FOR PROP 15

Supporting Prop 15

 

Prior to the passage of Proposition 13 in 1978, California generally ranked among the top ten states in per pupil K-12 spending (7th in 1977). California’s public schools were among the best in the country and its public university system was both world class and nearly tuition-free. At the same time, the State’s public services and infrastructure were second to none. All of this was funded by residential and commercial property taxes.

During this period, property tax rates were set at the county level and were applied to the market value of all properties. The average rate was 2.67%. Residential property owners paid about one-half of the property taxes in the State, with the remainder coming from commercial property owners. California experienced rapid growth in real estate values in the years leading up to Prop 13, and the “tax revolt” movement was born out of frustration with rising property tax bills. The signature image in the campaign for Prop 13 was a retired couple living on a fixed income, unable to afford rising property taxes on their family home.

Prop 13 passed overwhelmingly in November 1978. It capped property taxes at 1%, set the assessed value of a property back to its 1975 level (with annual increases of up to 2%), and only permitted reassessment upon a sale. It also imposed a two-thirds supermajority requirement on any “special” funding measure (such as, for example, a measure to increase school funding). Although it was not much discussed in the campaign, Prop 13 applied the very same limits to commercial property. In 1979, California fell to 22nd nationally in per pupil spending; by 1988 such spending fell below the national average and has never recovered. California currently ranks approximately 41st when factoring in the cost of living, and spends less than half as much per pupil as New York.

Approximately one in five commercial properties, including many notable ones (Disneyland, movie studios, golf courses), have not changed hands since 1978, meaning they are still assessed at their 1975 values. Moreover, the rule that a sale triggers a reassessment to the purchase price only applies if more than 50% of the property changes hands. That happens in virtually every residential transaction, but in commercial sales, various methods are used to ensure less than 50% of a property changes hands in any given transaction, which is why nearly 60% of commercial properties have not been reassessed since 1999. As a result, commercial property owners now pay approximately only 30% of property taxes statewide.

If passed in November 2020, SCF would assess commercial property at its current market value (and reassess each property every 3 years) for property tax purposes. Once fully-implemented, it is estimated that it will raise an additional $12 billion annually. Forty percent of that sum will be distributed according to the existing State school funding formula to our K-12 school, directing additional funds to all schools, with those in low-income communities benefitting more significantly. The remaining 60% will be distributed to the counties, cities and special districts based on the commercial property in their jurisdiction. LAUSD, with a current budget of $14 billion, would receive more than $1 billion annually. An additional $2.5 billion would flow to LA County (current budget $36 billion) and cities within the County.

The Measure will not apply to commercial property owners who own less than a combined $3 million in commercial property. The increased assessments and taxes will be phased in over time to reduce disruption, and properties that lease primarily to small businesses are granted an extra deferral for the effects of the Measure, with the idea of protecting lessees with “triple net” leases from incurring large cost increases. Current estimates indicate that upwards of 70% of the increased property tax revenues will be paid by a relative handful of large commercial property owners. Finally, SCF would eliminate the business tangible personal property tax on equipment and fixtures on small businesses and provide an annual exemption of $500,000 on this tax for all other businesses.

Commercial property taxes in California would still remain low by national standards. Even if SCF were to pass, for example, the City of Los Angeles will still rank 42nd out of the 50 largest cities in terms of commercial property taxes.

The Measure provides for full transparency regarding how the new revenues will be spent. It requires school districts and local governments to make clear annually how each dollar has been spent.

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