What You Need to Know About November Ballot Measures that Will Affect Housing and Property Taxes
Proposition 15: The battle over commercial property taxes aka Split Roll
Billed as: California Schools and Local Community Funding Act of 2020
Background: Since 1978, Prop 13, which includes both commercial and residential properties, puts a cap on the tax increase on a property for any given year. This came about after property values soared and property taxes became unreasonably inflated for homeowners who have lived in a home for 20+ years. It limited taxes to 1% of the property’s value and any increase to a max of 2% per year.
What it would do: Prop 15 looks to remove most commercial and industrial properties from Prop 13 for landowners with land that is valued in excess of $3 million. It would in effect revalue those commercial properties for tax purposes at current market value rather than when it was purchased in a phased approach over the course of the next three years.
Pros: It could generate a net increase in revenue between $6.5 and $11.5 billion dollars a year, with 40% of that going to K-12 schools and community colleges, and 60% going to local governments. The range of revenue estimates relates to growth in the real estate market. Balances the tax inequity of commercial and industrial properties values.
Cons: Opponents of Prop. 15, said the final version of the measure would still end up harming many small businesses who would bear the brunt of increased rents resulting in an increased cost to do business in a state that is already very costly.
Small business owners, upwards of 80%, rent their property. That cost is passed on directly from property owners. The business owners will in turn have to reduce costs - that means less employees, less wages, higher prices, less rented space, etc. It could also tip the scales for some companies to relocate out of state.
The concern is that this is just a stepping stone to eventually expand the tax reach to all commercial properties and eventually residential properties making living in the state virtually unaffordable for millions.
Proposition 19: Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment
Background: In California, homeowners who are 55+ or severely disabled, can transfer the tax base one time to a residence within the county they live in to a home that is the same or lesser value. They can also transfer the tax base parent-to-parent and grandparent-to-grandchild.
What it would do: This bill would increase the scope to allow homeowners 55+, severely disabled and/or who have lost their home to wildfires, to transfer the tax base throughout the state up to 3 times. The transfer can be used for homes at equal or higher value. It will limit the parent-to-parent and grandparent-to-grandchild transfer for use as a primary residence only. Other types of properties, such as vacation homes and business properties, can also be transferred from parent to child or grandparent to grandchild with the first $1 million exempt from reassessment when transferred.
Pros: This expands a long-standing program that is available only in a few counties. The impact is clear: Older Californians who might otherwise be reluctant to change homes and pay higher property taxes would receive a new break. They can take that tax break with them more than once with this bill and up to 3 times. Proposition 19 also expands the property tax break to those who lose their home to a wildfire, a program now limited to other kinds of natural disasters. Most of the resulting revenues collected by narrowing this tax break would go toward local firefighting efforts.
Cons: It limits the ability of new homeowners who inherit properties to keep their parents’ or grandparents’ low property tax payments if it is not their primary residence.
Proposition 21: Local Rent Control Initiative
Background: Growing concerns over California’s lack of affordable housing have made rent control — a government-imposed cap on what landlords can charge their tenants — a hot topic in the state’s biggest cities and at the state Capitol. Last year, Gov. Gavin Newsom signed a law restricting annual rent increases to no more than 5% plus inflation, one of the strictest statewide caps on rent hikes in the country.
What it would do: Allow cities to introduce new rent control laws, or expand existing ones. If it passes, cities and counties could apply rent control to housing that is more than 15 years old, with the exception of some single-family homes as long as the landlords own fewer than 2 properties. The ballot measure would allow local governments to impose limits on rent increases when a new renter moved in. The measure would supersede any local rent control rules.
Pros: Goal is to make renting more affordable.
Cons: Discourages new construction and reduces availability of affordable and middle-class housing, driving up rents for many Californians.
For more information on these topics, check out these articles:
https://calmatters.org/explainers/california-november-2020-ballot-propositions-final-list/
https://www.goodlifemgmt.com/blog/pros-and-cons-of-rent-control
https://www.hklaw.com/en/insights/publications/2020/06/property-tax-initiative-qualifies-for-ballot-and-could-undo-ca-prop-13
https://advocacy.calchamber.com/policy/issues/split-roll-battle/