Legislation Update
What is the 1978 Proposition 13 and Why is it Important to maintain Lower Property Taxes?
Proposition 13, originally passed in 1978, placed a cap on property taxes for both residential and business properties; taxes were calculated based on 1% of their purchase price, and annual increases in property taxes were capped at 2% per year, which limited increases in property taxes, even when property values increased. The unity between residential and commercial property taxpayers has kept these original protections in place for 42 years.
Why is Proposition 15 on the November Ballot in 2020 and Why is it Important?
Proposition 15, also called the Schools and Communities Initiative, undoes Proposition 13 protections from 1978 and is designed to significantly raise taxes on commercial and industrial property by requiring reassessment at current market value at least every three years, known as a split roll tax because it assesses business properties differently from residential. At this time, this initiative would only apply to commercial properties whose owners have more than $3 million in holdings; but future initiatives may undo protections for residential properties as well. If passed, this initiative would raise between $8.5 billion and $12 billion property tax revenue per year for education and public services.
Pros to Passage
- Additional public revenue is desperately needed, especially in light of the effects of COVID-19.
- The revenue will help fund public health services such as clinics and public hospitals, also burdened by COVID-19.
Cons to Passage
- Will lead to a full repeal of Proposition 13.
- Will harm consumers and the economy by increasing business owner’s operating costs, which will be passed on to consumers, i.e. higher rent for small businesses already struggling to keep their doors open.
- Will not provide funding for affordable housing developments and lower the government’s incentive to do so in favor of more taxable commercial development.
- Will increase the cost of living (food, utilities, daycare and healthcare will increase), therefore creating a larger gap in income equality.
- Could lead state and local governments to use the funds to pay off their unfunded pension liabilities rather than reforming pensions.
- A lack of accountability; revenues could be diverted to benefit special interest groups. Only 30% of revenues will go towards schools; 70% will go to the state and local governments to spend however they want.