Terry McLaughlin: Protect Prop 13 protections for property owners | TheUnion.com

Terry McLaughlin: Protect Prop 13 protections for property owners

In November 2020, California voters and taxpayers will have the opportunity to weigh in on one of the most sweeping economic propositions in the state’s history.

Proposition 13 has been protecting California’s taxpayers since 1978, and is one of the only protections Californians have had against unimpeded increases in property taxes. A well-funded coalition, known as the “Schools and Communities First” campaign, which includes, among others, the League of Women Voters of California, Evolve California, ACLU SoCal, the Coalition for Humane Immigrant Rights of California and the California Federation of Teachers, has qualified a measure for the 2020 ballot that would dismantle Proposition 13 by removing taxpayer protections for nonresidential property.

The “California Schools and Local Community Funding Act” would amend Proposition 13 to raise taxes on business properties and vacant land not intended for housing by requiring reassessments every three years. This type of property tax is referred to as a “split roll” because it divides the property tax roll by residential and business properties.

Under Proposition 13, California property taxes are limited to 1% of assessed value and yearly increases are capped at the lesser of 2% or the rate of inflation. This formula provides homeowners and business owners with predictability when budgeting for property taxes, and prevents extreme increases in rates when property values rise quickly. Adam Smith, often considered the father of modern economics, wrote long ago that “The certainty of what each individual ought to pay is, in taxation, a matter of so great importance that a considerable degree of inequality … is not near so great an evil as a very small degree of uncertainty.”

Proposition 13 has benefitted homeowners and business owners, and has created a stable, reliable and growing source of income to protect local schools and services during times of economic downturn. The California Tax Association reports that property tax revenue increased from $4.9 billion to $49 billion in the first 30 years after voters approved Proposition 13, according to data from the California State Board of Equalization. Adjusted for inflation and population growth, those figures indicate property tax revenue was 89% higher in California in 2010-11 than in 1978-79.

Helen Hutchison, president of the California League of Women Voters, has argued that the property tax protections ushered in with Proposition 13 have hurt the stability of state revenue by forcing California to rely heavily on volatile income taxes. “From the league’s point of view,” she states, “the major thing we’re looking for is a stable source of funding for services.” But California’s own Legislative Analyst’s office has warned that the proposal will actually introduce more volatility into the state’s funding stream that could potentially put school funding and other programs at risk.

Under the proposal, nonresidential properties and vacant land not intended for housing will be assessed at 2020 values and then reassessed every three years thereafter. Commercial property owners will lose certainty about future tax liabilities and one can only imagine the impact and cost to longtime property owners who will be faced with massive adjustments. Unraveling Proposition 13’s protections for businesses through a split roll will make the economy susceptible to potentially drastic ups and downs of the real estate market and could entail harsh budget cuts by local governments when the market plummets.

Although the proponents of the split roll proposal argue that “we can no longer afford to give billions of dollars in tax breaks to millionaires, billionaires, and big corporations,” it is small businesses who will inevitably be hit the hardest, and they, along with large businesses faced with significantly higher property taxes, will be forced to pass on the cost of these taxes to consumers by increasing the prices of nearly every product we use. Potentially these businesses could be forced to eliminate jobs, move out of California, or close up shop altogether, which is the last thing our communities desire.

The California Assessors’ Association, a nonpartisan organization, recently released a study on the administrative and budgetary impacts of the split roll proposal and concluded that it was a recipe for disaster, not just for taxpayers and business owners, but also for county assessors.

According to the study, “The cost to complete the annual assessment roll would increase between $380 million and $470 million annually, statewide, during the first five to ten years.” Bob Dutton, the San Bernardino County assessor and a former California State Senator and Assemblyman, writes that this figure “doesn’t even include the additional costs of training employees, upgrading technology and the additional cost burdens on downstream agencies to accommodate a split roll. After factoring in the latter, it is estimated that the statewide costs of implementing a split roll would range from $517 million to $639 million annually.”

“Implementing a split roll would be a logistical nightmare”, he continues, “as the study also found that as many as 900 new positions would be needed. Trained assessors are few and far between. We simply don’t have enough assessors available to even consider implementing a split roll.”

If passed, not only would this initiative create a bureaucratic and administrative nightmare akin to that recently encountered by the DMV, but the split roll initiative would inflict a mortal wound on Proposition 13 protections for all property owners and would open wide the doors toward eliminating these protections for residential homeowners as well.

Terry McLaughlin, who lives in Grass Valley, writes a twice monthly column for The Union. Write to her at terrymclaughlin2016@gmail.com.

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