There is a fiscal-political story heating up in the world’s fifth biggest economy this election season. Proposition 15 on the California state ballot Nov. 3 would tax commercial and industrial properties, except commercial agriculture, at their market value. Property taxes on residential properties would continue to be calculated on the purchase price, also known as the split roll valuation.
“Upon full implementation,” according to the California Legislative Analyst’s Office, “the measure’s shift of most commercial and industrial properties to market value assessment would increase annual property taxes paid for these properties by $8 billion to $12.5 billion in most years.”
Such a policy is overdue, according to Danny Feingold, publisher of Capital & Main. “Proposition 15 would make amends for one of the most far-reaching ballot measures in American history — 1978’s era-defining Prop. 13,” according to him. “With its landslide passage, Prop. 13 not only upended California’s revenue stream for public education, it ushered in a taxpayer revolt that spread to cities and states across the country.”
Beginning in 2022, Prop. 15 property tax revenue would vary from year to year. That variable would depend on the strength of the Golden State’s real estate markets. Prices are higher prices in coastal communities. Real estate prices decrease inland. Supply and demand in part drive differences in the Golden State’s real estate market.
According to the California Chamber of Commerce, Proposition 15 “is riddled with flaws,” heralding harm for the state. For example, the advocacy group argues that this property tax measure will increase the cost of doing business for the state’s farmers and ranchers via higher property taxes. That factor would spur price hikes of food for businesses and consumers, hard-pressed from COVID-19 quarantines.
Take the Golden State’s labor force. California had an unemployment rate of 11% in September versus August’s 11.4%. Meanwhile, the coronavirus economic downturn that began in mid-March is gradually easing in some of the state’s 58 counties.
Prop. 15 would distribute the measure’s annual property tax on commercial and industrial properties to specific expenditures versus flowing to the state General Fund. Beneficiaries of Prop. 15 would range from local governments and special districts to school districts and community colleges.
What about mom-and-pop shops under Prop. 15? Smaller enterprises would benefit overwhelmingly from the measure, according to Blue Sky Consulting. “We estimate that 84% of small businesses (those with 49 or fewer employees) in California would see a reduction in their property taxes” resulting from the measure.
Yes on Prop. 15 supporters include the California Teachers Association, Chan Zuckerberg Advocacy, and Service Employees International Union California State Council.
With the state constitution banning deficit spending as the federal government can and does, Prop. 15 could provide an infusion of cash that does not appear to be on the way from a new relief package that House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin in Washington, D.C. have been discussing.
Meanwhile, revenue relief from Prop. 15 would not be free, according to the California Chamber of Commerce. “The California Assessors’ Association is opposing Proposition 15,” according to the California Chamber of Commerce, “stating that it will cost more than $1 billion to implement in the first three years and would be impossible to administer.”
