Will changes in Proposition 13 HELP or HURT California?

Since voter approved Proposition 13 cut property taxes in 1978, many argue that it created a shortage of available housing and increased costs of rent.

A new ballot initiative, which would change the way commercial properties are taxed, is in the works.

Proposition 13 was a voter initiative introduced to help homeowners deal with spiking property taxes due to rapid property value appreciation.

Well intended and allowing people to not be forced from their homes due to increasing tax assessments, some say it went too far.

The (then) new law included all property types including business and income property owners.

The result was “a fiscal wrecking ball to California’s budget and to public services…” according to Howard Jarvis.

To this day, all property taxes are based on the market value at the time of a change in ownership or new construction.

Eliminating the re-occurring assessments based on the expanding market severely impacted property tax revenue.

In addition, the increasing cost of living, population growth and inflation caused severe cuts to public schools, libraries, utilities, and many other public services.

Another side effect is requiring higher State Income taxes than other states to supplement revenue.

It has also affected city development and land use.

Many property owners found that sitting on their properties, without developing them, become more profitable. Without increasing taxes, they have less incentive to develop, wait and flip the property when property values increase to their liking.

Another argument against Proposition 13 was local governments would find commercial development to be preferable to housing because of increased local sale tax revenue.

The new proposal floating around Sacramento will separate the protections of Proposition 13 between owner occupied single family residential and commercial / income properties.

Taxpayers who currently enjoy the $7000 Homeowners Exemption, would remain protected from any large re-assessments other property taxpayers may endure.

If the new initiative becomes law, commercial property tax assessments would be based on current market value and be reassessed every three years.
California’s nonpartisan analyst concludes that the change would generate close to $11 billion for the state and counties.

Jon Coupal from the Howard Jarvis Taxpayers Association says the new law will only increase the existing burden on businesses and may cause them to relocate to another state.

Even though the properties of small businesses may still be somewhat protected, that doesn’t mean that small businesses won’t suffer.

Many small businesses rent their space, which are owned by large entities facing increased assessments and taxes.

Small business owners have concerns that they won’t be able to afford their rents if they go up as result of the increasing property taxes.

In contrast, some argue that rent will not rise as feared because landlords already charge at the highest rates they can based on the market.

To exemplify how Proposition 13 hasn’t worked to lower prices for average Californians, look at two gas stations across the street from each other in Oakland. One is taxed at $42 per square-foot and the other at $74. The gas station paying less property taxes is charging $0.32 more for gas.

Despite the fact that the proposed changes would affect businesses and investors, while causing uncertainty, it is still technically a tax increase— a concept that most Californians are hesitant to embrace due to the high cost of being in the Golden State.