Editor’s Note: This article is from a longer piece on California’s economic growth titled “Supermajority Can’t Legislate Away Reality” published in Cal Watchdog. Read the entire article here.
The only political response to slow growth has been for the Party of Government to protect state and local governments, not businesses. Now the Democratic supermajority in the Legislature is rumored to have its eyes on eliminating Proposition 13 for commercial property taxation, which would create a “split roll” property tax.
A split residential-commercial property tax is based on a misperception that tax reassessments are not current. The belief is that significant tax revenues are being lost.
But what Prop. 13 really does is serve as a circuit breaker so that taxes don’t go up or down too far and too fast. If it had not been for Prop. 13, local government property tax revenues would have been in free fall after the Mortgage Market Meltdown in late 2008.
Once commercial property reassessments go back to being done annually, instead of upon re-sale of a property, the dependability of the state’s property tax revenues will be much more unpredictable for local governments.
Removing Prop. 13 for commercial properties would backfire because small businesses comprise 97 percent of total firms in California (857,167 small firms out of 878,120 total firms). A split commercial-residential property tax roll would likely worsen the slow growth problem. A reputable 2008 study indicated that the effects of a split-roll property tax would be:
* Higher rents paid by families and small businesses;
* Reduced investment and 152,400 fewer jobs;
* Reduced wages (-0.4 percent);
* Increased consumer prices;
* Out-migration of 48,700 families (-$7.3 billion GDP);
* Lower return on capital investment of 0.7 percent;
* Lower net private investment of $2 billion annually.