Prop 13’s Impact on Business is about Small Business….Not the Dodgers

Michael Shires
Associate Professor of Public Policy, Pepperdine University

Over the past several weeks, capped by the recent hubbub over the sale of the Dodgers, there has been building drumbeat by unions and tax advocates to undo the protections for California’s businesses included in Proposition 13.   They are ready to certify Proposition 13 “unfair” and to bury it in a flurry of initiatives that would restore “fairness” by raising the property taxes on the state’s businesses and—if they thought they could get away with it—its residents.

While the emphasis of Proposition 13 was to keep homeowners in their homes across three and a half decades of exploding property values, it also kept the property tax bills on literally thousands of local, small businesses in check—a provision that has fueled the growth of these small businesses across the Golden State.

While providing larger employers a small respite from California’s otherwise onerous tax burden, Prop 13 has created stability in local communities and protected small businesses.  It has allowed your favorite neighborhood restaurant, dry cleaner and local tax preparer to stay in business during the housing bubble instead of being forced to close in response to an exploding property tax bill.

And it is these small businesses who would pay if these tax-hungry advocates have their way and undo Proposition 13’s protection of business properties.   In a study we recently released at Pepperdine looking at the economic impact of implementing a split roll property tax in California, we found it would cost the state some 396,345 jobs and nearly $72 billion in economic output over just the first five years, with even greater costs in succeeding years.

Many of these job losses would come from small businesses leasing space from landlords who would pass their increased tax assessments through to their tenants under “triple-net” calculations.  In an economy as fragile as California’s, these businesses—especially those headed by women and minorities—have been pushed to the edge and this tax increase would push many of them over.

So, while it is important to make sure the likes of the Dodgers do business in a way consistent with the spirit of Proposition 13, let us not get carried away. Proposition 13 is an important part of the state’s business landscape as well as its political tapestry. The businesses it protects are not just numbers on a spreadsheet, but rather the paychecks, savings and mortgage payments for literally hundreds of thousands of Californians.

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