Beware of Sleight-of-Hand in Prop 15 Numbers

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

The Yes on Proposition 15 campaign has bandied about all kinds of figures on how many commercial properties will pay a bulk of the new record property tax increase if the measure passes.

First, they showed a study that reported 6% of the properties will pay 78% of the taxes. Next we heard that 10% of the properties will pay 94% of the taxes. This week there was another study, pretty much all the studies generated from the same campaign-sponsored source, that said actually 10% of the properties pay 92% of the taxes.

So, which is it?

Correct answer: None of the above. Not when you consider who is actually covering the tax increase.

The Yes on Prop 15 campaign is trying to convince voters that only a few parcels owned by big business around the state will pay the bulk of the largest property tax increase in California history. In fact, they ignore the fact that the big property owners lease much of their property to small businesses. The study does not estimate the number of small business tenants in office parks or industrial complexes, for example. Those businesses end up paying the higher property taxes under their leases.

More than three out of four small businesses in California do not own real property. Most small businesses in shops, industrial areas and office buildings lease their spaces. Standard triple net leases require that the leasing businesses cover any of the increases of insurance, maintenance and taxes. Basically, these small businesses are required under the contract of the lease to pay the property tax increase.

In turn, if possible, the small businesses will pass the tax increases on to consumers in the form of higher costs. Goods and services will go up in price including gasoline, food, and retail goods.

This clearly understood economic fact of life makes it more astounding that Sacramento Mayor Darryl Steinberg, in endorsing Proposition 15, said the following in a statement: “Proposition 15 will help us recover by closing corporate property tax loopholes to generate $12 billion every year for schools, community colleges, essential workers and local governments — at zero cost to residents.”

Zero costs to residents? Really?

Business costs are passed on. That’s a basic economic dynamic in business or else businesses couldn’t survive. Does the mayor think that the commercial taxpayers will simply dip into a piggy bank to cover the $12 billion tax increase?

The cost of the increased tax will mostly be passed on or other adjustments will be made by businesses such as cutting jobs to manage the new tax.

Indeed, there will be a cost to residents in some form or another.

As the Proposition 15 campaign begins in earnest, voters should be wary of attempts at sleight-of-hand to mask the real victims of the largest tax increase in California history—small businesses and individuals.

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