There Are Many Reasons to VOTE NO on Proposition 15

Roderick Wright
Roderick Wright, is a former member of the California State Senate and Assembly. He developed affordable housing with the Inner-City Housing Corporation. He worked in the Planning Department of the City of Los Angeles. He also worked at the Southern California Association of Governments (SCAG). Mr. Wright has been a rental property owner for over 40 years and is also a member of the Apartment Association of Greater Los Angeles and the Coalition of Small Rental Property Owners.

Proposition 15 is on this November’s ballot, and if passed,  would repeal portions of the famous 1978, Proposition 13 which altered the way property taxes are collected in California.  Before Proposition 13, there was an asymmetrical relationship between income and property taxes. Taxes could increase on your property, while your income did not, because the tax assessment on property was based on the current and ever-increasing market value of the property.  This was particularly troubling for senior citizens who may have been on fixed incomes.  

Before the passage of Proposition 13, many senior citizens lost or were forced to sell their homes because they could no longer afford to pay their property taxes.  Seniors were seeing their property taxes increase year after year without limits, while their retirement incomes remained flat.  In many cases property taxes exceeded their ability to pay and then forcing some to lose their homes.  During this period, local governments, school districts and special districts could simply increase property taxes by a simple majority vote of the elected body.  Proposition 13 also changed all of that. 

Under 1978’s Proposition 13 all property taxes for residential and commercial properties were reduced at the same rate.  Proposition 13 then limited or “capped” the amount property tax assessments may be increased each year to just two percent (2%) per year.  However, the rate is reset upon the sale of a property, to one percent of the sale price.  As residential property sells more often and with price increases, local governments and school districts have received more money than they did prior to Proposition 13’s passage!  Since commercial property historically sells less often, and sometimes the corporate entity is purchased which owns the real property, so the title remains the same.  Accordingly, commercial property taxes have not increased at the same pace as residential property taxes.   However, this is not a loophole, they still pay their taxes with the two percent 2% annual increase.    

This year’s Proposition 15 that will be on our November 3rd ballot would alter the way property taxes are assessed on some commercial properties, it does not alter the way residential properties are treated.  Therefore, the term, “Split Roll” has been created to describe the separate treatment of commercial and residential real property for property tax assessment purposes.  The collection of residential property taxes would remain as it is today.  However, some commercial property would be reassessed regularly, and the taxes would increase with the increase in appraised value.   While the value of a property may have increased, the income of the taxpayer may have not, or at least not sufficiently to cover the increased tax.  As a result, the increased property taxes assessed on commercial businesses will ultimately be passed along to consumers through higher prices, which means higher property taxes paid by commercial businesses will result in a consumer tax on you and me.

For example, let’s take a major chain department store like Sears.  They are usually located on prime pieces of land.  In fact, local governments often sought them out and encouraged them to open in their jurisdictions in order to generate commerce and collect the sales tax these businesses generate.  The value of the land and buildings for these department stores, many of which were purchased decades ago, have certainly increased substantially, while Sears has gone bankrupt!  Under Proposition 15, Sears could receive a very significant property tax increase, although they actually lose money.  Unlike most taxes which have some relationship to income or purchases, property taxes do not.  As a result, many more Sears store locations, and many similarly situated store locations, will likely be shuttered.

Income and excise taxes for example, are based on a percentage of what a taxpayer earns or makes.  Sales taxes are based on a percentage of the cost of an item purchased.  These are called “progressive” taxes, the more you have or spend, the more you pay.  The Bible says, “To whom much is given, much is required.”  Sales taxes can be regressive, (a tax that is not based on income) so on many items like food and medicine, there is no sales tax.  

Proposition 15 would mandate an increase in property taxes on some commercial properties, even if there was no increase in the income of the property owner.  No reasonable person would argue that there should be no taxes.  An old saying says, “Taxes are the price we pay for a civilized society.” So let’s be clear, Proposition 15 is a tax increase. In fact, it may be the largest tax increase in California history.   

The proponents of Proposition 15 say “it only applies to big wealthy corporations, and they can afford it.”  Well that’s not quite true.  Whatever you as a consumer buys, from a pair of shoes to a Big Mac, the taxes the merchant pays were calculated into the price you paid.  So, whether it’s gasoline for your car, or a pair if Nikes, it will cost you more, because businesses pay their taxes with your money!  So, the question for YOU the voter is not how much more should the wealthy corporations be paying for schools and local government, but how much more are YOU as a consumer willing to pay?  

There is another seldom mentioned issue.  Property taxes paid by businesses are deductible against state and Federal income taxes.  What!  Yes, Disneyland, for example, will likely have to pay more property taxes if Proposition 15 passes.  Guess what, that increased amount will be deducted from their gross income, then deducted from their state and Federal income taxes!  So, the big loser here could actually be the state general fund.  That is why the first revenue that comes from Proposition 15 will go to the State of California to backfill the losses to the general fund. It’s not clear if the “backfill” will cover one hundred percent (100%) of the lost general fund revenues, but if it’s not, then the state’s legislature will have to make cuts in services to make up for the loss, or will have to tax individuals and businesses more to make-up for this short-fall. 

This proposed revised method of property tax assessments will require each of the county assessor’s offices across the state to hire armies of appraisers to calculate the new assessment values on commercial properties.  This could take a few years to complete and cost hundreds of millions of dollars. 

So, we might get an increase in school and local government funding, at the expense of Cal-Fresh (food stamps), Medi-Cal, meals programs for seniors or affordable housing.  The likely loss in state revenues will have to be made-up somewhere.  

But this ill-conceived proposition has yet another problem.  The proponents make the claim that the tax will not apply to small businesses.  That could be true for some, but many small businesses lease their property through what are known as triple-net leases.  This means, that the tenant is responsible for the utilities, maintenance, insurance and yes, their share of property taxes!  So, all those small businesses with this type of lease, which is the most common type of commercial lease agreement, will receive a tax increase from higher property taxes.  

So virtually all businesses large and small could see a tax increase.  As a result, this means all consumers will see price increases for virtually every good and service they purchase.  California already has some of the highest taxes in the nation.  We pay more for electricity, gasoline, food and other necessities, and now we’ll pay even more.  

California government finances are going to be in for a real shock this tax year.  Disneyland, LEGOLAND, Sea World, the Hollywood Bowl, the airlines, the hotels have all just missed an entire summer season!  We have not even begun to count the losses in income this will bring.  In addition, the movie industry, theaters, malls, and restaurants have seen their business go flat or out of existence entirely. Unemployment filings have reached an all-time high.  So, is this really the time to hit Californians with a tax increase?  I think not.  

Another point here, between virtual meetings, online commerce and people working from home, the commercial office leasing business is bracing for a huge “kick in the ass.”  Many companies will never go back to full rental office staffing.  So how much is a commercial office building or a shopping mall going to be worth with possibly fewer than half of its tenants?  

With all this said, clearly, we need to spend more (euphemistically called investing) in our schools and local governments.  Rather than trying to claim that some are not paying their “fair share” of taxes, perhaps we should look for ways to smooth out the peaks and valleys we have seen in California tax revenues as we have chased many of the wealthy “fat cats” out of our state.  With a critical look at our sidewalks, streets, student achievement, and the ever-growing homeless population, we can clearly see we have to do something different.  

Rather than vilifying wealthy corporations or rental property owners, we must start looking inward.  A great song from the late Michael Jackson sums up this whole conversation:

“I’m starting with the man in the mirror.  I’m asking him to change his ways.  And no message could be have been any clearer.  If you wanna make the world a better, take a look at yourself and make a change.”

VOTE NO on Proposition 15!  Let’s not make things here in California worse than they have to be.

 

Roderick Wright, is a former member of the California State Senate and Assembly.  He developed affordable housing with the Inner-City Housing Corporation.  He worked in the Planning Department of the City of Los Angeles.  He also worked at the Southern California Association of Governments (SCAG).  Mr. Wright has been a rental property owner for over 40 years and is also a member of the Apartment Association of Greater Los Angeles and the Coalition of Small Rental Property Owners.   

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