By Deborah Goonan, Independent American Communities
CA voters may consider Prop 13 ‘split roll’ tax increase in 2020
In 1978, California’s voters passed Proposition 13, a ballot measure that has significantly limited property tax increases ever since.
Under Prop 13, a property owner’s tax assessment is limited to one percent of a property’s taxable value at the time of purchase. In addition, annual property taxable value (assessed value) cannot increase more than 2% per year, regardless of how much a property’s market value increases.
The original intent behind Prop 13 was to eliminate sudden and wild fluctuations in property taxes, based upon a fast-growing, volatile real estate market. The measure has remained wildly popular among homeowners, for obvious reasons.
Pros and cons to Prop 13
California’s current property tax policy, many argue, offers a distinct advantage to long-time property owners. Homeowners who are lucky enough to be able to stay put for decades in the same home are rewarded with comparatively low annual property tax bills.
At the same time, newcomers and more mobile households pay property taxes based on higher market values at the time of purchase, when the home is purchased and/or reassessed.
Put another way, the longer you own the same home in California, the lower your relative share of property tax revenue.
While that’s certainly a huge advantage for older homeowners, critics say it’s a huge disadvantage for first time home buyers and California transplants moving from other states, because — if they can afford to buy — these homeowners will end up paying much higher property taxes based on current home values.
Nevertheless, longtime California homeowners probably aren’t willing to give up their tax advantage. They may be likely to back Realtor Association endorsed Prop 5 this November 6.
Proposition 5 would allow seniors, persons with disabilities, and disaster victims to transfer their current/former home’s tax assessment to their next new California home. When the new home’s value exceeds the former home’s value, the homeowner pays the current property tax on the difference in value.
Video Source: https://www.sacbee.com/news/politics-government/election/california-elections/article219451880.html
Needless to say Prop 5 has its critics, too, because the ballot measure still maintains the inequity in California’s property tax system.
Prop 13 rollback on the horizon?
The artificially low property tax advantage of Prop 13 is even more pronounced for owners of commercial and industrial property — including owners of apartment buildings — since these property owners tend to hold onto their real estate for the long term.
Of course, business owners also tend to hold more valuable real estate assets than homeowners. But because of Prop 13, the actual value of commercial and industrial property is often far higher than its taxable value. As a result, local governments aren’t capturing millions in tax revenues.
But California has moved one step closer to a 2020 ballot initiative that would roll back Prop 13 protections for owners of commercial and industrial property.
If placed on the ballot, and approved by voters, business owners would begin paying their fair share of property taxes based upon the actual values of the real estate they own.
Proponents of Prop 13. “split roll” initiative claim it would generate an estimated $11 billion in annual tax revenue, according to an article in Curbed San Francisco. As proposed, 40% of that money would go to public schools, and the other 60% would go to local governments, to fund public services and much-needed infrastructure repair.
Since the “split roll” proposal would not affect homeowners, it’s more likely to gain momentum and support from voters, despite stiff political opposition from business owners.
How might property tax reform affect real estate development in CA, especially with regard to association-governed, common interest development?
According to Evan McKenzie, author of Privatopia and Beyond Privatopia, Prop 13 has led to decades of limited tax revenue growth in California, putting a strain on local government budgets.
And, it should be noted, most other states have followed California’s lead with regard to tax caps and tax cuts. Across the U.S., local governments have favored privatizing services for new housing, by way of homeowners, condominium, and cooperative associations.
Instead of raising property, income, and business taxes, local governments enabled the creation of a parallel society of private taxation, one common interest community at a time.
And that’s how the U.S. ended up with at least 60 million Americans residing in more 320,000 association-governed communities.
But 40-plus years later, Californians (and Americans in general) are living with the many unintended consequences of mass privatization of governance:
- crumbling community infrastructure
- frequent litigation involving homeowners and their HOAs
- exponentially increasing HOA, condo, and co-op assessments
- frequent interpersonal conflict among community members
- crime and blight creeping into older, poorly maintained communities
The million dollar question is: might roll back of Prop 13 and passage of Prop 5 begin to undo four decades of damage, and finally lead policymakers away from privatized government (homeowners and condominium associations and housing cooperatives) and mandated, or de facto mandated, common interest development?
Consider the following.
If substantially more money were available to local governments, we might see a trend toward de-privatization of services from association-governed communities back to units of local government. This could be especially helpful for mature planned communities that lack financial resources to contend with years of deferred maintenance.
With higher tax revenues collected from owners of apartment housing, most new multifamily housing would be built for rent rather than purchase. This trend is already underway, and a Prop 13 roll back would almost certainly dry up the supply of standard-issue condominium housing. By attrition, this could lead to the eventual extinction of residential condominiums, with the possible exception of luxury towers.
Ultimately, local governments would have less economic incentive to mandate common interest housing. And public demand for private home ownership would eventually lead to a larger supply of single family homes for sale, without the currently hard-to-avoid mandatory HOA.
What’s your take? Will Prop 13 and Prop 5 improve options for housing consumers in California?
Proposition 13 has strictly limited property tax increases since 1978. Voters could get a chance to change that
By LIAM DILLON
OCT 17, 2018 | 3:00 AM
For four decades, the most potent brand in California politics has been Proposition 13, the 1978 ballot measure that limited property tax increases and prompted a nationwide revolt against taxation.
Now, the legacy of Proposition 13 stands on the verge of one of its stiffest tests. On Monday, an initiative qualified for the November 2020 ballot that could lead to a $145-million campaign and dismantle Proposition 13’s protections for businesses.
The initiative would end the state’s restrictions on taxing commercial and industrial properties and increase tax receipts for cities, counties and school districts by an estimated $6 billion to $10 billion a year.
Veronica Carrizales, policy and campaign development director for initiative proponent California Calls, cast the measure as part of a generational struggle to support public services she said have been starved of resources since Proposition 13’s passage in 1978.
“We think California is ready and now is the time to tackle this longstanding and nonsensical inequity in our property tax system so we can put communities and schools first and not corporate greed,” Carrizales said.
Proposition 13 tax split heading to vote—in the year 2020
New proposal would leave rules for homes intact, but raise rates on businesses
By Adam Brinklow Aug 15, 2018, 12:19pm PDT
The housing and anti-homelessness non-profit Housing California announced Tuesday that it has submitted more than 850,000 signatures on an overhaul of California’s longstanding property tax law Proposition 13 in an effort to quality for the ballot in 2020.
That’s far more than they need to make the grade, although the initiative will not officially be set for a vote until the Secretary of State’s office reviews the submission.
Housing California is part of a campaign to partially rollback Proposition 13, with a proposal that reads in part:
[If passed, the new law] taxes certain commercial and industrial real property based on fair-market value—rather than, under current law, the purchase price with limited inflation. […This would result in] net increase in annual property tax revenues of $6.5 billion to $10.5 billion in most years, depending on the strength of real estate markets.
After paying for county administrative costs and backfilling state income tax losses related to the measure, the remaining $6 billion to $10 billion would be allocated to schools (40 percent) and other local governments (60 percent).
Proposition 13, passed by voters in 1978, limits annual property tax hikes at around one or two percent on all types of properties.
Under the new proposal, the rules would stay the same for homes—part of what made Proposition 13 popular with voters was the promise to protect homeowners from big tax swings when property values soar—but the state would have license to begin taxing businesses at higher rates.
Proposition 5 makes California property taxes fairer and unlocks housing market (Opinion)
BY STEVE WHITE
Steve White is president of the California Association of Realtors. He can be contacted at email@example.com.
Special to The Sacramento Bee
October 08, 2018 05:00 AM
Updated October 08, 2018 08:28 AM
If you’re looking for affordable housing in California these days, you’ll need a lot of luck, thanks to sky-high prices and a shortage of homes for sale.
This is especially true for empty-nesters whose children have grown and moved on. They would downsize, sell their three- or four-bedroom home and move closer to their kids and grandkids. But they face a massive moving penalty in the form of a property tax spike. So instead of selling to a young family, many older homeowners stay put to keep their property tax bill low.
Voters can abolish the moving penalty while ensuring people pay their fair share of taxes by passing Proposition 5 on Nov. 6.
Proposition 5 protects people 55 and older by allowing them to transfer their property tax protections if they move. The measure also helps the severely disabled and victims of natural disasters. In a year when wildfires have caused overwhelming housing losses, we should do all we can to help disaster victims; it’s punishment enough to lose one’s home without the added insult of a drastic moving penalty.