This week, progressive interest groups announced they had sufficient signatures to qualify an initiative for the 2020 ballot that is a direct attack on Proposition 13. Specifically, this so-called “split roll” initiative would raise property taxes on the owners of business properties to the tune of $11 billion every year, according to the backers. Because many small business owners rent their property via “triple net” leases, they too would be subject to radical increases in the cost of doing business.
Although there is a statewide election this November, the “split roll” measure will not appear on the ballot until 2020 because the proponents, either intentionally or not, did not submit their signatures in time for the 2018 ballot. They say they anticipate a better voter turnout in two years, which in itself may be wishful thinking. Ben Grieff, a community organizer with the ultra-progressive group Evolve, also said that the later election would be necessary to lay the groundwork for “a long two-year campaign” and that, “we need all of that to educate people.”
Well, educating people about Prop. 13 cuts both ways. And if past campaigns and polling are any indication, the more Californians learn about Prop. 13, the more they like it.
So let’s start today’s lesson with an overview of a class we’ll call “Why Prop. 13 is Good for California.” Here are the benefits of it in a nutshell.
Prop. 13 limits the tax rate on all real estate in California to 1 percent. Increases in the taxable value of property — often referred to as the “assessed value” — are limited to 2 percent per year. This prevents “sticker shock” for property owners when opening their tax bills compared to the previous year’s bill. Property is reassessed to full market value when it is sold. This system of taxing property benefits homeowners, because Prop. 13 makes property taxes predictable and stable so homeowners can budget for taxes and remain in their homes.
Renters benefit because Prop. 13 makes property taxes predictable and stable for owners of residential rental property, and this helps to reduce upward pressure on rents. If one believes that California’s current housing crisis is bad now, imagine how high rents would be if the owners of the property were forced to pass along their higher tax bills to their tenants. In truth, Prop. 13 increases the likelihood that renters, too, will be able to experience the American dream of homeownership.
Business owners, especially small business owners, benefit because Prop. 13 makes property taxes predictable for businesses, and it helps owners budget and invest in growing their businesses. This helps create jobs and improves the economy. California has ranked dead last among all 50 states in business climate by CEO magazine every year for more than a decade. Prop. 13 is one of the only benefits of doing business in California.
Local government and schools benefit because Prop. 13 provides a reliable, stable and growing revenue source. Even when real property values drop, property tax revenues continue to grow. Indeed, some counties in California actually saw year-over-year increases in property tax revenue despite declining market values during the great recession. It is also important to note that even with Prop. 13, California remains a high property tax state. We are significantly higher than average in per capita property tax collections.
Neighborhoods benefit from Prop. 13 due to the fact that it helps to stabilize neighborhoods, as residents are no longer driven out by unaffordable tax increases. Indeed, keeping neighborhoods intact was one of the key rationales that the U.S. Supreme Court cited when it rejected a challenge to Prop. 13 in 1992.
Strangely enough, defenders of Prop. 13 have something in common with those who wish to weaken or repeal it. That is, both sides believe that more education of voters will benefit our respective camps. But unlike progressive tax-and-spend groups like Evolve, we have both history and common sense on our side.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.