Attack on Prop. 13 falters, but danger is still ahead
This would be chump change for labor groups such as the California Teachers’ Association and the Service Employees International Union—and other prominent backersof an initiative that will obliterate Proposition 13’s tax protections on commercial property owners and small businesses. Consider $5 million a small investment given the likely payout if voters are foolish enough to embrace this record-setting property tax boost.
According to the filing at the California Secretary of State’s office, the currently qualified “split rolls” initiative will result in a “Net increase in annual property tax revenues of $6.5 billion to $10.5 billion in most years, depending on the strength of the real estate markets.” The bulk of the money “would be allocated to schools (40 percent) and other local governments (60 percent).” There are no revisions that can alter the fundamental nature of this stinker.
A spokesman for the campaign told Politico that it refiled the initiative to create “improvements to implementation dates, expansive new small business tax relief, clarified education financing and stronger zoning language to ensure large corporations cannot avoid reassessment.” He said changes will “substantially strengthen the measure” and “widen the path to victory.” I would have loved to have seen the polling that led to this costly reboot.
The proposal is known as “split rolls,” because it splits away commercial property tax protections from residential ones. Public-sector unions and Democratic officials have been gunning for Proposition 13 since its passage in 1978 amid a tax revolt. Californians were furious at rapidly rising tax bills. Elderly people were being taxed out of their homes.
The measure capped property tax rates at 1 percent of the sales price and limited increases to 2 percent a year (plus local bonds). Prop. 13 has been the third rail of California politics—you don’t touch it, if you want to live—since then.
Californians’ tax rates are among the nation’s highest in almost every category, but their property tax levels have remained reasonable. Given high home values, the state still gets a hefty share of those dollars. According to a calculator from the Howard Jarvis Taxpayers Association, the annual property taxes on my modest home would increase $15,000 if Proposition 13 were eliminated. I’d be moving out of state.
Liberals have long blamed Prop. 13 for destroying public services, but that’s malarkey. The state’s total tax take has increased significantly, even on a per-capita basis, over that time. Our government employees are the best paid in the nation, and they receive pension deals that boggle the mind. State budgets have set spending records and schools received a 66-percent funding boost over six years. Services are crummy because of bureaucratic priorities—not funding shortages.
You can consider any new property taxes as pension taxes. The California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) are vastly underfunded even after years of record stock-market gains. If recession hits, they could get sucked into an inextricable hole. This is because for years cities and school districts have been passing unaffordable pension increases. Money is fungible, so new property tax dollars—however they are earmarked—will cover up this problem.
Such a large tax increase could be economically devastating. “Increased business taxes ultimately are passed on either to consumers as higher prices, to employees as less compensation, or the general community as less business activity,” explains the California Chamber of Commerce. Higher property taxes will diminish commercial property values, which could spark another real-estate bust. That’s one of my fears as the owner of an office building.
Progressive strategy has been to chip away at Prop. 13 protections by assuring one set of property owners that they’re only coming after another set—to make “them” pay their fair share. First, they called for tightening up so-called loopholes during property transfers. Now, they want to eliminate protections from many commercial properties. Eventually, they’ll be gunning for your home. No matter how much you give them, these activists will never stop until they’ve bled your bank account dry.
Fortunately, the initial 2020 tax-hike initiative was such a mess that its backers have to start again with a new measure that is supposed to be more appealing. But polling remains dismal for them because there really is no way to put lipstick on this pig. The only way to keep such activists from the trough is to refuse to vote to increase your own taxes.