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A Split-Roll Property Tax Measure Is Bad for Business

Back Commentary Sep 3, 2019 By Winnie Comstock-Carlson

When we saw the first email system in 1978, nearly all of us were still sending letters with a 13-cent stamp. Gasoline was cheap at about 65 cents a gallon. In California, most people could buy a home for less than $50,000.

At that price, most of us could afford to buy a home. But in 1978, many middle-income families, including those who had bought their homes at much lower prices many years before, were fearful of losing the biggest investment of their lives. Although they could afford the original mortgage, escalating property taxes fueled by the worst inflation since the 1940s threatened to push them out of their homes.

That was the volatile environment in which California taxpayers overwhelmingly passed Proposition 13. In a year when the U.S. Bureau of Labor Statistics recorded inflation at nearly 9 percent, it capped the tax base at 1 percent of a property’s value and annual tax increases at no more than 2 percent. Perhaps it’s a coincidence, but that is the rate of inflation the Fed considers a barometer of a healthy economy today.

Prop. 13 reassesses the tax on the value of a home or commercial property when it changes ownership. Nearly two-thirds of California voters approved a measure that cut property tax rates by nearly 60 percent.

Beyond the tax cut, Prop. 13 was also a demand from homeowners and businesses for economic stability and predictability, two key factors to long-term planning.

Next year, voters will be asked to amend Prop. 13 through a ballot measure that will upset more than 40 years of that steadiness and a “no surprises” business environment. The measure calls for a “split roll,” in which commercial  and industrial properties would be taxed separately and more often than homes. Reassessing those properties on their current value every three years would impose the same unfairness on businesses and industrial companies that homeowners escaped four decades ago.

The backers of the initiative claim it’s unfair that business properties seldom face tax increases because ownership doesn’t turn over as often as a home. But that is a simplistic argument in an attempt to sell an initiative that is too costly and too complex to work.

The initiative’s backers and the nonpartisan California Legislative Analyst’s Office estimate the split-roll measure will generate between $7 billion and $11 billion annually, primarily to support city and county government and special districts as well as schools. But schools already claim a large portion of every property tax dollar through Proposition 98.

And it’s a tax hit businesses can’t afford, especially in an economy with flat consumer spending and trade tariffs. The Federal Reserve recently noted that U.S. manufacturing has slumped in the first half of this year. That’s a sign of a fragile economy. The timing for a tax increase couldn’t be worse.

That tax also would hurt small businesses. Technically, they are exempt from the proposed measure. But the majority of small businesses lease storefronts, offices and other properties valued easily at more than the $3 million threshold this measure puts in place, and the additional taxes would be passed onto them in the form of increased rents, an unintended — but very real — consequence.

The proposed measure would have “a devastating impact” on counties and would overwhelm their ability to assess nearly 650,000 commercial and industrial properties statewide, according to a nonpartisan and independent analysis by Capitol Matrix commissioned by the California Assessors’ Association. The statewide cost to complete the assessment roll, according to the analysis, would increase between $380 million and $470 million annually during the first five to 10 years. And those projected increases do not include the cost to upgrade technology systems. Counties would need to hire seven times more appraisers than they now have and would need three to five years to train them properly. Sacramento County, for example, would need to add 48 commercial appraisers to their staff of 34 to handle an extra 12,000 appraisals a year.

Prop. 13 has worked for four decades because it is simple to administer and provides one measure of stability in a challenging economy. By comparison, the proposed split-roll measure is complex, costly and nearly impossible to administer in the near term.

Prop. 13 is working. Splitting it in half is bad for business and a bad deal for counties.

Winnie Comstock-Carlson
President and Publisher

Comments

David Boring (not verified)September 8, 2019 - 2:52pm

California's legislators and special interest groups are always trying to pay for their ineffective non-vetted legislation (Prop. 47) and bad decision-making by raising taxes. Residents and businesses already struggle in this expensive state; the exodus is just beginning as boomers are not willing to part with so much of their hard earned retirement income. Businesses are starting to follow. PAGA and wage and hour lawsuits have already destructively de-stabilized business and jobs in this state in ways only future economic historians will be able to quantify.
The Golden State will lose its luster if this tax heavy environment is left unchecked. We as voters are the last line of defense. Please vote against the split roll. It will be another cost Californians can't afford!

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