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California’s property tax system is a mess. Proposition 15, the “split roll” measure on the Nov. 3 ballot, attempts to fix it. Unfortunately, it only makes matters worse.
The solution is not to apply more Band-Aids and layer more complexity onto an already-broken system. And it certainly doesn’t make sense to increase taxes on businesses when many of them can least afford it.
Rather, we should create a new system that taxes all properties in direct proportion to their values. Proposition 15 fails to do that. Voters should reject it.
Our current system dates to 1978, when voters, facing rapidly rising property taxes, approved landmark Proposition 13. Under those rules, the assessed value used for taxing properties can be increased no more than 2% annually. But when a property is sold, the assessment is reset to the market value.
This has created tremendous inequity because long-term owners of all types of properties pay disproportionately less than those who have recently purchased. So, for example, neighbors with identical houses will often pay vastly different property taxes. Proposition 15 does nothing to address that disparity for residential properties.
What Prop. 15 does
Critics of our current system argue that there’s a second inequity — that Proposition 13 has placed increasing burden on residential properties while owners of commercial and industrial properties have reaped a windfall. That, they claim, is because taxes on residential properties are reset more frequently because they are sold more often than commercial and industrial properties.
It’s that claimed disparity that Prop. 15 seeks to address by splitting the property tax rolls. Under the measure, most owners of commercial and industrial properties would pay higher taxes based on the current market values of their parcels. Owners of commercial and industrial properties with a combined value of $3 million or less would continue paying under the current system, as would owners of residential properties.
The higher taxes in many cases would be passed on to the tenants of those commercial and industrial property owners. In short, it’s a tax on businesses, often small businesses, at a time when they can least afford it. To help offset some of the impact, Prop. 15 would reduce a separate tax on businesses by reducing the taxable value of each firm’s equipment by $500,000 starting in 2024.
Nevertheless, the measure would increase the total property taxes collected statewide by an estimated $8 billion to $12.5 billion annually by 2025. Indeed, backers of Prop. 15 are pitching the measure as a way to raise more money for schools, even though schools would receive only about 40% of the new money available after administrative costs. The rest would go to cities, counties and special districts.
Questionable rationale
But the rationale for the measure is questionable.
A 2016 study by the nonpartisan Legislative Analyst’s Office found that the assumption that residential properties statewide are sold more often and reassessed more frequently than commercial and industrial properties is wrong. Indeed, examining San Diego County, the analyst found that the opposite is true — that residential properties are reassessed less often.
Residential properties statewide do bear a larger proportion of the total tax burden than they did before 1978, but there’s another explanation for it than Prop. 13: more rapid residential development.
The legislative analyst found that in 1979-80 homeowners statewide paid about 34% of property taxes. That share declined to a low of 32% in the mid-1980s, then increased to about 37% by 2015-16. The increase, the legislative analyst concluded, may be due in part to faster growth in the number of residential properties than the number of commercial and industrial properties.
For Santa Clara County, the assessor, using a different methodology, arrived at a similar conclusion. He also found a decrease after Proposition 13 passed in the proportional residential tax burden followed by an increase starting in the mid-1980s.
In 1985, 52% of the county’s assessed value was borne by homeowners; today it is 64%. But, says Assessor Larry Stone, “the reason for this shift had little to do with Proposition 13 and a lot to do with the growth of residential properties. Between 1978 and 2020 the number of residential parcels grew 49% while the number of nonresidential parcels actually shrunk by 8%.”
In short, the big problem is not the disparity between residential and other types of property. It’s the disparity between the taxes paid by long-time property owners and those who purchased recently — an inequity that’s found for both residential and commercial properties.
That’s the problem tax reformers should address. And they should be doing it in a way that’s revenue neutral instead of trying to use reform as a vehicle to raise more taxes.
There are serious inequities in California’s property tax system that should be addressed. But Prop. 15 misses the mark. Vote no.
