With California businesses trying to recover from the economic impact of COVID-19, voters in November will decide whether to pass a new ballot measure that would end a 42-year cap on property taxes for commercial property owners.
“The initiative that proponents call ‘The California Schools and Local Communities Funding Act of 2020’ would revoke Proposition 13's protection from all commercial and industrial properties with some exceptions. Properties that lose the Prop. 13 limit on property tax increases would be reassessed to market value at least every three years,” Susan Shelley, VP, Communications with the Howard Jarvis Taxpayers Association (HJTA) told the Northern California Record by email.
The initiative could be a step backward as the state seeks to reopen and revive its economy.
“It would be … effectively raising taxes on every business in California, when businesses have already been hollowed out by the coronavirus lockdown,” Shelley said. “Many jobs will be lost permanently, and consumer prices will rise as businesses are forced to cope with higher operating costs. California already has the highest poverty rate in the nation when the cost of living is taken into account. This initiative will worsen poverty by raising prices and costing jobs.”
Provisions in the measure that attempt to exempt or delay implementation for some small businesses have been called all but impossible to implement by the California Assessors' Association, which opposes the initiative, Shelley added.
“For a small commercial landlord, I think things are going to be very dicey for them,” Marc Joffe, Senior Policy Analyst with the Reason Foundation, told the Record. “For example, in a strip mall, with a small number of retail tenants, if they lose three tenants, and then they get hit with this tax increase, you have to wonder, is that something that’s really going to be sustainable for them?”
Presently property taxes in California are a predictable expense, but tethering them to the fluctuating real estate market would have far-reaching effects, Shelley said.
“This would also have an impact on government revenues; currently, property tax revenue is the least volatile source of public funds, but this measure would make that revenue unpredictable. While the measure exempts agricultural land, it does not exempt the buildings and facilities used by agricultural businesses, so farmers and ranchers would see higher property taxes if this measure is enacted,” Shelley said.
“The measure attempts to exempt small businesses, but it fails to protect small businesses that lease space from larger businesses -- those with ‘triple net’ leases will pay the higher property taxes,” Shelley said.
Particularly during the COVID-19 pandemic, people need to be protected from “out-of-control tax increases,” and not compelled to hand over more money, Shelley said.
“The most important thing to know about this initiative is that it is a direct attack on Proposition 13, and if it succeeds, the special interests who want to destroy Proposition 13 could come after residential property next,” Shelley said. “Taxpayers in California already pay extremely high state and local taxes. Enough is enough.”
Joffe noted that the Central Valley, High Desert, and other smaller metro areas would be among the hardest hit.
“It’s taking money out of the private sector at a time when the private sector can least afford it, that’s ultimately the bottom line,” Joffe said.