California voters will be asked to amend the state constitution on November 3 to create a split-roll tax system. Groups supporting and opposing Proposition 15 have released studies to try and sway public opinion to their side.
Prop 15 would replace the current system that’s been in place since voters approved Prop 13 in 1978. Prop 13 decreased property taxes by assessing values at their 1975 value and restricted annual increases of assessed value to an inflation factor, not to exceed 2% per year. It prohibits reassessment of a new base year value except in cases of a change in ownership or completion of new construction. These rules apply equally to all real estate, residential and commercial—whether owned by individuals or corporations.
The big change with Prop 15 is that it requires commercial and industrial real property to be taxed based on current market value on a three-year cycle. Residential, agricultural, and business properties with combined value of $3 million or less are exempt, thereby creating a split roll.
Sponsors of Prop 15 estimate that reassessing commercial and industrial properties could generate a net increase in tax revenue between $4.5 and $12.5 billion dollars a year with 40% going to public education and 60% going to local governments. The range of revenue relates to growth in real estate markets.
Research by the group Yes on 15 claims that more than 90% of the additional property tax revenue from Prop 15 would come from just 10% of the highest valued properties. Their report was based on assessor’s property tax data provided by the University of Southern California. It found that properties valued at $5 million and more would generate more than 84% of the new revenue. Those properties are highly concentrated in places like Silicon Valley with high value commercial property that hasn’t changed hands or been reassessed in many years.
“Nearly 50% of the revenue raised by the measure will come from properties that have not been reassessed since before 2000,” said Tim Gage, former director of the California Department of Finance whose Blue Sky Consulting Group conducted the study.
The California Assessors’ Association (CAA) surveyed various California Assessor’s Offices to obtain projected costs of the staff increases and technology costs necessary to implement Prop 15 if it is approved by voters. To obtain the most accurate projection of costs, the CAA commissioned an in-depth analysis of the data by Capitol Matrix Consulting.
Key concerns cited in the CAA’s report include:
The projected implementation cost would be $1.01 billion during the three-year phase-in period.
“Implementation would require a trained workforce that is not available today and would not be available for many years.”
The measure includes “exclusions with complicated rules” that would require creation of a system for all counties to coordinate and share information.
Disparate impacts on counties “and likelihood that the initiative would trigger negative roll growth in small and rural counties due to exemptions and exclusions.”
CAA President Don Gaekle wrote, “The implementation costs and administrative issues raised by our analysis have only become more problematic due to pending budget cuts and hiring freezes which are being implemented by counties across the state. Current local budgetary realities will make implementation of the initiative extremely difficult.”