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Jim Klinge
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Posted by on Nov 7, 2018 in Jim's Take on the Market, Local Government | 6 comments | Print Print

Prop 5 Defeated

Prop 5, the project of the California Association of Realtors, was soundly defeated – but it won’t be the last time we hear about the issue.  The supporters only spent half the money raised:

California voters have rejected a ballot measure to expand a property tax break for older homeowners who move, sparing schools and local governments a major revenue loss.

With 5 million ballots counted early Wednesday, Proposition 5 was behind 57 percent to 43 percent.

Under current law, seniors and near-seniors can transfer tax assessments if their new homes are worth the same or less than the ones they sell, and they can only do it only once. Current law also limits out-of-county transfers.

Proposition 5, backed by the California Association of Realtors, would have allowed over-55 homeowners to transfer their assessments to any new home — no matter what it costs — anywhere in the state and as many times as they wish.

It was a low-key campaign with high stakes.

“Today’s decisive defeat sends a strong message to the California Association of Realtors that voters won’t tolerate self-interested initiatives that attack the critical local services that strengthen our communities,” Graham Knaus, executive director of the California State Association of Counties, one of the main backers of the No on Prop 5 campaign, said late Tuesday.

The Legislative Analyst’s Office concluded that schools and local governments would each probably lose more than $100 million in property tax revenue a year initially and that, over time, those losses would reach about $1 billion a year for each. About 85,000 homeowners over 55 who move every year without the tax break would pay much less.

Current law requires the state to provide more funding to most schools to cover property tax losses. Not so for local governments.

Supporters said passage would end a “moving penalty” on older people and encourage more to sell, helping alleviate California’s housing shortage. The Legislative Analyst’s Office estimated home sales would increase by tens of thousands a year.

The Realtors funded a consultant’s report that contended Proposition 5 would have much less impact on state and local governments, resulting in annual losses of $120 million to annual gains of $200 million.

Opponents challenged the assertion that Proposition 5 would spur construction and warned about a hit to public services.

As a result of Proposition 13 passed in 1978, a home is typically taxed at 1.1 percent of the purchase price and increases no more than 2 percent a year. Prices have risen much more, sticking many homeowners with much higher taxes when they move.

Supporters raised $13.2 million as of Oct. 23, mostly from the Realtors, whose benefit from sales commissions. But the campaign only spent about half of what it raised and didn’t engage in television advertising or direct mailers.

Opponents raised $2.8 million, largely from the Service Employees International Union and California Teachers Association.

The Realtors recently filed notice with authorities that it would try again on the November 2020 ballot if Tuesday’s measure failed. Chris Carlisle, its legislative advocate, said it was “just to signal to our opponent we are not going away. If we lose this time, we will be back in 2020.”

If you are thinking of moving and want to go where the political climate is suitable for you, here’s how the country stacks up today (click to enlarge):


  1. A letter to the editor that ignores the fact that this scenario is already available today as long as the seniors buy in one of the 11 counties that approve:

    Opponents of Prop. 5 claim losses of billions, which schools and cities rely on. Owners will buy a more expensive home in a different county. It doesn’t create new housing.

    That’s half true! An older couple sells a four-bedroom home for $1,100,000, it’s too big. After 40 years, their tax bill is $3,000. Not wanting to pay more than their home’s selling price, they buy a condo for $800,000. Yes on Prop. 5 allows them to carry their $3,000 taxes, a loss of $5,000 to the county of their purchase. A family buys their home at $1,100,000 and pays a tax bill of $11,000, a gain of $8,000 to the county.

    So the county loses $5,000 but gains $8,000. Stay or leave, the county is ahead and a property is for sale, with $3,000 to the good.

    Opponents see only lost income, ignoring any gain. Without it, the couple stays!

  2. That is a very good point. I agree with your reasoning.

  3. November 7, 2018

    Dear Jim,

    For the better part of this year, we embarked on a historic and comprehensive effort to pass Proposition 5, C.A.R.’s own Property Tax Fairness Initiative, which would remove the “moving penalty” for seniors 55 and older, the disabled, and victims of natural disasters, allowing them to carry their current Proposition 13-protected property tax assessment level to another home of any price, anywhere in the state, any number of times.

    At the same time, we also worked to defeat Proposition 10, which would repeal the Costa-Hawkins Rental Housing Act and allow for the dramatic expansion of rent control. Thank you to everyone who joined in these efforts.

    You worked to gather nearly one million signatures to qualify Proposition 5 for this year’s General Election ballot and helped in our grassroots campaign to improve housing opportunities for all Californians.

    While our opponents were successful in stopping Proposition 5 this time, our resolve on this issue is firm, and we are committed to this effort for the long haul. In fact, we are pursuing a revised initiative for the November 2020 ballot. The new initiative for the 2020 ballot provides for property tax base portability, reforms intergenerational transfer laws, and addresses the true ‘split roll’ problem: corporations gaming the current property tax reassessment system. And, most significantly, it will raise money for schools and local governments.

    Additionally, C.A.R. is planning to pursue the issue through a legislative alternative in the state legislature to achieve its goals and reinforce our commitment to making property tax fairness a reality. Ideally, we can get the legislature to place the alternative on the March 2020 ballot so that we do not have to pursue the November 2020 initiative.

    We are pleased that we were successful in helping to defeat Proposition 10, an initiative that would have repealed protections homeowners have enjoyed for more than 20 years and worsened the housing crisis by making it more expensive and harder for renters to find affordable housing.

    C.A.R. worked more than 10 years to pass the Costa-Hawkins law, which Proposition 10 would have repealed. It may ultimately take longer than a couple of years to achieve our property tax fairness goals. Put simply, achieving big public policy goals takes time but we will not be deterred!

    REALTOR® investment of time and resources as part of these grassroots efforts will benefit clients, homeownership, and California. We all know that when REALTORS® lead, California wins.

    Thank you for all you do as proud members of California’s REALTOR® Party.


    Jared Martin
    C.A.R. President

  4. Prop 10 had Realtors® in the side of good. Prop 5 just looked to much like messing with Prop 13 and did nothing to coordinate with 60 & 90. People vote no on muddled messages. Off topic but that is why Prop 6 also failed.

    Congratulations Jim the Realtor for 34 years!

    side note: My youngest accepted UCSB early transfer acceptance. That means less travel as we struggle to afford the California Constitutional no cost tuition expenses.

  5. Congratulations Jim the Realtor for 34 years!

    Thanks, and yes it was in November of 1984 when mortgage rates had dropped all the way down to 13% that I scrambled to get into the business – quick, while the getting was good!

  6. Congrats Jim!

    But it goes back to that voters don’t have critical thinking skills. Prop 5 would have marginal change to the property tax base, but it does provide more incentive to move for 55+.
    Under current law, if the couple moved to a slightly more expensive home, lets say $1,200,000, their tax bill goes from $3000 -> $12,000.
    Under prop 5, it would have been pro-rated -> $3000 + ($1200k-1100k) * 1% or $4000.
    But if they went to a cheaper house, $800k, then their tax is actually reduced $3000 * ($800k/1100k).

    So people didn’t really read the law and understand that it removed a discontinuity in prop 13.

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