The next election is 20 months away, but the discussion over Prop 13 is already heating up. It appears the fight is shaping up to be teachers vs. old guard.
That is where the California Schools and Local Communities Funding Act comes in.
Proposition 13 limits property taxes for homes and businesses to 1% of their taxable value. It also prohibits that taxable value from rising more than 2% each year, no matter how much a property’s market value rises. The longer a person or business owns a piece of property, the less they pay in taxes compared with market value.
What the new ballot measure would do is strip that protection from commercial and industrial properties while leaving residential properties untouched. Its proponents estimate that the measure would bring in $11 billion each year to be split among K-12 education, community colleges and local government bodies.
How much would that bring in to primary and secondary schools in Los Angeles County? An estimated $1.375 billion each year.
Veronica Carrizales is policy and campaign director for California Calls, a statewide alliance of community organizations that is pushing for the new measure, which is also known as “split-roll.” Like many analysts, she argues that the origins of the recently ended strike go back to Proposition 13.
The 1978 measure “caused massive disinvestment of local government and public education,” she said. “It did this by creating a loophole for large commercial and industrial corporations that have essentially avoided paying their fair share.”
Jon Coupal, president of the Howard Jarvis Taxpayers Assn., calls that “an urban myth.” His organization is behind Proposition 13 and plans an expensive and vigorous campaign to beat back any changes to it.
If the ballot measure passes, Coupal said, “citizen taxpayers … will end up paying more for the goods and services they buy,” and L.A. Unified will be no better off.
“This school district is the nation’s poster child for mismanagement,” he said.
Joshua Pechthalt, president of the California Federation of Teachers, said the $5 billion or so that will flow toward education if the new ballot measure passes is a significant amount of money.
“But I don’t think it’s enough money,” he said. “I think other things will have to be done to move California and LAUSD into one of the top states in the nation in terms of per-pupil spending and class size.”
It’s unlikely that the middle class is going to feel sorry for the owners of commercial and industrial real estate, and more strikes by teachers should help convince voters to change Prop 13 – especially those who weren’t around in 1978. We know that the elimination of tax-basis inheritance by kids and grandkids will be included in the initiative, but what else? This will be the chance to slip in other changes – let’s keep an eye on it!
Hi Jim,
One issue I see is that many businesses don’t own the commercial property on which they operate. And with triple net leases, the business pays the property owner’s property tax (and insurance and maintenance). You’re right that the middle class won’t feel sorry for owners of commercial and industrial real estate, but if these increased costs do get passed on to the consumer, which is likely, then the middle class will ultimately foot the bill — whether they realize it or not.
It’s wild that Prop 13 used to be considered the “Third Rail of California Politics,” but here we are…
but if these increased costs do get passed on to the consumer, which is likely, then the middle class will ultimately foot the bill — whether they realize it or not.
How about the businesses that are already price-sensitive and would find it tough to raise their prices in order to pass along the extra taxes? Would the property owners eat it, to keep the businesses alive? Probably not (we got a contract!), and mom & pop businesses like smaller restaurants will have to eat it to stay in business. But that may be their only profit?
The whole idea of Prop 13 was to keep from having grandma losing her house due to higher taxes. But it looks like grandma could lose her business instead.
The “loophole” is that businesses seemingly live forever. Companies with real estate covered by Prop 13 changing ownership sell over a 14 month period. 1/3rd in each of three calendar years and thus never “changes hands.” Publically traded companies should see reassessment whenever 50% of the outstanding stock trades. For Apple that would be several times per year.
Don’t get me started on the real state owned by the railroads.
Anyway. Companies are not people. Only people pay taxes. This is an $11b tax increase with a blank check going forward. Never good.
> “But I don’t think it’s enough money,” [Joshua Pechthalt] said. “I think other things will have to be done to move California and LAUSD into one of the top states in the nation in terms of per-pupil spending and class size.”
This is the big lie. California is already near the top in per pupil spending. School bonds are general obligation and are not counted as per pupil spending.
Born and raised here. Ca politics getting close to me moving the family out. Crazy talk from politicians just plants the seeds that eventually become reality.
Prop 13 repeal for biz will lead to residential. Which would in turn mean my kids no longer could look forward to inheriting my property without making damn sure they have serious jobs to keep up with taxes. Forget about me working hard to allow my kids to “follow their dreams”. Forget that they’d inherit the houses outright. Wouldn’t matter.
As someone else has said many times, you never really own property – the government does. And these kooky California politicians are really pushing the line of my tolerance.
People are fixated on Prop 13 and ignore all the other changes that have take place since then that affect how schools are funded.
https://ed100.org/lessons/whopays
“Thanks to some unusual provisions of California law, the state controls both the allocation of its general fund contribution to schools and the allocation of local property taxes. Property taxes fund about a quarter of the cost of California’s public schools.”
“Less than half of California property taxes are distributed to districts for the purpose of funding K-14 education.”
“The switch from property tax to income tax brought another challenge to California school budgeting: volatility. Property values (and therefore property tax receipts) vary relatively modestly with the economic cycle, but income tax receipts are fully exposed to the booms and busts of the stock market. The top 1% of income earners in California generate around 40% of the state’s income taxes, and their fortunes can change a lot from year to year.”
If this passes, there will be a handful of smart families that bequeath CA property early to pass along the inherited tax rate.
I don’t understand the rationale to remove inherited tax rates for residential properties if such a large increase in revenue will be generated by businesses that could easily offset. Is CAR really that desperate to increase sales?
Is CAR really that desperate to increase sales?
They sure act like it, especially with no solid proof that any of their schemes would definitely cause more sales.
Rob Dawg – Of course businesses are not people, but they sure as hell pay taxes. You’ve never heard of double taxation on a C-Corp?!?! Sorry to call you out, but lets get some facts straight.
As to the general comments in this thread, for me it always comes down to spending. California government is so big and so mismanaged that the truth is the money is there for the schools (public school system is another topic altogether). The problem is they have spent it and now want you to pay the piper. Notice it’s NEVER the other way around. People need to realize the government is not here to help you and politicians love debt. That’s how they get votes and votes begets power. They are all power loving narcissists and the liberals are wolves in sheeps clothing when it comes to the poor. The poor have Stockholm Syndrome I swear. Not that the Repubs are much better. They have their own form of idiocy. The only answer is less government, more personal responsibility, and more focus on the family. Period.
Prop 13 shouldn’t exist, property taxes shouldn’t exist, school buses shouldn’t exist, tenure shouldn’t exist, department of education shouldn’t exist, and I could go on and on. All these special treatment laws distort a market and here we are in a tangled web of exceptions, special taxes, and deductions. Lastly, if you choose to homeschool or not have kids, why should you give money to a failing public school system? It’s like you are using the resource, if you want to call it that.
Sorry for the rant…
> Rob Dawg – Of course businesses are not people, but they sure as hell pay taxes. You’ve never heard of double taxation on a C-Corp?!?! Sorry to call you out, but lets get some facts straight. ~ Incognito
If everyone thought like me I’d worry for civilization. Disagreement is proof of a healthy society.
We disagree because while true that some people are double even triple taxed it is ultimately only people who pay taxes. Companies, corporations, businesses, tribes, on and on are merely conduits to tax people. Corps don’t have hands with which to write a check.
Unlike Great British it is illegal for a private individual or company to own property in the United States. It is only possible to buy or sell an open ended lease from the Government. Don’t believe me? Try not paying your land tax ( annual rent) and see how quickly your landlord throws you into the street and sells your lease to someone else.
It all depends how you look at things doesn’t it?
The biggest problem is not raising more revenue. The biggest problem is the mismanagement of funds. When someone spends irresponsibly, their problem does not get cured by providing them with more money. It gets cured through changing their spending habits so they are spending responsibly. The other problems below are just add-on issues but the above is the main flaw in this plan.
Another concern is that changes in the law can often have unintended consequences.
When property taxes for commercial property whether it is apartments, retail, office space or industrial space goes up, at least part of that cost often ends up being passed to the consumer. In other words, tax payers pay more and the government gets more to mismanage.
Finally, we may not be concerned about the commercial and industrial prop taxes getting reassessed to market value, doing so can open the door for prop 13 for residential properties to later get repealed as well. This is an example of where law changes don’t effect us until they do.
This change sounds good politically for the sake of the kids but fails to solve the fundamental problem which is the state mismanages our money.
This change sounds good politically for the sake of the kids but fails to solve the fundamental problem which is the state mismanages our money.
That’s the one which will be hard for the politicians to swallow. Can you imagine what it would take to vote in a majority of accountants?
1, If you have money, the government wants as much of it as they can get. Lawfully.
2. When voting renters greatly outnumber voting owners, 13 will be history.
3. Funneling money through Sacramento to fund schools was a dumb idea which will never be repealed.
What is a good state to move to?
2. When voting renters greatly outnumber voting owners, 13 will be history.
I resist raising rents on existing tenants. Many years ago in San Bernardino I raised one lease $38.73 per year ($40 rounded). The tenant asked why. I said “You voted for the county school bond right?” She said “Yes, of course.” I replied, “There you go.”
I got a good laugh out of our accountant when I told him “It’s not a TAX, it’s a Bond”.
People vote for many of them thinking they will be dead before the bond is due. Bonds on ballots should explain how much they will “cost”, but there are too many people who profit from them. I really love the capitol appreciation bonds with a maturity out as much as thirty years. For the children.