It was called ACA-11 while the legislators considered it, and the realtor-backed initiative is now Prop 19. In our last installment, the legislative analysis included this gem:
Right now, around 80,000 homeowners who are over 55 move to different houses each year without receiving a property tax break. The measure would cause more people to sell their homes and buy different homes because it gives them a tax break to do so. The number of movers could increase by a few tens of thousands.
In the graph above, we see that there were 437,000 homes sales in California last year. The analyst who prepares these studies is saying that 18% of all home sales are seniors buying up, or moving to a county that doesn’t allow for tax-basis transfers? And if this measure passes, even more seniors will move just because of the tax break?
The analysis also includes this tax increase, but doesn’t mention the exclusion for those heirs who occupy the inherited home as their primary residence:
Under current law, between 60,000 and 80,000 inherited properties statewide are excluded from reassessment each year. Under the measure, these properties would instead be reassessed resulting in higher property tax payments. This, in turn, would increase property tax revenues for local governments.
Though the official state analysis seems far-fetched, just the appearance of being an assault on Prop 13 should be its undoing.
Hat tip to SM for sending this in from the Howard Jarvis Taxpayers Association that declares it to be just another political play to generate billions more in property-tax dollars:
The California Association of Realtors has pulled in the firefighters by adding that the excess tax revenues go towards fighting wildfires. Will that be enough smoke & mirrors (pardon the pun) to persuade voters to change Prop 13? The last attempt to pass a similar initiative in 2018 never gained traction, and it’s doubtful that C.A.R. will spend enough advertising dollars to change voters’ minds this time.
We heard from the C.A.R. president last Friday about realtors joining with the firefighters to push for more tax breaks for seniors. Thanks to Liam who explained the newly-labeled Prop 19 on Twitter yesterday, and for providing the link to the actual calculations being made to justify the changes:
This potential bond issue (and resulting property-tax payments) is for the City of San Diego only. From the U-T:
Supporters of a $900 million housing bond say they will continue pursuing the measure for the November ballot, despite the sharp economic downturn reducing incomes for many San Diego property owners who would be paying the tax increase.
The decision was based primarily on a new telephone poll of 850 likely voters that showed 69 percent support the measure, just above the 66.7 percent needed for approval and a drop in support of only 2 percent since last November.
“Until we saw the poll results, it was totally up in the air,” said Stephen Russell, who is spearheading the effort for the San Diego Housing Federation. “When we went to poll, we thought we were going to see cratering in the numbers. It was compelling that we are only two points lower than our polling in November.”
Some critics say that an economic downturn is the wrong time to burden property owners with higher property taxes. Russell said the people most affected by the downturn are low-wage workers who pay rent and are most vulnerable to becoming homeless.
The proposal would raise taxes on San Diego property owners to pay for roughly 7,500 subsidized apartments, 2,800 units for the formerly homeless and 4,700 units for veterans, senior citizens, the disabled and low-income families. In addition to the local money it would raise, the measure would help San Diego secure a greater share of state and federal money devoted to homelessness and affordable housing, by providing local matching funds.
The bond measure would cost property owners $19 per year for every $100,000 of assessed value. The average homeowner with a $600,000 property would pay $115 per year, he said.
But owners of large amounts of commercial, industrial or residential property would pay significantly more.
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!
It’s one thing to talk about whether Prop 5 will make a difference, because it’s very speculative – we won’t really know unless it passes.
Will it pass?
The powers that be are pushing their agenda on either side, but I doubt there are voters sitting on the edge of their chair awaiting the outcome.
If voters just go off the voter guide for direction, this is what they will see:
The ‘con’ argument starts with two zingers and then fingers the ‘corporate real estate interests’ as the culprit. If voters go to their website, this is the first image they see, which will make an impression:
Because the C.A.R. is already gearing up for a revised initiative in 2020, this may just be a test run. But it would be helpful to have it pass, and see if there is any positive impact on the statewide market that could provide additional data for the 2020 initiative.
If it does pass, but the market doesn’t change much, then the C.A.R. will be able to say that we need the next round – which eliminates the inheritance tax break for vacation and rental properties, and clamp down on businesses that avoid higher property taxes when they buy commercial real estate.
I’d sure like to see the research that makes the C.A.R. think this idea will bring a flood of inventory because Prop 60/90 already cover this issue. The realtor bashing alone might be enough to sink this proposition:
Would it be a merciful end to the “moving penalty” or a giveaway to rich homeowners and real estate agents?
Proposition 5, which California voters will decide on this November, allows homeowners age 55 and up to receive a major break on their property taxes when they move homes. Sponsored by the California Association of Realtors, the initiative attempts to address a problem familiar to many Californians of a certain age: You want to move from your empty nest, but you’re scared of the new taxes you’d have to pay on a downsized property.
That dilemma is a byproduct of Proposition 13, the landmark 1978 initiative that capped how much local governments can levy homeowners on escalating home values. If you bought your home in 1988, you’re still paying property taxes based of the value of your home when the Soviet Union was still in existence. It’s a pretty great deal. But try to move into a different—and invariably more expensive—home at today’s prices, and your property taxes will jump dramatically. Those property tax bills could be tough for older homeowners on fixed incomes to afford.
“These are largely larger family homes,” said Steve White, president of the Realtors association. “If these folks were able to sell, then folks in (younger) generations would be able to purchase.”
The Realtors argue that Prop. 5 will induce more senior homeowners to sell their homes and buy new ones. Obviously that’s good for their commissions. But beyond allowing older homeowners to perhaps move closer to their children, the Realtors argue it would bring a flood of new homes to the market perfect for younger households starting their families.
Prop. 5 is opposed by local governments and public employee unions such as teachers and firefighters, who say the initiative is a costly giveaway to wealthy homeowners and the real estate industry. There are plenty of property tax protections already in place for senior homeowners who truly want to downsize. Because of a similar proposition passed decades ago, homeowners age 55 and up can buy a new home of equal or lesser value to their current property anywhere in their own county and retain their Prop. 13 property tax savings. Prop. 5 would allow senior homeowners to buy more expensive homes anywhere in California and still get a large tax break.
“What the real estate industry is really trying to do with this measure is turn the market and drive up prices so their end profit is really to their benefit,” said Dorothy Johnson, an advocate for the California State Association of Counties, which oppose the measure.
The Realtors could not have been pleased with the analysis Prop. 5 received from the Legislative Analyst’s Office, which voters will see included in their sample ballots this fall. It concludes that Prop. 5 would eventually costs local governments and schools $2 billion a year in revenue, and that the vast majority of Baby Boomers who would benefit from the initiative were likely going to move anyway. In other words, the initiative was not likely to induce a lot of people to move or result in lower home prices.
That’s partly why the Realtors have pursued a somewhat odd political strategy—while pushing for Prop. 5’s passage this fall, they’re already planning to put a very similar initiative on the ballot in 2020. That initiative would provide the same property tax breaks for older homeowners, but would also close some Prop. 13 loopholes to lessen the cost on local governments.
The Proposition 13 Tax Transfer Initiative will be on the ballot in November. If passed, it will give those 55 and older the ability to take their old property-tax basis with them, no matter (a) the new home’s market value; (b) the new home’s location in the state; or (c) the buyer’s number of moves. But the tax basis will be subject to a re-calculation, depending if the new home is more or less expensive.
The California Association of Realtors is also pursuing a legislative alternative that will eliminate intergenerational transfers of primary residences and other inherited property being used for income-producing purposes without reassessment.
The kids and grandkids have enjoyed taking over their elders’ homes – and their typically ultra-low tax basis that transferred. The state legislature could change that in August, which would bring in additional revenue to compensate for those seniors taking their old tax basis with them.
Hat tip to W.C.Varones for sending in this article. I read it, and all of the supporting documentation, but didn’t find any surveys or data to back up the president’s claim below that well over 1 million additional properties will change hands – he just made that up.
If you can afford the cost and hassle of moving up, the increase in property taxes isn’t going to be what stops you. If we’re going to change Prop 13, let’s do it based on surveys and valid research, not some cheerleader popping off:
Local Realtors President Bob Kevane, who unveiled the Proposition 13 change, said he has been touting the idea for a decade and believes it is needed more than ever because of low inventories.
“I think the majority of California property owners who have owned their homes for five or six years are not moving because of Proposition 13,” he said. “It’s basically locking them into their current residence and not providing the normal move-up markets we’ve had in the past.”
In the first two or three years after changing Proposition 13, he said, “You would see well over 1 million additional properties change hands.”
Under Kevane’s proposal, buyers would carry over their own tax basis plus what’s owed on the difference between the sales prices on the old and new properties. (If the new value is less than the old value, the old tax bill would apply.)
Kevane offered this example for a move-up buyer:
Home 1: Purchased for $300,000 in 2000. The original tax bill of $3,000 has now risen to $4,000 because of the annual assessment adjustments plus any permanent improvements. It sells for $500,000.
Home 2: Purchased for $600,000. Current law would set the tax price at $6,000. But Kevane’s proposal would reduce it to $5,000 — $4,000 carried over from the Home 1 bill plus $1,000 covering the tax difference between the two home prices.
The break is similar to a senior discount enacted in two Proposition 13 amendments. But under those provisions, owners aged 55 or older can keep their old tax base only if their replacement home price is no more than their sold property’s price. That senior discount can be invoked only once for a couple or individual.
In effect, Kevane’s proposal would make the senior discount available to all sellers every two years without age, income or price restriction. Older owners would also benefit because they no longer would be limited to invoking the tax discount once and children who inherit their parents’ homes could continue enjoying the lower tax base if they choose to move.
“How it’s going to benefit lower-income people is it’s going to free up all the houses that have not been on the market for years,” Kevane said.
Kevane said the state association is expected to announce the ballot campaign by Aug. 22, the deadline set to launch statewide citizen initiatives. But he also said he will speak with state Sen. Toni Atkins, D-San Diego, and other legislative leaders to see if they will put on the measure on the ballot directly.
Daytrip sent in this article (link below) on baby boomer sales, and how the transfer of homes from parents to children are likely to dampen the supply of homes for sale – and somewhat limit the property-tax receipts:
They do expect more boomer sales – it looks like a growing trend as more boomers get into their mid-70s:
Home Sales Likely to Pick Up as Homeowners Get Older. Although the aging of California’s homeowners has depressed home sales in past years, this pattern is likely to reverse in the future.
As California’s homeowners continue to age—transitioning from the 55 to 75 age group to the over 75 age group—more and more will begin to downsize, move into assisted living or with family, or die. When this occurs, home sales are likely to rise.
Between 2003 and 2013, over two-thirds of homes in California with owners 75 or older were sold to a new owner, compared to less than one-third of homes with owners ages 55 to 75.
Different Rules Apply to Homes Passed From Parents to Children. In general, when a home is transferred to a new owner, its taxable value is reset to its purchase price.
California voters, however, passed Proposition 58 in 1986, which amended the California Constitution to exempt transfers between parents and children (and later grandparents and grandchildren under certain circumstances under Proposition 193 ) from revaluation. This allows a child to inherit their parent’s lower taxable property value.
The report shows the parent-to-child transfers to be around 10% over the total homes sales over the last decade, but it should be going higher, especially in the higher-cost coastal counties!
Parent-to-Child Exclusions Have Had a Notable Impact on Revenues. Over the past decade, around 10 percent of property transfers have taken advantage of the parent-to-child exclusion to prevent an increase in property tax payments. Figure 6 shows how many of these exclusions have been used each year during the past decade.
San Diego County is the second most populated county in the state, so no surprise we’re #2 on list at $133,000,000 in estimated reduced taxes. Those are a substantial number of homes being transferred within the family!
If the average tax savings was $10,000 per house sold, it would mean 13,300 homes transferred from parent to child – and this is from 2014-2015. We had 35,382 homes sold on the MLS in the same period. Add the FSBOs and new-home sales and we might have had 40,000 to 45,000 total homes transferred in fiscal 2014-2015.
The parent-to-child transfers could be as many as 25% of the homes moved! (40,000+13,300 = 53,300. 13,300/53,300 = 25%)
Their $133,000,000 estimate could be a tad off, but we probably have 10% to 20% of the potential supply of homes for sale being transferred within the family. No wonder the public supply is so limited.
It is a trend that probably started to increase in 2013 as prices took off. Parents realized that with the low tax basis, a child would be better off moving into the family homestead, rather than buying a resale home and paying full boat on the property taxes!
In spite of healthy property-tax increases on every property sold these days, the attack on Prop 13 continues. If we have such a problem with affordable housing, can we re-purpose or sell old government properties and use them instead? H/T daytrip:
A state policy expert offered an unexpected solution to California’s housing affordability crisis: Amend Prop. 13.
Chris Hoene, executive director of the California Budget and Policy Center in Sacramento, said at a California Association of Realtors conference in Los Angeles Tuesday that local governments need to boost local property taxes to gain flexibility to address housing costs in their areas.
Because of Prop. 13, the voter-backed measure that limits tax hikes on properties until they’re sold, local governments have to raise money from development fees, which discourages homebuilding, Hoene said.
Prop. 13 also limits the local government’s ability to finance affordable housing projects while discouraging existing homeowners from making improvements such as building more units on their properties, he said.
Without saying specifically how to change the property tax measure, Hoene nonetheless said it needs to be addressed to increase local revenue.
“The obvious place to do something is on the property tax,” Hoene said. “ … It doesn’t mean that Prop. 13 isn’t the third rail of politics. It still can be the third rail of politics. But it doesn’t make sense for people to scream and yell about an affordability crisis and not take on the single biggest financing mechanism problem in the state.”
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