Property Tax Revenue
Propositions 15 and 19 propose changes to Proposition 13 of 1978 that would substantially increase local property tax revenues, but they address different aspects of property tax laws and are technically complex. When it comes to politics, Prop. 15 is a more controversial measure with over $100 million anticipated to be spent in television advertising and direct mailers by supporters and opponents. Prop. 19, however, is less controversial and reflects a compromise placed by the Legislature on the ballot with bipartisan votes.
Brief Summary: Prop. 15, The California Schools and Local Communities Funding Act of 2020, would require periodic property tax reassessments on commercial and industrial properties of more than $3 million in value. Single-family and rental housing, as well as real property used for commercial agricultural production and commodities, are exempt. The measure also exempts small businesses, as defined, from property taxation on personal property and provides a $500,000 exemption to all other business for their equipment and fixtures. The proceeds of the additional property tax revenues derived from this measure, estimated by the Legislative Analyst’s Office to range between $6.5 to $11.5 billion annually, are allocated, consistent with existing property tax allocations, to schools, cities, counties and special districts.
The Politics: This is a long-anticipated political battle over a proposed property tax “split roll,” which would tax large commercial businesses based on current market values while preserving Prop. 13’s protections for residential property, small business and agricultural lands. Should it be approved, local agencies would receive the largest ongoing revenue boost in memory. Major supporters include public employee unions, local officials and the Governor; opponents are large business groups and anti-tax organizations.
Implementation: Assessments would begin commencing with the FY 2022-23 lien date. The Legislature is required to adopt, by statute, a phase-in over two more lien dates and fiscal years to implement this requirement. Implementation legislation will also address other aspects of this measure, including the details of an appeals process, the application of this measure to mixed use properties and treatment of properties more than 50 percent occupied by small businesses.
Brief Summary: Prop. 19, the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfires and Natural Disasters Act, would make the following changes associated with selling and inheriting homes and family farms: (i) allows homeowners over 55 years old, victims of wildfires and natural disasters, and the severely disabled to transfer all, or a portion, of their home’s taxable value to a another residence anywhere in the state; (ii) removes an existing property tax exemption for inherited property valued at less than $1 million by children and grandchildren and requires children and grandchildren who inherit a home or family farm to live on the property and claim the homeowner’s tax exemption to avoid a property tax reassessment of the property; and (iii) provides more limited tax benefits for properties assessed at over $1 million above its taxable value. The Legislative Analyst estimates local governments and schools would benefit by several hundred million dollars per year.
Revenue for fire protection and to offset negative fiscal impacts to individual local governments is also provided. Prop. 19 requires state officials to calculate the revenue benefit to the state’s General Fund and then allocate it as follows:
- 75 percent for fire protection. Of this amount, 20 percent shall be allocated to the Department of Forestry and Fire Protection, with the remaining 80 percent to local fire districts. These funds are required to be appropriated annually by the Legislature to expand fire suppression staffing and to supplement, not supplant, existing state or local funds used for those purposes.
- 15 percent into the County Revenue Protection Fund, a special fund created to offset negative fiscal impacts experienced by cities, counties and other local agencies.
The Politics: Prop. 19 was placed on the ballot by the Legislature with the passage of ACA 11 (Mullin). It represents the latest effort led by the California Association of Realtors to address what they consider a disincentive in the law that limits the interest or ability of longtime homeowners to move from their homes. The Association’s previous proposal was Prop. 5, an initiative on the November 2018 ballot. Prop. 5 was opposed by the California Professional Firefighters and other groups based on concerns of property tax losses, with a disproportionately negative impact on fire districts and rural areas, and failed with 60 percent of voters opposing the measure. The Realtors drafted another proposed initiative but abandoned that effort in exchange for the Legislature’s approval of ACA 11, which also addressed inheritance issues to enhance revenues and provide fire protection funding.
Implementation: Provisions affecting home transfers would take effect on and after April 1, 2021, and provisions relating to inherited properties would apply to transfers on or after February 16, 2021. Implementation legislation is expected in 2021 to commence allocating revenue for fire protection and offset negative local fiscal impacts.