State Issues

What if your property and giant buildings didn’t have same tax rules?

Kaiser bought a six-story, 210,000-square-foot building across on Fifth Street in Sacramento in 2014. The multi-million-dollar transaction would result in higher taxes if commercial properties and residential properties were listed on separate tax rolls.
Kaiser bought a six-story, 210,000-square-foot building across on Fifth Street in Sacramento in 2014. The multi-million-dollar transaction would result in higher taxes if commercial properties and residential properties were listed on separate tax rolls. The Sacramento Bee

The stage is seemingly set for a very expensive political battle in 2020 over changing Proposition 13, the iconic property tax limit that California voters enacted 40 years ago.

A coalition of civic and stakeholder groups, led by the League of Women Voters and calling itself “Schools and Communities First,” has qualified an initiative ballot measure to remove Proposition 13’s assessment limits from commercial properties – including office buildings, factories, shopping centers and warehouses – thus raising their owners’ taxes by as much as $11 billion a year.

The additional revenue from a “split roll” would be divvied up among K-12 schools, community colleges, cities, counties and other units of local government.

Conventional political wisdom assumes proponents will raise millions of dollars to help pass the measure, most likely from unions representing teachers and other public employees.

In response, commercial real estate owners will at least match – and likely surpass – the proponents with many millions of campaign dollars. Both will inundate voters with a flood of propaganda via television, Internet and mailboxes.

Advocates will tell voters that commercial real estate enjoys an unconscionable “loophole” and more revenue is needed for financially strapped schools and vital local services.

Opponents will counter that it’s an initial step toward repealing Proposition 13 and raising property taxes on homes, apartment houses and farms, and that new revenues would be consumed by rapidly increasing public employee pension costs.

While that scenario is certainly a strong possibility, it’s not inevitable because of a new wrinkle in the politics of ballot measures – the ability of their proponents to remove them from the ballot even after they’ve qualified.

It gives proponents leverage to seek deals from legislators and governors to forestall expensive ballot battles. We saw it this year when a measure dealing with privacy was pulled after its proponent agreed on a legislative compromise.

Lenny Goldberg, who has spearheaded the decades-long effort to change Proposition 13, told a gathering of early childhood education advocates in Sacramento that he would welcome a tax reform deal with business interests to supersede the measure. That’s not surprising, given the general popularity of Proposition 13, relatively mild initial support in polls for a split roll and the likelihood of a well-financed opposition.

While Goldberg didn’t specify what a deal might contain, he dropped hints that it could include confining the split roll to just big properties such as high-rise office buildings, high-tech campuses, shopping centers and factories.

The most valuable properties, he said, are a small percentage of commercial parcels, but would generate the vast majority of projected revenues. He also mentioned that were California to conform to corporate tax provisions of the recent federal tax overhaul, the state could gain several billion dollars – hinting that non-conformity could be a deal sweetener for corporate interests.

Any agreement to replace the split roll initiative would require the blessing of the Democrat-dominated Legislature and next governor, so there’s the possibility it could be folded into a larger tax overhaul.

Newsom has expressed hopes of spending billions more on education and health care and mentioned a split roll as one potential source of revenue. There’s also been a big push in the Legislature to overhaul the sales tax and extend it to the fast-growing service sector.

The split roll measure’s date with voters is two years away, which leaves plenty of time to do a tax deal of some kind. Stay tuned.

Dan Walters writes for CalMatters is a public-interest journalism venture. For more stories go to calmatters.org/commentary.

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