The California Teachers Association (CTA) and roughly 300 groups have sought for several years to raise property taxes by qualifying the “Schools and Communities First” initiative on the ballot.
Last year they were successful and this Nov. 3, voters will decide on amending a 1978 property tax protection as a constitutional amendment.
The initiative, if passed, is expected to generate an additional $12 billion in revenue, of which schools would see slightly more than $4 billion.
The California Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative will appear on the ballot in California as an initiated constitutional amendment. According to the state constitution, if a majority of voters approved an initiated constitutional amendment, the constitution may be amended.
In California, assessing taxes on commercial and industrial properties at market value, while continuing to assess taxes on residential properties based on purchase price, is referred to as a “split roll.”
Proposition 13 requires that residential, commercial and industrial properties be taxed on their purchase price, with a limit of no more than 1 percent of the purchase price at the time of purchase, with an annual adjustment equal to the rate of inflation or 2 percent, whichever is lower. Because market values in California tend to increase faster than 2 percent annually, the taxable value of commercial and industrial properties is often lower than the market value.
If passed, the amendment would require commercial and industrial properties, excluding commercial agriculture, to be taxed on their market value, not their purchase price. Tax rates would remain uniform, but commercial and industrial properties would be reassessed every three years at market value, while residential properties would continue to be reassessed only when sold.
According to the CTA, the “Schools and Communities First” Act will “level the playing field for all the businesses that already pay their fair share.”
The proposal “closes commercial property tax loopholes benefiting a fraction of corporations and wealthy investors, without affecting homeowners or renters, and reclaims $12 billion every year to fund world-class schools and strengthen local economies to lift up all Californians,” the California League of Women Voters-California, a supporter of the measure, argues.
Proponents argue the proposal protects all homeowners and renters by maintaining tax protections for all residential properties, and “ensures strict accountability so that money goes directly to our students and communities.”
“It provides the single largest tax incentive in a generation to spur new investment in small businesses,” the league says.
The ballot initiative would distribute the revenue to the state and counties, not to the General Fund; 60 percent of the funds would be distributed to local governments and special districts, while 40 percent would be distributed to school districts and community colleges through a new Local School and Community College Property Tax Fund.
Californians to Stop Higher Property Taxes argues the initiative is not about funding schools but increasing taxes to pay for the state’s “out-of-control pensions, which have already directed existing tax revenue away from classrooms and other state priorities."
Edward Ring, co-founder of the California Policy Center (CPC), argues “Prop. 13 protection constitutes one of the last, if not the last, advantage businesses have when trying to operate in California.”
The movement to increase taxes is faulty, CPC argues, and will only hurt small businesses and the average taxpayer who is already burdened enough as it is. Of the expected $12 billion to be raised by the change to the law, “100 percent will be passed on to consumers in the form of higher prices,” Ring argues in a column published by The California Globe.
“The educational policies supported by the CTA are not going to improve education,” Ring argues. “In fact, one might say it is the educational policies supported by the CTA that have grossly undermined the quality of K-12 public education in California. So we’ll give them more money with no change in these policies?”
As the initiative gained momentum last year, Tom Campbell, former state Director of Finance (2005-2006), told the Orange County Register, "From the point of view of attracting and retaining businesses and jobs, the power of Prop. 13, rather, was in allowing California to tell a business: go ahead and sink that concrete into Texas if you want, but you’re taking a big risk that Texas won’t revisit that building a few years later and double your tax assessment. With California, you’re safe. ... In repealing Proposition 13 for businesses, California will be forfeiting our best argument to attract new jobs – a long-term sacrifice that will hollow-out California’s economy, costing us far more $10 billion in a very short time."
According to a recent report, Texas has been the No. 1 destination for companies leaving California for the last 12 years.