Backers of Effort to Strip Tax Protections for California’s Commercial Property Owners Pull Measure From 2020 Ballot, Draft New Version

Critics of Proposition 13, California's landmark property tax-limiting measure, have long sought to remove commercial property owners from the law's long list of beneficiaries.

A measure that would do just that already qualified for the November 2020 ballot. But now, its backers say they're planning to replace it in favor of a new version, once the new version clears all hurdles for qualification.

Tyler Law, spokesman for the ballot measure, said the new proposition will address some of the concerns raised about the previous version.

In a statement, Law said supporters are re-filing the initiative and essentially starting from scratch to "substantively strengthen the measure, including expansive new small business tax relief, and widen the path to victory in November 2020."

The revised version also pushes back implementation of the proposed changes by two years — to 2023 — giving local assessors and commercial property owners more time to prepare.

In 1978, in a so-called "taxpayer revolt," California voters overwhelmingly approved Proposition 13, essentially freezing property tax rates and upending the ability of local governments to fund K-12 schools. Until then, county assessors could reassess the value of residential and commercial properties as needed to raise additional tax revenue.

Proposition 13 was largely sold to voters as a way stem the increase in residential property taxes in order to prevent seniors and other residents on fixed incomes from losing their homes. But it locked in commercial property tax rates as well — a provision some consider a major loophole that has allowed corporations to escape property reassessments for decades and helped to keep their tax burdens far below what market value would dictate.

The group opposing the change, called Californians to Stop Higher Property Taxes, says that now is not the time to create a "split roll," arguing that it would only increase the already-high tax burden in California at a time when the state has a massive revenue surplus.

In a statement, Rob Lapsley, president of the California Business Roundtable and co-chair of the group opposing the reform measure, called the effort "fatally flawed," adding that "there are no tweaks or amendments that can be made to this 'split roll' measure that will prevent it from being a major, multibillion dollar tax on all Californians."

But backers of the so-called "split roll" argue that removing commercial property from such tax protections would block corporations from continuing to shield their investments from legitimate tax increases, and force them to begin paying their fair share to help fund schools and other services provided by local governments.

With financial backing from some of California's largest public employee unions, a coalition of tax reform groups successfully collected signatures for what they called "The California Schools and Local Communities Funding Act of 2018." With the proposed changes, the coalition now has to restart that expensive signature-gathering process in time to qualify for next year's ballot.

Both sides are now gearing up for a very expensive, high-profile fight over the most significant revision of Proposition 13 since it passed more than 40 years ago.

A poll last year from the Public Policy Institute of California found that 65% of likely voters thought Proposition 13 had turned out to be "mostly a good thing" for California. But various polls in recent years suggest voters may be receptive to removing commercial property from the measure's protections, although they are in no way yet sold on that idea.

A 2018 report from the nonpartisan Legislative Analyst's Office on the coalition's original ballot measure — the one now being pulled — found that basing commercial and industrial property taxes on market value rather than purchase price "would increase annual property taxes paid for these properties by $7 to $11 billion in most years."