Proposition 15 — And Commercial Property Taxes — Explained (Transcript)

A strip mall in Antioch with an AMC theater and Taco Bell. If Proposition 15 passes, commercial properties like this one would be taxed at market value. (Deborah Svoboda/KQED)

If reading through the statewide ballot propositions has made your head spin, you are in the right place! From Oct. 1 - 16, Bay Curious is exploring the 12 statewide ballot propositions in our Prop Fest series. This episode tackles Prop 15, which would change how the state assesses taxes on commercial and industrial property.

Transcript

Olivia Allen-Price [00:00:00] Happy Friday, everyone, and welcome to day two of Bay Curious Prop Fest. We're going through the 12 statewide propositions on the ballot this year. That's one prop per episode. I'm Olivia Allen-Price. Let's get to it.

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Olivia Allen-Price [00:00:14] Today, we'll take on the contentious Proposition 15, which would raise the property tax assessments on many commercial properties around the state. Local governments and school boards love this one – they see dollar signs. But businesses? Not so keen.

Olivia Allen-Price [00:00:32] Here's the title of the prop as you'll see it on your ballot:.

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Voice 1 [00:00:35] Proposition 15 increases funding for public schools, community colleges and local government services by changing tax assessment of commercial and industrial property.

Olivia Allen-Price [00:00:44] Billions of dollars are on the line with this one. We'll get into who would pay and where that money goes today on the show. It's Proposition 15: commercial property tax.

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Olivia Allen-Price [00:00:59] Before we can unpack Proposition 15, we first need to understand how commercial and industrial property tax in California works now. And to do that, we have to venture back forty two years.

Scott Shafer [00:01:15] Yeah, well, you have to go back to like nineteen seventy seven, seventy eight, Olivia.

Olivia Allen-Price [00:01:20] This is KQED politics and government editor Scott Shafer.

Scott Shafer [00:01:23] Back then, Jimmy Carter was president. Jerry Brown was governor the first time, and the inflation rate was high, like really high.

Archive Audio Clip [00:01:31] Inflation's hit the standard of living particularly hard here. And soaring property taxes have been a major factor.

Scott Shafer [00:01:39] And at that time, property taxes were based on the value of your house. And so people who were having, you know, living on fixed incomes, like senior citizens, were having a hard time paying their property taxes – and some of them were actually losing their homes. And so this created a movement.

Archive Audio Clip 2 [00:01:58] I am forming the American tax reduction movement where the United States.

Scott Shafer [00:02:05] I don't know if you ever saw the movie "Network" with Peter Finch. He plays this anchor man, Howard Beale. And the I'm sure you've seen this clip where he throws open the window of his apartment and he screams out"

"Network" movie clip
[00:02:20] I'm as mad as hell, and I'm not going to take this anymore!

Scott Shafer [00:02:20] Well, that's what was happening in California about property taxes in the late 1970s.

Olivia Allen-Price [00:02:27] Proposition 13 gets placed on the California ballot and it does a few things. It taxes properties based on their 1976 values or their purchase price if the home was bought after 1978. Then it says, "hey, homeowners, we're not going to raise your property tax assessment any more than two percent each year, even if your home appreciates by five percent year over year, we're going to pretend it was only two percent, or less, for tax purposes." And lastly, Prop 13 says property tax can be no more than one percent of a home's value.

Archive Audio Clip 3 [00:03:05] And the purpose of this amendment is to reduce the amount of money that government takes in in taxes, because we think the only way you can cut spending is to not give them the money in the first place.

Olivia Allen-Price [00:03:15] Proposition 13 is passed into law by a huge margin.

Archive Audio Clip 4 [00:03:18] Proposition 13 caused what may be a record voter turnout.

Scott Shafer [00:03:27] So, if you've owned property for, you know, since the 1970s, your property tax bill has gone up a lot more slowly than others who bought the property since then.

Olivia Allen-Price [00:03:38] A 2009 study found that since it went into effect, Prop 13 has reduced taxes in the state by about $528 billion in aggregate. That's good news for property owners, right? But it's not good news for local governments and school districts whose budgets depend on those property taxes.

Olivia Allen-Price [00:03:59] All right, Scott, so if Prop 13 was originally written with homeowners in mind, how did all these commercial properties end up benefiting?

Scott Shafer
[00:04:07] Since 1850, all property in California was taxed the same way, whether it was residential property or commercial property or agriculture property. Prop 13, it didn't change. It didn't divide up different kinds of property. It just changed the way they were taxed.

Olivia Allen-Price [00:04:25] OK. So we get to this point where we're at today where I know there's some pretty big, notable companies that have gotten away with paying relatively small tax bills. Tell us about them.

Scott Shafer [00:04:35] There are some companies that are particularly benefiting from that tax structure. One of them is Disneyland. It's taxes being based on 1975 property values in Anaheim. One study showed that in 2004 – so it's a little ways back, but you get the idea – Disneyland was paying five cents per square foot in taxes. Now, if the land was reassessed, they would pay a whole lot more than that to Orange County.

Scott Shafer [00:04:59] Right here in the Bay Area, Intel has a plot of land in the heart of Silicon Valley, and it has a current value of about $2.50 per square foot – that's what the property is valued at. Well, a professional office center right across the street was assessed recently at $126 per square foot. So, 50 times more – that's what they're paying property tax on while Intel is paying on just a tiny fraction of that. So, that's the inequity that some people see. And that they think Prop 15 will address.

Olivia Allen-Price [00:05:33] OK. So that's how everything is working right now. How would Prop 15, which is what we're voting on this year, change things?

Scott Shafer
[00:05:41] OK, so the phrase that's used is it would create a split role. Right now, there's one role for property taxes – commercial property and residential, all treated the same. Prop 15 would create a split role. It would split off commercial property. And instead of taxing it based on what the owners paid for it, it would be reassessed and it would be taxed based on current market value, which is going to be a lot higher, especially if that property has been owned for a long time. And so that would generate between 6.5 and 11.5 billion dollars a year that would go back to the counties. So, it would go, 60% of that would go to local governments for local services and 40% of it would go to school districts and community colleges to spend as they see fit.

Olivia Allen-Price [00:06:27] And what's the rollout timeline? Would it be like the day after the elections, suddenly, you know, everyone's tax bill goes up?

Scott Shafer [00:06:32] No, not at all. So it would begin to be phased in in 2022, because it's going to take some time for counties to kind of ramp up for this – they have to hire more assessors. They have to decide how to prioritize properties. And then it would be fully phased in by 2025.

Olivia Allen-Price [00:06:49] And so is this going to hit, you know, commercial and industrial properties uniformly, whether you're sort of a small business or someone like Intel?

Scott Shafer
[00:06:57] No, I mean, first of all, the way the law is written, if your property's worth less, $3 million or less, it's not going to be affected at all. But here's the caveat: if you own, let's say you own four pieces of property that are worth 2 million dollars each. That's 8 million dollars. And so then those properties would be reassessed and they look at what is the total holding of the person who owns it, not just any single property, but what's the total that they own. And if it's above 3 million, then it would it would, in fact, trigger a reassessment.

Olivia Allen-Price
[00:07:28] And what about agriculture?

Scott Shafer [00:07:30] Agricultural land is exempted from from this. So, just as residential property is, ag property is. But, you know, this is opposed by the Farm Bureau and it's opposed by a lot of ag groups because they feel that whole though the land itself may not be reassessed, that other things like apple trees or grapes or almond trees or, you know, improvements that they make to the property, that, that could trigger a reassessment. So, they don't quite believe that, in fact, farms and, you know, ranchers will be held harmless.

Olivia Allen-Price
[00:08:01] Scott, I know one big question that people will have is how will these changes impact homeowners?

Scott Shafer [00:08:06] Well, that's a good question. And the answer is it doesn't affect homeowners at all. Those rules for property taxes will be exactly the same as they are now. So, that won't change at all.

Olivia Allen-Price [00:08:19] All right. Let's now go to who is supporting Prop 15 and why.

Scott Shafer [00:08:23] Well, this measure was put on the ballot by unions, organized labor, in particular, the teachers union – they've put a lot of money into this. And part of the reason is that Prop 13, back in, again, 42 years ago, really reduced the amount of money that was going to schools, because property tax money goes to school districts. And, so teachers unions feel that because of, you know, large class sizes inability to hire teachers, because of the cost of living in California, that all these things mean that this infusion of money that would come from Prop 15 would really be good for, for schools.

Scott Shafer [00:09:03] You know, and it's also being endorsed by a long list of prominent Democrats, including Governor Gavin Newsom, who endorsed recently. Joe Biden. Kamala Harris. Bernie Sanders has weighed in, he supports it. A number of local mayors like London Breed and Libby Schaaf. And then there's some sort of advocacy groups like the Sierra Club and the ACLU that also endorse Prop 15.

Olivia Allen-Price [00:09:24] Who is opposing the prop so far?

Scott ShaferWell, not surprisingly, it's, it's business groups. The Chamber of Commerce, Black and Hispanic Chambers of Commerce, the Republican Party. And of course, they're saying, look, we're in the middle of a recession, it's hard enough to do business in California already with regulation and other kinds of taxes, and now you want to raise taxes on businesses at a time when so many businesses are just struggling to keep the doors open. So, you know that, that's an argument that they're making now because of the economic situation. Now, it'd be interesting to know, and we will never know, but, you know, what would their argument be if the pandemic hadn't happened and the economy was still roaring? But, you know, as it turns out, it's a pretty good argument for some voters, given that, you know, the economy is, in fact, struggling.

Olivia Allen-Price [00:10:14] Now, I don't think people will be surprised, but because there is so much money on the line here, that also means that this is shaping up to be one of the most expensive props that will be voting on this year. Tell us a little bit about the campaign finance and how that's shaking out so far.

Scott Shafer [00:10:26] Yeah, so as of late September, early October, the yes side has raised a little bit more money, 40 million, roughly 30 million for the no side. So they're pretty evenly funded. The thing is, Olivia, it's hard to break through to voters in this climate where we've got so much focus on the presidential election, the pandemic, the Supreme Court, wildfires. And so what we've seen actually in some recent polling is that there's an unusually high level of undecided voters because they, they don't know much about these ballot measures because they just don't, there's not enough time in the day, really, to learn about so many things, especially when you're, people are, you know, focused on and preoccupied with other things.

Olivia Allen-Price [00:11:05] Yeah, there's a lot to be focused on right now.

Scott Shafer [00:11:07] So much, way too much.

Olivia Allen-Price [00:11:09] Well, Scott Shafer, thank you so much for stopping by. I really just appreciate you walking us through this one.

Scott Shafer [00:11:14] Yeah. Always happy to talk to you.

Olivia Allen-Price [00:11:17] A vote yes on Proposition 15 says: Barring some exemptions, you want commercial and industrial properties taxed according to their current market value rather than their original purchase price. A no vote means things stay the same and properties should continue to be taxed based on their purchase price, with annual increases equal to the rate of inflation or 2%, whichever is lower.

Olivia Allen-Price [00:11:44] We'll be back on Monday with our episode on Proposition 16, which is about affirmative action in the state. Bay Curious Prop Fest is produced by Katrina Schwartz, Rob Speight and me, Olivia Allen-Price. With a big assist from the whole KQED newsroom. You can find more of their in-depth coverage at KQED dot org slash elections.

Voice 2 [00:12:05] Bay Curious has made it. A member supported KQED in San Francisco.

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Olivia Allen-Price [00:12:08] If you're fighting Prop Fest helpful, do us a solid and share it with a friend. Thanks so much.