In order to address our housing crisis, we must generate more local revenue. Chris Hoene, Executive Director of the California Budget and Policy Center, recently told a conference of California Realtors that Proposition 13 needs to be reformed so that local governments are able to finance affordable housing projects. To understand why local governments have such a limited ability to fund affordable housing development, let’s take a closer look at Prop 13. And what better time to do that than on the 39th anniversary of its passage.
Prop 13 is a California ballot initiative that was passed on June 6, 1978 in response to rising property taxes that came along with a real estate boom. The initiative was sold as a way to keep seniors on fixed incomes from being priced out of their homes. It froze property taxes at 1 percent of a property’s value in 1975, and only allowed property to be reassessed at market value when it was sold. To account for inflation, property taxes could be increased by a maximum of 2 percent per year.
For example: a property worth $100,000 in 1975 would have had an annual property tax bill of $1,000 and could not increase by more than $20 per year. If that same property were to be sold in 2015 for $1 million, the new owner would be paying an annual property tax bill of $10,000 and could not increase by more than $200 per year.
Based on this example, it’s easy to see why Prop 13 remains popular among homeowners, especially seniors. But what most people don’t know is that Prop 13 doesn’t apply just to homeowners, it applies to all property. Why is this significant? Because unlike homes, large commercial properties rarely (if ever) change hands. Because of this, the property tax burden in California has shifted away from corporations and onto the rest of us.
Take Disneyland for example. They are still paying property taxes based on what Disneyland was worth in 1975, just five cents per square foot. To put that in perspective, the average California homeowner pays 40 cents per square foot: That’s eight times more than Disneyland! And it’s not just Disney. When you add up all of Chevron’s gas stations, office buildings, oil fields and refineries across the state, they are raking in hundreds of millions of dollars every year in property tax breaks. Imagine if we could invest some of this money in addressing our housing crisis instead.
Because local governments can’t reassess commercial property taxes based on market values, voters are asked to pass temporary revenue measures year after year just to make ends meet. In 2016, Californians voted on 430 local revenue measures across the state. San Francisco alone had seven revenue measures on our local ballot, plus another three statewide revenue measures. The vast majority of these local revenue measures passed (83 percent), as well as all three statewide revenue measures. Californians clearly recognize that local governments are lacking desperately needed revenue, so much so that they are willing to constantly increase their own taxes. The problem is that these revenue sources are often temporary, volatile, and regressive. Sales taxes fall disproportionately on low income folks, and income taxes move in tandem with economic cycles, causing our state to face massive revenue losses and budget cuts when the stock market takes a dip. But because many large corporations have their property taxes frozen at 1975 levels, we are forced to rely more and more on these unstable revenue measures.
Other states do not assess property taxes this way. Virtually every other place in the country regularly reassesses their commercial property taxes at fair market rate. In fact, 40 out of 50 states tax commercial property at a higher rate than they tax residential. Texas not only reassesses their commercial property taxes, they have a 2.5 percent average tax rate on commercial properties. Clearly, we have it backwards here. If Prop 13 was a smart fiscal policy, then surely other states would have followed our lead on this. It’s time we address the elephant in the room and take on the “third rail” of California politics.
There is a common sense solution to this problem: Reforming the commercial side of Prop 13 while maintaining protections for homeowners and renters. Known as a “split-roll,” this reform would reassess non-residential commercial properties at their fair market value on a regular basis while keeping the same protections in place for residential properties. This reform would generate at least $9 billion per year in local revenue to California — nearly $700 million for San Francisco alone! This revenue stays local, giving local governments the ability to finance more affordable housing, just as Hoene suggested. Not to mention how much this will do for our local schools, roads, and other vital public services.
Evolve California and the Make It Fair coalition of community, faith, and labor organizations have been leading a statewide campaign to reform the commercial side of Prop 13. Right now they are working to introduce a bill in the state legislature with seven co-sponsors signed on so far. If you care about building more affordable housing, make your voice heard by signing this petition to urge Governor Brown and Democratic leadership to support this critical and overdue reform: www.evolve-ca.org/reform-prop13-petition/
As the bluest state in the entire country, we must do more to address our housing needs and prioritize people over profits. Closing the commercial property tax loophole in Prop 13 will go a long way towards achieving that goal. If we are serious about building more affordable housing, rebuilding our crumbling infrastructure, and funding our schools like a blue state, then we have to get serious about reforming Proposition 13 and making corporations pay their fair share.