The title and summary of a ballot initiative to amend California’s landmark property tax law could face a challenge from opponents.
The initiative (19-008), referred to by proponents as the California Schools and Local Communities Funding Act of 2020, would amend California’s constitution to create a split-roll property tax system, requiring commercial properties to be assessed as of fiscal 2023 based on their current market value rather than under the rules approved via 1978’s Proposition 13. That constitutional amendment requires property tax to be assessed based on a property's most recent purchase price and caps annual increases in that value at the lesser of 2 percent or the rate of inflation.
Backers want to qualify the initiative for the November 2020 election. According to Democratic Attorney General Xavier Becerra’s October 17 summary to be used for circulation of the initiative, it would increase "funding for K–12 public schools, community colleges, and local governments by requiring that commercial and industrial real property be taxed based on current market value” while providing an exemption from the new rules for “residential properties; agricultural properties; and owners of commercial and industrial properties with combined value of $3 million or less.” It would also exempt small businesses from personal property taxes and would exempt $500,000 worth of personal property for other businesses, according to the summary.
The summary "should have said this was a change to Proposition 13 . . . but it does not," Susan Shelley, vice president of communications for the Howard Jarvis Taxpayers Association — a critic of the proposal — told Tax Notes October 21. She said groups opposed to the initiative are considering a lawsuit to require revisions to the ballot summary.
The campaign behind the proposal, Schools and Communities First, praised Becerra's summary, with campaign spokesman Tyler Law saying in a statement emailed to Tax Notes that “we are very happy to have a title and summary that accurately reflects the intent of this critical initiative."
“Every day momentum is growing behind our campaign to reclaim $12 billion every year for schools and local communities by closing the property tax loopholes that have allowed corporations to avoid paying their fair share," Law said.
But opponents criticized the attorney general's wording, arguing that it plays up the increased spending proposed by the initiative rather than focusing on its changes to the state’s property tax structure. Rob Lapsley, president of the California Business Roundtable and co-chair of Californians to Stop Higher Property Taxes, the opposition campaign, said in an emailed statement that “the title and summary was written to give an unfair advantage to the employee and educational unions supporting the measure.”
The initiative is effectively an amended version of the proponents' existing ballot initiative to create a split roll for commercial properties, which qualified in 2018. Backers want to replace that measure by qualifying the new initiative, which contains updated implementation dates and clarifications regarding tax relief for small businesses, among other changes. Notably, the original measure is described in its official summary by the attorney general's office firstly as requiring “certain commercial and industrial real property to be taxed based on fair market value” and then dedicating a “portion of any increased revenue to education and local services.”
“The proponents only made minor 'window dressing' modifications to the [revised] measure, so the rewrite of the title and summary is completely unwarranted,” according to Lapsley.
Proponents of the initiative argue that Proposition 13 has allowed businesses to pay too little in property taxes, undermining school funding and harming the state's overall tax base. Critics, however, argue that higher commercial property taxes will hurt the state's business environment.
Proponents earlier this year noted that an April poll by the Public Policy Institute of California indicated that a split roll had support from 54 percent of likely voters; a September poll by the institute showed support by likely voters at 46 percent, however.
The initiative needs 997,139 signatures by mid-April 2020 to qualify. If it makes it onto the ballot, it's expected to be the subject of a fierce fight.