Supporters of California Proposition 15 say the initiative will generate millions for schools and local government, but opponents fear it would be catastrophic for business owners.
Prop. 15, also known as the Tax on Commercial and Industrial Properties for Educational and Local Government Funding Initiative, asks voters to approve an amendment to the Constitution requiring commercial and industrial businesses to be taxed at market value rather than at purchase price. The market value of properties will be reassessed every three years beginning in fiscal year 2022-2023.
The tax increases that will result from Prop. 15 will generate an estimated $77 million for San Jose and close to $265 million for Santa Clara County. Forty percent of Prop. 15 revenue will be funneled to K-12 schools and community colleges. Local governments will receive the remaining 60 percent.
Ninety-two percent of the new tax revenue would come from 10 percent of the largest commercial and industrial property owners, according to a Yes on 15 policy report.
“Over the last 40 years our funding for cities, counties and schools has been falling behind,” said Jessica Vollmer, organizing director for Working Partnerships USA. “Now we’re really looking at budgets that have been decimated.”
Vollmer said the measure will generate about $12 billion annually statewide for schools and local communities.
The state will create an education fund to house Prop. 15 dollars and will distribute the money to local school districts who will then determine where to best spend it.
The Yes on 15 campaign uses Walt Disney Studios as an example for how the initiative could level the playing field and restore money to local communities. The Walt Disney property in Burbank spans 43 acres that was assessed in 1975. Disney pays $5 per square foot while Burbank Studios pays $180. If the studios were reassessed and taxed at current market value, they would be competing on the same plane and paying $3.5 million more in taxes each year.
“For the past over four decades we have seen owners of large commercial properties that have used a loophole that exists in the way that we pay property taxes to avoid paying their fair share towards that revenue,” Vollmer said.
Proponents said small businesses would remain largely unaffected by the tax increases and that mainly the large players would be redistributing their wealth.
Businesses that have $3 million in holdings or less would be exempt from being taxed at market value and their personal tangible property also would be spared from additional tax.
The same applies to business owners if they own their property and have less than 50 employees. The measure would also provide a $500,000 tax exemption on businesses’ personal tangible property. Businesses dedicated to commercial agriculture will also be free from tax hikes.
John Kabeteck, CA State Director of the National Federation of Independent Business, said Prop. 15 advocates are ignoring how the financial burden of increasing taxes on large businesses trickles down to small shops.
According to Kabeteck, many businesses who rent property rather than purchase it enter a triple net lease, which states the renter is responsible for property taxes, insurance and maintenance — not the property owner.
“Proponents of Prop. 15 will make it sound like only the big guys — the big property owners — are going to take the biggest hit, when in fact, those costs will be passed along by those big property owners to the people who lease their property, and those are small businesses,” Kabeteck said. “We believe it’s a complete farce to try and fool the voting public that small businesses are going to be scot-free and profit by Prop. 15 when in fact they will be absolutely hit the hardest.”
Scott Knies, executive director of the San Jose Downtown Association, said this is a very tough time for members. Business values are going to be affected if businesses aren’t allowed to open, which in turn could take a toll on property values and make people vulnerable to the effects of Prop. 15, he said.
“I understand this goes all the way back to Prop. 13 and 1978 when there was the taxpayer revolt, but, it really is a pre-COVID thinking proposition, and it needs to be shelved right now,” Knies said.
Under Proposition 13 in 1978, properties are reassessed when they are sold. It is common with homes but less common with businesses, according to Working Partnerships’ Strategic Advisor Bob Brownstein. Because of this structure and the tendency for businesses to stay with the same owner, Brownstein said the property tax burden has shifted from businesses to homeowners.
“So in a county where residential property was paying about 50 percent of the total property tax bill in 1979, and businesses were paying 50 percent, now it might be residential properties paying 70 percent,” Brownstein said. “And businesses are paying 30 percent because the businesses have not changed hands and so they have not been reassessed. That is being rectified by Proposition 15.”
Michael Bustamante, spokesperson for the No on Prop. 15 campaign, said his group is concerned about what the initiative will do to the agriculture industry.
According to Vollmer, Prop. 15 will not tax land designated for commercial agriculture and will provide a $500,000 tax exemption for equipment such as tractors, irrigation, office supplies and tools.
“So while proponents will argue that the land isn’t taxed, the irrigation systems, the barns and everything else will be, which, by the way, increases their costs and then downstream will increase cost to consumers,” Bustamante said.
The Yes on 15 campaign is funded by the California Teachers Association and has the support of the San Jose Teachers Association, the League of Women Voters, healthcare professionals and other labor organizations.
Opponents to Prop. 15 include California Farm Bureau Federation, California Hispanic Chambers of Commerce, California Small Business Association and other business groups.
Contact Carly Wipf at [email protected] or follow @CarlyChristineW on Twitter.
Editor’s Note: Derecka Mehrens, executive director of Working Partnerships USA, serves on San José Spotlight’s Board of Directors.