The Real Deal Los Angeles

Tax changes to Prop 13 could bring California $10B a year

The ballot initiative would affect commercial property owners
By Dennis Lynch | February 22, 2018 02:10PM

Figueroa at Wilshire (Credit: Wikimedia Commons)

A proposed ballot initiative could raise up to $10 billion a year by changing the way commercial and industrial property values are assessed. About 60 percent of that money would be funneled to local governments, with the remaining 40 percent allocated for schools.

The office of state Attorney General Javier Becerra, is reviewing the amendment to Proposition 13, a statewide referendum that voters passed in 1978. The Attorney General’s Office released a summary of the measure this week.

The new measure would eliminate the existing cap on industrial and commercial property taxes statewide. That would mean those property owners would pay more each year. It would not affect the measure’s limit on residential property taxes.

If the referendum question makes it onto the ballot and a majority of voters favored it, those commercial and industrial properties would be taxed based on their fair-market value. Now, the same properties are taxed based on less than 1 percent of the last purchase price, with a maximum 2-percent annual increase.

The state found that the fair-market value assessment would bring California an estimated $6 billion to $10 billion each year, but would be heavily dependent on the strength of the real estate market in that given year. That was according to an analysis from the state’s nonpartisan Legislative Analyst’s Office.

Depending on the market, the stream of dollars flowing into the state “would be considerably more volatile than property tax revenues have been historically,” according to the analysis.

Some opponents say that property assessments are too subjective to be relied for taxation purposes, and that increased taxes would make it more difficult to do business in the state, leading to an exodus.

The proposed change would not affect the measure’s limit on residential property taxes. Proposition 13 passed in 1978, with the support of around 65 percent of voters.