Proposition 15 supporters and opponents agree on one thing: The commercial property tax measure on the Nov. 3 ballot would upend the California real estate industry.
The two sides have spent millions of dollars to campaign for their cause.
Here is everything you need to know about the initiative, called the California Schools and Local Community Funding Act of 2020:
Proposition 15 is a well-funded attempt to change the third rail in California politics — property tax freezes accomplished by 1978’s Prop 13.
Under Prop 13, properties are taxed at 1 percent of their assessed value when purchased. So, an office building valued at $1 million when bought in 1980 is still assessed at $1 million today if it hasn’t changed hands since.
Prop 15 keeps those rules in place for residential properties including single-family homes and multifamily buildings. It also does not touch agricultural property and exempts commercial real estate valued at less than $3 million.
What’s left? Commercial real estate valued at more than $3 million. That would be assessed and taxed based on its present-day value. The aforementioned office building could have an assessed value today of $50 million, leading to an exponential tax increase.
Read more about Prop 15
Prop 15 would generate $12 billion in additional annual revenue, according to a USC study cited in the ballot initiative. The money — and here is where the ballot measure’s name comes in — would mainly go to county education systems.
Before exploring how furious the real estate industry is (“We are all against Prop 15,” said Gary Weiss, a commercial broker at LA Realty Partners), let’s deal with something wonky. This sea change in tax law would require county assessors to visit commercial properties and determine their current market value.
How would such an enormous undertaking work? The measure’s language speaks of a “task force” the state will create, and that Prop 15 will be gradually phased in starting in 2022.
The skimpy implementation language may be because observers view approval as a long shot, even with Gov. Gavin Newsom’s endorsement “It’s dead on arrival,” Sussman said. “For a lot of people, they’re going to see ‘increase in taxes’ and vote ‘no’ even if the tax increase doesn’t affect them.”
Just in case, the real estate industry is spending $34.5 million to oppose the bill, according to the California secretary of state. About $25 million of that comes from the California Business Roundtable, a political action committee funded by a who’s who of real estate giants.
Blackstone Group gave $7 million to the Business Roundtable, according to state records. Los Angeles developer G.H. Palmer & Associates — Geoff Palmer’s firm — gave more than $2 million, retail investor Macerich gave $1 million, and Douglas Emmett forked over $750,000.
Other contributors of note: New York’s Shorenstein Company ($500,000), and L.A. developers Kilroy Realty ($500,000) and Kennedy Wilson ($250,000).
Companies reached for comment referred questions to the Business Roundtable. The group has argued that the tax hikes will be passed on to consumers and tenants, many of whom are already squabbling over rent payments.
Prop 15 supporters have spent even more: $40.8 million so far. The biggest contributor is the California Teachers Association PAC, which has spent $12.4 million, while Service Employees International Union groups also brought in millions. The unions’ interests are clear, as the new tax revenue is earmarked to pay public education workers.
Organized labor points out that California has one of the lowest commercial property tax rates in the country, while schools have the highest teacher-student ratio in the U.S.
A group started by Facebook CEO Mark Zuckerberg and his wife, Priscilla Chan, has raised an additional $10.9 million in support. Zuckerberg, a funder of education initiatives, stands alone among California business executives financially backing Prop 15.