Proposed Prop 13 Reforms in California
Since February 2015, California state legislators have proposed several bills to modify the limitations on property tax increases established by Proposition 13 (Prop. 13). These bills include Senate Constitutional Amendment 5 (SCA-5) by State Senators Holly Mitchell (D-Los Angeles) and Loni Hancock (D-Berkeley), Assembly Bill 1040 (AB 1040) by State Assemblyman Phil Ting (D-San Francisco), and Senate Bill 259 (SB 259) by State Senator Patricia Bates (R-Laguna Niguel).
Commercial and industrial properties will be most affected by an annual reassessment but less affected by proposed redefinitions of “change in ownership”
Currently, property taxes are reassessed only when the property changes ownership, defined as a single purchaser buying more than 50 percent of a property. Of the three bills, two would redefine “change in ownership” and the third would calculate business and industrial property tax differently than residential and agricultural property tax.
SB 259 would redefine “change in ownership” as at least a 90 percent transfer of ownership interests. AB 1040 also aims to redefine “change in ownership” and seeks input from business and labor groups to come up with a new definition.
In contrast, SCA-5 is a “split roll” tax proposal that seeks to reassess business and industrial properties annually and implement taxation at full market value. Residential and agricultural property taxes would still only be reassessed if there is a “change in ownership.” Also included in SCA-5 is a three-year phase-in period for all business and commercial properties and tax exemptions for small businesses on the first $500,000 spent on equipment and fixtures. It is estimated that SCA-5 will net the State an additional $9 billion a year in increased property taxes. Obviously, the implications for commercial property owners and users are significant.
Opponents of the bill argue that it would kill jobs by adversely impacting tens of thousands of property owners and, by extension, the millions of Californians they employ.
Reform is more likely to come in the form of a ballot measure
Any bill to modify Prop.13 needs to pass by a two-thirds vote in the state Legislature or collect 585,407 signatures to appear as a measure on the November 2016 ballot.
There is a slim chance of any bill gaining the necessary two-thirds vote in the state Legislature but it may be possible to collect enough signatures to get it on the November 2016 ballot because of the low signature threshold. The signature-gathering threshold to get a measure on the November 2016 ballot is at a 30-year low because of poor voter turnout in 2012. All in all, it remains to be seen what the future holds for Proposition 13, but change is likely on the horizon in one form or another.
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