For four decades, the most potent brand in California politics has been Proposition 13, the 1978 ballot measure that limited property tax increases and prompted a nationwide revolt against taxation.
Now, the legacy of Proposition 13 stands on the verge of one of its stiffest tests. On Monday, an initiative qualified for the November 2020 ballot that could lead to a $145-million campaign and dismantle Proposition 13’s protections for businesses.
The initiative would end the state’s restrictions on taxing commercial and industrial properties and increase tax receipts for cities, counties and school districts by an estimated $6 billion to $10 billion a year.
Veronica Carrizales, policy and campaign development director for initiative proponent California Calls, cast the measure as part of a generational struggle to support public services she said have been starved of resources since Proposition 13’s passage in 1978.
“We think California is ready and now is the time to tackle this longstanding and nonsensical inequity in our property tax system so we can put communities and schools first and not corporate greed,” Carrizales said.
By contrast, business groups and taxpayer advocates are already digging in to defend their interests from a tax increase they contend would worsen a business climate consistently ranked among the worst of any state in the country because of California’s high corporate, income and sales taxes.
“We have a clear, united statewide business and taxpayer coalition that is only going to grow in opposition to this measure for 2020,” said Rob Lapsley, president of the California Business Roundtable. “We are organized. We are ready to start building a campaign and we’re starting today.”
Proposition 13 limits property taxes for both homes and businesses to 1% of a property’s taxable value. The initiative also restricts a property’s taxable value from increasing more than 2% each year, no matter how much its value rises on the market. The longer a person or a company owns a property, the less they pay in taxes compared to its market value.
Under the proposed initiative, protections for residential properties would not change, but local governments would be able to levy taxes on commercial and industrial land based on a property’s market value, a process known as “split roll.”
As it stands, the disparities in what businesses pay in taxes are wide, depending on when they first purchased their properties. Computing giant Intel acquired its Santa Clara headquarters in the 1970s and pays taxes on its land assessed at $225,000 an acre, according to the Santa Clara County Assessor’s Office. By contrast, tech company Adobe Systems paid a reported $27 million an acre for land to expand its headquarters in nearby San Jose this year.
Activist groups have talked about charging businesses higher property taxes for years. But they’ve been cowed by intense opposition from the business community and voters’ allegiance to Proposition 13. In 2014, Gov. Jerry Brown called Proposition 13 “a sacred doctrine that should never be questioned.” Before now, no split-roll initiative had qualified for the ballot.
Jon Coupal, the head of the Howard Jarvis Taxpayers’ Assn., the anti-tax organization whose namesake founder was the author of Proposition 13, said it might seem like California’s changing demographics and political attitudes would weaken Proposition 13’s hold on the electorate.
“This is not the California of 1978,” Coupal said. “It has become more progressive.”
But Coupal and Lapsley pointed to June polling from the nonpartisan Public Policy Institute of California, which showed that 65% of likely voters believed Proposition 13 turned out to be a good thing for the state — roughly the same margin by which the initiative passed 40 years ago.
“It’s withstanding the test of time, no matter what anyone says,” Lapsley said.
Early surveys show voters might be more open to the idea of taxing businesses more on their properties.
A new USC Dornsife/Los Angeles Times poll of 980 registered voters found 46% in support of split roll, with 22% opposed and 31% undecided. The poll, conducted between Sept. 17 and Oct. 14 , has a margin of error of 4 percentage points in either direction and larger for subcategories of voters based on voting behavior, age, ethnicity, party affiliation and other demographic indicators.
The survey found especially strong backing among college-educated voters — 58% of whom were in support of the proposal — and those in the Bay Area, with 64% behind the measure.
With the measure potentially going before voters in two years, those numbers should put opponents on the defensive, said Bob Shrum, a longtime Democratic strategist who is director of the Jesse M. Unruh Institute of politics at USC.
“I think they will have to spend a very large amount of money to defeat this,” Shrum said.
Business groups plan to do just that. Lapsley said the opposition campaign is prepared to raise “at least $100 million.”
Supporters of the initiative hope to collect $45 million, Carrizales said. They are also pursuing a separate campaign to convince 1 million new or infrequent voters to go to the polls in 2020 during the next presidential campaign.
Expanding the pool of voters is a smart strategy, Shrum said.
“I think it’s one of the only ways to answer or compete with $100 million,” he said.
Both gubernatorial candidates, Democrat Gavin Newsom and Republican John Cox, have have said they would like to make big changes to the state’s tax system, which relies on income taxes paid by the wealthiest Californians and yields volatile tax receipts. Newsom has tiptoed toward embracing changes to Proposition 13, including proposals to levy higher property tax bills on businesses.
Other major changes to rules inaugurated by Proposition 13 also are on the table for 2020. Assemblyman David Chiu (D-San Francisco) wants to end the ability of heirs to inherit their parents’ low property tax bills when they inherit their homes. The California Assn. of Realtors, a powerful interest group, wants the state to place limits on — but not eliminate — that property inheritance tax break and clamp down on businesses that avoid higher property taxes when they buy commercial real estate. They would do so as part of a broader initiative that would extend other tax advantages under Proposition 13 for homeowners 55 or older.
State law allows backers of qualified initiatives to withdraw their measures in advance of a vote, something that multiple interests groups did this year after working out alternatives with the Legislature.
Sen. Bob Hertzberg (D-Van Nuys), who has been pushing for changes to California’s tax system for years, said two years gives the Legislature plenty of time to make a deal.
“This is extraordinary in the sense they’ve qualified it two years in advance,” Hertzberg said. “It gives us plenty of time to have this debate.”
For now, though, backers of the measure aren’t interested in conversations with lawmakers about pulling their initiative back.
“Now is the time for bold structural solutions, and we won’t settle for incremental or piecemeal change,” Carrizales said.