Frustrated by years of rising property taxes, Californians backed a "tax revolt" and approved Proposition 13 in 1978.

The initiative put a strict cap on what owners pay. Government funding took an immediate hit.

In the decades since, revenues have improved, but never fully recovered.

Now, reformers are pushing a ballot measure to raise taxes on commercial properties. Should Proposition 15 pass, local governments are expected to collect more than ever.

Dummy last slide.

How Prop. 15 would roll back California’s landmark tax rule and raise billions

One of the most consequential choices on the ballot is Proposition 15. If it passes, the measure will change how California properties are taxed by rewriting a decades-old rule that reshaped how local governments raise funds.

To understand the decision facing voters this year, it helps to go back to 1978. Real estate values were rising, along with property tax bills. Voters were asked if they would like to cap how much owners pay.

The question came in the form of a ballot measure called Proposition 13.

Championed by Republican businessman Howard Jarvis, it proposed a radical change: The tax would be fixed to the purchase price, and wouldn't change over time if a property’s value increased. Proposition 13 passed with 65% support, and property tax bills statewide were detached from the market.

Howard Jarvis signals victory for Proposition 13 as he casts his ballot in Los Angeles on June 6, 1978.
Howard Jarvis signals victory for Proposition 13 as he casts his ballot in Los Angeles on June 6, 1978. (Los Angeles Times)

Unlike income taxes collected by the state, property taxes are levied by county governments. The funds are then routed to cities, school districts and other operations. When Proposition 13 passed, county coffers took an immediate hit. Property tax collections dropped 60% in 1979, according to the state’s Legislative Analyst’s Office.

The state has added nearly 17 million new residents since then, and new housing has provided more revenue. But, after adjusting for population, property tax revenues are still lower than when the measure passed.

What Prop. 15 aims to change

Under Proposition 15, residential homeowners would continue to enjoy the same benefits. Commercial entities — malls, restaurants, theme parks and other businesses — would see their tax bills increased to match the current market value of the structures and land.

Should the measure pass, the state is in line for a big boost to county revenues, which totaled just over $75 billion in the most recent year, according to the state Board of Equalization.

A study by the Legislative Analyst's Office said the state would increase its revenues by $6.5 billion to $11.5 billion annually beginning in 2025. Another study by the USC Equity Research Institute found the windfall could end up being even larger.

Centers of commercial activity would be the top beneficiaries of such a system, dubbed a "split roll" due to the different way residential and commercial properties would be taxed. Los Angeles County would see some of the highest gains, with the USC study estimating $3.4 billion dollars in added revenue. Santa Clara and Orange counties are expected to gain roughly $1 billion each.

Older properties that haven't been assessed since Proposition 13 passed would take some of the biggest hits. Areas where they are concentrated stand to gain the most. For example, 9% of commercial properties in San Mateo County were last assessed in the 1970s, according to data from Jennifer Ito, one of the authors of the USC study. Statewide that figure is about 5%.

The ultimate impact of Proposition 15 is unclear because it is unknown how often exemptions included in the measure to preserve current property tax bills would be claimed. Business owners holding less than $3 million in land and property could continue to operate under the rules of Proposition 13.

Brian Donnelly, director of major appraisals at the Los Angeles County assessor's office said since that information is not collected now, officials would have to coordinate new data-gathering efforts to know the total holdings of an entity.

Why focus on commercial properties? Supporters of Proposition 15 say that businesses have had their property taxes capped for too long and are not paying their fair share.

Data from the Los Angeles County assessor, the public official in charge of deciding property taxes for a quarter of the state's residents, show a widening gap between commercial and residential taxes.

The money behind the measure

Proponents named their measure "The California Schools and Local Communities Funding Act of 2020" in a bid to put public education at the center of the campaign. In recent years, 54% of property tax revenues have gone to school districts, according to the Board of Equalization.

The California Teachers Assn., which represents teachers unions and other education workers, has contributed nearly $18 million in support. The Service Employees International Union has kicked in $15.7 million. The charitable foundation of Facebook founder Mark Zuckerberg and his wife Priscilla Chan has donated an additional $12.7 million.

Opponents of the measure say that the increased taxes of Proposition 15 will be passed on to consumers and lead to rising costs. The no campaign's top funder is the California Business Roundtable, which represents companies throughout the state. The organization has provided more than $31 million to urge voters to reject the most significant threat to Proposition 13 since its passage.